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How should housing prices be measured in the consumer price index?
BLS price checkers should go to the builder line of suburbs so they can make inflation vanish- who would know ?
Especially if they adjusted new home sales prices for the value of incentives…
WT,
Another important gauge for you is when will prices dip below reproduction costs? In an outlying area of Sacramento, I just saw a 3100 SF home for sale at $380,000. That is $122/SF. I believe tract homes are costing $75/SF, plus $50,000 for the lot (or $24/SF), and you are at $99/SF (lot improvements done with bonds against the property). Rental value is about $1800/mon, so 10 times rent (not 12 times, because of bonds) and you have an implied value of $216,000 ($69/SF).
This house sold for $362,000 in mid 2004 and $500,000 in early 2006 (could have been fraud). It is now owned by Fannie Mae and vacant. If the price gets below $250,000, it will be pushing below reproduction cost and may be a decent rental unit at that price. Until then it is just sitting for months and months and months.
The price is down 24% from the peak, but needs to drop another 34% to be a reasonable deal. This would be a total drop of 50% to reach the market bottom.
What should be done about hedge funds? Or private equity? These are unregulated entities that have WAY too much influence on markets, even globally, affecting entire populations, even prudent folks. A few boneheaded moves and apparently, they have to be bailed out. By you and I, it seems.
This one can unfortunately be laid of the feet of Bernanke and the Fed. With such loose money policy, they is WAY too much liquidity sloshing around trying to find new ways to get itself in trouble.
“they is” = “there is”
European and especially German financial authorities have been trying to get some regulation of hedge and private equity. The Fed and Treasury have resisted fiercely since those are key parts of the credit machine they used to pump up the economy since 2002. Because of the global nature of the business, nothing effective can be imposed without (at least) the Euro area, US, UK and Japan agreeing.
And that’s one of the problems with globalization, THE WORST. IDEA. EVER.
Project the fallout of increased regulation in lending. Provide winners and losers, relative to both geographic and socio-economic demographic. Finally, apply this projection to international financial markets.
Just kidding.
fnm,fre, HUD, community banking bill— we’ve already done that
Yes, but apparently there’s no teeth in anything. Although we just had a report on mortgage fraud yesterday on the local news. But it is sort of like illegal immigration. If laws are not observed and enforced, they are no good. Passing legislation doesn’t mean a thing if it isn’t backed up by observation and enforcement.
agreed - if toothless, ppl will just start to ignore
The answer to the mortgage industry is the same as it was for the auto industry..full disclosure. There can be more of these games of making “deals” with finance companies not based on what is best for the consumer but instead what is the best “backdoor payout” for the broker. That has to stop. Brokers need to be regulated so that consumers know why this loan is being offered to them and how much “total” money the broker is making off of them..front and back…
Most importantly, loans need to be limited to a reasonable size. In most cases involving recent foreclosures, it seems to me the real culprit was a loan many times larger than the borrower could possibly repay, based on “stated income”
Money magazine this month mentioned that you could purchase a loan directly without the broker. Seems like the broker is a waste of money (like a travel agent for domestic airfare) and because the broker makes more on ARMs and other toxic loans you’re better off not dealing with them.
I think there should be regulations with teeth on these bozos because clearly their clients are the most vulnerable of our population and, in the end, we pay for their malfeasance.
Ah, but here, we’ve got banks and consumers that have losses & standing to enforce some of those laws…there will be a tidal wave of litigation around stated income loans, hit the number re-appraisals, cash back deals, etc. Another possible career change for me…
You had me going.
Let’s discuss and prove/debunk “bubble-proof” areas. My hometown of Rochester, NY, for example, never historically appreciated more than 4% since the 80’s. The local news media has been saying Rochester is undervalued, prices will go up, and the bubble isn’t happening in there. It is different in Rochester!!
My dad bought a 4/2.5/2 in the burbs in 1982 for $180k and sold it in 2004 for $220k. His appreciation was easily absorbed by maintenance and inflation.
My friend bought a 3/1.5 off Park Ave. in 2004 for $150k. The previous owner paid $89 in 1999. A house a few doors down just sold for $125k.
No bubble, eh? Hmmm…
To that end, I’d also like to throw this one out there - and I hate to say it, because I am a firm bubble-believer: I think parts of NYC are more or less bubble-proof (or I should say crash-resistant). For example, if I could buy a 2/1.5 condo in the Village I would move back to NYC. For that exact same price I would not buy a 4/2.5 in Florida.
What I am saying is I look at my own behavior as a predictor for certain areas. Would I pay more for a lot less in NYC? Hell yes. Would I catch a CBS knife in Florida? Hell no. Would I move back to Rochester for a nice $125k house in the burbs? Planning on it…
Maybe with the sidebar topic about how NYC’s allegedly “bubble proof” status is bolstered by RE industry hedging and hiding of data — and how, since RE advertising is geared to the very rich, the press tends to adopt that skewed view that everything is ok (while foreclosures pile up rapidly in many boro neighborhoods). The ratio of income/house prices here is one of the worst in the nation. I wouldn’t buy here (yet) unless I was prepared to see my home’s value decline by 20-30 percent or more over the next few years.
The Real Estate industry here is extremely powerful, and will use every means to persuade buyers that the party can’t end here, even as credit is getting tighter and boro prices are falling. You have to listen closely, but if you do, you can hear the slow hissing noise in NYC.
I can wait for the Toll bros. High rise condoze in Union Square to Fail miserably.
Agreed its a pretty good location, but i understand it has no parking…..none not even for guests…..
Anyone know about the other Block Long condoze i think its an avalon building?
Plus all the stuff they are building here in Long Island City, it’s bizarre, do that many people really want to spend double to own?
For example, if I could buy a 2/1.5 condo in the Village I would move back to NYC. For that exact same price I would not buy a 4/2.5 in Florida.
But you probably can’t afford to buy in the Village. Therefore, NYC does need a correction along with every other square inch of this country. I will agree that some people (myself excluded) would pay more to live in NYC than anywhere else, but that still does not make it bubble-proof.
When I lived in NYC in 2000 I could have afforded the Village with my salary at 2000 prices. When I lived in Hoboken in 2003 I could have bought at 2003 prices. That’s what I am saying: if 2000 prices appear again I would gladly move back to NYC. That’s also why I qualified my statement: I think NYC is less bubble-proof and more crash resistant. There is a difference. Prices in NYC wouldn’t have to roll-back as much as other areas for people to jump back in.
I really do think NYC is different. There are so many people there receiving financial support from parents in other parts of the U.S. And, as cliche’ as this is, there really are a lot of foreigners in NYC. Also, I know a TON of people - myself included - that do not live in NYC and derive the majority of their income from NYC (mostly people in the creative arts).
