Born In A Boom
Some housing bubble news from Wall Street and Washington. Reuters, “Washington Mutual Inc, the largest U.S. savings and loan, may set aside $500 million more than it had previously forecast for loan losses in 2007, amid what CEO Kerry Killinger on Monday called a ‘near perfect storm’ in U.S. housing. ‘Most housing markets appear to be weakening,’ Killinger said at a financial services conference. ‘We would not be surprised to see declines in housing prices in many regions of the country … for the next few quarters.’”
From Bloomberg. “‘The combination of rising delinquencies, higher foreclosures, more housing inventories, increasing interest rates on many mortgages and greatly reduced availability of mortgages due to limited liquidity is creating what we call a near-perfect storm for housing,’ Killinger said.”
“‘It now appears that housing and capital market corrections will be worse and longer lasting than even we expected,’ Killinger said.”
The Tampa Bay Business Journal. “Countrywide Financial Corp. said it plans to cut up to 20 percent of its workforce and shift its residential lending business into its thrift subsidiary.”
“Countrywide, the nation’s largest home lender, expects total mortgage market origination volumes will drop by about 25 percent in 2008, compared to 2007 levels. Reductions of workforce will occur in areas most impacted by lower origination volumes, the release said.”
“‘When you’re born in a boom, you generally die in a bust,’ Countrywide CEO Angelo Mozilo said in an interview after the company announced the cuts. ‘Most of the companies that are gone have never been through a period like this.’”
“Employees remaining in the mortgage industry probably will have lower pay, including executives whose bonuses depend on profits and brokers who get paid on commission, said Bert Ely, an Alexandria, Virginia-based consultant.”
“‘The slowdown is deeper than a lot of people thought,’ Ely said. ‘I don’t think there’s anybody now, even the optimists, who think this will run its course by the end of the year. And this isn’t something that’s going to bounce back quickly.’”
“The contraction may also lead to lost jobs and income for mortgage appraisers, title-company clerks and settlement attorneys, he said. ‘All kinds of people that feed off the origination activities are suffering cutbacks,’ he said.”
From CNN Money. “In yet another sign of pain in the troubled real estate sector, title insurers are seeing a big increase in the number of claims, according to a new report. The Wall Street Journal reported on its website Sunday that title insurers like First American Corp. are fielding a significant rise in claims, yet more evidence of the housing market’s woes.”
“Some title insurers also say new business has slowed - a possible sign, the Journal said, of more problems ahead.”
“‘If you want to know what’s going on with mortgage activity, you look at title orders,’ Nik Fisken, an insurance-industry analyst told the paper.”
The Associated Press. “Credit rating agency Moody’s Investors Service said Monday it expects the housing-market slump to last at least until 2009, likely precipitating numerous ratings downgrades at publicly traded homebuilders.”
“‘Our current thinking is that the downturn, currently two years in the making, will last until 2009, with any sector recovery likely to be sluggish for some time after that,’ said Joseph Snider, senior credit officer at Moody’s.”
“‘Many of these companies may see further downgrades, with multiple-notch downgrades possible for homebuilders,’ Moody’s said.”
“Moody’s said it expects builders to violate the terms of existing credit agreements as conditions on the housing market remain poor. That will lead lenders to ‘tighten restrictions on credit facilities, either through taking collateral, reducing the size of the facility, or restricting borrowing base calculations,’ the agency said.”
The Financial Times. “The R-word is usually avoided by Wall Street’s economists. It tends to be a conversation-stopper when investment bank clients are told to prepare for the worst.”
“‘It is like looking a client in the eye and telling them that their child is ugly,’ says David Rosenberg, chief economist at Merrill Lynch. ‘It is not what people want to hear.’”
“But the parameters of polite conversation have shifted following the shock decline in the employment market revealed last week. Recession is the word on everyone’s lips.”
“‘You are talking about a $23,000bn asset class – there is nothing on the planet as big as that,’ says Mr Rosenberg, who is predicting a fall in house prices nationally of up to 15 to 20 per cent.”
“The job of declaring recessions, generally defined as two consecutive quarters of economic contraction, does not belong to the White House or Wall Street. That task belongs to Martin Feldstein, head of the National Bureau of Economics.”
“Mr Feldstein has been blunt about his outlook. He used the word recession seven times in a recent speech to central bankers, telling them that ‘a sharp decline in house prices and the related fall in home-building … could lead to an economy-wide recession.’”
“He said the type of collapse in housebuilding recorded in recent months was ‘a precursor to eight of the past 10 recessions”; there was ‘a significant risk of a very serious downturn.’”
“Mr Rosenberg says it may be ‘too late’ for the Federal Reserve to prevent a recession by cutting interest rates aggressively this month.”
“Federal Reserve Bank of Philadelphia President Charles Plosser said there is an ‘underlying stability’ in the U.S. economy and policy makers need not always cut interest rates in response to financial-market turmoil.”
“‘Disruptions in financial markets can be addressed using the tools available to the Federal Reserve without necessarily having to make a shift in the overall direction of monetary policy,’ Plosser said at a conference.”
“Plosser said it was not the U.S. central bank’s job to protect individuals and firms from taking risks. ‘The Fed does not seek to remove volatility from the financial markets or to determine the price of any particular asset; our goal is to help financial markets function in an orderly manner,’ he said.”
“‘Policy-makers must be careful to allow the marketplace to make necessary corrections in asset prices,’ he said, adding that a failure to do so would ultimately increase risks to the financial system.”
The BBC News. “Leading UK and European banks may be forced to pay out as much as £70bn ($142bn) over the next 10 days as the global credit crunch continues to bite.”
“As US mortgage rates have risen sharply over the past year, it has led to record levels of loan defaults and home repossessions. This crisis has spread across the Atlantic, as US sub-prime loans are often combined with other debts and then resold around the world.”
“An unnamed boss of one of the UK’s largest banks told the Sunday Times at the weekend that conditions in the money markets were the worst for 20 years.”
The Independent. “Property and economic experts are warning that an over-supply in the housing market will cause prices to fall further in the short run, but that long-term the market will recover.”
“A survey of house prices has shown that since March almost 4,000 houses have dropped in price, wiping €113 million off the value of properties.”
“John McCartney, Head of Research with Lisney estate agents said yesterday: ‘What we are seeing at present is the backlog of an exceptional year in terms of supply last year coupled with a reduction in demand. Of course when there is over supply, prices will come down.’”
“The experts don’t believe there has been a credit squeeze but the reduction in loans being offered is simply an issue of affordability. Dermot O’Leary, chief economist with Goodbody stockbrokers, said: ‘There hasn’t been a criteria change in the bank’s policies. It is only about what people can now afford given all the successive hikes in interest rates.’”
