Bits Bucket And Craigslist Finds For September 7, 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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So, it’s the dude show tonight.
I’ve been really wrestling over the whole deflation/inflation thing. I’m leaning toward deflation at the moment. I base this on my perception that no matter how much the fed or the treasury attempt to boost the supply of liquidity it won’t work. The only thing this will do is stave off the inevitable. J6P is about to hit the wall, consumption wise. Housing and the bond and stock markets are in serious trouble, and the biggest banks don’t want inflation because to them if more competition goes bankrupt, all the better.
Fire and Ice
Some say the world will end in fire,
Some say in ice.
From what I’ve tasted of desire
I hold with those who favor fire.
But if it had to perish twice,
I think I know enough of hate
To say that for destruction ice
Is also great
And would suffice.
–Robert Frost–
quit waffling around, for Pete’s sake, and make up your mind!!!
Didn’t we call it something like “stagflation” in the 70’s?
I’ve wracked my brains over this question an awful lot lately and I’ve finally decided on deflation. My conclusion is based on the fact that housing must come down, and with it, people’s ability to refinance and get money to buy stuff. Without being able to buy stuff, prices will go down.
The problem with the deflation camp is that it assumes the US Govt and most State and Local govts along with a large percentage of the US Corporate world and individuals will default on thier financial obligations. Creditors will in effect be left holding the entire bag, since the money owed will increase in value as wages drop and good purchases dry up. I suppose this is the equivalent of death by freezing. This may be the end game, and certainly most favor this to inflation of course, but my guess is that the govt will figure out ways to continue to keep the pump going as it has the past 6 years. Protectionist policies could be right around the corner as our political structure swings left, so even wages may rise.
GH,
You are correct. Thus they will do everything they can to inflate. I’m predicting two to three years of deflation and then we will see rapid inflation.
However, there is a catch… a dropping dollar will create inflation on imports.
I really hope we don’t see a lot of protectionist policies a la Smoot-Hawley… that will kill jobs faster than manufacturing could re-start.
Got popcorn?
Neil
I’m in the deflation camp too. A huge amount of the “money” created was due to dropping bank reserve ratio requirements. From what I understand the credit crunch completely reversed the trend, not by raising reserve ratios but destroying credit simply because banks are refusing to lend.
The only way the Fed can keep up is by way of helicopter, which won’t happen. So I’m convinced we’re going to see a situation very similar to Japan. We’ll see the FFR drop to zero as housing collapses. I don’t think the stock market will die in the short run because consumers still have the almighty credit card and are addicted to spending but the piper will have to eventually be paid. And if Countrywide or another big bank blows up then all bets are off.
But when the poo really hits the fan and credit card default rates mirror foreclosures, CC rates will jump. If people don’t have the Housing ATM they don’t buy cars and boats. If they don’t have credit cards they won’t buy new clothes and vacations.
I don’t think the credit card spending will out last a housing collapse by much. Credit cards were already highly spent (more so in recent months). Credit card companies can drop your limit to whatever your current balance is to protect themselves from more exposure to a poor risk.
AND credit card receivables are also securitized. As soon as the default rates on the cards start up, there will be a credit crunch in credit cards as well.
Does anyone know what percent of the credit card receivable market is securitized? It seems that the contracts are so flexible (allowing the companies to raise rate almost at will) that it would be very lucrative to keep them.
You can securitize credit cards while keeping the beneifits of the flexibility. Also, the problem wasn’t securitization of mortgages per se, rather it was securitization of mortgages with default assumptions that were much too low. It’s when loans exceed your assumptions that securitizatized loans become a nightmare. Some firms securitize what are effectively payday loans with something like 30% total defaults (and no recoveries), but if they set up the structure to ensure that even with that level of defaults (and higher levels), the high credit tranches are still exceedingly likely to get paid, then there isn’t a real problem (there may be a perception problem).
IMHO, deflation has to win out. In addition to the points already made (U.S. consumers so deep in debt they have no hopes of paying it off), we have globalization, a very powerful deflationary force. We’ve watched costs go down while wages stagnated (they were propped up by the extra boost from “equity extraction” & excessive credit availability, I believe). Now, we can look forward to declining wages while U.S. workers try to pay of the largest debt load they’ve ever had.
It’s fairly easy to see why the PTB would want inflation, just not sure how they would go about it…or they could simply convert our currency to something else at a ratio that’s very unfavorable to savers ($10 USD to $1 Amero) or????
Not easy to know what to do or expect.
I also worry that the globalization pressures on deflation are insurmountable. But there will be resistance to that pressure in the short term. The pressures on pricing due to the falling dollar (which would cause inflation or even hyperinflation) are just as strong as well as more immediate. Maybe what we’ll in fact experience is a rejiggering of priorities as housing and long term investment values deflate while food, clothing and short term sustenance hyperinflate.
The problem with your reasoning is that the people in the U.S. are not the only “people” who like “buy stuff.” There are approximately 2.1 billion Chinese and Indians who are discovering the thrills of “buying stuff.” Demand for housing (and prices) in the U.S. will decline. Demand for raw materials, such as wheat, gold, oil, etc. will continue to increase, no doubt about it.
Dude average Chinese/Indian make less than average Mexican in Mexico. This argument is way overrated.
I vote for deflation.
If money is borrowed into existence then bankruptcy and repudition of debts will cause its destruction. Billions can be created by the central banks but trillions will be destroyed by the markets. In a tug-of-war between the Markets and the central banks I’m betting the markets will prevail.
Deflation isn’t necessairly what we should want but it is probably what we will get.
Interesting times lie ahead, unfortunately.
There can be deflation and inflation of different sectors at the same time. The Fed can pump money into the system, but it cannot control where the money goes. Home prices can plummet at the same time that food and energy prices skyrocket. don’t be so sure that commodities prices will fall along with a US recession. There is alot of money sloshing around in Asia and Europe. The emerging nations are rushing out to grab raw materials like metals and oil/gas/coal. The world does not revolve around the USA anymore.
jerry from richardson,
I think you pegged it 100%
I agree that I think Jerry has it probably pegged. We do not have a crystal ball, but I think we could have wild swings up or down depending on sector or item.
YES. The huge, bloated M3 money supply is mainly in asset classes (RE and stocks) which could be used as collateral for further debt. IMHO the deflationary pressure from defaults will largely affect those assets and cause a credit contraction(which has begun). It is unlikely to have much affect on wages or the prices of consumer goods. In fact, there is a good chance that the price of imported goods will go up at the same time because of currency exchange factors.
“The emerging nations are rushing out to grab raw materials like metals and oil/gas/coal.”
Why are they doing this though? In large part meet the USA’s consumption demand for goods. When that demand goes down due to the starting recession/depression, the demand for the raw materials will go down with it.
That being said - you’re right that the world does not revolve around the USA anymore. There’s increased consumption all over - Europe, Asia, Latin America etc. I would say however that Europe will experience the same recession as the U.S., since they also have a housing bubble. Asia will experience decreased demand since so much of Asia’s economy is driven by U.S. outsourcing. I look for Latin America to probably fare the best in this coming downturn. From what I can tell (haven’t looked that deep) they’re not experiencing as much housing bubble, and also doesn’t have as much outsourcing of American manufacturing, with the exception of Mexico to some extent.
Why are they doing this though? In large part meet the USA’s consumption demand for goods.
Some of it is to meet USA comsuption. Some of it is to build their own infrastructure. The Europeans have a housing bubble, but other than that, they do not have the negative savings rate and huge national deficits. The next bubble will likely be in commodities - food, energy, industrial metals.
Already has been a nice run in commodity prices.
I see a two-tiered economy emerging.
The first, our tax-based, government-run society of rulers and subjects, will muddle along with a combination of inflated prices for goods and necessities, and USD deflation in the investment/pension sector.
Then there is the real economy, which is becoming more aggressive and more apparent every day; and that is the underground economy.
Rural Mexico has pretty much established itself in the US utilizing a system of barter, communalism, and patronage, for example. The fraud we’ve been seeing in the RE market is also an extension of that survivalist/opportunistic write-your-own-rules-as-you-go-along way of doing business outside of traditional governmental strictures. The recent years of corporate plutocracy have corrupted both our rule of law and our respect for its efficacy…it’s only reasonable that a more authentic system should arise from the growing underclass to take its place. Look for a rise in shortages, barter, negotiable pricing, under-the-table transactions, and outright patronage as the black market takes over our centralized power bases.
Me? I’m taking my seed crops and moving further up into the hills.
Rural Mexico has pretty much established itself in the US utilizing a system of barter, communalism, and patronage, for example.
Every new immigrant community establishes these systems — the Irish in the 1850s, the Germans in the late 19th century, the Italians in the early 20th century, various Asian and Latino populations in more recent years.
