Bits Bucket And Craigslist Finds For August 8, 2007
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The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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Well, we are continue to be vindicated almost daily now. MSM, Wall Street and CNBC cretins now acknowledge there is a problem but J6P is still in complete and utter denial. I ponder the thought there is no cure for him until _________.
Fill in the blank.
…the sheriff nails the foreclosure notice to the door.
Beazer, Brookfield, Standard Pacific and Technical Olympic are most likely the first to go….According to Mike Morgan.
Mike Morgan’s stuff is good. Where can I read it? Any place it’s posted? Thanks in advance.
Chris
http://www.defective-homes.net/contactnow
That’s Morgan’s website
If I remember correctly, Mike used to do periodic interviews with Mish, but that looks to have dried up during the past year.
It’s the front page story on People magazine (or any other rag that’s displayed at check-out lines).
I’m not convinced tabloid reporting will have any effect considering the volumes of toxic koolade consumed by the public. Behavior changes only when hit between the eyes with some type of personal loss. Losing stuff is painful.
Oprah mentions it.
Britney Spears loses her house to foreclosure.
You’re not joking?
Britney is dating a real estate agent.
I am not making this up.
You forgot something basic:
The working class were totally bypassed by the bubble. All that good news, boom etc in the papers? - J6P has been sneering for the last 6 years as wages stagnate & bills pile up.
Excellent point downpuppy!
J6P sneered at the wage increases… unless he jumped onto the RE bandwagon. Not to mention he HELOC’d his house to death. J6P sneers at the thought it was a boom… but he’s scared to death for his home “value.”
Got popcorn?
Neil
“but he’s scared to death for his home “value.”
Right on Neil. I have a family member who I discuss this stuff with and he’s about paralyzed about and cannot discuss it without going off the deep end. Utter paranoia… He bet his entire retirement on “real estate always goes up” and the truth gets in the way of that illusion.
Looking for clarity on your post Neil. Are you saying Joe 6pk got equal part of the productivity increases he helped create?
Also, who is J6pk? Sometimes I’m not sure we’re talking about the same people.
Carrie,
I think it’s geographical difference.
For most of the US, J6Pk is a blue collar worker, wife is stay at home or low lvl clerical who may or may not own a small house and lives paycheck to paycheck.
In the big bubble areas, J6Pk should be renamed to Joe cheap chardony (JCC). This usually a guy working in the service area making just under the MHI while the wife may be a SAHM or working mid level admin. They look a bit more polished from the outside by they really stretched to get that house and still live paycheck to paycheck.
LOL — this is great, gywnster. Really like that JCC - joe cheap chardony - comment. A great way to describe the typical J6P who lives on either coast!
God, I hate chardonnay. If I wanted to taste oak, I’d go lick a tree. There must be some of it that isn’t swill, but I haven’t ever tasted it.
“If I wanted to taste oak, I’d go lick a tree”
OMFG LOL exactly. JCC imagines himself superior because he’s no longer drinking Gallo table wine. I suppose it is better, but just barely.
Damn funny, polly. And how true. Thanks for the laugh!
joe40oz
You need to try some chardonnay that has been aged in steel barrels - it should be better than oak. Also try Fume blanc a nicer white.
It’s the new oak barrels that are the problem. Old oak doesn’t impart nearly the sugar levels and oaky flavor. Old oak can be a nice, *subtle* touch on a good chardonnay. New oak is used to hide the flavor of bad chardonnay.
OK, once again it’s way too late for anyone to read this, but I have to say that I hate chardonnay as well.
The only one I’ve ever found that I like is by J. Lohr and only available at the winery or bottling plant. It’s called Arroyo Vista Arryo Secco, not to be confused with the other J. Lohr chardonnay with a similar name (containing the word “riverstone”) that you can find in stores.
I like it becuase it’s 100% malolactic fermentation, which makes it really really buttery. None of that floral muck that ruins most chardonnays. Try it with a fish dish and warm buttered bread. Yum!
Granted that lots of working class folks did not go out and get a McMansion or investment houses. However, many in bubble states did participate by stealing equity from their homes to support a better life style. Plus there are all those stories about landscapers buying $400,000 homes.
Even if he did not participate in the bubble, J6P will participate in the fallout.
And so, most likely, will we. It’s too big to leave anyone untouched in some fashion–if even the dinosaur politicians now think it’s worth a talking point.
“Granted that lots of working class folks did not go out and get a McMansion or investment houses”
As far as the average j6pac, renter, or poor working class/impoverished renter/immgrant laborer who do not own property here in the LA area the bubble collapse will only affect them as far as it’s effect upon jobs.
These folks will survive thru tough times by crowding 5-10 to a home/apt, by dealing all cash or bartering goods services, by engaging in illegal tranactions(E.G.drugs), by extracting gov’t handouts, doing odd side jobs such as pickng up cardboard boxes and cans, ect. I actually believe the middleclass exurbs will suffer more than the inner LA ghettos, as the inner city folks can more easily operate doing black market transactions and assorted immegalities(E.G burglaries, selling dope on the streets, auto accident scams, medi-cal scams, getting all kinds of free Gov’t handouts such as free emergency Medical care, ect.).
LA Ghettos thrive during tough times thru ilegal drug sales, recirculated stolen property, gov’t handouts, ect. Last time i worked in the tough inner city including compton back in the RE downturn of 1991-1995 the LA ghetto was awash in cash.
Sounds like pretty serious fallout to me.
And to Spike66, we will all get hit by this.
test
Can you say Rodney King Riots, a duex?
Oh the memories
Gwynster, I’ve long held a theory about riots where idiots destroy property, including their own.
The riots have nothing to do with race relations, poverty, etc. Rather, it has to do with the absence of knowledge of, or experience with, what it means to work for money.
The riots in L.A. certainly illustrate this - AS DO the flipping of expensive cars and the destruction of other property by North Shore-born frat boys following the numerous Chicago Bulls NBA victories.
Those who don’t earn their money through sweat and hard work have no real concept of its worth. There’s no psychological connection. No appreciation. After all, how could there be?
Looked at a different way, this also explains today’s real estate crash.
Fallout? yep.
That’s just the way it is.
Some things will never change.
Get a job.
(Arrrgh! I hear the song but can’t remember the singer. Jackson Brown?)
“The Way It Is” - by Bruce Hornsby
They market housing bubble beer.
Until “everyone else” is doing it.
… the Colbert Report covers the story.
and LAY makes a guest appearance, crawls in his lap (a’la Jane Fonda) and tries to spin how unaffordablity is good for Amerika.
Stupid should be painful!!
If you’re born stupid then stupid should be reasonably comfortable thanks to sympathetic smart people.
If you’re greedy, that’s another story.
…until the next ponzi scheme is created, at which time J6P will be a future millionaire and say “I always knew the housing market would crash, but this ________ market is systemically undervalued, everyone wants it, and prices will rise forever”
The next bubble will be Wind Farms to save us all from Global Warming. Just remember there is going to be no more HOT AIR!!!!
So how does J6P participate in the windmill bubble? Aren’t windmills mostly owned by utilities?
Plus whats wrong with windmills? Better than paying big bucks for fossil fuels I would think.
Nothing wrong with them except for the narrow region in which they make economic sense….not going to be a mainstream replacement. However I do appreciate the humor, because the next bubble will again be something that makes no sense for a vast majority of us.
when Paris Hilton’s home in the Hollywood Hills becomes a foreclosure
Watch this like the hawks that you are: Capital One (and apparentlly other cc companies if you check comments section in this link) have hiked up interest rates — the credit crunch is now everywhere:
http://consumerist.com/consumer/pay-more-get-less/capital-one-raises-your-interest-rate-285228.php
I’d live on the street before I’d pay a dime in interest to that scuzzy company. Yeah, the credit card addiction is coming home to roost.
What’s in your wallet?
In mine is a WAMU debit card. Thanks.
Nah, I have no problem having a bank give me back 5% or 1% on all purchases, in addition to providing easy download into quicken. And the autopayment means no arguing about payment-on-time or payment-in-full.
I used to think that auto-payment was great until my cable company deducted 5 payments for one month. What an epic battle I had to wage to get those 4 erroneous payments back!
HMMM….you must have a different autopay than I do. Try another version where you have control.
It was autopay through the company’s system, which I am NEVER doing again. I’ll have to look into getting a version that I can control.
I use USbank billpay and the best part its FREE!
I have used this service for over 3 years and have never had any problem.
I use USbank billpay and the best part its FREE!
You know that’s not going to last. Once the majority of people use online bill-paying, they’ll start charging to process checks, then they’ll charge a bit less than that to allow you the “convenience” of paying on line.
ATM transactions used to be free because it was so much cheaper than hiring tellers.
ATM transactions at USBank are FREE! If you onlu use USbank’s ATM’s. But hey they are big and are almost everywhere I go.
I have free bill pay from WaMu, but here is the trick: They send the money to the payee via check, but deduct the money from your account when the check is issued, even though the money does not arrive to the payee until 5 days later. So basically, they hold your money in their accounts for 5 days. Net effect to me is that I need to keep a higher average balance in my checking account to make sure concurrent bills are covered, and so I lose out on a small amount of interest, if that we in my savings or elsewhere.
times a few hundred thousand customers…. that 5 day interest free loan you are giving them is a bubble that moves through time forever.
OH..MY..GAWD!!!
What you guys are saying about WaMu and US Bank (and chardonnay) reflect exactly my own experience. It’s amazing how much our lives are all the same in so many little ways.
I used to use WaMu. They were great for banking, but their online bill-pay service is really bad. They will screw up, then lie to you about it, then try to deny that they have a money-back guarantee service. They are so into covering things up, that they will continue lying about it EVEN WHEN THE MISTKE IS IN YOUR FAVOR.
So I switched to US Bank. Muuuuuuch better. No problems with them at all, and they still give you your float. Checking with them is free as well. The only thing they do that WaMu doesn’t do is charge for using out-of-network ATMs, but who cares when you can just go to the grocery store, pay with your debit card, and get cash back?
For anyone currently using WaMu, I highly recommend trying US Bank.
OT, but I had to laugh when I read this: http://tinyurl.com/39g4w6
From the article: “Mortgage test stumble
56% fail exam for new brokers. Do you know the purpose of annualized percentage rates, or the parameters of the federal Truth in Lending Act? If not, you’re not alone. A month has passed since Washington introduced licensing exams for some aspiring new mortgage brokers, and more than half of those taking one of the key tests have flunked.”
If one can’t pass that test, sadi person is in serious intellectual trouble…
The credit crunch is the least of our worries…
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/08/07/bcnchina107a.xml
Pure blackmail…but it’s what happens when you’ve become the world’s largest debtor nation.
3rd world toast in a generation.
Well, if they did it, it would likely cause a meltdown of heretofore unprecedented scale, so what’s the likelihood?
They want us to buy their toxic crap so that they can build the industrial base we’ve allowed to dissolve here - if they knock down the dollar too far, their own growth with it. Truly the nuclear option, and they would be fools to pull the trigger. Then again, they are, after all, communists, so who knows…
OK — here we go — I’m an Evans-Pritchard fan and Hoz isn’t, so I invite Hoz to take this article apart.
Well, folks have turned back to their credit cards now that the home equity virtual credit card has been cancelled. Last two months of data show revolving credit has grown 12.2% in May and 8.4% in June (annualized). Yet retail sales remain quite weak. This is a clear run up to recession as consumers tap their credit cards in a last-gasp bid to sustain their consumption levels.
I dunno about any other parts of the country, but here in the Tampa area, even though the prices of houses and other residences are dropping, I’m not really seeing it in the rents people are charging. On the upper end, maybe, but for a one bedroom, the prices are stupid.
“Charging,” but are they getting? You see the same thing here. When I get in a particularly cantankerous mood (which has been a lot lately) I respond to Craigslist rental ads and give the advertisers a little old fashioned religion.