I’d consider rolling back to 2000 prices a crash. We’re basically on the same page, you just frame it more positively because you really like NYC - and that’s ok.
Exactly. It seems to me that even if New York City were not overvalued now, which it is, price would rise until it was overvalued.
The only alternative is the “Venice” effect — a whole city owned by weatlhy expats who are seldom there, leaving it a ghost down except for tourists. Will such people buy all 3 million housing units in the city?
NYC Bubble Proof?? The only city in America that the Federal Government had to bail out in the 1980’s. Did NYC every pay back the dollars that all the US loan them for the bail out?
Will we ever learn from history? Nope! NY City is now officially “bubble proof”
David Cee,
The city did not go bankrupt and yes the city paid back the Feds.
“Ford … signed legislation providing credit to the city; this unlocked other pieces of the package: from the banks, the pension funds and insurance companies. (In 1976).
In 1980 the city balanced its budget; in 1981 it re-entered the securities markets and repaid the government guarantees.
http://www.opinionjournal.com/cc/?id=110009476
David, I’m not saying either way. I’m saying let’s look at the arguments for “bubble-proof” areas (NYC, SF) and areas where the bubble “never happened” (Buffalo, Lawrence, KS and so on).
I think that would give us all a historical perspective to help us understand - and make better choices - about buying in the future.
Great idea for a topic!!!
Manhattan won’t crater until the stock market does. Farther away from the city center, the problems of the real economy are starting to bite.
Sorry, I don’t buy it for a second.
Here’s more or less the same question I posted Pen on the CA thread…
What’s different about NYC now vs. before the boom??? NOTHING fundamental that will justify the price increase. Therefore, if it wasn’t worth it before, it certainly won’t be worth it after.
NYC will never be cheap. People will always pay alot for an amazingly small (to the rest of us) number of square feet. This is why it always pays to compare the cost of renting with the cost of purchasing housing. Now purchasing usually costs more because with conventional financing that cost is relatively fixed for the the life of the loan. You pay extra now because in 10 years or so it’s quite likely that rents will have risen enough to to make the current cost cheaper than the rental equivalant, even when accounting for the time value of your downpayment. The strict rules that co-ops impose on financing in NYC could be argued to have held prices somewhat in check. That said, when the cost of a mortgage is twice the cost of renting, it is extremely unlikely that purchasing will pay off even in the long run.
I’d be interested in local’s assessments of where their towns are: Anxiety, Denial, Fear, Desperation, Panic, etc.
Seems here in the upper midwest we’re past denial but just barely. But I would harbor a guess based on all the stories read places like SW Florida are now clearly in the fear/desperation area.
Still some denial here in Tampa Bay area. Was talking to a fellow the other day who said a couple of realtors he’s spoken to in Pinellas County are very adamant that the housing market is coming back shortly.
In NoVa I still see denial and a hush about prices.
Next door neighbor just sold her house. I don’t know her that well but do know it was listed for 549. She told me she reduced it a lot and I assume under 499k b/c another house went up in the neighborhood at that price. Thats a big chunk. It’s a nice house too on a cul-de-sac in Falls Church.
Another friend who lives near Columbia in Maryland just sold his townhouse.
In both of these cases the buyers want a two week closing turnaround time.
What I find odd about NoVa is that older updated houses in Fairfax County seem to be priced more realistically than newer homes in Loudoun County and other outer burbs. Anyone familiar with this area knows that you are much better off living inside the beltway for commuting purposes.
Prices are also all over the map no matter which county. I still see some prices in the same neighborhoods vary widely.
Should be interesting.
There’s always a little pop in sales at this time of year due to people moving into this area and then things slow again once school begins.
Montgomery County, Maryland still in denial.
Here in Reston (suburb in Northern VA) the realtors say that sales are picking up after last year, because the 2005 “gains” are now off the table. Neighbor sold her townhouse for $377k after paying $365 two years ago. In 2005, it would have listed for 450, easy. So people know the rapid appreciation is over. People that don’t, don’t sell.
That being said, there are other 3BR Townhouses in Reston that are listed at $390 and $400 that are in much worse neighborhoods in much worse condition. As far as I can tell, the worse the neighborhood, the “stickier” the prices as the lower-income folks are dreaming of riches.
And the exurb wishing prices are indeed high, as people feel that the enormous-McMansion-immigrant-free-new-school-3hr-commute lifestyle is worth a premium.
I say this area will come down, but slowly, as people still move here for overpaid govmnt jobs.
And the exurb wishing prices are indeed high, as people feel that the enormous-McMansion-immigrant-free-new-school-3hr-commute lifestyle is worth a premium.
HAHAHAHA! Schadenfreude never tasted so good!
Dale City has almost 600 foredosures on the market, most in absolutely dreadful condition, but the prices are sticky. Next door a smaller SFH sold for $350K earlier in the year. Across the way a home just went into (assumed) foreclosure, a mere 6-8 months after the family moved in. Further up that cul-de-sac there is another house for sale, and another for rent. Both houses had a yard sale every weekend with most everything, including the cars, up for sale.
Prices are way too high, and there’s no relief in sight.
Wow, Chronos (nice nick, btw), and I thought people moved to Dale City because it was inexpensive!
Lots of culture in Dale City, you know. There’s the hills … and, um, Dairy Queen. Can’t forget the Dairy Queen. Mmm.
Well in older neighborhoods there are plenty of people with alot of equity who can get out with their skin intact. Lets face it, nobody who bought in 2005-2006 can do anything but lose money at this point, when you add in the costs of selling.
Maryland is still strongly in denial from what I’ve seen. “It’s different here!” “We’re near DC” (So what - it’s not like we find extra cash falling out of the stuffed pockets of our Congressmen?!), and so on. Housing is just “supposed to be expensive here” and other such nonsense continues. Meanwhile, signs pointing to all sorts of crazy, new McMansion developments are everywhere. Many are now “affordable” which means that they cost $390,000 for a starter place instead of $420,000 or whatever. This is insane even in the wealthier areas with median household incomes under $100,000 a year! I can’t wait for the madness to end here since it is as bad as many places, but the “it’s different here!” attitude is almost as bad as one sees in New York City.
Odd? No, equity to burn versus suicide loans.
a lot of realtwhores are scared to go ‘there’
Is this before or after the announcement of cancelled home owner insurence policies was made yesterday?
No doubt we are deep in denial here in Boston, MA. Yesterday I was talking to a co-worker who is transfering to Atlanta.
