Bits Bucket And Craigslist Finds For September 2, 2007
Please post off-topic ideas, links and Craigslist finds here.
The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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Was in BJs Wholesale and Home Depot. Completely dead. Nobody there. Girl at HD actually asked me if I wanted help! When was the last time that happened to you?!
Don’t tell HD management, they will probably fire the girl. HD fires employees who try to stop shoplifters so I would guess that helping customers is also forbidden.
usually, I was never able to find an orange smock. There were more employees there than buyers yesterday. I find the comparison stark. And I do not think EVERYONE was at the beach!! Also, they had *clearance bins*. I saw a Maytag dishwasher for $99.00. Too bad I did not need one!
Good point re: the beach, though. In my area (Philly burbs) lots of people go away on the weekends to the Poconos or the Jersey shore. After this weekend, traffic in the stores will begin to mean much more.
In my area (Dayton, OH) the Lowes are better and much busier than the HDs. In addition, I’ve avoided HD ever since the 200 million golden parachute for the last failed CEO. (Will definitely never by a Chrysler either)
It’s worse than that. I’ve heard that this was all contractual. They actually bought the guy away from his previous gig.
I saw something interesting yesterday. HBO has a documentary called “Rehab”. One of the guys trying to kick a heroin addiction talked about getting money by shoplifting at Home Depot. He said everybody did it, all of the junkies. They would look for receipts in the parking lot then go grab the stuff and return it. I was shocked.
Then screw HD, they will go broke if they let shoplifters free
It’s Labor Day weekend in the States. My whole town looks like a ghost town - kind of nice, actually.
It’s also kind of weird that we celebrate Labor Day in the country that’s most hostile to organized labor in the western world, but that’s another topic.
That’s why it’s not celebrated on May 1st, like the rest of the world!
‘Central banks should focus on house price swings only if they risk causing harm to the broader economy, and keep their eyes on ensuring stable prices and employment, Federal Reserve Governor Frederic Mishkin said on Saturday.’
‘Mishkin said a central bank should not try to stop an asset bubble from bursting, but to respond quickly after it has burst. ‘As long as monetary policy authorities watch carefully for harmful effects stemming from the bursting bubble and respond to them in a timely fashion, then the harmful effects can probably be kept to a manageable level,’ he said.’
‘Mishkin said a central bank should not try to stop an asset bubble from bursting, but to respond quickly after it has burst. ‘
So what does all this mean? Is he defining the asset bubble falling house prices? Or is he defining the asset bubble the burst of the MBS market? If the latter, how is he going to define the burst? By lack of market liquidity for MBS’s or after they have finally marked to market and know who owns what after unravelling the mess? And while his attention is diverted by housing what is he going to do when the CC bubble bursts and hits him in the ass? They beauty of the CC debt is going to be the spin about how the CC holder was duped into problems because the CC company didn’t properly tell the card holder that only paying the minimum leads to BK!
I’m not very fluent in fedspeak, it’s kinda like go-go gopher speak, but I think he’s trying to say we’re fueling up the helicopters, don’t get your panties in a wad.
You’re asking too many questions. Don’t you realize that the wise men and women at the Fed are smart enough to figure all this out when they need to? After all, that’s why they’re in the government!
“After all, that’s why they’re in the government!”
Which branch? Executive or legislative? (I have pretty much ruled out judicial…)
“… government of the people, by the
peoplebankers, for thepeoplebanking industry, shall not perish from the earth…”Private bank, really, not gov.
Private corporation with government powers. The worst of all worlds.
“Private corporation with government powers.”
Sounds like FNM, FRE, and soon enough, FHA…
East India Company
Pretty “smart” for those working for the government. Good health benefits, no lay offs, steady paychecks with cost of living increases etc. Yep, in todays world a great place too work for now. They will be the “last” to go down with the ship but some will still have cushy jobs as we do need our government. God help us.
Pul-leese let us not forget the Fed is privately owned, focusing mission-wise on their Godfathers, the investment banks…..
I’ll offer my own (mis?)intirpritation.
Yeah, house prices were a bubble. Yeah, it is popping. We can no longer lie and say it is contained, so now we’ll lie and say the harmful effects can be contained. Our only hope of avoiding depression is for the bubble to deflate slowly enough for the falling dollar to allow us to return to a manufacturing economy.
We stand ready to take any action necessary to keep the dollar deflating faster than the Euro and Pound. If the Cary Trade starts to unwind and the dollar strengthens, we’ll drop rates to kill the dollar ralley.
Sounds to me like a recipe for dragging the bursting U.S. housing bubble out for over a decade, similarly to the way Japan managed their deflating real estate bubble in the 1990s. I don’t see how the Fed can use a lower FFR to prop up housing prices which are clearly unaffordable to “end-users”, when there is a huge supply glut and falling prices, which pretty much undercuts the reason for flippers, vacation home buyers and second home buyers to be in the market. I am wondering if there is a plan for stealth intervention to replace the loss of 30% percent of demand due to the absence of speculators?
Use liquidity injections to allow the banks to take the foreclosures onto their books for a decade in hopes slowing price declines.
Traditional price/wage ratio = ~3. Current > 5. In the last year here in PHX we’re looking at 3% wage growth and 7% price drops. 5 more years of that and we’ll be back to a baseline.
However, there won’t be only 7% per year drops IF the banks have to push all those foreclosures back to the market quickly.
Is that the plan?
“Use liquidity injections to allow the banks to take the foreclosures onto their books for a decade in hopes slowing price declines.”
Meanwhile, what happens to the foreclosed housing stock? Do the banks just hold on to it while it crumbles to the ground, or will bulldozers be used to reduce it?
what happens to the foreclosed housing stock?
Beats me! Maybe they start targeting “neighborhoods that can be saved” and “those that can’t”.
Don’t make loans in the neighborhoods that can’t be saved, let them become squat towns, and wait for the bulldozers to come in for redevelopment a decade from now.
Actually grant loans into the neighborhoods that can be saved.
Hope I’m in one fo the “can be saved”.
Back in the 80s I was an assistant county attorney in a state on the east coast. If banks foreclosed on many houses and then didn’t spend the money for upkeep and to keep squatters out, I suspect (and that’s all this is: my conjecture) is that the county, under pressure from homeowners, would want to start condemning properties to protect the public health. Then, of course, they’d sell the properties at firesale prices. I’m just imagining the question coming down to legal asking if they could do that and frankly, I don’t remember enough of that state’s laws to speculate whether they could do it or not.
The banks in Japan kept the bad loans on their books for many years. It took over 5 years for the sludge do destroy enough banks that the industry was forced to own up to the problem and start writing down the problem loans. I don’t think it can happen here but I could be wrong. Americans are certainly not nearly as compliant and group-oriented as the average Japanese.
Keleka:
With our recent judgement on emminent domain, I think the city can do just about whatever it wants. The question is, what would a city really want to do in this situation? Would they bulldoze them to keep values high, or would they sell them to keep neighborhoods functioning? I wonder …
Very interesting comment - I too think that we may become a manufacturing nation yet again. There are billions of Chinese that will soon be middle class that will need the goods we manufacture.
Mishkin is suggesting the Fed should hard-wire immediate FFR cuts to falling house prices. See my post from the FT further down the thread.
“Fortunately, the overall financial system appears to be in good health, and the U.S. banking system is well positioned to withstand stressful market conditions,” he said.
Firstly, the banking system’s health is the Fed’s number one concern. It does not care about upside down homeowners unless they affect the system.
Secondly, the ABCP segment of the financial system is not functioning. It is shrinking and the mortgage subsegment may collapse. In addition to rule bending, the Fed added massive amounts of liquidity to keep it afloat.
Lastly, this reads like more Baghdad Bob confidence messaging targeted to money managing troops. After the August carnage in the ABCP market, however, how many money mangers are going to be willing to buy more subprime related ABCP? Thus far, data show everyone is heading for the exit. Consequently, it’s a bit early for back-patting.
No, no, no. Didn’t you see Professor Bear’s post in yesterday’s bits bucket? The Fed is required BY LAW to aim for maximum employment and minimum inflation. Now, the part of that Act that specifies the criminal or civil penalties for violations of said Act, were not posted. Looks like Greenspan might be headed to Leavenworth.
The law is regarded as a joke by most economists who have thought about it. How can the Fed be held accountable for using one instrument (interest rates) to achieve two somewhat incompatible policy targets (low unemployment and low inflation)?
I think the important point is that the FED must be focused on stable prices and employment. When we get into trouble is when the FED gets distracted by other events, that would probably get worked out, as long employment is good and inflation is in check. FED officials must be able to not be influenced by the media or political pressures. Considering Greenspans overreaction to every problem, it doesn’t seem to be so. When the FED is influenced by market events, theirs almost always unintended consequences. When Greenspan lowered interest rates to 1% , it caused a tremendous amount of private money to start chasing yield. Wall street and the rating agencies served up this “Yield” on a silver platter, in the form of mortgage backed securities. The demand for MBS created demand for mortgages, which could only be met by lowering lending standards. All the easy money created a situation where there was to much money chasing housing, which resulted in homes prices rising and because of positive feedback, more speculative money was poured in. We ended up with a self for filling prophecy, that homes prices always go up. Once prices started bumping up at the limits of afford ability, prices stopped rising and there is a rush for the exits. The leverage used become the executioner for those that did not get out.
We’ll see if Bernanke can resist the pressure’s and stay focused on the FED’s mission of low unemployment and stable prices. We need to break this cycle, that Greenspan put the economy in. Otherwise, the the asset bubbles will get worse and worse, until we get a bust that breaks the back of the economy for many years.
I’m afraid that the back-breaker is upon us. The US consumer single-handedly juiced the whole world economy by going deeper into debt. The consumer can just as easily break the global economy. China’s total consumption is less than 10% of US consumption and about 4% of the West combined. Basically, irrelevant in the big picture.
More Mishkin from the FT:
Central bankers should ease monetary policy quickly and aggressively in response to a big fall in house prices, Federal Reserve governor Frederic Mishkin said on Saturday….
Why? To protect collateral.
http://www.ft.com/cms/s/0/71958a68-58a7-11dc-b883-0000779fd2ac.html
I had dismissed the so called “war on savers” as more likely incompatance than intention. But no… for some atleast, it appears to be intention.
“The Fed governor reaffirmed the established Fed line that central banks should not set out to try to pop or even lean against asset price bubbles, beyond taking into account the effect of higher asset prices on spending. He said it was better to clean up after a bubble burst.”
Crazy gamblers get rich on the way up, and workers and savers get to pay for the clean up.
This SUCKS!!!!!!!!
OK, I’m jumping in here. I took a class with Mishkin when he was a business school professor (I was in the law school). He told us he spent his childhood listening to older relatives talk about the Great Depression. He became an economist to try to understand it.
I interpret his words to mean that they won’t prevent the housing bubble from bursting but will try to make sure that it doesn’t cause a complete implosion of the economy a la the 1930’s.
If they can actually pull it off, it would be the best possible result. Housing bubble bursts. Recession follows, but doesn’t turn into a decade long disaster.
Maybe the Fed needs to rethink its policy of waiting until bubbles burst before acting, on the shaky premise that bubbles are only visible through the rear view mirror. Because otherwise, they may inadvertently set the stage for another Great Depression by always playing laissez-faire while bubbles inflate and central planner while they burst. Humans are mammals, and mammals habituate.
http://en.wikipedia.org/wiki/Habituation
Unfortunately, Greenspans policies have created a culture of speculation, chasing the next “big thing”. Even on this blog, we have speculated on where the next bubble will be. Although the FED claims to manage inflation expectations, the search for the next great asset inflation, has become a national pastime. Once the FED starts lowering rates the speculation will begin again in earnest.