Yeah, there are 2 homes in our village that have had for rent signs for months. We’re a town of 8-12k people depending on the source.
Landlords are asking $2k/month. My mortgage with CNY taxes and insurance is less than $1k. My home and lot are larger than than the rental’s.
Good luck with that guys.
We have a flipper in my hood who has been wishing for $2400 for well over a year now. LOL
Rental listings on Craigslist in Sarasota have tripled in the last month or so. Prices are dropping, slowly but surely, as supply increases. Talked to a longtime LL yesterday: “It’s very difficult right now, I’ve never seen anything like it”.
http://sarasota.craigslist.org/rfs/
Ooops.
http://sarasota.craigslist.org/apa/
Around here, the problem is all the “homes” that were built for families. Those are cheap to rent, comparatively. But it still sucks for a singleton or even a couple looking for a one bedroom. Rent is like $650, 700 compared to a 2 BR for only 100 more. The squeeze really comes at the lower end of renting. A 1 BR where I live should be no more than $500.00, maybe $550.00.
“A 1 BR where I live should be no more than $500.00, maybe $550.00.”
Same thing here. Problem is 1BR is running about $895 and 2BR is in the $1095 range. Unless you have a roomate in the 2BR it’s pretty unaffordable either way.
My mortgage, taxes and insurance run about $1800 for 3BR 2.5 Bathrooms. Rentals in my neighborhood are in the $1600 range right now down from about $2K.
I pay 1660.00 for a 684 s. ft place in Irvine. Its sick.
Good point Palmetto, I’m going through the annual ritual of the complex trying to screw me worse than I can screw them. So far it’s a stalemate, but rents in this area are way overvalued. If it weren’t for another year commitment to the area, I’d be packing and singing my way up I-75.
I pay 2500 for a 3bd 2ba 1300ish sq ft house in Menlo Park.
i pay 2200 for a relatively poorly built 3/2 house in a nice (rockridge) area of oakland. 25 minute commute. no complaints
i pay $1004.00 piti for a new 3/2 3 car garage in kingman az. i bought new 10 months ago after renting for 18 months. i sure dont miss so cal at all.
Hey azrenter:
You should change your name to azbuyer!
Hubby and I rent a 1-bedroom (with an office) 5 minutes from the bus and 10 minutes from the subway, for $875 a month. It’s not the greatest apartment, the bathroom has drywall and hardwood floors, but we won’t be here past next summer.
Key Lime Toast ,
My family has rentals in Cape Coral. I am going to come right out and say this. If you have properties that are not paid for or at least put a HUGE down on you are going to loose them to foreclosure. The rent situation is only going to get worse. How do i know ?
We just rented a completely remodeled 2/1 for a whopping 500 a month. Our carry costs are roughly 150. 3 years ago this same unit was renting for 750.
I am a overall bull but i am going to say that the housing situation will not end well….its a gonna get much uglier before long….
Chris
Excellent news!
Thanks Chris.
The rental market in the D.C. area (outer NoVA) is also growing glutted by the day — I was in a rental management agency last week and the owner said the number of empty rentals was a new record for her.
Arwen, does that mean people are leaving the area (if both empty rental and for sale housing inventories are growing)?
I noticed on Forbes’ list of the 100 fastest-growing suburbs (published a few weeks ago) that Virginia and Maryland were nowhere. The Washington Post mentioned an immigrant saying “everyone wants to leave Herndon” because of the lack of construction jobs. Perhaps the immigration in the last few years was fuelled partly by those jobs.
There aren’t many current reliable statistics on migration patterns for this area, but I suspect overbuilding is the culprit at this time. We do have a very transient area, and I suspect more outflow than inflow, although I can’t confirm. I think the inflow that we do have tends to shelter in group homes.
I see this in Sacramento too. I’ve been watching the population estimates since 96′ and I felt the surge about 18 mo before I saw it in USC data. Now I’m really getting the feeling that we are experiencing a significant outflow that has been going on for about 2 yrs but rapdily excellerated in the last 9 months.
A hunch is not the same as data. The next estimates will be from 7-2006 to 7-2007 and should be available around Dec.
Do a UHAUL index search : ).
The prices will go down, just give it some time, I think 3 - 4 monthes. What was the price in 90-s ? Maybe lower.
Have seen rents comming down for houses in Pinellas county, mid and north county, don’t know about apartments though. Side note, I do alot of driving around mid Pinellas county for work and there has been an increasing amount of homes for rent that have been sitting empty for the past month. There are of course alot of homes for sale and they are also sitting empty. Also to note there is an increasing amount of commercial property for rent with new construction next door to strip malls that are looking to lease. I have seen several housing related businesses go missing, mostly flooring and furniture stores as well as the food establishments that are located in the same shopping center (volume must have dried up?) and I no longer see the traveling “roach coaches” that sell lunch around either. I will also add an update to a new development in Pinellas Park that was started over 2 years ago where only 2 houses have been built and empty for the past year. Just this past month one of these has been sold and there is no sign of any other construction taking place. They have also put up a sign that now states you can build your new home there with the developer or your own builder. Have not seen any reduction in the prices they are asking for the lots.
I can’t think of any good reason why rents on apts., condos in decent buildings, or small SFHs should fall from here. Even though they have been stagnant over the past 18-24 months in Jax, I expect them to be bottoming and to possibly rise somewhat from here. The market will be in equilibrium when rents and prices come back into synch. Falling prices will do most of the heavy lifting, but rents have room to creep higher.
Major development in Northwest Florida going tits up…
“One of the most ambitious real estate developments in the history of Santa Rosa County has been put on hold because of money problems.
Work has stopped at the massive Jubilee development in Pace, and more than $3.8 million in liens has been filed against the project developer, Atlanta-based the Eagle Group, and the company’s contractors.
“The Eagle Group has gone back to their investors and are in the process of getting some new financing,” said Jubilee spokeswoman Kara Dullea. “The cost of construction materials has increased at a level they didn’t anticipate. They believe they are very near securing the financing … to begin paying off the vendors who have been working on the project.”"
http://tinyurl.com/26nmnq
Another one bites the dust, right, Popper? How’s St. Joe holding up?
I haven’t been following St. Joe much lately but I did visit their Water Color development and a couple other developments between Destin and Panama City this past June.
As much as I like to rag on the big developers they have created some pretty nice communities/resorts in Northwest Florida. The communities in general are like idealic virtual 1930’s/1950’s small towns with a town square, drugstore with soda pop counters, post office, small stores, cafes, etc. Very “Leave it to Beaver” if that’s your thing. All the resorts I visisted were gated and well maintained.
Another point I noted is that a significant number of the workers were imported from Central Europe. I spoke to three or four waitresses that were from Russia. Really freaked them out with my Russian. They thought I was either from the INS or the Russian mafia either of which would probably not be good for them. I spoke to one of the cafe managers who told me that they imported Philippian workers during the winter time and Russian/Central European workers for the summer time.
Same in NorthEast Florida, in Flagler. Palm Coast was the fastest growing community a couple of years ago, planning to built an ambicious City Center in Europian style and all that - now it’s stalemate.
Really freaked them out with my Russian. They thought I was either from the INS or the Russian mafia either of which would probably not be good for them.
Hilarious….
“The cost of construction materials has increased at a level they didn’t anticipate.”
With new construction coming to a halt everywhere I find this hard to believe.
Not hard to believe. Construction on Cape Cod is slowing WAY DOWN -but my suppliers are telling me not to hardwire material costs in an estimate for more than a week. Prices are soaring. Frankly I think the dollar is tanking.
How do you define stagflation?
“The cost of construction materials has increased at a level they didn’t anticipate. They believe they are very near securing the financing … to begin paying off the vendors who have been working on the project.””
Excuse me what construction materials have gone up? This is BS. I have tracked construction material prices for the past three years and almost everything is 40% lower than in 2005 and 10-15% lower than in 2006. For instance a 1000 board ft of lumber was around $410 in June 2005. In June 2006 it was around $320, now its well under $300. Copper, sheetrock, and OSB are also much lower.
That tracks with what I’ve seen. Lumber has completely tanked.
An e-letter sent by John Mauldin a few days ago, and a post last night by luvs_footie, show “mortgage resets” of under $10B/mo spring 2007 rising to about $25B/mo in early 2008 and then staying fairly steady. This is supposedly from JP Morgan.
Our favorite Credit Suisse chart shows ARM resets of $25B/mo early spring 2007 rising to $50B/mo by the end of 2007 and then falling back fairly sharply. I don’t understand the discrepancy between the two sets of figures. I wish JPM and CS would define whether “resets” means the initial reset from the teaser rate or the annual reset thereafter.
I wouldn’t care about the details of inconsistent data if they all expressed the same trend, but it seems fairly important for us to understand whether or not ARM resets will continue rising into 2008.
Vindicated, yes, but I plan to be on the phone today.
Senate switchboard: 202-224-3121
House switchboard: 202-225-3121
White House switchboard: 202-456-1414
I’ve grown cynical over the years, of course, but this time I’m hopping mad about a bailout. Those of us on this board saw this coming and Congress wouldn’t listen. I was always on the telephone talking about this issue with the staff of a certain Senator (now gone), and was treated like I was nuts. Of course, the staff member was my older sister so maybe that’s understandable
Here’s a sample letter at Patrick’s site:
http://patrick.net/housing/contrib/nobailout.html
Hillary is not electable. You don’t need to worry about this.
And even if she were elected, by the time that happened and a Congress was seated, the bill watered down and stalled several times, it would be far too late for this to have any effect at all.
I get quite amused when I think about Hillary Clinton trying to garner votes in Texas or anywhere in the South for that matter. You can’t win the election without the South and she’s poison here. I doubt she’d get 20 percent of the vote in Texas. I don’t know the last time a candidate won without winning Texas.
You all should be more worried about what the Republicans might come up with bailout wise.
Short memory. How about 1996?
I’ll cop to the short memory. I guess it was the other Clinton. But try selling that feminazi troll in this state. What a laff riot.
that was the popular wisdom 6 to 9 months ago, that HC couldn’t win a general election. Recent polling indicates otherwise however. I certainyl agree she’d have a hard time winning a general election, but it could be done. The wild card for the Dems is John Edwards.
FYI - Bill Clinton won in ‘92 and ‘96 w/o TX.
I’m leaning towards Edwards currently but it’s way too early in the game. All the dems need work and the reps are a horror show by my standards (even our beloved RP).
Gwynster — if you don’t like the Republicans or Democrats OR Ron Paul (a libertarian), what kind of platform do you want to see?
inflation.
I have to agree.
As much as I would like to see a woman president, Hillary isn’t the candidate. There’s a reason why she’s a senator from NY - I don’t think she can carry the south or the midwest. Being a senator period is a huge drag on a campaign.
Her campaign was funded by banks. She had about 10 times what others ran for senator on. Bailout the poor consumer? I don’t think so.
Exactly Blue Skye - just remember, Hillary is beholden to the NY based banks that fund her campaigns and their six-and-seven-figure salaried employees. A vote for Hillary is a vote for a taxpayer funded windfall to investment banks, hedge funds and other MBS holders along with the speculators who bought homes they couldn’t afford as if they were lotto tickets.
And the first billion is only the beginning. When the losses get worse, she’ll be screaming about bailing out the little old lady that HELOCed her way to Hawaii while actually giving away our tax dollars to the NY banking financiers of her past and present campaigns.
A vote for Hillary is a vote for bailout. Remember.
I have a certain sense of dread that Hillary will win. The country is so tired of the Republican Party thanks to George W. Bush that they’ll vote for who wins the Democratic nomination, and every day that becomes clearer it will be Hillary. Romney and Fred Thompson offer nothing. I like McCain but I don’t think he’s popular in the party. There would be no better way of saying Republicans are full of s*** on social values if they nominate Giuliani. Can anyone imagine the Republicans nominating a pro-choice candidate? Maybe they know they’re going to lose and they want Giuliani to win to show that being moderate does not work.
