Bits Bucket And Craigslist Finds For September 21, 2007
Pleae 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.
About Me
Name:Ben Jones
Location:Northern Arizona, United States
To donate by mail, or to otherwise contact this blogger, please send emails to: thehousingbubble@gmail.com
PayPal is a secure online payment method which accepts ALL major credit cards.
Links
-
May 2024 M T W T F S S « Sep 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31
Photo Submission: hbbphotos@gmail.com
View the HBB Photo Gallery *updated 4/13/2008
We are doing everything we can to shore up the comments database. Sorry for the downtime.
No need to apologize. This is the best site for real info in the internet on real estate. Bar none.
Thank you Ben.
Kudos to you Ben…
$end $ome $emollians his way, via paypal…
shouldn’t he start accepting euros?
GoldPal?
It’s all good Ben, but do realize that this goes beyond needing to post a comment. If I can’t vent some bad things start to go down. Picture me chasing my wife around the grounds with one of my Joshua trees in the midst of a “HERE’S JOHNNY!!” moment. Not good, not good at all. All MSM and no HBB make ex-nnvmtgbrkr a dull boy……..
No kidding. I’ve got HBB track marks all up and down my arms. If I don’t get my fix it’s not good for anybody.
No problem, Ben, no need to apologize. I’m just glad you started the blog.
Mattel apologizes to China for toy recalls.
I am sorry, but WTF!?!!
http://tinyurl.com/2svb6g
That is one of the most bizarre articles I have ever read. Just two days ago there was an article that Chinese made toys had as much as 150 times the minimum allowable level of lead. And now here’s a US corporate head bowing and scraping to China and reversing himself. Something’s up, that’s for sure.
“Li reminded Debrowski that “a large part of your annual profit… comes from your factories in China.”
You tell ‘em, Li. Don’t ever let them forget it.
Who’s your daddy now corporate America?
“Li reminded Debrowski that “a large part of your annual profit… comes from your factories in China.”
You tell ‘em, Li. Don’t ever let them forget it.
They forgot to mention that in front of all the reporters, Li took off his belt and began whipping the Mattel executive’s butt, screaming “Who you daddy?”, while the executive said “thank you sir, may I have another?”
Charles Hugh Smith at oftwominds.com had an interesting article a few weeks ago on how American companies’ profits are dependent upon cheap Chinese labor.
As far as the apology, the Chinese are big on maintaining “face”, and thus we have Mattel apologizing for the recall b/c they know how Chinese culture works.
I think corporate and Wall Street honchos, along with some of our elected and appointed officials, are going to learn the hard way that globalization is a double-edged sword that cuts both ways. Unfortunately, we on Main Street are having to learn that unwanted lesson as well.
However, wouldn’t it be fun to see some of DaBoyz “chastised” by China for the worthless debt instruments they packaged up and sold? Because I have a feeling simple apologies alone wouldn’t cut the mustard with China.
“Because I have a feeling simple apologies alone wouldn’t cut the mustard with China.”
Are you thinking of being forced to walk the streets wearing a sandwich board explaining your guilt?
“Because I have a feeling simple apologies alone wouldn’t cut the mustard with China.”
Oh, like when they executed their state head of pharmaceuticals guy recently? With bullets?
Uh, yeah, Olympiagal, that’s what sort of came to mind. All these rah-rah profit and capital types are embracing globalization in a big way, but it looks like mass rape to me.
I used to be a huge fan of Ayn Rand and in theory, it’s all good. In practice, not so much, it would seem. I’m completely disgusted with the state of business in this country and on this planet and all the government backed social engineering.
Decent people have rights, too.
“Decent people have rights, too.”
Well, they may not be decent, and they may not have rights, either. Both are irrelevant. The important point to remember is that they’re a whole lot of them, and if they can’t get they’re hands on a gun, they’ll find a machete, and if they can’t get a machete, they’ll get a rock, and if they can’t get a rock, they’ll use their bare hands. Let’s just hope there’s someone overseas where we can direct all that killing potential…
“Li reminded Debrowski that “a large part of your annual profit… comes from your factories in China.”
This sounds suspiciously like blackmail. If Mattel doesn’t take the blame, China will undercut Mattel’s profit. And what kind of “design flaw” allows for leaded paint? The same design flaw that put melamine in the pet food?
it does make for some fun speculation. What would have happened if the CEO refused to take blame (assuming it was really China to blame)? Would China really refuse to make Barbies and put all those people out of work?
—
btw, the article on MSNBC.com is rated at 2.5 stars out of 5. Maybe J6P really wanted to blame China and is disappointed that Mattel is taking the blame.(?)
So the Chinese don’t want to lose face…well the Mattel exec. just gave up his azz. If the dollar keeps dropping, Mattel can relocate to Alabama.
and maybe that IS the game plan. BB and Co. are intentionally inflating prices and depressing the US economy so that out of work folks will accept lower wages and thus migrate some of the manufacturing base back to the US. Only problem there is the huge gap between US cost of living and the places where all of those jobs have gone. But think about the Steel Industry. When it tanked the jobs were replaced with low paying service and retail jobs. Nothing like a “controlled” depression to make folks willing to take work at any scale. Could backfire though. Could wake folks up to the point of revolt. Nah, sheeple can’t rise to that challenge.
I think they are just trying to lead us on…
The reason was reported several weeks ago that the Chinese companies manufactured to Mattel Specifications. That is also why Mattel got reamed by Congress.
Mattel owed an apology. “Things are seldom what they seem, Skim milk masquerades as cream; Highlows pass as patent leathers; Jackdaws strut in peacock’s feathers.” Gilbert and Sullivan
“The reason was reported several weeks ago that the Chinese companies manufactured to Mattel Specifications.”
Really? Mattel’s specs called for lead-based paint? Hmm. Where did you learn about this?
Mattel did not specify lead free paint.
And it was reported in every major newspaper. It was first reported in China Daily back in August.
It also admitted that Mattel’s lead-related recalls were “overly inclusive” as the company were “committed to applying the highest standards of safety for its products”.
“The follow-up inspections also confirmed that part of the recalled toys complied with the US standards.”
“Mattel did not specify lead free paint.”
Mattel didn’t specify uranium-free pain either.
We all know what happened. Mattel contracted out to a Chinese manufacturer, that manufacturer subcontracted out, and so on down the line, until in some Chinese village a low-level guy decided he could get away with increasing his profit by tossing in a batch of old lead-based paint.
Most of our apple juice is from China now. Few people know that. Do companies need to put “no human hair additives in apple juice” into their specs?
We are never going to mass-produce toys here again. It just ain’t gonna happen unless assembly line robots become far more sophisticated and much cheaper. Meanwhile, if China decides to get cocky and “demand an apology to save face,” we should consider looking for other vendors. There are plenty of places around the world with large pools of cheap labor.
Most of our apple juice is from China now. Few people know that.
We pretty much stopped buying apple juice some time ago. I remember the first time I saw the China label on the juice bottle, and thinking “have we lost our minds?”
I’ve looked at apple juice labels recently and I cannot tell where it came from - I think our local grocers are “too smart” for that, as many more here in the Alt-A Bay Area have begun to get choosy about where their food is produced.
I’m waiting patiently for the day “food from China” becomes a major issue.
Lou, I enjoy your writings. I will not disagree with you. That the individual companies subcontracted to the lowest bidder is fact. That the American companies paid for most of the recalls is also fact. I do not blame the Chinese companies (over 50% are foreign owned). Nor do I fault the Chinese workers that are trying to get a better life.
I do believe that your anger is better reserved towards the US policies that encourage, through negative tax incentives, the elimination of US companies’ internal investment and thus the mass exportation of jobs.
It is a shameful example of how to create false wealth. Corporate internal investment has never been this low. This results in short term profits and screw the future. The sole reason for the LBO firms. Your current example that will be a case study for years to come is TXU. The company was in the process of creating new power plants and they have all been scrapped in favor of short term profits. The company then will be sold back to the stupid investment companies in a few years time and only the schmucks in Texas that have rolling blackouts will be upset.
Globalization IMHO is a good thing. It has raised the standard of living in the world dramatically. Our economic policies have not kept current. The US is at a disadvantage.
“Globalization IMHO is a good thing. It has raised the standard of living in the world dramatically”
So they say. Hoz, I am a fan of your posts, so I ask this question seriously, not saracastically. Where in fact has the standard of living been raised dramatically in the world? China? Doesn’t quite seem that way to me. Oh, China has been industrialized, for sure, but choking on pollution and wading in and drinking toxic water doesn’t seem much like a raise in the standard of living, not to mention working in substandard conditions for substandard pay. India? Perhaps. But then, why so many Indians clamoring to live here? Mexico and other parts of Latin America? Again, why so many pouring into this country? Russia? Again, why so many coming here? Middle East? Why so many in Europe? Africa?
It just seems to me that if the standard of living has been dramatically raised in the world, people would feel that there was opportunity where they are and stay put.
“It has raised the standard of living in the world dramatically.”
But caused the standard of living in the US to decline, in some areas dramatically. And we are still sliding. I respect your point of view Hoz, but it is clear that safety is an alien concept to the Chinese. Unknown thousands of pets were killed by melamine–all done by Chinese in pursuit of profits.
If you had a kid sucking on lead paint produced by Mattel, knowing what it does to brain development, it might matter to you as well. Chinese produce not only most apple juice, but food preservatives and vitamins–in conditions which have not been examined and containing who knows what.
You are free to buy and use what you like…but me, I wouldn’t buy processed food from a major American manufacturer…General Mills and Kellogg refuse to acknowledge what Chinese additives are in their products.
China has fouled it’s nest, with filthy air and water, and they routinely use human sewage as fertilizer on farms.
I’m concerned with American living standards, and with enforcing the laws and regulations that ensure safety.
You can rely on the Chinese to be deceptive on safety…witness their response to SARS and their current stance on the pig pandemic that they are doing their best to cover up.
My costco carries Martinelli’s apple juice, which is made out of USA apples. It costs roughly 2x of Tree Top (Chinese apple juice), also at Costco. However, Martinelli’s is not watered down, and Tree Top is. If you dilute Martinelli’s w/1x water it tastes exactly the same at Tree Top.
It is difficult to describe the poverty in South America in the early 90’s. A complete lack of medical care, no education, no roads, no electricity and in general a life akin to Haiti’s today. There are more illegal residents moving back to Brazil than are trying to come to the US. The opportunities in Brazil are greater. A fellow HBB’r “Pen”, posted an article on Framingham, MA that had businesses closing down because of the emigration to Brazil.
China in 1989 was similar to the DPRK of today. Malnourished citizens under totally corrupt government with few if any prospects for a better life. Today China faces the problems that the US faced in the 1960’s, pollution, water. There is incredible discrimination in China, Yet 5 million Chinese will graduate with college degrees this next year. The only bar to admission to a University is lack of intelligence. In the 1980’s only 500,000 had a chance for a college degree. 40% of all earnings in China are saved.
