Bits Bucket And Craigslist Finds For August 28, 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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Any Floridians out there care to place a bet on whether or not the new super homestead exemption law will be passed by the people? I won’t be voting for it, to me, I kind of smell a rat here, because I think the idea is to do away with Save Our Homes. But I’m sure it will be sold to the sheeple as a “good thing”.
I agree with you, I think it’s a ruse to get rid of save our homes. I will not vote for it, nor will any of my friends. We do not trust the local politicians who managed to squander 300% increases in tax revenues, and now claim budget shortfalls. In fact I have not met anyone that says they will vote for it, but I don’t know anyone from the Century Village contingent.
I can tell you one thing, SFC, the REIC here in FLA will be pushing the super exemption big time. They’re all moist with delight because they think it will re-spike the punch bowl.
We’re worried that on the election form they’ll phrase it like “vote yes to not allow the negative reverse of the homestead exemption from disallowing the exemption”. Nobody will know what to choose. I think that there are many people around here that are so tired of development and the subsequent decrease in the quality of life, that we’d vote against ANYTHING the REIC was in favor of.
“vote yes to not allow the negative reverse of the homestead exemption from disallowing the exemption”
That phrasing approved by Larry Yun
I also agree. The real reason is to phase out SOH in return for a promise to maintain a low-inflation, responsible-budget, responsible-development, responsible-immigration policy environment over the next 5, 10, 20 years.
How many of you trust in that promise?
Explain the issue to as many people as you can in these terms to help the no vote win.
Good luck!
I also agree. The real purpose of the proposal is to phase out SOH.
In exchange, the policymakers are promising a non-inflationary, responsible-budget, responsible-development, and responsible-immigration policy environment for the next 5, 10, 20 years.
Do you trust them?
Explain the issue to as many people as you can in these terms in an effort to defeat the proposal.
Price drops by themselves will take care of the property tax issue with no need to tinker, deleteriously, with the state constitution.
Don’t you think they SHOULD get rid of the Save Our Homes? It’s similar to Prop 13 in California. I’d vote to get rid of THAT piece of junk in a heartbeat, even AFTER I’d purchased a home.
No, I don’t want to get rid of it. Why do you dislike Proposition 13?
Prop. 13…
1) effectively locks people into their homes, preventing empty nesters from downsizing (without leaving the state)
2) By locking people into their homes, it reduces the number of homes for sale, inflating home prices
3) It doesn’t distinguish between homesteads and vacation or investment properties.
4) Nor does it distinguish between homes owned by California residents, or those owned by folks from out of state.
Which is why, Prop. 13 allows Nebraska resident Warren Buffett to pay less in property taxes on his Orange County get-away mansion than a middle-class family pays on the home it just bought to live in in the Valley.
A better system would cap the property taxes on a California residents’s primary residence to a percentage of his/her income. That would keep people from losing their homes in an accelerating market (Prop. 13’s intent), without subsidizing out-of-state or investment buyers.
Prop 13 also applies to commercial holdings so that huge office buildings built in the 60’s are being taxed at that rate. It has destroyed the schools and infrastructure. There are people sitting on houses worth millions that are still paying property taxes based on the $50K sales price from decades ago. The idea was to save the old from losing their homes to property taxes - not save businesses from paying their fair share.
Please keep in mind that when I bought in Laguna in 1984, I, too, bitched about the intrinsic unfairness of having to pay property taxes on a 600K house when my neighbors next door had a 1.7M house and paid 1/10 the property tax I did…all by virtue of the fact that they had bought their property in the 50’s.
She kindly explained to me that over the years she and her husband had built the roads, the utilities infrastructure, planted the trees, maintained the beaches, fed the poor, fought the fires and paid all the special assessments and bonds to do so while I was busy growing up and enjoying the benefits of the schools system, the beaches, and the projects they had financed. Now they were retired and on a moderate pension. My husband (a physician practicing locally,) and I were reaping the benefits of the community they had built and he and I were now paying it forward to the next generation who no doubt someday be bitching to me about the intrinsic unfairness of the tax disparity.
She was correct.
If you want cheap property taxes, move to a trailer in Kern Kounty.
Ugh, there is always one knob bonnet in the crowd. Every time I’m forced to go to So Cal, I try to find Javis’s grave so I can pee on it.
A better system would cap the property taxes on a California residents’s primary residence to a percentage of his/her income.
A couple big problems with that idea.
1) You remove all incentive to live below ones means. In fact, to maximize one’s individual return, it would be best to live in as big a house as possible while having as little documented income as possible.
2) Documenting income. Too much is already under-reported or off the table. This would make it much worse, screwing over those who played fair.
I agree though, that adjusting the treatment of out-of-state/second home/investment buyers should at least get consideration. May not be able to come up with a better solution though.
Prop 13 DID NOT destroy the schools and infrastructure. The POLITICIANS did by spending the money on pork rather than education. They have enough money for schools and public safety, etc. They choose to spend it on crap and then complain that there isn’t enough for schools. And then like you, every says OK raise my taxes cause after al its for the children. Tell your pols to get rid of their fancy offices, limos etc and yoou’ll see that you prop 13 gives you plenty of money.
Exactly, Jay!
Additionally, it does not lock people, **especially seniors** into homes as Prop 13 allows seniors to transfer their tax base to a new residence (local agreement, IIRC, so might be for participating counties, etc.).
Also, if a senior leaves one home and moves to another home in the same area, the net effect is ZERO. There are no additional homes put on the market unless the long-time residents move out of the area entirely.
While I agree that we should look into the treatment of commercial & investment properties, Prop 13 is the very best thing to happen to California residents.
BTW, it also has the potential to keep rents down as landlords are not **forced** to raise prices to cover significantly higher taxes (they can raise to market rates, obviously).
Agree with ahansen. People complain about how the “old” people take without giving…the vast majority of property tax money goest toward education — for the younger generation’s kids.
Furthermore, it keeps people from being priced out of their homes by morons running around with Monopoly money, fueling a gargantuan housing bubble.
So there!
So far this year at least two Palm Beach County Commissioners are going to jail for stealing taxpayer money. These are just the ones that got caught. The only thing protecting me from these people is Save Our Homes. While I understand why snowbirds and newer residents hate it, I don’t think my “sharing their pain” will lower their taxes one penny.
So the better solution is to not care if other people are paying the majority of the misused taxes?
You cannot equate my desire to keep SOH with not caring about others. Do you honestly believe that if I pay $10 more in taxes, Palm Beach County Government will decrease taxes on someone else by $10? No, they’ll just waste my $10.
Yes, you can equate your desire to keep SOH with not caring about others. That is an opinion that I share. My family has owned a cottage in FL for twenty years as a family vacation retreat. Your savings on taxes has meant that our property taxes have increased by a multiple of 300% in five years. Having the the ability to own investment property does not constitute a limitless financial resource. Our family has been vacationing in the same town in FL for over 35 years, and would like to continue for generations, but ultimately our ability to stay will depend on the cost to us. Further, we with rising cost, we will have to look at our alternatives, like joining with neighboring investors and possibly pursuing higher density development, since the tax burden natural forces investors to think this way. SOH has a lot of community consequences besides your selfish savings.
NYC Resident:
I’m confused as to why you think you deserve a tax break on your investment property. Property-related tax breaks were designed to prevent senior citizens from losing their homes after they have already retired. They were NOT designed to prevent speculators from making less profit on their asset sales. Besides, if you want to convert your “vacation” property to high-density housing, you will have to get permission from the city (i.e., residents) first. Why would they ever grant you such permission? Doesn’t it make sense for residents to take care of themselves and their aging members first, and THEN consder foreign investors?
“People are screwed.”
-Big V
I wasn’t asking for a discount, and clearly my family isn’t getting one. All I was saying is their are consequences of doling out political favors, allegedly to seniors, but available to ALL owners who CLAIM residency. But holding taxes nearly stable for part of the tax base, the other part gets hit with much higher tax bills. I would say Four times higher in Five years is quite an increase by anyone’s estimates. My family has retired owners of the cottage that could declare residency in FL like a lot of snow birds, but we are honest. But remember, land use is governed by elected officials, not a vote of residents. How do you think developers curry favor with local elected officials? All I am saying is where there is a will, and and economic incentive (or disincentive in this case) you will encourage change, and you need to think about policy and its ramifications. Don’t you think we should think about the ramifications of our public policy?
Big V
I take exception to an extended American family owning property and vacationing in a town for over 30 years as “Speculators” or “Foriegn investors” My family has volunteered and raised money for a local charity for many, many years. They have initiated and organized an annual tour of homes event that raises money for the childrens community center, and are season ticket holders to the community theater. We are full-on contributers and participants in a seasonal town, and our interests are no less important to a town that depends on tourism. It is not exactly close to high paying jobs, so it will always depend on vacationers and snow birds to sustain itself. Why should these people be forced to bear a higher burden of the States’ budget. Because politicians, pandering to local voters, initiated de-stablizing homestead tax laws. Most states are satisfied with property tax subsidies to senior citizens. Why should Florida copy a system frought with errors like Proposition 13?
Dear NYC Resident:
You say you’re a vacationer there, and that’s why you own the property. But you also say that you will tear down the property and build a condo complex and sell it if you feel that your taxes aren’t low enough to justify having the vacation property. To me, that makes you a speculator or a foreign investor. Otherwise, you would simply the property since you can’t afford it.
It’s OK to be a speculator or a foreign investor. What do I care? It’s just that you can’t really expect the folks who actually live in Florida to vote for decreasing the tax bills of people who just come in and compete with them for property. Your vacation residence is a luxury, and it seems right for it to be taxed in full.