I gave $100 to Ron Paul last week. Maybe something good will come of it.
Not to mention that she is a senator for New York, there is alot of resistance in the south and the west to anyone from that area. Add who she is into the equation and I don’t think she has a real chance. It is way to early in this thing to make any call but my guess is that she will eventually do/say something by the time things really get going and end up hanging herself on it.
And how many of those who are running were never a senator?
There’s a reason why she’s a senator from NY - I don’t think she can carry the south or the midwest.
And let’s not forget the “invisible” rednecks of states like PA. My BF is one. He never votes, but said he will register and vote against Hillary if she’s the dem candidate.
Multiply him by about a hundred thousand, in my state anyway.
Good’ol Pensyltucky…
Ron Paul ‘08!
I’m starting to like country music.
And drag racing.
txchick,
My hope exactly — that it’s too late. Just a lot of posturing, which is also hard on the stomach.
It’s pandering, pure and simple. No wonder so many people either expect something for nothing from the government or tune it out entirely like I do.
““I wasn’t pandering. I was just telling her what she wanted to hear.”
–Alex Fletcher (Hugh Grant), “Music and Lyrics”
Careful, Tx — you are going to make David Cee go broke trying to pump up Hillary’s campaign war chest…
Maybe someone should pump up her other chest for interest . . .
I do think that the bankruptcy reform act of 2005 is going to kick a lot of pols who voted for it in the azz–all those folks desperately using their ccs to keep up with mortgage bills..there was a note that cc debt was expanding, while retail sales are flat–so it’s gas,food, and non-hedonic essentials being leveraged. I’ll look for the link.
http://fidweek.econoday.com/reports/US/EN/New_York/consumer_credit/year/2007/yearly/08/index.html
Spike, I’ve been saying here for 2.5 years that the BK bill would be a campaign issue plus the RE bust. I can’t wait for the sanctimony to start.
txchick,
I know ive been reading that here, so it was probably you that tipped me off to start watching this.
If she’s the nominee, she’s going to win. I don’t see how any Republican can win next year–they’re all pro-war and the country is 70% against it.
“Hillary is not electable”
txc, I respectfully have to disagree.
Strengths:
1) She’s already the most electable in the current stable of Dems, the others are a joke,
2) She has Bill to raise funds,
3) She has the Clinton Machine behind her,
4) She has the MSM to help her once the general election starts
5) Those FBI files (Craig Livingston) that they stole during the Clinton years included many Dems, giving them an edge on info for blackmail, and
6) The Republican party base might not support their candidate
Weaknesses:
1) Huge negatives should cause the Republican base to mobilize,
2) Far left doesn’t support her,
In my opinion, this Presidential race is going to be very close, exteremely interesting, and a boon to talk radio.
Lip
PS: DId the home owner take the bid?
It will be close only because both parties will have totally crappy candidates. And unfortunately, I think it will be a snooze o-rama because it will focus on completely unimportant issues (think gay marriage from the last election). But you are right, talk radio will love it.
Any presidential candidate will have to appeal on a broad basis to the South and the Midwest. Hillary is “what’s wrong with America” personified to people in those areas. She is strongly associated in my mind with liberal politics and cold power grabs. And since she’s a woman, that makes her a ice b-tch. I’m not saying that’s what she is, but it’s the perception many people have.
I kid you not that I think the Republicans could put up a gay candidate, and as long as he a)wasn’t flaming, b)was against gun control, c) from the South, and d) vaguely charming he probably would have a good shot at the presidency.
Lip,
I think your analysis is really interesting, but I do think the pols are hopelessly behind on how big this is, and what massive dislocations may be in store for us. A fracturing domestic economy will change everything–and as it’s effects work their way thru towns and neighborhoods–who’s a frontrunner will change.
That’s why I think an outlier like Bloomberg may be a dark horse–he runs NYC on a balanced budget, and no pol knows Wall St. and the financial world better than he. If people become frightened of the machinations of the ibanks, the hedgies and the Fed, they may turn to a guy who is not owned by them. Bloomberg is a self-made billionaire, and could fund his campaign by writing his own check. So nobody owns him.
I still prefer Ron Paul, but it’s interesting to think about.
I think Mike B. would make a good president but I’m not sure he’d get elected on any ticket. He’s apolitical (hence the reason he can’t get elected), doesn’t pander (like Hillary) and has seldom made completely outlandish statements (lying-republican) and isn’t involved in Madison Avenue sponsored nut-job agendas (republican). I’m sure he’d have to divest from someone of his assets and open his books and therefore, won’t run.
spike66: than he = than him
45north,
sorry, it’s correctly, than he (does).
Haven’t made it yet. Their realtor is a very obnoxious brassy bi**ch. Trying to decide how low I can go and still be in the game.
It seemed to be an awesome house, if you like it, go for it. Happiness is worth a few thousands of $ amortized over whatever period of time.
Could you live in this house forever?
If you can then whatever happens is OK.
I think your analysis misses TxChick’s point that Hillary’s plusses and minuses don’t matter if a significant chunk of the country’s electoral votes are simply unavailable to her.
Hillary can definitely win. It doesn’t matter if most of the people voting against her can’t stand her. It’s just a matter of counting the electoral votes. Agreed she won’t win Texas. She can win the big Midwestern states and she can win Florida. She easily wins the Northeast and West Coast. She can even win states like WV and possibly even NC and VA, both of which are rapidly trending left.
And she is actually less likely to say something stupid or have something new and incriminating happen than most other candidates. She’s odds-on to be Prez.
Don’t underestimate the demand for those Panama City condos!
Hillary wants to get a billion dollars to bail out folks.
Here’s an exercise to understand the magnitude of this compared to Iraq: write one thousand dots on a piece of paper. One of those dots is want hillary wants to spend (1 billion), and the other dots are what Republicans want to spend on Iraq (1 trillion)
‘the other dots are what Republicans want to spend on Iraq (1 trillion)’
And therefore a bailout is a good idea. Do you see how pointlessly off-topic these political discussions are? Now we get to hear all about islamo=facists, etc. And after all, we know that what politicians SAY during a campaign is always followed through, right?
Excellent point Ben.
Have any of you thought about 1 billion can do for this mess? I have and it is just about nothing!
1 Billion could take over the loans of 2500 houses that had mortgages of 400k.
1 Billion could give 10k to 100,000 homeowners.
I could go on but I would guess that by now you can see my point.
Why then are you silent with the Hillary bashing?
Quit trying to sound balanced.
Ben,
What does
‘Hillary is not electable. You don’t need to worry about this.’
have to do with housing?
Hillary is not only highly electable, but she will be the president for 8 years. You folks may forget how good things were in the Clinton years, but like many I do not.
If you have watched the debates on both sides you will see that Hillary is way ahead of everbody else. I have seen this and many others have as well. Just look at her poll numbers from a year ago and you will see that her negatives have come down and positives have gone up. In addition before the last three debates Hillary was around 35% and Obama was around 33%. Now Hillary is at 44% and Obama is down at 22%.
The wild card in all of this is what will women do when they get into the polling booth? I think that what they say in public and who they vote for will be quite different. Also remember that in the past 3-4 presidential elections women have voted more then men.
Reading up on my Great Depression facts (the similarities of world wealth being held in the hands of a few, and increased productivity not being passed onto workers are really pretty scary. At least there is no dustbowl and our farmers aren’t starving.)
The one thing I realized is that Roosevelt et al bailed out the banks because they were afraid of revolution. The Marxists and Communists were watching our situation with interest and privately many capitalist cheerleaders were considering that they might have been witnessing the end of capitalism.
Do you think our present day leaders fear the same? Muslim extremists must be dancing with glee.
Our leaders should be fearing those that elected them office. Generally speaking, we’ve been on a downward slide for 25 years. Alternately, monied interests have never had it so good.
This will not end well…
Downward slide for 25 years?
Yes. 25 years.
Personally I think a downward slide for 37 years. The slide is accelerating.
It is indeed eccelerating. Although the 70’s were considered “bad” by some, they were nothing compared to the shenanigans of the 80’s, 90’s and now.
Please explain “slide”. Of course there are many problems and there always will but if you are arguing things are not better now than 25 years ago the only place I think you could be living would be Michigan or Ohio. For me 25 years ago cable TV was a luxury. Now I have sat radio in all my cars. I could only dream of owning a computer and now my kids each have one. There are now drugs for all sorts of medical problems which improves quality of life. If you are smart this is a great time. Now if you FB or Heloced your home then I can’t say I am to sorry for you. All of my school age friends all lived a lower to middle income area. Now they ALL are many times better off then they were then. None of our parents had college degrees and most of my peers have Masters. You can not tell me race relations are not better off today than they were 25 years ago. In that area as well things are not even close to perfect but do you remember how bad things were then? With the current structural problems in the credit markets let’s not throw out the baby with the bathwater.
Clearly, economically, we are far worse off now than we’ve ever been historically. The further away from 180-81 we get, the worse off economically we are.
The standard of living in the US has dropped every year for the last 37 years. In 1968 the average home loan was 15 years fixed, the average car loan was 2 years. The average home loan is now 30 years and creeping up, the average car loan is 5 years and creeping up.
The starting salary for a college graduate was ~10K, The most expensive Mercedes sold in the US was 5K. A brand new 427 Cobra could be yours for $7200.00. A beautiful house in Newport, RI, Winnetka, IL or Carmel by the sea could be had for $35,000.
This is a lower standard of living. Having computers, radios and plasma TVs is not a measure of the standard of living, this is a measure of technological improvements to society. The truer measure is that the top of the line Mercedes is now 150K, the house in Carmel by the sea is now 1.5M and the starting salary for a recent college graduate is $40K.
Clearly, economically, we are far worse off now than we’ve ever been historically. The further away from 180-81 we get, the worse off economically we are.
What is 180-81?
And in 1968 you were lucky to live into your 70’s. Lots of people born in 1968 are expected to reach 100.
I disagree. Since when is the notion that having access to cheap computers, radios and plasma TVs not a measure of a higher standard of living?!? Because most people can afford such things that means our economy is on the decline?
I dare say that those who could have afforded the $35K Winnetka manse in 1970 (which incidentally, was more like $100-150K back then) would have loved to have on hand all the meaningless ‘technological improvements’ that you so readily dismiss.
Are you also going to say that having cars that run on lead-free gasoline versus leaded gas only (as they did prior to 1974) is a sign that our standard of living is dropping? I don’t know….I think cleaner air IS a measure of a higher standard of living.
All that aside, let’s talk real estate only. How many people back in 1970 had second homes? How many senior citizens could afford to remain in their homes well past retirement? How many houses were today’s average 2,350 square feet in size? How many of today’s kids have to share a bedroom (god forbid!) with a sibling? How many kids back in 1970 shared a bedroom with at least one sibling?
HOZ, you are cherry picking and not comparing apples to apples. Carmel by the sea, top of the line Mercedes? We are talking about the nation at large not uber rich areas or uber poor. The housing bubble has hit the standard of living in the past few years however time will fix that issue. I am sorry; by almost any measure we are much better off now than 25 years ago. You are not going to be able to convince many people of your argument. I will cede one point to you I do believe corruption in our society seems to be more prevalent now then 25 years ago however I am sure there are older folks here will set me straight on that one as well. Thank you but I will take my life style today over mine 25 years ago any day of the week, even on the day when I have to send Uncle Sam a check!
There is no need to convince anyone. The facts are obvious enough for J6P to see. Only idealogues attempt to convince the general public by spinning the facts to support their bankruptcy agenda. Add in the crushing debt load that they conveniently leave out of the equation and you have a serious decline in standard of living.
An idiot with a credit line looks like a millionare and that is exactly what this blog is about. Take away the credit line and the charade is over and the ideology falls to pieces.
I’d argue that the Internet is more valuable to society than a top of the line Mercedes.