This is nothing new. In fact, these systems often help new immigrants become more prosperous (as small business owners, for example), and thus contribute positively to the economy as a whole in the medium to long term.
‘these systems often help new immigrants become more prosperous (as small business owners, for example), and thus contribute positively to the economy as a whole in the medium to long term.’
Sounds nice on PBS but it’s a load of you know what. I lived in the Rio Grande Valley of Texas for 5 years. There, 90% of health care is paid by the state. They have the lowest wages in north America and all the trial lawyers do everything in their power to have class action lawsuits filed there.
You can’t compare some periods of history with others, IMO. This isn’t the 1700’s US.
The historical perspective was just that, perspective.
I think some people who post here forget that we are a nation of immigrants — the route to citizenship and prosperity is often (though not always) similar across eras. You’re right; it is certainly more constant in post-WWII terms.
I’ll give you a contemporary example, however: Korean immigrants who pool their own money to create seed money for small businesses. This is a widespread practice in Asian immigrant communities, is quite successful, and is well-documented.
In terms of Texas economics, I don’t think that’s representative of the country as a whole.
Ben is correct. And you picked the group most successful in coming to the usa in the past 25 years. Hint: it has not been the mexicans.
My thinking is this:
As a rational, renting saver, I’d very much prefer for there to be deflation and a reduction in housing prices.
So bet on inflation.
Guess I forgot to throw “cynical” in there…
My vote is for deflation, because all the pieces are currently lined up for that to occur.
The Federal reserve and the financial industry it serves could go either way, inflation or deflation of credit and money supply, in order to benefit their own profiteering interests.
They could go in the direction of inflating the dollar such that most of todays mortgage holders will be able to pay off their debt, and there won’t be so many foreclosures as is anticipated. That assumes that inflation will translate to higher wages, and there is not good evidence of that happening now, or that it will be happening soon.
Or they could maintain the status quo which will likely result in deflation of the money supply through defaulting on debt, which clearly is going to happen unless there are significant rises in personal and business income and soon, which seems unlikely to me at this point. It means the banks have to sell the repossessed houses that they created credit out of thin air to buy, or just write it off. Either way, I think the financial industry is still making substantial profits out of all of this.
I suspect the fed is going to try to take some middle route. But unless inflation of money supply translates to inflation of wages, which is hard for me to imagine, then deflation of the money supply and thus increased value of cash is what this economy is positioned for.
It’s a really tough question because you have such powerful (and violent) forces opposed. On one hand, you have the natural force of markets against the central bankers that have generally (Greenspan) showed that their solution was inflation. Since you have one force that’s man-made, the ride and destination are unpredictable.
I think it prudent to have some gold around.
I’m going to cast an oddball vote, then explain. I vote for “evaporation.” By this, I mean that the evaporation of the immense mountains of credit which have been sloshing around causing price inflation (more “money” chasing the same limited resources => inflation) should halt or severely curtail the inflationary process. It will not, in and of itself, *cause* deflation.
The next step is important. If goods and services can no longer be sold at the inflated prices, then *theoretically* prices must be reduced to reach a new equilibrium. In reality, nobody wants to reduce the price of anything, not houses, not products, not services. We see this bizzare denial of reality in many markets currently, most notably the absolute refusal of the lenders to price the REOs to market. This resistance to normal market processes will, IMO, have an unexpected effect. Instead of trimming back, individuals and companies seem to be standing on a line, declaring that they simply will not go below that line, and holding on to that position until they are foreclosed, go bankrupt, or otherwise utterly fail. This causes *evaporation* of wealth both present and future, as some businesses or individuals might have pulled through if they had simply reconciled themselves to dealing with a changed market.
Now the goods and services furnished by these folks get pulled off the market when they fail - but so does their inflated demands for consumption. Under these circumstances, both the demand and the supply decrease (whether proportionally or not). Those that are still in the production-consumption cycle really take no notice of these disappearances because the production was obviously not needed, and the lack of consumption leaves more for everyone else.
Eventually, those who have been forced out of the market must make a choice: they can adjust their expectations and re-enter the market, or they can remain outside of the market. Assuming they eventually re-enter the market at a lower expectation level, with lower wages, with lower purchasing power, and lower consumption, then there may be some deflation. I say “may” because there may not be, depending on how many are able to remain in the market.
The question is whether there is a point where the “evaporation” effect becomes so extreme that a capital flight and panic scenario ensues. I think this is more likely every day.
At the end of the day, Home price deflation will be huge but the Sheeple Manipulating Ministry of Truth does not measure it.
Trillions of dollars will be lost just in Home and Land price deflation not inlcuding home builder market cap losses, bond value losses, job losses, and so on.
Anyone notice the dollar falling off a cliff this morning??
http://quotes.ino.com/chart/?s=NYBOT_DX&v=s&w=1&t=c&a=2
I think Jerry from Richarchson has it right, inflation or deflation can hit different parts of the economy at different time. Right now, it seems the Fed is inflating the financial’s by monetizing bad mortgages, and other nearly worthless bonds. Banks won’t put up their most credit worthy bonds (ie Treasuries) as collateral - they’ll dump the most toxic bonds the Feds can choke down.
“So you think that money is the root of all evil. Have you ever asked what is the root of all money?”
Ayn Rand
The root of all money is resources.
People like money.
I’d say it is a bad sign weighing in the direction of deflation when the Fed tries to hand out wads of cash through the discount window and nobody steps up to grab it…
bulletin
DOW INDUSTRIALS FALL 150 POINTS AT FRIDAY’S OPEN; WALL STREET JARRED BY U.S. JOBS DATA
THE FED
Little new discount window borrowing
By Rex Nutting, MarketWatch
Last Update: 5:04 PM ET Sep 6, 2007
WASHINGTON (MarketWatch) — Major U.S. banks apparently didn’t take advantage of the Federal Reserve’s offer to lend them money at 5.75% over the past week, Fed data released Thursday showed.
Outstanding loans from the discount window, also known as primary credits, averaged $1.1 billion for the week ending Sept. 5 and $1.1 billion on Sept. 5. The weekly average was down $212 million from the week earlier, while the Wednesday total was up $5 million from the prior Wednesday, indicating at least some minimal additional borrowing.
http://www.marketwatch.com/news/story/little-new-discount-window-borrowing/story.aspx?guid=%7BF40AE72E-080A-4F49-ACCF-60CFD739B397%7D
PPT made a good catch!
http://www.marketwatch.com/tools/marketsummary/
Looks like they might have bobbled the ball before the whistle blew, but 13K seems safe.
“Major U.S. banks apparently didn’t take advantage of the Federal Reserve’s offer to lend them money at 5.75% over the past week, Fed data released Thursday showed.”
The Fed can offer, but without willing borrowers, they can’t increase the money supply.
Anyone get the Wall Street Journal online (paid subscription). An article citing Greenspan prognostication on the current crisis, saying that it is similar to 1987 (i’m too young to remember) and the 1998 financial crisis. Me think this is worse than the 1997-98 crisis.
A repost of the WSJ article highlighting only interesting parts would be nice. I know there could be copyright issue here.
Cinch
He also compared the current situation to the land collapse of 1837 and bank panic of 1907. However, the real gem is his claim that bubbles are impossible to defuse:
The euphoria in human nature takes over when the economy is expanding for several years, and leads to bubbles, “and these bubbles cannot be defused until the fever breaks,” he said.
Bubbles can’t be defused through incremental adjustments in interest rates, Mr. Greenspan suggested. The Fed doubled interest rates in 1994-95 and “stopped the nascent stock-market boom,” but when stopped, stocks took off again. “We tried to do it again in 1997,” when the Fed raised rates a quarter of a percentage point, and “the same phenomenon occurred.”
http://online.wsj.com/article/SB118913318976220324.html?mod=hpp_us_whats_news
Sounds like he knows they’re oiling up the guillotine for him.
I’d rather it be rusty but functional.
The similarity to 1987 is striking.
Long term interest rates took off in the spring of that year, and you had a falling dollar due to massive U.S. deficit spending. But the stock market kept going up until August, as money moved from bonds to stocks.
Then stocks started trending slowly down, with some up days. Finally people realized the jig was up. After people got their third quarter statements showing losses, and after a bad Thursday and a bad Friday in October, everyone was nervous over the weekend, looking for the trigger for a crash.
The “trigger,” as I recall, was a minor Reagan Administration official saying perhaps the dollar falling wasn’t so bad afterall, or something like it.
But if that didn’t trigger it something else would have. The market had soared 25% from January to August in the face of declining fundamentals. After the crash, it ended the year unchanged.