He sold his condo in a western suburb for 365K. He bought it in 2004 for 395K. Before you shed a tear for this guy… the company is covering his loss. Anyway, I told him he’s one lucky guy and I felt sorry for his buyers. He said the buyers are getting a very good price at the bottom and he will buy right away in Atlanta. What? Bottom? A mere 7% drop after the biggest bubble of all time and we are at a bottom? Oh no, my friend, we are a long, long, long way from a bottom.
I would say blissful ignorance in Houston. Except the builders are starting to get scared.
Most people don’t realize that we are in the top of the second in a nine inning ball game.
In my Philly burbs (Willow Grove and surrounding areas), complete denial and very little price change, if any.
Northern Virginia is still firmly in denial - as evidenced by new developments breaking ground.
New York City is in denial, aside from the very knowledgable.
I’m personally not so sure that NYC is different.
A good friend bought a 1 BR, 1 bath condo in a pretty good area of Brooklyn Heights in 1995 for 80k, owner financed.
I was offerred a Manhattan view, on the promenaud (probably spelled wrong but I’m too tired to look it up) 1 BR, 1 bath with underground parking for 120k in 1991 (yes I’m kicking myself now) that is now worth 500k or more.
Those prices had come down from a RE crash in NYC. And I was making about 30k + overtime (which was a lot at the time) and the owner offerred owner financing.
Anything can happen.
I don’t think that NYC is immune to the credit bubble. The majority of people who live there are not rich and do not get handouts from Mommy and Daddy.
The only way I think NYC is different is if your family has lived in the five burroughs since pre-1985 and has a paid off residence to pass down OR if you have a bankroll. I’m not sure that comprises the majority of people there. There’s also the transient population that comes and goes in NYC (like me, there 11 years and then on to DC) that might make up the difference, but NYC even on the high end is not immune.
One of the partners I worked for when first in NYC bought two apartments for 35k each on CPW and 72 facing the park and reconstructed them. There was a bust then that affected the high-end so I’m not entirely convinced that the high-end of NYC is immune. Who knows where these people are invested or how far they’ve reached to live their life style.
I believe it was Muggy who commented earlier that he’d buy a condo in NYC in the village if the prices dropped to 2001 levels. I don’t think its impossible. Especially since not everyone working in NYC is super rich or a trust fund baby.
I agree that it’s different there in one respect, it’s really the greatest city I’ve ever been in. If I had to choose one city to live in independent of all other factors in my life, that would be it. I wouldn’t care if I was on Manhattan directly or in the other burroughs, it’s a great place.
There’s nothing better than dealing with a New Yorker!
novasold
Heck, several NYC-resident HBBer’s (above) are in denial.
In Oregon, things are honky-dory. Prices are holding. In my area, things are flat or down a little, year over year - there is still alot of speculation. Lots on the market, very slow sales. The house across the street sold for $300K about 6 months ago, and the speculators are renting it out for $1K. Ouch, terrible cash flow, they are about $1K/month short of PITI assuming a 10-20% downpayment, etc.
Financing is getting tougher, and banks actually require a down payment.
prices are holding in OR, nuthin sellin, but prices are a holdin.
net population growth is stemming the tide of price capitulation, but buyers are playing hardball with 25% lowball offers from the asking. This comes from an employee tryin to sell grandmas house for 225k, on the market 6 months, no price reductions…best offer to date 180k.
Here in Michigan its between panic and moving to acceptance. In our little pocket of Grosse Pointe, we’ve been on a downward trend much longer than anywhere else, because our version of SOH tax caps slowed the demand for “move-up” houses (we were paying $6K in taxes on our old house - the people who bought had to pay over $11K). I was talking to our old realtor yesterday - he said his last really good year was 2001. Last year was the worst ever for him. This spring saved his year from being a repeat of 2006. I heard some prices of some recent sales and was thankful we downsized in 2005 and reduced our exposure.
In Dallas, there is no fear and barely any concern. Housing prices are flattening and inventory building but still under 6 months. So far, we haven’t felt any real pain from the national bubble bursting. But you can see problems building beneath the surface. Lower middle class neighborhoods are under severe and forced sales and foreclosures are becoming more common. It’s going to happen here, just like everywhere else. For now, the downward macro pressure of mortgage finance is being offset by high energy prices - oil north of $70/bbl is a positive here and is causing a boom in many towns with heavier dependence on oil. Midland/Odessa has virtually no unemployment and is begging for workers. Same thing is driving the boom in Alberta.
New guy at work just moved up here from Dallas. Heard him talking to someone else about how much money people are making on real estate down there. I felt like asking him why he moved up here if there was so much easy money to be made in Dallas, but decided that such a move would not be good.
Well, people were making good money in real estate - in 2006. But perception always lags reality. The Dallas Morning News just reported on the local situation for the 2nd Q. Basically sales down, prices flat, foreclosures up. Feel free to share with new guy.
http://www.dallasnews.com/sharedcontent/dws/bus/stories/072007dnbushomes.35a69e4.html
http://www.dallasnews.com/sharedcontent/dws/bus/stories/DN-foreclosures_20bus.ART.State.Edition1.35a5cf7.html
Brian
Feel free to share the latest Dallas Morning News reports with him: sales down, prices flat, foreclosures up.
http://www.dallasnews.com/sharedcontent/dws/bus/stories/DN-foreclosures_20bus.ART.State.Edition1.35a5cf7.html
http://www.dallasnews.com/sharedcontent/dws/bus/stories/072007dnbushomes.35a69e4.html
People I know are concerned for their equity investments but most have been in their homes for 5-10 years so aren’t thinking about loss of market value. They’re here for the long term. They notice the number of homes for sale. That’s about it.
Now my kids are still school age so that is the age group of most adults I rub elbows with. I’d love to be a fly on the wall in the just empty nested homes. I know some of them are itchin’ to move on and the conversations going on would be quite interesting. Still, unless they’ve done a market appraisal themselves I’m sure not sure whether or not it would occur to them yet that prices are falling.
Atlanta is still taking the Scarlett O’Hara approach to it’s rising inventories (over $118K in listings now). The Yankees are coming, but FBs are still saying “Fiddle Dee Dee.” They FBs here beleive tomorrow will be another day (of the government bailing then out.)
C: There was a bad sector in your RE transaction.
Abort, Retry, Fail?
You are giving away your age
Here in Ft Lauderdale area Sellers are still in Denial. SFH sales in the 500 for the entire Broward County. But, Realtors telling folks the Sellers market is returning in the next few weeks. Realtors are very powerful here and have squashed virtually all newspaper RE related storied.
thanks for the update. i imagine realtors in general will never get past denial. lol
They will get past denial when they realize no one can get loans big enough to pay for anything currently available.