Better standard of living? Huh! Sure, if you consider all the toys being purchased ON MASSIVE DEBT A BETTER LIFE. Sorry, being a nation of debt slaves that has a massive trade imbalance is not a better standard of living. On top of that, look at the nation’s infrastructure. It took a bridge in MN to finally get everyone’s attention to the complete disrepair of much of the nation’s structures. Yeah, I got alot of toys, but that doesn’t mean a better standard of living.
KIrkH - yours is perhaps the most brilliant comment I’ve ever seen posted on Ben’s site at any time. I mean that with complete sincerity.
Very nice. Thanks.
Exactly OCDan.
I don’t mean to be impolite, however America has so many luxuraries that it doen’t need. When I grew up in my teen years in the 60’s i had three siblns in a single beadroom in two sets of bunkbeds. The apartment was approximately 1000 sq. feet. My father was in the Navy in Long Beach, CA. In 1960, his gross income was $3,000 per year. We went to Disneyland, in Anaheim in 1962, on an all day pass. We saved up for 6 months collecting coins in a jar to pay for it.
Looking back, it wasn’t so bad to live that way. We were marginally middle class, what the heck, we were poor! The point is humans can adjust and thrive as long as they believe that there is hope in the future!
Just how in debt are you, OCDan?
I was talking with a friend about the golden age of silence, a Rip Van Winkley 20 years ago…
When we belted into our chariots back then, we didn’t stop @ a phone booth every 20 minutes to keep others up to speed about our current activities, nor did they worry about us, either…
We communicate a great deal more now, and manage to say much less, somehow.
ide argue an apple is more valuable to society than a mercedes…
the standard of living is lower, its in the wages (lower), its in the debt (higher)
Better standard of living? Huh! Sure, if you consider all the toys being purchased ON MASSIVE DEBT A BETTER LIFE. Sorry, being a nation of debt slaves that has a massive trade imbalance is not a better standard of living. On top of that, look at the nation’s infrastructure. It took a bridge in MN to finally get everyone’s attention to the complete disrepair of much of the nation’s structures. Yeah, I got alot of toys, but that doesn’t mean a better standard of living.
In the 70’s I would have to travel 40 miles one way to get my masters degree that will increase my salary by 12k next year. Thanks to the internet I am getting my masters online.
“HOZ, you are cherry picking and not comparing apples to apples.”
The definition of falling standard of living is: A drop in GDP per person adjusted for inflation. You are living it. To compensate for the falling standard of living, loans have longer terms and we import cheaper goods to replace expensive American goods.
As I have shared many times with this board, my family is no longer in debt. We sold the house at the top of the ride to my SIL and made out like bandits. I don’t apologize for it, either. They made the choice and we lowered the prices by 15% for them, as the buyer with first choice. Had it nor been them, it would have been someone else. I also drive 2 saturns, no Beemer or Benz for me. Additionally, my wife stays home. We have 18-24 months living expenses saved and we make it on my 1 salary.
To all you people who think it is better, ask yourselves this: Why does it take 2 people to make ends meet in soooo many households?
Also, having the Internet doesn’t mean we have a higher standard of living. Again, please don’t confuse toys with standard of living. As a corollary, which would you rather have: a nation of savers and exporters or a nation of debtors and importers? I would take the former, however, this country is the latter and that is all that needs to be said about standrad of living…
DEBT SLAVES!
To all you people who think it is better, ask yourselves this: Why does it take 2 people to make ends meet in soooo many households?
A one-income household is great, until the marriage breaks up. I was 15 when my father, the wage-earner, left my mother. We lost the house, and came very close to homelessness.
Not sure but I also don’t think muslim extremists really try to gauge the economic health of the target. I get the feeling they are searching for more sensationalist outcomes. Then again, what do I know about their goals? I could be completely deluded.
I’m more afraid of what the powers internal to this nation will try to get away with during an economic meltdown. Call it paranoia but I could totally see Chenney posing the idea that having an election during times of economic havoc isn’t in the best interests of the US, blah, blah, blah, and then we have the shrub inured as the great stabilizer.
In 92′ during the last downturn, we had the Rodney King riots. I was right at ground zero for that event. When things get bad, anything could be a spark.
You miss the point. It doesn’t matter who’s in office - dem or repub are the establishment and the outcome will be the same. So there is no need for something as blatent as Bush or Chenny taking over the office. The “elites” have more in common with themselves than with us “common” people.
can’t argue with that except where the war comes in, then you have a big difference. My hunch says that we’ll see class warfare issues becoming topical in 2010.
Carrie, I think you should revisit your Depression “facts.” Roosevelt did not bail out the banks - they failed on a massive scale. He was in fact called “a traitor to his class” for not rescuing the formerly wealthy.
As I posted yesterday,
“Roosevelt’s opening salvo against the depression came on March 6 just two days afer he assumed office. Summoning a special session of Congress, the president delivered his proposal for a national “bank holiday,” in which all banks would close down and show their books to federal inspectors. Based on their assessments, the government would extend emergency aid to those banks that needed it, and only those whose finances were sound would be allowed to reopen……With this one sweeping gesture, the president ended the national banking crisis and restored public confidence in the nation’s banks. After a week after declaring the bank holiday, he wrote to an old friend, “We seem to be off to a good start and I hope to get through some important legistlation while the feling of the country is so friendly.”
from Turning Points
The Great Depression
Intro (no author identified)
The author’s leanings may be at issue here but I don’t think I misinterpreted the text.
Also I didn’t say the injection of cash was a success. Just that it was done.
“and only those whose finances were sound would be allowed to reopen……”
Yes many were allowed to fail.
Thousands of banks failed. FDIC, created in 1933, was and still is designed to bail out depositors - savers - not the banks or bankers. Original coverage was $2,500.
“the government would extend emergency aid to those banks”
This is what I’m talking about. I don’t think the aid in the first days of his presidency is the FDIC. That came later, no?
CarrieAnn I dunno. He was elected in ‘32 which means inauguration in January of 1933. The FDIC was created that year. As a Washingtonian I can tell you, there is, was and always will be a lot of smoke and mirrors about who exactly done what to whom.
Figuring out who screwed the pooch is very difficult.
Whatever do you mean, our farmers aren’t starving?! Have you seen the farmland- to- development conversion rates? For ANYWHERE in America? What farms? What farmers? Our farmers are all old guys, with no replacements coming along. ..
Oh, I’m just going to stop now. Anyway–our farmers have it really tough.
Oh, and I meant REAL farmers. Not giant agribusinesses owned by city dwellers who have never even seen dirt but who are very pleased to receive giant subsidies paid from the tax dollars of rest of us, including real farmers.
You go girl. Actual farmers don’t stand a chance in the economic boondoggle sold as “free markets” for the past 25 years. Free for whom?
For the past 100 years or so, there has been a boom about every 25 years. Wheat, soybeans, even corn are rising like the dickens right now. World food stocks are at 35-year lows.
Not that things haven’t been tough for a long time, but, I’m afraid to say, farming is the place to be right now. Those guys are going to make out like bandits.
Most J6P farmers are doing markedly well right now, thank you. Been to the Midwest lately and priced an acre of good, black, level land suitable for growing corn? Looked at the meat prices in your local grocery lately? Milk prices? The J6P farmers are making lots of money these days, right alongside the industrial-sized farming operators.
The last significant, across-the-board bust for J6P farmers was from 1980-1985. I remember well sitting with college friends (Univ. of Iowa) and hearing stories about how dire things were. It’s not like that now. Far from it.
This is what I heave heard from people in eastern Colorado. J6P farmers in our eastern plains are doing pretty well. I asked a non farmer friend who lives out that way to describe the typical individual farmer: after buying new equipment and a new car every year and after personal expenses, he’s clearing 100K, which goes into the bank.
In Colorado - if you have time to kill on upcoming weekends, why not go to some of your local county fairs, or the Colorado State Fair? Provided your eye is keen, you can pick up on quite a lot.
And have fun, too. You can still throw a ping pong ball into a fishbowl for $1.00 and walk away with a goldfish.
Or shoot figures with water cannons.
I know what you mean Olympia girl. All I have to do is drive to Walmart 1/2 hour away to see how farms are failing but they are not literally starving as the book claims was happening in ‘33.
“…(Hoover) signed a Drought-Relief Bill which appropriated $20,000,000 for loans for seed and for “further agricultural rehabilitation”-a loophole which Secretary of Agriculture Hyde admitted, when pressed by Senator Borah, might be possibly be used to provide food for the starving farmers.”
Charitable organizations were overwhelmed by the numbers. There were stories of people going up to 11 days w/o food. How does one work the fields when that happens? Hoover felt the need to sneak $$$$ thru that disguised aid to literally feed the farmers so that the farm subsidies wouldn’t go wasted.
in my opinion it was more like majority of the rich agreed to roosevelt confiscate gold and value it less than the market because of what just happened in russia.
“FYI - Bill Clinton won in ‘92 and ‘96 w/o TX.”
HRC is no Bill Clinton.
Bill Clinton is no Bill Clinton. Yes, times looked pretty very much good…..but the underlying principles/philosophy are precisely what we’re watching play out now: international enterprise on a grander than ever scale, worldwide wage arbitrage, and the ever-popular greed-based swindles.
Sub-Prime Politicians
http://www.townhall.com/columnists/ThomasSowell/2007/08/08/sub-prime_politicians
In short, government has been the principal factor preventing the “affordable housing” that politicians talk about so much.
Politicians have also been a key factor behind pushing lenders to lend to borrowers with lower prospects of being able to repay their loans.
The Community Reinvestment Act lets politicians pressure lenders to lend to people they might not lend to otherwise — and the same politicians are quick to cry “exploitation” when the interest charged to high-risk borrowers reflects that risk.
The huge losses of sub-prime lenders, some of whom have gone bankrupt, demonstrate again the consequences of letting politicians try to micro-manage the economy.
Yet with all the finger-pointing in the media and in government, seldom is a finger pointed at the politicians at local, state and national levels who have played a key role in setting up the conditions that led to financial disasters for individual home buyers and for those who lent to them.
While financial markets are painfully adjusting and both
Mainstream media (RE pumping Boston Globe, no less) has a fine piece on the credit crunch:
Mortgage seekers caught in squeeze
http://www.boston.com/business/personalfinance/articles/2007/08/08/mortgage_seekers_caught_in_squeeze/
I’ve been waiting for an article like this for a long time.
The liquidity cesspool is finally starting to dry up.
Chinas nuke option, do the commies have by the short hairs?
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/08/07/bcnchina107a.xml
Wow that would be like the Titanic sinking causing a massive tsunami.
Surfs up!!!
This is up on Drudge now, too, in red banners (appropriate). Let them “burn” down the dollar…see what it gets them. No markets and an American public after it is all said and done would like to send Volkwagens out of 16 inch guns into Shanghai.
China has got to spend them dollars somewhere.
Yeah, this is a pretty useless threat. They might kill the dollar on the internatioanl markets and cause a US depression, but it would completely kill the Chinese economy when their exports went to ZERO. I wouldn’t mind it, cuase it would force congress to balance the budget, and create a resurgence of US manufacturing, but the transition would definitely be painful. It’s a safe bet that at least 100x more Chinese would starve to death from this action than Americans.
I think the software ate my attempt to post from an hour ago. Apologies if it shows up.
The article said these statements were made in response to our government’s attempt to pressure them on the yuan valuations.
Could just be sabre rattling.
Check this:
http://www.atimes.com/atimes/Global_Economy/IG14Dj01.html
It might be resolved by the asians eventually.
Don’t assume that China’s motivation is entirely or even primarily economic. The leadership would be happy to cripple us economically at the cost of writing down their bond portfolio by a few hundred billion. They want to be the dominant power in the world and that would be a major step towards their goal - cheap at the price.
Marx was right after all - Capitalists will sell you the rope you will hange them with. In our case the rope is made of bonds.
The HB’s world continues to deteriorate. With the non-conforming mortgages being nuked out of existence, the future looks very bright indeed!