Four times higher in five years!? Is that what you think “taxed in full” means? And according to you a “speculator” owns property for 30 years and contributes to a community. I don’t know what planet you are from, but that is about 29 years longer than most speculative investors can tolerate. Judging from your total indifference to fairness, you are one self centered individual. Last I checked, we are still in a country that honors private property rights. And if you decide to raise one property owner’s taxes by 300% and a neighbor’s by 15%, then you can deal with the consequencies. Treat people different, and they will start to act with opposing motivations. This is a de-stabilizing policy, and I would not blame my non-homesteaded neighbors for selling out a community that doesn’t value them. After all, they have to find a way to pay for the homsteaders’ school children and the municipal infrastructure, bridges and roads you use year-round somehow. Too bad you cant tax other states or countries for Florida’s expenses directly. Whatever happens to this blog’s value of living within your means?
Big V
Since you are so kind, enjoy your Florida living year-round. The summers may be a bit hot, the mosquitos annoying, the hurricanes a drag, but it suits you.
Not so fast. It looks like there has been a change of heart in Tallahassee.
http://www.heraldtribune.com/article/20070826/COLUMNIST36/708260366/-1/xml
About relief for businesses, I was saddened to see this article in the Boca Beacon. Have you guys ever visited Whidden’s Marina? If not, those of you nearby - like Palmetto - should drive to the island for lunch and a swim one day and check it out. A tiny, free museum, itty bitty store run by long-time locals, some rental boats, pigs and chickens.
Lee County claims the property appreciated from 1.2 to almost 7 million since last year, and just last year the family spent $25,000 proving that, no, even if they wanted to they could not tear down the (protected, historic) marina and throw up a bunch of condos, yet the county wants to tax them as though they could.
http://www.bocabeacon.com/?p=1544
I think it will pass. It polled 58% in July, and they will get it over 60%. And yes, it will cause some pickup in sales for a month or two. Sigh…
From what I’ve read, people who currently have SOH will be allowed to choose between keeping it or taking the new “super” homestead exemption. For that reason alone, I think it will pass.
With the kind of voter fraud Florida is known for, I don’t think you will even have to show up at the voting booth to know this new law has already been passed
Can the new law (vs. what it will replace) be explained please?
Who will be going to Labor Day weekend open houses, just for grins?
I just plan to send a bunch of photocopies of my bank statements to realtors around the country. That seems more fun and I don’t have to hear them speak.
If the general mood at the opens around here weren’t so gloomy, I would go. It’s good to take a look at what’s out there, but kind of depressing to meet the salespeople lately.
There’s a unit for sale in my TH community that I’d like to rent, though. I may call that realtor after Labor Day. They all know that this year’s selling season is essentially shot. School has already started in some districts, no more urgency to buy.
We’ll see if that puts any downward pressure on TH rental prices.
I can’t go to open houses any more. The sales people are so desperate, they jump on you and follow you around giving the hard sell. When I say that I’m waiting a year or two to buy then I get the evil eye for the rest of my visit. I’ve don’t need any curses put on me with this coming recession.
My husband won’t go with me to open houses anymore. I get that first whiff of realtor BS and it’s gloves off. My favorite two realtard lines are….
1) even if prices go down, interest rates will go up and that will end up costing you more.
2) You need a buyers agent or who will represent you when it comes time to negotitate?
and a third that applies to use locally….
3) Prices will go up because everyone from the Bay Area is moving here and they have lots of money to spend.
How much you want to bet that inventories will start to dip now because people who can’t sell will be taking their homes off the market until spring and the NAR will say, “Inventories are dropping!”
It’s only the YOY change in inventory that matters, and I don’t think that will be going down.
Don’t be too sure. In NoVa all this year inventory has been lower than last year. There’s always a spike in inventory right at the “oh s*&t” moment when everyone realizes that prices aren’t going to keep going up. Then many of those that can’t sell within a few months realize that they missed the window of opportunity to sell for big profit, and decide to take the house off the market to wait for things to turn around.
That “oh s&^#” moment is happening at different places around the country at different times. It started in 2005 in the most bubbly areas. In the less bubbly areas it’s just now happening.
So inventory is actually down in some bubbly areas - not down below historical norms, but down below last year at this time at least.
True. I was thinking of our area (Seattle). We are still in the strong upswing stage of inventory. We haven’t even reached the “oh darn it” stage; almost, but we’re not quite there.
3:30AM PHX time (so 6:30 east coast). Can’t sleep, so hop up to do some work-from-home. Flip on CNBC.
Greated by a moron that thinks if the Fed drops rates, we can prevent house prices from crashing. His flawed theory goes like this:
Prices are dropping because there are not enough buyers.
There are not enough buyers because there are not enough people that can get loans.
They can’t get loans because banks won’t lend them money because there is not enough spread between what they can borrow for, and what they can lend for.
Drop the rates, and banks will borrow the money more cheaply, make loans, and hold the loans on their books.
Flaws:
Prices are dropping for 3 reasons… Cost of Rent, Cost of Construction and Affordability.
With houses at the current price and interest rates at 6%, it is cheaper to rent, and houses are unaffordable… We’d have to not only drop Fed rates to the point that there is profit in it for the banks to lend at 6%, but so that the interest rate charged to the customer allowed payments to be cheaper than rent. So, interest to customers would need to be 4% or less to make houses affordable and in-line with rents, and that means there isn’t enough spread to make the risk profitable, even if we drop fed rates to 0%.
Cost of Construction: Dropping rates doesn’t directly alter cost of construction being less than homes on the existing market. This means that dropping rates does not prevent the builders from shoving inventory into the saturated markets and undercutting the existing home market.
Finally, $0 down creates too much risk of fraud. So, the 20% down to ensure the buyer has skin in the game is removing a sizeable number of borrowers. It is a bad idea to go back to $0 down, and dropping the Fed rate in no way would alter that being a bad idea.
Therefore, dropping the Fed rates will not stop house prices from dropping. That means the banks face substantial risk of equity loss. That means it is impossible to drop rates to the point to create enough spread to cover the loss risk potential.
All the Fed could do is ignight inflation to bring up wages to affordability levels, to bring up cost of construction, to bring up rents to be in-line with house prices. This rescues the lenders by stealing form savers.
I think the much better solution would be to give every citizen in the lower and middle classes that did not participate in the creation of, or profit from, the bubble, about 1 year of income. If you have debt in excess of income, the money goes directly to your lender to drop your debt load. If you do not have debt in excess of a year’s income, then money is handed to you.
We drop debt loads, we give renters a down payment, we stimulate the economy and get inflation, and people with cash in the bank are compensated for thier inflationary loss by a year’s income of cash.
I think this addresses all of the issues that are causing home prices to fall.
(Drop the rates, and banks will borrow the money more cheaply, make loans, and hold the loans on their books.)
Just to add to what you said, dropping short term rates would mean less reason to put money in U.S. banks and short term instruments, which means less money to lend, not more. The mechanism would be a falling dollar, since U.S. residents, collectively, aren’t saving.
The days of people lending money at low rates that won’t be paid back appear to be over.
I agree. One thing and one thing only fueled the housing market and that was the availability of “easy money.” That was the fuel for the fire. Millions of people became homeowners that never should have or had the availability to the money, that in turn increased the demand for housing whether new or resale. It started the cycle we are in the mist of now. Today those millions are no longer flipping,moving or buying,but instead are stuck due to the decline in home values, struggling to keep their home, investment or are in the mist of foreclosure. Even if the Feds lower the rate it will not cause buyers to enter the market since the “easy money” is now gone. That is what I think the Feds and others in the financial industry don’t understand. The glut of homes will remain regardless of the rate because the ability to purchase by subprime has been taken away. Who is going to buy all those homes?
annette:
Right. Unless they can force wage inflation by 30% or more across the board housing can’t be saved with rate cuts.
That’s what really strikes me about all these calls for bailing out underwater homeowners, the people who are calling for it, know this too. Very early this morning one commentator even acknowledged this but said a rate cut would, “build confidence.” In what?
That’s my real question now, who does benefit from a rate cut that will not save the economy. It seems to me that it would have to be some short term benefit but for who?
What I can’t fathom is that none of these “news” commentarists detect the blatant hypocrisy required for the government to simultaneously be touting “affordable housing” as a policy goal while enacting politices intended to maintain or increase the price of housing!!!
While I mostly agree, I don’t think it can be limited to “easy money” entirely. I’d say psychology played a major role. You know, believing in the whole “real estate never goes down” silliness…
That is absolutely correct. Nothing the Fed, the government or anyone else can do will recreate the psychological conditions necessary to sustain the bubble. Naivete, gullibility and blind optimism are necessary preconditions for any bubble. Just the damage that has already occured has ensured that such conditions will not return (for housing) for many years. Then throw the fundamental changes on top and we have a recipe for housing psychology to look like that of gold in the late 1980s. Shattered manias rarely return in less than a generation.
It’s all about risk now. Risk was thrown out the door during the boom. If people can’t put down 20% for a home, then the Fed’s should concentrate on increasing disposable income (and this I mean not through home equity). Japan had the same problem many years ago. Japan also lowered their rates to ZERO. 20 some odd years later, real estate finally made an uptick. 20+ years! SO, I don’ really care about lowering interest rates. It only helps the institutional investers. As for consumers, it’s toast….
don’t listen to CNBC
most of the people there are fund managers who will never say doom and gloom in a falling market because they need to sell to avoid losses. they don’t make money by scaring everyone into selling stock so they can’t sell their losers.
The good guests are Gary Shilling, Herb Greenberg, the former Fed presidents and governors and others with no conflict of interes
You are not going to sell 400K homes and 40K vehicles on a ten dollar an hour service economy…..
Either the wages are going to come up (not likely)…..or prices will crash and burn (likely).