Then we can consider Eastern Europe under the soviet empire, the only semi-reasonable place to live was East Germany and we all saw what a hell-hole that country was in 1989. If you go to Poland these days the paved roads actually go out 50 miles from Warsaw! I am looking at some property in the Republic of Georgia on the Black Sea. In a year this country will be part of NATO. The Republic of Georgia has inflation of 7.2%, but its currency has appreciated 20% against the dollar in the last three years. With a flat tax rate of 12%, it looks pretty attractive compared to a lot of other places. The Caucasus mountains are beautiful. The country will become part of the EU.
I will not mention the other soviet countries other than to point out that the baltic states already have a high standard of living. And the standard of living is projected to go higher.
I think your information on India’s citizens wishing to come to this country may be a year or 2 out of date. I know several Indian traders that have gone back to India because they were offered a lot more money to work on the Sensex than the Million plus they were making from New York. India is trying to get many of its expats to return. There is work in India.
I grant you that Mexico is still a major problem, one of the reasons is that the US treats Mexico as its private fiefdom. It is in the US financial interests to keep it as a source of local low cost employees. Should China obtain a FTA with Mexico the standards of living will rise.
There are problems with globalization, but with very little forethought the dislocations in the US could have been prevented. The US funded all these expansions for short term profit without looking at long term consequences. As a result the US is $9T in debt and the debt is growing. In the meantime the companies that benefit have no allegiance to the US. Halliburton jumped ship at the first opportunity. I would not be surprised to see some of the chip makers jump next. Why should Intel stay a US company? Can other countries offer it long term options that would make it advantageous to move. I suspect so.
This is a world wide party. I wish we were invited.
“The time has come,” the Walrus said,
“To talk of many things:
Of shoes—and ships—and sealing-wax—
Of cabbages—and kings—
And why the sea is boiling hot—
And whether pigs have wings.”
Lewis Carroll
Thanks, Hoz.
This is what I meant by “jingoism.” America has had to recall more of what it has shipped to China than vice versa. Krutchfeld-Jakob tainted beef, for example? Inadequately tested pharmaceuticals? It is not fair to blame Chinese assemblers/packers/shippers for using defective American-controlled and mandated components.
A little perspective goes a long way, folks. You might want to actually spend some time in “China” before you make blanket condemnations.
Looks like weird face-savings rituals to me. I think the apology went like: “We’re sorry you are turning out lead-infested product. We take full responsibility for the design flaw.”
The reality probably went like:
1. Designer put out a red fire truck. He spec’d some pantone color red.
2. The engineer in china went to the shelf and mixed up red from whatever was there. Lead-red #4.
3. Product blowup occurs. Designer slaps his head, realizes that the paint shelf in china has all sorts of paint that has been regulated away here in the US. Says, hey these things happen.
Funny, as a kid in the 1970s I remember every toy - no matter how cheap - had “contains no lead” on the packaging - and sometime even stamped on the toy itself. The phrase was everywhere - its one of my few remaining clear memories.
To any parents out there - in the last decade - have toy makers remained so adamant about displaying “contains no lead”? Just curious.
Not that I have seen. However our mini blinds declare that they are lead-free (still doesn’t make them any less ugly), while the cheap garden hose I bought warns that it does contain lead.
We are not buying any mass-produced toys this year. The kids will be getting a lot of fun, non-toy presents like sleeping bags and musical instruments this year. My friend makes wooden toys in his barn, he is usually pretty busy and expects to be swamped this year - we also plan to put him to work.
I predict Christmas tension at the gather no moss household this year.
Just funnin’…
Who is your friend? You should tell us the name of his company in case we are interested in wood toys.
My friend is such a luddite that he does not have a web site. Nor does he ebay! However, I posted a website in another part of this thread that does point to a bunch of really cool toy manufacturers. Some of them surprised me, like k’nex, made in PA, which are available just about everywhere.
As per your other comment, right now my 2 y.o. is playing with a cardboard box, two rubber bands and an old towel. So I’m thinking I don’t have to buy *anything* this year, just rummage through the trash. (Only kidding)
I found a great toy store in Palo Alto that sells lots of wooden toys–imported though (I think they’re from Germany). I’m guessing they’re a bit more regulated than China…
This is just annoying. I will pay extra for any toy NOT made in China. Hear that, Mattel? ANY TOY NOT MADE IN CHINA.
Had a friend that went with her husband to Home Depot to buy a mallet. The first one he picked up said “made in usa” $10 the second one said “made in China” $5. She told him, pay the $10. If we all did this manufacturers would soon get the message. However we’d probably all be running around naked. Just try to find clothes made in this country.
“Just try to find clothes made in this country.”
You might find this site interesting. http://www.stillmadeinusa.com/ You could also try to make your own clothes (I have), but you might find it hard to find cloth made here. Finding high-quality knits (t-shirt, jersey, whatever) is impossible.
I don’t make a lot of my own stuff, but the work involved has me thinking that the cheap labor that produces most of our garments is tantamount to slavery. I think someday it will be a real embarrassment to us, if it isn’t already.
2 wks ago, I paid $20 for the PURDY paintbrush, not $7 for the Chinese one.
It actually had a sticker on it with the dude’s name who made it.
Cool.
BUY AMERICAN, insist on it. Pay more. You know ours our more expensive becaue our minimum wage is 20 times theirs.
(off soapbox)
Try vintage.
Most of my clothes are vintage, and most of them were made in the US of A, Britain, or other parts of Europe.
I’m lucky — my girlfriend is an ex-vintage dealer, I like the aesthetics of vintage stuff, and I’m the right size for ’50s to ’70s clothing.
(Socks and underwear are the main exceptions — vintage is not so alluring in those departments.)
Anybody catch Benanke yesterday saying he didn’t think 1% fed funds rate was the primary cause of the housing bubble. OMG.
Well I suppose he has a point. Just because something is possible doesn’t mean it has to happen. The banks and the brokers didn’t have to write those loans.
The Fed is “drama pricing” the dollar!
The Fed did not have to turn a blind eye to a lending industry’s abandonment of loan underwriting standards.
There are only two ways to cut it ..
You can’t pick and choose and say, “The Fed was responsible for this beneficial effect of low interest rates, but not this other bad effect over here”.
1) Either the Fed was responsible for stimulating the economy, *and* created the housing bubble.
2) Or the Fed didn’t create the housing bubble, and didn’t create any economic stimulus either. (Raising the question, what the hell has the Fed been doing then?)
For Bernanke to say that he “didn’t create the housing bubble” when housing has represented the sole engine of our economic growth for the last half decade, is to simultaneously say that he had nothing to do with growth.
So take your pick Bernanke: Are you at fault? Or are you useless?
I’m fine with either answer.
Theoretically, should a 1% funds rate remove all confidence in the dollar and drive up the 2, 5 and 10 year bonds? But that didn’t happen. What will happen to the long rates if they continue to lower the funds rate again?
During the last cycle of loose and permissive monetary policy the dollar index collapsed from 120 to around 85. Treasuries failed to follow because of politically motivated foreign CB purchases - especially Asia and more specifically China. If “successful” the encore also looks to feature dollar collapse - this time accompanied by selling of long-dated treasuries. I believe that the Fed will fail but the markets are clearly discounting the opposite right now.
AG said the 1% FFR was only possible in a low inflation environment, one that we may have had in 2002 (if one is willing to ignore housing prices as a sign of inflation) but certainly do not have at the moment, with gold and oil prices soaring to new highs.
probably just like a further dropping fed funds rate in the near future need not lead to Weimar according to Ben’s academic books (but is very likely to do so anyway).
Right, because he didn’t add “Not to be used to fuel a housing bubble” in the specs for the rate cut.
Thnks. Now I nd to git nothr cup of coffyy to riplce th 1 tht shortd out my kybord! B@st@rd.
I’m sure someone has already mention this someday but…
Zillow now has discussion boards. What a great source of entertainment and enlightenment. Lot’s of mortgage brokers and realtors.
One guy said the value of a house is what a buyer and a seller agree on. It is not just driven by buyer willing purchase price.
I shall expand that logic to something else. I have a half empty can of soda next to me. I have written a very good computer model so I’m sure it is worth $1 million dollars. I will not accept anything less and I’m sure a buyer is out there, just hard to find. I shall take my 1$ million dollar soda and use it as collateral to borrow $10 million dollars so I can invest it else where.
Hmmm, this sounds familiar. Hope I’m not stealing some else’s idea.
The guy on Zillow is right. It takes both a buyer and seller coming to an agreement to make a sale. The most-able buyer is the buyer who is willing to buy at the highest price. The most-able seller is the seller who is willing to sell at the lowest price. When these two meet, a sale is completed and the value of a product is realized. Buyers alone don’t determine price, although many here seem to think so.
I think it is important to distinguish between price and value. When the marginal buyer and seller’s offering and asking prices converge, you have the current market price.
The current market price may or may not be reflective of the true “intrinsic” value of the property (in other words, what the property is really worth). Value is determined based on cash flows of the property (rental income for landlords or rent avoided by owner-occupants).
Over long periods of time, market prices generally come close to reflecting intrinsic values. Over short periods of time, such as the bubble of the last several years, prices diverge widely from values. As we all know, this divergence can’t and won’t persist.
Sorry for the rambling post, but i think its important that we all remain cognizant of fundamental difference between the terms price and value.
So what is the value of a house? I’m not being sarcastic, I seriously don’t know anymore. The cost of material and labor + 15% profit? But what if lumber and nails are overpriced because of demand…how do you value a nail? And what about labor? And land?
Nominally, the value of a house = the rental cash flows - vacancies - expenses.
A house may be worth more than that if there is some characteristic that would drive ownership value above that base value. An example would be the rarity and presitge of owning an 1890s Victorian grande dame in a good neighborhood. Lesser examples would be 2-3 miles from a major employment center (a downtown/midtown/uptown area) in a great school district where they can’t build any more for miles around. Homes in that type of area usually command a premium over rental value, particularly if the area has “charm” and is a “walkable” nieghborhood.
You are correct, that the value is the present value of the future net cash flows associated with renting the property (or occupying it instead of renting, which is the same thing). Even in the two examples you cite, the market rental rate would still be the determining factor of value. An especially desirable neighborhood will have higher rental prices than a less desirable one, ceteris paribus.
I agree John F.
One of the things that was so destructive about the faulty lending during this bubble was that the demand was fueled by willing buyers , but buyers and speculators were not qualified able buyers .So many of these buyers got into the game without any skin in the game . To define a normal market you would have to include loan investers taking normal risks in the loan department .Wall Street rated junk/fraud loans at a lower risk and money was supplied .So, the market was based on a number of false premises like unqualified buyers and hookwinked investors in the secondary market looking for yield based on faulty reporting and fraudulent loan packages .
A market is defined by willing and “able” borrowers and informed investors aware of true risk that purchase loans as a investment .Also speculators buyers were not concerned with rental cash flows verses cost of monthly payments .Normal RE investors would not purchase unless those rent verses cost numbers added up .