Toll Brothers’ Revenue Declines 21%
As Contracts Fall in Shaky Market
Luxury-home builder Toll Brothers Inc.’s home-building revenue fell 21% in its fiscal third quarter, as contract signings continue to drop.
For the quarter ended June 30, the Horsham, Pa., firm said home-building revenue decreased to about $1.21 billion from $1.53 billion a year earlier, as net signed contracts declined 31% to $727.1 million from $1.05 billion during the year-earlier quarter.
Toll Brothers said the fiscal third-quarter cancellation rate was 24%, compared with 19% in the fiscal second quarter. Third-quarter cancellations were 347, the lowest in a year. Backlog for the quarter fell to about $3.67 billion, down 34% from $5.59 billion in the year-ago period. And Toll Brothers signed 1,457 gross contracts in the quarter, a 17% decrease from 1,760 gross contracts signed a year ago.
“We believe significant pent-up demand is building, based on solid demographics, a decent economy and still-strong employment,” Chairman and Chief Executive Robert I. Toll said in a written statement. “However, we caution that, with the uncertainties roiling the mortgage markets right now, the pace of home sales could slow further until the credit market settles down.”
http://online.wsj.com/article/SB118656508555291592.html?mod=hpp_us_whats_news
“we believe significant pent-up demand is building….” To quote another poster Whiskey Tango Foxtrot
demand for buyers
Fleck rocks!
Fannie, Freddie Aim to Ease Mortgage-Market Crunch
Firms Say Letting Them Buy More Loans May Help
By David S. Hilzenrath
Washington Post Staff Writer
Wednesday, August 8, 2007; Page D03
For Fannie Mae and Freddie Mac, the chronically embattled companies chartered by the government to make homeownership more attainable, the recent upheaval in the mortgage market presents financial and political opportunities.
After accounting scandals and allegations that Fannie Mae in particular was run largely for the enrichment of its executives, even some longtime allies in Congress have demanded the companies to do more for the public good.
As mortgage funding dries up, Fannie Mae and Freddie Mac are calling on regulators to loosen restrictions on their business so they can fill the breach. They want the freedom to buy more mortgages and mortgage-backed securities.
“Freddie and Fannie were created to bring liquidity, affordability and stability to the market. I think if there was ever a time when liquidity was needed, it’s now,” Sharon McHale, Freddie Mac spokeswoman, said yesterday.
Some mortgage-industry players are hoping Fannie Mae and Freddie Mac will come to the rescue. Others see them as exploiting the situation to pressure regulators. And some say giving the companies a bigger role could have risky consequences.
Bill Fleckenstein, president of Fleckenstein Capital, a hedge fund manager who is betting against credit-industry stocks, said the market is going through a correction in which securitized mortgages that fueled the housing boom are being marked to their real value.
“There’s going to be a shutdown in the housing market. And Fannie Mae and Freddie Mac are not going to be able to bail it out, nor should they,” Fleckenstein said. “If Fannie Mae and Freddie or somebody bails out the housing market, then you tell me why we don’t start up Gambler Mae so that any lottery ticket owner, any football bettor, any guy at the track, any stock operator who loses money can get bailed out, too.”
http://www.washingtonpost.com/wp-dyn/content/article/2007/08/07/AR2007080701924.html
“All those in favor of respiking the crazy lending punch bowl, say ‘Aye.’”
(Hil, Dudd, Schlummer): “Aye.”
“All those opposed, say ‘Naye.’”
(BB, HP): “Naye.”
GetStucco,
You seem to like numbers. Ben has allowed other political commentary, so I hope he’ll let this post through.
What do you get when you multiply the one billion dollar hand out Hillary has offered (that probably won’t materialize) by a thousand?
MULTIPLY by a thousand.
One trillion dollars.
And that’s how much the republican party is spending in IRAQ!
10 billion dollars a month is 10 times the whole of what Hillary is offering.
Off topic and irrelevant.
Txchick talks on and on about shorting and technical analysis. What the heck does technical analysis of stocks, candlestick charts and ‘hillary is not electable’ have to do with housing? I understand a little bit, but not with all the posts she makes, and yet you are silent.
Sounds like I touched a nerve.
I have to disagree here, GS. I’ve made this point before. If enough people want it, a trillion dollar bailout will occur. And the war spending shows it’s well within the realm of possibility. Ben’s point is that 30% are renters, and 40% own homes outright, so those wanting bailouts are in the minority. But I say the 40% owners also want bailouts, or at least they will when they see their retirement nest egg (home value) disappearing.
I don’t think we’re near that point politically yet, but we will be. However I think the bailouts will be so far behind the curve, they won’t stop another Great Depression anyway. (They may for example start small, like the war spending did.)
GetStucco,
For what it’s worth, I think you’re one of the smartest guys I’ve encountered, and I look forward to your posts.
A big part of the mess we are in, in which elected officials are spending other people’s money unwisely, is due to Americans blindly voting for a candidate because they belong to one party. We should think independently. When I hear people bash just one side, I think they are contributing to the problem - the overall problem - of misallocation of capital. Now is the most important time to be involved with the election process because I don’t want Hillary or Mitt.
(1) Defense is a Constitutionally-delineated role of the Federal government. Wealth transfer ameloriate bad decisions made by citizenry is not.
(2) The Republican Party does not spend money in Iraq. The President as commander-in-chief requests it, and the Congress, currently controlled by the Democrats, authorizes it.
Correction: ameloriate = to ameliorate
“If Fannie Mae and Freddie or somebody bails out the housing market, then you tell me why we don’t start up Gambler Mae so that any lottery ticket owner, any football bettor, any guy at the track, any stock operator who loses money can get bailed out, too.”
Amen
NAR lobbyists in Texas score a win:
http://www.chron.com/disp/story.mpl/metropolitan/5035936.html
That is absolutely disgusting. The citizens of Texas should be ashamed of their leadership for allowing that to happen. I guess, now, we should expect to see similar things happen in other states.
The ascendance of politicians and government that can operate without the corrupt influence of corporate payola cannot happen soon enough.
Notice that this wasn’t an issue 3 years ago for the Realtwhores, when prices were going up.
A logical reaction by the state to preserve its income from RE taxes. If you cannot find the price of a sold house, How can one complain about the RE assessment?
Tx, any idea on how many are protesting their house assessments in Texas?
Yeah, that sucks, but you can still get the information.
And you talk of Texans not voting for democrats like it’s a good thing?
Shocking and frightening.
Lou, who should the letters be sent to?
I actually think they’re more concerned about out of staters knowing how much they’re overpaying for property here in this “cheap” state.
I saw this site in the DMN Sunday RE Section. It seems pretty easy to use and has no registration. I haven’t spent that much time with it to determine if prior sales data is available. It has some info like gross rents, etc. on selected multi-units.
http://www.dfwinvestorsmls.com/
Great site. I bookmarked it. Thanks!
hmm. i seem to get an impression that texas is run like mexico: by the elite and for the elite.
I was wondering. If we have to worry about banks going insolvent, should we eliminate direct deposit?
I think M&T is stable at the present but this has been interesting.
“If we have to worry about banks going insolvent, should we eliminate direct deposit? ”
Only if your living check to check.
Actually it takes a few pay periods to cancel direct deposits. How bout living w/o a couple months of paychecks?
Besides 3 paychecks is quite a bit of money. I don’t want to wait a year or more for the FDIC to get back to me on that amount.
My experience with FDIC is the banks are merged with another bank almost immediately and service is not interrupted at all. In the case of liquidation they are pretty quick to mail out checks.
Thanks kc.
I thought there was a poster that once said he had money tied up for over a year when his bank failed in ‘87.
“A lifetime of saving evaporates with bank’s collapse
Lawrenceville bank closes, one customer is short $321,573″
“…U.S. bank failures are rare — the last one before Metropolitan was 2004, and the previous Pittsburgh-based collapse was 1992. But as unexpected events carried out with no forewarning, the closings highlight dangers to consumers who are unaware of the insurance limits set by the federal government….”
http://tinyurl.com/2cul5x
The first of many. “unexpected events carried out with no forewarning” - BS, there is plenty of forewarning, there are so many banks listed on exchanges that are paying big moneys for 1 year CDs. (For those of you remembering the S & L fiasco). There will be a lot more heart aches when this runs its course.
Hoz — man, is that a sad story. My wife believes the bank people about limits because they hand her an FDIC brochure. Me, I’m skeptical, beyond $200K per couple. Apparently, it just has to be an innocent error by a bank clerk and you’re screwed.
Has anyone been following bank deposits levels?
Around Boston, community banks seem to have been pretty careful about lending. But should we worry that all the F’d buyers are tapping into their savings and now the community banks are going to see deposits vanish?
“tapping into their savings” .. BWAHAHAHA Thats a good one.
Yeah man, they’re hittin’ the c.c. like nobody’s business in the 2Q. Now, if they couldn’t handle a HELOC with an 8% rate - how can they handle a c.c. with a 20% rate?
The consumer is about out of rope - just in time for xmas.
FREE ‘07 MERCEDEZ-BENZ w/ purchase of GORGEOUS GOLF COURSE HOUSE
http://phoenix.craigslist.org/rfs/390458215.html
Note that the owner’s phone number is from Orange County, CA. This area of Phoenix is really going to suffer, currently with 730 homes on the market, and 192 foreclosures (Foreclosures.com).
Car is probably on a lease.
White car… ugh. Might as well have curb-feelers.
The car was bought with cash back and now it’s built into the 390,000 wish price.
Plus, this fscked borrower isn’t even giving a decent discount for this used, almost-last-model-year car. The difference between the hallucinatory “market value” of $425K and the merely high-as-a-kite asking price of $390K is around the car’s MSRP.
The house was built in mid 2005 and hardly lived in.
That says it all…
If this sells (which is unlikely) there will be lots of fraud as the appraiser, as usual, won’t discount sales price for the free car and no one else in the transaction will care either and/or disclose.
I find this to be hilarious.
Mortgage demand jumps, bankers say
Mortgage Bankers Association says applications rose for first time in 3 weeks on lower interest rates.
http://money.cnn.com/2007/08/08/real_estate/bc.usa.economy.mortgages.reut/index.htm?postversion=2007080807
August 8 2007: 7:26 AM EDT
NEW YORK (Reuters) — Mortgage applications rose for the first time in three weeks as interest rates fell sharply and demand surged for home purchase and refinance loans, an industry group said Wednesday.
The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week ended Aug. 3 increased 8.1 percent to 656.5, its highest level since early June.
The four-week moving average of mortgage applications, which smoothes the volatile weekly figures, was up 1.2 percent to 626.
So applications are up, but that is just a desperate attempt by homeowners to refinance. I also bet mortgage denials are at an all time high too because of bad credit, tightening liquidity, and dropping home values.
This was exactly what I was thinking.
Why can’t they have real #s on how many of those applications were actually by the same people over and over and over again?
That, and I’d also like real numbers on: the number of people who are in foreclosure versus the number of properties that are in foreclosure. Just what is that correlation? It could reveal plenty about the status of things.
Add all the mortgage lenders who have stopped making loans (AHM) and people are scrambling to find a lender who will. So sure applications are up and many of these are from the same people.
China threatens ‘nuclear option’ of dollar sales
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/08/07/bcnchina107a.xml
The Chinese government has begun a concerted campaign of economic threats against the United States, hinting that it may liquidate its vast holding of US treasuries if Washington imposes trade sanctions to force a yuan revaluation.
Dollar to collapse?
Wouldn’t that be a poison pill by China?
Dollar tanks = they lose a big part of their market.
It becomes productive for US to manufacture again.
Old steel mills get fired up. Textile industry returns to the Carolinas.
Trade deficit returns, and is a surplus.
US is now a major economic power and a major military power.
There is no way China will risk this.
The article said the comments were in response to our government’s pressuring them regarding the yuan valuation.
Could just be sabre rattling.
