The Housing Bubble

Stop trying to threaten our way of life!

The spin stops here Mikey and NoVa… I’m looking out for us patriots by calling you two out!

Exactly! The unpredictability of crashes is a good argument to stay long in bubble-valued assets until the music stops.

Well that depends… for housing, waiting til the music stops would NOT be a good idea. You would find yourself unable to sell. But in stocks, you are better going long until the bubble begins to deflate. Sure you won’t be able to sell at the exact peak, but selling slightly on the downside of the peak is much better than never getting in on the bubble at all.

There is nothing worse than watching a stock you are long open down 33% or 50 points. And since you do not remember 1987, it will rhyme.

“…but selling slightly on the downside of the peak is much better than never getting in on the bubble at all.”

Well, as some of our posters (Hoz, Bill in Phx) have pointed out, you can thank the PPT for keeping the stock market sufficiently liquid for anyone who wants to get out during a crash to have the chance to do so…

Good explanation, Jingle. Thank you!

Close, the ABX is technically the price of an insurance policy that will get your principle back if the bonds default for each of those layers. It’s complex but basically you pay 100-index value up front and then 2.42% annually. The bonds don’t really trade so I’m not sure if you could find a bid ask on them.
This is a longer explaination of more of the technicals.
http://accruedint.blogspot.com/2007/02/abx-falling-knife.html

even though I think u are an @hole, you can be pretty funny….lol

Sometimes I’m funny, other times I live in someones head, rent-free.

You can make much more than that by making quick trades on the volatility. Get in and get out. This can be a risky strategy sometimes, but it’s no riskier than a 1X long position in this market, IMO. If the market moves against you, get out fast. Regroup and try again another day. If your timing is good more often than it’s not, you do just fine. Better than fine. This market is not a bull I would want to ride for more than 8 seconds.

Bravo. Be a renta not an owna!!

Actually, my timing is bad more often than good (tried it a few times, but thank goodness never tried it in my tax deferred plans). I was like that in real estate too (in the 1990s). So I’m firmly entrenched in dollar cost averaging and balancing out asset classes to their direct opposites (aggressive stocks and municipal bonds, and precious metals versus savings bonds).

Sounds like you’re doing what works for you, then. I have to say, I would be very nervous keeping long positions right now, but I do think it will still be some time before the tide turns and we see a meaningful slide. Until then, we’re just going to continue to see some confused markets. It’s easier to gauge short-term sentiment than it is to predict the tipping point. Which is just to say, if you continue to buy and hold, you probably still have some gains coming your way, but I would suggest (for what it’s worth, take it or leave it) that you decide now what your tripwires will be for each asset class so that you know when you want to reallocate to protect your gains. No one knows the future, and everyone fears different things. I fear a severe crash more than a little foregone return. I gamble with my IRA and brokerage account as described above (even after taxes, the trades in the taxable account are worth it) because it’s money I don’t truly need, but my other savings is sitting in various CDs with each under the FDIC limit (just in case the insurance is actually worth something). I guess it does really all come back to individual risk aversion characteristics. To each his or her own.

That’s why almost all of them have canceled land options. They are stuck with overpriced dirt. They aren’t going to find one developer dumb enough to take it off their hands so they have to break it up and sell what they can with a house on it.
I drove past a development in north riverside county (CA) that was striclty 2,3 or 4 bedrooms the last two years, This current phase has a giant sign featuring “UP TO TEN BEDROOMS”
Who do you suppose they are marketing to?
When they finish these parcels they have no new land to start on. They need to wait for land owners to give up on the past sales history and admit to drastic drops in land values that will allow builders to realize profitable margins.
That lone dairy farmer surrounded on all sides by empty homes who thought he was going to make his old neighbors look like fools for giving away acreage at $1 million, will now have to eat crow and settle for a substantially lower sum. Or the old curmudgeon might stick it out and double up his herd out of spite. That should smell great for the next 10 years.

“Or the old curmudgeon might stick it out and double up his herd out of spite. That should smell great for the next 10 years. ” That’s what I’m rooting for.