Very good point, dba!
I normally tune in onto CNBC if company CEOs are telling something. Those guys put more realistic pictures as they seem to know how their industry/sector doing. I have seen that in long term , their prediction stays. But then there are people like CEO for CFC who tries to spin gloom in favor of his profit. So, one needs to be careful even when listening to company inside information.
“CNBC if company CEOs are telling something. Those guys put more realistic pictures”
Gee, you must have really been glued to CNBC when Ken Lay and Dennis Kowzlinski painted a realistic picture of their industry/sector. There were some other great CEO’s who were realistic with their companies future(Boo! Yah!), I’m sure Ben’s Bloggers can help out with their names??
and Peter Schiff
–
“Prices are dropping for 3 reasons… Cost of Rent, Cost of Construction and Affordability.”
No sirree. Were these three better when the prices were going up?!
Prices are determined by one thing and one thing only — supply and demand. It is true that lot of the demand was speculative demand during 2003-06, but it was the demand that drove prices up.
Now, the problem is the supply. All that overbuilding, driven by rising prices, has left us will a huge supply of vacant homes.
Jas
Right. And the demand was definitely fueled by the easy money. Had traditional lending rules been applied at the time the demand would have been average at best.
correct, and that’s why no matter what the bailout strategy, this market must come down drastically. when you have an average income of 30K/yr, which is philly’s average, how the hell you gonna sell starter homes for 150K?? it ain’t gonna happen, now that the funny money is no longer available. hold your cash, and watch is crash.
–
I agree but traditions have been thrown out the window one by one, no? Mostly, for the bad, IMO.
Jas
But why is demand gone? Becuase it is cheaper to rent than buy, and because houses are unaffordable at this level.
Why were/are builders shoving demand into a saturated market? Because prices are well above cost of construction.
Yes, supply and demand are the determinants of price, and supply and demand are being controlled by cost of construciton(supply will keep rising until prices are belwo cost of construction), cost of rent, and affordability(demand won’t return until prices make buying better than renting, and until enough people can qualify for loans using the tighter standards).
and rentals too:
From my fhba news,
“The current high vacancy rate for single-family rentals is most likely due to excess supply from individuals who originally purchased a house with hopes of quickly selling it for a profit and now find they must either sell at a loss or rent the property until the housing market rebounds,” according to the report.
“Many of these novice landlords may be exacerbating the excess supply problem by asking for too high a rent. Rather than ask a reasonable market rate, this group often asks for a rental rate that covers mortgage payment, insurance and taxes, an amount which may be above the market clearing rent. Presumably, the discipline of the market will eventually sort this out.”
Recasting Condos as Rentals
Despite high vacancy rates, rents have been rising: “In 2006, rents rose faster than overall inflation and probably will continue to do so in future years as well.” Along with oversupply problems, this has resulted in some condo projects being recast as apartment projects, but the strategy is not risk-free.
Condo units tend to be larger and more upscale than most apartments and “even if converted into luxury apartments, a limited market, it may be difficult to extract sufficient rents to pay for the cost of the project. At best, the project may have to be sold at a discount to attract a buyer, leaving the project’s backers with below-normal returns or even losses.”
Damn you Rental Bubble!!!
But what everyone’s forgetting is there are a lot, and I mean a lot of people out there with bad credit (speculators included) that should never be given a loan. I think they added more to this bubble than anyone knows. Without them, demand would have been down and prices wouldn’t have bubbled.
Yep.
The increased demand came from the surge of formerly (and soon-to-be) unqualified buyers — at any price — who could suddenly “afford” $500K homes with the flick of a pen.
IMHO, prices in So Cal were too high in 2001 and people were really stretching to buy. When rates were dropped while the 30-year T-bond was eliminated, forcing more money into 10-year Notes, the game was set. The search for yield was on, and investors were forced to find borrowers wherever they could find them.
While yields on fixed-rate investments were starting to rise in the past year or two, I’ve noticed it’s getting more difficult to find SAFE investments over 5%. For those of you who were looking for a place to put your money in 2003-2005, you know what I’m talking about.
Yields are down, and investors (money investors, not housing specuvestors) will begin looking for higher and riskier investments again. This **could** prolong the agony just a bit more, but I hope not.
Another tired soldier fighting against the War on Savers.
It doesn’t matter. Wall St expects a “100% chance” of a rate cut at the next meeting, the treasuries are moving like a rate cut is in the bag.
Why would anyone think that it isn’t already priced into mortgage rates and the stock market? Like the rate cut will happen and it will suddenly dawn on investors? Do people seriously not consider that it’s already in the numbers? AND THEY’RE DOWN.
As we say on fark(.com), “I am intrigued by your ideas and wish to subscribe to your newsletter.”
Besides, most morgages are based on the LIBOR, not the Fed funds rate.
Learn the ABCs of selling from Alec Baldwin:
http://www.5min.com/Video/The-Art-of-selling-by-Alec-Baldwin-5559
I thought he was an expert in child rearing!
I thought he specialized in buffet demolition.
I saw his brother on Celebrity Fit Club yesterday. Buffet demolition plus prescription painkiller love.
all 4 of them are derelicts
“I think the much better solution would be to give every citizen in the lower and middle classes that did not participate in the creation of, or profit from, the bubble, about 1 year of income. If you have debt in excess of income, the money goes directly to your lender to drop your debt load. If you do not have debt in excess of a year’s income, then money is handed to you.”
Dang, Darrell, that lets me out. I suppose you could say I “profited” from the bubble, since I sold my property at peak. Being a modest Florida house on a little bit of land, though, it isn’t as if the sale of the property exactly set me up for the rest of my life.
RE: Being a modest Florida house on a little bit of land, though, it isn’t as if the sale of the property exactly set me up for the rest of my life…
P-Man,
At least you can sleep at night and enjoy life on a day to day basis without a $500,000.00 noose around your neck.
Think of the fookin’ stress! Ugh…
If you sold at the peak, then yeah, you’d be out… at least a subtraction of your payout by the amout you sold for above norm.
Realtors, appraisers, mortgage brokers, flippers, people that sold high and didn’t buy like kind… etc. No payout as you already profited off the bubble. Heck, I’d have to hink about people that made huge money doing sub-contracting/construction. People that make more than $100K would lose $.25, or maybe $.50 for each dollar over $100K.
From: http://www.theviewfromthepeak.net/newsblog/news.html
“A climate-change bill from the House Energy Committee will be a hybrid of “cap-and-trade” and new carbon taxes, said Rep. John Dingell, the measure’s main sponsor. According to Dingell, the bill, expected next month, would cut greenhouse gas emissions by 60 percent to 80 percent by 2050. The Committee is also proposing a cutoff of mortgage-interest tax deductions for all houses with more than 3,000 square feet.”
Ooof! Can you imagine what this would do the McMansion market?
” The Committee is also proposing a cutoff of mortgage-interest tax deductions for all houses with more than 3,000 square feet.”
What do you want to bet that provision never makes it to the final cut, if there is one?
Yep, that’s why I used the term ‘would.’ Every realty type and lender in the country will write their congresscritter over that provision.
Of course, we should write in support of it, and suggest extending it to any house at all. Either that or make rent tax deductible.
I can deduct part of my rent from my state taxes (Mass)
In Ca you get a $60 credit. Woo f-ing hoo.
I think it’s a great provision.
Think of all those ostentatious 1,000 sq. ft. 2-story front staircase foyers which do nothing more than serve as framing for the “look at me” chandeliers and act as inefficient heat siphons which will get deleted out of building plans.
I’m all for it…
The bubble is more insidious even than that. My 870 square feet were worth around $1,000 each at the bubble peak. The problem is with speculation and how the tax code worsens that feedback loop.
What do y’all think about eliminating mortgage interest deduction in the AMT? Its the kind of thing congress could pass without too much scrutiny.
It’s probably a typo error. He probably meant 30,000 sq. ft.
no. unless you have 8+ people in your family, 3000 is way too much and completely unnecessary.
My 2 story house is 2100sq/ft and once I finish the basement will be just about 3000 sq/ft. In my opinion the house is just big enough for a family of 5 (1 kid per bed room once the basement is finished)
Compared to the McMansions I see all over Northern VA I would say that 3000sq/ft is probably too small to be considered a McMansion, 3500 to 4000 or more would be “fair” level.
If they pass that law I will be leaving a closet unfinished so I can stay under the 3000 sq/ft mark.
I would be all for doing away with any mortgage deduction at any level. Trying to draw the line by the square foot in penalizing large families (with 3 or more kids).
Testify brother! I make $480k a year and think it is b.s. that I should be subjected to the alternative minimum tax. That should only be for rich folks making $500k + per year. $480k just barely provides a decent living for my wife and I and our kids considering the cost of living these days.
“$480k just barely provides a decent living for my wife and I and our kids considering the cost of living these days”
LOL
There is more truth in your sarcasm than you realize. The AMT was meant to apply to a relative handful of ultra rich. There is no reason it should apply to anyone making less than $5,000,000 a year, and probably even more than that.
It is an Alternative tax… the conditions under which the regular tax system can’t be used should really be quite small.
Read ‘Pefectly Legal.’
‘Perfectly Legal.’
A good 4/2.5 center hall Colonial with living dining family kitchen is about 2100 sq on .2 acre lots, IMO ideal for a family with 3 kids. Tons of neighborhoods like this built in the 70’s and 80’s
8+ in 3000 sq might be a stretch though.
think Brady Bunch……
we are spoiled. true, we don’t want 3 families to a room, but you don’t NEED a McMansion unless you have tons of kids (which is another issue, not for this blog).
How about this one?!
http://www.tumbleweedhouses.com/
lol
I know that site very well.