“Even on this blog, we have speculated on where the next bubble will be.”
We are all gamblers now. The Fed’s “risk management” policies forces us, whether or not we like gambling, or even think it is moral or beneficial to society. I personally thought we had it about right back when gambling was properly treated as an illegal vice.
The Fed seems really confused about the difference between asset price inflation and wealth creation. Consequently, we can look forward to more of the former and less of the latter.
“We are all gamblers now. The Fed’s “risk management” policies forces us, whether or not we like gambling”
It is my belief that people now feel that they have to make risky bets on asset bubbles to survive. Hence, “the priced out forever” fears, of a few years ago.
“Habituation…functions like an average weighted history wavelet interference filter reducing the responsiveness of the organism to a particular stimulus. Frequently one can see opponent processes after the stimulus is removed.”
They’re kidding, right?
Oh. Right. They’re psy-CHOL-ogists….
Bernanke’s academic background shows through when he say idiotic things like suggesting the Great Depression could have been avoided by just extending more credit. To keep a Ponzi Scheme going requires ever-rising amounts of credit. If you even get a slowing of the growth rate, that can be sufficient to burst it. But continuous growth is an absolute precondition to sustaining a bubble. The larger it grows, the more certain the demise and the more catastrophic the consequences. The required credit growth simply becomes too large to be sustained under any conditions at some point.
The Fed used to understand that. Which is why they deliberately induced recessions every 3-4 years for four and a half decades after WW2. They wanted to make sure the imbalances never got enough of a foothold to become a threat. The Greenspan Fed began encouraging economic imbalances as a supplement to growth. The old Fed used to kick the economy down the stairs after it had climbed up a few steps. The new Fed has carried us 10 stories up the stairs and is trying to prevent a fall but gravity still works.
“The Greenspan Fed began encouraging economic imbalances as a supplement to growth.”
Do you mean ‘as a supplement to perceived growth?’ Because inevitably, such fooling games as the Fed has played over the past 20 years lead to a divergence between perceived wealth (as measured by artificially-supported asset prices) and actual wealth (as reflected, for example, in a surplus of unwanted, unneeded McMansions).
The Real Causes of the Financial Storm
By David Ignatius
Sunday, September 2, 2007; Page B07
PARIS — “Tornadoes are caused by trailer parks.” Norm Augustine, former chief executive of Lockheed Martin, coined that aphorism a few years ago after seeing one too many photos of mobile homes that had been devastated by twisters.
…
People looking at this crisis in isolation expressed relief that the Fed bailout seemed to have worked. But I find greater cause for worry. What we are seeing is a financial addiction — to ever-more exotic classes of high-yielding assets to tempt global investors and then to the Fed’s infusion of liquidity to keep the system from self-destruction. The financial world, you might say, is addicted both to the heroin of high yields and the methadone of the Fed’s rehab program.
…
The Fed can keep rescuing the financial markets by providing emergency liquidity to rebuild the flimsy trailer parks. But it’s time to look at the tornado itself — the immense unregulated flows of capital and the new financial instruments that give them such devastating velocity.
The writer is co-host of PostGlobal, an online discussion of international issues. His e-mail address isdavidignatius@washpost.com.
http://www.washingtonpost.com/wp-dyn/content/article/2007/08/31/AR2007083101534.html?referrer=emailarticle
Professor
While we both know that bubble create significant mal-investment, the increase in economic activity is not entirely wasted. It isn’t possible to waste all of the money even if someone tries. The problem of course is that the offsetting liabilities are still created regardless.
There has been a lot of actual wealth created but the process becomes increasingly inefficient as the credit standards loosen. This is why it has taken more and more debt to generate $1 of incremental GDP. It’s a lot like a heroin junkie. Bigger and bigger hits required to get any response, with an inevitable OD unless the addiction is broken.
‘If they can actually pull it off, it would be the best possible result.’
That is a big “if”. How many other variables will pop their heads out in the ensuing months? We have a whole world of sovereign lands that play this game with us too.
Oh, I totally agree. I’ve given up on the fed doing the right thing. I’m just vaguely hopeful that they might aim at the right thing.
Having read a bit more of the details of what he said below, I am more sceptical than I was with just the small quote I saw above. But please do look at the words he actually said, not the headlines written by the reporters/editors. They are pretty much useless.
“He told us he spent his childhood listening to older relatives talk about the Great depression. He became an economist to try to understand it.”
His youth parallels Bernanke’s. BB was inspired to become an economist due to stories depression era stories from his grandmother.
From Reuters - Feldstein calls for 100 basis points rate cut:
“Lower interest rates now would help,” Martin , president of the influential National Bureau of Economic Research, told an annual retreat of central bankers and academics, including a number of senior Fed policy-makers.
Feldstein, who warned of a “multiplier effect” from declining home prices and lower consumer spending, said a cut of as much as 100 basis points might be warranted….
http://www.reuters.com/article/businessNews/idUSN0130560120070901
It is the NBER’s job to date the onset of recessions, so it seems quite significant that the president of the NBER would be advocated a massive respiking of the punch bowl at this point. The national economic picture has deteriorated more rapidly than Enron’s finances did just before they went BK.
In related news also from Reuters:
FRANKFURT, Sept 2 (Reuters) - Global economic growth will take a hit as a result of the U.S. subprime mortgage crisis, says the chief executive of Deutsche Bank (DBKGn.DE: Quote, Profile, Research), Germany’s biggest bank.
“Growth, especially of private consumption in the United States, will suffer because of the housing crisis and that can naturally not go without negatively affecting the world economy overall,” Josef Ackermann said in a guest column to be published in the German business daily Handelsblatt on Monday….
Ackermann said many banks and investors affected by the credit market turmoil that arose in the wake of the subprime crisis had apparently taken risks that exceeded their size and risk-bearing capacity.
“This is, to say it clearly, above all negligence on the part of the managements of these houses,” he said.
The distribution of credit risks in the international financial system had not been transparent to supervisory authorities and market participants, he said.
http://www.reuters.com/article/bondsNews/idUSL0258669920070902
Arg! Once the bubble inflates, the damage is done. Unaffordable housing IS damage. Erg.
Swallowed up…
http://www.nytimes.com/2007/09/02/business/yourmoney/02village.html?_r=2&adxnnl=1&oref=slogin&ref=business&adxnnlx=1188734448-1JWUw+5neth+tWT5Trvu0g
OK, reading this article, leads me to a question that I dearly would like answered. The S&L in the story, Third Federal seems like a place I should be keeping my savings (no MBS or CDO’s, holds its own mortgages on it’s own books etc.) How does one find out how much risk your local (and national) banks are exposed to? Anyone have links to websites that explore this?
Weiss ratings….
Funny, the moral I got from the story - though it wasn’t explicityly stated - is that even his bank which was responsible in its lending practices and holds its own loans on its books will have problems because the value of the collateral protecting those loans is collapsing. If they always required 10-20% downpayments and values in the area go down by 50% the borrowers who have the normal issues with their mortgages (health, divorce, job loss) will still leave them with assets well below the amount of the loans they made.
Third Fed is pretty conservative- for example, it has no ATMs. Up until a few years ago it held all its own mortgages, although now it does resell the mortgages themselves while continuing to service them.
It also offers decent interest rates- 5.4%apr on 60 month FDIC-insured CDs. It is one of the few (probably only) remaining Cleveland-area S&L that is not a product of gobbling up of smaller S&Ls and still retains a close sense of community responsibility.
This is exactly what happens when you are on high commission only structure, your standards sink into the gutter, it happens in any business.
Time to go back and be and old fashioned banker again!
=====================================
Third Federal pays its loan officers salaries, rather than commissions, so there is no incentive to go for volume.
The beginning of the NY Times article is a bit scary…
“Tammi and Charles Eggleston never took out a risky mortgage, never borrowed more than they could afford and never missed a monthly payment on their neat, three-bedroom colonial in the Cleveland suburbs. But that hasn’t prevented them from getting caught in the undertow of the subprime mortgage mess now submerging this town.”
The victims of this housing mess are not all irresponsible, speculators or foolish borrowers/consumers. Heck, even renters may suffer in an economic decline, just not with home equity.
And this is what terrifies me about buying these days. I’ve pretty much given up on a condo - FB’s stop paying the condo fee before they stop paying the mortgage. And if they are upside down on the mortgage you can’t go after the unit to get the money - the first lien holder gets theirs first.
And recently gentrified neighborhoods are going to be the first ones to deteriorate. Along with the ones where people bought up nice little houses, did tear downs and built monstrocities, and the neighborhoods where people bought up nice little houses that they couldn’t afford, and…you get the idea.
How do you find a neighborhood that is’nt going to explode?
“How do you find a neighborhood that isn’t going to explode?”
You can look for neighborhoods with good employment growth or job stability and a diverse economy. And where affordability is closer to the mean income in the area. These economic attributes will either minimize the pain, or lead to a stronger rebound when better times return.
Risk is a part of any investment. But a primary residence can be a less risky investment, provided you are buying something you can afford, and the financing is stable, because you are investing in something you need. Pessimists rarely score on their investments. Optimists do, but they can also lose big.
Never, never, never buy a condo. Too many risk factors. I’ll name just a few from my own experience. Condo’s rented out to non-owners by absent landlords. In my case, in West Hollywood, ca. two of the condo’s rented out. One to a drug dealer with drug buyers coming and going 24 hours a day. The other rented to a young lady who offered “personal service.” Was this a cheap condo building in a bad area. Hardly. The same condo was sold for $780,000 in 2006. Then the problem of HOA fees falling behind by financially stretched owners. That loss has to be made up by increasing fees for the other owners. Then the repair problem. In the condo I owned, which was built in the 1970’s boom (and eventual bust) the good building material like treated wood, was in short supply so the builder (who went broke) used inferior material. Btw, THAT is going to be a BIG problem with property built in this boom and bust. Then we had constant plumbing leaks, electrical failures and multi-tribes of california termites (hungry little critters). The termite guy might just as well move into the building. He was there often enough. Finally, a large crack appeared in the community swimming pool. Don’t even ask what that cost.
Suffice to say condo’s are a very bad way to go unless you sell after a few years in (hopefully) a rising market (which ain’t gonna happen for the next 5 to 10 years) and then buy a sfh where you are not dictated to by 20 other occupants and whatever habits they bring with them.
If it’s a sfh, make sure there is no HOA. What’s the point in becoming a property owner if you have a landlord dropping notes in your mailbox telling you that under rule#2, tenants are not allowed to put towels on the balcony rails to dry and plants must be in a container and no bigger than 6″ high, etc?
Mike,
You’re a West Hollywood, CA resident, and you’re worried about a couple of illicit activities in your building. What are you thinking? Drug trafficking and prostitution are among the oldest professions in the world, and you happening to be living in one of the most permissive locations in the world. It makes no sense not to expect non-conservative neighbors in West Hollywood. Next you’ll be complaining about the sex between male roommates, as if any of that has any bearing on a condo’s investment potential. Yes, condo’s are more speculative than single family homes. But to discount them as never, never, never being appropriate is ridiculous. I guess millions of people should just leave Manhattan, or pay a lifetime of rent to landlords.
Dear NYC Resident:
How can you say that it makes no sense for a Hollywood citizen to expect law enforcement to take place in his community? He pays taxes and votes, so he deserves protection from the druggies, gangsters, and johns that frequent drug dealers and prostitutes. And how can drug traficking be one of the oldest professions in the world? You have to have a society advanced enough to import drugs before you can have drug traficking.