M.A.D revisited.
Got Strangelove?
Dr. Strangeloan
(Or how I learned to stop worrying and love the Debt Bomb)
To reverse Clausewitz, Politics is nothing more than war continued by other means. Is the world on a sustainable path? If it is no real problem, if it is not does it make sense to diminish the US abilty to buy resources? IMO the reason we can project power around the world rides on the back of the Federal Reserve Note.
So,
Businesses that have been dead and gone for a long time, rise up like Lazarus and swing back into action?
This country doesn’t turn on a dime, in fact, it’s so wildly out of shape fiscally and physically, i’d suggest we send it to a rehab joint~
Their dollar holdings are not exactly “vast.” Impressive, yes, for a third world, communist country, but not “vast.”
If they want to sell, I think we could still just buy them back. I wonder what they would try and sell them for? Loonies? Euro? Yen?
Would be an exciting thing to watch, anyway.
http://www.atimes.com/atimes/Global_Economy/IG14Dj01.html
Yes, if we had perhaps a few hundred million Euros or something in reserve it could be a once in a lifetime opportunity to retire nearly $1 trillion in debt at pennies on the dollar without massive inflation.
The source material for Mr. Evans-Pritchard’s article
Long-term RMB reform benefits China and US
Aug 7, 2007 China Daily
“…When the yuan is stable, the US has a more important advantage.
Thanks to the trade surplus, China has accumulated a large sum of US dollars and its world largest foreign exchange reserve is mostly in US dollars. Such a big sum, a considerable portion of which is in the form of US treasury bonds, contributes a great deal to maintaining the position of the US dollar as an international currency.
Russia, Switzerland and several other countries have restructured their foreign exchange reserve and reduced the US dollars they hold. China is unlikely to follow suit as long as yuan’s exchange rate is stable against the US dollar.
The Chinese central bank will be forced to sell US dollars once the renminbi appreciates dramatically, which might lead to a mass depreciation of the US dollar against other currencies.
The Chinese government launched an exchange reform regime years ago. The renminbi will be appreciated gradually, the exchange regime would evolve in a managed floating exchange rate system and an effective foreign currency market would be established….”
http://tinyurl.com/yv6b2j
As we know, this is China’s way of pushing back at Paulson’s pressure to sorta’ float the Chinese currency. It is intended to get us to back off (and a warning shot to eager Dem candidates) and probably will succeed, IMO — so long as they keep buying our paper.
Mortgage Demand Jumps over 8%
http://money.cnn.com/2007/08/08/real_estate/bc.usa.economy.mortgages.reut/index.htm?postversion=2007080807
Mortgage denials jump too. They leave that stat out : ).
Meant to say, “Mortgage denials jump too, they leave that out”
Robert Toll still doesn’t get it.
http://biz.yahoo.com/ap/070808/toll_brothers_outlook.html?.v=2
Toll Bros. 3Q Homebuilding Revenue Falls
Wednesday August 8, 7:14 am ET
Toll Brothers Preliminary 3rd-Quarter Homebuilding Revenue Drops 21 Percent
Chairman and Chief Executive Robert Toll said housing demand appears to be building, but warned that mortgage market uncertainties could cause the pace of home sales to slow further until the credit markets settle down.
Sure he does. From Yahoo Finance:
Robert I. Toll , 66
Co-Founder, Chairman and Chief Exec. Officer
Salary: $ 18.83M
Sales of stock: $ 10.12M
There stock is up, too, over a dollar a share…..yippee, we are losing money by the boatload but our share prices keep going up.
Hullucinating Economy again in action.
Few expect home prices to rise soon, and those that do are wrong.
http://biz.yahoo.com/rb/070806/usa_economy_housing.html?.v=patrick.net
Story in the (UK) Independent on the property boom in Russia:
http://tinyurl.com/2y458z
“Forget London, New York and Tokyo. The place to be for booming commercial property development right now is Moscow. According to international property analyst Knight Frank, new developments of high-grade office space in the Russian capital have doubled since 2003, with a further 1.5m square feet of space becoming available before 2011.”
In Moscow:
“Still, there is surging demand for new buildings - 200 high-rises are planned - in relation to the estimated 2,000 buildings in the historic city centre razed since Luzkhov became Mayor in 1992.”
“Prices for prime new-build residential property rose by 92 per cent in 2006, and by 69 per cent in the re-sale market. Top offers for new build housing exceeded $36,000 (£18,000) per sq m, with prices in the re-sale sector at over $40,000 per square metre.”
“Average growth in prime residential rents passed 30 per cent in 2006.”
In Russia it is even more buble than anywhere else. If the oil price drops it will be even greater default than in 1998. Russia has now so-called “Stabilization Fund”. It’s almost entirely in US banks.
With good reason, Russia is saddled with too many dollars.
“…In the process, it is fueling a consumer boom - and, as Russians abandon the U.S. dollar as their currency of choice for savings - a bit of economic chest-pounding, too.
In one example, a pro-Kremlin youth group recently staged a mock panhandling to benefit the dollar. They held out hats for passers-by to make donations: “Raising money for the dollar’s ticket back home,” their signs read….
International Herald Tribune Aug 8, 2007
http://tinyurl.com/2crnhl
If dollar as world reserve currency loses its role the world might be split with zones i.e.dollar zone, euro, yuan, yen… End of “Pax Americana” ?
Government regulations nurtured subprime mortgage crisis
http://www.baltimoresun.com/news/opinion/oped/bal-op.sowell08aug08,0,522262.story
From the link, I think this is the money quote:
“The Community Reinvestment Act lets politicians pressure lenders to make loans to people they might not lend to otherwise - and the same politicians are quick to cry “exploitation” when the interest charged to high-risk borrowers reflects that risk.”
“…quick to cry “exploitation” when the interest charged to high-risk borrowers reflects that risk.”
Which means that any risk premium forfeited by way of lower than sane interest rates is the result of naked extortion.
Yeah, after 25 years of deregulation government is still the problem. Nonsense.
The only government policy that is to blame here is the mortgage interest deduction, which encouraged the upper middle class to invest in McMansions rather than saving. But do people really respond to incentives anyway?
Anybody wanna make some money?
http://lfc.com/property.asp?propID=318
Adelphia cable’s HQ building in Coudersport, PA is up for sale.
Minimum bid? 1 MILLION dollars.
Estimated value? 30 millon dollars.
Coudersport?
http://en.wikipedia.org/wiki/Coudersport,_Pennsylvania
“Coudersport is a borough in Potter County, Pennsylvania, 110 miles (177 km) east by south of Erie, Pa. on the Allegheny River. The populations were these: 1,530 in 1890; 3,217 in 1900; and 3,100 in 1910. The population was 2,650 at the 2000 census. It is the county seat of Potter County.”
Is somebody going to buy this white elphant and tear it down to be moved to a place where it might actually serve a purpose?
I apologize if this is doubleposted:
Wanna make some money?
http://lfc.com/property.asp?propID=318
This is Adelphia Communications’ former HQ in the lovely borough of Coudersport, PA.
From Wikipedia: “Coudersport is a borough in Potter County, Pennsylvania, 110 miles (177 km) east by south of Erie, Pa. on the Allegheny River. The populations were these: 1,530 in 1890; 3,217 in 1900; and 3,100 in 1910. The population was 2,650 at the 2000 census. It is the county seat of Potter County.”
Minimum bid? $1,000,000.00.
Estimated value? $30,000,000.00.
What? Is someone going to buy thisa white elephant and move it? I don’t think it will ever be worth 30 million in Coudersport.
Last time Coudersport had any good times was at the turn of the 19th century when the Buffalo and Susquehanna Railroad and United State Leather Corportion (one of the big ten corporations in USA in 1900) was cutting trees, collecting tan bark and tanning hides in the area.
Since then it has been downhill.
30 Mill. for Adelphia building in a sleepy community without even any rail service anymore (I believe) is sort of stupid. What do you make there that the world wants?
Prison or drug rehab center.
Reminds me about the huge WANG HQ buildings in Lowell MA.
A repost from something I put in yesterday’s bits bucket late in the day. I still can’t believe this program.
————————————————
I know it’s late in the day, but I have to post this one as it’s unbelievable.
Something For Nothing Home Deal
By Elizabeth Razzi
Sunday, August 5, 2007; Page F01
There’s a home-buying deal out there that’s more than too good to be true. It’s too good to talk about in public.
At least the people running the deal don’t want to talk about it, certainly not for publication in the newspaper.
Here’s the pitch: There is an invitation-only group of homeowners who have signed up as partners with an organization called Metro Dream Homes, which has offices in the District. Members buy a house, sometimes for more than the asking price and without a down payment. A condition of the sale is that the seller agree to give back 10 to 15 percent of the sales price to the buyer, who in turn pays it into the coffers of Metro Dream Homes. (What does the seller get? A sale, which can be hard to come by these days.)
Metro Dream Homes says it will invest that cash in various businesses, including automated teller machines, video advertising and other Web-based ventures that are under the umbrella of its parent group, Metropolitan Grapevine, headquartered in Laurel. Then, according to Metro Dream Homes, the profit from these businesses goes to fund the monthly mortgage payments for the homeowners, on an accelerated schedule that pays off the house in five to seven years. The company also says it will make sizable contributions to charity. After five to seven years of payment-free living, the homeowner is supposed to sell or refinance the house, with the homeowner and Metro Dream Homes sharing the equity.
What a deal! You buy a house, maybe with nothing down, take out a mortgage big enough to cover your $50,000 to $70,000 payment to Metro Dream Homes and then live payment-free for five to seven years. You’ve paid nothing. And after a few years, you and Metro Dream Homes split the equity and you live happily ever after.
My translation: The buyer borrows an additional 10-15% to speculate that the home will appreciate 20-30% in 5-7 years, minus the mortgage payments. A fool’s bargain if I ever saw one. Have any of you ever heard of a program like this before?
Sounds familiar. I remember reading about a deal like this in FL, but in that case the seller was suppose to find renters for the homes that would pay the mortgage. Of course they are all screwed now.
I believe the article was posted here in the past few days. Anyone else remember it?
I do - Washington Post. It was riddled with statements about so-and-so who “wouldn’t comment.” I think it will be the first part of a series - stay tuned. A Ponzi scheme, certainly. Can’t believe this stuff is still going on….
Kind of reminds me of this:
http://www.realestatejournal.com/buysell/mortgages/20060929-hudson.html
“The borrowers, who include truck drivers, factory workers, a pastor and a hair stylist, say they were duped by acquaintances into signing stacks of documents and didn’t know they were applying for loans. Instead, they thought they were joining a risk-free ‘investment group.’”
Goverment Skould.
That is terrifying. I can’t believe anyone would go into this thinking it’s a good deal.
& of course it’s illegal. how can it not be?
OT (a little bit) Harris Poll results out 8/1/07:
There are five occupations that are perceived by one-quarter or more of adults to have “hardly any prestige at all.” These include stockbrokers (25%), union leaders (30%), entertainers (31%), real estate brokers (34%) and actors (38%).
RE brokers sandwiched between entertainers and actors . . . maybe the sheeple are waking up??
Since there are now over 2 million prisoners in the US…what about the person that has to stick a finger up their … to check for hidden contraband?
I guess that…“hardly any prestige at all” occupation kinda …fell thru the cracks…
Aren’t these the sort of people who domiante politics in this country?
Smithers,
One-quarter or more adults is 25% or could be 26%. The other 74 or 75% are star struck and want fame. They don’t want to produce but be like a frog on the log waiting for a fly to come by.
The famous people are hardly ever significant and the significant people are hardly ever famous.
From an article on today’s Netscape pages -
The No. 1 Job With No Respect
It’s not about money or celebrity. And it’s not even about getting your hands dirty. The job with the least prestige is: real estate broker.