What’s more, implicit in the argument is the current situation will be short-lived. It’s contained and there will no economic fallout. However, today’s employment data is ugly. The economy lost 4K jobs and previous month’s job growth were revised down:
Sept. 7 (Bloomberg) — The U.S. economy unexpectedly lost jobs in August for the first time in four years, raising the risk the economy may stall in the second half and serving as a warning for the Federal Reserve to lower interest rates.
Employers cut 4,000 workers from payrolls, compared with a revised gain of 68,000 in July that was smaller than previously reported, the Labor Department said today in Washington….
http://www.bloomberg.com/apps/news?pid=20601087&sid=ajhV9Gbe1GOo&refer=home
I’m trying to understand why they say this is “unexpected”. Who didn’t expect this to happen?
I don’t see how it could be unexpected, but it seems that the rate cut is a done deal.
Some of us have been warning about a recession for two years, but perhaps we were either ignored, or mistaken for stopped clocks.
Agree with PB, though I was convinced it would start in the second quarter and no later than the third (’07).
They say they didn’t expect it because they are liars. “All men are liars”, this saying has been in writing for at least some 2,500 years.
What did you expect? A good start to understanding politics is to put everything a politician says into the contrary.
And with the birth death model, that means we probably lost more like 90 thousand. Which also means that the revised July numbers mean, in reality, that we lost jobs then too. Anecdotally, there is a really great employment website for the Omaha area, and the number of postings in the last month have gone waaaaay down for Accounting/Finance jobs. And they were never loan officer, loan processor, etc, type of jobs.
The numbers don’t include illegal immigrants and the self-employed. Those were the first to go.
Ambrose Pritchard’s response to Uncle Al’s 1998 claim:
The shocking events of August 20 have no parallel in modern capitalism. A panic flight to safety caused the yield on three-month US Treasury notes to plunge at the fastest rate ever recorded, outdoing the 1987 stock market crash and 9/11.
What occurred this time was a near-total breakdown of trust in the $2.2 trillion (£1.1 trillion) market for US commercial debt, which lubricates daily business. People with a lot of money were even extracting their funds from bank accounts, suddenly deemed risky. The spill-over is global, as British house buyers will soon discover.
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/09/07/ccambrose107.xml
mrktMaven FL,
Brilliant article! Thanks for the link.
Hi Ben,
How come the Bits Bucket is so early?
He’s a slacker. Probably gonna sleep in tomorrow.
Ben sleeps?
He’s so on top of it, tomorrows blog and info today. wow
Greetings All…I’m up late. Ben will probably already cover this before I’m able to type it in!
http://tinyurl.com/2us2wg
Mike Larson, a real estate analyst at Weiss Research, noted that people who cannot make the higher payments will have trouble selling in a market where prices are declining and supplies are high.
“They can’t sell to get out from under their obligations,” he said. “As a result, more end up tumbling into foreclosure.”
Duncan noted that California had 17 percent of the nation’s subprime adjustable-rate mortgages — meaning the state’s problems are driving problems with such loans or the other way around. He predicted the situations in California, Florida, Nevada and Arizona would worsen in coming months, as declining home prices make it hard for borrowers to refinance out of adjustable-rate loans, the states continue to have high inventories of new homes for sale and they continue to shed their high percentage of investor loans.
“Therefore, the problems in these states will continue, and they will continue to drive the national numbers,” Duncan said. “But they do not represent a national problem.”
But the rising defaults in subprime mortgages have roiled global financial markets in recent weeks, sending stock prices on a roller-coaster ride as investors wonder which big bank or hedge fund will be the next to report huge losses from subprime mortgages that were bundled into securities and resold to investors.
Credit squeeze puts brakes on rates
By FT Reporters
Published: September 6 2007 19:31 | Last updated: September 7 2007 01:28
The scale of the credit squeeze on Thursday forced European central bankers to put a brake on interest rate rises that had seemed all but certain a month ago as they recognised the potential for the turmoil to hit households and companies.
The European Central Bank left its main interest rate unchanged at 4 per cent. Jean-Claude Trichet, the ECB president, said it was “appropriate to gather additional information and to examine new data before drawing further conclusions for monetary policy”.
For the first time in eight years, the Bank of England issued a statement alongside its decision to keep its official rate unchanged at 5.75 per cent, indicating it had a lower expectation for inflation in the short term and a commitment to monitor closely “the evolution of both credit spreads and the quantities of credit extended”.
http://www.ft.com/cms/s/0/a79b84b2-5ca5-11dc-9cc9-0000779fd2ac.html
The Europeans and I have parted company. The plan was go on renting, cash out, and hold Euros. The irony of choosing between shifty lying Americans vs Europeans vs Chinese is not lost on me. Tried trading on the DAX, but geeze, it’s so small your trades just sit there and the ECB has been doing some hinky stuff. So…took the leap, screw the currency calculations, I’m trading in Hong Kong. When the dust settles, that’s got to beat some deer-in-headlights USD money market account and the hours suit me. I wish I could think of something a little more secure, but right now doing nothing seems to be the riskiest of all. I don’t have that many working years left.
Swiss francs are 80% gold-backed….
Swiss francs are 80% gold-backed….
Wow P’Bear…combine our links and it looks like OMG.
It’s sad because my 90yo grams told me stories about the Great Depression. To think in her lifetime she might experience something as drastic again makes me want to scream. Sigh.
Hi Leigh,
My Grandma and Grandpa also told me stories about the Great Depression. When the dust bowl hit Nebraska and Oklahoma, they migrated to California, hopping and traveling on boxcar trains. They also said they didn’t want to live to see another Depression and they won’t.
Are they dying?
Nope. They died about 20 years ago.
Prior to the 20th century, financial panics seemed to occur about every 20 years.
One thing to remember about the great depression…
It was hell for the hoi polloi, but for those that had planned for such an eventuality, and had real wealth
Not so bad.
Thumbing through the advertising in a March 1936 National Geographic, I can book a first class cabin on the Queen Mary to Europe from NYC, for $216.00
Still can’t sleep.
http://tinyurl.com/2lavwe
In an article on Wednesday, the Financial Times pointed to problems in the interbank markets, where banks and major financial institutions lend to each other. Here interest rates are on the rise “suggesting a frantic scramble for liquidity among financial groups.”
This was “deeply unnerving” for policymakers and investors because it was taking place despite the massive injections of liquidity into financial markets by the US Federal Reserve and the European Central Bank—moves that were aimed at trying to calm money markets and ease the credit crunch.
The report cited one market analyst who stated that the interbank lending business had “broken down almost completely”, not only in the euro and dollar markets but across the world.
Concerns about the state of credit markets and the implications of the absence of liquidity were the subject of a statement from the European Central Bank on Wednesday. It warned that financial volatility was returning after a brief period of stability.
The ECB alert came as the Organization for Economic Cooperation and Development (OECD), which embraces the world’s major economies, issued a report warning that economic growth, especially in the United States, could be adversely affected by the financial market turmoil.
While the crisis had struck under conditions when world economic momentum was still strong, future prospects were more uncertain. “Downside risks have become more ominous, in a context where overall financial market conditions are likely to remain durably tighter,” the report stated.
Yeah…it gets worse if you want to read the rest. Cutting the info is easy…it’s the darn headaches.
Seriously…this seems dour!
And on that news, US stocks were way up!
“People are screwed.”
-Big V
if you think US stocks were way up, just look at the gold stocks … they have been listening closely to the ECB burocrats and have apparently decided that the future is inflation.
I thought “people are smart”?
Wait a second. You didn’t tell me this was from the World Socialist Website. I mean, I agree about the credit crunch and recession and all, but I don’t know. Coming from that site just makes it feel so cheap.
Sorry Big V. (Hanging head in shame).
I’m retired military and normally check my sources carefully.
Dang, now I’m probably on someones most wanted list…dang.
Respectfully,
Liegh
Relax, Leigh. We’ll put the guns away….for now. : )
Boy, even a broken clock…. Seriously, that sort is usually not too bad at pointing out the problems, it’s with their solutions that they wander off into Wickie Wacky tinfoil hat mode…
Is that the one called “Real Estate Decline?” It was a link somewhere, maybe here, a while back and had some pretty far-left links in it.
Whatever happened to the R-can party’s support for good old fashioned Conservative values (hard work, thrift, saving, personal responsibility, self reliance)?
Bush Plan to Help Homeowners Called Problematic
By Monisha Bansal
CNSNews.com Staff Writer
September 05, 2007
(CNSNews.com) - In light of instability in mortgage markets, President George W. Bush asked Congress to pass legislation to aid homeowners struggling with their mortgages, but critics say the plan does not address the cause of the problem.
