Bits Bucket And Craigslist Finds For July 9, 2007
Please post off-topic ideas, links and Craigslist finds here.
The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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Atlanta Ga.
http://www.nytimes.com/2007/07/09/business/09auctions.html?_r=2&ref=business&oref=slogin&oref=slogin
from the article:
“For example, a three-bedroom house near Turner Field, where the Atlanta Braves baseball team plays, fetched a high bid late last month of $134,000 at an auction by the bank that took possession of it. Almost three years ago, the new home was bought for $330,000.”
ouch
Oh my gawd.. That’s a haircut and a half. Wonder if the home was destroyed, or if that is really FMV for that property? Is Altanta seeing that kind of deprecation on a large scale?
I travel to Atlanta often for business, and while I am there, always try to pick up the home guides. Prices there are already about 1/2 of S. FL; I just did not think they were nearly as bubbly…
I wouldnt want to live in Atlanta and would be very cautious about living less than 20 minutes away due to the horrible crime in Atlanta. I am betting that this $134k house is in a bad neighboorhood and the speculator didn’t even do his research, he probably even bought it sight unseen and just walked away. Ouch hes gonna be paying IRS taxes on the $200k that the bank lost. Thats probably some $70k taxes!
The spuctuvestor, or his rental cliental, might have trashed the place too. Removed appliances, damaged walls, and dead or overgrown weeks for a yard can quickly destroy any value. Over-leveraged speculators normally cannot afford proper maintenance.
stay inside the ropes or between 10 and 2 on their beltway
I see that you are familiar with 285 or “the Atlanta Autobahn”…
I’d say you can go to 3:00 down to Inman Park and Candler Park to the east inside the loop. SW Atlanta is like the other side of the moon from NE Atlanta. In fact, NE Atlanta is likely more affected by prices in the Northeast, MidWest and Fla(all winning hands too
- by people moving here) than by SW Atlanta.
I’m a resident of Atlanta, and where I live, house prices are still increasing to the tune of 5-7% a year. As they say around here, it’s all about the neighborhood. I was fortunate enough to have picked a place that’s not “in”, nor “out”…adjacent to I-85 and I-285, which we call the “Perimeter.” Uber-convenient, huge lots, nice people…not much that can’t be beat, that’s for sure. As far as crime goes, this place is MUCH safer than south Florida where I lived before, where I got robbed 5 times in 5 years.
I guess this is true of most any city…pick the right neighborhood, you’re gonna be alright. But it is rather amazing to see my neck of the woods bucking the housing depression we’re seeing in so many other places. Wonder how much longer this will hold true…
Nice area….not so sure about 5-7% anywhere in Atlanta…once you get outside of the perimeter, they are building thousands of new houses which will drive prices down out there. Condo’s inside the perimeter will get nailed. Bad areas are getting nailed badly as reported….yet transition areas like Grant Park may be holding up - so far.
I’m 2 miles from Midtown and 4 miles from Buckhead in Morningside where they can’t build any more w/o buying a tear down for $350K-450K. Prices are flat, though inventory is lower than 2 years ago in this neighborhood. Lot’s of sales this spring with some going under contract this past week even. Discounting from high wishing prices is required, but when priced right stuff sells. Nice quality upgrades sell fast. People getting tired of the commute from outside the perimeter and worried about gas and time.
location, location, location… median prices are meaningless in this bubble market. one house getting creamed in a bad location has absolutely no effect on a desirable house in a desirable location. the main street media and almost all economists are missing the boat on this one, just like they missed the bubble. The higher piced homes in the desirable neighborhoods are NOT suffering, so far.
I am from Atlanta. The property around Turner Field is the drive-by area. Take your life into your own hands if you live there…ghetto. I can’t imagine anything costing $300K + there. You couldn’t pay me live in such a crime-ridden rundown area.
I can only speak for the north side of the Atlanta metro, but housing there didn’t jump into the hyperinflated stratoshpere of other markets. Thank goodness, people can still get beautiful well-made houses there. I wish I still lived there, but am unfortunately living in one of the most ridiculous markets in the US: DC metro.
Haven’t bought a home here and will not. New houses in the metro area are mostly vinyl-sided junk, and the older housing is vintage 1950 through 1980. Un attractive and much of it run down. The market is laughable, but people here don’t have a clue how much of the rest of the country lives. They believe their run-down split levels are worth $750,000. It is a joke.
Yeah, that area around Turner Field is really upscale… You want to carry TWO spare magazines when you travel through there.
LOL…
So only a 60 % reduction in price? That’s not a haircut that was a scalping. The bank cannot afford to take too many losses like this.
Looking at it the other way, if it had increased from $134k to $330k, the buyer would be gloating about his 150% profit over just 3 yrs. Hah…I say someone lost 150%
someone did make that 150%! just not him
Any news on that gal from an article who bought that condo in Atlanta at the peak who’s parents helped her get in? I think she was in RE or work for the MSM.
Not that I’ve seen…Atlantic station is a transition area…not sure how it will come out … well, I’m certain she will lose quite a lot of money…she paid more for that 2BR condo than I paid for a 1935 English Tudor brick (redone in 2000) 4BR-5Living-4Bath+basement above ground in a far better area - just as convenient.
According to the NY Times article,
“Mark Rollins bought a house southwest of downtown Atlanta for $78,000 at one of the Williams & Williams auctions. The property sold for $255,000 in summer 2004. Mr. Rollins, who is a Realtor, said he planned to live in the house for a couple of years, fix it up and resell it for $150,000 when the market recovered.”
Mr. Rollins may be a bit optimistic on resale pricing expectations. While I don’t think flipping houses will generate large profits in the near-term, one cannot deny that he got a good deal at auction. I believe there are going to be some lucky individuals who buy REO properties at auction for deep discount in the next couple of years. I’m not as convinced that property will be as deeply discounted in price for traditionally listed homes.
Quite a haircut, but a good illustration of how inflated prices had become.
The most interesting point in this article, IMHO, is the analysis of the local economy. Even though Atlanta has jobs, wages are relatively low. Prices of homes was way out of whack compared to what the majority of people can really afford.
I have no knowledge of Atlanta, but if you aren’t going to live in a house purchase. Why buy? The Realtor is just another bagholder. Yes it will eventually go up, but I would rather spend more money in a rising market than hold a loser for a decade.