Mike’s point about the neighbors is that, in a condo, your neighbors are much more likely to be renters than in an sfh. Of course, renters are more likely to be living an unstable lifestyle. I’m a renter myself, so I obviously do not mean that all renters are bad neighbors, but they are just more likey to be bad neighbors.
An sfh is just a better investment than a condo.
Big V
I said nothing about law enforcement. Just that in a big city like Los Angeles, particularly in a neighborhood like West Hollywood, which is very permissive and liberal, you will have illicit activity. It just goes with the territory. Illicit drug sales, I once heard, would be the third largest business in the economy, if it were measured. While that may not be an accurate assessment, natural-based drugs like heroin have been abused for thousands of years. Drug abusers were written into Greek Mythology. I’m just a realist. I don’t use illicit drugs, but I expect they will continue to be marketed and sold and used, as long as mankind walks the earth.
I mentioned that condos are more speculative than sfhs, so I believe condos are riskier. For some people, they are a better option, particularly if you are looking for reduced responsibility for maintenance and upkeep. Living high up in a building, means never having to worry about a flooded basement or a leaky roof. When it snows, the management of the building takes care of snow removal. Plus they can be more affordable. So I find it hard to believe, with all these attributes, that they would “never, never, never” be appropriate.
I live in a neighborhood that should be one of the safest.
Built in late 70s of solid brick construciton on solid foundations. Big hospital across the street to the south, and the area is packed with other medical offices and such. Nice K-8 school half mile to the east, big ASU West campus a mile east. A mile north is an internationally known graduate school and a mile north of that is a major commercial arterary with a giant shopping mall, lined with restaurants, businesses, etc. I work in one of those offices 2 miles from my house. Govt offices in that area too, like DMV and emission testing station.
RealtyTrac search for my zip shows 68 with “default activity” within about 3/4 mile of my house so far this year. It shows that 210 have been bank owned, but I know some of those have alread sold.
On my street of about 2-3 dozen houses, 3 have “for sale” signs (2 vacant) and 3 have “for rent” signs (1 vacant). A couple more appear vacant… one of those shows as bank owned on RealtyTrac, but no for sale sign on it.
Back in the spring there was a lot of activity. One house about 6 doors down sold 2 times, 90 days apart, for $80K difference with no remodel work done. At that time, 2 more houses sold and major rehabs started. One had a dumpster of kitchen and bath gut work sitting out front…. for about 4 months. After the gut jobs, the people involved with the $80K flip down the street were arrested for running a major mortgage fraud ring. Work on the other 2 houses stopped. Those 3 houses appear vacant, and have no “for rent” or “for sale” signs and no info in RealtyTrac.
Zip Realty shows 168 houses for sell in the zip code. AZ Republic shows 13 houses closed in the first half of August.. 10 the first week, 3 the second. If 3 a week becomes the new norm with the tighter lending standards… 14 month supply?
I would look for a stable group of owners. You want areas with very low turnover, which will provide you with 2 benefits. First, they are likely to have bought long ago and have the most equity built up. Obviously that might not be true if they HELOCed a bunch so I’d avoid areas with lots of fancy new toys - cars, trucks, boats, RVs, etc.
The other factor is that you will be living among people who have demonstrated a commitment to the area in the most concrete way possible - by staying there for a long time. Strong emotional and psychological ties might keep people in their houses even under duress, where those in more atomized situations would walk.
I’d avoid any area that is recent build or redeveloped. Stay away from areas popular with corporate relocation (Allen, Frisco and parts of Plano in this area) since the residents are largely transients. Of course the valuation stuff we’ve been talking about still applies.
I posted this yesterday about a Sacramento neighborhood. A squatter in a 3500 sf home pulled out by the local cops. He had a no bail warrant for skipping on $150,000 bond in L.A.
I talked a bit with the neighbors who thought they were buying into an exclusive neighborhood. Paid $550,000 to $630,000 for 2,500-3,000 sf houses. The builder sold the last 2500 sf house for $390,000. Multiple foreclosures. Orange spray paint grafitti on one house around the block.
There are some really crazy things going on in Sacramento.
‘There are some really crazy things going on in Sacramento.’
Too bad. Everything was supposed to be provided for the people there.
Hey Jingle….I live here in Sacramento as you do. What is the general vicinity you are talking about? Just curious?
RE: They have had no takers. Although they lowered the asking price to $99,000 from $109,000, no one has even come to look at it in more than six weeks. “My heart panics every time I drive down the street and I see another for-sale sign,” says Mrs. Eggleston, pointing past the placards in front of her porch to others that dot surrounding yards like lawn furniture. “Some people on the street couldn’t pay, so they just left.
Man, when a US citizens can’t make a payment on a $99k mortgage
we as a country are fookin’ toast.
I just bought a Ford Motorcraft battery for my vintage Mustang.
$100.00.
Instead of an embossed MotorCraft logo stamped on top, was a cheesey sticker, “MADE IN MEXICO”
The reason US citizens CAN’T hold on to a $99k house, is that jobs like producing batteries have been offshored by trade policies effected by a visercally dispicable and detestable Congress whose approval rating is now at a dismal 18%.
People always think a job loss and divorce only happens to the other guy.
Guess what? The next job funnelled to Pakistan may be your own.
It is time to take back America from the corporate greedheads and their paid minions in DC.
Testify, hd74man! I wish I’d posted a weekend topic idea of examining how communities have been destroyed and trashed by the bubble. I’m watching it happen around here. Nice, quiet little area, all scarred up with crappy development “Made In Mexico”, and formerly nice little neighborhoods deteriorating.
Ummm..guys…you have to read the article. They can make the payments. They just want to move away from a neighborhood that is so empty they don’t feel safe anymore. Can’t do that because nobody wants to move there. They borrowed responsibly and now they are stuck because of their irresponsible former neighbors.
RE: …guys you have to read the article…
“Over the last 18 months, the Egglestons have watched one house after another on their street, Gardenview Drive, end up foreclosed and vacant. Although lawns are still tidy and empty homes are not boarded up and stripped as they are in inner-city Cleveland…
Ummm….polly, why do houses, with “tidy” lawns end up foreclosed on or abandoned?
Ummm…I think the owners lost their jobs…like maybe to some Mexican factory that now makes the car batteries for the Motorcraft parts division of Ford!
And now the Eagleson can’t get out ’cause there’s no market for their $100k house.
And you notice that you are not being charged less for that battery even though the wages have been cut substantially
And now look out for all those Mexico trucks coming to the USA. Get in a accident with one of those “old but dependable, safe” trucks and try too collect? Good luck on getting a lawyer in dealing with a Mexico company. You just lost your case.
Northern industrial cities have been in decline for the past 50 years, long before NAFTA or trade with China.
50 years ago they outsourced to the southern and western states, then they got NAFTA and they outsouced to Mexico, but now even Mexico is running into problems since work is being outsourced to China.
The US manufacturing peaked in the 50’s when we were the only major country left standing after WW2, IMHO we will never be able to return to competitive commodity manufacturing. The whole US systems (education, attitudes (a HS degree will do), business, …) needs change. If you have a 4+ year college degree, rewarding jobs are available in medical research, finance, … I see the painful changes, wishing for the ’60’s & 70’s when good jobs were available even for a HS dropout! The problem is a high % of the US population would never get through the core courses needed for the high tech jobs in demand (calculus, physics, …). With comments like the average clerk cannot do basic arithmetic, lord have mercy understanding level 101 / entry level material. We could do the following items 1) Throw up the trade barriers like Hoover did in 1929, 2) Get schools, parents, business focused on leading edge technology, 3) Come up with another world beating invention like the PC, cell phones, … Or?
RE: rewarding jobs are available in medical research,
LMAO…Yeah, keep everybody alive until they’re 110.
Just what this country needs more of…the living dead closeted away in some nursing home while the Federal government foots the entire nut and taxes another generation to pay for it all.
A whole lot of those jobs that needed college are going to India & China. Its not just manufactoring jobs that are being sent over seas. Even Wall Street is outsourcing to India these days…
Dear Illinois Bob:
Actually, most scientists and engineers are having a harder and harder time making ends meet becuase so many science and engineering jobs are being handed to Chinese and Indian citizens. That’s why a lot of students don’t want to major in those fields. The pay isn’t high enough to justify the degree, and the future looks very bleak for us.
The thing about the cashier is irrelevant. There will always be low-wage workers who can’t do calculus or quote Aristotle. While it’s important for us to make sure our citizens are well educated, we can’t expect every single person to be a Nobel laureat.
The problem is not that we’re competing with people who are smarter than us in other countries. The problem is that we’re competing with people who are dirt poor and who can obtain opulent lifestyles using less than 1/2 of the money that we need just to be middle class. We absolutely do need to shore up our trade agreements. Globalization has proven itself to be a detriment to our health, safety, and prosperity.
Exactly, skrook.
Either we establish some sort of trade restrictions (only trade with countries that have the same health, environmental, labor standards, etc. as we do) or accept that we are quickly becoming a third world nation.
Education IS NOT and SHOULD NOT be the deciding factor WRT people being able to make a living. The problem is US citizens trying to compete with slave labor in dirty, poor, corrupt countries.
You can’t disinvent the world economy. We need to learn to live on the “flat earth”. Education, learn to save and work ethics are the only we are going to get ahead today. You are asking for a world that simply does not exist anymore.
a new paradigm? Have we eliminated war? “OK, boys, I sent all your jobs to China so that I could have this awesome estate in Malibu, while you’re all stuck on the street. Now take these guns and help me repel these Chinese soldiers landing on my beach. After all, we’re all Americans, aren’t we?”
Sorry the world is not flat, no matter how may books Thomas “Flathead” Friedman” sells. In fact if the world was flat then so many manufactures would not be rushing to $4 a day China. The world has always had those who want to make money by finding someone somewhere to do the work for less money, they are the ones who created the slaves and the serfs. Some fought against that, other just went along. Which are you?
Fight all you want it’s too late. What are we going to do cancel the world economy? How do we do that? Decree? You and I are competing with folks in India, China, Japan, Europe and South America. I am not advocating our current system I am just telling you there is no way to disinvent it. I don’t like nuclear weapons, however do you have a way to disinvent the technology? We have to deal with world as it exists and compete in it or fade away.
BP:
The world economy is just the current way of doing things. We do it that way because we decided to. It was a concious decision on the part of the US Congress. All they have to do is change their laws back to the way they were before globalization, and we’d have an economy similar to what we had back then. We need to reinstate tariffs and to force companys to pay for FDA/health inspections on imports from crappy countries. That would help a lot.
“We need to learn to live on the “flat earth”.”
Don’t forget “lower your quality of life expectations”, so that we can survive on 50 cents a day and be competitive with low-cost areas of the planet. A nice, cheap dirt floor and a communal “poop-pit” are all we *really* need. Then it will be easier for us to compete on the world market, as our workers can charge less for their labor.
Jeez! Every time one of these discussions start I cringe. Sooner or later, one of you geniuses on world economy comes up with a fantasy of yours that defies all imagination!
A “poop-pit”? Is that what you think you are competing against.
You are clueless.
There are people out there (typically in the countries you mention - India and China) who will do “your” job for a lot less. True.
But not for a “poop-pit”.
Show some respect man. People with college degrees who will take your job from you are actually working towards something much, much better than a “poop-pit”.
You aren’t looking at people working for a dollar an hour (yes, that’s the absolute bottom of the pay scale for any unskilled labor like in manufacturing, even in China). They are the least of your threats.