When does Austin, TX correct/crash? Saw on the news that two zip codes (in outlying Round Rock and Pflugerville) made the national top 500 list for zip codes with high foreclosures.
Newcomers don’t know Austin’s history. I remember visiting a friend in a decent neighborhood off Slaughter Lane (around 1989 or so) and every other house was for sale. You could buy a good house for $70k there if I remember correctly. Maybe less.
Austin crashed 40-50% in the burbs and 25% in the best intown locations from 1985-90. Lots in close in HIll Country dropped 50%-75%. That was after a round of speculative mania like we had this time in Ca and Fla , etc… (except the loans were more conservative and the interest rates were dropping even as the market crashed). Most of the price drop occurred in 1987-89 driven by the foreclosures including RTC homes. The builders built all the way through till prices collapsed below building costs with the lot at $0 value.
How much speculation has been going on in Austin this time? How many toxic loans? How much overbuilding? That will be the clue…if a lot like 30% over 2004-06, then history will repeat itself.
So does Austin catch a cold when Dell sneezes?
No, though Round Rock might. IBM is big there, AMD, Motorola, etc… + many small companies.
Austins gonna catch a big cold when Mack Brown goes AD at UT…
funny, I thought Mack Brown was a guy who owned a Freightliner Dealership in LaGrange.
Oil and tech are the keys to Austin.
tech, not oil…oil is a tiny part of Austin’s economy. Heck, isn’t Texas onshore oil almost all gone? wells at 99% water cut now?
Houston is still where the brains and finances and HQs of the oil industry are… and major refining. But most of the field work is in the Gulf or around the world.
Don’t listen to the “Peak Oil” theorists out there. The unexploited reserves are a large multiple of everything that has been produced over the entire history of the energy business. We don’t have a shortage of oil; we have a shortage of oil that can be pumped cheaply and easily. There is tremendous exploration activity going on - especially onshore. I see rigs, mostly exploratory but some production in downtown Fort Worth - it’s in public parks, on the banks of the Trinity River and in many right of ways. My parents who live nearby just got a mineral rights offer from an E&P company for $600/acre + 15% royalties.
While North Texas has the Barnett Shale, other low-permeability rock formations are also being explored and produced. Those in the Austin area are the Georgetown-Buda Lime and the Austin Chalk. These formations contain highly fragmented reserves so they are more expensive to produce than conventional formations. But once oil went north of $50/bbl, producing them was a no-brainer. Very similar in many ways to the oil sands of Western Canada.
The issue will be production rate, not reserves.
I thought some of the Dallas and Ft Worth explorations were more related to nat gas which we also desparately need to find more of to stay even.
I don’t think oil is a big deal in Austin and have close ties there as well as lived there for a long time. Tech, Govt and Univ are the big deals in that town…and real estate again…
We don’t have a shortage of oil; we have a shortage of oil that can be pumped cheaply and easily.
Funny, you just described Peak Oil.
It may not have been clear from what I wrote earlier, but the mineral rights sales have been pumping a bunch of money into local economies almost everywhere in the state of Texas and Austin is no exception. While the HQ and refining are concentrated in Houston, the exploration and oilfield services are very much locally-based and contribute to the local economy.
only the Capitol and UT are in Austin, whats oil, Whose this dell guy?
Understanding that most areas in the US are in a housing meltdown to some degree what is the future expected recovery for states like Florida and California who seem to be sinking into the hole further and further each day? Is there a magic year that things will start to get better? And how is that going to affect the economies of both states? Many in Florida are screaming “recession.”
Not a magic year, but a magic number for price of houses. When you can buy a house with 10-20% down, 30 yr fixed and rent it out with a 10-20% positive cash flow after expenses and vacancies, that is the floor, with few exceptions for some close-in, quality, rare neighborhoods.
Certainly people can scream recession, but Florida prices can drop by over 2/3 and still beat the hearland appreciation (let alone the rust belt) over the past quarter century by a substantial margin. Just putting things in perspective.
It seems like the press is becoming less afraid to challenge the Fed and it’s policies.
‘Just when you thought increased transparency on the part of the Federal Reserve was contributing to enhanced sophistication on the part of the public, along comes evidence to the contrary. ‘I believe economic inequality is a product of monetary policy choices on the part of the Fed,” said Congressman Luiz Gutierrez, at yesterday’s monetary policy hearing before the House Financial Services Committee.’
‘Redistributing income has never been part of the Fed’s mandate. Nor was it considered the province of monetary policy makers to orchestrate a better balance between society’s haves and have-nots. In one sense, however, Gutierrez is correct in assigning the Fed a role in income inequality; it’s just not in the way he intended.’
”Federal Reserve officials have been criticized recently for shortchanging ordinary Americans by focusing on an inflation measure that excludes soaring food and energy prices. It’s really nothing less than a call for higher interest rates because the overall consumer price index rose at a 5 percent annual rate in the first half of this year and the core CPI, which excludes food and energy, climbed less than half as much.’
‘ Economist Ethan Harris of Lehman Brothers Holdings Inc. described the complaints about the focus on the core as a ‘weird populist twist, a view of an uncaring Fed.’
‘But if you take it a step further, it’s the equivalent of asking the Fed to raise rates,’ Harris said in a July 17 interview.’
So it’s ‘wierd populism’ to expect a decent return on ones hard earned savings? To call for no more dead-end asset bubbles and the economic distortions they create?
I feel bad for those whose incomes are based on CPI. Guess I have only a vague knowledge - but aren’t social security rates determined in part by CPI? If so is this core CPI?
CPI-W is used for SS adjustments.
http://www.ssa.gov/pressoffice/pr/2007cola-pr.htm
The CPI-U is for all urban consumers.
The CPI-W is for urban wage earners.
If my faulty memory can be relied upon, the same products are in both indices but with slightly different weights.
The upshot:
1) Social Security payments and lots of other government pensions feature cost of living allowances (COLAs) whichare indexed to the CPI.
2) Indexed pensions are far more expensive to provide than fixed pensions (the kind traditionally offered by the private sector), with the expense increasing in the COLA adjustment.
3) If the CPI fully captured inflation, the Social Security program might “break the bank.”
These facts provide a fairly strong incentive to calculate CPI in a manner which keeps reported inflation low and under control…
absolutely correct.
After yesterday’s testimony and looking at months of government published employment, inflation, housing, and other data, do you get the sense you are watching the Matrix and two economic realities? The first is measurable, regulated, and a comforting mural for the contained masses. The second, is not measured, unregulated, and we are asked to pretend does not exist.
without a doubt
precisely why those whose incomes are derived from CPI adjusted calcs are alo heavily invested in the market with individual retirement accounts, and on top of that, non-retirement accounts for the current “haves”
who can save? who can invest?