Well, at approx. 1/3 of bubble pricing, he probably figures he can get out early at a small profit or break-even anyway if he wants out. (If I could get 69% off in L.A. I might pull the trigger myself… then again, maybe not in Compton…)
What makes me cringe is how badly all this guy’s new neighbors just got killed on the comps. How many just lost all the “equity” they thought they’d accumulated and more?
Well it does make sense to buy real cheap
Personal story..back in i think 1989 we sold my grandmothers house because the long term 10 year tenants moved out and bought a home Yeah right at the top of the market….so the 2 fam. house was empty
We were offered 225K, my aunt was against it saying someone offer $250K just a month before the tenants moved out… but finally we did sell it for $225K the new owners had of course their other home on the market, so now they had 2 mortgages, so they had their daughter and kids move in to the downstairs apartment……Well it made sense for them to buy since they owned a liquor/ convince store in South Norwalk and the house was probably less then a 15 minute walk to their store as opposed to a 45 minute commute on I-95
Fast forward 91-92 they had a real hard time selling their old house for any profit because the market collapsed, then we had a recession, and their store went broke, so the house fell into foreclosure……somebody bought if for $80K i think in 1993-4 but then there were high weeds and the pipes burst/ water damage to the floors when they turned on the water….so they had to spend $30K+ in repairs just to move in.
So that is my lesson for today, even 50% off peak may be too expensive, if its been unoccupied and the utilities shut off especially in a northern winter, or i can imagine the mold in Fla with no AC on for the summer months…
http://www.zillow.com/HomeDetails.htm?zprop=58800174
House “worth” $500K+ today….should have looked at zillow… the house sold for $76K in 1995…. the house was built in 1920
Mr. Rollins of Atlanta bought at 31% of peak value, and in your South Norwalk story, a buyer bought in 1993/4 at foreclosure for 32% of a pre-recession $250k offer.
bottom line: look for 70% off peak at foreclosure sales
Well it does make sense to buy real cheap
Re-read, the carry extra two magazines comment.
Cheap in a dirt bag neighborhood is like flushing your money down a toilet.
The kow-towing to illegals and the mobility of the welfare system is so huge now, it’s become a situation of not knowing what will happen to your neighborhood in an increasingly voilatile future.
My brother says it only took a decade for Patterson NJ to go from a place of industrial company executive homes to a welfare crime infested rat-hole.
The term “gentrification” is nothing more than hype for real estate hucksters.
Great points, and they show how our cities and towns will resemble those in third world someday. Expect lots more sales of fencing, razor wire, and security systems as rich and poor rub up against one another more and more. Maybe someday our politicians might regret decimating the middle class…nah…they won’t.
Well only if he lives after his first visit and the neighbors leave the house unmolested…unless he is already part of that community.
one cannot deny that he got a good deal at auction.
Will it be a “good deal” when Mr. Rollins gets robbed or his house gets broken into while he’s living there? There is a cost for everything…
Atlanta was on the groovey RE growers list
Well gang, I know something about the Atlanta market, I moved from SoCal to Atlanta because of a job transfer. It sounded great, sell my Ventura County stucco S-box and get a great big old house in Atlanta. Talk about getting an education…
The first wake up was the quality of the schools, completely sucked in most places, in the few good spots the home prices were pretty high, I could get a bigger house, but I was going to have to spend a lot to get something decent. only about 60 % of the test scores, the marginal students are not encouraged to stay.9th graders graduate, so don’t let them fool you with some of the show case high schools
The next wake up was the Realtors, mostly crooks. They will not quote you the square footage of a home. Most people do not know the size of their homes, so how can you do comps. how can you accurately trend home prices. You can’t - the Realtors completely control the market.
Coming from out of town I was considered dumb money and most of the homes I was shown were made of stucco, normal in LA, but a huge no-no in Atlanta. Stucco got a bad rap because of substandard issues. Stucco house sell in a hot market, but know, they sit, no one wants them.
The only homes that sell now are north of the Chattahoochee (SP?)river for mostly race based reasons.
Traffic is horrific. They build theses home developments any where with out making the improvements. there will be several developments on a two lane road. rush hour will take you a half hour just to get out of your development.
Atlanta is a complete mess, beam me up
Oh yea, I decided to rent, next year back to LA.
“The only homes that sell now are north of the Chattahoochee (SP?)river for mostly race based reasons.”
This is not true….check out 30306, 30342, 30305 for example. Further, the Cobb Co. African American population is growing quite fast as more make it to the middle and upper middle class. Fulton Co median income just went above Cobb Co I believe as well.
Most everything else is true. But I’d take Atlanta over LA any day.
Are you down because of the housing catastrophe? Keep on the sunny side!
http://louminatti.blogspot.com/2007/07/keep-on-sunny-side.html
Crispy, I through in some material for you.
This earnings release has some excellent quotes
Huntington Bancshares Incorporated
http://biz.yahoo.com/prnews/0707…m024.html? .v=89
$60 million pre-tax of provision expense, a $31 million ($0.08 per share) increase from the 2007 first quarter, including $25 million ($0.06 per share) related to three large credits including two East Michigan real estate credits and one Northeast Ohio commercial loan
The Spring and early-Summer selling season is important for homebuilders, and while we had expected softness, in the case of East Michigan, it turned out to be far worse than planned
This is nothing just wait until the third quarter reports come out for the banks.
Encore!!!!
“Through”? Dammit.
You had me looking for hidden meanings.
The picture at the end says it all “I am Screwed”…
I liked the puppies best, myself.
Good work fella.
What a hoot! Thanks, great way to start the day.
Lou — That is yet another classic. Have you submitted your Housing Bubble documentaries to the National Archives yet? I expect to show them to my grandchildren some day.
Your kind words are very appreciated! If there’s one video deserving archive status, it’s the infamous roller coaster from Speculative Bubble.
http://www.youtube.com/watch?v=kUldGc06S3U
As a native Atlantan I can tell you those prices are still way too high. The neighborhood near Turner Field is marginal at best; it was a ghetto between the interstate and an old middle class neighborhood that has that has been slightly gentrified with horrific schools. Those old shotgun houses used to go for $50,000 in 1999.
I wouldn’t pay $50k to live in that undesirable crime location when I can get better in NW PA for the same money.
My wife and I have stopped looking seriously, but now go to open houses occasionally for fun and to get a better idea of where we want to live once we decide to buy.