“Bush’s proposals will make the system more vulnerable to problems in the future” because government subsidies in home ownership are part of the problem, said Dan Mitchell, a senior fellow at the libertarian Cato Institute.
http://www.cnsnews.com/ViewNation.asp?Page=/Nation/archive/200709/NAT20070905a.html
From the most recent issue of the San Diego Reader:
http://tinyurl.com/28agjn
“Mario is a recent immigrant from Mexico, and he’s typical of homeowners facing foreclosure. He doesn’t want me to use his surname; he’s ashamed of getting behind on his payments. He thinks he’s been irresponsible, and he wishes he had saved more money before buying. “If you don’t have the skill or the knowledge to make money to pay for a house,” he says, “it’s better to wait.” The problem is, Mario had neither the skill nor the knowledge three years ago when New Century Financial qualified him and his wife to finance a $410,000 home in Oak Park, with $17,000 down.
“Mario makes $3000 a month as a handyman, doing plumbing and electrical. He pays $400 a month on a 2003 car, so mortgage and car payment were eating up his income. Even with a job, his lack of equity and lousy credit mean that he can’t get anyone — he’s buttonholed every broker and banker he can find — to refinance his loan. Once he believed, per the loan broker’s instructions, that when his loan went “up a little” he could refinance. But such an option for someone who has, as the euphemism goes, “less than perfect” credit is unlikely. Mario knows now that he was put in a subprime loan, and he feels angry, cheated, and helpless.”
There are many stories in this piece. I’ve yet to read far into the article (SD Reader articles are always very loooooooooooong), but there’s sure to be some juicy and interesting bits mixed throughout.
Cato Daily Dispatch for August 31, 2007
Bush Will Offer Relief for Some Home Loans
“President Bush, in his first response to families hit by the subprime mortgage crisis, plans to announce several steps Friday to help Americans who have credit problems meet the rising cost of their housing loans, administration officials said Thursday,” reports The New York Times. “The officials said Mr. Bush would call for the Federal Housing Administration to change its federal mortgage insurance program in a way that would let an additional 80,000 homeowners with spotty credit records sign up, beyond the 160,000 likely to use it this year and next.”
In “Subprime Economics,” Cato senior fellow Alan Reynolds writes: “Journalists are trained to turn such topics as foreclosure into a tear-jerking human interest story in which people are always portrayed as victims. In reality, some were spendthrifts who refinanced bigger mortgages to get more cash to spend. Some were speculators hoping to flip houses for a quick tax-free capital gain without putting up any of their own money.
“Subprime borrowers who made no down payment already have a terrible credit rating, so they have nothing to lose by walking away if they can’t sell their homes at a profit. They were gambling with someone else’s money. When politicians use bailouts to protect borrowers or lenders from their folly, they just encourage more folly.”
http://www.cato.org/view_ddispatch.php?viewdate=20070831
Sunday, September 2, 2007
Mortgage rescue plans unpopular with some
Rising foreclosures lead to calls for government bailout of homeowners in trouble. That rubs some folks the wrong way.
By MATHEW PADILLA
The Orange County Register
As banks foreclose on more and more homes, some say it’s time for a rescue plan.
Wide ranging proposals are being tossed from Main Street to Wall Street to the Beltway.
President Bush on Friday said an existing government home loan insurance program should be expanded to help tardy borrowers.
http://www.ocregister.com/money/home-gross-say-1836978-percent-borrowers
(One final thought on a homeowner bailout: What about renters? Adibi argues that homeowners get all the tax deductions – on interest, property tax and capital gains – while renters get none. He argues Gross and others are essentially saying tax renters to help homeowners. “If I was a renter, I would scream and shout,” Adibi said.)
It’s more like tax renters, tax those who paid off their mortgages, and try to keep prices up for future buyers.
In order to help some bona find first time homeowners to overpaid in the bubble, and many speculators and HELOCers.
“Mortgage rescue plans unpopular with some”
SOME? I think there’s a term for use of wording like that contextually, but I don’t remember it. A form of very subtle damage-control by minimizing the appearance of the problem through misleading or outright inaccurate adjectives. Something sexier than, “Lying SOB.”
I think it’s called a hedge word.
Sunday, August 26, 2007
County foreclosures up 731%
All but four of Orange County’s 84 ZIP codes had one foreclosure or more last spring, compared to 29 ZIP codes that were foreclosure-free a year earlier, new figures show.
By JEFF COLLINS
The Orange County Register
Lenders foreclosed on just two Lake Forest homes in the spring of 2006. But this spring, the number jumped to 37, making the city’s 92630 ZIP code No. 1 in foreclosures in Orange County.
The city isn’t alone in seeing an explosion of foreclosures, a recent analysis by First American CoreLogic shows.
All but four of Orange County’s 84 ZIP codes had at least one foreclosure in the three months ending on June 30, with an average of 10 foreclosures per area, according to the Santa Ana real estate data firm. A year before, 29 ZIP codes – more than one-third – were foreclosure-free, with an average of just over one foreclosure per area.
http://www.ocregister.com/ocregister/money/article_1821108.php
I can’t sleep either. NYTimes article about real estate agents getting out of the business
http://www.nytimes.com/2007/09/07/business/07agents.html?hp
Great link. I actually took a real estate course in FL in 93. I just don’t have the stomache to do what it requires. Finished the course (which helped me on a personal level) but never wanted to get the license. Thank gawd. Not to knock the profession–just not for me : )
great confession to make on this blog
I did it TWICE- yup, took the course 2x, once was free (the college I worked at offered RE classes) and I even took the test, but never applied for the license. I think I was just bored
I know a Floridian who never took a real estate course. There might be a second one, but I didn’t ask.
“It was intuition that prompted Sonia Montana, 48, to abandon real estate three years ago and take a job selling life insurance in South Florida.”
Let’s see, from RE agent to Life Insurance salesperson. God I love my job!
I think most people regardless of creed, country or race are just trying to forge a life for themselves and their children. Is it necessary to slam them for it, irrespective of what they do or the circumstance that they put themselves in? Even in light of this massive ponzi scheme that we bear witness (observer like me), we should have understanding even for the most undeserving. Okay, I had a little too much to drink.
Cinch
Sorry, I’m not a big fan of people in those and similar lines of work. Call me prejudice, but I think they’re all cut from the same mold. I don’t think I have to be understanding of them either, I just stay clear of them. Now, go back to your booze.
““It was intuition that prompted Sonia Montana, 48, to abandon real estate three years ago and take a job selling life insurance in South Florida.””
One step forward, two steps back?
http://tinyurl.com/265cj2
And the lawsuits are a coming.
A Delray Beach investor, who claims he was lured into investing thousands to salvage properties facing foreclosure, has filed suit against a Broward County foreclosure rescue company to recover his money. (cont’d)
Good lawd, $700T debt…and stupid people want *justice* for dumb decisions?
Damn, this sucker still has money for a lawsuit! I thought we fleeced him for all he’s worth.
Hovnanian Reports 4th Loss in a Row.
Friday September 7, 12:18 am ET
By Janet Frankston Lorin, Associated Press Writer
Hovnanian Reports 3Q Loss, Its 4th in a Row; Announces Deep Discounts Nationwide
NEWARK, N.J. (AP) — As economic reports continue to show a struggling housing market, earnings figures from another luxury homebuilder Thursday did nothing to contradict them.
Hovnanian Enterprises Inc. reported another loss in the third quarter, citing continuing problems of credit availability and high inventory.
While the long-term housing market looks bleak, Barron said he doesn’t see Hovnanian going into bankruptcy.
“They’ll probably end up being a smaller company than they currently are, but at this point I don’t think there’s any indication that they’re in trouble.”
Hovnanian also blamed the tightening of lending standards in the mortgage market beyond those made to subprime lenders.
“This is leading to a further reduction in the universe of qualified buyers for our homes,” he said.
Bwhahahahahaha……..and of course………..
In after hours trading, shares rose 48 cents, or 4.22 percent, to $11.85 Thursday.
http://biz.yahoo.com/ap/070907/earns_hovnanian.html?.v=3
Like Lennar, Hov also promised to slash prices. Expect other builders to enter the melee. The price war is upon us.
Beazer next..
http://www.cnbc.com/id/20638851
1960’s: Gas price wars @ gas stations (incentives also included blue chip stamps, encyclopedias, glasses, dishes, etc)
2000’s: House price wars @ home builders (incentives include granite countertops, in-ground pools, landscaping, stainless steel appliances, etc)
“1960’s: Gas price wars @ gas stations (incentives also included blue chip stamps, encyclopedias, glasses, dishes, etc)”
Hey I remember that - well at least from the early 70’s (I was born in ‘67). I still have a dish my parents got from a gas station from that timeframe. It’s quite a keepsake IMO. I wish we still had the cheap glass mug set - it would probably be quite a collector’s item.
I remember those 1960-64 gas price wars well — most of us would buy $1 worth, because that’s about all the money we had. Prices would hit 19 cents a gallon in Orlando, and that was with full service. Normal prices were more like 25 cents. Life was good and it was a great time to be a teenager.