A critic could easily say that the Fed’s policy is that it is OK for prices to go up as long as wages do not go up.
As I mentioned below, the practical effect of the Greenspan Put policy (shore up the stock market on any sign of weekness) is an inflation tax on labor that is transferred into the hands of the idle (and non-idle) rich.
weakness
we need higher rates, they are “in the bag”
you just have to shuffle a couple of bags right now.
Actually, that is precisely the Fed’s policy. If they want to keep consumer spending (70% of the economy) from collapsing, they have to inflate the stock bubble to offset the collapse of the housing bubble. One way to push that along is to inflate profits, so that stocks appear less expensive. Higher prices + stagnant wages = higher profit margins. Check the NIPA - corporate profits’ share of national income is about as high as it ever gets.
“Free trade” with totalitarian regimes like China is critical to this model. It allows corporations to use the huge and repressed labor pool to push down real (inflation adjusted) wages in the manufacturing sector. Turning a blind eye to massive illegal immigration serves much the same function in the service sector.
“inflate the stock bubble to offset the collapse of the housing bubble”
So Deron, are you suggesting that the Fed’s de facto policy is to deliberately create inflation? Funny how that does not appear in their official mandate or any of their policy statements…
Well, we can’t know for sure what the goal of policy is unless it’s stated. But it’s pretty obvious what the effects of the policy have been. Even the official government figures tell us that we’ve experienced 2100% inflation since the creation of the Fed in 1913. I’m sure that it’s pure coincidence that the BLS inflation calculator starts in the same year the Fed was created.
http://data.bls.gov/cgi-bin/cpicalc.pl
Of course, given the gold standard prevailing previously, there was effectively zero and sometimes negative inflation in the prior century so the Fed wasn’t created to control inflation that didn’t exist.
I think the parallels to the failure of mortgage finance are very strong. Ratings agencies = appraisers. Junk lending (subprime and alt-A) = junk bonds, mortgage lenders = private equity (key intermediaries and buyers of fiancial instruments). Wall Street played similar role securitization and issuance for both MBS and junk bonds, then packaged both of them into CDOs. Hedge funds were leveraged buyers of mortgages, junk bonds and stocks.
The last gasp attempt to pump in more money despite the extreme risk of doing so is another analogy. The horrifying credit risks and close your eyes underwriting of loans in late 2005 through early 2007 is now echoed by changes in margin regulations. Regulation T was changed on April 2, 2007 so now many larger accounts can buy stocks on 15% margin instead of 50%. A fully margined institutional account can now be levered almost 7:1 instead of just 2:1.
A final burst of risky lending and expanded leverage killed the housing bubble. It will do the same for the stock bubble.
when?
see the whole concept of the bubble economy is when to be on the train, and when to get off.
Who rode the dot com bubble and won some?
who rode housing?
now whose riding? and where?
I would argue energy is the bubble, and credit.
So, what to do?
Buy the market. Buy Some gold (the precious), buy some energy, buy some Ginne May, Buy Some Corporates, buy some international (though I waould argue that American Multinationals IE: GE are fine)….and for petes sake, save some money, pay the mortgage off, and grow some tomatos.
Hey Ben…remember how this effect had an affect…on housing?
Affect (psychology), a term used in psychological analysis.
Blast from the past:
“The county’s finances were not suspect until February of 1994. The Federal Reserve Bank began to raise US interest rates, causing many securities in Orange County’s investment pools to fall in value.”
Guess who was the Fed Reserve “Merlin” in 1994?
Bugs: “eh…hey Doc,what the monthly payment on that $650,000 rabbit hole @ 14% interest?
Sorry to repeat a post, but it seems to fit in very well here.
—————————————————————————–
Transcript: Federal Reserve Chairman Ben Bernanke
House Committee on Financial Services Holds a Hearing on Monetary Policy and the State of the Economy
CQ Transcripts Wire
Wednesday, July 18, 2007
http://www.washingtonpost.com/wp-srv/business/transcripts/bernanke_071807.html
(RON) PAUL: Thank you, Mr. Chairman.
And welcome, Chairman Bernanke.
I share the concern for the inequality that has developed in our country. I think it’s very real. I think it’s a source of great resentment. And, unfortunately, I think it’s one of those things that puts a lot of pressure on the Congress to increase the amount of government programs and government spending, which I do not think is the answer.
I believe the inequality comes specifically from the type of currency we have. When there is a deliberate debasement of a currency, it is predictable that the middle class is injured, the poor are hurt, and there’s a transfer of wealth to the wealthy.
And until we understand that, I do not believe we can solve this problem. And if we resort to continued monetary inflation and more government programs, we will only make this inequality worse.
ron paul for president
Perhaps it is dawning on the press that the Greenspan Put policy of supplying the stock market with ample “liquidity” at the first sign of weakness is not benign, as it represents a regressive tax on savers and a massive transfer of wealth from U.S. labor into the hands of the superrich.
Sadly, when it ultimately dawns on the masses that the stock market has been systematically stimulated to the upside since the adoption of the Greenspan Put as part of the Fed’s menu of unstated monetary policy measures twenty or so years ago, it will be the masses and not the super rich who suffer disproportionately in the correction. As HFA pointed out here some time ago, “The house always wins” in gambling operations.
Before Bill in Phoenix and others jump in here to correct me that playing the stock market is “investing not gambling,” let me also mention that another undesirable consequence of the Greenspan Put policy was to create a conundrum where all assets are so super-saturated with liquidity that none of them are properly valued in terms of real risk-reward tradeoffs. Consequently, investing became pretty much of a pure crap shoot.
Hey GS,
Like toto in the “Wizard of OZ” …all you need to do is…pull back the curtain, except in Sir Greenspent’s profile…he’ll be
butttttt naked!
Now that’s a scary image!
Brain…”PUT” those neurons in the round file, now!
Or as 85249 is Toast once said: “I’ve got to go bleach out my brain”
The fed is between a rock and a hard spot. Damned if you do and damned if you don’t.
I would not be opposed to seeing interest rates lowered, but with limits. Low rates could have been a real benefit to the economy if the loans were kept within affordable limits. The whole bubble appears to have developed after lenders continually increased the amounts they would loan.
lowering rates is the same as no change, and the rest of the planet (except Japan) tighten.
In light of Bear Stearns’ and other subprime investing hedge fund failures, did we fail to recognize the benevolent Robin Hood like qualties of the subprime lending industry?
