An End Of The Quarter Wrap And Predictions Thread
Readers want to hear your housing bubble predictions for the coming months and years. “It’d be neat to have an ‘end of the quarter wrap’ highlighting all of the major occurrences and stats for Q2.”
“Or a predictions thread? Check this one out from the same time last year: ‘What are your housing market predictions at the mid-year point of 2006? Call any market; local, regional or global. This thread will be forwarded through the holiday weekend.’”
Or this one from the first of this year. “How about predictions of what next year brings? 2007.”
One noted, “The predictions from the (first) link were quite interesting: On balance, the housing-price related predictions were in the ballpark and the stock market/mortgage-rate/oil predictions were wide of the mark.”
One said this, “Housing market predictions? Local market opinions have the most value IMO…”
Another looked at the timing of events. “I predict that the return to normalcy will take much longer than I would have predicted. Just like the bubble went on much longer than I would have predicted.”
“It may take another year before we get the big leg down in nominal median prices, as sellers continue to hold out and investors are no longer willing to lend people money they cannot afford. Sales volume REALLY drops (still high despite the year-on-year decline given prices), new construction starts fall below 1 million next year (an actual low number, not like what we have now), but median sales price fails to crash until a year or more from now.”
One pulled one up from last summer. “Pretty good prediction from GH last year: Comment by GH 2006-07-01 06:06:55.”
“‘Inventory will continue to rise and the buyer seller stand-off will continue while both sides dig in fro the rest of 2006. Areas which have already experienced extreme appreciation will continue to slowly deteriorate, while outlying areas will continue slow appreciation as the outer reaches of the shock waves propagate outward.’”
“‘I would not expect meaningful downward price action until the coming wave of foreclosures and much anticipated workforce reductions associated with building and real estate begin to have an impact. This will be the BIG news for 2007 thru 2011 and when the storm abates I predict the middle class will be a whole lot smaller, the poor poorer and the rich richer. Property prices may well decline below the 40 year trend line as lenders swell their inventory of foreclosed properties and are forced to begin dumping en masse.’”
One reflected, “I was wrong about the stock market I thought it would be down and we would be in a recession by now. It appears the stock market has made a soft landing? The housing market is holding up better than I thought as well. The future? Home prices down again, stock market flat and interest rates down, dollar down.”
One focused on the economic picture. “I think we’re already in a recession. There tends to be a lag time between the beginning of a recession, and the widespread acknowledgment of its existence. Don’t focus so much on the stock market, but on the retail numbers. Things aren’t looking too good out there, despite the decent job outlook.”
Another stands by this call, “”I’ll stick with my prediction from last year…YOY housing prices, nationally, will be down 10-15% by Dec 2007. There will likely be some type of (failed) bailout attempt, which will stem the foreclosures temporarily. Recession by Dec 2007. Foreclosures rise into 2008 & national prices drop an additional 10-15% by late 2008.”
“The credit markets will likely be volatile & I believe there will be periods when it looks like everything will collapse, then suddenly all will seem well as more money is injected into the system (from???). Each time the credit spigot gets turned back on, though, the loose periods will be shorter and shallower than before, IMHO. Very slowly, liquidity will dry up, but it will probably take years to totally unwind.”
“The bottom arrives no sooner than 2010-2012, with an emphasis on 2012 (or later).”
it’s goping to boom after
super bowl 06
erh 07
08 ?
‘“It may take another year before we get the big leg down in nominal median prices, as sellers continue to hold out and investors are no longer willing to lend people money they cannot afford.’
I agree that it will be a slow bleed. Folks are going to hang on and fight as hard as they can - until they concede that it is hopeless.
Here in So Cal the construction boom allowed many people to think that they could afford a home, because of the temporary wage spike. It is all gone now and there is no place to hide.
The number of homedebtors with no equity in the game is unprecedented so I think slow bleed is a mistaken assumption as far as prices go.
Next if you consider normal real estate issues during a recession on top of this and quick crashing of real selling prices is almost certain.
Overall this will go down faster than it went up.
I agree to a point, with a vast number of “must sell” sellers underwater there will be few options for renegotiating loan terms, small bailouts, etc… But give the lag between when a FB quits paying and when that home finally shows up on the market as an REO is probably a year. This is the delay and will keep the RE market from going over that big cliff until mid 2008. Then a couple of big legs down.
“the big leg down in median prices”
- at some point, prices on the lower end of the market will fall far enough to increase sales. Ironically, this will shift the mix of houses being sold, (weighting the lower end more) and the overall county-wide medians reported in the press will drop preciptiously. That should provide the coup-de-grace in terms of seller’s market psychology and accelerate the downward price trend in subsequent quarters.
Here is a sad note Oreck just got turned down for a $200 mill refi…
Those wonderful vacuum cleaners we’ve used without a problem for years, but i guess Americans really want the $39.99 china throwaway after a year special from Wally world.
http://www.reuters.com/article/bondsNews/idUSN2942946020070629
I have owned a Sanitaire for 25 years and it still works great. I seldom purchase appliances or other items which are not commercially rated, and believe this strategy has served me well over the long term. I am sure the Oreck’s are great machines too, but you are right. These days it is made in China with dirt cheap labor or nowhere at all.
Damn. I love my Oreck. It’s plain, and it has only one setting: “on”. But it’s reliable, cleans like crazy, and I can tote that thing easily. A US product, made in the US, simple construction and superior performance.
The Las Vegas hotel I work at bought Orecks when they first came out in the early ’80s. Their plastic construction was no match for the hotel maids who bashed them into walls and furniture, busting them like toys. The hotel switched to all-steel industrial model Eurekas.
What is the best reasonably priced handheld to get? We live in such a small apartment that an upright is not very important to us. As bitter renters we need a good handheld to clean some rugs and furniture. Any ideas?
This is slightly off topic, but the vacuum makes the home, eh? Orecks are great if you can get them. They are not intended for institutional use, but I’ve had one for ages and have not been able to break it like I do most things. I also got one for a lab at a college and the janitors there ended up ditching their steel one and using the Oreck instead.
In marketingspeak this use pattern all this makes them Prosumer products. That also matches the volitility. Such things only sell if the high end customer is not ready for a Dyson or similar or the low end customer might pay a little more for quality. Very sad that such affordable quality no longer draws customers. Nutty retail and marketing seems to share some of the blame for this.
My next vacuum clearer will be a Kirby. I’m tired of $300 vacuum cleaners getting sidelined by a broken plastic part because the company wanted to save a few cents by going with plastic instead of metal.
Or really off topic…
Look at Menu foods and the damage they did to pet lovers by trying to save a whole big Canadian PENNY off the cost of a can of pet food.
Our Roomba rocks, His name is Fred and he cleans his little heart out every day.
We have a Roomba, Dyson & Oreck as well as a Swivel Sweeper and a Swiffer Sweep+Vac. (a bit obsessive when it comes to floors)
Of all these, I’d recommend the Oreck for carpets and the Swiffer (must be the one with vacuum) for hard floors — though they do have those disposable pads & filters which cost extra $$.
Now, back to the housing bubble!
I’d agree with Mole Man about nutty marketing. Whilst I’d see commercial for Oreck, I never saw the products out there. Recently, I did see an Oreck store in Sugerland but I thought that was a poor sales channel. I didn’t reach the ‘browsers’ in the stores like Target or W’mart. I am not a price sensitive buyer and when I was in market a year ago, I may have bought an Oreck. I wasn’t going to go out of my way though.
To come back to the loan. Anybody notice why the had to tap into a new loan ? The reason was to pay a dividend to their ‘owners’ : a finance firm.
“To come back to the loan. Anybody notice why the had to tap into a new loan ? The reason was to pay a dividend to their ‘owners’ : a finance firm.”