Octane was a lot higher, too. I think normal high-test was 98 and one of the brands (Sunoco?) let you dial your own octane, with I think a penny’s difference in the price for each.
Yes, Sunoco, with the big dial on the side of the pump (he said, dating himself severely). It probably adjusted a mix between high octane and regular, but it wasn’t marked in octane ratings as I recall—the range was something like 190-270, which seemed to me even then like too much choice (let’s see, will the car run better if I move to 240 from 230?)
Why the hell doesn’t someone just hit the re-set button already by raising interest rates to 15% for a few years to clear out all the crap?
Sure there would be lots of pain but it would help get the economy back to more of a solid foundation.
This just maybe encourage the average citizen to be a saver once again.
Save towards a down payment, on a house perhaps?
Tinfoil hat conspiracy theory time.
I just wonder if the average American citizen has unknowingly been used to help drive a deep wedge into communist China?
Americans encouraged to spend via the housing ATM so that the poor farm worker heading to the factory can get a taste of consumerism and the glitz and glam of the modernizing Chinese cities to eventually want to see the overthrow of the ruling communists dictators.
The defeat of communist china without a shot being fired.
WOW. I vote you for President of the USA!
I thought I must have lost my mind…isn’t that what the Fed is suppose to do during inflation…raise the interest rate?
A mind of reason. I appreciate the exchange.
Respectfully,
Leigh
Not exactly. What the Fed is supposed to do is, when there is no inflation, create some. Try to maintain it along at a rate in which debtors and banks gain, and the consumer, like frogs in a frying pan, do not notice the value of their savings every year are evaporating.
Dude, is your tinfoil hat on dope or on steroids?
If the Fed raised interest rates too much they would be in the same position as anyone who actually “does something” which upsets the powers. There would be no more invitations to the White House parties. No more dinners with foreign dignitaries. No more (useless) awards. Why do you think the main US media does such a bad job of reporting? A bunch of highly groomed cloned anchors, hair perfect, picture perfect, filling the airwaves with bland deodorized crap because they are basically the publicity arm(s) of the government. The news one gets in the US is a joke. Safe and santitized. Washed and cleaned by the editors. Anything which might cause controversy is either ignored or gets little air time. Just look at that stupid ABC phrase, “And now tonites news in depth.” (lol) I once timed the “News In Depth” section. It lasted 1 minute and 35 seconds. What a joke. The news editors, anchors, the big boys at the Fed and those who run the various government agencies are making out like bandits money-wise. They are looking after and protecting their territory. They have an unwritten motto: “Don’t Upset Anyone.” If anyone dared to suggest they do something to solve a problem…..do you have any idea how many meetings on the hill would follow? Nope. Best not to face the music and make hard choices. The US will just keep sinking further and further into the quicksand.
Of course, the MSM is paid by advertising revenue by companies that want to keep selling us junk. Therefore, it is their best interest to pressure the MSM to put a happy face on everything so we keep flocking to the next “sale”.
Just my .02 cents worth.
Yeah, personally I look to the profit motive, which explains plenty, before resorting to the conspiracy theories.
Don’t forget ABC (Disney), CBS (Viacom) and NBC (General Electric) are now owned by corporations.
Dont forget, the main networks ABC (Disney), CBS (Viacom) and NBC (General Electric) are owned by corporations.
Oops. Sorry for the double posting.
Oh, no wonder Laura Bush keeps standing me up for our manicure day.
Why would our corporate betters deign to spread actual, supported, non-biased information which would show them to be the greedy, slimy, sob’s they are, and possibly - jusy possibly - jolt j6p from his couch, out to door, to the nearest demonstration?
Owning the airways has its rewards.
Don’t worry, the Invisible Hand is about to push the reset button, unfortunately, it’s the button back to the 1930’s.
to me it looks more like the prelude to the Weimar Era that was a few years earlier ….
(Shudder.)
That’s not a good thought. Hopefully it doesn’t get anywhere near that bad.
“Americans encouraged to spend via the housing ATM so that the poor farm worker heading to the factory can get a taste of consumerism and the glitz and glam of the modernizing Chinese cities to eventually want to see the overthrow of the ruling communists dictators.”
I was thinking in the opposite direction, that corporations would want the US worker to model themselves along the lines of the Chinese worker. Imagine how convenient it would be not to have to spend all that money on pesky import charges. Imagine how wonderful if Americans would just knuckle under, take a factory or farm job, work 10 hours a day at least, do their group calisthenics in the morning, keep their heads down and work for the glory of the corporation. Really, why do you think illegal immigrants from south of the border are held up to Americans as examples of how to work and live? Think that’s not propaganda?
In China, there are groups of people in rural areas who are very pissed off that their land and air is being polluted. They prefer to live in the country and make their own way and the gubmin is preventing that. I also saw a PBS special on some Indonesian islanders who have led a nomadic, somewhat carefree existence for centuries. They were isolated, but when the Indonesian government came across them, the government started trying to starve them out to work at making and selling souvenirs to tourists.
Governments and corporations are a$$ in glove.
I’m not the brightest crayon in the box, but wtf…this math does not make sense…aspirin.
http://www.jsonline.com/story/index.aspx?id=658418
His [Duncan] comments followed the association’s grim news that 5.06% of America’s mortgage customers are behind on payments and 1.4% are in foreclosure. Wisconsin has a lower incidence of loan delinquency - 3.99% - but a higher incidence of foreclosure - 1.6%
The math is right. The presentation is a little muddled. Read “loan delinquency” to mean “behind on payments.” Now make a little table.
America Wisconsin
behind on payments 5.06% 3.99%
foreclosure 1.4% 1.6%
Now keep in mind that delinquency is not foreclosure. Delinquency is when the bank is still trying to make money off of the borrower (and gets some bonus fees). Foreclosure is when the bank has given up on the borrower and is trying to get its principle back.
Did I miss a day? I must have vertigo from the rapid downward spiral in the housing market.
In other news, Barcelona’s mayor is using San Francisco and Seattle as models for his city’s future. Doing a good job too, has the disconnect between wages and housing affordability that rivals the originals.
(per Bloomberg).
“Barcelona’s effort to transform itself into a hub for software, computers and design rivaling the U.S. West Coast may be jeopardized as the rising cost of living outstrips salary gains. Housing prices have jumped 43 percent in the past three years, compared with a 9.5 percent increase in average wages…
Yet wages haven’t kept pace with living costs because demand for new jobs still outweighs supply, with unemployment running at 15 percent among Spaniards age 20-29.”
Don’t miss this story in Fortune’s Small Business Mag (Sept 07) edition of a couple (husband has a somewhat nefarious past) who are cleaning up by providing “real estate college” at $16k tuition. Its a take off on Kisaki, working a job will not get you anywhere in life, you must succeed by using lots of debt to leverage yourself into multiple property ownership positions. You should see the retards who are falling for this and where they are scooping up their deals. The hubby that started this company, another oddly tan man, is doing so well that he bought wifey a $100k Elton John signed piano. Next up, they plan to open up a real estate seminar Disneyland.
http://tinyurl.com/32v8nb
Don’t miss this one. Details on a Santa Ana librarian who is now millions in debt and on and on.
Un-effing believable. I’m truly speachless. Got aspirin? gawd.
A friend of mine bought two condos in Phoenix for $265,000 with this group in 2006. Essentially 100% financed. NR promised a 5% return on his $300 investment for the first year. Wow, that is $15! I could not even talk to him about it, I was so stunned. The group guarantees the rents for these 2 Bd 2 Ba units for 12 months. I am afraid to ask him what happens next…..
He’s right. You don’t have to work when there are so many gullible sheep to be sheared.
My husband just filed three trademarks for people like this. Hell, it may be the same people; I don’t know their names. They’re leaving today to do a “cruise seminar” with a bunch of fools.
We charged em 2K per mark in legal fees plus the filing fees and they paid without a peep.
About five times what I paid a year ago.
I seem to remember Casey “Snowflake” Serin spending some time in the Phoenix area topping up on his “education”. Wonder if this was the course.
Fools and their money… (in his case, it was never his money, anyway).
Yes, it was. I find it darkly amusing that the only naysaying quote is from him, and quickly “rebutted” by NRU. And he may not have actually bought through them, but he talked them up a lot.
(I’m just boggled by the name. Dude. It’s an *insult*.)
Wow. Makes Kiyosaki look realistic.
The tuition at Noveau Riche University is $16,000??????? Good God. And people actually pay it???
Good Lord, this whole article just makes me cringe. I can’t believe this is still going on at such a high level. I’ll freely admit to temporarily drinking the Kiyosaki Kool-Aid, but it only took about 5 minutes to realize anything you could learn from him was just Basic 101.