From one vantage point, it looks like the financial industry levered money from the super wealthy and transferred it to those who would not otherwise be able to acquire the American Dream. On the other hand and in light of rising foreclosures and falling home prices all across the country, it looks like both sides got hosed.
Yes, at the end of the day everybody except for those (realtors, brokers etc.) who made more money from the larger number of transaction loses in this game.
What effect will the eventual withdraw from Iraq have on the economy in general and housing in particular?
For example, returning soldiers sometimes go on a spending and baby making spree. Will that happen this time?
Remember that a larger percent than normal of the returning troops will be reserves and national guard. They will go back to reclaim their civilian jobs. Will unemployment go up as the folks who replaced them are told to take a hike?
There is a lot of PTSD in the returning troops. How will that affect their impact on the economy.
There will be less purchasing of the “stuff” that keeps the troops going, but the army and marines in particular need to replace a lot of equipment that they used up or damaged in this war. Will military procurement go up down or stay the same.
The troops don’t earn that much money, but there are a heck of a lot of contractors over there this time and a lot of them are making a bundle at least in comparison to the skills they they can bring to the civilian market. I read an article this week about a woman who was hired to do laundry for the troops in Iraq for $48K per year plus bonuses (she was injured by an IED and was SOL as the contractor had no obligation to her once she couldn’t work). That takes money out of the economy in one way, but contractors coming home with money to burn does too.
A much smaller percentage of the population is affected at all by this war than by others. How does that change what normally happens to the economy after a war?
And how does this impact the housing market, if at all?
Hey, Polly, $10 Billion Dollars a Month going overseas. Stop the War, and we might actually balance the books of the Federal Budget. What a concept. Pay as you go…could lead to lower interest rates? Just dreamin
Actually I read that it was 12 BILLION dollars each month. Just imagine if the government was INVESTING the same amount in it’s OWN country!!!
Aging infrastructure in the major cities is a huge problem.
We’re not leaving Iraq any time soon. And when we do leave it will not be a sudden withdrawal. Oil, baby. Can’t let the Iranians get it. Perhaps worth discussing in a hypothetical, dream-analysis manner.
“…For example, returning soldiers sometimes go on a spending and baby making spree. Will that happen this time?”
Think for a moment…did the soldiers oversea’s put their credit cards in a “blind trust” while they have been repeatedly redeployed time & time again?
I don’t think we are going to have the “Summer of 1946″ with these legendary wars in Afghanistan & Iraq.
I feel we are indebted …to soldiers in debt. Especially, if you consider the use of our National Guard as our supplemental Marines & Army
Exurb and remote suburb real estate becomes almost worthless (except as housing for farm workers for the ethanol farms) when we withdraw from Iraq if the dollar crashes (I believe in part that the dollar is propped up by military strength and oil access/control) and OPEC+Russia decide to price oil in Euros or Yuan or Yen in the face of US military weakness, impotency, and loss.
We ration gas and a lot of people get blasted back to the 19th century. Ethanol cannot come close to making up for a crashed dollar buying oil at $200, $300, whatever per barrel.
Extreme, yes, but possible.
If you drive a gasoline powered car, particularly a larger one, “war is the answer”, unfortunately.
Even with our troops in Iraq, there are hints that you’re scenario could play out. Iran has already demanded payment in Euros and Yen rather than dollars. Russia wants Euros for their oil and gas. Kuwait has already unpegged their currency from the Dollar and the UAE is likely to follow. A pullout would ensure greater Iranian influence throughout the Gulf. What would happen if the major OPEC producers followed Iran’s lead in this respect?
well, that’s because our impotence is showing, but not yet “finalized” with a withdrawl. i think we are married to the place now or risk severe disruptions financially and/or in energy. e.g., leave iraq and what happens in saudi arabia then?
it will take a bit more than just pricing oil in yen to force the issues, but if enough of OPEC not only prices in non-$ but refuses to accept $, then china piles on… then….TSHTF.
had we spent the money in the first place on a WWII like program to build solar generration and electric rail and plug-in hyrids, we’d be in far better shape. of course, americans will need to give up their suvs, etc… which will be forced upon us one way or the other anyway.
There were electric plug-in small SUVs 6 years ago in CA.
It’s not some other planet … we could have them again. Car companies are afraid of big oil (I think because of incestuous corporate boards) so only gov’t can force them to sell that product again.
You can get aftermarket EVs as well as aftermarket plug-in hybrids. If you get a cheap enough used car for the EV the batteries and installation only cost a few thou (like redoing a trannie and motor) so it’s almost economical.
People need to think for themselves more. If you really need or want a car, you can get an EV done custom for really not that much money. The real problem is that most car “consumers” are buying them on monthly payment plans. Of course then the used shell + batteries custom job becomes out of the question.
The really ironic thing is that there are probably EVs driving around that their neighbors think are gasoline engines … lol.
we’ll need 50+ million of them…quick, if we get a 1970s or worse (read longer lasting) style crisis. and even that assumes a lot of 2+ car families become one car again (which they will or effectively 0 car families any way).
Alternative fuels are the answer. Harnessing solar energy in a cost-effective way is the future. We’re not there yet. However to buy time we need to CONSERVE the energy that we do use and then work like hell to develop the technology to get us where we have to.
Imagine, if instead of 12 billion dollars being spent in Iraq, 12 billion per YEAR was spent on alternative fuels. And by the way, ethanol production makes no sense!
I wouldn’t anticipate a 1946 scenario here. Because we didn’t “go big” in this war like we did in WWII, even a large scale draw-down wouldn’t involve anywhere near the percentage of the US population that it did in 46. Best case, 100k people suddenly find productive work and take out a VA loan for a home. I wouldn’t expect anything nearly that big to happen, and that’s miniscule relative to the population. The military wasn’t big enough for this job, do you think we’ll really make it any smaller even if the troops come home?
Regarding the contractors, I would expect more to get hired as the troops leave, not less. I don’t anticipate a helicopters-pulling-people-out-of-embassies retreat, I see an “OK, you want the troops home so bad, they’ll come home and we’ll replace them with 250k/yr Blackwater operators” shell game.
Then: Chairman Greenspan sneezes, and stock markets sell off worldwide.
Now: Chairman Bernanke flip-flops and announces subprime damage could amount to $100b, and the DJIA just shrugs and powers past 14,000 for the first time ever.
Something is rotten in the state of Denmark.
http://www.bloomberg.com/apps/news?pid=20601101&sid=avHknX9tltXc&refer=japan
i know -wtf? i have an mba in finance and am confounded because this rise is not based on anything substantial or real imho
crazy!
“History shows that default rates trend up as the peak of M&A activity approaches, but default rates are still holding at moderate levels. While a liquidity crisis or rapidly rising interest rates could change that in a hurry, things look strong into ‘08.”