“The Sunday Independent has identified a number of multi-million-euro houses that have seen their values slashed in recent months, both in Dublin and other areas around the country.”
“Last month, more than 700 properties dropped their price with more than 20 seeing their prices drop by more than €100,000. Also included in the 723 house price drops for August, which wiped €20 million off the value of the properties, were a number of houses and buildings over the €1 million mark.”
“Many of these have seen price reductions of over 10 per cent, with a small number dropping by a staggering 25 per cent.”
“Central bankers are alert to the prospect of a hit to growth from the last month’s financial market upsets but are not responsible for rescuing unwary investors, top policymakers said on Monday.”
“After talks at the Bank for International Settlements in Basel, central bankers vowed to keep a close eye on market developments and take action as needed.”
“G10 chairman Jean-Claude Trichet, who heads the European Central Bank, pointed to past warnings about investor overconfidence on risks and said markets were now in a process of correction including bouts of volatility and overshooting.”
“Central banks had taken action to ensure stability on money markets but were not responsible for rescuing the unwary.”
“‘It’s certainly the sentiment of central bankers who are around the table that bailing out bad investors would be the worst thing to do,’ he said.”
“Other central bankers present at the meetings, including Mexico’s Guillermo Ortiz and Chile’s Vittorio Corbo, said the global economy would not escape a hit to growth but central bankers were ready to deal with the situation.”
“‘Fortunately the world economy is in good condition but we are aware that there will be an impact,’ Corbo said. ‘As central banks we are prepared to deal with (the) consequences. It could last six months, it could last a year.’”
dude, other than oil patch a katrina subsidized it ’s ALL down……
‘We would not be surprised to see declines in housing prices in many regions of the country … for the next few quarters.’”
Does 12-16 count as “few”???
Hey, give ‘em some credit. At least they didn’t insist the bottom was already in. Telling the *whole* truth to the press might panic the sheeple.
I shop @ Whole Truth Market…
“Plosser said it was not the U.S. central bank’s job to protect individuals and firms from taking risks. ‘The Fed does not seek to remove volatility from the financial markets or to determine the price of any particular asset; our goal is to help financial markets function in an orderly manner,’ he said.”
“‘Policy-makers must be careful to allow the marketplace to make necessary corrections in asset prices,’ he said, adding that a failure to do so would ultimately increase risks to the financial system.”
I believe that BB needs to convince the FOMC to stand pat only one more time in order to (1) shed the Helicopter Ben label; (2) convince the Wall Street cargo cultists that the Greenspan era of predictable FFR reductions at the first sign of stock market weakness has ended; (3) prove that leaning against the wind does not require hiking interest rates to economy-crushing levels (a la Volcker).
Stand pat only once more? Sorry, the Fed needs to raise their middle finger to all the risk takers who feel there ill always be a safety net beneath them. Holding just once won’t accomplish this.
Can somebody tell me what the Fed’s mission is? One day they say it’s to prevent inflation, then it’s to provide liquidity, oh wait, now it’s to help markets function orderly. One would think all of the regional presidents would get together and agree to the same story before they go around telling different versions.
Mission
The Federal Reserve System is the central bank of the United States. It was founded by Congress in 1913 to provide the nation with a safer, more flexible, and more stable monetary and financial system. Over the years, its role in banking and the economy has expanded.
Today, the Federal Reserve’s duties fall into four general areas:
* conducting the nation’s monetary policy by influencing the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates
* supervising and regulating banking institutions to ensure the safety and soundness of the nation’s banking and financial system and to protect the credit rights of consumers
* maintaining the stability of the financial system and containing systemic risk that may arise in financial markets
* providing financial services to depository institutions, the U.S. government, and foreign official institutions, including playing a major role in operating the nation’s payments system
“containing”
As in “Subprime is contained?”
pretty all-encompassing - talk about ‘mission creep’
“protect the credit rights of consumers” - jeez
“Today, the Federal Reserve’s duties fall into four general areas:
* conducting the nation’s monetary policy by influencing the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates
* supervising and regulating banking institutions to ensure the safety and soundness of the nation’s banking and financial system and to protect the credit rights of consumers
* maintaining the stability of the financial system and containing systemic risk that may arise in financial markets
* providing financial services to depository institutions, the U.S. government, and foreign official institutions, including playing a major role in operating the nation’s payments system”
Somebody care to point out one of these areas where they haven’t failed? What a joke.
you forgot “making the Rothschild/Rockefeller families richer and richer off of the masses’ backs”
I’m always dubious of “mission statements”
Well, the Fed will act when unemployment jumps. It’s pretty much inevitable now, despite all those fairy-land jobs reports where construction work only goes up. It’d be nice if they waited for 5% to start cutting. It wouldn’t make me happy, but it’s probably our best-hope scenario in evaluating BB.
RE: the Fed will act when unemployment jumps.
LMAO…They can drop the rates all they want relative to unemployment and it won’t make any difference because there are no jobs to be had.
The job creation emanating from the housing bubble has successfully masked the massive exports of jobs during the last five years.
The “information/data new world service economy” will be seen for what it is-FRAUDULENT HYPE.
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“Federal Reserve Bank of Philadelphia President Charles Plosser said there is an ‘underlying stability’ in the U.S. economy…”
Could you please tell us, Mr. Plosser, what that ‘underlying stability’ is?
The ONLY thing was Pushing Debt to households and nothing else. All the growth, and more, was accounted for by increased household debt.
It Is the Debt, Stupid! (That saved the economy during 2003-07 and will sink it during 2008-10).
Jas
I was wondering the same thing…what exactly is that underlying stability???
Also Jas, in another post you made the comment that “facts are for Michiganians” and “Michigan is the California of 75 years ago.” This Michigander was just wondering what you meant. Thanks!!!
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Oh, the auto industry was the high tech of early 1900s, especially, 1920s. Detroit, Flint, etc., were like the Silicon Valley of recent years.
Michigan of early 1900s was like California since 1970s’ IC-driven boom. CA’s future can be gleaned from what has been happening to Michigan in recent decades. Not to neglect the Asian competition as more and more technology is moving to Asia including sophisticated design.
Jas
I was sort of hoping that you meant that “Calis” would come here to pick apples and cherries after their homes in the Inland Valley were foreclosed upon. The idea of Volvos laden with cheap Ikea furniture, a dead Grandma Joad, and a newly bankrupt family of four slipping across the border from Indiana into the land of reasonably priced housing has a certain dark eloquence to it.