I’ve got a pitt in my stomach on that one Houstonstan….a perfectly good company being milked dry by its investors. I wonder how many will go down before John Q Public realizes his jobs are being sacrificed so the already rich can get far richer still.
Then in a few years when our workforce has no experience with engineering and technology, John Q gets to be asked to sacrifice and dig deeper for retraining costs. Or, who knows, maybe they’ll prefer us strong and stupid.
Orecks kick ass. We’ve always had large inside dogs, and the Oreck’s the only one up to the job (and we’ve tried EVERYTHING). Not only that, but Orecks come with annual service in which they completely refurbish the entire unit. Best vacuum made, IMO.
Belt-tightening already started vis a vis consumer goods, by late fall people will be more up in arms over inflation. Next spring (08) we’ll see general widespread angst over housing as people begin to understand it hasn’t bottomed yet. Christmas 08 will be bleak for many, as job losses coupled with house losses and inflation or stagflation sink into the American psyche. By then, the rest of the world will be following suit. General anger towards banks, brokers, and realtors, possible retaliations, more arson and crime.
09 - 12, more anger and despair, illegals will take the brunt of much of this (already starting, in earnest by then, aimed at those who are still here), as will those politicians still stupid enough to be around. Wall Street will be in serious doldrums, trying to recover from the Crash of ‘07.
And that’s a best-case scenario. Worst case? Depression, soup lines, another war.
Yikes.
Another WAR?
Is the US the next Germany?
We know how that ended … I can’t wait to wade through rubble to work for substinence wages and hear a foreign voice on the radio telling us we deserve punishment for our numerous war crimes. Scratch that, I can’t wait to be raped by said foreign army.
Maybe it’s time to get out of here with skin and honor intact … okay, slightly soiled. I mean, I still paid taxes while we bombed peasants overseas for no reason, so I guess I’m already partially guilty.
wow, I only heard that sentiment from American Muslims before
Dear Lost,
your predictions are right in line with mine!
great minds think alike or…is it that we’re on the same blog?
I believe that anything critical to survival will wildly inflate in costs, while fixed assets such as homes, autos, boats, etc will deflate.
Further, I would not want to be an illegal alien (Mexican, So. or Central American) in the US over the next 5+ years.
Americans, like most nationals of any country always looks for a scapegoat for their problems. It could be the Jews of Europe or the Mexicans of the US.
I suspect that this is so, because our leaders refuse to inform us along the way as to the problems of debt and our outrageous consumption.
It really comes to the individual, the hell with society. Save like hell, reduce consumption to the bear minimum. The end result is that if things are not as bad as I read on this blog, you will be the last person standing.
Also, I am new to this site, I what I am hearing scares the Sh@$t out of me. You have opened my eyes from a macroeconomic standpoint.
I have no idea of what the future will be bring, however being liquid (Cash) seems the only smart thing to do!!!!!
Best wishes to you all….
There is trouble out there but nobody knows how bad it will be. The country survived the Great Depression and there was no extermination of Jews, blacks or Mexicans. Comparing a diverse country like the USA to Germany in the 1930’s is silly. We could be headed towards a Japan style deflationary period for the next 20 years. We could get hit with another depression. It could be a long deep recession. The scapegoats will be the political party in power when the SHTF. All anyone can do is be financially responsible and hope that you don’t end up in a soup line or on welfare.
The US and Americans have changed a lot since the Great Depression. Considering what happened during Katrina, it doesn’t seem most of them have the fortitude to bear hard time with dignity.
It seems that most people have lost the capacity for critical thinking and reflection. They’ll want to focus on easy scapegoats instead of facing up to their own responsibility for letting things get to this point.
“And that’s a best-case scenario. Worst case? Depression, soup lines, another war.”
So … does all of this happen before or after the breaking of the sixth seal?
I had my fill of this apocalyptic crap in the run up to Y2K. I always wondered what happened to all the Y2k kooks - now I know.
amen!
Boy, are you two in for a rude awakening.
“General anger towards banks, brokers, and realtors, possible retaliations, more arson and crime.”
Is anyone aware of any definitive preparation for this?—-besides the Bush/Cheney errosion of citizen’s rights that is. (Real curiosity behind this, not snark)
Boy, we (myself included) are VERY tin foil hat today aren’t we? I may have to go out and play in the sun again for an attitude rebound. he he
I have only a gut feeling that we’re heading in the direction of a deflationary period. However, that’s only a gut feel.
As an aside, folks here often criticize realtors for their optimistic predictions of the future w/o any data to back up their predictions. What data do folks on this board have to back up their predictions? Or are you, too, going on “gut feel”, just like the realtors and others who stand to gain from high-priced housing?
I stand by my predictions of 6 months ago on the second thread .
Wiz, why do you think BB will raise rates?
TIA
Sorry I took so long to answer . BB will have to raise rate to save the dollar ,curb inflation, and BB needs to keep up with the rest of the world . He will raise as little as he can get away with ,but he has to raise IMHO.When everything tanks the rates might go down again ,but I don’t think the rates can go as low as they got ,(4.65% fixed ).
Prediction as of June 30, 2007: The ratings agencies will have to downgrade the CDO junk that is floating around the bowl. This will force massive pain in the hedge funds and financial markets. The sacred Wall Street bonuses will need to be cut and the last leg of a wobbly stool will be kicked out from Manhattan real estate. Once Goldman Sucks isn’t giving out $16 billion in bonuses reality will finally start to strike my neighborhood. There will be weeping on Fulton Street where a lot of monstrous condo conversions are taking place.
The Scotland car bomb today could help make next week a very volatile week for the markets. Throw on top of this $70 oil and a hedge fund blowup and we could meltdown very quickly here on The Street.
The Glasgow car thing bears all the markings of rank amateurs. Shouldn’t affect the markets unless it can be traced to the London incident, even then maybe not, IMHO.
But it’s the cumulative effect of all of these things on the market that is worth watching. Subprime is melting down. The bond market is teetering. Iraq is a mess. Oil is at $70. Home prices are falling and the psychology is changing. Now there are terror fears again. At some point Goldilocks has a nervous breakdown and needs some time in a sick bed.
yeah, thank heaven the bad guys aren’t Germans this time around. Bad attitude + competence = nasty
Actually, our civil wars seem to be the very worst of all.
thank heaven the bad guys aren’t Germans this time around. Bad attitude + competence = nasty
Speakin’ of competence…
Some company in Washington is buildin’ retro ME 262’s again.
Collings Foundation will even take you for a ride in theirs.
“…all the markings of rank amateurs…”
Correct. I believe there is a greater than 50-50 chance that these attempts were precipitated by the knighting of Salman Rushdie, author of “Satanic Verses,” a week or so ago.
On CNN..the cars used in the London attempts have also been traced to Glasgow.
Tinfoil hat time…but does anyone else think that there’s some connection with the carbombs and the leaving of Blair/arriving of Brown?
Can’t quite palce the connection myself, but it does seem fishy that these happened literaly hours after the switchover….
Worries on the economy increase when Christmas ‘07 retail sales are down significantly from a year ago…commentators suggest that “maybe people aren’t spending like they used to”, but it’s still “all good”.
About a year ago I predicted the bottom in house prices would be reached right about this time, at least in most parts of the country. Waaayy wrong.