We looked at this house over the weekend. MLS: AX6333198
It was built in 1930 and it shows. No garage or even a driveway for off-street parking. They are asking $675,000 for a house that looks like absolute crap on the inside, exposed pipes and wires everywhere. The showing agent made a point of telling us that its priced right and below assessment. I just said “ok” and walked away. Theres no point in arguing, the house not selling is the best argument. I’ve noticed its a popular trend among agents to say “its priced below assessment.” I wonder how many people then believe its a good deal.
“its priced below assessment.”
Yes, but will it ever go below “market value”? That’s what FBs want to know. (snark)
Reminds me of a house that I pass on a weekly basis. It’s been sitting on the market for close to 18 months. About a month ago, the owner put a big sign that read “priced below market value”. It was the butt of a couple of jokes between my husband and I.
I can’t resist responding to Craigslist RE adds where the seller or realtor claims the house is “priced below assessment.” I point out that given the rampant, documented mortgage fraud of the last few years, including inflated assessments, no intelligent buyer would take those assessments at face value. It puts them on notice that the tricks that worked in 2004-2006 don’t cut it anymore.
Right on!
Hahaha thats a joke! I am guessing you live in the Bay area or OC California. Wait a couple years, I bet that house will be $250k and probably torn down too with a new one built in its place.
Priced below assessment. Comes with free referral to lawyer. Perfect for hobbyist who wants to spend the next several years trying to get the assessment lowered!
Yes, but look up assessment on the auditors sight and most times you’ll find it’s priced way above assessment.
ot but gold is jumping 7$ over 660$.
http://www.kitco.com/market/
Gold up $8.60 as of 8:59 EST. Not off topic if it’s an early indicator that the smart money is rushing into safe havens instead of real estate.
I am no gold bug, but that is an indicator that some people are buying gold. For me a 5.25% MM that has no mortgage backed securities in it is the way to go.
Mind telling us what MM fund has no mortgage backed securities - I’d be quite interested in finding one…
Vanguard Prime money market
Also check out Schwab US Treas Money FD, (SWUXX). 100% invested in US Treasury Bills. Even the prospectus states the only Schwab MMF 100% guaranatee by the “full faith and credit” of the United States.
It is about as safe as you can get!
I read their securities holdings statements and see no reason that they would not hold any MBS. They have a category called “other” and on the prospectus. “More than 25% of the fund’s assets are invested in … real estate related companies.”
http://tinyurl.com/2xs33m
Vanguard Prime is what I was referring to.
I checked extensively, and Vanguard Prime MM has a large percentage of MBS. I actually read the fine print of the quarterly reports. I’d guess 25-50% of the holdings.
Actually, all the big MM funds hold tons of MBS. Fidelity has huge chunks, like billions, lent out to directly Bear Stearns in the form of CD’s - I’d be real, real nervous about things like this in supposedly rock solid MM funds. And Bear Stearns just gave up 1/4 of it’s capital to prop up the hedge funds? That’s reassuring.
When I tried looking up some of the mysterious holdings of the Prime MM fund (”Old-Line Funding”, etc), they have very little web presence, which is troubling enough, but what I could find out is that they are more or less MBS securities. I think these entities hold MBS and “lend” out the securities. They make their money off of interest rate arbitrage . I get really nervous about shell companies set up just to do this kind of stuff, and want nothing to do with it.
In addition, all the “re-purchase agreements”, which I don’t really understand, are all backed by MBS securities, and they are more than just a few billion in the huge Prime Money Market fund, $90-$100B total assets I think.
The Prime MM fund is probably fine, and it certainly does pay the best of the MM funds. But, I don’t invest in stuff I don’t understand. Easily accomplished - I moved all my Prime MM into the Treasury fund, which pays less interest (no state income tax however), and it holds only US Treasuries, backed by the full faith of the US govt. I understand that.
You are wrong if you think that you are backed by the ‘full faith” etc of the US government in your mutual fund.
The fund itself might be so backed, but you are not. The only way to be so backed is to own treasury securities directly, and that is not at all hard to do. And you will not have to pay a fund management fee.
More, you don’t have to worry about redemption if the fund companies goes insolvent, or otherwise needs to bail out some of its own funds (read your prospectus if you think they cannot do this).
Good points. If Vanguard becomes insolvent, we’re all screwed anyway, so it won’t make any difference.
The treasury MM account at Vanguard are 100% pure, very short term treasuries, you can look it up at Vanguard’s website. A far cry from the garbage the Prime MM account has.
Of course, no MM account is guaranteed at $1/share. One that is 100% short term treasury, is just a whisker up in risk from outright owning the treasuries yourself.
Vanguard charges 0.15% yearly management fee, which is worth it to me, so I don’t have to deal with the “Treasury Direct” program at the treasury dept.
It’s never a bad time to buy gold, silver, or platinum, as long as you don’t throw in all your money at once. With real estate, unless you have $10,000,000 set aside for investing, you have to throw all the money in at once. You have to time the market. I’m buying platinum coins in units of 1 ounce this month. Not today. If the price goes up $100 per coin by that time, no biggie. I take small bites.
“With real estate, unless you have $10,000,000 set aside for investing, you have to throw all the money in at once.”
Ever hear of REITs?
Why are you buying coins? Why not just buillion?
wasn’t gold already at 695$ a oz a feww weeks/months ago?
State of Pa. partly shutting Down today? Aren’t the RE taxes there pretty high allready ? Here in upstate S,C. maney owner occ. houses are taxed at less than $600. per yr.Hows that compare ? And we’re still open.
$600 annual property taxes? Must be a single-wide.
“You’re a redneck if your home is mobile and your car is not.” Doggone, can’t remember the comic’s name who uses that one.
Jeff Foxworthy?
Yep. Thanks.
You can get a $80k to $100k CBS or brick house in Tennessee and some parts of Georgia with a $600 tax bill. The same probably applies to other states that didnt see much of a bubble. Even Florida may be the case if the $200k “super exemption” gets voted. Also as house prices go down, taxes will go down too.
In PA you don’t always get to vote on tax increases. I don’t know about all services, but if the schools need more money it’s added onto your taxes automatically. No vote.
Was watching a “sell this house” type show on HGTV last night. Two “experts” come into a house and say why it isn’t selling. One of the houses was 2 bedroom, 1 bath “craftsman” in pretty engh condition, with a freeway literally across the street. List price = $725K.