Impossible. No one from Indiana can afford a Volvo. Change it to something more prevalent like a 1985 Cavalier and you’re getting close.
If Notre Dame doesn’t stomp on Michigan this Saturday, I’m gonna banish them all to purgatory.
I’m going up to AA for the game. It’s strange that the two best programs in college football have hit the wall at the same time.
I hope you have a safe trip and enjoy the game. Just listening to 100,000+ booing on the radio made me cringe, it had to really suck being a player it was aimed at.
I’m a yellow jacket. I was really pissed at how no one gave GT credit for that game… everyone was too busy piling on the Irish-hater bandwagon. Same thing with Oregon-Michigan, The headline is all about how Michigan sucks. The Ducks’ offense was incredible and they don’t even crack the top 20 USA Today poll.
GT deserves all the credit. I saw them dominate every aspect of the game. Congratulations on your first win in South Bend since 1959.
I’m not sure how dire your predictions are, Jas, but IMO Cali will certainly have less people, business, and money in the future years than it had at its peak, but it won’t die off like Michigan and other rust belt states. There will still be plenty of people and commerce.
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“There will still be plenty of people and commerce. ”
There are plenty of people and commerce in MI. The question is: What plenty is from where it has been?
I am sure that you know that CA is losing population to other states. When more and more tech jobs move to Asia something is going to give.
Jas
What makes you think there is not lots more debt from whence that already pushed originated?
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I meant debt pushed on the households. Most of it was concentrated to 1/3rd of the households that now wouldn’t be able to borrow, especially, on homes (90%+ of the Debt Push to households was in the form of mortgages and HELOCs). I think that that game is over. No?
Jas
Not sure. See the immediately following post. Also contemplate what a Prez H would mean for bubble respiking prospects.
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Prof B,
Maybe, you believe in the infinite power of interventionists. I don’t. There game is over. They are facing a bunch of bad choices, but nothing that can pump $500-1000B, annual rate, to the 1/3rd households with worst debt problems. The 2/3rd aren’t part of the game (1/3rd have no debt, including no mortgage debt).
Things can be pushed only so far until they hit the brick wall of reality. We are there. Recession already is here and depression will begin some time next year.
Jas
“Maybe, you believe in the infinite power of interventionists.”
Nope. But I do believe in this line from a favorite poem (If — Kipling):
“…If you can trust yourself when all men doubt you
But make allowance for their doubting too,…”
I also am quite familiar with Dr. Ravi Batra’s work, The Great Depression of 1990.
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“I also am quite familiar with Dr. Ravi Batra’s work, The Great Depression of 1990.”
Does that mean that there wouldn’t be any? I don’t understand this form of argumentation that someone who predicted something similar in the past, under very different conditions, was wrong.
I believe in “physical” limits. The Debt Push has reached that limit, IMO. Just wait and watch the mortgage debt declining as defaults mount. BTW, in December of 1999 I reached similar conclusion about the tech bubble – one can only sell so many more $s worth of tech shares (Cisco was issuing new shares at a rate of $50B a year at the peak!).
Jas
“Does that mean that there wouldn’t be any?”
No. It means that conditions can appear ripe for such an eventuality long before it is realized, and that it is quite difficult to predict the economic version of the Big One ahead of time, or (unlike large magnitude temblors) even to confirm it after it has arrived. If you want a historical example, go find a library with some WSJ news clippings from 1930 (Shiller may also have a discussion of this in Irrational Exuberance). Historians tend to date the onset of the Great Depression to the October 1929 stock market crash, but it is rather clear the WSJ journalists had no clue as of early 1930 that anything was amiss.
Crazy Credit Card Charges
But wait — there’s more! I have to concede that the stipulations I listed above aren’t that uncommon. Here’s a new one I hadn’t heard about, though: It seems that with this card, if you want an increase in your credit limit, you might be charged up to 50% of that increase (depending on your credit rating). In other words, if you need your credit limit increased by $1,000 (perhaps because you’ve spotted a large-screen TV you just can’t live without) you might get whacked with a fee of up to $500! As my 5-year-old niece might say, “That’s not fair!”
http://news.yahoo.com/s/fool/20070907/bs_fool_fool/118918438420;_ylt=Am019ItbFIdjcJdM6r4NoxcE1vAI
CHECK IT OUT!!!!!
http://www.youtube.com/watch?v=MxFx0NzSjWw
But if 70% of the US economy is dependant on people buying stuff who have no money, especially now that the home ATM is empty…Ah-what happens now? (said with Steve Martin stupid look on face)
“‘It’s certainly the sentiment of central bankers who are around the table that bailing out bad investors would be the worst thing to do,’ he said.”
This is exactly what some politicos are currently proposing.
Schumer to Seek Mortgage Funding Boost
By DAMIAN PALETTA
September 10, 2007; Page A3
http://online.wsj.com/article/SB118937049671321816.html?mod=googlenews_wsj
…
“This is what Fannie and Freddie were designed for,” the New York Democrat said. “To have the public purpose and use private-sector knowledge and dollars.”
Prospects for Mr. Schumer’s bill would have been slim several months ago, but credit-market turmoil has led many Democrats and some Republicans to call for the companies to step up their activities as worries about defaults and a weak housing market keep other investors on the sidelines. Fannie and Freddie buy mortgages and repackage them as investment securities, but are bound by limits on size and types.
The Bush administration has opposed changes similar to those proposed by Mr. Schumer, but White House and Treasury officials have been under growing pressure to address the market turbulence. Last week at a hearing in the House of Representatives, Democrats repeatedly challenged the Treasury undersecretary for domestic finance, Robert K. Steel, to reverse the administration’s stance regarding the companies.
Mr. Schumer’s bill would raise the portfolio caps at each company by at least 10% for one year, while requiring Fannie and Freddie to devote half of that increase — roughly $73 billion combined — to helping borrowers with certain high-risk adjustable-rate mortgages refinance into more-affordable products.
Because of past accounting problems, Fannie and Freddie aren’t allowed to expand their portfolios beyond strict limits set by their regulator, the Office of Federal Housing Enterprise Oversight, until they finish overhauling internal controls. Fannie’s portfolio is capped at $727 billion, and Freddie’s at $728 billion, though Freddie Mac can increase its portfolio 2% a year.
Mr. Schumer’s bill would also allow the companies for one year to purchase loans of as much as $625,000 in high-cost areas. Currently, they aren’t allowed to purchase mortgages above $417,000. Democrats have argued that Fannie and Freddie should be allowed to purchase more-expensive mortgages to provide liquidity to a broader group of housing markets.