I know it’s probably too late for anyone to read this, but I know for a fact that my county (Santa Clara, CA) isn’t reporting notices of default. I know this because my landlord got one, but it never showed up on the county website. That may explain why it looks like Sacramento owns the lion’s share of foreclosures. They’re just the only ones reporting.

Santa Clara Country (where I live as well) may not be reporting NODs…but several websites do some kind of reporting (although the figures often don’t seem to gibe). At least you can gain some sort of sense of what is going on by looking at these sites: http://www.foreclosure.com, realestate.yahoo.com, http://www.realtytrac.com.

P.S. The site http://www.foreclosure.com reports 500 foreclosures, 1,792 pre-foreclosures (NODs?), and 857 BKs in SC Co as of today.

With regards to housing prices, and explicit talk of a bubble and/or bust - perhaps. But I’m seeing an almost constant stream of articles on foreclosures in both the Post and the local papers.

Mainly I’m sure that’s just because of the nature of news - reporting on the spectacular. Perhaps foreclosures are the “backdoor” into getting the MSM to finally start reporting en-masse on the popping of the bubble. Median price numbers, builder profit numbers, etc are just that - numbers. Foreclosures are real people losing their homes - something that can’t be spun or denied.

Certainly in the Washington Post there is a stark difference between the reporting in the business section and the real estate section.

Stucco - While I agree with most of what is written on HBB, I also recognize that the comments are on the fringe even extreme relative to broader public opinion. To suggest that the media is going to - or should, for that matter - adopt what seems obvious on HBB but has not undeniably mainfested itself without much of a counter-argument is unrealistic. The dot-com bust was reported as a bust when it was clear that it was a bust, even to those who had been denying it. Similarly, the media will report the housing bust when it cannot be argued otherwise. As pacman says, foreclosures are the best place to start as no one can deny them.

“Similarly, the media will report the housing bust when it cannot be argued otherwise.”

Good point, to which I will add that posters here can easily shoot from the hip, because we have no skin in the game compared to journalists, who have reputations to protect and constituencies to satisfy (e.g., REIC advertisers).

…compared to journalists, who have reputations to protect…

I just love sarcasm.

A national health care system would be the worst thing possible. It would control the salary a Dr. would make, which would cause less of our brightest to chase the big money dr. jobs, which would give us crappy dr.’s. I want Dr.s to be the highest paid people on the earth. This will ensure we have the best people in the most important job. Anyone who thinks free health care is good, just look at canada. Their citizens come over to america and pay cash to get the services they can’t get in their “free” health care system. Wait, they are still out 50% due to taxes.

Good idea. Let’s “look at Canada”. Did it every occur to you that someone might come here because everyone there is covered by an national plan? But making it illegal for us to go there to get affordable care is good? And the newest trend of US citizens going to India for surgury because they can’t afford it here? Maybe you should be more concerned about how much the HMO’s are earning instead of what the MD’s aren’t. Brace yourself for a national plan because it’s gonna happen…. The majority is behind it.

I have no idea what you mean by this sentence.
“Did it every occur to you that someone might come here because everyone there is covered by an national plan?”
I have friends and family that live in Buffalo, NY. They have great stories about how canadians will cross the border and put 10,000$ medical bills on credit cards because they can’t get the service in the “free” canada system. Our system may be flawed, but all of the best doctors our in our country. Most of the medical advances come from our country. I would be all for a national health plan, but like socialism, it just doesn’t work as it should in theory. Socialism always fails and always will fail due to the fact that it removes the incentive to work. If you start giving away things that people have to work hard for, then people will stop working hard. You should take a trip to countries like Hungary, where they have statues of Regan and treat him like a savior. This probably isn’t the place for this discussion.

Amazingly free of statistical anlalysis, but the standard right wing talking points trip off the tongue rather well.

American life expectancy (certainly a viable measure of national health) is not the longest in the world, despite the claim that “the best doctors our in our country.” Does that mean that only some of us get the best care, or are US docs really so far ahead of their colleagues elsewhere? This conclusion tends to be tossed around a lot, but in actuality it’s difficult to prove.

Canada’s health system also has its problems, to be sure, but Canadians can rightfully and with pride point to the fact that no one is uninsured. In the US, we have approx 9 million children who are in essence hung out to dry because their parents don’t have coverage. Sure we have Medicaid, you’ll say, but try living as a Medicaid recipient and tell me that Canada has it so much worse.