WHAT???? People that make $275K a year are going to want to live there?
The experts thought the price was a problem. Should be listed closer to $650K. WHAT???? $6K a month? $200 a day for a crap house with a freeway in the front yard?
Seems to me that SoCal is headed for a 3/4 price drop, not 1/2 like PHX.
The best part was that at the end they said “they took the realtors advice” and dropped the price to around $714k. Wow, a 11k price drop. I just shook my head and turned off the TV at that point.
Was that in San Francisco? I checked prices before the bubble and they were 3.5x to 4x cheaper so I can expect a 60-75% off peak prices. Therefore something for a million at the peak should cost anywhere between $250k and $400k. People want to live in those “desirable” areas so prices historically have been high even in non bubble times. Prices rose faster in that area so they will fall more.
i can’t sit through even 5 minutes of that bogus “flip” show. IMO, just another PR game to perpetuate the illusion that it makes perfect sense to pay astronomical money for a shack that ain’t worth 1/2 of what they want. i say let’s go right back to 2003, add 15% and there’s your price. until then, i’ll keep renting.
It wasnt’ a flip show. It was people that have owned the houses for years but now want to sell. The ‘experts’ come in and say, repaint this, re-arange that, clean up the other thing…
It featured 2 properties. 1 was the 2/1 1200 sqft crapbox with a freeway for a front yard for $725K.
The second was a new addition, full remodel that wasn’t quite finished. It was on the market due to divorce. Lots of “we couldn’t agree on what fixture to put there” or “we disagrred on what to do there” type comments on why stuff wasn’t complete.
My fiancee and I were wondering if the stress of the remodel, along with realization it was all for nothing in the falling market, had anything to with the divorce. We agreed it probably was a deciding factor. I know there was a lot of stress finishing up the few projects we had to do to get our house on the market.
Ben Bernanke has assured all that ’subprime is contained.’ But isn’t his job to contain inflation?
Is inflation contained? Maybe if you ignore food, energy and housing prices.
———————————————————————————–
IEA Warns of Impending Crunch in Gas Supply
By Bhushan Bahree
Word Count: 342
In a dire forecast, the Paris-based International Energy Agency is warning of an impending crunch in the supply of oil and natural gas needed to power world economic growth in coming years.
The IEA is the energy watchdog of the world’s 26 most-advanced economies, and its pessimistic assessment is contained in its latest annual medium-term forecast to 2012, which was released Monday.
http://online.wsj.com/article/SB118397769578260737.html?mod=home_whats_news_us
Now THERE’S the reason the world will be changing over to renewable energy in the future. There won’t be enough of the old kind. Lack of supply, rather than arbitrary government regulation, should be the driver.
Exactly, Bill, necessity is the mother of invention. The only problem is the period of time between the old and the new technology, that’s when things could be pretty miserable. I’d like to see a smooth transition, but I’m not so sure it will happen that way.
I read a story over the weekend about Gore Vidal trying to get his solar system up and running in California (Hollywood Hills, I think). He’s being pestered to death by all the officious little government departments inspecting, demanding changes, etc. No matter what you think of Vidal, his statement that the oil companies will prevent new technologies from coming on line to any great degree until the last drop of oil is wrung from the earth is pretty accurate.
When I first lived in FLA during the early ’80s, energy prices were so ridiculous that people started going solar, starting with their pools and water heaters. And then all of a sudden energy prices dropped like a stone. Interesting dynamics at work.
Anytime a major evolutionary event occurs (for example, the start of the Industrial Revolution), the changes are unsettling to many and downright disastrous to some (candlemakers, buggy-whip manufacturers, etc.). But government attempts to intervene and/or control the changes just make things worse.
I agree with you longterm. Meanwhile we will have to live through a period of high inflation, driven by energy costs…
and lax monetary policy.
The idea that there ought to be no standards, no level playing field is completely absurd. Yes, markets, any market is distorted when any outside force, government or otherwise impinges on that market where they create an unlevel playing field. Please, enough of the ideological pandering.
Sorry but the current overpopulation of Earth is based on the oil economy. I don’t care how many windmills you build, there is going to be a massive die-off at the end of the oil age.
I say famine and disease will do their toll. People don’t need fossil fuels to survive
Somehow for around 40,000 years we survived, sans oil.
Somehow for around 40,000 years we survived, sans oil.”
In much smaller numbers.
You say people don’t need fossil fuels to survive — that might be true once someone builds a solar powered tractor. There’s also petroleum based fertilizers. And the produce in your grocery store didn’t exactly sprout legs and walk there by itself. Refrigerators and freezers run on electricity which comes from… mostly fossil fuels. Sure, we could go back to using oxen and manual labor and natural fertilizers and beef that transports itself most of the way to the grocery store, but we wouldn’t produce nearly as much food as we do now, or transport it nearly as far, or keep it fresh for nearly as long.
“that might be true once someone builds a solar powered tractor”
There will be no solar powered tractors. Sunlight is too diffuse of an energy source to power a tractor.
“there is going to be a massive die-off at the end of the oil age.”
Doctors Without Borders will do their best to prevent that from happening. Are their current programs only making things worse by delaying the “die-off?”
Ummm…. no.
There is a direct correlation between population growth and energy consumption - however it’s a reverse correlation. Countries with the greatest native population growth are also the countries that use the least per-capita energy. E.g. the U.S. is the highest energy user but has near-zero (or negative maybe?) native population grown. China, India, and most countries in Africa have the highest population growths but the lowest energy usage per-capita.
In general:
Prosperity = High Energy Usage
Prosperity = Low Population Growth
Faulty argument. China and India are starting from a very low base but increasing their energy use rapidly as they industrialize. China is set to become the second largest user of energy behind the US.
Also, I said there would be a die-off, but it will not be everywhere equally. The poor nations of the world will suffer worse than the rich nations in the coming energy collapse.
U.S. population is GROWING, mostly from immigration, and is now 300 million.
Maybe in the nations that are so dependent upon oil. Nations that are not, and have a lifestyle of low usage (whether voluntary or not), won’t have the same problems or “die-off”, imo. It seem to me that there is plenty of “die-off” occurring just fighting over the stuff.