Kidding aside, one person needs about 500 sq ft to live like an American, ie, full bath, all kit. appliance, w/d. In other words, and efficiency appartment. btw, the smaller the home the better designed.
I downsized and have lived in 545 square feet for 9 years. While I lack the privacy of a separate bedroom, the apartment suits my needs and costs 30% less than a one bedroom that might be only slightly larger.
My house is 2,900 square feet, so I am 100% in favor of this measure. I would also be in favor of a 50% tax rate on people whose first name does not begin with a C.
If this did pass I could see a huge increase in explosive purchases. “Bonus room, I don’t see no bonus room (anymore). And we never had a 6th bedroom”!
Can anyone tell me why a couple or even 3 people NEED anything more than 2600sq ft?
My wife and I have 2465 sq.ft. (”My name is Matt, and I was a bigger house investor!”). Well, at least we used it recently to house 10 guests.
I grew up sharing a bedroom with two sisters. The whole family shared one bathroom. It was no worse than annoying. We raised two kids in 1600 sq ft - more than enough room for four. One side effect is that spoiled kids used to having their own room/bathroom don’t like to live in the dorm. Both of my kids complained that they didn’t like sharing a room and the community bathrooms. Yeesh - we created pampered princes!
We lived in a house that only had 2 bedrooms and one bathroom. Part of a single car garage was converted into a third bedroom. My parents were in one room, 4 girls in the other room and my brother in converted 3rd bedroom.
In the midwest or South, a modest 2600 sqft 4br home would have 3900 sqft if you included the basement.
This one would be around 3300 if you include the basement in the calculations:
http://tinyurl.com/ysprn6
basements are NOT to be included in sq ft!!!
I thought the basement was included if it was finished, especially if it was heated.
In SLC unfinished basements ARE included in sqft!! I almost moved there becauses houses on the internet appeared cheap (3000 sft for $300K). I was flabbergasted when I went to look at my first $300K house, I asked the realtor where’s the other 1500sft, he informed me they include the basement there because most people eventually finish them. I said no way am I moving to this dump of a city, not worth $200/sqft.
MBA: Exeter was asking “why a couple or even 3 people NEED anything more than 2600sq ft”. I pointed out that > 2600 sqft wasn’t that unusual.
Some areas of the country may not count below-grade in the square footage (I never understood the logic of that). To me, square-footage is square-footage, whether it is above grade or not. I showed a modest house in the Midwest that was 3300 sqft (once you include the basement).
In SLC unfinished basements ARE included in sqft!!
Must be how all the appraisals passed muster.
The number hitters fudged and indicated the basement
as 1st floor living area, and the main level as a second story.
A conforming FNMA 1004 excludes any GLA below grade.
Those poor German bagholders…All those MBS’s appraised by lying nit-wits…tsk, tsk-not a clue.
The fact is that people’s tastes are driven more by social comparison than usefulness. It doesn’t really matter what is the logical optimal size of a home for a certain family, its about how much home you can get for your $$$ and how it compares to your neighbors/peers.
Can anyone tell me why the federal fricking government should be dictating what size houses people can build or live in?
“Can anyone tell me why the federal fricking government should be dictating what size houses people can build or live in?”
Possibly because it has to dragoon the army into invading countries to keep the oil spigot flowing otherwise. Maybe they should amend the law to say that each household in a 3000+ sq ft house should pony up one infantry volunteer…
Over 2500sqft? Tax the live right out of them.
why not just have a universal carbon tax. If you use dirty energy, you pay more. If you want a big house, pay to heat it, or make it efficient, or dont heat the basement. Pay for what you use.
I would venture to say that it takes less energy to occupy the average 3000 s.f. home per month than it does the average gas swilling “Urban Assault Vehicle”.
We have moms in our neighborhood driving the little fartlings two blocks to the school bus stop and sitting there an average of ten minutes with the air running so little Sissy and Bobby don’t have to break a sweat on their chubby little foreheads while they wait.
I say everyone with a car…TO ARMS!!!
I think a better solution would be to cap the amount of interest deduction… which the AMT already kind of does….
Whatever happend to the calls to fix AMT????
went to Baghdad.
I suspect that now that the 100 days is winding down and flush with the great victory in raising the minimum wage, the new congress is girding their loins to attack a problem that will actually affect favorably most of the landed voters on the two coasts.
Or they are on recess. I forget.
Well, I think this whole conversation becomes moot if we can get Ron Paul elected. Then there will be no income tax to “deduct” from and all of these stupid games of taxing different people to “equalize” our society would be over.
Think of how much cutting the income tax would do for “incomes” and helping the housing bubble. Everyone gets a 30% raise!
doesn’t it just boil down to 30% inflation if money supply to end consumer increases by 30%?. Either the wages will have to fall or cost of living will have to rise.
Instead of spending “wealth” overseas on Iraq and 70+ other countries we would keep more “wealth” in our country. Total money supply should be unchanged.
By your argument any tax cut would be canceled by inflation and/or you are implying that raising taxes could lower inflation. Tax cuts are almost always beneficial to an economy and would enable growth which is what we need to get out of a recession.
Not necessarily. The Bush taxcuts in many ways fueled the credit bubble we’re going through. The “growth” we see was (to some degree) illusory, not real growth.
Of course, eliminating income taxes would solve a lot of structural problems but I don’t really see how they would solve the credit/housing crisis.
No, I am implying that a sudden, 30% higher flow of money will have negative consequences. I will quote you on this:
“Think of how much cutting the income tax would do for “incomes” and helping the housing bubble. Everyone gets a 30% raise!”
But the feds won’t stop spending. They’ll just replace the income tax with a monster VAT, or something like that. Of course, a VAT rewards savers and not consumers (I supppose that the China lobby would fight that tooth and nail)
Spending would get cut because Ron Paul would veto major spending bills.
A VAT would actually have less impact on imports since only the margin from distribution is “value added” domestically. If you want to capture more revenue from imports, you have to shift to some form of consumption tax - likely a federal sales tax. That would impose an equal burden on all consumption, regardless of the sourcing. The ideal time to implement it would be after consumption collapses from the weight of household debt.
Yup, that’s what I meant by a VAT (Value added tax).
Hooray and amen!
–
I like Ron Paul, but in our crooked system he will never get elected. Why? Because he is a threat to the economic elite and the establishment.
Individual votes and supports are rendered meaningless by the Propaganda Machine that is all-powerful right now. Regrettably, I think that to overthrow it would need things to get really bad. I wish that it weren’t so.
Jas
Not only that, but remember how all the J6P’s howled the last the time the gov’t was shut down because they couldn’t agree on a budget? J6P wants his entitlements, and he doesn’t understand that he is paying for them.
I’ll bet that they would grandfather existing McMansions to be exempt. What if you buy all windmill juice for your house? Would that reduce your official carbon foor print? (I buy 600 kWhr per month)
FWIW, I have seen McMansions that have a smaller carbon foot print than older, smaller houses. For instance, we have friends in Cali who have a 40+ year old house. I recall their furnace kicking in during daylight hours when it was in the low 50’s. That would NEVER happen with our house.
Why do these folks refuse to understand the uselessness of their initiatives. Unless China’s emissions are limited, there can never be a reduction in CO2 output. If we adopt limits on our industry without China doing something similar, we will increase CO2 since the incentive to move production there goes up and it will be far less efficient for both energy-intensity and environmental degradation.
Obviously, my rant is against the larger policy trend, not this specific proposal.
I agree.
From the WSJ: Inventories of Homes Rise Sharply
WASHINGTON — U.S. sales of existing homes fell slightly in July, but a surge in inventories set the stage for a steeper slump and sharper price declines in the months ahead.
After the credit crisis that hit financial markets this month, U.S. home sales are expected to drop further as tighter lending standards and a pullback by mortgage firms keep potential buyers on the sidelines.
Sharply rising inventories are a sign of homeowners trying to sell their homes before prices tumble more, said Joseph Brusuelas, chief U.S. economist at consulting firm IDEAglobal.
The tightening of credit markets became most severe in mid-August. That means the full effect may not be seen until sales figures for September are released. The Realtor group’s figures reflect transaction closings, which mark the end of the buying process.
Any guesses of how much sales will be off in Aug / Sept for the major US markets (SD, LA, Miami, Chicago)?
http://online.wsj.com/article/SB118822185089209684.html?mod=hpp_us_whats_news
I’ll bet sales are cut in 1/2 from last year.
From Bill Bonner at the Daily Reckoning:
But times, they are a-changing and, “You’re not going to be able to get that mortgage loan. You’ll be stuck with the higher interest credit card debt,” warns Carl Steidtmann, chief economist with Deloitte Research. “We will have to live within our means. I know it’s a troubling phenomenon. But we’re not going to be able to spend at levels well above our income levels.”
What do you mean ‘live within our means’? Isn’t living outside our means the American way?
Here we are reminded of a Saturday Night Live skit that we are licensing for use in our upcoming documentary. In the sketch, Steve Martin and Amy Poehler play a married couple visited by a credit counselor of sorts, who is trying to advise them on how to NOT buy stuff they can’t afford.
You can watch the skit at:
http://tinyurl.com/yu95re
Who within our what?
That is hilarious!
Credit card defaults seen climbing, report says
http://biz.yahoo.com/cnnm/070828/082807_cards_defaults.html?.v=1
“Credit card defaults seen climbing, report says”
Looks as if Joe6pac is going ballistic on that plastic. I myself have 10 CC’s with very low balances and high availability but only look at the % rate. The ones who are screwing me over with 16-18% i will eliminate or transfer to 1 or 1.5 year, 0 percent(%) intro rates.
B Of A, Chase platinum is at 9.9 % Fixed only for high ficos, just slightly above risky secured jumbo loan rates.