I think that the oft-quoted chart showing the rate of loan resets is the best harbinger. Once the large number of foreclosures is past us (18 months? 24 months?) then I think the bottom will have been reached. But the climb back up will take a long time.
you mean this one?
http://www.bubbleinfo.com/statistics-2007/2007/3/15/arm-reset-schedule.html
The mortgage blow up is the meat and potatoes to this whole thing. IMO what we have seen to this point is just an exhausted market which has yielded rising inventories, slow sales, rising defaults and the start of pricing corrections. Now the fireworks begin. Simply put there is a tremendous amount of debt out there that people have no way of paying back. I think this will probably dwarf the savings and loans crises in the late 80’s early 90’s. Moving forward from this point we will start seeing the full impact in the shift of psychology. That is what has been missing thus far. Once you start seeing the true magnitude of foreclosures, massive downgrades in the bond markets, and see the hedge fund casualties the full brunt of the correction will be at hand. We will start to see that in the third qtr of this year, then the market will go into winter hibernation which will give the NAR time to spend $40 million to $50 million on a campaign saying the bottom has been reached. That will pull some suckers into the market early Spring 2008, then that will be followed by the all out bust.
Yes…and the foreclosures won’t be until 6-12 months AFTER that…and the REO fire sales (banks and MBS investors liquidating foreclosed inventory) *may* be sometime after *that*…you can see how this can be long and drawn out, right? Maybe as far as 2012…
Fannie Mae and Freddie Mac are still buying subprime loans at 100% LTV. Many of the foreclosures in the Denver area are being blamed on FHA loans to illegal aliens. The housing bubble was enabled by ridiculously low interest rates from the Fed.
Many of the foreclosures in the Denver area are being blamed on FHA loans to illegal aliens.
LMAO…I can just imagine what left of these depreciated, beat to crap houses after having 20 people residing in them for the last 5 years.
Have a negative fair market value, Mr. REO Work-Out Guy.
Your tax dollars at work.
The mortgage blow up is the meat and potatoes to this whole thing. IMO what we have seen to this point is just an exhausted market which has yielded rising inventories, slow sales, rising defaults and the start of pricing corrections. Now the fireworks begin. Simply put there is a tremendous amount of debt out there that people have no way of paying back. I think this will probably dwarf the savings and loans crises in the late 80’s early 90’s. Moving forward from this point we will start seeing the full impact in the shift of psychology. That is what has been missing thus far. Once you start seeing the true magnitude of foreclosures, massive downgrades in the bond markets, and see the hedge fund casualties the full brunt of the correction will be at hand. We will start to see that in the third qtr of this year, then the market will go into winter hibernation which will give the NAR time to spend $40 million to $50 million on a campaign saying the bottom has been reached. That will pull some suckers into the market early Spring 2008, then that will be followed by the all out bust.
I agree…at least one more “wait until the next spring selling season” before sellers *start* to give up hope. Sad, because I’d like to buy in the next year or two, but I can’t justify the current prices (vs. what we are saving by renting).
A year ago I predicted 7.75 federal funds rate by the end of ‘06. I was wrong. I’m still thinking rate hikes will be done in the future to offset higher oil prices and the inflationary effects they will have.
- We should start to see wage hikes in 2008 in the 4% range for most American workers.
- I now think the Federal funds rate will hover in the 5.25% to 5.5% range for the next twelve months.
- The oil prices should get to the $100 per barrel range in 2009 and that will be when we see interest rate hikes. This will hammer real estate prices.
- For real estate, Southern California beach cities will see home prices decrease a stubborn 5% or so the next twelve months.
- In 2009 make that 10% decline. exurb real estate prices (large commutes) will really tank - 30% drop in price drop in 2009 and 10% price drop in 2008.
Large metro areas with jobs/universities will see RE prices fall gradually, while outlying areas see significant haircuts.
Well said. One comment - and sorry if this has been beaten to death before - but is there agreement on whether rising oil prices have an inflationary or deflationary effect? The inflationary argument is obvious (direct upward effect on products that have fossil-fuel inputs in their manufacturing process or transport). I’ve also heard arguments that when more dollars are being spent on oil (dollars that are exiting the US economy and going overseas) there are less dollars chasing other goods, and so a deflationary effect.
I’ve been following the waves of bubbles (stock market, RE, PM, …) for a long time, and have to admit that I’m very surprised that “the system” is still standing. It seems like massive injections of liquidity can prop up the system for a long time. What it means to me is that I’ve been on the losing end of what I consider to be a war on savers.
I’m going to go with a prediction of really, really long and painful process - e.g. depression-length - like about 15 years. I’m going to predict the opposite of memmel above (”Overall this will go down faster than it went up.”) - my prediction is that we will reach a bottom in terms of nominal $$ values in about 2011 (5 years after the peak), and a bottom in inflation-adjusted dollars at about 2018, and finally getting to meaningful price increases about 2020.
As for the short-term future - one prediction is that late this year and early next year we’ll start to see some mentions in the media of how foreclosures are now a significant percentage of available homes on the market, and are impacting prices. By this time next year foreclosures will be considered not just a threat but direct competition for other houses on the market, and there will be *lots* of anger by homesellers at the effect it’s having on prices.
Another prediction is that within 6 months from now there will be talk about whether or not all the major homebuilders can weather the storm; 9 months from now a specific builder or two will be indicating struggles, and 12-18 months from now one or two of the smaller ones (WCI, Beazer, St. Joe’s come to mind) will be actually filing for bankruptcy, with other larger ones now indicating financial struggles.
And Beazer will be under indictment for accounting fraud (OK - perhaps that one’s a bit too specific, but there’s a good chance it could happen given what happened this week).
I’m not going to try predicting the bottom other than to say that the arm reset schedule will trigger the largest drops in housing prices. In fact it may be difficult to say when the bottom was even after the fact for a long time because there will be pressures on prices that prevent them from growing at anything more than an anemic rate if they grow at all after the bottom is reached.
The culprits for the lack of growth in prices after the bottom will be the credit crunch as lending standards are seriously tightened and massive increases in inventory. I think that it isn’t possible to understate how much inventory will increase. This is because there will be more vectors of inventory increase than just speculators and f’ed borrowers trying to unload their properties (although that will play a major part).
The first vector of inventory increase is that illegal aliens are on their way out. Everyone I know including myself hated the recently failed immigration bill (with good reason). The lack of construction jobs alone will cause many of them to go back home. Illegal aliens won’t be around to live in any of the excess inventory. Plus all the homes they live in now will be empty.
All the other vectors for inventory increase are technological. Renewable energy is poised to become a huge industry. One thing I have noticed is that a lot of the renewable energy resources are in the Great Plains (ie wind and switchgrass derived ethanol or butanol). For several decades people have been leaving the Great Plains to the point that many counties in the Great Plains are now considered to have reverted back to frontier population levels. This will change because renewable energy will be generating jobs drawing people to the Great Plains. All these people who leave for the Great Plains will be leaving inventory behind leading to more empty inventory. Depending on how fast some of the technology gets here, we may see f’ed borrowers pack up their stuff in a U-Haul, leave the keys in the mail box and head out for the Great Plains. (For that matter they may not bother with the U-Haul if all of their stuff is being repossessed.)
If we want to look farther into the future oceanic and space colonization will play a role. There is already a guy building an underwater hotel in Fiji that will open in either ‘08 or ‘09. If that is successful as this guy hopes he will start building underwater residences which is only one step away from underwater cities. In other words, real things are happening in this area.
All of this will just make housing/real estate look like a bad investment (except in a few unique cases) which will also help to prevent price increases.
The first vector of inventory increase is that illegal aliens are on their way out.
I’ve seen similar recent posts like that. I’m not confident they are on their way out of this country. They’ve been here for decades. They will go back to their forms of residences (in the USA) that they had before the 2001 - 2005 real estate bubble. The magnet of jobs and the fact that few people want to do the jobs the illegals do here will keep the illegals here. Added to that the taxpayer-subsidized health care and education for them. The stupid politicians are not going to stop that nonsense.