Also the great departure from prudent appraisal standards as well as underwriting standards created a false demand market ,that is crashing now .Only under these sort of circumstances can you get guys like Casey Serin being able to buy 8 properties in the heat of the bubble while he got cash back at the closing ,with no skin in the game .You have entire new home tracks and condo projects that were purchased under these sort of fraudulent conditions with builders just making up prices with appraisers hitting the mark.Speculators and unqualified buyers bought up tracts only to leave them vacant because the rent cant cover the payment or they couldn’t sell .
Never before have homes been sold on the premise that “real estate always goes up “,and you can’t afford not to buy .These myths caused borrowers to not care what type of loan they went on because they were promised they could refinance . So my point is that these conditions were not normal ‘market conditions “, therefore the RE values was false and a willing buyer and seller had no meaning .
One of the things that was so destructive about the faulty lending during this bubble was that the demand was fueled by willing buyers , but buyers and speculators were not qualified able buyers .So many of these buyers got into the game without any skin in the game .
Now we’re getting to the crux of the problem: government intervention in the marketplace which causes the boom-bust cycle. In a truly free market, prices do not fluctuate as wildly as is happening now. The reckless expansion of credit inherent in a fiat-money economy is detrimental to market values. In a commodity-money economy where credit is constrained by the amount of that commodity available for lending, prices tend to fall slowly over time. Gradually declining prices are a sign of healthy economy.
That still has nothing to do with buyers alone establishing the value of a product. They don’t. Sellers and buyers do.
We can go back and forth all day about what constitutes “value” or “worth”. In economic terms, the only tangible way of determining the value of a product is its price.
Sorry, I disagree. Price is the only tangible indicator of value. Anything else is nebulous. Yes, price (and value) can and does fluctuate as a result of market forces (the collective wants and needs of buyers and sellers in the marketplace).
I have a very reasonable mortgage and my house is worth more to me than what I can sell it for, but that is merely a reflection of my individual wants and needs. Someone else in my situation may be willing to sell my exact house for much less than I would. Consequently, my house does not have the value I may place on it because another seller would sell the same house for a lower price than I would.
Price is the only real indication of what the market dictates my house to be worth. Prices are set by both buyers and sellers.
Prices are set by sellers, market values are set by buyers.
“Sorry, I disagree. Price is the only tangible indicator of value.”
I don’t intend any offense by this whatsoever 85249isToast, but this is not correct. Price and value may be, and often are, the same amount, but not always. To believe that transaction prices always represent true values is to say that the tract houses that sold for $900,000 a year or two ago, but sell for $700,000 now, were really worth $900,000 a year ago because “that’s what they sold for”. That simply isn’t true. Their real value is the cash flows they produce (or allow you to avoid). In this example, if the property rents for $2,000 a month, its value was never $900,000 (a 2.6% rental yield), but is probably closer to $300,000 or less (an 8% rental yield or more).
Another example: if a car dealer decides to sell you a brand new Honda Accord for $1 (for whatever crazy reason), does that mean the car’s value is really only $1 because that was the transaction price? Of course not! Markets get irrational all the time and buy or sell things for more or less than their true value.
Another great way to think about the difference between price and value is to look at stock prices. Pick almost any stock and look at the 52 week high and 52 week low. Invariably, there is a huge gap between the two figures. For example, the stock price of Panera Bread has ranged from $39 to $69 over the last year. This means the market price of the entire company ranged from $1.25 billion to $2.2 billion within the span of one year. Now did the underlying value of the business really change that much in just a year? Did the amount of bread and sandwiches they sell change that much? Did the amount of profit they earn or are expected to earn change that much? Of course not! Price simply varied significantly around the true value.
I cannot stress enough the importance of realizing price and value are two different things. Price is what you pay, value is what you get.
Which exemplifies the unspoken force in any market: emotion. The concept of Rational Man is an ideal, clearly not a reality. Hubris snaps all of us in the derrierre eventually…
Some people know the price of everything and the value of nothing!
I do not remember who stated this, but it does seem appropriate during these times.
Passing note, it definitely reminds me of my ex. Just my ersonal experience, not a reflection on any group or individual.
The way I see it is…
A seller cannot set the market value. They can only accept market value or create a “no market” situation since they are not a willing seller.
It’s the same as making a widget for $10 but nobody will pay more that $1 for it. The buyers set the market value, but the production cost is more than $1 so there is no market.
There appears to be next to no market for overpriced houses anymore.
There appears to be next to no market for overpriced houses anymore.
Even here in Phoenix, some houses are still selling. Those transactions occur because there are buyers willing to pay X and sellers willing to sell for X. The market is saturated right now which benefits buyers. Little demand and excess supply lead to falling prices. It doesn’t have anything to do with buyers setting the market price.
Yes ,but if you have faulty fraudulent lending , appraisals that don’t conform to standard appraisal theory ,you have a false market . These is a assumption in establishing business or market value that it’s a arms length transaction and that no fraud has taken place in the establishing of value .
Your saying that if the transaction take place ,that will establish value . Is a house worth 500K if the appraiser raised the value so a buyer could get 100K cash back and commit fraud against the lender ?Is the transaction valid if the borrower made 20k a year and got into a 700K house with no down ? Market value has to be define by a “clean hands ” transaction .
I’ll have to visit Zillow. I’ve had lots of fun going into realtor sites and having houses in the MLS emailed to me. Invariably I get an email from the realtor telling me now is the time to buy, can they help me. I explain that I used to be a realtor and still have an active license, but prices are way overinflated for the value. I then ask them what it’s like in their area, realtor to realtor, and I’ve never heard back from one of them.
Yes, you are stealing my idea. I’ve had a KitKat sitting in my cabinet for 2 years, and I’ve been trying to sell it to housing believers for $100. No one will buy it!
Baghdad housing bubble
http://www.msnbc.msn.com/id/20898777/
Incredible. These people are forced to sell not because of ARM resets, but because of security fears.
Do they even have mortgages (or other credit markets) in Iraq?
I watched a James Gandolfini-produced HBO documentary last night about injured soldiers. He interviewed 10 soldiers with various disabilities. They showed film clips of the bombings that caused the injuries, pictures of the injuries themselves, film clips of what their life was like at home and in Iraq. If I were unfortunate enough to live in Iraq, I would not sell my house, I would not pass go, I would not collect $200. I would get the hell out of there ASAP. You cannot put a price tag on life.
The main Developer in downtown Orlando is predicting a rebound bubble.
http://www.orlandosentinel.com/business/orl-bubble2107sep21,0,1478498.story
Oh a real estate investor predicts a new bubble? Case closed. Shut down the blogs, it has been foretold.
I guess that’s what happens to a person’s reasoning when they are surrounded by Disney.
Maybe he should talk to the 464 people in Disney’s town of Celebration. Half of them have had their houses and condos on the market for over 2 years. 13 are short sales on their way to foreclosure. Orlando is an area that way overbuilt for the population. Many overseas buyers are trying desperately to get out. Tons of condo construction projects have halted.
I personally would not be surprised if there was a slight rebound. I’m seeing and hearing a lot of people talking about buying a home right now… like the woman on here who said she would “cry” if her dream home sold to someone else. I see a lot of people asking about down payments, the effect of the Fed rate cut on new home loans, if they can benefit. Like I said, I wouldn’t be a bit surprised if the sheeple jumped in as the prices fall.
It still comes down to the fact that there aren’t enough people who can afford all the expensive homes for sale. Without the toxic loans, which are for the most part no longer available, they cannot buy. They can ask about down payments all they want. I can ask about a down payment on a Ferrari, doesn’t mean I’ll be buying one any time soon.
I seriously typed my handle wrong in my last entry. I’m hanging my head in shame right now. Please don’t make fun of me, because I love you guys. It’s like tripping in front of your hero.
The Credit Crisis Could Be Just Beginning
By Jon D. Markman
Special to TheStreet.com
9/21/2007 6:40 AM EDT
URL: http://www.thestreet.com/newsanalysis/investing/10380613.html
Satyajit Das is laughing. It appears I have said something very funny, but I have no idea what it was. My only clue is that the laugh sounds somewhat pitying.
One of the world’s leading experts on credit derivatives (financial instruments that transfer credit risk from one party to another), Das is the author of a 4,200-page reference work on the subject, among a half-dozen other tomes. As a developer and marketer of the exotic instruments himself over the past 30 years, he seemed like the ideal industry insider to help us get to the bottom of the recent debt crunch — and I expected him to defend and explain the practice.
I started by asking the Calcutta-born Australian whether the credit crisis was in what Americans would call the “third inning.” This was pretty amusing, it seemed, judging from the laughter. So I tried again. “Second inning?” More laughter. “First?” Still too optimistic.
great article. I would be interested in reading his book.
Do they have innings in cricket? I know cricket matches can last DAYS.
Two innings for each team. So there’s a total of four innings in a game that normally takes 4-5 days.
And national anthems (if sung ) are at the beginning…
a Test cricket match (the longest kind) has 2 innings per team, and is of 5 days duration. It can - and often does - end in a draw.
The closest thing to a baseball inning in cricket is probably the over. Although in reality it would have to be a combination of overs and innings - in cricket the teams don’t take turns at batting in the same way baseball teams do.
This one might require a jumbo - A real “doll house”
http://www.stockmania.com/2007_09_21_archive.html
Love it KahunaBear … hits the nail on the head (but the roof is a bit better than reality).
Thanks. Believe it or not, I have a relative, who luckily was the seller, who did a deal not to different from that one.
Gives a new meaning to “model home.”
Must be a good neighborhood, since even the cats can afford to drink bottled, um, water.
The Credit Crisis Could Be Just Beginning
By Jon D. Markman
Special to TheStreet.com
9/21/2007 6:40 AM EDT
URL: http://www.thestreet.com/newsanalysis/investing/10380613.html
Satyajit Das is laughing. It appears I have said something very funny, but I have no idea what it was. My only clue is that the laugh sounds somewhat pitying.
One of the world’s leading experts on credit derivatives (financial instruments that transfer credit risk from one party to another), Das is the author of a 4,200-page reference work on the subject, among a half-dozen other tomes. As a developer and marketer of the exotic instruments himself over the past 30 years, he seemed like the ideal industry insider to help us get to the bottom of the recent debt crunch — and I expected him to defend and explain the practice.
I started by asking the Calcutta-born Australian whether the credit crisis was in what Americans would call the “third inning.” This was pretty amusing, it seemed, judging from the laughter. So I tried again. “Second inning?” More laughter. “First?” Still too optimistic.
This is very interesting subject!!Economics!! All these days, I was wondering why should banks get affected as they sold mortgage debt as commercial papers to other investors (like hedge fund) and only those big cats will fail!! This article is enlightening me!! But I am still to understand the derivattives world (1$ asset is sold for 20$). I will definitely read his book.
Excellent primer on what was driving the housing bubble bus. This article is a must read for anyone who wants to understand how and why it happened and why it’s time to “safety up” with respect to you assets. Over the past several months, I have converted half of my savings into treasuries. The other half is being split up into CDs at only the biggest banks (hopefully the “too big to fail” ones).
I am curious what people here think about ethanol. Now that oil appears to be shooting towards $100 there will be more pressure for alternative solutions.