Do not really like having nor using CC’s but they are a useful tool if you are running a business and require occasional large cash infusions to tide over insufficient cash flow periods. I have the option of drawing on a large MEW reserve, currently 7.7 %, actually a HELOC which is exactly like a CC secured to property. Prefer to use unsecured CC’s which in last resort i can alway BK or default on if things get really bad.
I have finally arrived in a position where i control the CC’s, and can shift to the best lowest rates. One way is by havng them compete against each other for my business, thus i will constantly shift balances from CC;s with high rates to CC;s with lower 0% rates. US Bank gave me a very high Credit Line of $20,000 but want to screw me with 16.15 % borrow rates. I will kill off the $1500 balance i owe on that card, either slowly or in one fell swoop. Have already elimnated Citicard and HSBC balances. WashMutual CC is at 11.74%, which is about my tolerance level for CC Borrowing rates.
I say this knowing that I will probably never make it out of middle class:
My tolerance for CC borrowing rates is exactly 0%. Credit cards are the scurge of personal finance. I’m not so sure they work well for business, either.
If you had to put it on a credit card, you didn’t have the money to begin with.
Vermonter, I’m between you and peter. I have two credit cards - one for business expenses and one for household expenses. Balance paid off every month. Two free airline tickets every year. But I must admit that I would spend less if I didn’t have them.
“Credit card defaults seen climbing…”
As soon as you’re past that 30-day window, the “Universal Default Clause” applies. Then it’s gloves-off as the interest rates climb on just about all your revolving credit. Game over!
Bailout of rich underway. Not so for FBs, and future FBs. Per NY Times.
http://www.nytimes.com/2007/08/28/opinion/28tue2.html?_r=1&oref=slogin
Breaching regulatory limits on capital is most troubling. That means FDIC-insured institutions are at increased risk due to what will happen to mortgage lending affiliates. When Glass-Stegal was removed, the firewalls were supposed to prevent this.
Why would a bank want to lend to a non-bank lender that is about to go insolvant due to huge exposure to mass mortgage losses?
I don’t get it. Is the fed going to cover the losses wihtout the bank having to go insolvant?
Ohhhh, sorry BoA.. You lost $2 billion you loaned to Countrywide… dont’ bother to pay us back that $2 billion.
Is that how it is going to work? BoA won’t have to book the losses?
Darrell, This was reported by Fortune after the market close last Friday. What Citi and BAC did, was they got permission to buy from its investment houses CDO and CLO at par to keep the investment parts of their banks solvent. Since BAC And Citi both had enormous losses in CDO and CLO, they had to use depositor cash to fund the transfer. Just a routine transfer of bank losses to the FDIC insurance fund. (disgust off)
Actually, as I have said previously and elsewhere, while this may be a transfer of toxic waste to the feds, I think it unlikely because of political blowback and legal recourse. I think the more likely scenario is that these loans are “cherry-picking” where the A+ paper is transferred to the big lenders as collateral for the loans. If the subsidiaries fail, the A+ loans survive with the big lender, while the waste is left to the subsidiaries, who dissolve or file for bankruptcy.
BTW, did anyone else notice that the Bear, Stearns hedge funds filed their bankruptcies in the Cayman Islands rather than New York? Well, if you’re gonna spend the next five years defending the loss of $1.6 billion of investment money, why not do it from the Caymans?
Kia, read what happened on the 20th of August by the Fed and reported on Friday at 4:40PM EST.
A bank does not ask for a $30B exception (that had never ever been previously granted) unless it is in trouble. The transaction has already taken place. The banks shifted risk to the FDIC.
I disagree. There were several issues floating at the time. First and foremost, it was being widely proclaimed on CNBC and by other “professionals” that the Fed’s overnight discount wasn’t actually reaching the mortgage lenders and “people who need it.” Bending the rules to permit the banks to pass the cash along to their mortgage subsidiaries allowed a clear demonstration that the Fed was committed to getting the cash to people who “need it.” The lenders went along precisely *because* it allowed them to cherry-pick and it stopped the hemmorage of their assets, restored some measure of market confidence, and generally was a good thing - from their perspective. Second, the primary risk has not been shifted. The fed has recourse against the big lenders for the loans it made to them, and there is NO WAY the big lenders will default on fed loans, because if they did, then they wouldn’t be able to draw overnights to remain balanced in the future. That would be banking suicide. No, this was a manuver which permits the lenders to use OPM to buy assets from their subsidiaries through securitization of the assets as collateral for the loans. If the subsidiaries pull through, great. Otherwise the big lenders have acquired a ton of A+ paper for $30 bn. while the subsidiaries sit on toxic waste waiting for the bankruptcy preference period to run. Wait and see.
The primary risk was shifted, a bank can hold MBS paper in 2 different manners the first is marked to market for securities that are to be traded. The other more troubling aspect is that the bank can hold securities at par provided it is for investment maturation purposes. What may have happened last week is the transfer of the losses in MTM (step 1) to Step 2. These are real losses.
What recourse does the Federal reserve have against an insolvent bank? NONE. This is not to say that Citi, JP Morgan, BAC or others are insolvent, but we do not know if they are solvent.
“Since BAC And Citi both had enormous losses in CDO and CLO, they had to use depositor cash to fund the transfer. Just a routine transfer of bank losses to the FDIC insurance fund.”
Can you please elaborate Hoz? I was under the impression they were being used as conduits from Fed window to RiskLoves without access to window.
“…The regulations in question effectively limit a bank’s funding exposure to an affiliate to 10% of the bank’s capital. But the Fed has allowed Citibank and Bank of America to blow through that level. Citigroup and Bank of America are able to lend up to $25 billion apiece under this exemption, according to the Fed. If Citibank used the full amount, “that represents about 30% of Citibank’s total regulatory capital, which is no small exemption,” says Charlie Peabody, banks analyst at Portales Partners.
The Fed says that it made the exemption in the public interest, because it allows Citibank to get liquidity to the brokerage in “the most rapid and cost-effective manner possible.”
So, how serious is this rule-bending? Very. One of the central tenets of banking regulation is that banks with federally insured deposits should never be over-exposed to brokerage subsidiaries; indeed, for decades financial institutions were legally required to keep the two units completely separate. This move by the Fed eats away at the principle. …
the Fed didn’t give a date in the letter for when this exemption will end. In addition, the sheer size of the potential lending capacity at Citigroup and Bank of America - $25 billion each - is a cause for unease.
Indeed, this move to exempt Citigroup casts a whole new light on the discount window borrowing that was revealed earlier this week. At the time, the gloss put on the discount window advances was that they were orderly and almost symbolic in nature. But if that were the case, why the need to use these exemptions to rush the funds to the brokerages? …
The Federal Reserve is in crisis management at the moment. However, it doesn’t want to show any signs of panic. That means no rushed cuts in interest rates. It also means that it wants banks to quickly take the big charges that will inevitably come from holding toxic debt securities. And it will do all it can behind the scenes to work with the banks to help them get through this upheaval. But waiving one of the most important banking regulations can only add nervousness to the market. And that’s what the Fed did Monday in these disturbing letters to the nation’s two largest banks. ”
http://tinyurl.com/33gzv7
You do not violate a 70 year rule of the Federal Reserve requiring separation unless the losses are already there!
Here is the approval letter:
http://www.federalreserve.gov/boarddocs/legalint/FederalReserveAct/2007/20070820b/20070820b.pdf
But, don’t they still have to go bankrupt to exercise the FDIC insurance?
So, BoA goes bankrupt and the investors in the investment bank protion of thier business got paid already?
“Just a routine transfer of bank losses to the FDIC insurance fund. (disgust off)”
Privatize profits, socialize losses.
Darrell, BofA may have made a $2 billion sub prime loan to CFC with a big rate reset coming down the line in the form of death spiral stock options in the convertable feature. I have tried 3 times to post the link to this for the past two days and it has not posted. Go to Calculated Risk (.blogspot) and on the left index, scroll down about 20 line items to CFC:more info. It is fascinating. Here is a piece cut from the article:
Used by companies that are in such bad shape, that there is no other way to get financing. This instrument is similar to a convertible bond, but convertible at a discount to the share price at issuance and for a fixed dollar amount rather than a specific number of shares. The further the stock falls, the more shares you get. Popular in the mid to late 1990s. Also known as toxic convertibles or death spiral convertibles.
The real catch is that BofA is prevented from exercising the conversion. They will have to sell it to a third party. So will KKR own Countrywide in a year? Hmmmm.
Two things here. VERY important:
1. The regulatory agency that approved the BAC-CFC bond deal (what’s that agency called again?) already said that they will only approve the deal on the condition that BAC not be given the right to convert the bond into stocks. EVER. So will the deal still go through?
2. Someone recently put a $768 million bet that the market will crash 30-60% by September 21st. The trade was most likely structured as a bear run, and also has the effect of being a very high-interest loan to the person who made it. Who do we know who is trying everything, anything to get a $2 billion loan? If the market tanks, the loan can easily paid off with the profit from the bear bet. If not, then where will the trader get the money? If the trader is CFC, then I guess they were planning on getting it from BAC. But now that BAC can’t short CFC, will they still buy the bond? It appears that all of these deals DEPEND on shorting stocks for a profit.
Two things. This is VERY important. I tried to post this earlier, but it didn’t show up:
1. The agency in charge of approving the BAC-CFC deal did so on the condition that BAC not be given the right to convert the bond into stock. In that case, will BAC still do the deal?
2. Someone made a $768 million bet that the stock market will decrease 30-60% by September 21. The trade was most likely structured as a bear run, and also has the effect of being a very high-interest, short-term loan for $2 billion. Who do we know who’s looking for $2 billion? If the bear run pans out, the loan can easily be paid back with the profits from the trade. If not, where will the trader get the money? If CFC is the trader, I suppose they were planning on getting it from BAC.