I don’t know about Argentina as a whole, but in the rural area where we live many people don’t have vehicles. Vehicles are very expensive to buy and maintain for the average Argentine. I see vehicles older than I am (pushing 50) that are held together with the most interesting materials. Headlights, fenders, bumpers, mirrors and even doors and windows are optional features. Most Argentines ride their bikes or scooters or take the bus. (The buses here run out into the country.) Some ride their horses or ride in horse-drawn carts. Some walk and hitchhike. There are small mom-and-pop general stores all over. Medications are delivered by ice cream vendors on their bikes with a covered milk crate strapped on the back or front.
The average home does not have central heating but is heated with wood. Electricity is available, though not reliable, and the houses are not wired to handle many electrical gadgets, including stoves which mostly run on wood or propane. Bread is often baked outdoors in a brick bread oven. Meat, vegetables, etc., are frequently cooked outdoors on a parilla (the Argentine version of a grill) using wood.
Food is grown locally or shipped in from other areas within Argentina or neighboring counties such as Chile or Brazil. Imports from outside of South America are very expensive, and since most folks can’t afford them the local stores don’t stock those items. Most processed foods don’t sell well here, again because folks can’t afford them. The Argentines do love their Coke and Sprite, though. They also love Rocky Balboa, Laura Brannigan (spelling?), especially the song “Gloria”, and the Simpson’s. An Argentine singer/entertainer won’t speak a lick of English but can sing “Gloria” perfectly. But I digress.
This really is the way people live here in rural Argentina. I admire their ingenuity–those that don’t steal, that is– to make do with what little they have and wonder how many of us could do as well in their situation.
Interesting viewpoint.
Note that Argentina was a century ago one of the most prosperous countries in the world.
“Rich as an Argentine”
http://libertyunbound.com/archive/2002_09/cox-argentina.html
I think Argentina will do very badly after the oil age. The majority of the people (19 million according to Wiki) live in the province of Buenos Aires. How will those people support themselves? Will they grow food in the plazas of Buenos Aires? If the countryside is as impoverished as you say where would an exodus of cityfolk go? Not a pretty picture.
Maybe, but I’m not sure the portenos (a term used to refer to the cosmopolitan folks residing in BA) would know how to get to the countryside without traveling in an air-conditioned, double-decker tour bus. I suspect most of the rural folks in Argentina have the same regard for their city dwellers as many American rural folks do. Good riddance.
Kidding aside, the Argentines have weathered much since the first Peron administration and seem to survive all sorts of trials and tribulations from financial meltdowns to military coups. In addition, the Argentines have some friends, some of which–Venezuela and Brazil, to name two–are sitting on some nice real estate with a bit of oil. They might be willing to share some until the American military runs out of recruits (ala the Roman approach) or money (ala the Fed printing press), tires of being the number one global terrorist hunter or invades South America to protect itself from Weapons of Mass Destruction and those “unknown unknowns”. (There are some pretty nice deposits around the Falkland Islands as well, though I don’t think the Brits and Arges have really made up since the Falkland Wars.) Or, maybe the big petroleum companies and their cabal (err, I mean partners) will be able to make enough money off of global carbon footprints and offsets (e.g., taxes) to investigate/let alternative technologies see the light of day. Who knows?
I was just in California for the past week visiting family. Everyone we know knows at least two other households who are teetering on the brink of foreclosure mostly due to HELOC activity. Thing is…none of these folks fall into the sub-prime ranking; most would be alt-A or better, IMHO.
Exactly.
Which is why I call it the “Alt-A Bay Area” around here.
[Alt-A Bay = SF Bay]
I was just talking to a family that owns two houses. Mortages were based on teaser loans. The head of both households finally realized that he was getting screwed when his principle(s) were going up big time. He had to refinance the first home, took that equity and put it down to qualify refinancing for the other to 30 year fixes. He took a bath. He didn;t blame anyone other than himself. Lesson learned.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aYI2UsYtBtQU&refer=home
“CDO Losses May Be $52 Billion, Credit Suisse Says”
Puuuuuhhhhhhlease!!!!
$2.6 trillion in outstanding CDOs. We’re just at the start of the bust, and already the Bear Stearns liquidated CDOs couldn’t get $.80 on the $1.
Let’s try $1 trillion in losses on CDOs!!!!!!!!
Darrell in Phoenix,
Credit Suisse ain’t gonna admit it along with most banks and institutions playing footsie with hedge funds and CDO’s/derivatives.
When a lot of the big boys and major players have left or already left, then the house of papered over I.O.U.’s will come in. Little guy will be leveraged in to doing “bag holding”, a noble occupation of most working and middle class people in America.
All signals tell me it’s time to invest heavily in Credit Suisse 24k Certificated Dense Ore (CDO)
CDO = Collapsed Debt Obligation
‘Let’s try $1 trillion in losses on CDOs!!!!!!!!’
I guess so long as the losses remain unrealized, they won’t exist in the eye of the MSM?
Let’s try $1 trillion in losses on CDOs!!!!!!!!
I say the potentional cumulative loss numbers will be way north of your number based on the weird indecipherable components of all the leveraged derivative and hedge bets that have been made, plus the fact this debacle is easily 10X the $500 billion S&L clean-up.
I mean WTF…Synthetic CDO’s?
Gimme a break.
well, the stock market collapse a few years ago was extimated to be 5 trillion $. we’re still here, nursing the following bubble.
Some high-end markets are evidently showing signs of price weakness. (And thank goodness that asset prices are not part of inflation; otherwise the numbers cited here would suggest the Fed has not done its job very well since the early 1970s.)
Martha Stewart House
Sells at 26% Price Cut
From The Wall Street Journal Online
Martha Stewart sold her Westport, Conn., estate for $6.7 million — 26% below the asking price.
The four-acre property, known as Turkey Hill, includes a 3,168-square-foot, three-bedroom farmhouse, built in the 19th century, a converted carriage house and a “party barn” that Ms. Stewart used to entertain guests. The property also includes a pool and gardens. Records show that Ms. Stewart and her then-husband, Andy Stewart, bought the property in two parcels in the early 1970s for a combined $80,750.
http://www.realestatejournal.com/columnists/private/20070709-private.html?mod=RSS_Real_Estate_Journal&rejrss=frontpage&rejpartner=wsj_hpp
wow whoever bought it got ripped off badly! Just because someone famous owned the house is no excuse to pay 5-10x times FMV!
Well… It is Westport, CT. Ground zero of yuppification and hollow gentrification silliness in CT.
Amen, brothah! (or sistah, whatever)
Brutha Palmetto, Brutha!