What about ethanol from sugar cane? I just received a prospectus from a new sugar can ethanol plant to be built in the Imperial Valley. Thoughts on sugar cane ethanol? When we go into a recession what impact might this have on the build out of alternative energies? Risks?
There are many smart people on this blog-interested to hear any thoughts. Thx.
Our economic/environmental/national security problem with energy is that Americans have taken the lazy, stupid, shortsighted way — cheap oil — whenever it has been offered.
People who conserve then look like fools, and those who invest in alternatives lose money. People go right back to SUVs and McMansions.
And then once we are hooked, we get nailed again.
If people start to conserve and/or the economy slows, OPEC will cut the oil price and ethanol/solar/wind/conservation/nuclear etc. will go broke. Again. That’s why, among other thinks, the big oil companies won’t invest much in expensive non-OPEC supplies.
In short our energy tendencies are just like our debt, spending and saving tendencies. It is a matter of the culture of this generation of Americans.
“If people start to conserve and/or the economy slows, OPEC will cut the oil price and ethanol/solar/wind/conservation/nuclear etc. will go broke. Again. That’s why, among other thinks, the big oil companies won’t invest much in expensive non-OPEC supplies.”
Right on. This happened in the early to mid 1980s, as I recall. I had recently moved to FLA and was freaking out over my power bills, it was a big issue here. Then, people started installing solar heaters for their hot water tanks and pools. Solar was being talked about everywhere and being explored as an alternative method, even solar powered cars. And wouldn’t you know it, all of a sudden oil came down in a big way. Up until a couple of years ago, my power bills in the early to mid 1980s were more than in the late 1980s, 1990s and 2000s.
Ethanol has worked for Brazil because it was government mandated in the 1970s, giving them time to put the processes and facilities in place. Also, in large parts of that country, they have the climate and soil for the growing of sugar cane.
Here, the government “mandates” the use of oil, gas and coal. Back in the early part of the 20th century, when Thomas Edison and George Westinghouse were duking it out, the electricity genius Nikolai Tesla went to work for Westinghouse and figured out a way to tap the magnetic fields of the planet to provide power for the entire US, with the main generating facility to be located in Colorado (something about the location being ideal with respect to the magnetic fields) and substations across the US. Tesla presented his discovery to Westinghouse, pointing out that the energy would be unlimited, clean and cheap. When Westinghouse heard the word “cheap”, he put the kibosh on the whole deal because he felt he couldn’t make enough money on it.
Food prices are under enough inflationary pressure already, the last thing we need is for more productive cropland to be used for non-human consumption. Long term we as a nation simply have to get away from the reciprocating engine as much as possible - this need for traditional fuels is killing us economically and IMHO ethanol is not a true “alternative” as its adoption would not address the fundamental issue - an unbalanced transportation infrastructure.
“I am curious what people here think about ethanol. Now that oil appears to be shooting towards $100 there will be more pressure for alternative solutions.
What about ethanol from sugar cane? I just received a prospectus from a new sugar can ethanol plant to be built in the Imperial Valley. Thoughts on sugar cane ethanol? When we go into a recession what impact might this have on the build out of alternative energies? Risks?”
I do not get the ethanol market. I bought PEIX, AVR, and USBE on the same theory (rising energy costs=more profit for ethanol companies). But the production of ethanol increased corn prices faster than energy prices were increasing. Yesterday, I read that spot prices for ethanol are DECREASING, squeezing profit margins. That doesn’t even take into account the efficiency of the process itself. I would consider the following:
1. Expansion of ethanol production plants will eat current operating profit.
2. The need for vast quantities of feedstocks can distort the market price for the feedstocks.
3. Volatility in energy and labor prices impact operating costs.
DP
I read an article in Rolling Stone that stated that ethanol produced by cane is much more efficiently produced that corn. I cannot remember the figures exactly, but the cost vs. cost to produce cane ethanol was like an 8:1 vs. corn which was 2:1. Corn ethanol, according to the article, is Bush’s next big lie, giving kick-backs to farmers to grow it and God only knows what else is going on behind closed doors. I’m sure he and Dick are making money from it somehow.
This is purely Bush’s idea? Hmm. I don’t seem to recall any Midwest Democrats complaining about this. Maybe you can point out a few.
This is really a tool used by DC politicians of both parties for the simple reason that Iowa has a tremendous influence over who will be the next presidential candidates. Members of both parties are eager to keep Iowa voters happy.
(Let’s see if this post magically disappears as well.)
“This is purely Bush’s idea? Hmm. I don’t seem to recall any Midwest Democrats complaining about this. Maybe you can point out a few.
This is really a tool used by DC politicians of both parties for the simple reason that Iowa has a tremendous influence over who will be the next presidential candidates. Members of both parties are eager to keep Iowa voters happy.
(Let’s see if this post magically disappears as well.)”
Dick Lugar, R-Indiana, has been an ardent supporter of ethanol (Indiana is the fourth largest corn producer in the US- duh).
Importing ethanol from Brazil is cheaper than making it here. It is a waste of important food source to convert corn, sugar or any other food crop into ethanol. If there were not insane tax benefits for ethanol production in the US, nobody would do it. California, which has a water problem, cannot afford to waste waters to make ethanol. Another stupid idea.
You’re right, Hoz, we should be getting it from Brazil. Now as Palmetto points out:
Ethanol has worked for Brazil because it was government mandated in the 1970s
Well, partly. Thing is, Brazil is fabulously suited to growing sugar cane. The United States, with some very southern areas excepted, is not. That’s a lot of the difference.
And what we fools in the USA are embarking on is a far more involved method than the Brazilians need to use: They can get sugar straight from sugar cane. We have to convert it from the starches in corn using heaps of enzymes and “mashing/conversion” processes before we even have the sugar to start with! Not very economical compared to Brazil. (Anyone remember Adam Smith’s “comparative advantage”?)
As an engineer by training, I have this worry that straw, switchgrass, and lots of other proposed methods are also going to run into the same expensive pre-processing procedure.
For anyone who really thinks ethanol from corn is still worthwhile, how about joining me in saying that a few years of government handouts is enough, and lets’s start phasing out the subsidies and mandated usage NOW, with all of them to be removed in 2010. Then how many of those plants would still be running, eh?
What a booooooondoggle.
and another major difference: in Brazil ethanol production from sugar cane was invented as a way to stabilize sugar prices in times of excess production (important because Brazil on its own could move the world market price for sugar).
Exactly the opposite of the clever idea from the Bush administration, which seems to be invented for DEstabilizing food prices.
The Imperial Valley has a lot of cheap water to grow the sugarcane?
Imperial Empire?
producing ethanol for SUVs on a massive scale is a patently stupid idea, and subsidizing this is something that only an american president could come up with. The technology exists to make ethanol from non-food products (e..g. straw), but why use such newer technology if you can also wreck the worldwide foodmarket at the same time?
In general I am not a big ethanol supporter, but if it is the Brazilian company’s prospectus for the Imperial Valley, it is about the best fit I have seen - plenty of land and water for growing the sugar cane as a more profitable crop and the sugar cane produces a better yield than corn ethanol. (disclaimer - my company is working for the Brazilians)
Ethanol from sugar cane makes good sense as there is a considerable net energy gain from the process. From corn is foolish since there is little or no net gain - the only advantage is making the energy portable. Unfortunately, not much of the US is suited to cane production and the Midwestern farm lobby has diverted a sensible idea into a useless but lucrative subsidy.
Unfortunately ethanol is one of the biggest scams going in America. It is even worse because it cynically plays on people’s hopes for an eco-friendly way to alleviate our dependence on foreign oil while giving away money to producers and driving up costs.
First, ethanol does not save oil. The amount of oil used to make fertilizers and pesticides to grow the corn as well as the gas used to power the machines to plant, harvest, and transport the corn ensure that we use MORE oil to produce ethanol than we would have used just using gas.
Secondly, the premium paid for corn has driven up the price for any product based on corn significantly in the last couple of years. Do you eat Tortilla chips, chickens, pigs, processed food, etc.? Their prices have increased dramatically!
Finally, one of the worst aspects of ethanol is that it puts more money in the hands of gasoline producers when some of the money should be spent on REAL alternative fuel development, such as better, more productive batteries based on solar power for cars).
In short, Ethanol is horrid. We could do a lot more for our environment by raising gas taxes 10% across the board, lowering the speed limit, and personally curtailing some car uses and maintaining our cars better.
‘Nuff said…
And, it’s also driven up other commodity prices as more land has gone towards corn production as prices hace increased. There has been a worldwide wheat shortage based on bad crops in Australia and elsewhere this year, which was exacerbated by less American wheat produced this year.
And I believe corn production is more harmful to the land in the long run, if not rotated among other crops.
Why bother with ethanol?
Since all our brothers and sisters south of the border desperately want to become U.S. citizens, all we have to do is annex Mejico and we’d have access to all those guvmint owned Pemex reserves…plus great beaches and scuba-diving. Plus a slew of young workers paying social security so the day of reckoning for US SS gets pushed way back.
Its a win-win all the way around and I get to keep my SUV!
“all our brothers and sisters south of the border”
I have no family living south of the border.
Of course we will have to deal with the rapid depletion Pemex is experiencing…..bummer.
The current issue of National Geographic has a cover story on ethanol. It’s fantastic. They also talk about this MIT guy who has a company to produce ethanol from algae that is fed by power plant emissions - now that looks fabulous. Can grows quickly, but algae can double in mass in just a few hours, plus they can grow it in sacks out where there’s no water.
Thought this was an omnious sign. The petrodollar has been keeping this nation afloat for 30 years. Last thing we want is the Saudis adopting the Euro as their currency for oil payments.
Fears of dollar collapse as Saudis take fright
21 Sept 07, London Daily Telegraph
Saudi Arabia has refused to cut interest rates in lockstep with the US Federal Reserve for the first time, signalling that the oil-rich Gulf kingdom is preparing to break the dollar currency peg in a move that risks setting off a stampede out of the dollar across the Middle East….
Jim Rogers, the commodity king and former partner of George Soros, said the Federal Reserve was playing with fire by cutting rates so aggressively at a time when the dollar was already under pressure.
The risk is that flight from US bonds could push up the long-term yields that form the base price of credit for most mortgages, the driving the property market into even deeper crisis.
“If Ben Bernanke starts running those printing presses even faster than he’s already doing, we are going to have a serious recession. The dollar’s going to collapse, the bond market’s going to collapse. There’s going to be a lot of problems,” he said….
http://tinyurl.com/3265lp
When the oil ticks de-peg from the dollar it will be a rush out the door. Will China and Japan ride the dollar into oblivion? Doubt it.
I don’t think it is going to happen. I look at this as oil-rich-nation’s version of “saber rattling.”
Dow is at 14,000 though so everything is OK. No need to worry folks.
Suadis screw us? They wouldn’t dare. We are their armed forces. We protect them even when they pay the terrorists protection money.
If they peg to the Euro, let the EU protect them. That would be popcorn for me!
Roidy
Let the EU protect them! Yeah, there ya go!