Bill - few people want to do those jobs NOW, but if we go into a prolonged recession or depression and Americans lose their jobs en masse, then I predict Americans WOULD THEN want those jobs!
How many jobs are generated by ethanol plants? The farmers aren’t needing more help growing the corn, they’ve always grown corn, somehow I can’t picture ethanol plants generating that many more jobs. And oceanic and space colonization are not going to generate much funding in an economy that’s tanking - most people will continue to view these as pie in the sky. And good luck getting people to want to live underwater - actually, there are lots of them out there right now wishing they weren’t growing gills as their homes go to foreclosure.
The future of ethanol (or butanol) isn’t corn. It’s switchgrass. In the future no one is going to be using corn to make ethanol (or butanol). It’s inefficient compared to switchgrass. No one is really growing switchgrass right now. Many corn farmers will become switchgrass farmers, but not all will.
The most important thing about switchgrass for our discussion is that there is way more land that can be used for growing switchgrass than can be used for growing corn. There is a MASSIVE amount of land in the Great Plains that isn’t being used to grow anything right now. People tried to grow crops there but couldn’t make a go of it even with government subsidies. These people left and the land is close to empty in terms of population. It is considered to have “frontier” levels of population. This has been called the depopulation of the Great Plains and has been written about extensively.
Switchgrass based ethanol (or butanol) will change all this. Farmers will be needed to grow switchgrass on lots of land where there are no farmers now. With all of this switchgrass a lot more ethanol (or butanol) plants will be needed. Beyond all of that, a lot of infrastructure will have to be built for all of this. No one have lived in a lot of these areas for decades so everyone living there will need houses, grocery stores, electrical, etc.
This isn’t limited to switchgrass. The best place to take advantage of wind energy is also on the parts of the Great Plains where hardly anyone lives right now.
I don’t know how many people will leave for the Great Plains, but it seems that enough will to have an effect on housing prices long after the bottom hits. The land where no one is living right now will increase in price, but everywhere else in the country prices will fall or stay at a bottom canyon due to less people/demand.
Oceanic and space colonization is a bit more long term, but what it tells us that anytime in the foreseeable future when you expect prices to stop being flat something is going to come along to keep them flat. I know most people regard oceanic and space colonization as pie in the sky, but the economy isn’t going to tank forever. We will move beyond the housing bubble. The underwater hotel off the coast of Fiji is being built as we speak. It will open in either 2008 or 2009. Richard Branson has already created Virgin Galactic. In few years Virgin Galactic will be offering suborbital flights. These things are coming and the guys behind these enterprises know enough to think long term so an economic downturn isn’t going to stop them.
BBP — key question — does the production of ethanol (butanol) from switchgrass, relative to that produced from corn, require significantly less water? If not, where is the water to come from?
It occurs to me that if high tech renewable energy firms start sprouting up in the Great Plains frontier, and they staff themselves as usual primarily with H1-B workers, it will be Cowboys and Indians all over again!!
I live in the heart of what was once the Dust Bowl near Amarillo, TX. Although the population in many counties across the Great Plains has declined, there are still plenty of people here. Farming today is nothing like 20, 30, or 50 years ago. It is now possible for a few people to care for massive amounts of land. My operation is over 5000 acres and operated solely with myself and one other person. Fifty years ago that amount of land would have required 30 to 50 people. We produce wheat and grain sorghum which are hugely labor intensive compared to switchgrass. Once switchgrass is established, it has only to be harvested once yearly for ethanol production. I could easily add several thousand acres of switchgrass and not overextend our operation. I believe whatever switchgrass production does occur here in the future will be handled largely by farmers already on the land. You have to remember that all those idle acres are already owned by someone (often a farmer or rancher) and are less likely to trade hands should they become a source of energy. You also have to remember farming is not something one gets into over night and with no experience. The capital expenditures are enormous and the learning curve steep. Furthermore, cellulosic ethanol production on an economically viable scale is likely a decade or more away. To date, there is not an unsubsidized cellulosic plant in operation in North America. While I have no doubt biofuels will be important in the future, I wouldn’t count on millions of people moving to the plains states in a new “energy boom” any time soon. As for wind energy, we certainly have the wind, but again, I don’t think the industry will create tens of thousands of jobs. Installing the turbines and transmission lines requires quite a lot of labor, but once installed the maintenance is handled by small crews.
Here in Washington State, a proposed wind farm was put on hold this week by the governor, after a mid-size college town that would be in view of it (Ellensburg) put together an active protest. so much for everyone jumping on the alt-e bandwagon.
Someone wants to build a wind farm in Cape Cod Bay. The biggest opponents are wealthy homeowners on Martha’s Vineyard and Nantucket. Ted Kennedy is leading the charge. Apparently, the wind farm would change the view from the Kennedy family compound.
Hull, MA as 2 windmills. I’ve seen a wind farm in Searsburg, VT. The windmills look very nice spinning in the breeze.
NIMBYs love to hate wind power… but while people are complaining about it in the US, Europe is actively embracing it, and for businesses in remote locations around the world that need power (think mining), the turbines are being ordered.
I invest in the industry, so I’m biased, but despite crackpot NIMBYs the money is coming in. Creating thousands of jobs? Probably not.
Really interesting post, thanks.
why bother with corn to produce biofuel/biodiesel, jatropha plant has a much better promise.
regarding switchgrass: sounds better than the current way of producing bio-ethanol but still not very clever. In my country a factory is being built that will produce biofuel from the stuff that is left over when agricultural products are harvested. They are just processing the waste products, so there is no competition with normal food production. We need more advanced solutions like these to make biofuel a realistic option.
That’s true nhz. The stover or left over parts of a crop could also be an important source of cellulose. The problem that presents here on the plains is removing all the cover from the ground exposing it to wind and water erosion. Brazil, I believe, bases its ethanol industry on sugar cane. Researchers here are looking at high sugar forms of grain sorghum and silage crops to try to increase sugar content as these crops would be better suited to the plains climate.
Great info TXFarmer. I just moved south after a 4 year stint in the midwest. Windmills are all over the land scape being maintained by small crews. Ethanol plants have cropped up all over and are being manned by the farmers squeezed out by the large farmers. There is no land sitting idle and I would not count on people moving to the great plains for work.
I loved the info in your post TexasFarmer. It was very interesting to me as I drive by farmland for sale every day here in CNY. It usually has been sitting for years.
A recent newspaper link tells of an acquaintence who has no relative to take over her farm and has desperately been looking for someone to “give” the farm to as long as they promise not to develop it. She has filed for protection from the state for her land.
BTW the view from her property is stunning. I actually considered whether I could do the farm training she asked for, however, that little cancer incident last year left me with instructions not to lift. (Probably not a good match–LOL) It’ll be interesting to see what type of interest develops now that she’s using the media in her search.
There is certainly land for sale in the plains area, too. If it is close to a major city, it is often sold off for development. Land away from population centers is usually purchased by other farmers/ranchers and more recently investors looking for a place to park their cash. I’ve heard of cases just like you mentioned where an older farmer/rancher is looking for a younger person to take over the land and not pave it over. It’s getting harder to find people willing to stay in agriculture; I believe the median age of a farmer today is somewhere around 56. That being said, the trend continues to be for fewer farmers to grow larger and maintain more land with less help and equipment. That’s why I can’t see a huge migration to the plains to grow any type of crop for biofuels. Sure there will be jobs created, but many will be the $8 to $12 per hour tractor driver, warehouse worker type jobs. If you don’t own the land or have an agreement in place to lease or custom farm it, you can’t get into farming.