Well in your mind you’ve convinced yourself, or maybe the idealogues on FauxNoise did it for you, that a national healthcare standard is socialism. Crack open a book and see that by definition, a socialized system would require the govt. to buy up the hospitals, hospital staff including MD’s on federal payroll, all transactions performed by the feds. Nobody is talking about that except for you and a minority of fear mongers.

If you were willing to HONESTLY discuss the issue, you’d mention the 1.1 BILLION dollar retirement payout to an HMO CEO. But to be honest, I don’t think you are.

“The majority is behind it. ”

this leads to the tyranny of the majority…… hows about you look back on some “majority” that were, well, a bit lackluster…..starting with segregation….., but, but, but… the majority was behind it…

THE MAJORITY DOES NOT MAKE RIGHT…

May not make it right but it will happen in due time.

Erm…not wishing to throw a spanner in the works - in a democracy, the majority is right. Thats what a democracy is , fundamentally.

Having spent a large proportion my life living in the UK (and having worked for the NHS),everyone knows that the NHS is slow, cumbersome and beaurocratic - however its there…none of this idiocy of shipping patients to other hospitals because they don’t have insurance. If you don’t like the NHS, you can always use BUPA (private health insurance), which is very good, and much cheaper than health insurance over here.

It never ceases to amaze me the knee-jerk reaction you get in America to words like ’socialised’….its like the USSR is still in full-force and we’re still in the middle of the Cold War. Welcome to the 21st century…

Not every thing ’socialised’ is bad - despite the shortcomings of the NHS, there’d be blood on the streets if the UK government tried to ‘privatise’ the NHS (or whatever word you use when you sell off a national asset into private hands, with ensuing chaos, jobs for the boyz and a few making billions off the many). People would be up in arms - just like they were when the Tories tried to ‘privatise’ the Royal Mail.

Some big, social projects need to be under the control of the government - they’re too big not to be. National Healthcare is one of those things, like education, SS and the Postal system.

DcBob,
Those stories of your relatives in Buffalo may not be so accurate. I grew up there, tho I live in NYC now, but when I am there visiting, I head across the border for elective care.
As for “best doctors” being in the US–for example, it was Canadians who perfected Lasik and PRK eye surgery: after the FDA approved it, American medicos headed north to learn the ropes. And, when the dollar was stronger, it was cheaper to fly to Toronto, pay the going rate in cash, with more experienced doctors and fly back to NYC. And you do know that you can take your prescriptions across the border and fill them for a fraction of the cost in Fort Erie at the mega-pharmacies there.
US does not an have an enviable medical record…the Scandinavian countries are far ahead, as is France, when it comes to infant mortality, life expectancy, recovery after heart attacks, etc.
You might want to check this out further.

Montgomery county aint Baltimore, it’s DC. Still housing tracker has DC inventory up 3.4% and asking price down 2.3% for the last 30 days.

Does that include Howard County?

But since foreclosure generally takes awhile adding 4 quarters together might lead to alot of multiple counting.

Obviously that’s a gross generalization - not *everyone* is living beyond their means. But it does show a lot are - probably a higher percentage of population that most areas of the country.

Same’s true of most high bubble areas - DC suburbs, south Florida, California come to mind. A larger percentage of people are living beyond their means because their incomes were supplemented by inordinate home equity gains.

That’s pretty funny.

I was just making a comment, not crying. Please control your own emotions, pal.

No bad tidings intended GS. I was sensing there was sarcasm in the post above you that “prices are contained.”

Nevertheless, I bought gold bullion today. Was aiming for platinum but the dealers were out. The one I went to today said I should have been to his shop last week. He had 33 one-ounce Koala platinums on hand and sold them all last week. That’s roughly a $43,000 sale. I’m happy with my American Eagles though. Next investment buy (to juxtapose my gold buys): Series I savings bonds. And I have $3000 worth of T-bills maturing this Thursday so I roll that back in.