Maybe they’ll do as good a job as they did in Srebrenica.
Something for the Saudis to think about.
We protect them even when they pay the terrorists protection money.
Tht’s part of the problem, they have Little Georgie Boy in their back pocket. They haven’t managed to tick him off yet, despite all they’ve done …
Hey Roidy:
I like it. You coined a new slang term. “That’s popcorn”. Kind of like “That’s gravy”, or “That’s peachy”, or “That’s the bomb”.
sorry did not mean to post the article twice. Michael
“We are committed to preventing problems from recurring, while still preserving responsible sub-prime lending.”
What is Cagey B smoking?
Please send some my way…
http://news.bbc.co.uk/2/hi/business/7004923.stm
“…responsible sub-prime lending.”
The Fed is pumping out more oximoronic propaganda these days than my little brain can process.
Proposed Fedspeak translation:
“We are committed to
preventingensuring problemsfrom recurringwill recur,while stillby preserving irresponsible sub-prime lending.”The WSJ has an article in the personal section today on renters moving into owner-occupied neighborhoods and developments, as those who cannot sell try renting instead.
There are concerns about quality of life and property values.
The story for the next two years may be the financial consequences of the bubble. But the story for the next several years after that will likely be an abrupt, unwanted economic and social class integration of suburbia.
“Integration” is if things go well. In Brooklyn in the 1960s, people financed their suburban houses by subdividing their rowhouses and renting them out to multiple poor families. Could similar goings on in the suburbs finance the purchase of McMansions in the exurbs, or vice versa?
Actually, that has already happened. My wife and I moved into a “starter home,” a $400k townhouse in Northern VA. Anyone who bought in the last two years are young professional couples buying first homes. The other half of the neighborhood are people who bought the house for $120k in the 90s who are taxicab drivers or work at the cable company. Guess who doesn’t cut the grass, paint the house, fix the roof, etc?
Hint: It’s not the new people.
I visited a friend of ours in Northern VA over this past weekend. They paid about $300K for a townhouse about 3-4 years ago.
I thought for sure that the townhouse would have been a newer neighboorhood. Instead, it was a medium to poor quality townhouse built in 1974 in a clean but working class neighboorhood. Admitedly, some of this is their own lack of time/focus but I was suprised find the leaking facuets, semi-out of order toilets, baseboards missing, etc, etc.
What’s the point of paying $2000+ a month for that kind of housing? Generation X and Y are both suckers and *sooo* screwed.
America’s inner-ring suburbs were already in a precarious position going into this mess. With aging populations, out of favor housing stock, and shrinking tax bases - those older ‘burbs won’t be able to handle the ills that will accompany such subdivision schemes.
Local examples here in No. IL include ‘burbs like Cicero, Bellwood, Maywood, Shiller Park, Phoenix - too many to list. They cannot attract jobs - (mfg. gone and F.I.R.E. prefers the city) and their police departments struggle with very limited resources.
So yeah, there should be a lot of concerns about property values in those types of areas - lots. Like Paris I could easily imagine the day when the worst parts of some American metros are located in the suburbs - simply because crime will gravitate to where there are the least resources to confront it.
“The WSJ has an article in the personal section today on renters moving into owner-occupied neighborhoods and developments, as those who cannot sell try renting instead.”
That’s my family. We are ruining the neighborhood for all the house-proud homeowners around here.
The debtor next door said to me, the first day we met, as we were moving in, “God I wish they (my landlords) would just sell that place already.”
WTF? My landlords bought this house back in 1986, these chuckleheads bought in 1997. If they didn’t like living near a rental, they should have done their research!!
I can tell that they don’t like their kids playing with mine, so I go out of my way to invite them over as often as possible. In a couple more years, when we know where we’ll be moving next, I’ll step up my offensive even more.
Know the feeling….. The house we’re renting for $1200 was marketed a year ago, asking $434K. Well-built ‘75 rambler, great neighborhood, high-end stuff of the era, like double ovens, tile, Jenn-air. Neighbor visibly shuddered when we told him we hadn’t bought it. (he’s a nice man, and recovered, but it was funny at the time)
I think exurbs will do just fine and you won’t see McMansions being split up into multiple housing for two simple reasons. Renters tend to be young and/or poor (yes yes I know you are all renters and are old and rich, you are the exceptions).
Young people want to live close to the city and not in middle of nowhere exurb. Poor people can’t afford a 35 mile commute every day with $3 to $4 gas.
Who do you foresee inhabiting all these oversized exurban McMansions, then?
The exurbs in general seem to be the most precariously situated places in the bubble — the reason most people moved that far out was because they were priced out of closer-in markets.
I think most consumers (even dyed-in-the-wool suburbanites / exurbanites), when given the choice (i.e., price and inventory options), will opt for closer-in locales with shorter commutes and more cultural amenities.
Well I don’t view exurbs like that. I believe most people in exurbs want to be far from the city and move there voluntarily, not due to a lack of affordability in the city.
Exurbs in general are safer, less crime ridden, better schools. Also your housing dollar goes a lot farther. For the same money you can have a 90 year old 1500 sq ft home in the city or a 4000 sq ft brand new home in the exurbs. I’m not saying I would necessarily want the 4000 home. But then again I don’t have 3 kids. If I did have kids I know I sure as hell wouldn’t want to be anywhere near an inner city public school system.
So yes commute can be a drag, but oh well, life if full of sacrifices.
As for cultural amenities: 95% of your life is the same regardless of where you live. You sleep 8 hrs no matter where you live. You work 8 hrs no matter where you live. The rest of the 8 hours is by and large spent doing the mundane, day to day life things.
For the odd time one sees a show, visits a museum or goes to an upscale restaurant, one can drive in for the occasion. No need to pay twice as much in housing costs for that.
Poor people can’t afford a 35 mile commute every day with $3 to $4 gas.
Lots of severe poverty and crime in the exurban area near Gainesville.
You’re right, they can’t afford the gas … they ride the bus. Which the county just cut funding to, as of Oct. 1. A 30 min headway was just cut to an hour and a half. Fun.
The poverty is worse out in the county because there are less government resources and they are farther from jobs and services, making their condition more miserable. The utilities cost more, and the landlords are indifferent.
No wonder the exurban McMansions next door are all gated in some way.
My home-debting neighbors hate me for being a renter. Know what else? I like to leave my grass long so my cats can play jungle. For some reason, long grass is a really great way to piss off your neighbors.
My neighbor is my landlord. Before signing the lease, I told him I sold my lawnmower when I sold my house. He’s out there every weekend, mowing my lawn as I sit on my porch sipping a cold one. Almost like having a son at home again!
‘I like to leave my grass long so my cats can play jungle.’
LOL
http://tinyurl.com/265rd9
(Article in the Metro DC Examiner today)
The worst of the housing downswing is over in the D.C. area, and prices, buoyed by job growth, should start rising moderately in about 18 months, regional housing expert Stephen Fuller predicted Thursday.
“Our market in the D.C. metro area is different,” Fuller told a room full of Realtors at the National Virginia Association of Realtors’ annual economic summit Thursday.
Whew, glad to hear that all these self declared experts have figured all this out. Meanwhile I’ll continue to rent a TH in the area for 1k less/month than it would take to service the debt on it if I purchased it w/ 20% down and 30 year fixed prime rate. (Narrows to about 500 after tax breaks but then likely bounces back up a few 100/month due to ownership carrying costs that a tenant would not realize)
I.e. Pricing is not currently correlated to fundamentals in terms of P/E. The number of RE investors who went from fliptards to floplords with negative cash flow is TNTC in the area. (Too Numerous Too Count)
The Feds cannot keep spending at current levels. Once current conflicts subside DOD (the biggest spender/employer in the Metro DC area) will cut back, undergo a reduction in force (RIF) and terminate tons of lucrative gov’t contracts that feed a lot of the high paying private enterprises in the area. Other agencies will have a hiring freeze & institute cost cutting measures, which will result in the local housing market to finally adjust to fundamentals with prices coming down at least another 10-15% from current pricing which is already down 10% from the ’05 peak.
How can I make such statements? Because I saw the same thing happen in early to mid 90’s. But I guess the area was not “different” then as it is now. LMAO!
“The worst of the housing downswing is over in the D.C. area, and prices, buoyed by job growth, should start rising moderately in about 18 months, regional housing expert Stephen Fuller predicted Thursday.
Our market in the D.C. metro area is different,” Fuller told a room full of Realtors at the National Virginia Association of Realtors’ annual economic summit Thursday.
Didn’t the last job reports show government jobs shrinking?
As a contractor I see more ‘outsourcing’ to contractors at lower force level for government services. That’s what I see for the future as boomers retire. Good for contractors who prepare for bidding that work strategically but net jobs for that work in this area should shrink, especially when you account for non-government job shrinkage due to the bubble. This guy is engaging in wishful thinking.
The govt job losses being reported are state and local government. They’re spread across the country but concentrated in the longstanding trouble spots like the upper Midwest and Florida. But don’t worry, DC is having plenty of problems even before the federal govt starts to lay off.
when has fed gov ever cut jobs- DC was invented during the new deal- more new dealers on the way,but I hope you’re right
CHOP HEADS !
In 2005 Fuller predicted a 5-10% rise in home values for 2006. In 2006 outer suburb home values dropped close to 15% and are now down 20%+ from peak. He also significantly over-estimated the job creation numbers for the DC area. His forecasts are only reliable in a rapidly expanding economy.
Though Fuller is a tenured professor at a state university I suspect his local economic and real estate forecasting is funded by local business groups.
Pay no attention. This Fuller guy is one of those George Mason Univ. “Center for Regional Analysis” hacks, speaking at an NVAR meeting. You’d get better economic analysis by going down to McPherson Square and asking one of the homeless guys rooting around though the trash cans.
I know firsthand that Fuller is full of crap, because my Arlington neighborhood *is going down in price*!!! Not as fast as the exurbs here or the implosion in Fla. and Ariz., but going down nevertheless.
Argghhh. Saw signs for the NVAR meeting yesterday, and contemplated crashing it during lunch but didn’t (Yun was also a speaker at the meeting). Fuller is such a tool of the industry. Any fool pounding the ground around here can see that prices are coming down (outside in), foreclosures are popping up everywhere at all price ranges, and prices were/are completely unsustainable, and the combination of “funny loans” now getting a bad rep and credit tightening has dried up the buyers.
Afterall, why pay $800k to buy (4-5br) when you can rent an equivalent place down the street for $3000-$3500?
* Bonus points for those that figured out that the intrinsic value of a house that rents for $3000-$3500 is no more than $420-490k, not $800k.
Looks like we need to send Fuller a copy of the Times article NoVa Sidliner posted about!! Thanks guys!!
Comment by NoVa Sideliner
2007-09-21 09:01:52
Washington DC Metro resale numbers from August: DISMAL
From the Washington Times “Charting the Markets”:
Metrowide resales July –> Aug went from 6630 –> 5386.
Normally there’s a drop, but not that bad.
Compare previous years’ August nums, 2005 –> 2006 –> 2007:
District: 741 -> 632 -> 523 (not so bad?)