Big V
Are you insane? Since when does a specluator of a short position worth over three quarters of a BILLION dollars advertise that position? Oh I remember, your the blog poster that thinks a family ownership of a cottage for over 30 years is a “speculator”. Your understanding of capital investment behavior is, to put it kindly, way off. My advice is to stick to housing, as it’s a simpler subject.
Dear NYC Resident:
Trades are anonymous, but still public. You can get the info from the exchange on which the trade is placed. Open orders and interest are always easy to view.
Open orders and interest are always available on the exchange.
Sorry for the double post.
There is no housing bubble in the UK.
http://louminatti.blogspot.com/2007/08/no-real-estate-bubble-in-uk.html
You should look at the market in London.
You know how for the past several years builders have said again and again that all these wealthy boomers were gonna be retiring and looking to move out of their SFR and into luxury condo/multifamily housing? We knew it was b.s. Turns out they knew it, too - but they kept on building anyway.
The following statistics come from the report “Boomers On The Horizon: Housing Preferences of the 55+ Market”, which is the 2002 report of a study undertaken by the National Association of Home Builders (US).
First, the stats for the typical 55+ household:
Household size: 53% 2 person, 34% 1 person
38% working, 62% retired
65% of respondents report a total annual household income of less than $50,000. (They’ll certainly be able to afford luxury condos or McMansions on that income.)
85% own their current home.
73% live in detached single-family home, 5% in a townhouse or single-family attached home, 10% in apartment or condo, 8% in mobile homes
Now, for what 55+ prospective home buyers are looking at for future home purchases:
Location preference: 30% prefer rural, 33% prefer outlying suburbs, 32% prefer inner suburbs, 5% prefer central city (So much for the claim that all the boomers want to move to inner city.)
Home style preference for purchase consideration (”which type of home would you seriously consider buying?”)
68% single family detached
18% townhouse/attached home
13% condo or apartment
12% mobile home
8% other
(So much for the claims that all these seniors want to dump their SFR and move into a condo.)
Size of new home: 22% prefer between 100-1499 sq ft; 32% between 1500-1999 sq ft.; 21% between 2000-2499 sq ft.; 22% want larger than 2500 sq ft. (So more than half of the 55+ boomers want a fairly small house. So much for the idea that they’ll be building McMansions.)
Floor plan: 79% prefer a single story home
Number of bedrooms: 53% want 3 bedrooms; 29% want 2 bedrooms; 15% want four bedrooms
Number of bathrooms: 2 - 40%, 2 1/2 - 24%, 1 1/2 - 19%, 3 - 10%
(So they want a fairly typical detached 3/2 or 3-21/2 on its own lot. Not a McMansion, not a condo.)
There you have it, folks. Retiring boomers don’t want condos, can’t afford McMansions, and the housing industry knew this all along - but went on a high-density multifamily development frenzy anyway, using the ‘retiring boomers want it’ claim to justify it.
The report is outdated at 2002. We’ve since seen understated but rampant inflation, a larger group moving into their “immobile” years. Conduct the same survey on what this group did as opposed to what they want and I’ll wager the analysis will show most downsized and moved toward population centers and/or closer to health care facilities.
My 90 year old grandmother recently passed. You wouldn’t believe the steep narrow stairs she went up every night to sleep in the home she built with her groom in the 1930s. She never even bothered with a nursing home. Just stayed in the home where she raised children and entertained grandchildren. It was 1/2 a mile to the beach. Why go condo?
My in laws were in a huge multi level home w/ 2 sets of stairs to the kitchen. Even after hip replacements they stayed in that home until it got near impossible for them. They were in their 70s when they made the move and then being away from family and starting over in a new locale was not appealing.
I might be willing to trade in my SFH for a Brooklyn condo in a decade or so, once the kids are gone and if I don’t leave room for the parents.
But only if my total housing costs go DOWN along with the square footage. By almost the same percent. In other words, the idea would be to SAVE money get getting rid of space I no longer need.
The builders seem to have assumed people would pay more for the privilege of having less space.
Aren’t granite counters and cheapo chinese appliances skinned in low grade stainless worth at least 150k????
I retired in ‘93. We built a place in WV, way back in the hills. Sold it in 2001 to move to wife’s home state (IN). Bought here: 3/2, 1440 plus 1440 basement divided into office, laundry, workshop and TV room (with a tornado shelter in one corner) located in a rural, moderatly poor area. It works just fine. The house is 40 yo and is a great source of activity for me - I’m now putting in a new kitchen, building my own cabinets, laying flooring, laying tile, wiring, plumbing, etc. Keeps me active and out of trouble.
I like rural. I have always hated cities - noise, bustle, people bumping, rude people. Give me a good reason to retire there.
I like rural. I have always hated cities - noise, bustle, people bumping, rude people. Give me a good reason to retire there.
Let me preface this by saying that it is definitely not for everyone, but retiring in the big cities has advantages.
First, top-quality medical care is generally very close by.
Second, a good public transportation network can keep you independent AND highly mobile long after you should stop driving. Senior discounts on monthly passes keep it cheap as well (here in Chicago an unlimited pass for seniors is ~$45 a month). You can have your groceries delivered to your door as well - no need to worry about carrying heavy stuff around.
Third, most big cities have cultural and entertainment options to make sure you never get bored.
Again, it’s not for everyone, but the established big cities are very accommodating for retired folks.
Ben,
Maybe you already know this, but I’ve been having trouble getting into the comments sections this morning. The reading and the commentary here is so enjoyable, I actually get bummed when I can’t get to it!! This site has been a great addition to my daily routine.
Yeah, I know, we’ve been having tons of problems this week. Working on it as we type.
“The markets have already priced in a rate cut in September, and the Fed will be forced to do it,” said Kosuke Hanao, head of foreign exchange in Tokyo at HSBC Bank.
Bloomberg
The Federal Reserve may lower rates, they may not lower rates. The market does not tell the Federal Reserve what to do. The market is merely a barometer of current conditions. It is not for men to understand the ways in which the Federal Reserve chooses to act. Inflation is rearing its ugly head and is starting to accelerate. The Federal Reserve can either act on inflation (which it has been doing, albeit reluctantly) or it may pander to save the equities, save the yacht crowd. Chairman Ben Bernanke has (IMHO) done a remarkable job to date with regard to the pressure applied from the political and financial factions that would like to see an immediate lowering of rates. A waffling that inspires hope that he will let the markets sort out this bubble collapse without interference.
Caught a snippet of the head of Mitubishi bank on Bloomberg yesterday evening. He stated that the market is headed for a severe ‘correction’ (crash) unless the Fed cuts rates. I fully expected a temper tantrum….”Give us our rate cuts, you nasty FED, so we can make more money, or we’ll crash your market.”
It turns out that every move the FED has made has actually been an effective rate cut. Nah, the bankers just want more.
Interesting that the demand for rate cuts is coming from HSBC and Mitubishi Bank… ? It looks like they’re ticked off because they didn’t get in on the Citi, BoA, JPMC fixes.
How in the world is a FED cut going to help the banks?
I agree with you, Hoz. Inspires hope. And a waffle.
HOZ, if you’re still about………….that thread I refered you to the other day is getting more interesting by the day. Apparently the bets are now on in Europe……..USA………and Japan. (refer) p15.
http://www.tickerforum.org/cgi-ticker/akcs-www?post=4669&page=15
It appears to be an increase in volatility play. I understand options, I just do not like to trade them. The only derivatives I trade are the futures market. The person that could best answer your thoughts would be TxChick, she actively trades options.
Luvs_footie, Ok I went through the trades and it appears to be a hedge. A very low risk hedge. If you were investing on the ABN-AMRO takeover occurring, (36% profit) and the takeover does not occur the chances of the market collapsing 30% or more world wide is around 25% (ABN-AMRO drops 50% from current level is a given). So for a few millions of dollars one can hedge against $1B in the takeover. Not a great hedge but better than being stuck in a dubious arbitrage that is costing funds hundreds of millions of dollars.
I just saw an analysis that said residential mortgage default rates, which had been unusually low, hit 2.2% in the second quarter, which is about average.
So all that has happened thus far is a return to average default rates, and a not-quite return to typical lending criteria.
We ain’t seen nothing yet.
It isn’t the number of defaults. It is the loss on each one.
Who cares if you have 2000 repos that you owe $200K each on, if you can sell those houses for $200K each. Okay, there is like a $20K loss in each one for paperwork, back taxes, bringing it back to market, etc.
Now, have those 2000 repos that you are owed $400K each on, that can only be sold for $200K each.
Your losses are an order of magnitude greater.
The debt economy was fueld on belief that prices wouldn’t decline. Now, they are saying that prices can’t drop more than 10%, or all bond holders take mass losses and the economy is doomed. Think about it…. 10% drop on $400K houses means the loss per foreclosure is tripple projected.
Me thinks the economy is doomed. NO WAY the bubblisious areas are dropping less than 30-40%.
Breaking news…………………
U.S. home prices in 20 cities sink 3.5 percent in June from year-ago period, Reuters reports. More soon.
no real estate never ever goes down la la la la i can’t hear you
“(We have kept our retirement investments in real estate and it is doing very well…around 10.5% in the last 8 months…I think rates are trackable at TIAA CREF’s web site. So who knows.)”
This comment came in an e-mail yesterday. I couldn’t help but feel I had egg on my face as when she said “We have kept our retirement investments in real estate” my brain also read “against your blog advice from a year ago”. With all the headlines of late I couldn’t figure out how this had happened.
Does anyone else have an idea how real investment pachages are still doing well for some in this environment?