It is unclear how Senate Banking Committee Chairman Christopher Dodd (D., Conn.), and House Financial Services Committee Chairman Barney Frank (D., Mass.) feel about Mr. Schumer’s proposal. But the two chairmen have argued that Fannie and Freddie should begin playing an expanded role in mortgage markets immediately.
Last week, Mr. Frank said he planned to introduce an amendment that would also dramatically raise the loan limit. He said the amendment would be attached to a bill, supported by the White House, that would give the Federal Housing Administration more flexibility as an insurer of mortgage loans.
Some Republicans argue that allowing Fannie and Freddie to purchase high-cost mortgages would distract them from their mission to support affordable housing.
The House passed a bill earlier this year that would revamp oversight of both companies. It would also allow the companies to purchase more expensive mortgages in high-cost areas of the country, though not by as much as Mr. Schumer has proposed.
RE: Federal Housing Administration more flexibility as an insurer of mortgage loans.
The operatives at FHA/HUD are total fookin’ morons.
They are in the same league as FEMA.
These are the chucks that abandoned their original fee panel system; which by it’s rotational structure was immune to lender coercion and influence; to subseqently allow private mortgage brokers to select their own appraisers to do their deals.
I remember seeing what I would term “panic” bulletins posted in rep’s offices beseeching employees to come up with some ideas on how to liquidate the massives numbers of worn out heavily depreciated foreclosures they accrued in ‘90/’91.
My guess is many of these properties still remain in some boarded up vacant, rotting state somewhere-your tax dollars at work.
“the operatives at FHA/HUD are total fookin’ morons.”
This is a serious understatement.
Side note: It’s hard to have a normal life *and* keep up with the current housing and credit market news…things are happening on a daily basis.
Si, amigo!
Just think of all those out there who are clueless about any of what we’ve learned this summer, and they overwhelmingly tend to be the ones with decades worth of debt chained to their necks.
Case in point: one of my really good friends has listened to my bubble rants for more than a year. She actually said yesterday, “Have you noticed all those homes for sale up the street? Kind of makes you feel like they know something we don’t.” (I just looked at her and shook my head)
She probably didn’t listen. Just heard you and thought about what is on TV.
Here’s a nice portrait of the clueless…
http://www.youtube.com/watch?v=MxFx0NzSjWw
It’s also hard to get any work done while I’m trying to catch up on my reading on this site.
Just what did everyone do with their time before finding this site?
My closets were tidier.
I used to follow electoral politics rabidly, but no matter how strong your moral conviction that you have to try to make a difference there, even the strongest among us take huge leaves of absence from it…it’s soooo disgusting and discouraging.
BS’d in daytrading rooms. But that’s really boring.
I read real estate ads and wanted to buy a house…:)
Spent more time working.
Painting, lots more painting. I’m sure Maimeri Puro, Blockx, and Winsor & Newton would like to have a word with y’all about their declining revenues >; )
Volunteer and research. But I had a very dated skill set. This blog has immeasurably improved those skills.
“Just what did everyone do with their time before finding this site?”
I do collections and bankruptcy tracking (corporate) and things have been quiet. I think that is about to change.
“It’s also hard to get any work done while I’m trying to catch up on my reading on this site. ”
You said it, Blano. I can’t get anything done at all. My boss is going to kick my butt- what do I tell him, that I am waiting for the “other shoe to drop”? The anticipation is building and building every day, gluing me to my monitor. I can’t leave the site for more than a few minutes.
I was beginning to think I was the only one with a job on this blog…(just kidding for those of you who cannot sense these type of things.)
Unfortunately I’m so overqualified for what I’m doing right now I can almost do nothing for a week and take care of it all in a couple days.
Agree!
Yeah, and my friend just called to ask me for help installing the cabinets in his “flip” home. His wife, the realtor, is suffering from depression and can’t get motivated to work on the house. Sigh..
That’s what I wondered about “flip homes”, if the flipper was motivated to do the job right or just to cover it up with plaster and paint.
Seriously, after watching “flip this house” would any of you want to purchase that crap. I’ve yet to see one who actually had any experience and knew what they were doing. I’ve never seen such shoddy work.
I’ve never actually considered that kind of buy, fix it up, take way too long to do it then try to sell for top dollar stuff to be flipping. Flipping for me was just tie up a house with a contract then sell the contract. In and out. Most flippers give flipping a bad name.
So when do you think UT will realize “it is not different here?”
It’ll take time. Fast/testimony only comes around once a month. hehe
Seriously distracted here too! Sometimes self employment is dangerous to your welfare.
That’s a fact…
I’ll take my chances with self employment as soon as possible.
Yep.. I try to get a little bit done between posts!
I like how they can predict WHEN the housing fiasco will turn around without being able to predict how far prices will fall and what the economic fallout will be. I don’t think they understand that certain things HAVE TO occur (house prices fall, bad debt gets washed, investors get comfortable holding MBAs again, etc.) before the situation is over.
And anyone that thinks house prices will only fall 15-20% is a fool. 50% is going to be the norm.
super bowl 06 super bowl 07
the turnaround predictions are predictable
House prices (comparable houses in comparable neighborhoods, not median prices) have already fallen 15 to 20% in most locations. As others here have said, areas that saw the greatest price increases from 2001 to 2005 will see the greatest declines. So another 15 to 20% may be all we see in places like Tennessee, Iowa and Ohio. But Florida, California, Nevada, etc. have a long way to go. And condos? I would hate to predict how low they will go before prices stabilize.
I’ll take a stab and say condos will decline 80-90% before we hit bottom. They have always been a horrible investment (high holding costs) and other than the truely rich I could never understand who would actually want to live in and own one.
During the mid 80s downturn in Houston some condos went for 10% of the original price. But you had to have cash.
“horrible investment”
They are also about as distinctive as pork bellies when a down market leads to mass liquidation of the invester-owned condo stock.
One more point: Unlike in past busts, when uniqueness factors helped custom SFRs weather the effects of falling prices, large McMansion tract home developments with many near-identical invester-owned units in the foreclosure process may lead to condo-sized price declines for SFRs this time around.
RE: I’ll take a stab and say condos will decline 80-90% before we hit bottom. They have always been a horrible investment (high holding costs) and other than the truely rich I could never understand who would actually want to live in and own one.
You can cut and paste in the word “McMansions” for condo.
Total and complete white elephants in a world of rapidly diminishing resources.