NoVirginia: 2507 -> 1806 -> 1374 (bad)
Mont. County: 1471 -> 1169 -> 713 (ouch!)
Anne Arundel: 937 -> 728 -> 564 (bad)
Most other composite numbers they gave showed more than a 50% drop in home sales in August this year compared with August 2005. Yet the bad news for buyers so far is that “home prices are higher than they were in 2004.” Well, it won’t take long to get those prices fixed, not at the rate these things are (not) selling.
he predicted increases in 05 and 06
FULLER is full of sht
, regional housing expert Stephen Fuller predicted Thursday.
Right…. That’s why the surprises come before options expiration. And, that’s why the gang spent time lowering expectations before the big surprise. I am not buying it. Are you?
Kohn disputes notion of Greenspan or Bernanke ‘put’
WASHINGTON (MarketWatch) — Federal Reserve vice chairman Donald Kohn disputed Friday the notion that either Fed chief Ben Bernanke or predecessor Alan Greenspan operated in a manner intended to bail out investors who made bad bets, thereby implicitly encouraging them to make worse bets in the future.
http://tinyurl.com/yrzj6n
no need to discuss the intentions of these criminals here, it’s perfectly clear by now what they were/are after.
“Kohn disputes notion of Greenspan or Bernanke ‘put’”
That’s a hard sell, given his former boss’s more-or-less open acknowledgment of the policy on nationally televised interviews this past week, not to mention the additional evidence provided by the “larger-than-expected” 1/2 point FFR cut at this week’s FOMC meeting.
Kohn is a puppet; look closely and you can see the strings moving his arms and legs. Dance, Kohn, dance!
Man behind the curtain to sheeple:
“Ignore the credit crunch and the dollar crash, and focus on the ever-increasing level of the non-Fed-manipulated DJIA. As long as the Dow keeps going up, the U.S. economy will do just fine.”
http://www.marketwatch.com/tools/marketsummary/
Beartrap Bernanke and Easy Al may not have intended to bail out risk-takers, but that’s what they did. My main concern is that lessons are not being learned from past mistakes, neither by investors nor by the Fed.
I don’t have a computer or internet at home, so I would like to say thanks to all who post on the California section in the evening for providing me with some great reading and a few laughs before I start my day at work the next morning.
A possible first for Madison, WI (Dane County) exurbs -
A new car with your new home purchase - http://tinyurl.com/24btfy
Ummmm - why not lower the price of the house by $23K? And how would this get through the mortgage company, as this would be personal property?
In a few other surrounding areas, I’ve noticed new construction suddenly having price reductions of 10%-15%.
A local builder has been running radio commercials offering their model homes for sale “with no mortgage payments for six months.”
Reminds me of something said about the response to the financial crisis of the early 1990s — merging one zombie bank with another zombie bank. Here you have two zombie industries.
I’m pretty sure metropolitan place had a new car promo a bit before they announced that willy st. coop was opening a location in the retail space.
That project will be the first to go section 8 imho. Thankfully it already looks the part.
Panel urges fight on foreclosures
Land bank to buy lost homes in county part of proposals
By Emmet Pierce
STAFF WRITER
September 21, 2007
Responding to the spike in home foreclosures that threatens many of the region’s neighborhoods, the San Diego City-County Reinvestment Task Force yesterday forwarded a series of sweeping recommendations to the City Council and the county Board of Supervisors.
(Graphic: Foreclosures in high-minority census tracts)
Among them is a proposal to create a regional land bank to buy foreclosed properties and to prevent neighborhood blight. The homes then could be turned around to create affordable buying opportunities.
The panel also called for boosting government funding to nonprofit groups that counsel people facing foreclosure.
http://www.signonsandiego.com/uniontrib/20070921/news_1b21loans.html
Wow. If I were a San Diego area taxpayer, I would be going nuts at that prospect.
I am a San Diego taxpayer and I’m livid. Forget the tax issue–if this happens the property prices will stay higher than they would without such measures, thus ensuring that normal folk like me (who save!) will never be able to afford to own a home.
I thought San Diego taxpayers were used to getting the shaft from their government.
Yeah, we are.
We have a long standing tradition of corruption starting in the C. Arnholt Smith days.
This would be a good law if they put in “Foreclosed homes not sold within 1 year will be appropriated by the county and sold as cheap housing. Lenders will be compensated 45 cents on the dollar for appropriated properties.”
So, San Diego wants to buy foreclosed houses with the intention of selling them AT A LOSS? Is that what they want to do?
http://losangeles.craigslist.org/sfv/rfs/425965218.html
http://www.newsday.com/news/local/wire/newjersey/ny-bc-nj–missingkayaker0917sep17,0,1676547.story
I don’t get it. Is this craigslist seller looking for someone to take over the mortgage? That would not be “free”, now would it?
just for showing the current bubble psychology outside the US:
One of my regional RE ad magazines (there are plenty of them of course) shows how average Dutch home prices have risen by about 400% over the past 15 years (in fact, 400% is a huge understatement because the amount of space and quality you got for the money has decreased strongly over the same period; for comparable homes the gains are 600-1100%). My region which has ‘only 370% average appreciation’ according to the realtors is undervalued and so not only is RE the safest investment ever (guaranteed to make at least 10-15% yoy for the indefinite future), investment in my region is even better because of the clear undervaluation. There never was a better time to buy RE! Despite relatively high prices (they admit that it is impossible for starters to buy an acceptable home) sales numbers are increasing again (thanks to more free money from the government and the ECB). Housing bubble? Mention the word and most people will think you are from another planet … cannot happen here. They may have heard about the US subprime crisis, but that’s contained and absolutely impossible in the Netherlands according to our central bank and our politicians.
OK, so when the ECB issues a series of emergency rate cuts to prop up a collapsing housing market and thereby driving down the value of the Euro, where are the hotshots going to go next?
I guess that the EU hotshots don’t have any money in savings accounts, they probably have leveraged to the max with many RE properties all over Europe, financed with huge mortgages that will be inflated away thanks to the ECB (and anyway, in countries like NL 50% of the mortgage payment comes from the government anyway). Another series of rate cuts will make EU homeowners (at least those owning more than one home) even more filthy-rich than they already are.
I think most the ECB money it will end up in the new EEC member states and the countries just around Europe (like Turkey, Baltic states, possibly Dubai etc.)
Good thing Amsterdam city has bought up half of dag wallen in order to make more residential and commercial space. That should increase supply to curb those price rises ;).
yes, that was a nice, typically Dutch idea. The government buys the properties at hugely inflated prices for a developer. If the developer makes a lot of money turning the stuff around, good for him. If he makes a loss (I can guarantee you that the losses will be huge, it always works like that) government will pay. Who says there is no free lunch?
Sheesh. What are the smoking in the Netherlands?
Oh, wait…
a few months ago the TV demonstrated that in the attic of an average Dutch rental home, you can make about 75K euro each year growing stuff. You don’t need to do anything for that, just provide the space; all the work (installing equipment, harvesting etc.) is done for you by other people (it’s not legal, but the authorities are usually not interested). Maybe those are the fundamentals that really matter for Dutch home prices?
Besides, some Dutch companies like Philips are making lots of money providing the required equipment like special lighting (after the harvest the lamps are destroyed by the cops, so planters buy new equipment from them every few months). Not only good for homes, also good for Dutch share prices!
75K Euro is a pretty good sideline.
There’s what you could do with a depreciating McMansion. Grow marijuana. One of “The Closer” episodes this guy bought a McMansion, gutted the inside and had $12M worth of marijuana plants growing inside. It was quite awsome to see.
“just for showing the current bubble psychology outside the US”
nhz, you are bursting my bubble- most of the Europeans I have worked with have a degree of political/economic sophistication; I guess those are just the “smart” ones..
I think political sophistication is on average a little bit better than in the US; economic sophistication definitely isn’t. You would hope that with so many previous financial manias in Europe people know better, but apparently they only remember the first part of the bubble phase.
If it’s absolutely impossible for a “starter” to buy an acceptable house, then how is it possible for RE to keep going up? Every time one person sells their house in order to move up, someone has to come in from a lower level to fill that spot. The process is a chain reaction that starts (ends?) with a first-time home buyer. However, if first-time home buyers will not ACCEPT a starter home, and chooses instead to rent something better, then the buck just stops.
Kind of related…
Amsterdam draws curtain on sex industry as red light windows close
Data from 85249 zip code in Chandler, AZ. taken from recent home sales section of Azcentral.com. A big rebound for the last week reported(19 vs 8). I better get back into a house there or be priced out forever.
County Week Starting Number sold (past week)
Maricopa 08/22/2007 19
Maricopa 08/20/2007 8
Maricopa 08/07/2007 11
Maricopa 08/01/2007 32
Maricopa 07/24/2007 51
Maricopa 07/16/2007 47
Maricopa 07/06/2007 45
Maricopa 06/28/2007 76
Maricopa 06/18/2007 30
Maricopa 06/11/2007 40
Maricopa 06/04/2007 26
Not sure how they came up with that 500K number, but given that 244K defaults occurred nationally in August (per a Union Tribune article posted here two days ago), it sounds mighty skimpy. It still baffles me how these guys can sell a program to let the GSEs securitize $700K+ loans as an “affordable housing” program. It should be called “welfare for mortgage bankers” IMO.
Portfolios of Fannie, Freddie, may grow
Looming foreclosures worry administration
By Edmund L. Andrews
NEW YORK TIMES NEWS SERVICE
September 21, 2007
Federal Reserve chief Ben Bernanke said he remained skeptical about letting government-sponsored companies expand their investment portfolios.
WASHINGTON – The Bush administration, bracing for a tidal wave of home foreclosures by people with subprime mortgages, is softening its opposition to Democratic proposals to expand the giant
government-sponsored mortgage finance companies.
In a chilling assessment yesterday, Housing and Urban Development Secretary Alphonso Jackson told the House Financial Services Committee that about 500,000 homeowners – one-quarter of the 2 million who have subprime mortgages scheduled to reset to higher interest rates over the next 18 months – were likely to lose their houses.
http://www.signonsandiego.com/uniontrib/20070921/news_1b21congress.html
“500,000 homeowners – one-quarter of the 2 million who have subprime mortgages scheduled to reset to higher interest rates over the next 18 months – were likely to lose their houses.”
—————————————————-
And our leadership is ready to make the problem of 500,000 idiotic spendthrifts my problem.
That’s the plan. Reward bad actors, and plant the seeds for another bubble-bailout cycle in ten years. Try not be the fool who plays by the rules and gets burned if you can avoid it.
The August pace of reposessions was over 500,000 annualized (over 42k) and the NODs indicate significant acceleration in the near future. Of course, the reset data told us that a long time ago. If the foreclosures merely track resets with a 6 month lag, we’re looking at late 2008 before they even hit the peak. Looks like a million repos easy in 18 months.
IMO, by the changes proposed for Fannie, Freddie and the FHA the Fed, politicians, etc. are trying to slow down the potential crash in housing prices in order to avoid panic and runs on the bank. I dont think that anyone who really understands the numbers could believe that you can stop the price declines with these changes.