Westport’s gorgeous; so is Greenwich, but fabulous homes with land were going for 50k there back in the ’70s, and that was considered pricey. Everything costs a fortune these days, but paying eighty times what Stewart paid is downright stupid.
Whether that price is over FMV depends in part on relative appreciation of Westport real estate relative to the rest of the world and also on inflation since the early 1970s.
19% per year for Stewart’s house (assuming 25 years).
Then again, I’m sure she larded it up with improvements as well so it wouldn’t be a straight 19% per year, no?
that is nothing compared to this
A Rothko sells for 72.84 million.
http://www.iht.com/articles/2007/05/16/arts/melik17.php
Interesting point:
I know Darien and i think Westport wont allow any 2+ family homes to be built….they don’t want renters in their cities…condoz OK but not rental apartments.
My computer broken past seven days. Good to be back here.
My tenancy in a spec house will probably continue a while even though the house is under contract to be sold. Both the agent and the builder are telling me the buyer has another house to sell and will not be wanting to move in here right away. Wonder what deal the buyer will offer me.
az_lender,
I’ve been looking for you. I know you buy Aussie bonds. Spoke to the fixed-income folks at Vanguard this am, and they do not handle non-US denominated bonds. May I ask who you use to buy, if you don’t mind?
all best,
spike
az_
Funny that, you the renter calling the shots~
Shocking news from today’s WSJ: Book value is not a reliable measure of homebuilder share prices when land prices are sliding.
How many years ago did we have this discussion here? How can the stock market stay so stupid about something so obvious for so long? Tis a puzzlement.
Rule of Thumb Hammered
By Michael Corkery and Karen Richardson
Word Count: 1,008 | Companies Featured in This Article: Beazer Homes, Hovnanian Enterprises, Lennar, Toll Brothers, KB Home
A year ago, home-building companies looked like bargains. Looks can be deceiving.
Many companies were trading near book value — a rough estimation of what they would be worth in liquidation and typically a green light to investors to buy the stocks. Turns out it was a faulty signal, and one that is flashing to hopeful investors again.
Value-seeking investors bought into the sector, and the builders’ stocks surged toward the end of last year. But the subprime debacle and a rising supply of unsold homes have sent home-builder shares plummeting, erasing most of their gains.
So this time around, investors may be gun shy about following the old rule of thumb of buying the home builders at book value and selling after the shares have appreciated to at least twice book value.
The problem is that book value is more of a moving target than a sure sign of a bargain. Book value is a companies assets minus its liabilities. Typically for builders, their largest asset is land, which in some cases, amid falling home prices, is no longer worth what they paid for it. That has forced builders to write down the land on their books. Meantime, the builders are still paying down the debt that they used to buy much of the land.
http://online.wsj.com/article/SB118394489186360570.html?mod=todays_us_nonsub_money_and_investing
Will the subprime meltdown spill over into the corporate debt markets? Or is subprime still contained?
Credit markets
You only give me your funny paper
Jun 28th 2007
From The Economist print edition
Debt markets turn grouchy as creditors ask for more
Satoshi Kambayashi
BEFORE the brain was established as the body’s ruling organ, the stomach was thought to be king. Descartes may have thought and therefore known that he was, but he reckoned that most of his moods were regulated by his guts. Credit markets seem never to have adjusted to this reordering, and still think with their stomachs. This week they were grumbling, and several big bond sales were postponed until they settle. “It’s not a buyers’ strike,” says Paul Read, a bond fund-manager at Invesco, “but a bit of indigestion.”
Until two Bear Stearns hedge funds got into trouble last week, things had been bubbling along merrily in the credit markets. Last year default rates on high-yield bonds fell to their lowest since 1981, according to Edward Altman of New York University. They have stayed low this year and, with healthy corporate profits and plenty of liquidity, there is no reason to suggest that is about to change.
Even so, there are signs that investors still holding American subprime mortgage debt might not be the only ones feeling a little queasy.
http://economist.com/finance/displaystory.cfm?story_id=9413745
This is so highly amusing since junk debt is so prevalent in the market and has been so for years. Last year S & P said that 61% of the corporate debt in the US was speculative grade (junk bonds). This year it is reporting 74% is speculative grade. Europe is worried about its debt structure and their credit rating is 60% investment grade and 23% speculative grade.
The overall median issue is now BBB- (from A- in 1992 when 72% was investment grade). When interest rates go up a lot of S & P 500 companies are going down.
Long-term Treasury bond inflation risk premiums are contained.
http://www.marketwatch.com/tools/marketsummary/
Headline stock market indexes are bouncing up off their opening bell levels like a cat off a hot tin roof.
Mendacity. What do you know about mendacity? I could write a book on it…Mendacity. Look at all the lies that I got to put up with. Pretenses. Hypocrisy.
Burl owns that part.
I have one thing to say to Wall Street bulls:
BOO!
Doesn’t anyone else besides me find it curious how all the headline indexes turn around from the beginnings of a selloff like a group of synchronized swimmers? This is prima facie evidence of intervention by an entity with overwhelming market power.
Yes, but ‘da boyz’ have passed the point of diminishing returns. The manipulation now requires outside players (China, Japan, ECBs, etc.) who aren’t following the script any more. It’s the great unwinding/snapback…and I feel fine.
N N Taleb on “Opiates of the Middle Class”
- Hint: It ain’t religion any more.
- Must read for Bill in Phx (and the dearly departed Gekko)
http://www.edge.org/3rd_culture/taleb05/taleb05_index.html
A quote:
“Religion gives many people solace. On a personal note I have to admit that I feel more elevated in cathedrals than in stock markets — be it only on aesthetic grounds. If I were going to be gullible about a subject, I would rather pick one that is the least harmful to my future — and one that is rewarding to my thirst for aesthetics.
It is high time to worry about the opiates of the middle class.”
BTW,
What did happen to Gekko?