In our area in NE Ohio our prices have been sideways or slightly down for about the last 3 years, so I doubt we’re going to see another 15-20% drop. Our bubble (if you want to call 1-2% a year a bubble) stopped long before some of the rest of the country started booming. Now some of the big cities in Ohio may be a different story. Here, every boom, we barely go up 1-2% a year and sometimes not at all. Part of it may be that our housing is still in line with income, and our property taxes, insurance and cost of living is not out of line with income either. I’ve been thru quite a few recessions and we stay stagnant or drop a few percent. The bubble areas are where I wouldn’t want to be right now. Anyone who bought during the 200%-300% increase is going to take a bloodbath. Ohio’s big cities do have lots of foreclosures.
I’ll take a stab and guess that the median value and median household income are also fairly close to the 29% DTI ratio.
If that’s true, then I preduct a small dip. But in places where we saw 300% price increases and stagnant wages (sacramento anyone?), there will have to be major pain to achieve parity.
And never forget the boomer-led death & retirement inventory (DRI) that will need to be address in all areas. I think we get so involved in the affordibility indexes that we forget about this potentially crushing event and it’s aftermath.
The correction will be steeper, faster than previous corrections, thanks to the greater velocity created by the internet (which wasn’t useful in the last correction for housing). And of course, it will overcorrect, as usual.
I don’t know if the overcorrection will be greater because of the increased velocity. IF so, then true panic will set in, and you will see very, very, ugly political and social behavior. Unlike those ever seen before in this nation, because many of the moral controls that were in place in previous economic downturns have been removed.
“…Unlike those ever seen before in this nation, because many of the moral controls that were in place in previous economic downturns have been removed…”
Expand…
Buy guns. And lots of food and ammo.
Really dumb question: How can the FFR stand at 5.25 percent, when the 3-month T-bond yield is at 3.92 percent (down 13.5 bps already today)? By contrast, the 3-Month Libor rate is at 5.70 percent. Can someone please offer comment on what appears to my untutored eyes to be a very peculiar situation?
http://www.bloomberg.com/markets/rates/index.html
30 day LIBOR is at 5.80… Real pain for business that work of this index…
Supply/demand, i think. We retail folk can easily buy short term treasuries, but have no way of buying the Libor equivalent.
My foggy recollection from a money and banking class I took over ten years ago suggests there is a strong link between T-bill yields and the FFR?
Different markets. Fed Funds are overnight transactions between banks. Banks usually don’t buy T-Bills, individuals (through mutual funds), municipalities, and businesses do.
I suspect that a lot of the T-Bill yield fall is from investors moving out of general MMFs into Treasury MMFs, and general MMF managers shifting funds from commercial paper to T-Bills.
Read Hubbard’s money and banking text then get back to us after you have eddicated yourself.
http://www.bestprices.com/cgi-bin/vlink/0321426703?id=nsession
Yep, you’re a tenured econ professor allright!
Give your students long and boring books to read while you go boinking the coeds and spend your summers in Fiji.
And doesn’t your doctorate go against my price to earnings ratio?
The fed funds target rate is a joke anyway. The fed has injected enough money that the actual rate banks are lending each other money in the U.S. is closer to 5% than the 5.25% “target” rate.
Banks borrowing from each other at 5% means they’ll borrow from you at 4-5%…. But people are saying “no thanks”, and putting it in treasuries instead, thus the t-bill at 4%.
The LIBOR keeps going up because the banks there haven’t injected liquidity fast enough to make up for the loss in people investing in commerical paper. Funds need money to cover their debts, and they are having to go to banks instead of private investors…. Demand for bank funds is pushing up the LIBOR rate.
It really comes down to… SIVs, conduits, etc. borrowed money short-term at low rates, and used the money to buy long-term assets like CDOs and MBSs that pay higher rates. Now, as the short-term money expires, the people that loaned them the money want it back instead of rolling it over, and when they get it back they are sticking it in treasuries and such instead of lending it out as commercial paper. Treasuries go down in yield.
So, the SIVs, Conduits, etc. either sell their long-term assets, which no one is buying, or they go to a bank to borrow the money at a higher rate of interest and they drain money from the banks pushing up LIBOR rates. Central banks inject liquidity trying to push rates back down.
And the SIVs whine for rate cuts, which would require even larger cash injections to cover….
The problem is, the long-term assets are seen as too risky, making them worth less, which puts the SIV at risk of collapse, whhich means the spread they pay above benchmark rates is higher. Eroding the difference between what they pay and what they collect, pushing them toward true collapse… meaning no one wants to lend them money without a wider spread… repeat viscious cycle.
What’s more, as a result of this forced absorption of loans onto the balance sheets of mainstream regulated banks, other types of lending will suffer. According to the Telegraph:
Britain’s smaller companies are facing collapse as a direct result of the credit crisis, leading organisations have warned, as banks claw back profit by charging the highest rate of interest on business loans since the late 1980s.
http://tinyurl.com/2johd3
It’s not standing at 5.25 pct. That’s the target not effective FFR. Apparently, it varies daily. Today it’s 4.86 pct. Look at table of data in link. According to the NY Fed:
By trading government securities, the New York Fed affects the federal funds rate, which is the interest rate at which depository institutions lend balances to each other overnight. The Federal Open Market Committee establishes the target rate for trading in the federal funds market.
http://www.ny.frb.org/markets/omo/dmm/fedfundsdata.cfm
The FED funds usually follow the market. The t-bill rate tells you that the FED will start reducing rates. The increasing spread between t-bills and the libor and commercial paper show the increasing fear. If this conitues the FED can lower rates but only the treasury and the safest banks will be able to borrow at near that level. The fear that underlining assets to loans are priced to high causes the spread and will make it difficult for normal borrowers to be helped much by a FED funds rate cut.
Roosevelt said it correctly when he said, “We have nothing to fear but fear itself”. He had the luxury of being able to make that statement AFTER most of the bad debt had blown throuh the system causing the Great Depression. Once the debts are destroyed by panic and deflation we can restart the debt game.
The process will take many years to digest.
Excellent post!
“‘It is like looking a client in the eye and telling them that their child is ugly,’ says David Rosenberg, chief economist at Merrill Lynch. ‘It is not what people want to hear.
That’s just laugh out loud funny…it’s a good thing I wasn’t sipping my water or my keyboard and screen would’ve been drenched!
It’s not funny when your kid is ugly.
“Employees remaining in the mortgage industry probably will have lower pay, including executives whose bonuses depend on profits and brokers who get paid on commission, said Bert Ely, an Alexandria, Virginia-based consultant.”