Points in response:
1) The reason why the US went to high fructose corn syrup instead of real sugarcane sugar back in the late ’60’s was because of Cuba and the other Carribbean nations which wouldn’t play ball the US way. The US slapped high tarriffs on the sugar products so they couldn’t profit. Those tarriffs still exist. If they were removed, the Carribbean islands would have a product again (besides tourism) and Coke would taste good again and have far fewer harmful side effects, but I don’t think that’s going to happen.
2) The high price of corn could be brought down tomorrow if government subsidies and support payments - you know, where they pay you not to grow - were eliminated tomorrow. Unfortunately, that’s not likely to happen either. Someone put up a map of the East Side of Manhattan showing recipients of the subsidies and it looked like the chicken pox.
3) Vote for Ron Paul. He will remove these harmful impediments to future success.
1. Those sugar tariffs were also fought for by ADM and other corn growing agribusinesses. We could import real sugar cheaply from South America, oh and it tastes a lot better too. If you don’t believe me drink a Jones soda, made with real sugar.
Sugar in *any* form is probably best processed into fuel if makes sense from an energy standpoint. It tain’t good for you and is not food in any sense of the word for humans unless any else is totally unavailable. The occasional good tasting soda and treat okay - but I’d rather have my soda expensive and my fuel and real food cheap.
Your fuel ain’t gonna be cheap if it’s made from converted corn sugar made into ethanol.
Now I’m confused about which side of the globalization debate I’m supposed to be on… emmmm, ‘yes’ to imported sugar cane sugar (cuz I do love my Coke) but ‘no’ to everything else?
Just Say No to high fructose corn syrup. Bleh.
KIA,
you are such an asset to this blog.
Sept. 21 (Bloomberg) — Macquarie Bank Ltd. increased the sale of mortgage-backed bonds by 67 percent to A$500 million ($435 million), restoring investor confidence in a market shuttered by the U.S. housing slump.
…
“We expect this will inspire other issuers to follow our lead and provide further momentum to the market,” Tony Gill, head of banking and securitization at Macquarie Bank, said in the statement.
http://www.bloomberg.com/apps/news?pid=20601080&sid=a1I.GK2gA1rE&refer=asia
Shutdown would have broad impact: Ailing state’s image, economy on the line
LANSING — A Michigan government shutdown on Oct. 1, which grows more likely with each passing day, would deliver a blow to the state from Main Street to Wall Street, political and image experts agree.
The damage to a state struggling to rebound from severe economic woes would be immediate and long-lasting. It would temporarily curtail spending from the state’s $9 billion general fund and $13 billion school aid fund and could send many, if not most, of the state’s 53,000 employees home without paychecks.
“It’s horrible. It’s the worst-case scenario. It makes us look incompetent, that we can’t get it together and the public should have no confidence in our political leaders,” said Bob Kolt, Michigan State University advertising professor. “This would be a black mark on Michigan for a long time, and at a time we really need to put a positive image forward for economic reasons.”
http://tinyurl.com/2clyh9
Unfortunately it sounds like the Republicans have caved to tax increases, so there might be a deal soon. So much for your “positive image.” Everybody has to cut back in Michigan except govmint…..go figure.
But when the governor tries to lure business she uses….voila, tax breaks!! And the rest of us heathens get to make up the difference.
re: tax breaks
prisoner’s paradox. everyone’s doing it.
If anyone posted this article earlier I apologize, but it made my blood boil.
According to this article the Bush Administration wants to give “1% 30 year fixed loans “to those who have Arms and can’t afford them and then have the government insure them.
My daughter and son-in-law saved for several years to get a decent down payment . They bought a home they could afford in 2005 and took a 30 fixed at 5.5
So if this is the case then any one who saved for a down payment, bought what they could afford and took a 30 year fixed were fools!!
There is not only a war on savers there is one on responsible people.
http://articles.moneycentral.msn.com/Investing/SuperModels/BushMortgageBailoutJustMightWork.aspx?page=1
“There is not only a war on savers there is one on responsible people.”
Absolutely. Our government is all about rewarding bad actors on Wall Street and Main Street. The destruction of the ethical foundations of our national wealth is in high gear.
Just want we need. The largest government ever know to man becoming even larger and even more of a nanny. What have we created? Certainly nothing our FF would recognize.
I can’t believe Bush! What a bunch of Commie carp.
I just wonder who Fannie and Freddie are going to sell these 1% eternal mortgages to - especially when denominated in a currency that drops about 1% every day now. I think they will need to budget some extra money to get all those EU pension fund managers to cooperate in buying even more worthless sh**.
come to think of it, maybe Moody’s can invent a new rating above AAA level for these government-insured mortgages; EU fund managers will be drooling …
The gov darn well better be coming up with cures for a lot of diseases, because people in this country are going to have to live one h*ll of a long time to pay off these mortgages.
Ginnie Mae, taking a sizable loss, would then sell these loans to Fannie Mae (FNM, news, msgs) and Freddie Mac (FRE, news, msgs) at a discount so that the buyers would earn reasonable yields.
Hmmm… so what is the NPV of a 15 year, 1%, 100K mortgage, if market rates are 6%?
If my numbers are right, thats about 70K
That article was dated 9/06, and refers to something Bush had said a week earlier. I didn’t feel like paging over to page 2, so I never did get to the part where the author bothers to say what the plan is. He’s probably referring to the FHA extension.
However, without the corresponding increase in loan limits and decrease in underwriting standards (that just passed the House), the FHA extension will have a minimal effect on the market, and will not really serve as a bailout.
IMPORTANT:
Please write your senators and ask them not to approve any increase in GSE/FAH/Ginni Mae loan limits or decreased underwriting standard.
From the San Diego Union-Tribune,
http://tinyurl.com/37mx7n
“San Diego County’s apartment complex vacancy rate has dropped to 2.58 percent from 4.54 percent over the past six months, as a national credit crunch has restricted access to mortgage loans.”
“Part of the reason for the vacancy drop was a relatively small number of new units coming onto the rental market, Martinez said. There were fewer than 400 new units since the last survey was conducted.”
Apartment rents are supposedly rising with the vacancy rate down.
My guess is this is analogous to the “always rising median” in that it depends on what you are sampling. If are only looking at large complexes, this might be true. If you are looking at the larger rental market, I doubt it. This is not like 1998/99 when rents were rising sharply and when anything decent would be gone within a day of being available. It’s not even like 2 to 3 years ago when people were getting booted out for condo conversions.
There’s still a net migration of people out of San Diego. It’s evident from the Craigslist postings that some of the recent “for sale” properties including condo conversions are now back on the rental market.
I suppose if you had massive numbers of foreclosures, those units mostly sat vacant, the previous occupants mostly stayed in San Diego and didn’t “double up” you’d have enough increased demand and decreased capacity to push up rents. That all of this would appear in combination appears unlikely. More likely rents will be stable if not declining if rental capacity increases from “for sale” units.
The opposite occured last quarter. Former for-sale units flooded the rental market and sent the vacancy rate soaring. Now former owners (or would-be owners) are flooding the rental market and sending the rate plunging. What next?
Check out this guy. He seems to know what he is talking about.
http://suddendebt.blogspot.com/2007/09/real-reason-for-feds-50-bp-cut.html
Savers are losers? That’s the line I just got from Robert Kiyosaki’s radio ad. Sickening.
He is right. The War on Savers is victorious. Go out and buy some stocks today, or get your wealth inflated out from under you.
No. Go out and BORROW 500k and spend it on depreciating shit. You’re patriotic when you do that.
If Kiyosaki is so smart with money, then why is wasting so much time and energy writing books, giving talks, and doing advertisements? The man is a snake oil salesman.
Washington DC Metro resale numbers from August: DISMAL
From the Washington Times “Charting the Markets”:
Metrowide resales July –> Aug went from 6630 –> 5386.
Normally there’s a drop, but not that bad.
Compare previous years’ August nums, 2005 –> 2006 –> 2007:
District: 741 -> 632 -> 523 (not so bad?)
NoVirginia: 2507 -> 1806 -> 1374 (bad)
Mont. County: 1471 -> 1169 -> 713 (ouch!)
Anne Arundel: 937 -> 728 -> 564 (bad)
Most other composite numbers they gave showed more than a 50% drop in home sales in August this year compared with August 2005. Yet the bad news for buyers so far is that “home prices are higher than they were in 2004.” Well, it won’t take long to get those prices fixed, not at the rate these things are (not) selling.
But Fuller and the GMU Center for Regional Analysis said it was different here!
Reuters/LA Times:
Regulators cautious on housing fix
http://tinyurl.com/2j9tw3
“Federal Reserve Chairman Ben S. Bernanke and Treasury Secretary Henry M. Paulson Jr. dropped some of their resistance to expanding the role of Fannie Mae and Freddie Mac and said the companies could help restore funding for the largest home loans, which has dried up.
Paulson told the House Financial Services Committee that he could support letting the two government-sponsored enterprises, or GSEs, temporarily invest in so-called jumbo loans, or those above their current $417,000 limit, as part of a broader regulatory overhaul.”
…
“Bernanke warned the House panel that it would be too risky to let Fannie and Freddie use their investment portfolios to sop up more sub-prime mortgages.
“I don’t think that the portfolios are the most productive way forward in terms of addressing the current housing situation,” the Fed chief said.
He also cautioned that lifting the companies’ loan limit could expose investors and the GSEs to greater risk and urged limits on such a move.
“If it is done . . . it needs to be temporary, and if it’s not prompt, it’s not going to be productive because these markets will recover over the next few months,” Bernanke said. “If this comes online in March, it’ll be counterproductive.”"
——————-
So Ben B is against Freddie and Fanny keeping “jumbo” loans, but (temporarily) guaranteeing them and selling them off is OK?
Believe or not, the lending industry does not want the GSEs in this space; that’s why he wants it to be temporary. A lot of big fish will lose market share to the GSEs if this measure passes and is permanent.
Funds should not be used to refinance “old money” by using the government back loans .
If they want to ease a credit crunch the money should be used on new loan purchases with prudent underwriting standards .
The only reason to call for a short term let up on the limits of FHA is for the purpose of buying bundles of bad Jumbo loans to bail out the lenders . Countrywide is stuck holding alot of bad loans right now that they want to pass to the taxpayers .
These bad loans that the gov. wants to take on would not even appraise out now in current markets and that’s why the lenders want to get rid of them .So they are saying that they want to take on loans that the value does not support the loans .
I object to loans currently on the books being purchased verses new loans being made that meet the qualification standards including a new appraisal . It cannot be condoned that a government -backed agency agrees to buy bad paper that doesn’t appraise out so they can write off the loss at the taxpayer expense . It is very important how they go about handling these loans . It would be a crime to knowingly buy bad paper with intent to make the taxpayers the bagholders .
Sept. 21 (Bloomberg) — RBC Capital Markets, the investment- banking arm of Canada’s biggest bank, is firing employees in its U.S. fixed-income division as a slump in credit markets curbs revenue on Wall Street.