That’s the word from an updated nationwide Harris Poll of 1,010 randomly selected adults that measures Americans’ perception of the most and least prestigious professions. It’s easy to see that money and celebrity do not necessarily equal prestige. If they did, bankers, actors and real estate brokers wouldn’t be on the bottom of the list and firefighters, scientists and teachers wouldn’t be near the top. Rather, prestige is strongly associated with respect and helping others. Professions with high prestige are those which are widely seen to do great work which benefits society and the people they serve.
The top 10 occupations with the least prestige:
1. Real estate brokers
2. Actors
3. Bankers
4. Accountants
5. Entertainers
6. Stockbrokers
7. Union leaders
8. Journalists
9. Business executives
10. Athletes
Boy that’s a telling list.
Lawyers aren’t even on there. (no insult intended just observing historical perception problems)
Ha! I figured we’d be number 1.
–
These are the professions that people distrust the most or have little respect for what they do. The key skills to succeed in most of these professions are deception and manipulation. Laws are very lax when it comes to punishing deception in these professions.
The fact that accountants are on this list tells you a lot about the corrupt nature of the US financial system.
Jas
I would guess that accountants are faring far worse of late than they have historically due to MCI, Enron, and other highly publicized accounting funny business that has made and lost fortunes…
So, for weeks we’ve been hearing about the hundreds of billion of deals in the pipeline that couldn’t be sold. Flapping heads on CNBC today say, oh wait, the actual amount of deals in the pipeline maybe 1/5th previously reported.
So, did the fed buy up the extra deals instead of drop rates, or some other back room deal to make the credit crunch going away?
I think official denial of bailouts coupled with backroom deals involving massive liquidity injections may be key constituents of the Fed’s economic revitalization plan.
No and most are still hung out with bank liability approaching 30B on approximately $300 Billion in deals.
Here’s the NAR forecast just released:
http://www.chicagotribune.com/business/chi-070808-housing-forecast,0,372736.story
And for fun, here was the NAR forecast from January:
http://www.realtor.org/press_room/news_releases/2007/gradual_rise_projected_for_home_sales.html
A couple I know just purchased a home via ACORN, $146,000, 100% financing credit score 550 thru Bank of America 7.00% rate. Close next week. And the beat goes on.
Where? What is their income? If they are close to median, this may be okay. What would it cost to rent this place?
Nothing below is news to any of the regulars here, but I thought I would share a rant/essay I wrote to a friend of mine who asked me why someone would choose to rent instead of buying. He’s a pretty smart guy, working on his PhD at MIT, owns a condo in the greater Boston area, but like most academic types, he’s got big blinders on, and hasn’t paid much attention to real estate lately. So I responded thusly. It’s sort of a summary of everything I’ve learned from this blog - think of it as my “What I Did This Summer” back to school essay.
——————————————–
From a purely financial standpoint, the indifference point for the decision of buying a home vs renting a home is when the monthly cashflow costs are equal. Traditionally, this is defined as: Rent = Principal + Interest + Taxes + Insurance. Of course, this refers to property taxes and homeowner’s insurance, but the right side of the equation would also include HOA or condo association fees PMI, Mello-Roos fees, and whatever other costs exist. As an investment, changes in the value of your equity do not traditionally factor into the decision; doing so changes the type of transaction from investment to speculation. Keep in mind, equity accumulated through principal payments is not “free” money. The investor would have had that money whether he or she bought property or not, and could conceivably have put it to another use. For traditional rental real estate investment, the rent charged must exceed the costs on the right. In the vast majority of locales around the country, renting is significantly cheaper than buying right now. Notice I say buying, not owning, because if you are a homeowner who bought at some point in the past, your costs (particularly principal, but also taxes which are a function of principal) may be very different than someone buying today. This effect is part of what makes renting cheaper - a landlord who bought 7 years ago when property acquisition costs can clear a profit with a lower required rent than a landlord who bought last year, but a buyer buying today cannot demand a price from 7 years ago, he must pay today’s price.
Also, from an investment perspective, the opportunity cost must be considered. Real estate is one of the few asset classes which requires ongoing tax and other maintenance expenses just for the privilege of owning it. Stocks, bonds, precious metals, and other types of investments do not generally incur ownership costs, only transaction costs when they are bought or sold. And many other asset classes have returns higher than real estate, without the high fixed costs, high capital entry requirements and illiquid markets. Also, the risk premiums, for investments in general but particular in real estate, have been grossly misjudged by the marketplace. Some of what you see going on in the mortgage industry right now (lenders going out of business, credit tighening and retrenchment, margin calls, etc) are because of this repricing of risk. Real estate is a highly leveraged transaction for the average person, and high leverage increases risk.
From an economic standpoint, there are a few other factors at play. The first is perceived value to the resident. People tend to prefer home ownership for a variety of reasons. Some are practical: a homeowner has more leeway to make alterations and improvements to a property, notwithstanding HOA covenants and municipal codes. Owners know they can stay in their home as long as they remain solvent; the risk of not-for-cause eviction is eliminated; e.g. if the landlord of a rental place sells the property to a buyer who intends to occupy it, the renter must vacate. So because of this preference, people will pay a premium over the equation mentioned above for the privilege of ownership. Historically, this premium has been in the range of 10-20%. Some traditional rules of thumb that people use to calculate when to buy: 100x rent is a fair price; don’t buy a home that is more than 3x your gross annual income (or stated alternatively, don’t borrow more for a home than 2.5x your gross annual income, for those with high downpayments or equity rollovers from “trading up”).
Also, pricing in general is at the margins, which means that the going rate for any service or asset is determined by whoever offers the cheapest price. The rental market is more efficient, meaning that prices fluctuate faster and more quickly alter to affect the prevailing economic climate.
Finally, there is asset appreciation to consider. Noted economist Robert Shiller has created a graph that shows how, for the largest part of the last 120 years, home value apprecation (i.e. increase in equity through appreciation as opposed to loan principal repayment) has tracked very closely with wage appreciation, until about 2001. This makes sense, as the biggest factor that determined what you could sell a home for was how much money a buyer had available to buy one. So as buyers made more money, home values (and therefore home prices) increased accordingly Economists still argue about why these two things became decoupled at that time, but the prevailing wisdom says that is because the costs of borrowing became extremely cheap, not only in gross systemic terms but also in terms of the risk premium. If his theory is correct, home prices have a long way to fall before they are back in line with this fundamental driver. The graph is below:
http://graphics8.nytimes.com/images/2006/08/26/weekinreview/27leon_graph2.large.gif
Wage inflation is different than price inflation (typically reported as the consumer price index), and historically has been higher, thus accounting for the increase in living standard from decade to decade. It has been effectively flat since 2001, and thus can not be used to explain any of the increase in housing costs since 2001. Although I do not recall the historical rate for wage inflation offhand (and can’t seem to find it in a cursory Google search), I do recall that it is a few points below the historical return rate for stocks, which is around 11%. The historical rate for an investment is theoretically risk-free under certain assumptions, so you could usefully conclude that stocks have always been a better general investment than real estate.
Also, since I have written a long, ranting essay, I will just add this one rant at the end: It is not possible to sell or buy a home “below market” or “above market” in an arms-length transaction (meaning that it is not a sale between two familiar parties who decide on a price unrelated to the market; e.g. from father to son). The market value is defined by the price of an asset in a completed transaction. Therefore, someone who complains that offers to their home are below “market value” does not understand what the term means, or the implications for their pricing strategy and subsequent outlook for the sale. Also, the prevalence of fraud in recent real estate transactions cannot be underestimated. There are a lot of instances of fraudulent deals involving straw buyers, dictated assessments, and other schemes that not only impact the properties at hand but also other homes in the area, via comps on non-fraudulent transactions. I fully expect to see a lot of hand-wringing about this in the next couple of years, akin to the S&L bailout of a few years back.
Excellent letter.
Ditto — nice piece.
Very good post.
“Also, the prevalence of fraud in recent real estate transactions cannot be underestimated.”
To this I have to say that, where I live, I am concerned that there really are no comps with which to evaluate the market. There are so dang many “cash back” deals that it is virtually impossible to know what is going on. I have seen sales prices in public property records as high as 30% over ask, even with properties that were on the market for over a year. Bidding wars? Please.
This is going to get very ugly.
I also live in DC, and I see the same problems. One of my friends bought into the Dakota Crossing townhouse development on the edge of the city late last year. It was a trade-up for her, so no funny-money financing, but the builder did give her 6 months free mortgage, since she was taking a unit with all the options picked by some other chump who fell out of escrow. She won’t talk about how much she paid (despite the fact that it’s public record), and she got mad when I showed her an email the builder sent me a few months after she bought offering me $100,000 in incentives on those same properties. But really, her deal is a suspect comp, too- 6 months of mortgage payments could be somewhere between $10k and $20k discount, although not a huge % of the price in the grand scheme of things.
Too sad!
Recent buys: BAC at $47.85, PFE at $23.69, PGH at $16.98, NYB at $15.98, PNW at $41.80 (but currently priced at $40 or so).
And I’m still extremely bearish on real estate.
p.s. Buy solid earning value companies in the dips. Those companies that have a history of increasing dividends. $$$$
Chicken littles who swear off value investments are going to choke in the dust. P/E is important!
But how can you trust profit when profit is likely to be hut by coming recession? I still don’t trust overseas revenues as I think they will eventually face a credit crunch in their own overprice real estate markets.
Look for those that have lots of cash and low debt/equity, as well as having been through a lot of market cycles and been through “sky is falling” crises.
Anyone can do the same thing. It does not take special skill, other than patience and humility to recognize value. I’m a skilled software engineer. I listen to professional investers but not other armchair investors. Those who have not written a column in a financial periodical or have written an investing book on the NYT best seller list tend to call me an idiot. Well, I let the market make the judgement call on that one regarding who is the real idiot
Common sense tells me to respect the opinion of published experienced investors - Warren Buffet, Jack Bogle, etc.
Yeah, they might (overseas revenues). And that’s something to watch for.
Another thing to consider though is the percentage of people overseas that have access to credit anyway. Is that percentage who have access to credit 20 percent? 40 percent? 60 percent?
Therefore, even if credit does goes bad overseas, to what extent will that matter? I have no idea.
B.i.P.
Thanks for continuing to believe in computer blips,
$incerely,
Wall $treet
Inspired by reading this blog I started writing this today.
Courtney and Dalton Weissman. Age: Mid 30’s, Dual Income 125K a year, one kid (Spokane) age 10, East Coast
“My god!” Courtney said softly as she opened the envelope. “I knew it was going to go up but this is ridiculous!” She cornered Dalton as soon as he arrived home at 7:30 that night. Dalton was in a good mood as the commute had only taken an hour and half for a change. Courtney thrust the mortgage statement in his face before he had a chance to take his shoes off. “My god!” His face turning pale. It’s going up by $1,200.00 a month!”
“What are we going to do!” Courtney wailed. “We’ll figure out something” he muttered.
“But! But!” “Damnit Courtney! Let me sit down and relax first.” Softening his tone he added “Alright?” She angrily huffed and stomped into the kitchen where she proceeded to slam dishes as she prepared to microwave dinner. “Oh Jesus” he muttered to himself as he kicked off his shoes and rubbed his face. He really didn’t want to deal with this. He knew that buying this house was a mistake the day he signed the papers. Courtney was radiant that day and that night for the first time in a long time he was rewarded. Still, he knew that something wasn’t right that day. It was just so much money! Everyone was doing it and it seemed like without a problem. Hell, he had grown tired of his Father-in-law’s thinly veiled comments about where they were living before. On top of that was listening to Courtney bitch about where they were living after they left someone’s house. Of course it didn’t help that everyone in the last few years had moved into a house which usually was three times the size of theirs. Ah, what are you going to do he thought tiredly.
He bought some time by telling her that he would call the mortgage company at work and see “what could be done.” He didn’t really expect much and he wasn’t disappointed. He asked about refinancing and was transferred to another department. After fifteen minutes of conversation it became apparent that was no longer an option. In fact if he sold now he might be writing them a check. Hanging up the phone he felt a cold ball of fear settle in his stomach. Refinancing had worked before but that avenue was closed as was pulling anymore equity out. He started penciling numbers out on the back of a sheet of paper he pulled from his printer. It wasn’t pretty.