Let’s see… profit negative, so less executive bonuses (they never seem to go to zero). Commissions… oh… Those $4k to $8k per sub-prime option ARM seems to be gone. Gee… Conforming takes longer to do the paper and the commissions per transaction are half (or less) of previous loans. No more super rich just out of college mortgage brokers.
At least their Realtor ™ roommates will help with the rent. What you say? Awwww….
Bwaaa haa ha.
Neil
Mortgage brokers have college degrees?
My wife’s best friend, gold-digger extraordinaire, is married to a mortgage broker. Suffice it to say the high-flying days of driving an S Class and a Hummer w/vacations in Hawaii are over. The other day she actually started hitting on me, saying “I could be your second wife..(bat the eyelashes).” And I’m just a low six figure guy. Times are tough when golddiggers are trying to steal their married friend’s husbands that make half of what their old husband used to make…:)
Yikes. Sounds like your wife could use a new “best friend”.
tell your wife this story…
Fence, I laughed when I read this one (I’m a very visual person and at times it’s a curse).
Then I thought about it. A golddigger has no integrity, but you sir are truly a gentlemen.
I also second your wife needs a new friend…LOL.
You did tell your wife, right??? Or was she right there??
The wife already suspects her motives, but it isn’t just me, it’s anyone with money, and the wife’s not threatened at all. She’s also a family friend since birth so no getting rid of her I’m afraid.
OH NO no more Kal’s kittens….the Horror of these young kids actually having to work for a living!…..
http://www.youtube.com/watch?v=oouQbcXdyH0
Most real estate industry folks will be looking fora new line of work soon. Oh, could this be Kal’s Kittens?:
“The downturn in the housing market appears to have driven two Westchester homeowners to desperate and illegal measures.
New Rochelle Police raided a 3-bedroom home on North Avenue Friday night after undercover officers responded to a Craig’s List posting offering dominatrix services with a grand opening special. Police arrested four alleged prostitutes and the homeowners.”
How about this story concerning “realtor panic”. My son lives in Northridge in a cul-de-sac. Everyone gets on with each other and most of the sfh are owned by long time residents. My son rents. One of the rentals became available recently. The renter WAS paying $1,500 a month. The property is owned by a realtor. He now wants….$3,200 a month! Obviously, seeing as there are now a few dozen properties to rent in the area because they haven’t been sold, the realtor/owner is having a problem renting. Lo and behold, EVERYONE is the cul-de-sac had a letter in their mailbox stating that the houses were looking shabby, the grass was not being cut on a regular basis. Cars were being illegally parked, etc. The letter stated that unless owners and occupiers cleaned up the street and their houses, the city would be informed and citations issued. Wow! Realtor panic, folks!
$3200 in Northridge? He is out of his friggin’ mind! That place is a complete dump…and hot as hell in the summer.
He couldn’t even get that in a marginal area of the Westside (Palms, Culver City).
As I posted yesterday on another thread, I am currently looking for a 3bd rental in Westwood. From what I’ve seen, you would start at around 3K for a condo, all the way up to 5,900 (asking) for a nicer house with a yard. Westwood prices in Northridge? No way.
“$3200 in Northridge? He is out of his friggin’ mind! That place is a complete dump…and hot as hell in the summer.”
That makes half of LA County “a complete dump.” Then, of course, we have San Bernardino County. Where are the poor folks to live?
Jas
“That makes half of LA County “a complete dump.”
I think you are actually being quite generous. I would venture to say that more than 75% of it is.
No offense to your son, of course. His cul-de-sac might be nice and there are OK pockets, but the town itself is full of illegals and AB factory workers that bought in cheap after the earthquake in ‘94.
Someone’s option-ARM just reset. Adding to that pain will be the pain of having no rental income, as more than doubling asking rent in a weak rental market flooded with tons of supply from thousands of new “accidental landlords” is a sure-fire way to keep away tenants.
Pigs to the slaughter.
Last I read, grass not being cut “on a regular basis” was ok as long as the yard was somewhat kept up. Northridge isn’t Irvine with its strict HOA’s.
As to illegal parking, what is the Realtors ™ definition? The city has to come out and chalk a car tire to prove its been their too long.
Someone needs to tell this Realtor that rents are declining.
Got popcorn?
Neil
Mike-
How about that house on the n w corner of Tampa, and I believe Devonshire (two majors) with a flat roof (that one). I inquired and the rent was $4,500 a month.
SFH rents are way out there. That’s why we went mo to mo in an apt w/utilites paid after selling our McMansion. Owners of rentals are delusional.
We pay less in rent for Pacific Palisades and we just moved this year (i.e., it isn’t a long-standing sweet deal). $3200 in the valley is a non starter.
For a 3BR? Where in the world did you find that?
Just a 2 BR (and about 1700 square feet). I didn’t read the thread closely enough. It is in a condo community in the highlands. I should add that we were looking for months before we moved, but I still wouldn’t pay close to that amount unless it was a pretty nice location.
I live in an established neighborhood in South Florida, with an association. There are quite a few neighborhood Nazi’s that are CONVINCED that the reason house prices are going down here is due to minor infractions of the association rules, such as hedges 6 inches too high, mailboxes leaning a few degrees from vertical, a small stain on a driveway, etc. They have no concept of pricing factors outside these gated walls. Many are women that do not work, and I ask them - “you think your house should be worth $750K, about how much does someone need to make to qualify for a mortgage on that”? They come up with answers like $100K, or $125K. When I tell them $250K, they call me a liar.
We were in a Nazi/Yuppie HOA, so I can relate.
Rent ‘Over The Hedge” (a recommendation from this source). It truly understands life in a PUD (Planned Urban Development/HOA Land) and the yuppies who thrive in them. Its a cartoon, and was written by someone who had a clue. Its one of those 2 level cartoons -parental humor on one level w/ kid humor on another.
I first read this as “everyone gets ‘it’ on with each other…..
Sorry, I’m just deprived.
From easy money to gimps in just a couple of years…
” “The R-word is usually avoided by Wall Street’s economists. It tends to be a conversation-stopper when investment bank clients are told to prepare for the worst.”
“‘It is like looking a client in the eye and telling them that their child is ugly,’ says David Rosenberg, chief economist at Merrill Lynch. ‘It is not what people want to hear.’”
I wish the masters of the universe, intellectually supreme, “cleverest in the room” Wall streeters would put their big people pants on.
It’s like looking a client in the eye and telling them it was all a big sham…
–
Rosenberg is my favorite Wall Street economist. He did waffle few months ago but he is back on track.
Jas
Don’t look now, but Japan’s economy is reportedly contracting. Time to pump in more liquidity?