The problem with these gurus is they take an element of truth and distort it with so much hype that the average Joe doesn’t take the time to sort out what’s reasonable and what isn’t. Again, how do you think I know this?? : )
Having done some creative real estate investing myself, I can say that when it works, it’s a work of art. I love it. But when it goes wrong, it can go wrong in a big way. I actually feel bad for these “students,” because I know what’s heading their way. I’ve already been down that road, and it ain’t pretty.
Nouveau Riche University has recently been advertising on the El trains in Chicago.
The Vu he used to do
http://www.youtube.com/watch?v=F9rkyyzoqI8
Not trying to be too picky here (ok, I am) but just because someone works in a library does not make them a librarian. Librarians have to have master’s degrees, whereas there may or may not be an educational requirement for any other job in a library.
She may be a librarian, having a master’s certainly doesn’t make one financially literate, but usually if someone is a librarian the article would usually use that title instead of saying she worked in a library.
So sayeth the MLIS from UCLA.
Hovanian…
http://biz.yahoo.com/ap/070907/earns_hovnanian.html?.v=7
I’m reading “The Forgotten Man” (Amity Shlaes)a perspective of the Great Depression. “America’s Great Depression” by Murray Rothbard, is a great read. Rothbard wrote a masterpiece IMHO.
Both books were from this source, and I wanted to say Thank You. School didn’t do The Great Depression justice. It should be a class in itself.
Thanks for that, wipeout, I’m going to check on those two books. I’d like to read them for any helpful hints on survival.
“When Technology Fails”
Spoke to a friend and I found out that he bought right before the peak of the bubble in the 1980s. He was young and bought with a friend and became a landlord when they couldn’t flip the property. Just found out that he bought a place with an IO loan which he will retire when he sells his current place. This guy has a massive income so I don’t worry too much about him but it appears to me that this real estate “bug” can be pretty addicting. It took him 10 years to get out of his first flip at the cost of their down payment (5% I think).
After reading az_lenders comments yesterday I wondered if there are any reasons why you could not make an offer on a house contingent on you not accepting another offer on a house.
The idea would be to word the contract so it was obvious that you were offering on 20 houses and were going to take the first one that met your price.
A dutch auction run by the buyer!
“This offer good for 48 hours from date and time of Buyer signature. Also, this offer is immediately null and void upon acceptance by Buyer of any other offer on any other property within said 48 hour timeframe.”
Or something like that. I’ve done something similar.
In the early 90s a friend of mine wanted a horse farm near Warrenton, VA. She prepared offers on six or eight of them, put a chunk into the RE escrow account and ordered the offers by her preference. She authorized the agent to disclose to each offeree that if the offer was not accepted within 24 hours, the agent was to present the next offer. About the third one, she got it, and got a relative steal.
Sounds like a good business for down markets. Write up the contracts and offer your services as a consultant to buyers helping them organize the bidding process.
Remember to give Steelcurtain67 those royaly checks.
august job numbers out -4000
june and july revised downwardover 20k each
Looks like we might get that rate cut in a couple weeks which unfortunately will be followed by a recession. S&P Futures skidded 10.5 points on the news.
USD just went into free fall against both the Euro (down .5%) and the Yen (down 1%).
actually all the big fiat currencies are in free fall from yesterday; the US$ is just dropping a little faster than the euro but not by much, relatively speaking.
Posted above, here it is again, cringe.
http://quotes.ino.com/chart/?s=NYBOT_DX&v=s&w=1&t=c&a=2
nhz, can you explain?
if they are all down, what are they down against?
Looks like the economy might be headed into reverse. Too bad that any FFR cuts at this point will only serve to lure GFs into catching Wall Street’s falling knives. As for Main Street, rate cuts have no real effects for at least nine months…
also it will make the housing bubble in Europe even bigger, because one can now count on the ECB following in the FEDs footsteps (especially after todays unacceptable gain in the euro vs. the dollar, the EU dumbocrats cannot accept that so EU rates have to do down too). With lending as loose as ever in Europe, every ECB rate cut will only light the fire under home prices (again, nice for the dumbocrats).
The Usd index has fallen off a cliff this week. Gold is rocketing.
The losses are much worse than just 4k. This is an alert I flashed to clients this morning. Feel free to do your own calculations:
——–
The numbers of losses have just gotten too big for the statistical “adjustments” to hide. The actual employer survey data showed job losses throughout the second quarter and minimal gains in the first quarter. The Birth/Death Model added 120k jobs in August. That is the assumed net addition from startup businesses, less the losses from existing firms folding. Does anybody actually believe that number should be positive instead of negative given the number of small business failures? The actual employer survey showed 124k losses. The reality is likely to be worse than that.
The household survey has been flashing danger even longer. No jobs created since November of last year. August household survey shows 316k jobs lost. The unemployment number stayed flat because they just took nearly 600k people out of the workforce for no apparent reason. The household survey captures people not considered employees - sole proprietors and independent contractors mostly. That would describe a lot of building subcontractors, realtors, mortgage brokers, etc. With what’s happening in the housing sector, you should expect large discrepencies for a while as many such people lose their jobs.
August Employment Report
BLS Birth/Death Model
believe it or not my in laws have a signed contract for ther home in jersey. they are very happy
Other than inspection, no contingencies? In other words, is it pending, or contingent?
Hope they also have funding
Subprime Doublespeak
http://www.stockmania.com/2007_09_07_archive.html
Welcome to Newspeak.
http://kstp.com/article/stories/S186329.shtml?cat=1
You say contained, I say spreading like the plague. Just two different ways of saying the same thing.
Wow, straw buyers. Haven’t heard that phrase in a while. Ran into a bunch of those around Detroit here too the last few years who were losing houses and ruining their credit, and that was even before the downturn.
Here in flyover country, I’ve heard of at least 10 different cases with straw buyers in the last 4 months - and I wasn’t even really paying attention.
“but often the rental payments were not enough to cover the mortgages.”
There we go again. “Often” is BS. Guarantee you, “almost always” or “in every case” is correct (assuming the rentals were legit).
Folks, don’t concern yourself with the latest unemployment numbers. Everything is okay. No need to get concerned. The “Goldilocks Economy” is still on track. There’s no inflation. Everyone is much better off. Property prices are just returning to normal. Gas prices are 2 cents cheaper than this time last year. The dollar is strong. Next month those unemployment numbers will have been revised and job growth was actuallu up by 190,000. Mission Accomplished.
On CNN Money: The unemployment rate stayed at 4.6 percent in August, despite the drop in payrolls, in line with economists’ forecasts. The a rise in those who are unemployed was balanced by a bigger drop in those counted as in the nation’s labor force.
wtf? So, you just stop including some people in the labor force and unemployment never goes up? By that approach, if we consider all of the unemployed people as “no longer in the labor force,” we can have 100% employment all the time, no?
You catch on quick!
“The a rise in those who are unemployed was balanced by a bigger drop in those counted as in the nation’s labor force.”
Were they dropped off a cliff?
Thanks - I was getting worried - but with the aid of prozac and TV, I am happily sedated.
Drought is coming to most of California this fall…
An account from Yolo County:
“A Yolo County producer attested that only one of the 130 catchment ponds on his ranch still has water in it. He said that usually 40 or so still have water in them in August.”
http://www.sacbee.com/103/story/345814.html
What is the value of a house, with no water?
That’s a whole other can of wiggly worms the West will face in the near future. Not just Cali, but Arizona, New Mexico, Colorado and Nevada.
Sept. 7 (Bloomberg) — Beazer Homes USA Inc. said it received notices of default from the U.S. Bank National Association.
http://www.bloomberg.com/apps/news?pid=20601087&sid=awvxi8fH4MN0&refer=home
The volume spike on the right says it all, it is over for builders.
http://tinyurl.com/2uqoxs
Awesome! Maybe we won’t have to spend the next 30 years watching nice communities get visually destroyed by the rapid appearance of closely-spaced oversized stucco boxes!
That chart is interesting in the sense that volume was pretty uneventful all the way from 80 to about 40 during most of ‘07. Any thoughts??
I’m going to do something wild and crazy and get a small long futures position into this gap down. Betting on a rate cut almost immediately on this news and will of course offload into the jam job that will cause.
ndx though, since it’s clearly the vehicle of choice for the catchup folks.
You’ve got Brass….Friggin….Balls!
Nah, this road map seems very clear to me.
I’m also buying telecom stox if they gap down enough. CIEN, etc. They’re all having good quarters. I like PMCS too.
The DX is below 80.
I will have trailing stops on and look for a reversal following TxChick’s strategy but probably won’t pull the trigger. I got steel ones but their not brass.
A rate cut jam job will create a really nice short entry point. Think January 2001.
I’m such a dweeb but I remember what the market did at different times and under various interest rate scenarios, war, whatever.