How is it we can build new ethanol plants, but we can’t build new gasoline refineries?
it has to do with too many regulations, but then the raw material for making ethanol is far cleaner (in environmental sense) than the stuff that is used for making gasoline …
That, and the fact that whackos don’t sue at the first hint of an ethanol refinery going up…
Maybe they give out free samples? That might cloud the thinking of the opponents.
An excellent analysis of the bubble and its bust, in very plain terms for those of us who are weary of being “tranched” to death, with some commentary on the future meltdown. Of course, where was Gretchen when all this was going on? Maybe NYT didn’t give her a forum.
http://www.pbs.org/moyers/journal/06292007/transcript3.html
Good stuff. Once again the “invisible hand” screwed the pooch.
oh goody.. a prediction free-for-all..
War with Iran of the “Shock and Awe” variety before the presidential election.
..only wish i was smart enough to predict likely real estate market reactions and effects..
We still haven’t recovered from the last “Shock and Awe” campaign.
How smart do you have to be to predict the results of $100+/barrel oil and $5+/gallon gas?
The $Trillion reset in ARMs over the next six months will roil the foreclosures and delinquencies. Since it can take six more months for the banks to actually take possession and then start to sell the homes, that pushes the day of diaster to about a year from now.
Why diaster, because by a year from now the rating agencies will be forced to declare the CDOs as junk. That’s Trillions in leveraged and borrowed funds collaterialized, squared and synthetic complex financial instruments marked down to 50% or less.
Pretty funny (in a gallows humor way): Everybody involved with this will get foreclosed on: The FB, Wall street and the ‘investors’.
Here’s something which will make you chuckle. The origin of “Mortgage”. From answers.com
“[Middle English morgage, from Old French : mort, dead (from Vulgar Latin *mortus, from Latin mortuus, past participle of morī, to die) + gage, pledge (of Germanic origin).]
WORD HISTORY The great jurist Sir Edward Coke, who lived from 1552 to 1634, has explained why the term mortgage comes from the Old French words mort, “dead,” and gage, “pledge.” It seemed to him that it had to do with the doubtfulness of whether or not the mortgagor will pay the debt. If the mortgagor does not, then the land pledged to the mortgagee as security for the debt “is taken from him for ever, and so dead to him upon condition, &c. And if he doth pay the money, then the pledge is dead as to the [mortgagee].” This etymology, as understood by 17th-century attorneys, of the Old French term morgage, which we adopted, may well be correct. The term has been in English much longer than the 17th century, being first recorded in Middle English with the form morgage and the figurative sense “pledge” in a work written before 1393.”
C’est la mort.
Prices will go down nominally for some years, and people will try to find explanations for that. I expect a change from “They are not making any more land.” etc. to “The boomers (must) sell.” and similar sayings. The shift in market psychology will be explained by focusing on those facts that seem to align with the observed market and by disregarding others (they are still not making any more land). The main reason I see behind the bubble, the overuse of credit, will be addressed but maybe not enough.
Boy I forgot about all the new retirees in the middle of this. I think if I owned any stock in retirement homes, I’d be dumping it right now.
By personal history I have found that things always take longer to unravel then one might expect. I remember when things first started escalating down in Irvine/Laguna around 1973 (FIL camped out in a lotto to buy a house) and I thought they would reverse but they were out of control for another 5 yrs. The thing to watch will be major CC lending institutions. When credit is cut off things will proceed more rapidly, in the meantime businesses better start watching out for increased theft be it in overtime or goods. Starbucks sales will be decreasing as an early indication of comsumer buying as will ancillary services cutbacks (gardeners, carwashes, eating out, more expensive vacations, etc). Other indicators will be the damage done by forward sales (the buy now don’t pay for a year plans) in home accessories market and the auto market. Look for rents in the more expensive housing markets along the coasts to decrease as people with families move to more affordable markets and/or back to where they have extended family. As long as people can get a loan and don’t understand the relationship between wages and affordable mortgages this market will continue to tread water. IMO it will be CC debt and the inability to use the housing ATM to pay them off that will bring this whole house of cards down.
Homebuilders will struggle to keep their liquidity up, dropping prices below replacement cost and selling homes at negative gross margins in order to raise cash. Forced by banks, they will sell assets to better capitalized companies at large discounts.
Highly levered homebuilders, like WCI, will either sell themselves for cheap or go bankrupt. A public company will go under, sending shockwaves through the public homebuilding industry, and taking their stock prices to new lows.
Some vultures will pick up good deals on land and/or entire companies, recapitalize them, and wait out the trough. However, those prices will be well south of current prices.
Due to my age, my point of view is baby boomer related. Recent surveys seem to indicate that boomers will work until they drop and only about 11% will move South at retirement. That would be about 11 million boomers. I predict that this number is low by about half. I also predict that although boomers may intend to work deep into retirement, they will find it is not as satisfying as they predicted and they will opt for a cheaper life style in some southern location instead.
Prices will continue down another 10-15% in over priced markets as the large inventories are being absorbed. A point will be reached in the next few months or more likely years where boomers will see value in the prices in the retirement areas and they will begin to buy. Keep an eye on the better neighborhoods and houses to see when this is happening. When the best properties get snatched up quietly and quickly you may be approaching the bottom followed by a slow increase in prices. Boomers will be too savy (and poor) to overpay, however.
I’m sticking with my Japan scenario. 3 to 4 years of ugly price drops followed by a decade or two of chinese water torture. The biggest price drops will occur in 2008, 2009 and 2010, but prices will continue to fall or stagnate until 2020.
It really is different this time.
I agree. This 2012 to 2015 talk is bunk, we’ll see the bottom of real prices by 2010 (it’s in the bag!). We’ll then bounce around that level for up to 10 years. But this thing is way too big and way way too heavy to sustain itself past 2010.
My thinking too, jm. Anyone buying a house even in three years better be doing it strictly to live in, because appreciation simply won’t be in the cards.
I agree with many of you.. the ‘bottom’ of this bust (in the USA) will vary by locale, but it will take place 2010-2013. And it will last longer due to the coming rise in oil and gas prices, and the resultant effect on food, transportation, many other costs. We are nearing the end of cheap oil. $5 a gallon… believe it.
I like that screen name. Fits in well with “fashionable” renters such as us!
Thanks. Renting: it’s the new black! Work it!
Very funny, but I was just telling my husband about my favorite name from the blog — yours — and how it (you) haven’t been seen in awhile.
Just tonight, I was thinking about ways to incorporate it in my username, because it’s too good to go to waste.
Glad you’re back! (are you the original from a while back?)
Thanks! been away for a while, but yes, it’s me from 2005. Oh those frothy heady days when a cartoon guy was hugging his house on the cover of TIME magazine.
http://www.time.com/time/covers/0,16641,20050613,00.html
Oscar,
Five to six dollar a gallon will pretty much put a stake in it. Glad I kept my tiny 4 cylinder 30mpg truck.
Cross country motor tourism will end.
Those who run remote tourist traps will falter and close. Servicing those areas with cheap products, labor, fuel will also end (Goodbye Telluride, Aspen Yellowstone, etc.). Those with rail access like Grand Canyon and Glacier will do better. Increasing emptier and “lonely” highways of federal, state and interstate populated by an occasional 50-60 mile a gallon vehicle. Postal, package and deliveries will slow and breakdown.
just got back from Yosemite this will be my 7th trip there
The park was practically empty, almost no day visitors,employees said its the lowest attendance they have ever seen.
Average drive time to Yosemite 4-7 hours
This is not rocket science folks it a precurser to recession.
PS saw way more of asian and eurpoean than normal.
cross country tourism will not end at 6$ a gallon gas! maybe if it is 10$. just look at how we are coping with a 3$ gallon gas from 2$. fuel consumption continues to increase. we cut back on other discretionary spending. in fact, we are ready for a 4$ gallon without so much adjustment. it was a little bit painful from 2$ to 3$. it will be painful next from 3$ to 5$ a gallon. and then from 5$ to 8$. the 8$ will be the start of the shock.