Japan’s economy shrinks 1.2% in quarter
Slowdown is greater than expected; Bank of Japan seen on hold
By Chris Oliver, MarketWatch
Last Update: 7:08 AM ET Sep 10, 2007
HONG KONG (MarketWatch) — The Japanese economy contracted at the fastest pace in more than four years in the second quarter, raising concerns that what’s been a corporate-led recovery may be losing steam as capital expenditures also fell sharply.
Japan’s economy shrank 1.2% in the April-to-June quarter from a year earlier, revised downward from a preliminary estimate that had pegged growth at 0.5%, the government’s Cabinet Office said in data published on its Web site Monday.
‘The risk that the corporate-sector recovery peters out before wage growth starts picking up appears to be on the rise.’
— Hiroshi Shiraishi, Lehman Brothers
Economists had expected the economy to contract by 0.7% from the year-earlier quarter.
Moreover, capital spending by Japanese businesses contracted 1.2% from the previous quarter, the Cabinet Office said.
http://www.marketwatch.com/news/story/japans-economy-slows-more-expected/story.aspx?guid=%7B77D05F9D%2D0E2B%2D4F9C%2D9260%2D5F62127B0015%7D
From The Times
September 11, 2007
Investors’ confidence slumps as growth grinds to a halt in Japan
Leo Lewis, Asia Business Correspondent
Japan’s economy suffered a shock reversal in the second quarter of the year as companies reined in spending and the country’s longest postwar period of growth ground to a halt.
In a heavy blow to investor confidence, the Government revised its previous estimate of 0.5 per cent growth during the April-to-June period and said yesterday that gross domestic product shrank by 0.3 per cent from the previous quarter.
Analysts now see potential risks for a number of Japan’s growth stories, including the recent recovery in property prices in big cities. Exporters such as Toyota, Sony and the machine toolmakers - significant drivers of the economy – are expected to suffer as the American economy weakens and the yen continues its rise.
Although markets responded to the news by punishing Tokyo stocks, analysts played down the impact of the Government’s numbers. Takehiro Sato, an economist at Morgan Stanley, said in a note to investors: “We do not think the Japanese economy is on the brink of a fresh recession.”
CLICK!
http://business.timesonline.co.uk/tol/business/markets/japan/article2426208.ece
Don’t know if this help tx, and feel free to ignore PIMCO quotes
http://tinyurl.com/2tyugx
In recent weeks, both the shrinkage of the asset-backed commercial paper market and the rising costs of LIBOR, or the London Interbank Offered Rate which is used as a benchmark for many loans around the world, is putting borrowers under a lot of pressure, the note said.
The seizing up of parts of the commercial paper market is leaving some banks “with a liquidity crisis — a need to tap their back-up lines of credit … and/or to liquidate assets at fire sale prices,” McCulley wrote.
“That is precisely what has been happening in recent weeks, as evidenced both by a near $200 billion plunge in asset-backed commercial paper and soaring spreads between the Fed’s fed funds policy rate and LIBOR,” he wrote.
Federal Reserve data showed last week that the U.S. commercial paper market has shrunk 13 percent in the past month.
“Federal Reserve data showed last week that the U.S. commercial paper market has shrunk 13 percent in the past month.”
That’s shrinkage, all right. I guess the commercial paper market spent too much time in the pool.
chuckle.
My rough estimates are that the commercial paper market has to shrink to half the size it was end of July by end of October.
So the rate needs to get to ~20% “shrinkage” per month for the short term. OUCH!
Got popcorn?
Neil
Yes, but is this a bad thing, how much of that paper was for non-productive RE or leverage buyouts. If this means that some of the speculation is out of the market then it’s a good thing, if it means that productive lending is down then it’s a bad thing.
“If this means that some of the speculation is out of the market then it’s a good thing, if it means that productive lending is down then it’s a bad thing.”
Aye, they’re the rub. Does this just mean the “asset” backed stuff is going away, or that ongoing businesses cannot finance their operations.
“”amid what CEO Kerry Killinger on Monday called a ‘near perfect storm’ “”
Since Killinger was one of the people who was dancing the RE Rain Dance he is now surprised that there is now a big storm. What did you expect when you were handing out loans to anyone who could fog a mirror and a few who could not even manage that.
” You are talking about a $23,000bn asset class – there is nothing on the planet as big as that,’ says Mr Rosenberg, who is predicting a fall in house prices nationally of up to 15 to 20 per cent.”
I will re-post a comment I had from a few weeks back regarding a 15% haircut from home equity:
As the 4% subprime/no-doc “vital few” borrowers default, they have triggered an avalanche will will soon affect 64% of all mortgage holders. Here are the numbers from the FDIC’s own Financial Services Fact Book: 24.7 million homes are owned “free and clear,” with no mortgage, and about 50 million have mortgages of one kind or another. About 10 million homeowners have equity lines of credit as well as a mortgage–in effect, second mortgages. There’s about $9 trillion in home mortgages on the books, and $500 billion is due to re-set higher. The total value of US residential property is now around $19 trillion, according to the Joint Center for Housing Studies at Harvard University. The US Census Bureau calculates that there are around 123.9m housing units in the US. (ED: this includes condos and rental apartments)
Total household debt is $11 trillion: $9 trillion in mortgages and $2 trillion in revolving credit (credit cards, etc.) That means net equity for all 75 million American homeowners is $8 trillion ($19 T - $11 T = $8 T)–including the 25 million households who own their homes free and clear. What if we subtract those folks? Since 1/3 of all homes are owned free and clear, let’s assume about a 1/3 of the $19 trillion is represented by these mortgage-free homes.
That’s $6.5 trillion, which means all 50 million mortgage holders are left with a grand total of $1.5 trillion in net equity. If housing values decline 15%, that’s a $2.85 trillion haircut off net equity. If we set 2/3 of that against mortgaged real estate, (the other 1/3 being a decline in the value of free and clear homes), then the decline collectively suffered by all mortgage holders is $1.9 trillion–enough to put them in a negative equity hole.
Got equity??
Ken
It’s a bit surreal reading all of this stuff in the media that people on the HBB were saying over a year ago. I guess we know who the “smartest people in the room” really were…
One should be careful to make allowance for smart people who are also mendacious.
And who talk over my head…. : )
I had to look it up! Not sure how I’ve completely missed the use of the word mendacious in my 29 years, but glad to have it now.