Fair is foul, and foul is fair:
Hover through the fog and filthy air
Home Depot, Lowe’s Cos’ estimates trimmed by Goldman
By Andria Cheng
Last Update: 8:56 AM ET Jul 9, 2007
NEW YORK (MarketWatch) — Goldman, Sachs & Co. on Monday trimmed estimates on both Home Depot Inc. [s:HD] and Lowe’s Cos. [s:LOW], the two largest U.S. home improvement retailers, as the subprime mortgate fallout pressures the housing market. It upgraded Home Depot to “buy,” citing factors including changes in management and business mix.
http://www.marketwatch.com/news/story/home-depot-lowes-cos-estimates/story.aspx?guid=%7B56F224D4%2DCAC8%2D4742%2D9083%2D00B752C6062F%7D
NATION’S HOUSING KENNETH HARNEY
Subprime loans target of new U.S. guidelines
July 8, 2007
WASHINGTON – It won’t mean the end to no-income verification or high-risk mortgages for subprime home buyers, but new guidance from federal financial regulators will almost certainly cut their availability sharply.
In a long-awaited policy statement on loans to borrowers with imperfect credit histories, federal financial regulators on June 29 urged banks, credit unions and their mortgage subsidiaries to verify income, assets and employment on all loans except in special cases where borrowers could demonstrate substantial financial reserves.
http://www.signonsandiego.com/uniontrib/20070708/news_lz1h08harney.html
Only no doc loans done here in the early 2000’s were if you put 50% down.
They might make sense in that case…
“CDO Losses May Be $52 Billion, Credit Suisse Says”
Maybe that’s their portion.
Lending a hand
Bill would help get FHA back in mortgage game
By Emmet Pierce
STAFF WRITER
July 8, 2007
With the troubled subprime loan industry beset by foreclosures and tightening credit, lenders and lawmakers are attempting to resurrect a 73-year-old government program to help take up the slack.
Once a top choice for first-time home buyers and people with credit problems, loans insured by the Federal Housing Administration have lost their luster in recent years.
During the U.S. housing boom that raged between 2000 and 2005, FHA was a minor player. That’s largely because FHA’s lending ceiling of about $363,000 is too low for pricey markets. It doesn’t begin to approach San Diego County’s median single-family resale home price, which stands at $557,500.
In Congress, pending legislation seeks to raise the ceiling to $417,000, a move that would put FHA buyers here back into the starter-home market.
http://www.signonsandiego.com/uniontrib/20070708/news_lz1h08fha.html
The National Association of Realtors has been the third largest contributor in American politics since 1989:
http://opensecrets.org/orgs/index.asp
Now that the market volume has dropped slightly, back to 03/04 levels, and prices have plateaued, the NAR is going to want some return on their investment.
The politicians they’ve purchased I’m sure will be happy to oblige with taxpayer money.
Not too surprising where
The National Association of Home Builders
chose to put their money. Looks like they are getting what they paid for in more ways than one.
You know, as bad as this is, if the FHA would just refuse to lend to anyone if their 30 year, fixed rate, fully amortizing mortgage payment plus homeowners insurance plus property taxes plus reasonable allowance for serious repairs was equal to no more than the lower of 28% of monthly salary or 50% of monthly take home at the time the loan is MADE, I wouldn’t care. Then they can raise their upper limit as much as they want. Though I doubt they really consider themselves in the business of lending to people with salaries that excede $150,000
I don’t see why FHA is loaning to people who qualify for a regular fixed rate loans anyway. I watched many people buy with FHA loans350k homes in an area where average was 150k. I may be wrong, but originally I thought it was there to help people who couldn’t qualify for regular loans.
If the human touch in stock markets is shrinking, then what makes them always go up?
FINANCIAL STOCKS
Bad loans, shrinking specialist firms in focus
By Greg Morcroft, MarketWatch
Last Update: 10:27 AM ET Jul 9, 2007
NEW YORK (MarketWatch) — Increasing problems with mortgage loans and the rapidly shrinking human touch in stock markets dominated news in the financial sector Monday.
http://www.marketwatch.com/news/story/financial-stocks-bad-loans-shrinking/story.aspx?guid=%7B414DB58F%2DBC02%2D4945%2D8D6F%2D8F438F99DB93%7D&dist=hplatest
The Equity Premium Puzzle is an idea in economics that one can always do better by investing in stocks than in bonds, because stocks consistently go up in value by more than bonds in the long run. I am curious whether anyone has considered the Greenspan put policy as an (obvious) explanation for this persistent anomaly?
I don’t even know why I bother to show up these days.
?
IMHO since 1982 US bonds have outperformed the stock market. The assumption is that bond appreciation and yields are reinvested in bonds and stock dividends are reinvested in stocks. The annual rate of returns in US bonds over the last 25 years is ~14% and I believe the S & P 500 is ~13%.
Nice point, Hoz. Of course, the measurement of which asset class performed better is heavily influenced by the measurement date.
Can you let me know where I can find these 15% bonds?
I mean 14%
Packman the drop in US interest rates over the preceeding 25 years resulted in the greatest equity increase in bonds. The yield went from 14% to 3.5% with equity appreciation from par to 125%. In 2000 you could buy 10 year bonds trding at 82 yielding 8% that in 2 years were trading at 120. A nice chunk of bond appreciation.
For the history of US gov bond appreciation try PIMCO’s website.
Well in the year 1982 of course.
Yog, what I mean to say is that in the year 2000, one could by a 100K us t bond for 82 K; 2 years later this same bond traded at 120K.
Not a 1982 bond. Bond yields have dropped for 25 years and bond LT appreciation has correspondingly increased.
On another forum, the people are in denial thinking house prices in SF or the bay area will drop only 20-30% and that the government or feds will lower interest rate to bail us out. Wow I hope not because inflation will run off! I also say house prices there will drop 60-75%
bye, i see the same thing in MANY forums. it’s really recent buyers, hoping against hope that they’re really something other than FB’s. to me it’s all about the first time buyer, what they earn and THAT is what sets the price to get into the game. all this funky financing comes with a price to be paid, and we’re seeing the beginning of that right now. don’t believe the hype.
60 - 75% drop ?? Aint happening man.
That would need a) Depression b) Earthquake in the SF region c) Apocalypse
In case you are wondering….I don’t own a home. Just a realist.
What would a realist have said in 1999 if you were told “in the next year or so, the Nasdaq will lose 80% of it’s value”?
Apples to Oranges. Losing 80% value in a market which was driven by companies with virtual presence, selling pipe dreams to exuberant investors is not the same as losing 60 - 75% in a tangible asset (even if vastly overpriced)
Not to mention that people *need* a roof on their head, but will absolutely put off buying things from pets.com
Had to go to Bakersfield this weekend and learned a lot about what people in town think. On approaching town from the west on Rosedale highway I was met with a sign that said “For a free list of foreclosures in Bakersfield call ###-####”.