And people always made fun of my Geo Metro Convertible! The car regularly gets 40+ to the gallon. Don’t think those with moster trucks and SUV’s will be having as fun with their vehicles as a I have with mine when gas goes to $5. I think hybrids are a scheme by the auto makers, they know how to make non-hybrid vehicles get 40+ to the gallon, they just don’t want to do it anymore.
I am intrigued by the Tesla electric car. It’s a sports car. Costs a pretty penny though. It’s supposedly fast, sexy, and when gas gets above $10 per gallon, you will not feel so idiotic for buying a high priced green machine. Pundits say that it still takes a lot of energy to produce electric vehicles. But…so what? Consider if we mostly had electric cars and nuclear fission power plants to manufacture them and power the cities, we will still have much cleaner air than with gas powered cars. I’m a pure capitalist environmentalist. And there are libertarian environmentalist scholars who have seriously written white papers in support of free market solutions to pollution. The socialist power hungry Al Bores don’t want you to know about them.
Perhaps the last quarter opened some dullards eyes to the do nothing 6%er’s of NAR/NAHB and Wall St Con and Flim Flam men
But of course, you CAN’T save them all !
Hopefully at least , it will save some of the little fat and stupid oysters from being eaten by the RE Walrus and the cheap labor Carpenter.
Foreclosures related to commercial construction, and a big dropoff in commercial construction, will be the big news in the third quarter. So much commercial construction recently completed and siting empty, it’s mind boggling. Everywhere I go in Florida, there are ghost offices and ghost towers.
Orange County/SoCAL enormous numbers of the tiltup buildings going in. Wife & I went to the grocery store last weekend. In the (small) field next to the plaza, we counted no less than 25 (not a typo) new, two story office buildings in various stages of construction. This at the 5 freeway & Jeffrey road. Friggin incredible. Bunch more nearby as well.
My prediction? The increase in Alt-A defaults will accelerate starting in Q3 and expanding to an over 10% rate by Q1 2008. Prime loan delinquencies will top 5% by the end of Q4 of this year and defaults will crack the 5% level by the end of Q2 2008. Commercial real estate will start to deteriorate now, as it has started here in Florida and will eventually eclipse the housing bubble as the news story of 2008. By Q4 2008, the recognition of a full blown economic recession will be acknowledged by the mainstream media and by 2009 an economic Depression with over 10% unemployment and foreclosure rates unseen in our nation’s history overtaking the news.
My predictions about interest rates nave been far enough off that I no longer have any. Doesn’t matter to me, anyway, as the number of people who are going to get fried in re-sets is so large, I think that what the Fed does will largely be irrelevant. NOBODY I know thinks housing is a good investment anymore. That’s a great first step. One by one, as re-sets force people to sell their houses and condos, the prices and comps and tax valuations will come down.
As with many others here, this has proceeded far slower than I would have liked, but on the flip side, I have become far happier with renting than I thought I would, so no net loss in the happiness quotient.
I agree with those who think the heaviest price drops will occur over the next 3-4 years, followed by a long period of flat or slightly declining prices, a la Japan. I don’t need a bottom to buy — just a feeling that we’re fairly well near one.
All that college money spent for the extra earning potential wasted, and only to be enslaved by it, because they used those higher earnings to purchase overpriced real estate. The financial serfdom of the higher educated among us, must be pretty overwhelming for them. Imagine all that extra earning potential going down the drain and into the pockets of the mortgage holders. Those people must be entering the depression faze by now. I predict the sales of Prozac and other anti-depresents to skyrocket.
Let me explain it to you this way. Einstein and Einsteinet over there, saw Juan the strawberry picker buy a 750K house, and thought they deserved to have one too. And by God, they would get one too, with their 6 figure income. Now that 750K house is only worth 450K, because Juan and thousands of others like him got foreclosed on, and nobodies buying houses anymore. However Einstein and Einsteinet will still service that 300K of overpayment by paying 600K over the life of the loan, or risk foreclosure and credit rating, and lose their genius status. So where is all that extra earning potential from a college education going?
Very true. **Everybody’s** been living well above their means.
What’s sad is that there are so few people who realized that *buyers* are the ones who determine price. If people would just lay off the credit, and take their time to research things before buying, we’d all be better off, IMHO.
Man, I just can’t walk past this much consensus without feeling an overwhelming urge to dissent.
Echoing what not a few others have asked here over the years: do we have the kind of household savings rate that sustained Japan through their housing recession? Did Japan have such highly leveraged homes, with such rampant disinterest in trifles like income verification? How many homes were neg-Am or other forms of suicide loans? Was global arbitage and epidemic levels of illegals working off the books eroding the Japanese earning power at quite such an alarming clip?
I don’t think it takes a ton of imagination to see at least a possibility that the most explosive part of the drama could be somewhat telescoped. What if, between FBer anger toward scapegoats like immigrants from the south, and toward scapegoats like poison toothpaste/cheapie goods exporters to the East, we end up forcing our fearless leadership in Washington into some kind of cold (trade) war? –Dicey, what with us not making ANYTHING at home anymore and all, but I expect it would not have to develop into a full-blown trade war - couldn’t any significant retaliation from overseas be enough to squeeze lending capital way past reacting just to rising default level?
Any more liquidity the Fed puts out, I suspect would result rather quickly in starving seniors and a lot MORE defaults and societal dislocations. I think a population can tolerate extreme privation and shortages where it comes to things like mouthwash and tube socks, much better than having to give up food and shelter. Assuming we survive the short term, couldn’t rampant shortages even fuel new industry, create jobs, and boost wages?
I wonder if maybe there won’t be a window - maybe 2009 or 2010 to 3 or 4 years thereafter, where the rich will be able to scoop up massive amounts of RE dirt cheap (also savers, albeit on a smaller scale), just because just about everyone who isn’t already bankrupt, is too cash-poor for any any lender to touch. There will be grousing, but that will be contained by the irrational backlash sentiment that RE never pays off in the end. Plus the fact that few will be able to buy, so many many will have to rent, and SOMEONE has to play landlord. To up the ante - and better the bargain for — call it “venture capitalist landlording”, I guess? — you could pit the domestic rich against Evil Foreigners Who Want to Own Our Country. Governmental capitulation to – okay, the popular sentiment that I am expecting, bad times mandating scapegoats and history being clear on this one — could again concentrate land wealth for pennies on the dollar. It won’t even look all that greedy, if the engineers are politely transforming neighborhoods into something less exclusive, perhaps, than they once were, but still a marked step back from encroaching blight.
As I spin this one, I can’t even decide if it’s a (relatively) utopian or a bleakly dystopian fantasy. I’m probably 90% wrong here, but I just can’t see any scenario tracking closely with Japan’s experience being in the ballpark either.
The nice thing about the current mess were in is that, the wealthy are the ones who are most heavily invested and leveraged in the whole thing. Add to that, they produce virtually nothing of what we need. I suspect that the numbers of the wealthy elite will be sufficiently culled in our current economic collapse, to give the rest of us a fighting chance.
We can hope.
“…we end up forcing our fearless leadership in Washington into some kind of cold (trade) war?”
Can you get a toothbrush made in China?
Can you get a toothbrush made in India?
The goal… is to “use” one against the other…it’s the American way.
Globalize my goods babeeeeeeeeeeee & raise my credit limit!