“rate cut jamb job”
I thought those were illegal in Kentucky ;->
Have you looked at Earthlink. They’re in the process of laying off a bunch of people (including my neighbor). I think he said about 40% in all in the next couple of months.
The market reminds me of a drowning person. A turbulent up and down process with each bob up (Fed action) followed by a deeper drop down (market forces). At some point, the victim’s kicking does not raise the head anymore. Will the rate cut raise the head this time?
What rate cut. The Beige Book says all is well.
Beazer Homes has said reports that it has been served with default notices are without merit. David Learah said property prices can only go up. The Iraq war will only cost $3 billion dollars.
My prediction: The financial meltdown clock is showing 5 minutes to 12. Unemployment is way up if you consider that several hundred thousand illegals are not working construction anymore. Inflation in all areas EXCEPT housing is running around 7%. Housing is deflating rapidly. The dollar is going to go futher down the tubes. Bush is going to attempt to drag the US into a war with Iran. However, his credibilty is hovering around zero and I doubt if congress will get sucked into that one. The surge is working (NOT!).
We can only hope that China will help us out by not cashing in those billions of dollars in I.O.U’s.
maybe China will help the US by cashing in those treasuries and in that way preventing a nuclear holocaust in Iran.
Morning Humor & “Tin-foil-Hat”:
I wake up this morning…just starting to make my first cup of coffee…then I’m hit in the back of my head with a 20# trout: Not only are we at “War” with Afghanistan & Iraq…but we’re still at “War” with Korea! Not only does the MSM fail to inform us of the housing “sit-u-ation”…They don’t even have an “enbedded” reporter to cover the “current” Korean War. Taxpayer $$$$$ bail-out money for homeowners & x3 “Wars”…is Haliburton getting “no bid” contracts for the Korean “war” too? Can’t we just use the $$$$ proceeds from Afghanistan heroin sales to buy weapons for the Korean ““War”? Come on President Push…I know Karl’s gone now … but let’s get creative here…there gotta be somebody still around that’s: “Smarter than a 5th grader”… Maybe, “Dicky Boy” Cheney can go look around in the “Shadow Gov’t Offices”?
There was clearly something lost in translation,”
http://news.yahoo.com/s/ap/20070907/ap_on_re_au_an/bush
I wanted to follow up on spacedog’s comments yesterday in the bits bucket thread. I thought about his comments a lot yesterday but I wasn’t quite sure how to respond. I don’t post often here but I feel the need to comment.
Spacedog said that there will always be neigborhoods in America where 3 bedroom SFH’s will cost $517k or more. He said that there are rich people, and a lot of them, who can easily afford houses at $517k without even stretching. He gave the example of the Andersonville neighborhood in Chicago and said that SFH’s there cost $750k (but they were over-priced by 10%). He said that some vibrant urban neighborhoods will always be expensive and exclusive. He stressed that a 3bd SFH in Andersonville will always be expensive and will retain value.
Some people ripped on his comments and others just disagreed, but after seriously considering his position, I think he has failed to fully consider all the facts of the situation relating to his Andersonville comments.
He is right, however, that there are a lot of rich people. Rich people will always pay a lot of money to live in rich exclusive and tony neighborhoods to be among other rich people. This is America and no one should be surprised about this.
However, with respect to his Andersonville comments, he is wrong. He says that Andersonville is a desirable neigborhood and prices won’t drop more than 10% because, basically, rich people can afford to live there. He thinks that $675k is a supportable price point.
What he fails to consider is that those $750k houses used to sell for $350k or less just a few short years ago. He may want to believe that the small number of people in his neighborhood who bought in the last few yeras can afford to pay $750k for a 3bd SFH but in reality, not all of them can. It may easy for him to buy a $750k home because he’s rich but not everyone can afford it so easily. He fails to consider that some of his neighbors bought using pay-option arms or interest only loans. He fails to consider that a handful of specuvestors may have bought and flipped and he fails to consider the amount of mortgage fraud that has driven up prices in many neighborhoods. A handful of these sorts of transactions, coupled with a few rich folk like him overpaying, set the comps for the entire neighborhood.
Finally, he fails to consider that a $750k used to buy rich folk like him mansions in the fabulous gold coast or lincoln park neighborhoods. Rich folk of his stature can’t really afford to live in the best neighborhoods anymore. They now have to live in argubly second-tier neighborhoods such as Andersonville.
In short, the logic in his thinking can be boiled down to this: He paid top dollar for his home in an expensive neighborhood so therefore his neighborhood will always be expensive and prices won’t go down much. “It’s different here.” He just put a new twist on the same old argument.
I’m sure this was said yesterday, but rich people don’t become (and stay) rich by spending unwisely. Some lottery winners have been known to buy unwisely, and we’ve all heard what happens to those folks.
Well stated but unneccessary. I spot an RE bulls warped rationalizations a mile away. As you stated, and possibly in his case, he’s wringing his hands as it just dawned on him that he overpaid by 50% or greater… Either way, his nattering denial won’t stop whats already started.
OMG, exeter, you are calling ME a troll !?!?!?
I don’t own any property in Andersonville. How could I *possibly* be wringing my hands for overpaying 50%? Your jumping to wild conclusions only shows your ridiculous bias.
The one piece of property that I do own is a small condo which I know for a fact has NOT appreciated much since 2001, because I tried to sell it last year (about 3 months too late). I’ve paid off half the mortgage and rents are still quite robust in Chicago, so I can just hold it indefinitely.
I’m no real-estate cheerleader by any stretch of the imagination. But you are clearly confused if you think that Chicago real-estate is going to depreciate anywhere near as real-estate in FL, CA, AZ, etc.
Chicago real-estate prices will drop by another 10%, maybe 15%. That’s it. Incomes here have gone up enough to support those price levels, plain and simple.
Of course, if incomes somehow fall dramatically, all bets are off. But at least at that point I’ll be able to get buy an apple and pencil on the street corner every morning.
Not a chance Cupcake. Not here on this blog. You stated “there are alot of places that support 574k houses in this country”. You were asked to provide locations where 190k/yr is the median which is the income required to support that sized note. You haven’t provided those locations because a median salary of 191k doesn’t exist except in your mind.
Go away troll.
I guess that’s what got us all kind of worked up. It was the “a lot” part. I think all of us agre that there are a FEW elite neighborhoods that can support those prices, but not, comparatively speaking, a lot.
I don’t think SpaceDog is a troll. I think he just accidentally mis-stated his point.
I looked back at the post, and he actually said that there are “many places in the country” that can support very high prices. I would say there are “very few places in the country” that can support very high prices, and most of them are in California and New York.
I tried to post this earlier, but it hasn’t shown up yet:
I don’t think SpaceDog is really a troll. I think he just meant to say that there are some 3 bedroom houses that really will be worth over 500k even after the bubble bursts. He probably didn’t really mean that there a lot of these places, even though that’s what he said. I don’t know whether or not Andersonville is one of those places (I’ve never heard of Andersonville), but I don’t think we will find 500k condos and 3 bedroom houses in any middle-class neighborhood come 2010.
Space Dog might just be ignorant. Don’t jump to the conclusion that he is a troll just because he speaks nonsense.
I don’t think calling someone who is predicting another 15% decline a troll is fair or appropriate. So he thinks RE is going to fall less than you or I do, big deal. That’s a far cry from the days when the real trolls were here predicting 20% increases for the next decade and telling us what a bunch of idiots we were.
A very of opinions makes this a better blog. If we all just sit around and reinforce each other’s opinions that real estate will fall 90% we are as bad as the realtors who practiced such group think.
Spacedog, you also fail to consider the possibility that there are simply more SFHs for sale than people willing to buy them, even at 10% to 15%. I live in 60641 (straight west of the Irving Park Blue Line Stop) and there are hundreds of houses for sale in my area. My apartment is in Old Irving and let me tell you, nice SFH’s are much more than $750k for anything on my block. Dumpy bungalows with original 1970’s decor are on the market for $560k and up. Too bad nothing is moving. My neighborhood is filled with doctors, lawyers, marketing execs, consultants, accountants and CFO’s. They aren’t paying exhorborant prices. They bought a long time ago when things are reasonable. I can’t really say who is buying now because no one is buying. The same tired, sorry and over-priced SFH’s have been on the market for a long time time and they ain’t movin’. A fair number of them are vacant too. The fact of the matter is there are too many homes for sale (not just in Andersonville) at too high prices with not enough buyers. I think this alone with justify a price drop over the next 3 years of at least 25% nominally, even more if you count inflation.
Finally, he fails to consider that a $750k used to buy rich folk like him mansions in the fabulous gold coast or lincoln park neighborhoods. Rich folk of his stature can’t really afford to live in the best neighborhoods anymore. They now have to live in argubly second-tier neighborhoods such as Andersonville.