Diversification means I won’t make the biggest gains but it also means I won’t have the biggest losses! Return of my principle is more important than return on my principle these days…

That was last month. I am buying a Treausury note next month (August). I recommend that too. LOL. You obviously just met the diversification king (me).

You have all your eggs in one basket. The dollar.

Not necessarily a bad strategy, Don’t remember if it was Mr. Mark Twain or Mr. J.P.Morgan that said “Put all your eggs in one basket and guard it like a hawk.”

Just do not believe that you are diversified when you are dollar centric.

Don’t remember if it was Mr. Mark Twain or Mr. J.P.Morgan that said “Put all your eggs in one basket and guard it like a hawk.”

JP Morgan said that to Mark Twain

Gracias Senor

“You have all your eggs in one basket. The dollar.”

Given globalization, wouldn’t a portfolio of U.S. stocks weighted heavily in multinationals qualify as $US diversified?

GS, you know it qualifies, I know it qualifies, but most people are in denial of that fact!

Sorry - it does not qualify.

McDonald’s is a multinational and they came out with earnings guidance, not a good sign. Unless the company generates 75% of its earnings overseas, it is not in the international market.

Buying into a company that outsources to Chindia is not diversifying. Buying into a company in Chindia is diversifying. That is why US companies outsourcing to Chindia show earnings growth of 16%, but the same companies that manufacture in Chindia are showing earnings growth of 45%+.

Look at the growth rate of multinationals and they are as moribund as the market. Some better, some worse but none to get excited about.

If you are invested in US company stocks priced in US dollars - you are not diversified.

There are a few quality foreign companies that are listed on the US markets - these companies are trading at roughly twice as much as comparable companies are trading for in their home markets. There is a lot of crap out there.

In Bill’s case most American multinationals are buried in junk bond debt and are subject to write downs when they can no longer service the debt.

Leverage works both ways.

To be long US Treasuries and to be long US multinationals which are buried in debt is not diversified.

Everyone is worried about subprime MBS - which may be a non issue, the blow up is going to be in US corporate debt which is far shakier.

A lot of the “take unders” that have happened this year have still not been financed. Tribune is unsold and may fall apart. Alcan almost fell apart. Merrill, Bear Stearns, Goldman and UBS are sitting with unsold corporate debt.

Corporate debt is not like a mortgage, it can be callable generally of 3 - 5 years duration and floats.

“Everyone is worried about subprime MBS - which may be a non issue, the blow up is going to be in US corporate debt which is far shakier.”

Hoz should win the award for Scariest Comment of the Year on that one. Now I realize that I, too, am in denial about the worst possible case… (and thankfully so, as I need my sleep at night )

Exactly and there is more….

guess Im cancelling Ko Samui this winter….

Im thinkin maybe skiing in Japan….

Yeah, Albany area. Was in Niagara Falls last week. Heading to Halifax on Sunday.

You live in Albany or just passing thru?

Have family here (raised here) so we’ll be in/out throughout the summer for a family reunion.

What’s your take on the Lake Placid area? I have a good friend who is a carpenter in the area. He’s been working on high end custom homes for years now, and doesn’t see a slowdown in sight.

The other thing is they’ve had an almost 100% increase in value in their own home in Jay, NY. Bought it for $95K five years ago, now valued at over $200K…

I don’t want to see them take a hit financially, but he thinks “it is different up here”. I hope for their sake he is right.

Grew up in the Adirondacks. I think your friend is dreaming and his reports are part of the problem. On one of my frequent returns back home, I overheard a conversation where some woman said, “better hurry up and buy now, there won’t be anything left”…. That was in early 2004. Just the idea of that statement is absolutely absurd. You’re talking millions of acres of NOTHINGNESS, high taxes, and long long winters. Your friend is working for equity bandits with cash from outside. Internally, NOTHING supports the market there. Now you even see foreclosures scattered all across upstate, (saranac, Ticonderoga, Lake Luzerne).

“I see alot of this ‘I want lots of land’ sentiment and I think it is a huge mistake…. ”

I think you’re generally right, but it also depends on the person’s reasons for wanting the land. I think a lot of people who bought vacation homes are going to want to sell in the next year or two. A lot of those vacation properties had the secondary purpose of being investments (since real estate is a great investment and only goes up). Once people see that they are losing money on those properties, many will want to sell. Those who really wanted to the second home for the right reasons–reasons that make the property worth the carrying–will not.