TIAA mostly held commerical real esatate investments. Mostly shopping centers, warehouses, and office buildings but some apartments too.
But the TIAA-CREF Real Estate Securities Fund (TCREX) has not done well this year. The YTD return is -11.2%.
http://www.tiaa-cref.org/performance/mutual_funds/profiles/0089.html
Thanks Jay. I was wondering about that. I don’t even think my friend knows her investments are in the commercial end as she said the above comment after stating that real estate, SFH’s were selling well and for high prices in the midwest.
Hi Carrie Ann:
I just found out that there is an RE Bear Fund available through Fidelity (I can’t remember what it’s called right now). That fund shorts the DOW RE index. The bear fund in question has made an 18% return so far this year. I have a feeling your friend hasn’t actually tracked the index that she “thinks” is available through TIAA-CREF. Perhaps her returns are overall (including this year’s losses and the gains of the last few years). Alternately, Jay might be right about the commercial RE thing. Don’t worry, even that sector will be suffering soon. Low consumer spending = less business.
Interesting article by Armstrong Williams:
http://tinyurl.com/26cfqh
Armstrong Williams was one of the journalists that was paid by the White House (aka taxpayer) to write pro-Bush articles. I wouldn’t believe anything he wrote. I can’t believe anyone would still publish his cr*p.
Try to keep in mind that, though you don’t like him being pro-Bush, I don’t think you can find where he flat out lied or faked a story, unlike the New York Times and a few others.
NY association of Slimebuckets press release quote-
“We have not experienced the precipitous fall off in sales or steep decline in median sales price as in other parts of the country, and as a result, continue to project a relatively healthy housing market through the end of 2007.”
Left out of this puke inducing blurb is their previous verbage that basically states “we weren’t a part of the bubble”….. Now they just want to express the lie that they haven’t seen a price correction……. YET..
http://www.nysar.com/media.asp
It’s hard to make a general statement about New York State in any direction.
Most of Upstate never had a bubble, but it has economic problems, and may have some price declines anyway (though when the house cost $80K how much is there to lose?).
Downstate had a bubble, and is having a correction, working from the suburbs from the last place where “it’s different here,” Manhattan.
Part of Upstate close to Downstate is second home country, and will be effected by conditions on the Emerald Isle.
WT Economist,
Many upstate counties saw prices double and in some cases up x 2.5. The notion that prices there are normal was why I posted what I did. 200k prices are absurd when best wages there is roughly $12/hr at best. That same 200k ranch was 80k in 2002.
i want everyone to know i just contributed to the coming recession.
i cancelled my personal trainer.
the funny thing is just a month or so a go he was complaining about how long it was gonna take him to pay off his credit for a vacation he took with his non-working wife and child.
when i was kid my parents couldn’t afford a vacation. so you know what? we didn’t go on vacation. i shold have told him that but i didn’t.
Try the White Trash Workout:
http://workout.crossfitplano.com/crossfit_plano/2007/08/you-might-be-a-.html
those guys are in good shape. they’re not overly musculatured.
I asked a friend who is a trainer to write down a workout for me. It was informal, I didn’t have to pay or anything. Halfway down the list of what I was supposed to do, I got exhausted just reading.
Personal trainers are nazi-men (and ladies).michael, you should be so happy now that you are relieved of that burden.
I actually do that workout there. It’s brutal. Read up on Crossfit, it will give you the vapors just to think about it.
that is funny - esp. because it is Plano (high-fallutin’ and not s’posed to be redneck)
I almost spit on my keyboard, thank you I needed a laugh today.
This points to one of the fundamental problems of the American economy: too many people’s entire jobs are based on consumption patterns as opposed to production needs. This is why this housing downturn will create a great amount of volatility in the economy as a whole, to a level that mainstream economists will be unlikely to expect.
He just would have made you do more pushups, had you told him the truth, so it’s good you didn’t.
Countrywide California REO is up 4% in the last 7 days. 2615 homes worth $1 billion. Hmmm, 4% a week, 52 weeks, that could lead to a CFC owning 19,000 houses by August 2008. They should have over $7,000,000,000 of loans to recover on these properties. Of course, by next August, the inventory will only be worth $3,500,000,000. About $184,000 per house. Sounds about right. Where is Neil and his popcorn………….
Who wants to live like a millionaire for half the price?
http://phoenix.craigslist.org/apa/402681836.html
This house in Gilbert, AZ (Seville) has a mortgage of 1M on it. It has been for sale on Craigslist for quite some time for ~1.2M or 1.3M if I remember correctly. Nice to see that landlords are still willing to supplement the “lowly” renters.
I don’t think my friends that live just a few doors down in this neighborhood appreciate this guy. These are the same friends I talked about last week that owe 1.2M on their house and will eventually lose it.
What lovely landscaping.
So it’s worth $350-400K. **IF** you can rent it for the advertised price. Which the owners haven’t been able to do.
The 2 different kinds of granite in the kitchen gets a little psychedelic, but you can always play tic tac toe on the living room floor tiles since you won’t be able to afford any furniture to cover it up.
You call that landscaping? In Tucson, we call it a “front yard parking lot.”
Chicago Title vs. David Crisp, et al
http://bakersfieldbubble.blogspot.com
Payback time for having to promise to feed the squirrels if allowed to buy an overpriced house. For those who don’t know / remember. A seller in San Fran at the height of the bubble demanded letters from buyers as to why they should get the house and demanded a promise to feed the squirrels. Yesterday’s blog had an article about a family in Oakland upside down after extracting equity in their house which sounds like it might be in a ghetto: http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2007/08/27/MNGERNJ80.DTL&hw=425+000+oakland&sn=001&sc=1000
Here’s one of the comments readers posted. -
twozmylimit wrote:
We’ll be OK if we don’t sell—I’m not trying to give you a sob story– again-NOTHING is selling here. We live in a good neighborhood and our price is low–we are being fair and realistic. But we’re also not going to roll over either. Buyers are looking for the submissive dogs in the market. They are poking everything with a stick because they can. They are sending out mass form letters to agents asking if their sellers will accept $100,000-120,000 below asking and wait for a nibble. They become downright abusive when you hold your ground and explain the comparables. They behave in ways that will make their grandmas turn 10 shades of red from embarrasment. I kid you not. If we have to take our house off of the market until times are better–so be it. They will be better. The market is cyclical if nothing else. What I have learned is that these markets breed predatory behavior. I will not be fed upon and if I have to stay in my house so be it.
Posted 8/27/2007 3:44:57 PM
so be it then.
What a crock. Wait until someone “pokes” them with the Joshua Tree!
LOL! I don’t think I’ll ever visit Joshua Tree monument again.
Bring it on. He has to keep paying a monthly mortgage to keep his ground. We just have to wait. Lets see who wins.
I can stay solvent longer than he can remain moronic.
LOL
“The market is cyclical if nothing else. What I have learned is that these markets breed predatory behavior.”
that word again
what a joke. let’s get it straight. the so-called value is nothing more than the result of an artificial pumping of the asset. none of it was created by any increases in wages. i got your cyclical right here. keep prayin’, and i’ll be at the courthouse when you’re all done.
http://www.forbes.com/feeds/ap/2007/08/23/ap4048756.html
This is an interestng article on Wachovia. They have $2.4 billion and growing ‘income’ from deferred interest, a pile of dog crap loans, and the bigs are denying its a problem. I smell another good short.
http://www.finfacts.com/irelandbusinessnews/publish/article_1010945.shtml
Eurozone M3 money supply growth surged to 25-year high in July
The European Central Bank reported today that the annual rate of growth of M3 - a broad measure of money and credit in the Eurozone, increased to 11.7% in July 2007, from 10.9% in June 2007.1
Young people really don’t know about living within your means. I’ve had several discussions at check out counters when I’ve used cash - One girl did not understand the concept of saving up for something - her answer was “you mean you have to wait until you have enough money to buy something?”
I bought gas this weekend (Hey, it’s a big deal. Sometimes I go 2-3 months without buying gas) and the pump I pulled up to was open, but the credit card slot was broken. A note said I could pay inside after I was done. At the counter, I pulled out my card, thought a second and pulled out cash. I smiled at the guy at the register and said I preferred to pay cash for regular expenses because it encourages me to be disciplined in my spending. You never saw a guy at a gas station smile so wide to a woman who was not flashing her “assets” at him.
Young people only know what they are taught. It is a constant battle to be waged against what is reflected on America’s wasteland of television and reality, and Reality T.V. does not count. For the most part parents walked away from an entire generation and left “Publik edjukashun” in charge of teaching their “chilen” everything from Anna Nichol to Zero Down.
What’s in Your Wallet (Cradle)?
And the markets continue their “correction”.
Dow 13,169.31 Down 152.82 (1.15%)
Nasdaq 2,527.27 Down 33.98 (1.33%)
S&P 500 1,448.88 Down 17.91 (1.22%)
10-Yr Bond 4.5350% Down 0.0610
There is still another 90 minutes or so of trading left. Will it fall farther? Let’s see.
So, the PPT is going to work late AGAIN. A phone call home:
“Honey, I’m stick here at the office and will not be home tonight.”
‘Honey’ replies “I WISH you would an extramarital affair like normal people.” And so it goes.
Roidy
P.S. In the interests of “Diversity” the above “phone call home” is intended to be “gender neutral”.
Hmmm, looks like PPT didn’t hit the switch fast enough.
Dow 13,053.96 Down 268.17 (2.01%)
Nasdaq 2,507.18 Down 54.07 (2.11%)
S&P 500 1,434.65 Down 32.14 (2.19%)
10-Yr Bond 4.5300% Down 0.0660
NYSE Volume 2,102,076,000
Nasdaq Volume 1,355,362,000
Oh well. There is always tomorrow.