You are looking at a young generation of motivated college educated knowledge workers. (I won’t call them “scientists” or “economists” because those labels would probably be a bit flattering.) These kids will work long hours so they can take your job.
Maybe for $1000 - $2000 per month. Which is definitely a lot less than what you are making for it.
But it will definitely get them more than a “poop-pit”.
So, that’s what you should look for. And again, show some respect / decency to humans around the world. Maybe you don’t mean it that way - maybe you don’t poop.
How about they raise their standards to meet our instead of the U.S. lowering its standards to theirs????
“Education, learn to save and work ethics are the only we are going to get ahead today. You are asking for a world that simply does not exist anymore.”
If you think education, learning to save and work ethics are the only way to get ahead today, I think you’re living in a world that no longer exists. We’re in the age of outsourcing and war on savers, not the 1950s.
Right… The Fed has a policy of bubbles and bust celan up.
Screw working, saving…. Figure out what will be the next bubble. Be first in, get out in time, and leave the workers and savers a giant toxic waste dump to have to clean up!
The new, Fed inspired, American Way!
The only way America can get ahead today are 1) abolish all taxes, 2) implement tariffs to pay for the government, 3) abolish all entitlements including medicare, social security, and 4) aggressively reduce regulations that strangle business. Regulations increase operating costs and reduce competitiveness with the rest of the world.
Other than that, I invest aggressively in international stocks. I don’t complain about other countries dumping products on the U.S. I profit from them.
If it was not for Toyota, Honda, Datsun (Nissan) in the 1970s aggressively competing against Ford, GM, Chrysler, and AMC in the 1970s, we would still be buying cars that last only 3 or 4 years. I suppose the xenophobics want us to return to shoddy products. Let’s do it better: Build pyramids and pay people to do it. Just as much as a make work program as building shameful products that last 3 years. Pyramids last longer. LOL
The only way America can get ahead today are 1) abolish all taxes, 2) implement tariffs to pay for the government, 3) abolish all entitlements including medicare, social security, and 4) aggressively reduce regulations that strangle business. Regulations increase operating costs and reduce competitiveness with the rest of the world.
Raise tariffs on all the junk that comes here so we have to pay more? What kinda of nonsense is that? Get rid of regulations on businesses so they can pollute the air and water. More nonsense.
Raise the capital gains tax to 33% for everyone. That will bring in lots of taxes. Oh I know what you will say that will shut down mergers of companies. Well guess who wins then? The WORKERS as they will not be laid off while some Wall Street hedge fund makes millions tax free.
My first car was a ‘71 Pinto. My dad bought it used in ‘77 for my oldest sister. It was handed down to another sister, then it was handed down to me.
It finally died in ‘84 with about 180K miles. Sis that handed it down to me hadn’t put antifreeze in the radiator(we lived in socal, so need for antifreeze), the thermostat gooseneck rusted through. I smelled the water leaking out, but being a dumb kid didn’t know what was going on, so I ran the engine without water until it died.
In 84 I got an 81 Mustang. Drove that until ‘89 when the navy shipped me to Hawaii. Still a pretty good car when I sold it.
‘86 I got married and had a kid (not that order) and got an ‘83 escort wagon. Wife drove that until ‘89 when we got rid of the mustang.. then we shared it until ‘90 when we had a thrid kid and bought a ‘91 aerostar(first new car, bought using a military appreciation program that made it about the same prices as a 2-3 year old one!). I continued to drive the escort until ‘93 when we sold it when we left hawaii. (Navy will only ship 1 car)
After leaving Hawaii, in ‘93 I bought a ‘91 Ranger. I drove that until 2002.
We had the ‘91 aerostar until ‘00 when the wife totalled it in an accident. Ford had discontinued the Aerostar and te windstar was a toy that couldn’t tow our camp trailer so we bought an ‘01 Chevy Astro (first non-Ford. Dad was dissapointed in me.) Now ex still has that van.
In 2002 I divorced and moved from CO to AZ. No AC in my ‘91 Ranger, so sold it and bought a ‘97 escort sedan. Drove that until 2004 when I was run into by an uninsured driver that was arrested at the scene for an outstanding warrent. The car was totalled. I had liability and she had no insurance, and with her going to jail, no way I could colelct a small claim’s court ruling, so I was out.
I paid $5K on the car and only had it for 2.5 years. FIRST time I paid more than $1000 (for purchase price) per year I had a car.
After the accident, I bought an ‘03 ranger for $7K. 16 months old with 25K miles. I owe $600 on the 3 year loan. Now has 60K miles. I’ve changed the oil 8-10 times, a few light bulbs, and put on a new set of tires. Oh, and the air filter, raditor cap and battery.
I don’t see any problem driving it another 4 years, unless I get run into again.
Which year was it that American cars only lasted 2-3 years?
MAN I love people that only drive cars 2-3 years, then sell them. Allows me to buy a 2-3 year old car for half price!
americans can get ahead by abolishing war - a fraction of the money spent on war could be spent on the good of the whole - they are not entitlements - they are for the good of the whole - there was plenty of money and a surplus in Jan 19, 2000 - this mess occured after that - lower interest rates and raising value on homes gave people ATM houses to make the economy look good when in fact it was already bad and getting worse especially after we started spending gazillion dollars on paid mercenaries in a oil war
“If it was not for Toyota, Honda, Datsun (Nissan) in the 1970s aggressively competing against Ford, GM, Chrysler, and AMC in the 1970s, we would still be buying cars that last only 3 or 4 years. I suppose the xenophobics want us to return to shoddy products.”
B.i.P. — couldn’t agree with you more on this point! Those who say ‘globalization–worst idea ever’ seem to overlook this little detail…
My folks had a 1971 Ford Country Squire Station wagon they bought brand new. It was a piece of junk. My dad would say “Found on Road Dead” or “Fixed or Repaired Daily.” They had an LTD Sedan later. Also junk. Nice looking bulky 70s car though. They sold me their 1978 Ford Fairmont in 1985 at a cheap price of $1000. It had severe leaks in the power steering. I was going through a bottle of power steering fluid each week. Then I finally scraped up enough money to buy a Toyota Celica in 1987. Had it 10 years.
As for Affordability - the way to abolish war is by not putting your head in the sand when someone attacks you. Free people prosper because some fight for them. My father sacrificed his eyesight in world war II for your freedom and my freedom.
My folks had a 1971 Ford Country Squire Station wagon they bought brand new. It was a piece of junk. My dad would say “Found on Road Dead” or “Fixed or Repaired Daily.” They had an LTD Sedan later. Also junk. Nice looking bulky 70s car though. They sold me their 1978 Ford Fairmont in 1985 at a cheap price of $1000. It had severe leaks in the power steering. I was going through a bottle of power steering fluid each week. Then I finally scraped up enough money to buy a Toyota Celica in 1987. Had it 10 years.
As for Affordability - the way to abolish war is by not putting your head in the sand when someone attacks you. Free people prosper because some fight for them. My father sacrificed his eyesight in world war II for your freedom and my freedom.
hd74man
You did not bother to really read the article did you? They are selling because they feel the neighborhood is going down. They have no problems affording the house.
wmbz article ” Mr. Seifert and his colleagues have scattered plastic sharks on the lawns of regional Countrywide Financial Corporation managers, and organized protests outside their offices. “We have cellphone numbers of the folks in the ivory tower making decisions, and we can call them at 1 a.m.,” Mr. Jones promises the group.”
Man, the fun is just beginning!
BAD…
http://www.latimes.com/classified/realestate/printedition/la-re-qa2sep02,1,3024248.story?ctrack=2&cset=true
” Question: How can the federal government help moderate-income families who are about to begin foreclosure proceedings?
Answer: Change the rules of foreclosure. Instead of banks beginning the foreclosure process, owners should have the option to rent their house, at a fair-market rate determined by an independent appraiser. And they can stay indefinitely. The bank will own the house. This isn’t a windfall for the homeowner. But they’re not on the street. Whoever buys the house would have to deal with the renters, letting them stay. People have made mistakes and got bad mortgages; this could help them out.”
Forgot to add…”owners should have the option to rent their house, at a fair-market rate” would tighten up credit so much that it would make your head spin…yet another exhibition of the Law of Unintended Consequences. Who would loan out money if they had the good possibility of having their income stream greatly reduced by taking possession of the house and renting it out (possibly forever?)
” Instead of banks beginning the foreclosure process, owners should have the option to rent their house, at a fair-market rate determined by an independent appraiser.”
How about, buyers actually analyze cost of rent vs cost of purchase, and if it costs moe to purchase, RENT instead.
Hop in our time machines, go back about 5 years, and make a law that says every time the press prints “throwing money away on rent” they are required to follow it with 2 paragraphs on why that statement is completely MORONIC.
Now, home “debtors” WANT to be able to throw away money on rent… making payments less that reasonable interest rate on the crazy high price they paid?
In that case, no one would buy the house. The bank would probably end up going out of business if this idea took hold.
Hello everybody. This morning I went back to the Bits Bucket and Craiglist Finds for August 30 (359 comments). It took my cable modem connection about 27 seconds to download. I was at a friend’s house the other day and it only took about 2 seconds to download with his DSL connection. Could y’alls download that page to find out what y’alls are getting for speed? I am thinking of switching to DSL.
I want my
MaypoHBB and I want itNOWFAST!Thanks y’alls.
Got 10% down?
Can you upgrade your cable connection? It is almost instantaneous for me on cable. I am not sure what speed cable I have (5mbps mabey). I get the next to fastest they offer and my cable TV for $110/month. It is expensive but pretty good and fast. DSL is ok but, from my own experiences, cable is better. DSL is pretty fast if you are close to a telephone co. station but if you are out in rural areas it can be rather slow or not available.
you can get different levels. the highest comcast is 80/mo. mid is 45-50/mo….
I have had broadband cable for 5 years and cannot remember how frustrated I used to be w/dial up
Anyway, you need to up it from dial up because there are so many photos and things that take bandwidth. I pay about 45/mo for internet and I bundle it with cable (hi-def) so I get ripped off every month. I cannot go backwards, however and I think anything other than cable is back. Not sure how DSL is in comparison to cable.
http://speedtest.net/index.php
Try this, its fun to watch and it seems relaible
Cool website,
How does
2,555 kb/s download and
836 kb/s upload compare?
This in on a Qwest Digital Internet
Lip how much $ a month is your Qwest? And is it cable or DSL?
Cable and DSL in my area is about $27/m for an advertised speed of 1,500 kb/s.
They call it Qwest Digital TV & Internet = $69/2=$35/mo.
It comes into the house on the TV cable and works great. I live in north PHX.
1286up
317down
$19.00/month DSL (sbcyahoo)
DSL (Orlando)
3139 down
380 up
2nd from top-level service.
Lip. You’re gettng robbed. Possibly on poor signal strength. I also have Cox. ~$110 a month for cable tv, internet and telephone.
I scored 7842 downloand and 834 upload. I’m in Glendale, 56th ave and Tbird.
My last place I had slow connection. They said probably due to too many splits in my apartment so they put an amp on the line and it helped.
When I first moved into my current house I ran a dedicated line from the computer to the cable box on the side of the house for them to hook up. I wanted no spilts to drop signal strength.
I later had them come out to run a line for TV to another room. I told them to tap into the tv line, NOT the internet line. When I got home from work, I ran another speed check and I’d lost a little. I climbed into the attic, and yep, they tapped into the wrong line. I redid the line to go off the tv line and unioned the internet line back together to get max signal strength. Speed came back.