My sense of the vacant land scheme is this…. Alot of 30, 40 and 50 somethings bought just about any garbage un-tillable land they could get their hands on using a multitude of wacked out rationalizations. Among them: “we’re gonna build here ‘eventually’ but I need it for ‘hunting’ for now.” It’s gonna take time for these fools to realize that this junk doesn’t throw off cash. In fact, it reduces their cashflow due to property taxes. When they adjust their minds to the fact that they aren’t using it for hunting, they’re not interested in cold-a$$ed weather 6 months out of the year, they’ll dump it. I’ve seen this cycle before and this cycle has all the earmarks of the previous cycle. As far as the 2ndhouse/vacation house schemes go, it’s a loser irrespective of location. Also, most of the land in the adirondacks is untillable. It is the very reason the land is cheap. The historic boom bust cycles in the adirondacks and catskills are obvious.

Yeah, the people who want the land because they actually want to live there have to wait for the down cycle and resist the temptation to sell in the up cycle. Where I was looking, though, is not really in the Catskills or Adirondacks. I was looking Southeast of the Catskills, closer to the Hudson. Very fertile land for certain crops, if you’re interested in that sort of thing. Also, better light and more humidity. To some people, that would be a negative, but I despise desert weather or anything close to it.

“I see alot of this ‘I want lots of land’ sentiment and I think it is a huge mistake…. ”

Directly related to the ‘more and bigger is better’ mentality that shaped the 10 years following 1995. Bigger houses, bigger cars, more land but this is turning around. It was changing starting around 2002 but the gas price shock of 2005 sped it up, and it slowed down a little last year, but it will pick up again. Not only does more land = more maintenance, but my friends complain about spending a weekend cutting grass with huge yards.

Don’t even get me started on suburban cowboys and hunting. I grew up in the country and even though I live in the city now, we go hunting a couple times per year. It’s easy to spot the suburban cowboys with their shiny pickup trucks (always new), designer hunting wear, and everything pretty much top notch, and then yelling and scaring off all the animals in a 1 mile radius. Those people don’t even respect themselves and they sure as hell don’t show anyone else in the woods respect. I’ve quit camping because I’m tired of dealing with them, and now I’m just about to quit hunting. /end rant

Right on Moman. Theres nothing worse than some sneaker wearing fool from (fill in the blank) buying a postage stamp 5 acre lot in formerly rural areas and hanging posted signs all over the place and “hunting” on said 5 acres. It’s happening all over the place. Friggin idiots.

I should mention that I am in Ithaca.

About a year ago I saw a article where Ithaca was featured in a national scandal sheet (can’t remember which one) as 1 of 10 top places to live in the country. Could be it. I understand your animosity toward them though .

The Japanese Stock market.

“The Japanese Stock market.”

Or was it their residential real estate market? (Not sure — both were very, very dismal…)

All reported on the MSMs in Australia and Canada and in Bloomberg.

The junk rating on the US Junk debt reported by Standard and Poors Jan 2007

Well, I drive a 2003 Corolla (the current generation). A real miser on gas - I get 35 MPG in mixed driving.

When I lived in Colorado, I thought “Damn, all these people drive the biggest trucks, what’s up?!” I couldn’t see anything from the 1997 Accord, because it sits so low.

I got a one ton so we can evacuate, sold my 1993, our house is VERY old, no hurricane insurance, I would love to move inland but it is just not possible.
Still lots of building going on, I have been waiting for 10 years for the dump trucks to stop running, we are still in limbo about what to do but bought a 5th wheel in case the house falls down, da## those termites :o)
(I think I no longer want a house)

I’m quite certain it will have the same effect as TWA and May - total closure of the office within a couple years.

Pretty soon St. Louis will be able to resume its core business, as demand for beer is likely to go up quite a bit when this credit bubble finally defeats respiking efforts.

“…as demand for beer is likely to go up quite a bit?

Old school remedy:

“Milwaukee’s Best & Neil’s Buttered Derivative Popcorn”