Roidy
I know I’m talking to myself here, but that is ok. Anyway, why is the Fed concerned with the stock market? I thought that the Fed was supposed to make sure the central banks were ok and that inflation was checked. Why are the Wall Street types bitching at the Fed?
Roidy
The Fed is officially interested in seeing that markets stay liquid. Liquidity problems tend to arise when the buy side and sell side of a market transaction cannot agree on a price which is acceptable to both sides. There is no need to make sure that prices keep going up in order to do this — in fact, markets that are rapidly correcting to the downside can be very liquid, provided that sales continue to occur.
The Fed hasn’t said that it’s “so concerned with the market”. It’s been the market saying that IT is so concerned with the Fed. Remember, BB has not decreased rates. There is NOT a 100% chance that he will, regardless of the market is “predicting” (read: hoping).
http://medford.craigslist.org/rfs/405823049.html ….. I need to find out how to send links the right way….. This is beyond belief!
I flagged it since she admitted that engineers already said it has to be torn down. In that case, she should not be advertising the house at all, but rather the land.
Driving in this morning listening to NPR and heard Rich Toscano (he of “Voice of San Diego” and Piggington’s Econo-Almanac for the Landed Poor) discussing the current housing situation here in San Diego. Only was able to catch about 10 mintues of it, but plan to listen to it all when it gets posted. Rich is a well known housing bear and it was great to have a calm, rational voice going through the reasons why the economists and real estate “experts” who say we’ve hit bottom are wrong.
It should be up later today or early tomorrow at:
http://www.kpbs.org/thesedays/
Bravo, Professor Piggington. He has definitely matured as a first-rate housing market spokesman on the side of rationality and balance. Since he shoots from the hip instead of spinning incredible yarns like most REIC commentators, I expect great future success. It is easier to make a convincing case when people have no reason to suspect you are lying to them.
A Clinton-era Treasury Secretary has added his voice to the crowd of folks pandering for a FNM/FRE-engineered housing market bailout. He seems to conveniently overlook the role of moral hazard created by free (taxpayer-provided) risk insurance for the financiers who created the mess we are in. If Wall Street perpetrators are all handed “get out of jail for free” cards, we can look forward to a continued pattern of high frequency financial crises going forward.
I would like to hear any evidence that following his suggestion would result in a useful “reflection on vital questions” that led to meaningful reform? Because it seems to me that these crises which occur “every three years” are mighty lucrative for the major financial corporations which end up on the receiving end of the insurance claims payments.
This is where Fannie and Freddie step in
By Lawrence Summers
Over the past 20 years major financial disruptions have taken place roughly every three years, starting with the 1987 stock market crash; the Savings & Loans collapse and credit crunch of the early 1990s; the 1994 Mexican crisis; the Asian financial crises of 1997 with the Russian and Long-Term Capital Management events of 1998; the bursting of the technology bubble in 2000; the potential disruptions of the payments system after the events of September 11 2001 and the deflationary scare in the credit markets in 2002 after the collapse of Enron.
…
I am among the many with serious doubts about the wisdom of the government quasi-guarantees that supported the government-sponsored entities, Fannie Mae, the Federal National Mortgage Association, and Freddie Mac, the Federal Home Loan Mortgage Corp , as they have operated in the mortgage market. But surely if there is ever a moment when they should expand their activities it is now, when mortgage liquidity is drying up. No doubt, credit standards in the subprime market were too low for too long. Now, as borrowers face higher costs as their adjustable rate mortgages are reset, is not the time for the authorities to get religion and discourage the provision of credit.
This crisis could have a silver lining if it leads to the careful reflection on these vital questions.
http://blogs.ft.com/wolfforum/2007/08/this-is-where-f.html
Summers to Fed: “Isn’t it about time to respike the mortgage lending punchbowl?”
With the boom over, he said, “those processes — the rising housing market, the greater credit taken out of homes — are going to go into reverse, to at least some degree. So I think the risks of a downturn have surely risen.”
He questioned efforts to restrain housing finance giants Fannie Mae and Freddie Mac from doing more to stabilize the housing and mortgage debt markets.
“Of all moments to be trying to constrain their activities, this can’t be the right moment for that,” he said.
“Surely we should be encouraging them to provide capital in the subprime space … simply making available the kind of liquidity that enables these markets to function.”
http://www.washingtonpost.com/wp-dyn/content/article/2007/08/26/AR2007082600602.html
The moral hazard created by the Greenspan-Rubin-Summers era’s free (taxpayer-provided) bailout insurance was instrumental in creating the current economic order, whose key features include:
(1) major financial crises every three years or so for the past twenty years (in Summer’s own assessment!);
(2) mass capital flows that concentrate wealth into the hands of top financiers during both the bull phase and the bust phase of the cycle (the latter being funded by claims payments on free bailout insurance and the former fueled by stock market price stabilization policies which mask investment risk);
(3) malinvestment due to the received impression that any and all investing activity is risk-free.
A FNM/FRE-engineered bailout at this point would help insure that this new era could continue indefinitely.
Chris Dodd: Fed Gets It, Treasury Doesn’t
posted on: August 22, 2007
Senator Chris Dodd, chairman of the Senate Banking Committee and struggling Democratic presidential candidate, met with Fed Chairman Ben Bernanke and Treasury Secretary Hank Paulson this morning to talk about the mortgage lending and credit market mess.
Apparently, Hank Paulson developed a glazed-over look or began staring out the window when the subject turned to people losing their homes.
According to this MarketWatch report, Senator Dodd commented, “The Fed gets it and understands it, but the Treasury doesn’t”, referring to his strong desire to keep people from losing their homes and to improve his poll ratings - neither of which are likely to happen anytime soon.
…
The entire country has been trained like Pavlov’s dogs, so it seems, expecting a bail-out when things get a little dicey - that’s the legacy of former Fed Chairman Alan Greenspan and it will be hard to make the saliva glands of millions of people respond differently to financial market distress.
Though judgment on the new Fed chief is being reserved here in the hope that he will be more like Paul Volcker than “the Maestro”, it’s probably only a matter of time until Ben Bernanke caves in and starts cutting interest rates.
What else can he do when most of the country and its elected representatives think that you can have strong credit markets and cheap money at the same time, just like Senator Dodd.
http://seekingalpha.com/article/45242-chris-dodd-fed-gets-it-treasury-doesn-t
PAUL B. FARRELL
If we are Rome, Wall Street’s our Coliseum
Comptroller General warns (again), we’re ‘bankrupting America’
By Paul B. Farrell, MarketWatch
Last Update: 7:28 PM ET Aug 27, 2007
ARROYO GRANDE, Calif. (MarketWatch) — What do Cassandra, “Chicken Little,” the “Boy Who Cried Wolf” and David Walker, America’s Comptroller General and head of the U.S. Government Accountability Office, all have in common?
Nobody pays attention to them!
…
After reading Walker’s speech the real reason nobody listens suddenly hit me. He’s too nice. Too rational. Too matter-of-fact. Maybe he should go wild like cable-TV showman Jim Cramer, throwing a childish tantrum to get Daddy Bernanke’s attention, forcing him to drop the Fed’s discount rate. And yet, if our economy and markets are ever going to be “transformed,” it’ll take a cool, rational, long-term thinker like Walker, not a myopic stock market fanatic going ballistic, demanding a quick-fix from daddy!
http://www.marketwatch.com/news/story/if-we-rome-wall-street/story.aspx?guid=%7BE71DF12D%2D6F67%2D4D51%2D8A77%2D1AA17A4C57BC%7D&dist=SecMostRead
BTW, I just looked at my calendar and realized it is only Tuesday. Does anyone else feel like we have already had a full week’s worth of housing market news?
Big Comfy Couch Line: “Who made this big mess???”
I personally think Samuelson underrates the role of the Fed’s economic stabilization program in creating ripe conditions for high-risk, low-reward investing behavior.
The Catch-22 of Economics
ROBERT J. SAMUELSON
Sept. 3, 2007 issue - We are now in the “blame phase” of the economic cycle. As the housing slump deepens and swings in financial markets widen, we’ve embarked on the usual search for culprits. Who got us into this mess? Our investigations will doubtlessly reveal, as they already have, much wishful thinking and miscalculation. They will also find incompetence, predatory behavior and some criminality. But let me suggest that, though inevitable and necessary, this exercise is also simplistic and deceptive.
…
Paradoxically, the fact that the U.S. economy grew in spite of so many daunting obstacles—corporate scandals, 9/11, higher oil prices—may have created a false sense of confidence that it could overcome almost anything. Sophisticated investors and ordinary consumers alike seem to have fallen under the spell of this logic. Believing risks had declined, the first group actually adopted ever-riskier investment strategies—and unknowingly increased financial risk. The second, believing in continuing economic growth and rising home prices, assumed ever-heavier debt burdens—and created potential obstacles to future spending. In 2000, household debt was 103 percent of disposable income; in 2007, it’s 136 percent.
Mistakes and misdeeds do not occur in a vacuum. The ultimate culprit here may be irrational exuberance. As economic expansions lengthen, people become more complacent and careless. The very fact that the economy has done well creates conditions in which it may—at least temporarily—do less well. Prosperity inevitably interrupts itself with losses, popped bubbles and recessions. This produces recriminations and promises to do better, but there is always a next time.
http://www.msnbc.msn.com/id/20438243/site/newsweek/page/0/
Great article, Professor G. Stucco-Bear. I especially like it because it will help to snap some people back to reality. We need more level-headed mainstream writers like this one. What’s the point in placing blame now? Better to just cut your asking price!
“People are screwed.”
-Big V
Whatever happened to the photos? It’s been over a month and no update.