I live in rural CV Ca. and pay a bloody fortune for HughesNet (Direcway) DSL. (762 kbps…DOWNlink.) DO NOT UNDER ANY CIRCUMSTANCES even THINK about using this “service.” They make GTE (remember them?) look competent.
The. Worst.
Please tell everyone.
(Dang, that felt good.)
13722 down
2555 up
comcast
Yeah I have been playing with speedtest.net. When I use it with the recommended server (the closest) my cable connection is getting download speeds of about 700-900 and uploads of 200-300, but when I use the servers from California I get speeds of about 300d and 100u. My friend with DSL is consistently getting 1450d and 1400u from all servers in North America at all times. I think my cable company is contracting with a mediocre backbone connection provider.
I am using an earlier edition of XP home edition. MTU is defaulted to 1500 and RWIN in XP is dynamic (about 14600, or 10x my MSS of 1460). I am getting 97% data stream efficiency, so I am only retransmitting 3% of all packets.
Right now, DSL in my area is looking lots and lots better than cable.
Took me only a few seconds. And I have the lowest level DSL Verizon offers.
TCM- you omitted to mention that you cleaned the smut off your PC in between going to your friends house. That was what was really slowing down your connection. All that looking at “Realtor’s get desparate” sites will make you go blind y’know.
Seriously, Cable modem can be slow if many users are on the same community and using it simulataneously.
DSL on the otherhand, is much fast if you are near the central exchange. Its speed drops as it gets further away due to capacitive loading. I’m near exchange and get terrific DSL performance. During installation I’d got in contact with level 2 support at SBC and they even up’d my speed past that.
Greenspan flashback from 2004. He told everyone to go out and get an adjustable rate mortgage. Smart guy…
http://moneycentral.msn.com/content/P73977.asp
Russ, another t-shirt for you:
‘Assets are contingent; debt is forever’
I suggest modifying it to reflect official bailout policy:
“Assets are spending money; debt is forgivable”
“debt is forgivable”
I suggest:
“A fool and my money are soon partners”
Outstanding!
My T-shirt suggestion:
Sept 2007
Completed Redemption Withdrawl
Yep, just when mortgage rates were at historical lows the “Genius” of the FED tells people to go adjustable.
The “set up” worked, didn’t it? Many took the bait. Wall St boys made their big money, fees, etc. The rest is history. Any problems?
The Dogs of Real Estate
http://louminatti.blogspot.com/2007/09/dogs-of-real-estate.html
Two years worth of inventory around Portland, Maine:
9/6/2005 352
9/19/2005 394
9/29/2005 400
11/3/2005 425
12/5/2005 406
1/3/2006 352
2/2/2006 344
3/3/2006 345
4/4/2006 351
6/4/2006 409
7/22/2006 477
9/9/2006 467
11/5/2006 437
12/15/2006 355
12/30/2006 311
2/2/2007 269
3/2/2007 289
4/5/2007 321
5/2/2007 346
6/2/2007 379
7/5/2007 449
8/1/2007 446
9/2/2007 441
These are single family homes in Portland, Falmouth, Cumberland and North Yarmouth. Portland is based on three zip codes - 04101, 04102 and 04103.
Not much of a change there.
Are you saying Portland didn’t really have a bubble? I thought it did.
In News-Press (Lee County, FL) today: http://tinyurl.com/yumaye .
Recession b/c of Housing Talk/High Unemployment, other sectors hurting etc., etc.
I have a few students whose parents work in real estate; they have told me that times are very tough at home.
Not only that, but wherever you go there are “Facing Foreclosure, Call xxx-xxxx,” “5/2 home, 100% owner financing, pre-foreclosure, call xxx-xxxx,” etc. signs stuck in the ground at medians or around the big box stores.
There is even a billboard that says something like “Upside Down on Your Home? Call xxx-xxxx.”
We’re in for a long, downward ride.
Time to bring in the Doughnut Protection Team…
_____
Do Your Bank Account a Favor: Drop the Doughnut
By Michelle Singletary
Washington Post
Sunday, September 2, 2007; Page F01
http://tinyurl.com/2on2yq
Deborah McNaughton and Melinda Weinstein want us to face a simple truth: Many people consume too many calories and their unhealthful eating is costing them a piece of prosperity.
“Life would be a whole lot easier if our bank accounts grew and our waistlines stayed in the lower-digit range,” McNaughton and Weinstein write in their new book, “Rich and Thin: Slim Down, Shrink Debt & Turn Calories Into Cash.”
This mother-and-daughter team has come up with an interesting twist on the typical personal finance book. The two provide a guide to building wealth by battling the bulge.
people would rather spend money on a book on losing weight and getting rich and sit and read it while eating chocolate cake than go for a free walk and plan that next promising project…
Rich people eat at nice restaurants which serve balanced meals and drink fine wine.
Poor people eat at fast food joints that deep fry everything, and they drink soda.
Besides, poor people don’t need to stay in shape to look good on the beach during their Caribbean vacations.
Among the poor in GNV, looking too skinny raises the suspicion of crack addiction.
On a related note, if men really dislike “fat chicks” so much, then why do the juicy juicy girls have three to five children?
Storks?
Is this really necessary?…
The enormity of the house Arnold Chase is building on Avon Mountain isn’t fully apparent from the outside, where only 17,000 square feet of it lies in plain view.
It’s the two-level, 33,500-square-foot basement complex, complete with a 103-seat movie theater, ticket booth, concession stand, game room and music annex, that will make it New England’s largest occupied single-family home.
At nearly 50,900 square feet, the Chase home will be slightly larger than billionaire Bill Gates’ home in Washington, about 4,000 square feet smaller than the White House and 20 times larger than the average-size home in America.
http://news.yahoo.com/s/ap/20070901/ap_on_re_us/mammoth_mansion
So I take it this another variation of the “skyscraper effect”? Now we have the “mansion effect”. OK, we’re officially doomed.
And this is like a Biltmore estate in what way again?
Fed Governor Mishkin wants to hard wire future FFR cuts to declining home prices. It sounds like he is trying to lay a rationale for a FFR cut at the September FOMC meeting.
The FT writer infers that Mishkin is trying to indirectly tout the virtues of subprime lending, by suggesting it is a desirable ‘financial change’ which was ‘triggered by innovation and deregulation.’ Hummmm…
Mishkin urges swift action to any fall in house prices
By Krishna Guha in Jackson Hole
Published: September 1 2007 17:47 | Last updated: September 1 2007 17:47
Central bankers should ease monetary policy quickly and aggressively in response to a big fall in house prices, Federal Reserve governor Frederic Mishkin said on Saturday.
Presenting a paper on the final day of the Fed’s Jackson Hole symposium, Mr Mishkin said policymakers should not wait until output falls, but should “react immediately to the house price decline when they see it.”
He said the optimal policy response was both quicker and more aggressive than that suggested by a standard policy rule, in which policymakers respond only to deviations in output and inflation.
He said simulations show that this approach “can be very successful at counteracting the real effects” of even a large house price slump, because of the long lags from changes in housing wealth to changes in consumer spending.
That time lag gives the central bank “plenty of time to respond” to the house price decline.
In a base case simulation of a 20 per cent fall in US house prices, the more rapid and aggressive policy response halved the decline in gross domestic product to just 0.25 per cent relative to baseline after three years.
Mr Mishkin said he was not suggesting that getting the right response to a house price slump is easy, but that “monetary authorities have the tools to limit the negative effects on the economy from a house price decline.”
The Fed governor said housing and mortgage markets have not been “close to the epicenter of previous cases of financial instability.”
But he added “I would note that the current situation in the US could prove to be different.”
He said the recent experience with subprime loans fitted a boom-bust pattern of financial innovation.
Rapid financial change, triggered by innovation and deregulation, leads to a lending boom. This process, Mr Mishkin said, deepens the financial system and is “vital” for the economy in the long run.
But he said a lending boom can “outstrip the available information resources in the financial system, raising the odds of costly, unstable conditions in financial markets in the short run.”
The clear inference was that Mr Mishkin believes this to be the case in the subprime sector.
http://www.ft.com/cms/s/0/71958a68-58a7-11dc-b883-0000779fd2ac.html
On a few minutes’ reflection, I believe the most egregious aspect of Governor Mishkin’s speech is that, rather than acknowledging (even indirectly) that this misadventure of the lending sector into the subprime swamp was an unmitigated disaster, he plays the fool as subprime’s apologist. Nothing ever gets fixed if you don’t first notice it was broken!
“Central bankers should ease monetary policy quickly and aggressively in response to a big fall in house prices, Federal Reserve governor Frederic Mishkin said on Saturday.”
BTW, isn’t this exactly what the BOJ did in the early 1990s, just before they learned they were pushing on a string?
Mr Mishkin said that a central bank could “mitigate” the concern that easing monetary policy following the collapse of an asset bubble would make future bubbles more likely if it “publically emphasises that its monetary policy is not directed at stabilising any particular asset price but is rather focused on achieving price stability and maximum sustainable employment.”
—————-
In other words, he thinks that the way for the Fed to maintain its credibility is for them to lie about their motives. I’d say that’s just about a perfect summation of what they stand for.
This is re: Robert Toll’s comment about how people will catch up to Europe and pay 45-50% of their incomes for housing in the US. I’ve heard this from a number of people - I always ask them what they think this will do to the rest of the economy, since consumers will have no money to spend at Target, WalMart, or at the mall. How would that not translate into a total cataclysm for our economy? I’ve never received a reasoned response to this, just blankness. They simply never given one thought to the logical consequences of what they confidently predict.
Exactly, I’ve also made this argument. Ultimately, high home prices drain money from the general economy to service interest payments to lenders. That’s money that doesn’t get spent at local restaurants, retail stores, and other services. We would have much more diverse and vibrant economy, if house prices we’re much lower and people had more money to spend on other goods and services.
Agree. Also, when spending 40%+ of one’s income to housing, there is very little room for recessions/deflations, etc.
IMHO, unless we address the imbalances in the “globalized economy” we all must be prepared to see deflation across the board. Not good if the largest portion of your expenses is fixed.
To those in the southwest…hot enough for you? I just had to replace the two motors for my radiator fans that blew out on our trip…112 degree *humid* weather, with car full of kids (hence AC on full) in stop and go traffic on the I-15…
That can’t be good for home sales.
hang in there, arroyo, fall’s on its way, then you’ll be glad you’re in the SW. It was freezing cold up in N Montana when I was there a few days ago.
Phoenix is still hot these days. Usually it cools to the low 100s by now. Usually our monsoon is over with by now too. Last night was another thunderstorm. Anytime though the temperatures will break and flocks of people who disparage Phoenix will flood the already packed freeways to escape from the north.
Egads! My work is about to move to the east coast, but will insist on being back home in Phoenix every 2 weekends for a 3 day weekend!
That house is almost obscene in its size. Who would need such a big home? Then again given the average size of Americans maybe it’s a necessity, not an option (too many Happy Meals). I assume that the demographic buying this place is likely to pay cash at least. I think the people who buy the 5000 square foot Mcmansion on some wierd financing are the ones to laugh at. You buy a 5000 sq ft house but you eat cat food in your McHummer and you have to drink tap water since you can’t afford real groceries and you sleep on pillows since you can’t afford a bed because your AMEX is charged to the limit. You’re a district manager (managing God knows what) for some flunkie company and your wife/husband/whatever works for some weird pharmaceutical company and you make a combined salary of six digit figures but you have maybe $9.95 at the end of the month (or year maybe). You come home and your fat husband/wife/whatever scolds you for buying McDonalds last week and then the Hummer craps out and the toilet explodes and the electrical goes out because you’re too cheap to fix stuff.