In June 2005, Henry Liu wrote an article, “The coming trade war and global depression. Here is the link: http://www.atimes.com/atimes/Global_Economy/GF16Dj01.html
I’m desperately missing the international perspective here … the credit bubble is global and apart from the US housing market it is still inflating. Despite some worries, RE is still the sure thing in Europe (has been like that for 15-25 years, depending on country). If the credit/housing bubble does not pop on an international scale, it will be back quickly in the US. Funny money is still available in the US, it’s just a bit more difficult to find. In the rest of the world times were never as good as now for those who don’t have any money. I think the banksters will continue to play this bubble game until the bitter end, slowly inflating away all assets of the middle class and transferring it to the upper 1% or so. They can do it slowly like in the last 5-10 years, or quickly with a depression and fire sale; but in the end the result is the same.
The housing bubble has turned many people in the middle class into modern day slaves. Mortgage companies encourgaged them to buy houses they well never sell at the high price they purchased it for, and they may never pay off the entire pricipal in their lifetime. So many of these average middle class people who purchased in 04 and 05 are now slaves to their huge mortages. Just another sad state of affair for America’s shrinking middle class.
The worldwide credit bubble is a result of globablization. In particular, the cost of labor has gone way down thanks to China and migrant labor. So inflation is contained - the central bankers apparently do not consider asset bubbles as inflationary (???). As long as inflation is contained, credit can be cheap so the bubbles keep going.
Things can change if the rapid accumulation of losses from the wild credit excesses (eg subprime) can’t be papered over fast enough by new credit devices.
Also, when Chinese labor finally organizes itself and demands higher pay, and the environmental costs become to great too ignore, then inflation could increase enough to force action on the credit front.
Here is my prediction:
speculators, investors, subprime borrowers and rich second home owners fueled the bubble. I took 1998 prices and adjusted upwards at 4% appreciation annually to arrive at where house prices should be. For instance, a $100k house in 1998 should be worth $142k in 2007 money but due to the bubble, it would cost far, far more. In some areas, prices need to halve if not more to be in line with wages and other fundamentals.
I don’t think the bottom will occur in 2009 but we will be more than halfway there. If anyone wants to buy a house, I would not buy one any sooner than 2009. I feel sorry for anyone buying now, they will lose alot of equity, some of those may just walk away when they owe alot more than the house is worth, further dropping prices.
Just look at Zillow and what people were paying in 1998 before the bubble. In some locations, they were paying 1/3 to 1/5th as much as today! Therefore we will see this much correction plus adjusted for 4% appreciation. Houses do go up about that much historically, we way overshot the point, the bottom will be when we get back on that 4% appreciation plot.
Not all locations saw the huge bubble of CA, FL and several other states. But I still expect prices to drop or at least stagnate in the more reasonably priced cities and states because as those overpriced locations fall fast, the huge disparity will shrink and those who got priced out and left, some will be back.
Droves of people left Florida because $200k got them a tiny 2 bedroom shack in a bad area filled with crime while the same $200k gets you a huge 5 bedroom house in Georgia, Tennessee, Carolinas and several other states. The disparity was so huge it was just shocking. You could get three, four, five times more “house” for the money elsewhere! This will rapidly change and Florida is more “desirable” as long as prices fall back to reasonable points that middle class can afford which is around $100k then those cheap areas will be even cheaper as no one wants to live there unless they are retired, self employed, poor or just like rural areas.
I think the issue goes beyond home prices, I think the general perception of Florida will be difficult to overcome in the next few years. Americans have a history of moving.. Moving to one place when its nice, rural, low-cost, trashing that place then moving on to the next destination (first it was NY, then FL, now GA and the Carolinas, and who knows after that). Companies also do the same..move to one place when its a low-cost of living with many tax incentives then when the taxes and costs go up they bolt out of town. It’s extremly difficult to compete with places that have little infrastructure and popultation (low taxes) and even less insurance risk (less hurricanes). Florida will have to overcome all this and the people’s perception of our state if we are to ever see the growth rates of the 70’s-90’s.
Ive heard some bad things about NC and that they are raising taxes too. Tennessee looks very good. North Georgia looks OK. Even north FL can be acceptable if they successfully cut taxes and house prices drop alot.
Tell me some good cities in Georgia with low crime that will have nice big houses for under $100k once this bubble is fully deflated. How good is Dallas, GA?
In Atlanta, in a close in good location you will need to spend $500K or more for a 5BR that is quality. Now 20-30 miles out (from even the Permiter business area and away from the lakes/resort areas)…different story.
Predictions for:
California: Big earthquake… home prices go down
Florida: Hurricanes…home prices go down
Texas: Rio Grande runs dry…unemployed walk back to mexico…homes prices go down
Arizona: Big meteorite strikes just south of Pheonix …home prices go down
Bet they should have had meteorite insurance.
You may be able to get a 5BR house in GA for $200K but you’ll be out in the middle of nowhere with at least a 1.0-2.0 hour commute, in a high- crime area, and/or an area that has a high forclosure rate with depreciating home prices. Personally, I’m waiting for this to bottom out before I consider buying.
That type of house will never recover its value and may drift down to next to worthless over the next 10-15 years unless there is something nearby that makes it compelling to retrofit this for an expensive energy world.
What the hail:
My Prognostications for the 2nd half of 2007:
1. Home Depot, as a sales ploy, will begin offering Saturday evening HOW TO work shops on: “The Proper way to BURN DOWN your house” This will include tips on what items to remove from the home, where to hide your collections from insurance claim agents, etc. etc. Management & Staff claim to have learned a lot from Katrina & Fema.
2. Disneyland Resort Parks will build a new “Home of the Future,” made completely out of Hemp products. Sponsors will include: “Monsanto” who will provide the genetic engineered Hemp and corn Ethanol seed, “GE” the home hybrid solar energy lighting system, “Apple” the iPodaphone home entertainment system, “ABC’s “Ty Pennington will host the opening and Habitat for Humanity will donate the construction labor. (Former)NAR spokesman, David Liereah and “Goofy” will cut the edible red hemp ribbon and then eat it. It’s been rumored that Ben Shalom Bernanke will fly in on a helicopter accompanied with “Tinker Bell” and her pixie dust, …(Listen for Get Stucco’s live announcement of this event). Guest of honor will include: Donald Trump, Rosie O’Donnell, Madonna and adopted baby, Tom & Kate Cruise and baby, Brad & Jolie and adopted baby, Jessica Simpson, Brittany Spears, Paris Hilton,Oprah, Dr. Phil, txchick57& her 20lb trout, Miss USA, Anna Nicole Smith, Martha Stewart, Borat, and Phyllis Diller. Michael Jackson was invited, however, due to a scheduling conflict involving his vaginal sex change operation in Bahrain, will be unable to attend. “Sir” Alan Greenspent will host the “animainics” Hospitality suite, exclusive for private equity investors, co-sponsored by “Howey, Dewey & Cheatum.” Several blogger’s from Ben’s site: http://www.housingbubbleblog.com with offer commentary: ( mgnyc, crispy&cole, ( Willie Nelson, whose new tour: “wacky tabacky tour bus” (bail was provided by NAR under condition that Willie perform: “Nothing but Blue Skies do I see”) will conclude the evening festivities. All donations will be generously contributed to Warren Buffett, who will hand off proceeds to Bill & Melinda Gate’s in recognition of his ability not to intimidate fellow philanthropists (including Gekko) in contributing more than he contributes.
I’ll personally be watching from high atop the Swiss Robinson Family Tree House, where I will broadcast live action to you Bloggers here at Ben’s Site: http://www.housingbubbleblog.com
3. Hummer has best 2007 yoy sales ever…introduces the “Hummingbird H1/5”… a 60mpg hybrid 1/5 scale SUV that runs on B.S. (bio-degradable sludge.) Incidentally, David Liereah is placed on the board of directors.) P.S., Txchick57….see this as: SHORT SHORT SHORT!