Short story or full novel?
Where are the literary figures of America? Given the range of players and plots, this is a story for the ages!
To buy, or not to buy: that is the question:
Whether ’tis nobler in the mind to suffer
The slings and arrows of outrageous lenders,
Or to take arms against a sea of debtors,
And by opposing sink them?
Ahh, a learned man…
the following will soon be heard muttered by FB’s all over the country…
a horse, a horse, my kingdom for a horse (or maybe just a higher paying job, or maybe just a job at all)…
I’m a bit different. I began a painting a few weeks ago based on “christ driving the money lenders from the temple” but swapped out Glenn Kelman of redfin for JC and the lenders are wearing gold coats. Think Schiele.
the kid’s name is Spokane…let me guess: girl?
Hi,
I just started today but I thought I would continue to post it as I write? Unless thats too weird for Ben and everyone else. I think the whole situation is just so ripe for satire.
As in:
Courtney woke up the next morning. It was Saturday, her traditional day to go to the mall. Just thinking about made her purr as she stretched her long legs beneath the 400 thread count Egyptian cotton sheets. The mall was her reason for living although she would never admit that to anyone. Oh god just thinking of running her hand over a fine piece of cloth while the sale staff watched her out of the corner of their eyes was so exciting. Buying transformed her. She became somebody everytime she bought something. Each new dress transforming her into a princess. Each piece of jewelry a way of letting the world know she was succesful, stylish, and so, so, desirable. Desirable, special, not like the others. The Walmart people of the world.
Luminent Mortgage Capital Halted in trading
tough group here. i got everything in writing and i forwarded to lawyer. not trolling, whatever that is.
elevator finally working after three and a half months.
While not an financial genius, I have invested in Prudent Bear Funds. If you all think it will really get bad, then for a novice, I think this is my best defense besides my remaining ira in USTreasurys and CDs.
What do you think about this fund, if everything goes to “H@ll”?
If everything gets real bad, your fund has a reasonable chance of protecting your investments. I personally like Profunds.
from Profunds inverse funds:
Inverse ProFunds may be appropriate:
* when you believe the stock market—or some portion of it—will fall, and you seek to profit from its decline.
* when you want to hedge—or lessen the impact of a market decline, and you don’t want to sell.
Like all ProFunds, Inverse ProFunds may be appropriate for active investors. ProFunds does not limit how often an investor may exchange among ProFunds and does not impose transaction fee when investors buy, sell or exchange a ProFund (excluding a $10 wire redemption fee imposed under certain circumstances).
Profunds web site
http://www.profunds.com/default.fs
I checked out profunds and I think that the downside is too great for me. If I understand correctly they use 2x leverage, and I am not an active trader. I do not short, put or call or what ever that means. All I know, is that I am not as savey as most posters on this website and I am not in any position to gamble.
But, thanks for your response and advice!
Murphy
Hoz:
I went back and checked the prospectus on Profunds, and bought a little bit (dipped my toes in the water) to check out how it plays. I acquired ity bity of FNPIX, Ultra Profund, Financials.
I guess we will just see how this plays out.
Again thanks
Passing on, chat between people asking credit market questions on the Washington Post website. A lot of people asking the “why were they so stupid” question.
http://www.washingtonpost.com/wp-dyn/content/discussion/2007/08/07/DI2007080700841.html
Love this bit:
“Look, the line that the economy is strong is a red herring. The economy is always strong before an asset bubble or a credit bubble collapses. One reason it is strong is because of the euphoria and growth created by the bubbles. But once the bubbles burst, the economy suffers. So the causality works from the financial markets to the real economy, not the other way around.”
An American Express wholly-owned bank is being fined $65mil for money-laundering. Well I guess that’s one way to get bank deposits to continue lending and cover operations.
http://www.cfo.com/article.cfm/9613936/c_9614644
Anecdotal post warning.
Just returned from our yearly trip to Wilmington NC from Toronto Ont.
Same route x 7 years.
Observations.
1. Costco’s less busy (X5 visists at 5 different sites) with much smaller purchases from customers.
2. Signifigant increase in traffic on all routes.
3. Wilmington (it’s different here we have the beach and everyone wants to live here) realestate for sale signs have dramaticaly increase in the last year. Realtor.com shows a 48% increase.
Spoke with local friends who are generational residents but are now priced out of the market. They informed me, however, that the music has stopped but there is denial now from the realtors and owners.( Boom again just around the corner) Little to no sales. Neighbours house purchsed at the peak for $207,000 paint and carpets flip for $279,000 has sat for over a year. NO LOOKERS EVEN. One down the street is the same with only 6 months on market.
4. Realtwhores are writing articles in the local papers saying literally , not figuratively, “If you can’t afford to buy a house here then you should move because you moved to the beach and should have expected these high prices”.
Realtors will destroy the host for their own gain. Unbelievable!! Wilmington was a nice affordable family oriented seaside town. Now it scarred by the flippers and equity locusts for the locals and the regular person.
Side note: not in a racist way but we, America, is changed considerably, and not for the good. SO MANY ILLEGALS. I blame us for not standing up for our country.
“Realtor.com shows a 48% increase.”
YOY
Don’t forget the rising sea level too. Bwahahaha!
And yet another case of banking fraud - as it relates to sub-prime…
Bank Settles Subprime FAS 140 Case
First BanCorp’s $8.5-million settlement with the SEC reflects the commission’s focus on accounting for mortgages.
http://www.cfo.com/article.cfm/9614417/c_9614644
Good catch Chris!
“…the settlement may mark the beginning of more concerted SEC efforts against companies for incorrect accounting treatments of subprime mortgages….”
I suspect every bank is looking at their accounting of mortgage profits today.
San Diego Union Tribune is dishing out the bad news for FBs this morning:
http://www.signonsandiego.com/uniontrib/20070808/news_1b8mortgage.html
“Subprime options disappearing
Housing slide has lenders eliminating exotic loans”
“NEW YORK – The dream of owning a home is fading away for many Americans with less-than-stellar credit.
Yesterday HomeBanc Corp. said it will not issue any more loans, and Impac Mortgage Holdings Inc. shut down a type of loan called “alt-A” for people with limited documentation or slight credit problems.”
The paper version of the UT has more:
Half of page B7:
“The mortgage market meltdown
For many, the dark clouds have a silver lining”
By Mark J. Riedy
(Mark Reidy is executive director of the Burnham-Moores center for real estate at the University of San Diego)
Big picture of houses in the sky with the text:
“The affordability of San Diego’s housing markets will improve for future buyers and help this region’s employers attract and retain key employees.”
“Earlier this month, 15 real estate professionals from a wide variety of perspectives met with the University of San Diego’s Burnham-Moores Center staff to try to shed light on the serious challenges facing residential real estate and mortgage markets in this region. In my opening remarks to stimulate the discussion, I mentioned that one major lender had been forced to cancle his participation because, in his words: “This is a mortgage market meltdown the likes of which I have never seen in my 26 years in the industry”.”
(”to stimulate the discussion”, I like that one!)
Page B8:
“An economy with many unknowns
It is no secret that the housing industry is in a deep downturn. In its heyday, the real estate boom added 30,000 housing-related jobs a month. Now, the bust is subtracting 15,000 a month, says Moody’s Economy.com.”……
“Realtor.com shows a 48% increase.” YOY
NOVA! That is a great story beginning! Nice writing.
Now, I do suggest that you add some clarifying language, such as ‘….and his t*sticles diminished to the size of chilly acorns’, and in reference to Courtney’s radiance… ‘he was rewarded by s*xual favors delivered without a semi-theatrical groan,’ and also, where is the beer and/or martini drinking? Are these people Mormons? If so, I lose all sympathy for their problems instantly.
Hmmm. Oh– let me urge you to see if you can work in some bits about a hearty b*tch slapping as delivered by Bigfoot. I don’t care who he punches, maybe the father-in-law, you pick. But Bigfoot should be in there somewhere, because I always like to read about him.
But those are very minor suggestions. Overall—a fabulous job.
A letter I just emailed on Hillary’s website.
I support Hillary on many issues, but not on this one. NO BAILOUTS please. If we bail anyone out of this mess then they can just do it over again and stop many people who want to buy at a reasonable price. Home prices have increased at a tremedous rate since 2001 and this is not normal. Spectulators who live in the houses and those who do not have caused this problem. They need to learn from their mistakes. Many others contributed to this problem by taking a loan out at 1% and not caring what it would adjust to. Easy money is what fueled this mess. We have to let people and banks fail so that this does not happen again.
Please do the same.
I love this blog! Its got everything in the way of opinions and facts to back them up. My approach in business has always been if you say something, what is your source.
Again this is more like a democracy that what’s taking place on the MSM. Its like the annual holiday get together of family members. Past faults, changes over the year in each person’s life (successes and failures).
I think this is a healthy way to test ideas, beliefs and sources if you don’t mine the occasional put down.
Everyone keep up the good work. “Keep on Trucking”.
Hello Wall Street
How’d the PPT go today?
Don’t you miss liquidity
Since it up and walked away?
And i’ll bet you dread to spend
when you have no more do re mi
But lonely Wall Street, i’ll be watching your misery…
July BK filings up 38% from a year earlier
“…Business reorganizations accounted for 3,400 filings, a 20 percent rise from the same period in 2006 for corporate Chapter 11 cases….”
BKs increasing, first bank failure since 2004 (1st in Pittsburgh since 1992), (note of caution: if a the yield on a 1 yr bank CD is greater than the fed fund rate - beware). And carry traders are still buying the EuroYen and stocks.
Polo Ralph Lauren’s earnings come out and the consumer has died, so did the stock.
Blackstone group got all the major banks to take a flyer on Hilton. Funding may now be possible for this deal. BS,Bank America and GS each stood to lose $2B.
Hilton said on Wednesday that Lehman Brothers Holdings Inc. and Merrill Lynch and Co. Inc. had joined the group of banks funding the deal. Bear Stearns Cos., Bank of America Corp. and Goldman Sachs Group Inc.
Master of the Web, Ben,
Is there anyway to mark a comment so that you can return to a web comment without going throughout all the comments made on a particular thread? It gets tough when there over 300 comments to sort out my comment and to read responses.
You can use “Edit -> Find” menu in IE to find particular word or your name or some keyword you are looking for.
You beat me by 5 seconds on the reply. Hilarious.
Du, I guess I’m the ignorant one.
thanks for the assist.
use Control F function on keyboard and type in search word(s)
On a slightly different note is there a way to filter the comments by time stamp that anyone knows of? I read the blog first thing in the morning and then again after work and it would be handy to hide all the comments I’ve already looked at earlier.
Spend, Spend, Spend: The New Model for Parenting
There’s a new high-priced stroller in town. Meet the new Maclaren. Souped up with leather seats and handle grips, its signature motif is a hand-stitched emblem made of nine-karat gold. It’s price — a mere $4,200
http://www.alternet.org/story/58982/
And to think that my mean ole mom made me walk everywhere as soon as I was able. In fact, I got so good at the walking thing that I had to be harnessed in public places.
Good read:
tinyurl.com/yw6×4r
Let’s try that again:
http://tinyurl.com/yw6×4r
Does not work. What is the link about?
Obviously not my day:
http://www.fool.com/investing/general/2007/08/08/still-more-housing-bull.aspx
So, what was up with the home builders today? Is this a squeeze day play off? The ITB tracking exchange traded fund was up 7.5 % today. Huh?
I do not want to sound paranoid, however did you all know that Amazon.com (books) keeps records of your brouser history? I noticed that there is also a button to delete it. However, I am not sure that the info is removed from Amazon’s computer records.
Just something I noticed in looking for various book titles.
You sound paranoid….