Next step in your education: Rent “Cat on a Hot Tin Roof” (1958 big screen version starring Elizabeth Taylor, Paul Newman and Burl Ives), and find out what Big Daddy had to say about mendacity…
http://en.wikipedia.org/wiki/Cat_on_a_Hot_Tin_Roof
my wife and I went to an open house this weekend in the Los Angeles area. The home was an obvious flip listed at $750,000. I felt bad for the realtor and the owner, who was sitting at the kitchen table telling it was a great deal cause the heating unit was brand new and cost $20,000. Looked at the sign in book, only three names in 2 weeks.
Anyway, the guy called me later on and I told him if he was willing to go down at least 25% then I would be willing to talk. He said no way and hung up the phone. Called me back a few hours later and said maybe we can work something out and that we should meet again face to face. Didn’t call him back..what a CLOWN!!!
I would never insult a CLOWN by calling him a realtor.
Atrain,
I hope you were just toying with him. The last thing you want to be after getting all the dirt here is a future knife-catcher. Wait ’til Mr. Greedbag FB’s house goes into foreclosure, goes to autction then gets sold back to the lender (by the lender’s shill bidder bidding the exact amount owed + any liens). Once it’s a bona fide REO, wait until the lender is in dire straits (shouldn’t take too long) and then lowball them for at least 50% off.
Remember that prices in L.A. County have tripled since 2000. Factor in 2000 pricing + inflation, and you have a rough approximate ‘fair market value.’ Another excellent method: price = not more that 100-120X monthly rents it could generate. You may also want to Google “cap rates”. Good luck.
A $20k heater, in el lay?
Shhhhh….
Depends what kind of “heater” you’ve got in mind. Given the gun-control laws here, the fully automatic ones with silencers are pretty hard to come by
.
I was surprised the realtor called me regarding the house, and the first number that came to my mind was 25% so I said “at least a 25% discount.” I won’t make that mistake twice…..
My wife and I are in no mood to buy for at least another 1 to 1.5 years. The worst thing to do is have equity disappear because that means all the scarifices made over the time frame needed to save that amount was useless.
So to prevent that, we are going to see how things play out over at least the next year.
The fact he called you back is very telling…
“Housing Slump Forces Couple to Open Brothel”
http://wcbstv.com/topstories/local_story_252232548.html
sorry if it’s off topic, just too good to resist
Richard Werner and Heather Mezzenga are charged with promoting prostitution. The two are both mortgage brokers who moved out of the house roughly two years ago so they could begin renovating a home on Mountain Road in Pleasantville.
That story is too funny! If all the realtors, mortgage brokers, appraisers, etc get wind of that, it’ll be the next new boom. They’ll be falling all over each other to open brothels in all their “investment properties” they can’t sell.
Perhaps we’ll see more of this as people look for ways to help pay their mortgages. Two mortgage brokers couldn’t sell their house so they turned it into a brothel. Here’s a thought, perhaps this could be part of Bush’s homeowners’ bailout plan. Everyone would be happy. People could keep their houses, banks would be paid, housing prices could stabilize, and consenting adults would be satisfied by getting some. It’s a win-win all around.
http://www.minyanville.com/articles/index.php?a=14045
This story has (open) legs!
The word of the day is legs. Spread the word.
Perhaps the next bubble will be in prostitution?
You have to scroll down to point 4.
Fantastic!
Point
The Fed Should Cut Interest Rates by 100 Basis Points
By Steve Forbes, Billionaire
I believe the U.S. Federal Reserve should cut their key interest rate, now at 5.25 percent, by 100 basis points when it meets Sept. 18 to solve this ongoing liquidity crisis.
However, the Fed should make it clear that while they’re going to solve the short-term crisis, they will, over the next year or so, start to mop up the excess liquidity.
Counterpoint
The Fed Should Give Me a Sandwich
By Jerry, Homeless
This is a different type of Bush bailout isn’t it??
And Kal’s kittens would still have a job…
“‘When you’re born in a boom, you generally die in a bust,’ Countrywide CEO Angelo Mozilo said…. ‘Most of the companies that are gone have never been through a period like this.’”
Put a sock in it OrangeMan. The only thing saving your bacon is FDIC.
Born under a bad sign
I been brown since I begin to crawl
If it wasn’t for bad luck,
I wouldn’t have no luck at all…
anyone know what the average commission on a commercial office rental is ? retail rental about $ 60,000 total rent per year
I’m thinking 10% minimum
tia
If it’s a five year lease the commission would be $18k
tx
commercial is starting to crack hard
some guy has a desperation ad at 60% of our price
What general location, 60% sounds crazy this early in the game…
As off topic as this is, I want to ask it regardless:
I have been following this blog for quite some time, and frankly it’s fascinating. I’m a licensed realtor in VA, but never even bothered to pursue it, and instead I’m working IT for a government agency (and extremely happy at that). This whole thing has me fascinated.
But, can anyone suggest some good “foundational” books on US / global economics? Obviously it is not a simple topic, but I’d like to dive in as much as possible. Any suggestions? We all have to start somewhere.
Try “Economics for Dummies” at amazon.com
And then search some investment sites like “Investment U” or Mish’s Global Economics for a blog on what’s going on with markets and gold.
Ive been learning a crapload by just lookig stuff up on wikipedia.
http://www.spiegel.de/international/business/0,1518,504406,00.html
Britain’s Coming Credit Crisis
With the average home now costing $370,000-roughly 11 times the average salary-housing is less affordable than at any time in the past 15 years.
Sounds like they are even more hosed that we are.
My wife has dealings with people in London. She wonders how they manage to live there given what things cost relative to their (not terrible) salaries.
It’s nice to know someone in the industrialized world is in worse shape that we are. Possibly.
Housing market “appears to be weaking”, i think this is the same as our Gov’t who was informed of a impending weather disaster in the gulf coast and said it appears that it may occur?
I posed this before, and I understand your answer *is not investment advice*, but where the frick should I keep my loot?
Is VG Money Market cool for now? What’s going on?
I thought just predicting the bubble and delaying a home purchase would be fine, but it appears that that might not be enough.
I just sold some mutual funds and stuck the money in Vanguard’s Prime Money Market Reserves (VMMXX). The fund does have some exposure to commercial paper, but it’s all very short term. If you’re willing to accept 50 points less yield, their VMPXX fund only holds U.S Government and Agency debt. If you’ve got more than $100K to put there, check out the Admiral TMMF to get a break on the expenses. I’m thinking about throwing in some extra moolah to get the Admiral deal.
There is one and only one “safe” way to hold “dollars” (that is, safe except for the likelihood that they will become worthless): T-bills. Anything else exposes you to risk from whatever garbage the money market, bank, etc., isn’t telling you about.
Short term commercial paper does not mean “not exposed to subprime or mortgage CDOs”. Check out some of the material that ha come out lately on this subject.