Out on Coronado Island today saw an electric shuttle with Hummer H3 styling cues!
Prediction: Human psychology and social trend is the key to determining the outcome of this debacle. We all know that housing price is far off of historical trend and adjustment is eminent, however there is a small chance that this recession will not be as bad as most of us here predict.
A few weeks ago I show the Case-Shiller existing house price index graph (the 130 year trend) to a PhD candidate studying ecology. I asked her where she thinks we’ll go from here base on this graph. Her response was, it will plateau and go “sideway” for a while, and then it will go up again. I didn’t follow up with more questions, as I was dumbfounded. Her naïve answer is perhaps typical of many in our country (including Cali, Florida and Arizona etc).
Most people have come to expect housing cost to be expensive.
They are trained to think of monthly payment instead of the total price of the house, by lenders, RE agents, car salesman, plasma TV salesman etc.
They are used to low interest rate for the last decade, and Bernanke is afraid to raise it for fear of reprisal.
Given the scenario above, I think interest rate will remain historically low. Sellers can and will sell their house albeit at a lost. For those who can’t afford to sell for less, they will bite the bullet and ride it out (whatever this means). Or they can walk away and transfer the mess to the lenders (RMBS, CDOs -> banks, pension funds and hedge funds etc.). Builders will continue to build because it is still profitable, thus, driving down price. A new group of people will emerge in our society, and we will call them landlords by circumstance.
Buyers will prefer new housing to existing ones, because it is cheaper and obviously new. Location is irrelevant because long commute is the norm and it has been conditioned into our consciousness.
Leverage is view as a new form of investing.
Home owners or soon to be owners will continue to look at renters as second-class citizen and won’t want to be one themselves. (I like to ask these people who “owns” a house with a mortgage, to try (experiment) and skip a payment. Let see how much house they really own then).
I think reason and financial prudent are weak compare to social trend and human psychology.
Cinch
“Buyers will prefer new housing to existing ones, because it is cheaper and obviously new. Location is irrelevant because long commute is the norm and it has been conditioned into our consciousness.”
Buyers do like new, though most people who bought new will be hammered the worst in this RE crash (unless it was a tear down in an old, high quality area). Supply is constrained in good areas that are built out with short commutes. Supply is effectively infinite further out where they can build “forever”. Once you buy new, it becomes old. Worse, at least for the next few years, the builders will reduce the value of your “new” home more each year.
Short commute premiums are increasing in Atlanta, not decreasing (e.g., close-in homes are depreciating less than those further out with a few outer enclaves that are the exception). This trend will accelerate dramatically with the first 1970s (or worse) gasoline crisis whenever it arrives (quite certain to arrive within 10 years and probably quite a bit less).
Oh, and fear will rule over and dramatically alter the social trend.
Home owners or soon to be owners will continue to look at renters as second-class citizen and won’t want to be one themselves.
LMAO…The newspapers here in Mazzholeland report every day of some muncipality which can’t pay its bills because of property tax caps imposed by Prop 2.5.
When it’s all said and done, the only TARGETS for revenue will be residential property owners, because it sure in hell ain’t gonna be business’s because they’re closing the doors or leaving.
Pretty hard to escape the tax man with a 4000SF white elephant
hangin’ around your neck.
However, as a renter I can pack my bags and be gone at my leisure.
I will laugh and wave good-bye to all those good 1ST CLASS burghers with $10k property tax bill’s to pay those 40 year pensions and health care bennies of all those 50YO retired cops and teachers.
Rent = Freedom
They are used to low interest rate for the last decade, and Bernanke is afraid to raise it for fear of reprisal.
Bernanke has no control over interest rates (other than overnight). The Chinese do. US interest rates are, and will be, whatever makes the Chinese willing to buy US debt. If they get cold feet, or want to punish the US for some reason (guess), look out.
My Predictions:
Hedge funds will continue to explode. A few of the first to collapse will be bailed out, initially resulting in higher inflation as more money is printed. Between 2008-2010 the hedge fund implosion will reach a point where there are no more investors to buy these”investments”, so bailing becomes a moot point. This will take down some brokerage firms, some institutional investors (such as insurance companies & pension funds) and any corporations that are carrying highly leveraged debt. Foreign investment will initially dry up as will the mortgage lending market. This will be a chaotic situation for our country.
The bright side of the future: If there is such a thing as Karmic Retribution, one of the pension funds that goes down will belong to our elected representatives, who will wake up to the fact that corporate greed must be controlled, and there will be regulation of the credit markets one again. “Free” trade will be a thing of the past as everyone wakes up to the fact that American manufacturing & well paid American workers are crucial to our country’s survival. Small businesses will lead the way in the recovery. Mortgages will require a 5%-20% downpayment & the principal amount will be no more than 3 times salary. House price will be driven downward to prices that are supported by the mortgage market. It will take until about 2017 for everything to stabilize.
Or the not so bright future: We could wind up bartering bullets (which will be the poor man’s gold) for food while trying to avoid becoming a “unit of production” in work camps owned by the multinational corporations.
American manufacturing & well paid American workers are crucial to our country’s survival.
I just purchased a Sears Craftman’s mechanic’s seat to work on my motorycles because my knee’s are shot.
The seat was manufactured in China.
The hardware to put it together was pure junk. Thought the heads on the bolts were going to round off because the thread chases were so rough.
Down the quality of life crapper we go.
I think the crash in prices will speed up now .I think the market demand is pretty dead verses the real supply of homes that need to be sold .In my neighborhood the prices are down about 12% from peak so far but a few listings just came out at lower prices .
I really don’t think it will take that long for the lending machine to tighten up . Even requiring 5% down will take alot of the sub-prime buyers out of the market .
Anyway , I still think the major price declines will take place in the next 2 years because of the foreclosures and lower buyer demand .IMHO, from say 2010 onward some areas will still go down and others will just remain flat for years .
In order to determine market price I like to take 2001 RE prices and add inflation of 5% to determine where values should of gone . I think that some value has to be added for the fact that real estate became in large part a tax free investment on capital gains ,(up to 500k), from 1998 onward .Of course the tax break doesn’t help people that lost money .So , it looks like alot of bubble areas will get a 30% drop in prices while some will get more than that .I have a friend that got a foreclosure at the bottom of the market in 1995 for 70% off of peak value ,(but it needed some work ) .
I can’t account for what the government might do to stop the loss to loan investors or bail out some of the FB’s ,but I predict that there will be alot of lawsuits in the future involving the actions /acts of people in the industry during the housing run-up.
I still think BB will raise the rates toward the end of the year and the rate on loans will continue to go up, as well as credit cards rates.
The market is going to correct and the lending is going to correct because the powers that be see the writing on the wall now . Still want to know how the powers that be are going to get around who the bagholders are >
bond market blowup, fueled by hedge fund diaster, sends rates to the moon. GDP slashed, inflation rampant…Freddie and Fannie get the bailout….strategic alliance with Russia…
Americans build roads and trains…..while eating soup and day old bread. Iphone used to prop up table legs and other various old furniture.
Hey all, I am one of those unfortunate Californians about to foreclose soon. It’s soon to be worth less than what I paid too.
Damn things been on the market for a year…a one bedroom condo. We can’t live it in…our family has grown to 4 people (two small kids). So my question is, does anyone know what will happen to me? I’m still paying my HOA fee, maybe out of ignorance. I’ve heard that if the lender sells it for less than my loan, they can mail me a 1099 so I’m liable for taxes on the difference. I don’t know if I still have to pay property taxes….I have no idea what’s going to happen. Very scared for the financial welfare of my little family.
Thanks for any insight.