…
Bond traders in the U.S. are losing or leaving their jobs as losses sparked by defaults on subprime mortgage securities spread throughout the credit markets.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aGXqWsE565P0&refer=home
Sept. 21 (Bloomberg) — HSBC Holdings Plc said it will close its Decision One subprime mortgage unit in the U.S., eliminating 750 jobs.
…
“This is a small part of our business,” said HSBC Chief Executive Michael Geoghegan in the statement. “It’s no longer sustainable and not the right place to allocate capital in the future.”
http://www.bloomberg.com/apps/news?pid=20601087&sid=aEjZb3niOtgs&refer=home
“This is a small part of our business”
It sure is, now that you’ve lost so much money on that unit.
Helicopter Ben Earns His Wings
Coming at a time when rate increases were needed to combat the sinking dollar and surging gold, oil and other commodity prices, Ben Bernanke’s 50 basis point cuts in the Fed funds and discount rates this week may go down as the most irresponsible move in Fed history.
http://tinyurl.com/2pj3uf
“He even admitted on “60 Minutes” that he personally had already diversified his own assets out of the U.S. dollar.”
This sentence from the last paragraph of Peter Schiff’s article has infuriated me beyond belief, although it in no way surprises me.
Sorry, I should have mentioned that the last paragraph of the article was about Alan Greedspam, not Heli Ben.
I saw the 60 Minutes interview, and I don’t remember him saying that.
Unfortunately I didn’t see the interview. Did anyone else see it who recalls this being mentioned or is this a figment of Peter Schiff’s imagination? I have read his book and have always considered him to be very credible.
ANOTHER DEAL OF THE CENTURY… Sorta…
Lennar homes is following up K. Hovnanian in trying offload their excess inventory of overpriced McMansions. You can check it out on their website - I won’t dirty this blog with a link to a homebuilder… hehehe…
I looked over the listings to laugh. They are still out of their mind. Oh, sure, the price has been reduced, often 50K to 100K, but who cares when the prices are still generally over $500K to $600K (at least here in Maryland)? Nobody can afford that! Okay, I admit that these are not “starter homes” but still… they are nuts! Even a “dream house” that is the peak of somebody’s buying power in this state should only go for about $400K or so, and that is for the very wealthy, dual high-income, probably no kids types. Lennar, and all the other builders, are nuts.
I also got a real laugh out of how when I click on Maryland, it gives listings in Pa as well. I guess because nobody can afford to live in Maryland, we count Pennsylvania as part of it. Because 60+ mile commutes each way are great ideas! Duhhh…
I will give them credit for at least having some affordable houses out in Lancaster County, PA (under $200K range). I am sure that they are still overpriced for what they are, and I bet that there are no jobs nearby and they will crater along with everything else, but at least those numbers aren’t completely nuts.
Anyway, enjoy the sales since they set the NEW COMPS! Race to the bottom has begun!
I also got a real laugh out of how when I click on Maryland, it gives listings in Pa as well. I guess because nobody can afford to live in Maryland, we count Pennsylvania as part of it. Because 60+ mile commutes each way are great ideas! Duhhh…
that is a brilliant idea, I wonder why the Dutch realtors have never thought of including German home prices in the Dutch housing statistics. 60 miles would add millions of German homes to the inventory and cut the average ‘Dutch’ price in half (probably even more than that). It would also eliminate the current problem that there are no (starter) homes available for less than 5-6x median income.
“Lennar homes is following up K. Hovnanian in trying offload their excess inventory of overpriced McMansions. You can check it out on their website - I won’t dirty this blog with a link to a homebuilder… hehehe…”
They’ve got some houses in a trashy part of Orange County (New York) for only $700,000. I’ve been dreaming of the day when I could get a plastic-and-stucco sh1tbox for only six times my annual salary. And it’s only a 2.5 hour commute! I’m gonna run out and buy one right now. BRB
x
SUNSET TOUR open houses on THURS. evening … a new Coldwell Banker tactic in Arlington Heights, IL? It made me smile on my way home last night.
Coldwell Banker has been doing sunset tours for years. It doesn’t generate any business. Problem is they always do it during the week and people are too tired from work to go back out again. Agents hated it, but the company pushed it.
Hi all:
I just read a paper detailing why Frannie is already way too big, and suggesting that the gubment give the agencies a boot. I sent e-mails to my senators about it. I suggest you all do the same thing. Here’s what I sent:
Dear Senator Boxer:
Before you can vote on whether or not to increase the lending limits and decrease underwriting standards for the government-backed mortgage lending industries, please read the paper at the following link:
http://works.bepress.com/david_reiss/1/
Title: The Federal Government’s Implied Guarantee of Fannie Mae and Freddie Mac’s Obligations: Uncle Sam Will Pick Up the Tab
Author: David J. Reiss, Brooklyn School of Law
This paper explains why the GSEs are already too big, and recommends that Congress ends its relationship with these entities. I think this paper will be very helpful to you.
Thank you,
Big V
ROFL
Condo’s in downtown LA now being offered for sale on light poles.
http://chanfles.com/blog/?p=532
The title says, “condo and stove for sale”, almost as if they are items of similar value.
Well, if when I buy a stove for the standard price I get a free condo tossed in, I might consider it!
From the FT:
http://www.ft.com/cms/s/0/4271e4a0-67db-11dc-8906-0000779fd2ac.html
“South Korea’s mid-sized construction companies are collapsing like houses of cards, intensifying fears of a looming liquidity crunch in Asia’s third-largest banking market.
Korea has remained largely immune to the sub-prime woes that have afflicted international markets. But a series of smaller construction companies has been defaulting on project financing loans as they struggle to sell apartments outside Seoul.”
———————
With Northern Rock and now this, some folks might start to worry. Fortunately, real estate market problems are contained to Asia, Europe and North America.
HSBC’s Decision One Mortgage is no longer…
Who got to be the Decider, as far as going under?
Sept. 21 (Bloomberg) — Wilbur L. Ross Jr., who became a billionaire by investing in bankrupt steel companies, offered to pay at least $435 million for a unit of American Home Mortgage Investment Corp. and said he plans to “get into all aspects of the mortgage industry.”
…
“We feel that the mortgage industry is a very fundamental industry to America,” Ross said in an interview. “We felt the key starting place would be servicing.”
http://www.bloomberg.com/apps/news?pid=20601087&sid=aR0b1zRW0AWg&refer=home
“SAN FRANCISCO (MarketWatch) — The credit storm is passing for Wall Street’s biggest firms, but once lucrative, and now ravaged, mortgage and structured-product markets may never be rebuilt entirely, analysts said on Friday.
Goldman Sachs (GS), Morgan Stanley (MS), Lehman Brothers (LEH) and Bear Stearns (BSC) cut the value of leveraged loan commitments and mortgage exposures by a net $3.82 billion in the third quarter, according to Keefe, Bruyette & Woods.”
Passing? They wrote off three billion dollars. By my calculation, there are at least 5 million households involved in the housing debacle. At 200,000 each, that would be a $10 TRILLION problem. This is not going to pass like gas after a trip to Burritoville… if the IBs can’t hide the losses or push them off on the taxpayers, they had better be prepared for some discomfort that just won’t pass.
The ‘it’s not a bailout’ bailout comedy show continues. From the WSJ:
WASHINGTON — Federal Reserve governor Kevin Warsh on Friday cautioned against assuming that the Fed will prop up asset prices or protect individual financial institutions.
“We should be extremely wary of protecting financial institutions and their various stakeholders from incurring losses,” Mr. Warsh said in prepared remarks to the State University of New York at Albany….
“The desire for well-functioning markets does not require us to insulate asset prices or individual financial institutions from the buffeting of the marketplace,” he said.
http://online.wsj.com/article/SB119039313742135405.html?mod=hps_us_whats_news
“We should be extremely wary of protecting financial institutions and their various stakeholders from incurring losses”…
Yeah, you should. But, you’re not. All of the Fed stooges are now singing the same song…It’s bad policy to bail out big money from their own stupidity, so don’t notice us as we do it.
I want to know how they are going to give these bail-out loans when they can’t even get a appraisal that will warrant the refinance .The bail out loan would have to have to be at a bogus appraisal price or the old appraisal .
So , my question is ,are they just going to buy big bundles of junk loans(lenders are currently holding ) and charge the tax payers on the defaults ,or will they re-underwrite these loans to make sure they qualify income and appraisal wise . You can’t look at the old loan application for anything authentic .
Just a note from “it’s different here” land (SF Bay Area - Mid-Peninsula). I saw a home listing today in Menlo Park, CA. Was listed at $2.5MM starting in June. No takers. Re-listed today at $2MM. Still overpriced, but the importance can’t be overstated. The sellers didn’t simply name their price and get it. While it still may sound like a ridiculous price to many (like me), this is a relatively newly constructed house in a nice neighborhood, 3,200 square feet on a reasonable sized lot.
And for anyone who hears “it’s different here” this weekend, simply ask if loose credit was a positive influence “here” on the way up. When you get your answer that it did help people get into homes, ask the second question–how come the reverse isn’t true?
You’ll get either a) silence, or b) grinding gears as they try to figure out the answer.
Hey Rental Watch:
My coworker just told me a Realtor relative of his has a total of 4 listings. She reduced the price on one of them (in Mountain View) from $650,000 to $499,000. Still no interest. Good.
Very late in the day and waaaaaaaaaaaaay down on the list, but a personal observation from the Fairfax County Courthouse in NOVA this morning: land records is a ghost-town. Sure, I reported months ago that there were only a few abstractors wandering around, and the place was mostly deserted. Today, it was completely deserted. I walked down the entire length of the counter, heard the clerks talking quietly together, but there were no abstractors or people recording documents. Zero. Nobody at all.
I walked around the corner to the research tables and desks. Nobody was there. Not one person researching titles, checking judgments or anything. I walked around back to the copy center. There, way in the back was one person who looked like they were working through a stack of something. One person working in the entire land records department of Fairfax County, whose population numbers over a million.
If it was unsettling several months ago for there to be only a few abstractors working, it’s absolutely shocking today to see nobody there at all. I asked the clerks whether there was a holiday or some alarm or meeting that I didn’t know about and they said no. They said “They’ll come!” but they didn’t seem very positive about that conclusion.
My conclusion: this is FAR from over.
The sooner the “Silent Bubble” in Maryland, DC, and NoVa is destroyed, the better. I am so sick of listening to the local idiots preach about how “rich” we are “because we’re near DC.” Right - I can just watch the money I have increase even now as DC magically radiates cash in my direction. Duhhh!
Cool!
I grew up in Fairfax County, and barely recognize it when I go back to visit the place.
Stop the madness!
(Not that the damage isn’t already done.)
“The tools of conquest do not necessarily come with bombs, and explosions, and fallout. There are weapons that are simply thoughts, ideas, prejudices, to be found only in the minds of men. For the record, prejudices can kill and suspicion can destroy. A thoughtless, frightened search for a scapegoat has a fallout all it’s own for the children yet unborn. And the pity of it is, is that these things can not be confined to the Twilight Zone.”
Rod Serling