This is probably how a lot of Americans live. I wouldn’t be too scared about hordes of former ‘middle class’ people coming to invade your house in the boonies when the real estate economy craps out. At first I feared that if housing went back to early 90s levels or worse that you’d have hordes of angry yuppies and rednecks coming to strip your house of everything. Now, given what I’m seeing in society, even if we had 95% drops nationwide I’m thinking the general population is too stupid and fat to even get away from the TV let alone try to strip the countryside.
YOu could probably get rid of a horde of them if you tossed a Big Mac down a cliff……look out below!!!
“Then again given the average size of Americans maybe it’s a necessity, not an option (too many Happy Meals).”
Excellent point! It is natural that bigger people need bigger houses and bigger cars. America is a growing country, after all.
“I see over-weight debt people”
The humor quotient is ratcheting up, folks…
Ben must put his foot down to get us out of this hole
By Liam Halligan, Economics Editor, Sunday Telegraph
Last Updated: 12:37am BST 02/09/2007
Page 1 of 3
Jackson Hole is an obscurely named mountain resort in Wyoming. Every year, it plays host to the week-long “Symposium of the Federal Reserve Bank of Kansas City” - in effect, the annual pow-wow of the world’s macro-economic elite.
Most years, it’s a relaxed affair - a chance for academics and central bankers to chew the cud. But this year is different.
Global markets have been in turmoil for almost a month. The fallout from America’s sub-prime mortgage debacle continues to spook investors.
Key figures at the big four central banks - the US Federal Reserve, the European Central Bank, the Bank of Japan and the Bank of England - have, of course, been in close contact. But Jackson Hole provides the first opportunity for them to compare notes in person.
It is vital they engage in honest and open debate. Above all, it is vital the US provides clear leadership. If it doesn’t, America’s efforts to contain this financial crisis will do nothing but sow the seeds of the next one.
Central bankers have so far have stemmed market panic by pumping in short-term liquidity. The Fed and the ECB between them have spent the equivalent of more than £100bn propping up investor sentiment.
The Fed, alone, has gone further, lowering borrowing prices at its “discount window” - that is, credit to banks in distress. And Ben Bernanke, the Fed’s chairman, has also hinted that America’s base rate may soon be cut.
Opening Jackson Hole on Friday, Bernanke said the Fed would “act as needed” to limit the “adverse effects that may arise from the disruption in markets”. Traders celebrated, with Wall Street clawing back a week’s losses and shares in London at a three-week high.
Parallels are being drawn with the Jackson Hole gathering of 1998 when Fed officials conferred before launching a series of cuts. Everyone in the markets wants - demands - that Bernanke cuts rates.
Last week, even President Bush waded in, making a mockery of independent central banking. Democrat presidential candidate Barak Obama made a (frankly illiterate
:-) 
) proposal that Federal funds be used to re-finance distressed sub-prime borrowers. Bush promptly issued a copy-cat response.
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/09/02/ccliam102.xml
Robert “Butthead Bob” Kiyosaki’s upcoming book:
Jackson’s Hole:
“How the Fed Blew it and other things I told you so that… you can be rich like me and then get even richer”
Prologue By: Jim “CramAs$” Cramer
Introduction by “the Automatic Millionaire” on why renters never become rich. LOL.
This article contains some very good points, but I believe the writer may have confused AG with McChesney Martin. If AG did say this, it was certainly at odds with his policies on the ground.
‘…(McChesney Martin’s) most famous quote about his central banking philosophy was, “The job of the Federal Reserve is to take away the punch bowl just when the party starts getting interesting,” referring to the need to raise interest rates when the economy is at its most active.’
http://en.wikipedia.org/wiki/William_McChesney_Martin,_Jr.
‘At times like this, we economists earn our spurs as “dismal scientists” by saying what is difficult to hear but what is right.
First, America’s mortgage market is grossly under-regulated. The bank affiliates and commission-driven brokers who extended billions of dollars of sub-prime loans to Americans with bad credit ratings should have been stopped.
The investment banks who rolled up these loans, and flogged them to investors in search of high yield knew they were playing with fire. The ratings agencies, too, who gave these so-called asset-backed securities triple-A stamps of approval, played their part in spreading this crisis around the world.
But it cannot be said often enough this is not just a problem of lax regulation, but of loose monetary policy. And the solution to a cheap money problem is most definitely not more cheap money.
Alan Greenspan once said that good central banking means “taking away the punch bowl just as the party gets going”. The former Fed chairman’s description was better than his practice.
Greenspan was notorious for solving market squalls by lowering interest rates. During the 1990s, Wall Street dubbed this tendency the “Greenspan put” - a reference to the complex derivatives used by investors to minimise downside risk.
The Greenspan put, of course, encouraged traders to pursue high-risk investment strategies because they knew the Fed would bail them out. This causes what economists call “moral hazard” - with Greenspan’s actions encouraging the instability he tried to prevent.’
Who benefited the most? Who made the money? Follow the money. End
From the NYTimes today about Whitestone in Queens:
http://www.nytimes.com/pages/nyregion/thecity/index.html
A middleclass neighborhood, that the middleclass can no longer afford.
I thought this was significant.
“From 2004 to 2006, New York experienced a net exodus of 330,000 people. Many were blue-collar workers, but there was also a net loss of salesmen, middle managers, technicians, engineers and other members of the middle class, heading to places like Florida, North Carolina and the expanding outer exurbs in the metropolitan area. For all that, Whitestone continues to be a place where families come, settle and stay, sometimes two or three generations living under one roof.”
So the crap about prices in Queens exploding because of growth pure B.S.
and this:
“But Little Neck, a tiny community close to the Nassau border, provided an opportunity. Last summer the Daniels bought a two-story co-op garden apartment for $267,000, converting one of the three bedrooms into a dining room.
“Things kept inching up, and soon we felt it would have been out of reach,” Ms. Daniel said shortly after the purchase, when the co-op was little more than bare white walls. “Kids are in our future, and we felt we needed something nice.”
So, now that prices are declining are the “buy now or be priced out forever buyers” going to realize they paid to much?
I go down to the Columbia River to walk on the weekend mornings. All summer long there were two houses were for sale about 1000 feet from the river. Last week one of them finally had a sold sign on it. This morning the sold sign was replaced with a reduced price sign.
I cannot wait to see the August real estate numbers. We will probably not get them until early October. That will also be when the banks start reporting their 3rd quarter earnings. If anyone has money in the stock market now is the time to get out!
I rent a house in a two-year-old neighborhood in south metro Denver that has been hit hard by foreclosures, and I’ve noticed something interesting happening to the demographics of our street as the crisis plays out. Our neighborhood is graying. Every single house that’s sold has been bought by a couple with grown children. Couples with kids are rapidly becoming the minority. We used to be over-run with elementary-schoolers! I think this is a fascinating side-effect of credit tightening. Anybody else see something similar?
BTW, seven houses out of 30 now for sale on my street. A sweet little property around the corner has now been on the market for nine months at 20% discount from what the owner paid in April 2006. It’s a great property: three bedrooms, three baths, wood floors, fully landscaped. At less that $200k, it should have sold a long time ago. Where have all the buyers gone?
Watched an episode of “Flip this house” last night. My wife and I were amazed how stupid these people were. FIrst of all, I wouldn’t buy any house that was remodeled by a flipper. They are in a budget and they get the crappiest materials.
One flipper bought an 1100FT house at Corona, CAA for $425K. His budget was 60K. He cut corners and ruined the backyard to put up a two car garage. He ended up paying around $80K of upgrades. Realtor came in to “appraise” it. Idiot Realtor. He basically said he can get it for $615K. The flipper told him to sell it for $599K All this time the flipper during the construction was worried about paying the first mortgage payment. RESULT: house is still in the market. He says that the market is “weird right now”. Okay this guy lived in a trailer, has a lamborgini, and probably has worked a day in hs life. I wonder how he even qualified for a loan. And he did make money, he will spend it the next day. ala lamborgini.
The next flipper was a couple that bought a beatup home for $325K. Lot was very tiny and the house was 900SQFt. Their budget was 25K. Ended up paying 75K in upgrades. Project was done in 4 four months so they had to oay 4 months of mortgage. They were desperate. Realtor came in and he “appraised” it and said it was wirth $495K. Dumb ass. The house still sits in the market. They don’t know if it is going to foreclose.
I hate watching these shows because these flippers are so arrogant but this episode was classic.
It was a Ferrari, not Lanorgini.
That drive-through garage to the new garage was a disaster!
Can’t wait until we get an “updated” on that one.
The second one was the updated from a year ago. A year ago it ended with $75K profit projection. After one failed escrow and six months paying mortgage, they took it off the market to rent it out for an amount that “almost covers the mortgage”… (I assume teaser rate that will adjust up in another year. Then the rent will be WAY short of mortgage.)
There second flip is going badly…
Their conclusion. They should not have bought the second house until the first had sold…. NO!!!!!!! Wrong conclusion!!!!
The run up in house prices was a ponzi scheme. First in made the money and first out kept it. Last in are the bag holders…
Look down people. THAT is a giant BAG of “you’re fooked” that you are holding!
But, it seems you missed the best. 3 guys flipping a condo in Downey. Plan was 2 weeks… ha ha ha… Much of the show seemed very “made for tv drama” like the new episodes of “Flip That House” and “Real Estate Pros”. One guy was the money man and others were the workers and thy had all this drama about the money many not working… ect.. blah, obviously fake, made for tv, false drama.
The end showed they’ve lowered the price several times, 4 more months of carrying costs, and they’ve lost at least $36K on the deal.. so far.
I don’t see how any of these flip shows can possibly be on the air a year from now.
If I were a producer, I’d start planning a tv show much more like “This old house”, but call it “Fix this POS”. Show really skilled people doing repairs to the new stucco boxes and horrid flip houses they got stuck with during the boom.
You people need to pay attention when watching your flip shows.
The guy living in a trailer but driving a Ferrari was the “lead singer” (how awful) of some headbanging group. But they will play Bar Mitzvahs, the idiot named Arthur, stated. That was “Flip That House”. He was in Downey, CA. He even made the statement, “this isn’t Beverly Hills. This is Downey” when explaining why he didn’t do more for the house. He joked about the fact that the town was not wealthy then priced his 1,200 square foot home for $599,000.
The other show last night was Property Ladder. That was where the 3 Chinese guys tried to flip a house in Garden Grove, CA. I think I’ve seen that referred to as “Garbage Grove” on this blog. The money man was a complete a$$hole. He believed in Feng Shui and his lucky numbers were 2 & 8. So he thinks everything has to have a 2 or 8 in it. The three knuckleheads did a crappy job and then asked an exorbitant amount. At last update the condo was priced at $352,280 and they refuse to lower the price further. That looked like a $130,000 condo to my eyes.
Conclusion: You Californians are really screwed.
I love Property Ladder this year. They’ve had some classic dumbasses on there. Usually they still make money, because the market wasn’t terrible at production time. But the flippers always say they’ll flip again, so you know eventually they’ll end up broke.
nice knowing that even the chinks are as greedy as us morons
now, now
“Fix this POS”.
LOL!
I’d love to see some of the folks from HBB get together and pitch a spec project called “Underwater… Horror Tales from the Housing Crash.”
The reality series would feature FB’s from a variety of backgrounds and economic situations and how they deal with their respective messes. (Drug deals, rich aunties, becoming a personal escort, planting a strawberry patch, suicide.) At the end of the season the viewing audience gets to vote for their fave who receives…a bailout!