Price Waterhouse
I am as astounded as you! When I break out the earnings reports and see the increase in corporate debt, I cringe.
margin, margin, margin - all used to sqeeze the record short positions
Does margin debt ever have to be repaid? Or is high future inflation (and especially stock price inflation) such a sure thing that the repayment requirements are a small fraction of stock market capital gains?
Margin has to be repaid only if there is a margin call. This is triggered when the value of the account falls low enough due to falling stock prices. It can also happen, though slowly as margin interest eats away the value but in either case, there has to be enough cash to pay the interest.
Given the levels of margin being used, it won’t take much of a decline to trigger the first wave of margin calls, especially with hedge funds who are using a ton of borrowed money. The problem for them is not only do stock prices have to inflate - the have to inflate smoothly. A 20% decline in stocks would wipe many of them out. Heavy margin creates the potential for cascading margin calls that could trigger a waterfall, much like 1987.
“This is triggered when the value of the account falls low enough due to falling stock prices.”
Everything you say is consistent with very powerful incentives for the PPT to make sure that stock prices always go up.
I agree that the PPT has a strong incentive to try. I just think that they are losing the ability to do so. They certainly had just as strong an incentive if not stronger to support the housing market. That’s probably why the Fed and various government agencies failed to use their regulatory power to rein in subprime until it had already blown up. Subprime and alt-A were the key credit pumps supporting housing inflation. The PPT did everything they could, from jawboning to spreading bailout rumors to leaning on China to buy more housing bonds. Yet the whole thing still fell apart.
Their efforts in the stock market have worked so far but will fail in the end. They are showing tremendous signs of stress now. The machinery they have used to flood the financial markets with credit is breaking down rapidly. Hedge funds and private equity were protected from regulation for the same reason subprime and alt-A were - they pump credit into a market the PPT wants to support. That fact hasn’t kept overextended hedge funds from blowing up or provided funding for PE deals once the high risk became apparent.
Are Fed rate cuts “in the bag” in the wake of a major flip-flop on subprime? One commentator thinks so (though his firm has held steady that lower rates are on the way all along…):
Fed to Cut Rate After Housing Slowdown, McCulley Says (Update2)
By Brian Sullivan and Wes Goodman
July 19 (Bloomberg) — A slowdown in the U.S. housing market and losses in mortgage-linked bonds will lead the Federal Reserve to cut interest rates, said Paul McCulley, a bond fund manager at Pacific Investment Management Co.
“The recession we have in the housing market is going to be a very long, protracted affair,’’ McCulley said in an interview from Pimco’s office in Newport Beach, California. “That’s going to lead the average consumer to recognize that he needs to save more out of current income, which is going to weaken consumption in the economy.‘’
…
The mortgage losses will spread beyond financial markets, McCulley said.
“This whole subprime crisis has been more of a Wall Street event than it has been a Main Street event, but that’s going to change,’‘ he said. “You’ve got overpriced homes and inventory that’s half the distance to the moon. Nationwide deflation in home prices‘’ will follow.
Companies marketing mortgage-linked bonds are to blame, he said.
“The first sin was created on Wall Street,‘’ McCulley said. “Wall Street created the demand for originators to create this crap type of mortgage product.‘’
http://www.bloomberg.com/apps/news?pid=20601087&sid=aleBtlZNvFMo&refer=home
“Being fooled, by foolery thrive;
There’s place and means for
every man alive.”
Bill Shakespeare
Hoz — Any thoughts on PimCo’s prediction for lower FFR? I guess the stopped clock principle is bound to eventually prove them right…
When Mr. Gross wrote last year that we were entering the “Last Bull Market… That statement, of course, explicitly announces that I think the high in interest rates has been reached”, I thought he was wrong. “To prevent a double-digit decline in prices, PIMCO’s statistical chart suggests that mortgage rates must decline a minimum of 60 basis points and the sooner the better.” My reasons then and now are the prices of commodity goods to foreign manufacturers has jumped. To pay for these imported goods, prices will rise. Recent history suggests I am correct. However Mr. Gross changed his opinion a few months ago and last month. “When interest rates go up, the Petri dish turns from a benign experiment in financial engineering to a destructive virus because the cost of that leverage ultimately reduces the price of assets….
…If not taken too far – and there is no hint yet of a true “crisis” – these developments may be just what the Fed has been looking for: easy credit becoming less easy; excessive liquidity returning to more rational levels.
Still, PIMCO looks for the Fed to issue an insurance policy in the form of lower Fed Funds at some point over the next 6 months.”
I think this is a huge change of wording for Mr. Gross going from a 60 basis point drop immediately to some point over the next 6 months. It is still very hard for me to fathom any way to control pent up inflation. We notice the inflation in food and oil, but it is in everything manufactured overseas. Every time the Yuan rises against the dollar, the cost of goods at Wal Mart increase. A decent Porsche is 15% more this year than last. My preferred scotch has gone from $144/750ml to $229/750ml.
For most of us however the $0.05 increase at Walmart is not noticed. The true “pass through” will not hit until the 4th quarter, when inflation should jump through the roof. This is what the Federal Reserve notices and worries about. The Federal Reserve sees the prices to be paid for new factory orders, for commodities for future shipment, for the cost of future imports and then the Federal Reserve adjusts for Hedonics. But the finished goods in the stores in November will not be priced in Hedonic adjusted dollars. The world economy is running so rapidly and we are left at the starting gate. When the corporations start collapsing in a month, the Federal Reserve will have no choice but to lower rates.
BB threw out a quasi-precise figure of $114b for the possible magnitude of subprime losses (brings to mind the $200b estimate tossed around in the immediate wake of Hurricane Katrina).
Is his estimate low, high or just right?
http://www.smh.com.au/news/business/subprime-losses-could-hit-114b/2007/07/20/1184560041108.html
Also worth watching: William Poole’s comments on subprime today.
“After two days of testimony by Federal Reserve Chairman Ben Bernanke, the economic calendar peters out, with the highlight being St. Louis Fed President William Poole’s speech on subprime mortgages.”
http://online.wsj.com/article/SB118493115406772925.html?mod=googlenews_wsj
Bernanke’s estimate was very precise. I just don’t think it’s accurate.
Point taken. I predict a $500b shoe to drop from the subprime, Alt-A and prime MBS, with a confidence band from $0 to $10t.
There’s at least one zero missing from the end of that figure.
Oh, I see. It was translated from $US to $AUS, which explains the bogus “precision”. And there may not be $1T of subprime losses, but there are definitely going to be that much altogether in all the mortgage-backed garbage.