Yes, Andersonville is hardly the most exclusive of neighborhoods in Chicago.
In my opinion it’s actually much nicer and more interesting than places like Lincoln Park, but the argument remains the same — overpriced!
PS: from the data I’ve seen, Lincoln Park in particular will experience some some serious bubble deflation — average sales price is down 21% YOY, price per square foot is down 33% YOY. Hah.
Nicely put. I was watching “House Hunters” the other day–yeah, I know it’s a sham, but I get a kick out of making fun of the people on the show–and there was this young couple looking for a townhouse in Andersonville, where they were currently renting. There is no way that this couple brings home more than $70K tops. She’s in advertising, and he’s in “sales” and they had IKEA crap for furniture. They were looking at these gross little closets for townhouses, I presume in the 350K+ range. I think they ended up buying in Edgewater because they were priced out of Andersonville. Andersonville looked like every other dismal Chicago neighborhood (Bucktown, Wrigleyville, Wicker Park…)–it ain’t no Gold Coast, Lincoln Park, or some of the tonier ‘burbs–that’s where the truly wealthy reside.
BTW–check out the House Hunters page. Un-freakin’ believable.
http://www.hgtv.com/hgtv/shows_hnt
They have “tips” such as:
“Only buy what you can afford.”
“Avoid mortgage default”
and, my favorite, no joke:
“Buy now with no money down - traditional down payments are becoming a thing of the past”
It’s mind-boggling.
“Andersonville looked like every other dismal Chicago neighborhood”
You’ve never been to the west side have you? Bebop over to K-Town sometime.
Now, Astro Hound might have been an elitist knife catcher looking to justify a recent or pending house purchase to complete strangers - but Andersonville is far from dismal. True it is filled with the jogging stroller crowd - but fair is fair.
You’re right, it’s not crime-ridden and there are good restaurants there, but IMHO, all of Chicago is dismal come February. That’s why I left the Midwest. It’s a trade-off here in FL–had to give up culture and educated neighbors in favor of the sunshine. Can’t say I wouldn’t move back to the Midwest at some point, just wouldn’t pay those kinds of prices to live in a dinky walk-up with only one parking spot and a fire-hazard deck on the back that I have to share with my 5 neighbors. Haven’t bought here though either, ’cause prices are nearly as high, but J6P makes about 50% less. FL is burnt toast. Chicago is lightly browned.
Yup. Here come the Bush administration shills on the CNBC Comedy Business Show. Lazear of the Council for Economic Advisors telling us that everything is fine. The Goldilocks economy is on track. Nothing to see here, folks. Move along….
Anybody notice that SUNW has put on a buck a share since debated here during the credit dump in August. I dunno, maybe I’m dense but I’ll take 20% return in less than a month. Anyone know someone who’s made that “investing” in houses this year? LOL
sure have, pilled on a couple thousand shares at 4.7, havent banked the gain yet, I also called the reverse split same day (cant rememember the date, but its in the records of the blog)
still lookin for a way out, but my expectations seem to grow as the news gets worse.
From last night’s NBR regarding subprime innovation:
GERSH: Have investors learned their lesson? Are they expecting the Fed to bail them out (INAUDIBLE) ?
PAULSON: Well, I would say, you know what, investors may learn their lesson. And then they’ve got a relatively short memory. And so again, it seems, if you look at economic history, they learn their lesson every seven, eight, 10 years or what have you. But again, remember, that we have the most innovative capital markets in the world. There has been real innovation. There’s been innovation in terms of securitization of credit. Now that, Darren, has made credit accessible to many Americans where it wouldn’t have been accessible. It’s made it accessible at lower rates of - - at lower rates of interest. That has had big advantages and it poses challenges.
http://www.pbs.org/nbr/site/onair/transcripts/070906a/
Just a little note of my recent decision… Hope it is a correct one…
I am looking for house for last 2 years now in tampa,fl… I recently put an offer for $2650000 on 2500 s.f home which went on short sale… It had nice 30K upgrade and good (not great) condition home. After 3 months bank accepted my offer last week. I was too tempted to accept the offer, as the price for this house is around Feb-2005 level. But at last minute I cancelled the offer. Looking at your blog, I believe it is a correct decision and I expect the price correction of another 10% coming along… Any thoughts!!
you saved yourself at the last possible moment - pass go, collect big money in savings, don’t do it again for at least a couple of years, as your luck may be wearing thin…
where was the house? and was the lender local or big out-of-state bank? Feb. 05 is still waaay too high here. shoot for Feb. 2002 or even ‘03 and you might be okay.
You made the right decision, Ken. July 2005 was pretty much the peak, so I doubt Feb 2005 levels will be the bottom.
At $1000 / sq. ft. it better have gold handles on everything.
“Now that, Darren, has made credit accessible to many Americans where it wouldn’t have been accessible.”
Presumably he was saying that as if it is a good thing. Shameful, IMO.
Wells Fargo Home Mortgage held what seemed like a pep rally today in downtown Los Angeles to discuss the current state of affairs internally and industry-wide.
Wells Fargo also told employees that it would be removing all 100% financing programs except its Home Opportunity 80/20, which mirrors the 100% agency products currently available via Fannie and Freddie.
http://www.thetruthaboutmortgage.com/wells-fargo-pep-rally-notes/
Dollar futures are abolutely getting HAMMERED again today. Biggest dollar moves I can remember have happened in the last week, and the USD index is below 80 and dropping like a stone. Gold up again!
Don’t forget how the Fed shagged the shorts during August expiration with the early morning discount window cut. I’m sure they’re holed up right now trying to figure out how to do the most damage to the shorts right now
There were reports yesterday arguing 4 officials were uncertain about a rate cut including this from Fisher:
Speaking in New Mexico, Dallas Federal Reserve Bank President Richard Fisher put it bluntly: “The job of the Federal Reserve is not to bail out risk-takers: You’re a big boy, you take risks, you bear the consequences.”
http://www.reuters.com/article/ousiv/idUSN0638240820070906
Disingenuous but what we’ve come to expect.
Okay, the market is now having a red faced temper tantrum. In long here with a small 25% position and a stop at S&P 1395.
Now going to look at a house. How ironic. LOL. Don’t crash the market while I’m gone.
The fed shot its’ wad in August. They just injected 30+ billion, and the market went down. The market already expects a cut (probably 50 basis points) and it is still going down. This thing is going down and the Fed can’t stop it.
Would it have made any difference if so many had not been steered to piggyback loans to avoid PMI?
“Can’t we all just get a loan?”
with apologies to Rodney King
LOL.
I know this won’t get read by many, but I’d just like to say that the comments above may very well be the most extensive and excellent treatment of this topic I’ve seen to date.
…and I still vote for deflation.
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Hi Ben,
I’ve noticed sometimes my comments get posted and other times they don’t. Is there something I’m doing incorrectly?
Any help would be greatly appreciated.
I think the blog’s having problems today, have seen several posts eaten, prob. not you
Woohoo!! Today is the day that prices on this street (Riverside, Ca) dropped back down to what they were when I moved here 4 yrs ago. Ok, so it’s just one house, but that’s a start. Did I say Woohoo??!!
Moving to the Inland Empire was of your choice and not dictated by the terms of your parole?
giggle.
Hehe…funny. Actually, I am in a lovely area with great schools and a pretty view (ok, when the Santa Ana winds blow the smog away). There are actually nice parts of Riverside and the community is great! There is a rough, skanky side of town, but that’s most anywhere.
Let’s see if this post will go through. Tried early AM. Here we go again:
I’m so glad the stock market finally looks like the $hit that it is.
Countrywide quietly fires 1/5th of its workforce. Nice Friday afternoon touch - hoping that investors are so stupid and short-sighted they will forget by Monday morning. Oh, incidentally they expect originations in 2008 to fall by 25% over this year’s terrible level.
http://biz.yahoo.com/ap/070907/countrywide_job_cuts.html?.v=6
Just read that article.
Looks like another 12,000 McMansions will soon be on the market.
Better to lay off on Friday. Less gunfire.
I heard that this blog is on the banned list for .mil …so sad for them. Guess this means your blog is onto something.
I wonder what other “company” has banned this site.
At the height of the bubble real estate websites were the most visited at many work settings, I wonder what the most hit websites are now?
I’d ban it. A major time sink if there ever was one
Of course time is money and time well spent today is saved 10 fold tomorrow…
From CEPR:
The one bright spot in today’s report is that average hourly wages grew at an annual nominal rate of 4.5 percent over the past quarter, putting wage growth slightly above inflation”
Ummm, didn’t they raise the minimum wage this past year? So why would such a paltry increase come as a surprise? We going to get blessed with the same “miracle” for each of the next two phases? playing with stats can be done in many ways…