Okay…they get to dance with Ted Danson?
Kind of like the “Flippers in Trouble” blogs that some HBB posters started (Max, Grim and OC renter, IIRC). Too funny!
LOL…
“DROWNING **DELERIUS** WILL SELL CHEAP”
http://sarasota.craigslist.org/rfs/411487976.html
My view is that the Feds should let the correction of prices take place in housing by having extremely tight lending programs. Than after the correction in prices ,you than offer programs to move the inventory, but keep the prudent lending standard in which people have to qualify and maybe even require insurance to protect investors putting up money for homes.
Right now its a dead market based on excess inventory and lack of borrowers being able to qualify at these inflated prices .
How can anybody expect investors to put up funds for loans in a market that is sure to crash in price ,(unless the goverment puts insurance on the loans and why would I want the gov. to do this when price crashes are in the cards .)
First the government has to determine just how price inflated the different bubble areas got ,now that they know that prices were fueled by speculators/flippers and unqualified buyers and fraud .
Than the government has to let the correction take it’s natural course instead of providing financing to
keep unstable prices high .The government can offer refinancing for qualified buyers who can really qualify for a FHA insured loan if they want in order to keep some borrowers from defaulting .
Alot of investors will lose money ,and alot of lenders will lose money , but so be it . Only if the prices go back to being in line with incomes will the taxpayers be spared a bail-out because these loans provided by the goverment would just default when prices fall as time goes by by lack of qualified demand .
Let all the people who feel they are victims ,sue if they want and this is the normal recourse if one feels they have legal points .Let the people that committed fraud get their due including tax liability on a 1099 debt forgiven loan ,( maybe cap it off on the max. liability that can be charged a person on the liability ). This way people will not be encouraged to walk on obligations thinking they get a tax free-be . With the exception of people who lost their job , most of the people who are defaulting on loans did not qualify to begin with and it was likely that fraud was involved on the loan application .
Let the crash take place in a brutal fast manner so that more bad loans are not made or set ups for tax funded bail-outs of bad loans . If current lenders want to re-write their own bad notes to prevent a foreclosure than let those lenders do so at their own expense and loss of yield . There are alot of creative things that can be done by these lenders as long as they know that they are not going to get bailed out by the government .
In the meantime while this correction is taking place funds will start going in a different direction because we already have enough housing to last for years .In order to save some of the vacant houses ,maybe the private lenders should get in the rental business until its pratical to sell the houses at stable market prices .
What a mess .
Let prices crash to below support levels.. like cost of rent and cost of construciton. Then change how appraisals are done on SFH to reflect “rent equiv” and affordability instead of current market.
Once the market has over corrected to the downside, then using rent equiv appraisal will cause houses to appraise above current market. This allows people TRUE instant equity and eases the need for a down payment.
We then start qualifying people based on their income and debt rather than on their credit score. Tooo many people will have WAY suck credit score.
When houses are cheaper than price of rent, people with sufficient income will buy up the excess inventory!
I would be willing to endorse 3 %to 10% down payment FHA insured loan if the market prices go down accordingly to affordable for the area incomes and the borrower really qualified .
Also , if the prices crash , they got to come up with some way to make sure speculators put more money down and pay a higher rate, as well as the investor being able to afford the property . Speculation buying was a big part of the current problem and those loans are the highest risk loans .
If you go below rental prices on the cost of a home , than to many speculators start to get in the market . Its ideal to be just slightly above rental prices to obtain a home IMHO . You have to take the tax write off into consideration also ,as well as the tax free capital tax exclusion up to 500K ,(if the Gov. doesn’t get rid of that benefit ).Those benefits,(including equity pay downs and a hedge against inflation ), will always make people willing to pay more monthly to own than rent .How much more will buyers pay for homeownership verses rent is up for debate .
I don’t disagree with you that home prices might crash below rental monthly costs ,but I don’t think that would last very long .
Wiz,
I think you’ve got some good ideas, but the way to curb speculation (esp. in CA) is to eliminate Prop 13/SOH protections for second & investment homes. Also, make 4/5 year requirement for cap gains exemption AND eliminate MID on second/investment homes.
Personally, I think the govt needs to stay waaay clear of this. No reason taxpayer money should be used to subsidize housing beyond Section 8 & other “affordable housing programs” for **rentals**. Homeownership should not be considered an entitlement, IMHO.
“…(unless the goverment puts insurance on the loans and why would I want the gov. to do this when price crashes are in the cards .)”
Sounds to me like a perfect way to suck tax dollars out of the U.S. heartland and ship them off to Wall Street…
“Let the crash take place in a brutal fast manner so that more bad loans are not made or set ups for tax funded bail-outs of bad loans.”
Good luck with that pragmatic suggestion.
Meanwhile, back at the Jackson Hole ranch, the Fed is already laying the foundation for the next crisis (which will naturally require a massive ad hoc bailout of Wall Street, courtesy of the ‘little people who pay taxes’).
Finally, someone is putting all the pieces together. Hat tip JMF:
First, having been there at the beginning, the genesis of the asset-backed commercial conduits was regulatory capital arbitrage. Through the conduits’ convoluted structures, banks were able to “lend” huge amounts off-balance sheet and collect fees on no-capital-required lines of credit. No one - and I mean no one - ever expected these conduits to move from off-balance sheet back on-balance sheet and I don’t think the market yet understands the earnings, capital and liquidity impact of this migration. If you figure you need anywhere from 6-8% capital per dollar of loans, then a move of $1.0 trln from off-balance sheet to on requires $60-80 bln in additional equity capital. I don’t know about you, but I don’t see this kind of free capital sitting around.
Second, I don’t think people appreciate the significance of the change in Fed policy that took place on Friday involving the brokerage affiliates of several money center banks. In the asset-backed commercial paper market, maturing commercial paper is normally either rolled over or replaced by loans from standby liquidity banks when it can’t be rolled over. With Friday’s change, it would appear that investors now have the ability to “put” unmatured commercial paper back to the bank affiliated brokers - who in turn will pass it along through the Discount window to the Fed….
Finally, no one is talking about it yet, but I think the market will soon begin to realize that the credit card lenders have in essence become the consumer lenders of last resort. As consumers have been shut out of the mortgage and home equity world, the last available credit is plastic. One statistic that I have found very troubling is the degree to which credit card balance growth is running ahead of retail sales growth - a key sign that the consumer is stretched….
http://www.minyanville.com/articles/TGT-SEC-Fed-credit-debt/index/a/13898
I’ve a buddy with a pregnant wife who really want a home but thanks to various circumstances, not the least of which I’d like to think are my admonitions, are renting a SFH in a neighboorhood in Colton, CA.
We did some sluething on the neighborhood using Zillow and found some interesting facts. His rent is $1500, but the homes have been selling for around $300,000. So he’s got quite a discount compared to the cost of ownership. But the landlord’s cost basis (provided no MEW) was only $80,000 in 1987. At the trough of the last bust (circa 1997), houses were selling in that neighborhood for $60k.
He’s afraid of the prices just flattening, but I explained to him our standard arguments. Mix that in with the facts that (1) his block has like 10 houses for sale (2 have bank-owned signs), (2) his landlord Realtor(R) has been sending him letters begging him to buy the house from him, and (3), there was a Zillow COMP DESTROYER(TM) in the neighborhood that sold at $150,000k. I told him I felt very strongly that that neighborhood would again see sales around $70,000 on an inflation adjusted basis, but that he’d need a stack of cash to capitalize on it.
If you’re in so cal, did you feel that earthquake?
yes — small jolt in santa monica.
Si. I was up from the PC and into the hallway in 1/2 second…
http://pasadena.wr.usgs.gov/shake/ca/
“The epicenter is near, and two miles beneath, the summit of Santiago Peak, the largest peak in the Santa Ana Mountain range east of Orange County.”
The Oh see..O.C. has a bigger shakeup coming soon, real soon!
you guys need to get the H-E-hockeysticks outta that area! read Marc Reisner’s “A Dangerous Place: California’s Unsettling Fate”
Utah also has its faults. Most of its people live right along the seismically active Wasatch Fault. The world is a dangerous place to live — get used to it.
http://www.seis.utah.edu/edservices/EES/WasatchFaultClock.shtml
My first earthquake!
Freaked out my cats.
You’re right, Salt Lake City is on a major fault line, geologists say it goes every 300 years and it’s approaching 600 since the last big quake. But I don’t live there. I prefer to survive and could never get used to living in a dangerous place, so I don’t, I live in W. Colo. where the biggest danger is driving on the freeway, which I rarely do.
Deal of the Week in Anthem, AZ
4,000+ sq ft for $627,000. ($156 per sq ft) This is gonna squeeze the one listed at $829K.
http://homes.realtor.com/search/listingdetail.aspx?gate=msn&source=a2mszh1t042&zp=85086&ml=3&mnp=33&mxp=32&typ=1&sid=85fe560f12b54386bb57b951c61248cd&lid=1085547910&lsn=7&srcnt=63#Detail
I would like to pose a question to those who have high FICO scores and have saved a sizable down payment or can do a have cash deal.
If the interests rate go down to “0″ are you willing to buy a home at the current sky high prices?
not going to buy until either happens:
a) mortgage cheaper than renting
b) prices going up again
Exactly — why buy now when (1) prices are falling, and (2) renting is still around 2/3 the monthly ownership cost? Makes no sense whatever…
Here is San Jose, rent is around 1/3 the monthly ownership cost (1/2 if you don’t count principle as a cost).
principal
No way, Jose.
nope - why would it make sense? especially if one has cash for a full payment - interest rates become somewhat irrelevant, other than affecting what people can pay and thus house prices
BJ, don’t forget this very simple rule. “Artificially low interest rates create artificially high prices.” It is much better to buy when the interest rate is at 15% than at 0%.
In what is coming we may get the best of both worlds. Lenders so burned, that few can get financing regardless of interest rates. Super wide risk spreads so even a 3% 10-year Treasury rate wouldn’t move mortgage rates down much. And that would be pretty radical since the bond never got to 3% even after the tech bust.
We are starting to see signs that this could happen. Subprime and alt-A have largely evaporated. Spreads on jumbos are very wide. Even Fannie and Freddie are seeing spreads on their guaranteed MBS and their own corporate debt starting to widen somewhat.
If interest rates go to zero, it will be because the economy is in a world of hurt. Despite zero percent interest rates in Japan, real estate values fell for 15 years, losing up to 60% of there value. Low interest rates don’t guarantee higher home prices.
“Low interest rates don’t guarantee higher home prices.”
Particularly so when:
(1) home price inflation has far outstripped wage inflation for years;
(2) home price inflation has gone into reverse;
(3) loose lending standards coupled with rising defaults and crashing MBS prices are giving investors cold feet about sinking more money down the mortgage lending rathole;
(4) public outrage over the mortgage mess has led regulators to vow to reform loose lending standards;
(5) 145 major mortgage lenders have “imploded” since late 2006.
Low interest rates don’t guarantee higher home prices.
———————–
As a matter of fact, I propose that low interest rates are a sign of a near top in prices, as the pool of buyers is largest.
More buyers qualify during low interest rate periods because low rates are a cause & symptom of loose lending.
If you have a high FICO score & decent cash position, you should be especially keen on buying in a high-rate environment.
When rates are high, money is in shorter supply, standards are tight. THAT is when a highly-qualified buyer wants to buy, IMHO.
Earth shaking news…STOP…flash to title:
When President Push isn’t busy wiping the Barbi-Q sauce off his face…he’s doing everything he can to “save” homeowners from themselves.