Also worthy of discussion:
http://www.weissgroupinc.com/whitepaper1/
Maybe we could discuss some of the pit falls in buying foreclosures.
Here is an interesting link about the difference between “mortgages” and ” deeds of trust” and how they can impact the buyer of a foreclosure. There is also a link in this story to find how your state handles homes in foreclosure .There is a time frame where the foreclosed seller can buy the place back and the buyer loses the money they invested in home improvements. Scary!
http://money.cnn.com/2007/07/19/real_estate/foreclosure_by_the_state/index.htm?postversion=2007072012
Remember all them articles about how the older generation “doesn’t get it” and the under-30 set is working off a new economic model of real estate value? Can’t say I have seen any such articles as of late, but I did see this one which is kinda related…
———————————————————————————–
Young Investor Expects To Sell Property at a Loss
By Jane Hodges
The Investor: Matt Ellis, 25, moved to Colorado Springs, Colo., from Georgia after graduating from college. He decided to move to the small city on a whim, but his decision to become an investor was deliberate — he hopes to launch a real-estate career, he says. While working as a bank teller, he read up on the real-estate industry, networked and bought this multi-family property from another investor in 2005. Mr. Ellis works as a college counselor for the University of Phoenix in the Denver area.
http://www.realestatejournal.com/columnists_com/investorprofiles/20070719-hodges.html?rejpartner=mktw
I’m having trouble articulating this, but an interesting topic would be examples of the Law of Unintended Consequences and how the HB has created all kinds of unforeseen difficulties. (For example, what should I do wigth my collection of landscape paintings while I live in my camper waiting for the bubble to burst? LOL.) Actually, all kinds of things have been created by this bubble that no one would’ve predicted (a housing bubble blog, for example).
- California flippers infesting in Utah homes and driving Wasatch front prices through the roof
- St. George declared the “fastest growing city” in the U.S.
This may be a stupid idea, but here it goes. I know that the Japanese housing bubble deflated for longer than a decade. What are the similarities and differences to our situation in the US today? I would appreciate the insight of the very knowledgeable posters on this blog to explain why that comparison is or is not valid.
Hi, it’s me — the occasional bellyacher about non-disclosure laws in Montana and how they’re making it hard to judge the market. Well, thanks to your suggestions and a bunch of time online, I’ve found out the following… So what do you think: is there a housing bubble in Missoula?
In early May, there were 106 houses for sale in the neighborhoods I’m watching. Today there are 124 houses for sale. Since mid-June, it looks like fewer than 10 houses have sold, and a bunch have been taken off the market (just in time to make the mid-July numbers look good). Several of those no longer in MLS still have for sale signs in the front yard.
According to the Missoula Organization of Realtors, http://www.missoularealestate.com/index.php/fuseaction/market.main/ID/0d95f240, in all of Missoula (where there are now 818 houses for sale), 146 houses sold in June, compared to 198 last June (a decline of 26%). At that rate, we are almost up to 6 months of inventory. In June, the median price was $224,450, an increase of 4% from last year.
Asking prices in the neighborhoods I’m watching are an average of $165/square foot. According to property tax records, in 2003, the houses currently for sale were appraised for an average of $80/square foot.
The local paper rarely covers the housing market (doesn’t even have a table of monthly building permits, sales, and foreclosures). When there is an article, it’s usually around the time the realtors release their quarterly numbers, and the article sounds like a press release: this is “the last best place,” God’s not making more land, and house prices did not increase here as much as elsewhere.
In fact, in 2003 and 2004 Missoula house prices increased by MORE than the national average (Missoula went up 8.2 and 14.0% compared to 6.5 and 10.0%), and in 2005 and 2006 they went up another 13.0 and 14.2% (I don’t know what the national averages were in those years). According to the Fed, from 1999-2004, Missoula house prices increased 42%. According to Moody’s, from 2001-2005, they went up 63.1%.
In 2005, a local economist, Paul Polzin, said the Missoula economy is not as insulated as locals like to think; the increase in house prices here was related to national trends. http://www.mtinbusiness.com/current/bus01.php
From this it sounds to me like we’re in for a downhill ride – and that’s before you even consider how low Missoula household incomes are. In the 2007 State of Missoula Housing Report, http://www.missoularealestate.com/docs/2007MissoulaHousingReportcomplete.pdf, there’s a chart that shows that, in 2006, if four Missoulians earning the median income pooled their funds, they could not afford the median house (!!!!) Just 11% of Missoula households have the $37K annual income needed to purchase a median-priced home. And even you have the bucks, it’s tough. There are few houses (and even fewer nice ones) in the median range.
The average rent for a 4-BR house or apartment is $980. A monthly payment of $980 would buy a $135,000 house (about $90K less than the median house). To me this says (1) “keep renting, girl!” and (2) we are going to see a lot of former rental houses on the market very soon.
The average down payment for the last several years has been between 3 and 5%. So even a slight downturn in the market will put many folks in the red. I haven’t been tracking foreclosures, but from the 2007 State of Missoula Housing Report, I know there was a 22% spike in 2006, and it seems like there are more on RealtyTrac every week.
Most people I talk to aren’t noticing anything other than the large and slow moving inventory. It will be interesting to see how long it takes for asking prices to come down and for the local media to start telling the other side of the story. Since Montana is a non-disclosure state – and since the comps realtors dole out are so old (whether due to cherry picking or low sales volume) – asking prices will be the main way Joe and Jody Public see the change. Only God and realtors get to know selling prices.
“Asking prices in the neighborhoods I’m watching are an average of $165/square foot. According to property tax records, in 2003, the houses currently for sale were appraised for an average of $80/square foot.”
More than doubled since 2003? Yeah, you’ve got a bubble. My guess is a lot of stupid money has moved in from out of state (i.e. from brilliant Californian “investors.”) Since you have access to square footage costs you might want to start tracking those. But definitely don’t pay over $80/square foot since even 2003 prices were inflated due to cheap money.
Also, can you find a half decent realtor? If you could find one who would give you the true info it would be very helpful.
Good Luck
This might have been brought up on other dates, but I wonder what the money shot for magazine covers was for the height of the RE bubble.
I just found your blog as a link from a Yahoo finance article. I like your insights and thinking. Would you mind giving us your take on housing and economics in the midwest rustbelt… Pittsburgh/Buffalo to Milwaukee? This was the only area of the country to miss both the 80’s and the 90’s economic booms, and with the subsequent population drain housing is marginally above late 70’s levels and seriously negative in real terms.
My core question really is how a rust belt couple who are 7 years away from becoming empty nesters might develop a strategy to move to a healthy region of the U.S. and somehow avoid taking a giant hit on housing costs.