Later Saturday I talked to one farmer from the Buttonwillow area, a noted dairyman’s wife, BIL (school district), a hospital worker and all had different takes on housing or life in the SJV.
While in Bakersfield I visited with one of my BIL’s and mentioned something on housing. I don’t even remember what I said to set off a tirade but the gist of it was:
1. Housing prices are not declining. He knows because he looked at foreclosures and the prices hadn’t dropped they were only going sideways. He didn’t believe that houses were selling for less or builders were selling for less or that new houses would be selling for less then they were purchased. He hoped to buy a foreclosed house at a deep discount(because it was a distressed sale) and yet be able to sell his property at his wishing price. He didn’t understand that decreased pricing by builders and foreclosures set new comp values especially more so with appraisals being dependent based on cost-per-sq-ft to build. I told him that I wish him well but I plan to stay in Monterey Co. as the air quality, and quality of life is superior to BK to which he replied, “Everything has its cost and you can’t afford to buy up there.” I replied, “True, but I can live (rent) in a $650K house for $1500/month, put money in the bank and when housing comes down in the next five years chose where I want to live without having to sell my existing house first.
Keep renting. You will get the last laugh as that $650k house drops to $250k and if not you can relocate anywhere without worrying about selling the house for a huge loss like many others.
‘True, but I can live (rent) in a $650K house for $1500/month, put money in the bank and when housing comes down in the next five years chose where I want to live without having to sell my existing house first.’
I think you are onto something there. I like one comment someone made about how when you rent you are at mercy of landlord not to kick you out if they want to sell the place. The thing is, when the market for sellers sucks, landlords are not apt to kick you out. Renters are not looking too stupid right now.
Plus YOUR LEASE goes with the sale of the house, and a Lease works BOTH WAYS
If the landlord or new owner wants you to break your lease they have to pay you to move….
So its a good idea to have a lease if you think the landlord will sell in the future……Mine wont sell, he will die here, then the kids will take it over.
Plus YOUR LEASE goes with the sale of the house, and a Lease works Both ways
Not in every state. A lot of leases terminate with the sale of the property.
BK Dairyman’s wife: Gist of conversation. Bought 2 1/2 acres in the late 1990’s for $67K. Built house on property, total cost house and lot, around $300K. Felt they could sell for around $850K. When I brought up income of prospective buyers needed to finance such a loan, the fact that this buyer pool is reduced further by those who don’t want to maintain that much acreage and who don’t want to drive that far from town because of congestion and high gas prices, she replied that I didn’t understand because her property was unique. It was different because there were people in BK that had lots of money and they wanted ’specialty’ properties like hers with acreage. Conversation was lighthearted and fun but she was serious unlike conversation with BIL.
Thats what my parents in south FL say about their big house on 1.38 acres. They don’t plan to sell anytime soon, maybe never. If that house was mine, it would have been sold in 2006 as soon as I realised prices were “easing” and I would have priced it 10% below comps. Two of my neighboors sold to fools that overpaid and they will lose 30-50% of their equity.
They sound like idiots, so be glad that you don’t understand.
*this is what I said in another forum, but wanted to share it here too. Very good advice*
I read all of it and people on another forum are predicting a 60% to as much as 75% drop. Thus, a $1m house will drop to $250k to $400k in order to be in line with salaries. One poster here makes around $100k a year which makes him “rich” yet he can’t afford even a 1/1 “box” condo that costs $400k!
What will those making “only” $50k a year afford? They would be renting or relocate(which droves of people are doing) where houses are much cheaper and not as bubbly.
Therefore for this $50k person to afford even a 1/1 condo, itll have to drop down to about $125k which represents a 3.2x drop, thats 68.75% off peak prices. You could rent that $400k condo for like $1200 a month and in fact this friend I know was getting it for $750 a month.
With such a huge disparity in rents, salaries and house prices, its obvious how severe the correction is going to be. One only needs to look at 1998 prices to see what they were before the bubble and adjust accrodially.
Even if you have that 20% downpayment saved and can afford a fixed 30 year mortgage, why would you pay as much as 3x more than what it costs to rent? Anyone who buys now will lose their downpayment and owe more than the house is worth. I am waiting 2-3 years for prices to correct then ill get a nice house cheap anywhere(considering northwest Pennsylvania)
Conservation with Farmer from Buttonwillow about 20 miles to the west of the outskirts of BK.
1) His CPA told him cash was king. His CPA sold all his beach property on the central coast last year as well as his land holdings in BK except for one commercial property. His CPA told him that if these idiots were willing to pay these prices for acreage that it was time to sell, put the money in the bank and buy things back in a few years for pennies on the dollar.
2) The farmer told me that 2005-2006 that he could have sold his beach house in cuyucus a block from the beach for $1.2 mil but would be lucky to get $850K now. He said that coastal properties (central coast) were dropping like a rock but he didn’t know why.
3) Farmer told me that raw land in BK that sold or was appraised last year for $28K per acre is now selling under $12K and that he expects it to go below $6K in the next couple of years.
Now for the medical view. Hospital can’t get qualified help. Where they have 44 positions in the lab area they can now on locally staff 21 positions. Per diem pay around $37 per hour and they have contracted with national agency at $80 to bring people in on 13 wk contracts. Really paints a dismal picture for BK and the whole SJV.
Cambria on the coast. Homeowner told me that her neighbor has property up for sale. Wishing price, $350K. Local RE bought the property last year for $150K and a week later relisted for $350K. Why, because it may have future water rights. It seems that 70 pieces of property where awarded numbers for future water if a coastal desalination plant were to be built and owners of these parcels feel that they can flip them for a tidy sum.
June numbers for San Diego:
http://www.sandicor.com/statistics/stats2007/06statistics.html
Median June 2007 SFR sale price for Rancho Bernardo West (92127) = $760,000.
Current median SFR list price (ziprealty.com)= $1,444,000.
Gap between current SFR median list price and June 2007 median sale price = $1,444,000 - $760,000 = $684,000.
Impressed by the PPT support for homebuilders? That’s nothing compared to this story about how they keep GM floating:
http://www.financialsense.com/editorials/englund/2007/0709.html
But then again, why wouldn’t GM (with a net worth of negative $48.5 billion, total liabilities of $190.4 billion and a net loss, in 2006, of nearly $2 billion) show stellar stock performance?
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