Hotel names room after Bush
The president ordered a romaine salad, shellfish ravioli and Wagyu beef short ribs from the steakhouse. Wagyu beef is considered top of the line because of its silken texture and rich marbling.
http://www.montereyherald.com/ci_6785748
“The suite, which features four flat-screen televisions, his-and-her bathroom vanities, and a jacuzzi-style bathtub surrounded by Italian marble, rents for $1,000-plus a night.”
Appropriate, 4 flat-screens, for someone with ADD.
Blast from the past: So long Griz…hello SUV’s
1903
A male grizzly bear is the last grizzly shot and killed in OC. Another Santa Ana Mountains grizzly, a female named Little Black Bear, continued to survive, but in 1908, on the San Diego County side of the county line, she too is shot and killed. Philip Stanton founds Bay City (future Seal Beach).
1900
There are only three automobiles in OC. The U.S. Census puts the population of OC at 19,696 with 60 percent of residents living on farms. Swedish immigrant Carl Segerstrom, founder of what will become one of OC’s wealthiest land-owning families, arrives in OC and enters bean growing. Construction begins on the new OC Courthouse designed by Charles L. Strange of Los Angeles. The courthouse cornerstone dedication celebration experiences a tragedy when balloonist Emil Markeburg falls to his death before 8,000 onlookers. The First Presbyterian Church of Fullerton is built. Only three automobiles are recorded in OC. Schools are closed due to a diphtheria outbreak. The OC Medical Association counts 12 physicians in its membership.
More bears. Less people. The answers are easy.
Fantastic observation: TRAILER PARKS CAUSE TORNADOES!
The Real Causes of the Financial Storm
By David Ignatius
Sunday, September 2, 2007; Page B07
PARIS — “Tornadoes are caused by trailer parks.” Norm Augustine, former chief executive of Lockheed Martin, coined that aphorism a few years ago after seeing one too many photos of mobile homes that had been devastated by twisters.
A similar misapplication of logic is now evident in discussions of the economic havoc surrounding subprime mortgages. These flimsy loan structures have been splintered by a financial tornado, but they were not the cause of the storm. For that you have to look deeper into the financial system, to the regular pattern of bubbles and binges that has been evident during the past several decades.
http://www.washingtonpost.com/wp-dyn/content/article/2007/08/31/AR2007083101534.html?referrer=emailarticle
Lansner’s article in the OC Register today.
Loan bailouts a hard sell
Columnist Jon Lansner reviews the sharp reaction against the mortgage bailout plan of Pimco’s Bill Gross.
http://tinyurl.com/36r2og
I know John lurks here on occasion - come on out of the closet John, we won’t bite - so here is my comment on what he had to say.
“The main gripe is that big government bailouts are bad policy and nearly impossible to sanely orchestrate. It irked folks that this kind of government aid may indeed reward certain folks who were literally gambling on real estate.
(Though, it’s funny that few complaints are ever raised when the government rescues folks who gambled on homes without earthquake insurance, or built on a flood-prone river bed, or perched a residence on a shaky chunk of soil. Can you say “Bluebird Canyon?”)”
Actually I did have a problem with the Bluebird Canyon bailout, but what I last understood on this was that was going to be no bailout. I guess I missed that one. Perhaps it was not as prominently positioned in my news sources as say “Median OC prices rise yet again” which always seem to get above the fold. So back to the topic of government bailouts in general. From this reader you will always get an emphatic “NO WAY” because I find such intervention revolting.
“To be honest, I can’t fathom what it’s like to be making a decent income, or two, in this town and be unable to make an O.C. home purchase. I was lucky. I started on the housing gravy train back in 1986, when local housing was simply a little pricey.”
Good for you John, really, I mean it. Believe me it has been difficult to be making a decent income and not be able to afford a home. Oh wait, check that. Actually, I can afford a home, I rent an SFR and I make it my home. Deciding not to purchase an overpriced property is a choice I make based on what I consider fiscal prudence. I am glad to hear you say you were lucky because it seems that real estate in CA has become a game of chance rather than something with fundamental economic underpinnings.
“Still, I can’t fully defend the “personal responsibility” logic of those who’ve been dubbed by some as “angry renters.”
Let’s see, why would you drop in the “angry renters” label. Hmmm, a stab and a twist perhaps. I’m ok with being an angry renter because what is going on here is certainly something to be angry about and being a renter means I am paying out of my pocket 1/2 to 1/3 of what those who chose to “buy now or be priced out forever pay. Oh, and then there is that nasty little reset issue, but I diverge so let me get back on track…”
“If housing’s too expensive for your wallet, don’t root against those who had the nerve to play the game. I cringe when too many of these critical renters admit they can’t wait for a housing collapse so they can buy into the market.”
Yes, housing is too expensive for my wallet and no I am not rooting against those who had the nerve to play the game (though it is interesting that you use the word ‘game’ here). I am hoping for a return to prices that are supported by economic fundamentals. To me that means that either my income comes up or prices come down so that a property acquisition would be roughly 3 times my annual gross salary. Or that properties that I have an interest in would have PITI costs in line with current rents. If you choose to call a return to prices that fall into those two metrics a collapse isn’t that an acknowledgment that prices are far too high? What is wrong with a correction in the value of an asset that become overinflated and disconnected from it’s fundamentals? And let’s look at that whole “playing the game” thing shall we? If I want to play games with my money I play the Lotto or go to Vegas. I do not do it with the largest purchase I may ever make. Nor do I think it is socially prudent for an entire segment of a country’s population to choose to “play the game” when the downside is so negative on so many levels. In fact I think it is selfish and juvenile and have no compassion for those who have done so and may now need to accept the personal results of their gamble. Insofar as me having to pay to soften their pain, hmmm, revolting. I am not rooting against anyone in this case. I am rooting for a return to some semblance of sanity and a movement away from treating what I consider to be the foundation of our communities as a “game”.
“Many people now in financial pickles with mortgages were simply trying to buy a roof and a front door and all the pride of ownership that goes with a home. Yes, they miscalculated. Some did so out of ignorance. Others, out of greed.
In many cases, it was more likely a noble error, not a reason for derision.”
What do we as a society wish to promote? By classifying the actions of those who put themselves in financial harm’s way because they were ’simply trying to buy a roof and a front door and all the pride of ownership that goes with a home’, when they should have realized that the could not afford to buy, as ‘noble’ is promoting the ignorance and greed that led them there. It is also promoting the host of misdeeds by those agents of the industry who enabled the ignorance and greed. I for one do not support the part of the collective community that promotes such values or lack thereof. I am part of the community that realized my fiscal limits, refused to cave in to emotional pressure to “play the game”, and continue to suffer the slings and arrows of outrageous name calling from the bulls in this arena. I am an angry renter. One who is most angry that such foolishness is being championed.
But as we all know it boils down to this, if you hold a mortgage you want your paper gains to remain and if you want to join that group you are hoping that prices correct. Unlike Mr. Watts, I have no crystal ball and so only time will tell where this is going to go. From where I sit on this fence eating Neil’s popcorn this train wreck is screeching downhill faster than I anticipated. Now that the delusional are seeing this for what it is and are trying to fabricate a band aid I wonder how many other Americans will find such actions revolting.
“(Though, it’s funny that few complaints are ever raised when the government rescues folks who gambled on homes without earthquake insurance, or built on a flood-prone river bed, or perched a residence on a shaky chunk of soil. Can you say “Bluebird Canyon?”)””
Mr. Lansner: Your argument has made me see the light! I plan to move immediately to an area with no quake faults, possibility of flooding, hurricanes, tornadoes, volcanoes, tsunami’s, deadly heat or cold spells, avalanches, or sinkholes. The only problem is I’m having a problem finding it. Please give me your “expert” advice.
And I agree that people made the best decision they could based upon the information provided. There was no greed involved - they bought a home not at all thinking it would appreciate 20% a year and they could just keep refinancing the house they knew they couldn’t afford.
We should provide a bailout for every buyer, flipper and “investor” who might lose money. In fact, to be totally fair, we should also bail out everyone (including me) who lost money in the NASDAQ of 2000 since we didn’t know enough to question the risks of double digit gains. You can just send the check with my losses to my house ASAP. Thanks!
I cringe when too many of these critical renters admit they can’t wait for a housing collapse so they can buy into the market.
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Was he cringing when speculators “snapped up” houses with NINJA loans, hoping they could scam a few hundred thousand dollars from the next idiot to “buy” his/her humble abode?
Why isn’t he decrying the morons & flippers whose sole purpose in buying a home was to pad their retirement by the sweat of some dumb fool who was willing to overpay for their “investment”?
Did W step into the subprime crisis because it was the right thing to do? No — rather it was to counter D-ratic candidate accusations that the White House is “out of touch.” My reading of the political tea leaves is that whatever the D-rats come up with to “fix” the subprime mess would be far more destructive than the White House’s symbolic band-aid measures.
Friday, 31 Aug 2007
Why Bush Stepped Into Subprime Meltdown
Posted By:John Harwood
After watching for weeks as the mortgage meltdown roiled the markets and squeezed homeowners, President Bush inserted himself directly into the matter today. It remain unclear how much his intervention will help investors, lenders or homeowners. But there’s no mystery about why he did it.
This one-time Harvard MBA is a free-market president. He’s also famously dogged in sticking to his guns. But he’s not blind to political reality.
He learned from his father’s unsuccessful 1992 re-election bid the danger of appearing out of touch with voters’ economic pain. He learned from his disastrous experience with Hurricane Katrina two years ago the costs of appearing ill-equipped to handle a crisis affecting Americans in need. Bush isn’t on the ballot next year but his beleaguered Republican Party is–with control of the White House and Congress at stake.
(Click for related content
White House Has It all WRONG On Subprime)
Moreover, the Democrats controlling Congress now return to Washington next week with a slew of proposals to ameliorate the housing crisis, from calls to raise portfolio limits on Fannie Mae and Freddie Mac to Democratic front-runner Hillary Clinton’s plan for a $1-billion work-out fund.
http://www.cnbc.com/id/20534457/site/14081545/?site=14081545
Humboldt: 1.2 million for a ocean view (not front) on 2 acres 3/3 built 1965. ZESTIMATE™: $365,513 and it might be right because houses next door just sold for 12/01/2006: $380,000 and 12/07/2006: $440,000.
Looks like someone thinks the prices in Humboldt tripled in the past 9 months.
http://tinyurl.com/25z2sn
This has got to be a joke. Does anyone have access to MLS for Humboldt County? Can you confirm the $1.2M price?
WBZ) CONCORD, N.H. A vandal with a can of red spray paint has hit a new home going up in a scenic section of Concord.
“No More McMansions,” one message said.
“Ticky Tacky,” said another.
The vandalism took place Aug. 20 and Aug. 21 in a neighborhood being built on Swan Circle off of Shaker Road.
Concord police said they usually are called to construction sites for stolen tools or materials, but not this time.
“This is definitely someone who doesn’t want to see the neighborhood built up or anything along those lines,” said Sgt. Mike McGuire. “They removed a couple of signs to throw them in a Dumpster, but nothing was stolen.”
Another message sprayed on the unfinished home said: “Stop Suburban Sprawl.”
The three-bedroom house will be finished next month. Now, it’s a wooden skeleton, and covered with spray paint. Every window, all 13, and some doors are painted with Xs or squiggly lines.
A huge smiley face was painted on a big window above the front door.
A plumber who didn’t want to be identified discovered the damage.
“I couldn’t believe someone would do this,” he told the Concord Monitor. “It costs you money to put the windows in, and it costs you money to clean them up.”
Last post.