Denial Is A Powerful Thing
Some housing bubble news from Wall Street and Washington. The Guardian, “Thousands of homebuyers have abandoned plans to move house after the British banking crisis surrounding Northern Rock led to fresh uncertainty in the housing market. David Salvi, director of Hurford Salvi Carr, said his office had compared the traffic with that of the other property websites coming through internet search engines and that the same trend was evident elsewhere.”
“‘The public’s appetite for buying and selling property completely dropped off after last Thursday [13 September], although some of this has now returned. We do not believe it is a coincidence that our quietest weekend of the year occurred immediately after the Northern Rock share crisis,’ he said.”
“‘Last week shows what happens when an event in one part of the world can affect us all within just a few weeks,’ Chancellor Alistair Darling will today tell the Labour Party conference. ‘The time was when a small bank in an American state got in trouble, it was bad news for that town or maybe that state but nowhere else. But today, when a Florida householder defaults on his mortgage, the effects are felt not just in America but across the world.’
From Bloomberg. “The government of Prime Minister Gordon Brown, which insured the deposits of Northern Rock customers to stop a run on the bank, seems willing to sacrifice its investors and executives to lawmakers looking for someone to blame.”
“‘No government should ever be in the business of protecting executives who make the wrong call or bad decisions,’ Darling said Sunday at the governing Labour Party’s annual conference. ‘My job is to protect ordinary savers.
From Reuters. “Deutsche Bank’s profit could be hit by up to 1.7 billion euros ($2.4 billion) due to loans that have dwindled in value as a result of the credit market crisis, sources familiar with the situation said.”
“Deutsche would normally farm these loans out to other banks, but it has become harder to sell on such debt in the wake of a credit squeeze that began with a wave of mortgage defaults in the U.S., and the bank now faces having to write down the value of these loans to reflect this.”
“Mitsubishi UFJ Financial Group, Japan’s biggest bank, says it may need to mark some of its investment securities at ‘a significantly lower price’ due to credit market deterioration from subprime mortgage defaults in the United States.”
“Prices for some securities have declined because the market ‘is depressed or not properly quoted,’ the Tokyo-based bank said.”
The Wall Street Journal. “In its semi-annual review of global financial issues, the IMF concluded that the ‘threat to financial stability increased,’ in good measure because of the uncertainty over how credit problems are transmitted globally and how deeply the credit crunch will bite in markets around the world.”
“Now, the IMF says it’s trying to help head off future crises by highlighting potential problems ahead of time. ‘The new element [in the global economy] is the complexity of the new financial system,’ said the International Monetary Fund’s top financial review official, Jaime Caruana.”
“Mortgages, for instance, are packaged in so many different kinds of financial instruments that are held by so many different kinds of investors, that individual investors lose incentive to do sufficient due diligence, figuring someone else in the chain has already done so. Ratings agencies also have a hard time properly understanding the risks.”
“‘Investors need to look behind the ratings,’ the IMF report said. ‘They should not assume that the simple letter rating provided by ratings agencies show equivalent risks as those for other asset classes.’”
The New York Times. “Denial is a powerful thing, and nowhere is that more evident than among companies holding mortgage securities that are on the skids. Nine months into the meltdown of the home loan market, investors are still waiting for banks, brokerage firms and other companies to come clean on losses incurred on those securities.”
“Consider the announcement last week from the E*Trade Financial Corporation about problems in its mortgage operations. Mitchell H. Caplan, E*Trade’s CEO, said the company would likely take a $95 million charge in the second half of 2007 and a $245 million provision for loan losses. The company also expects to record an impairment charge of $100 million to reflect deterioration in the performance of second lien loans and collateralized debt obligations.”
“But Sean Egan, managing director at Egan-Jones Ratings, said he expects that this was not the last of the bad news from E*Trade on its mortgage holdings. In the most recent quarter, which ended in June, E*Trade held $47 billion in mortgage securities, home equity loans and loans receivable, or three-quarters of its total assets. So the charges and loan loss provisions recently taken by the company total less than 1 percent of those loans.”
“Not enough, Mr. Egan argued. ‘They are still marking to model, not to market,’ he said.”
“Indeed, E*Trade, as is common practice, does not recognize losses in problem loans until it considers them ‘permanently impaired.’”
“It showed $690 million in unrealized losses in securities held on its books at the end of June, a vast majority in mortgages. These losses represent temporary impairments only and are attributable to changes in interest rates, not a decline in credit quality, the company said.”
“Nationstar Mortgage, the subprime unit of Fortress Investment Group, said it is no longer accepting new loan applications from brokers, a signal the lender is winding down operations. Nationstar has been a leading U.S. subprime lender.”
The Pacific Coast Business Times. “The Federal Reserve’s bold move to reduce short-term interest rates by 50 basis points Sept. 17 gave a temporary lift to publicly traded companies in the Tri-Counties.”
“Richard Weiss, chief investment officer at City National Bank said the underlying message is that Fed Chairman Ben Bernanke and his Open Market Committee must see serious problems ahead for the economy. ‘At the end of the day, the economy is not in great shape, and the doctor is providing serious medicine for us,’ Weiss said.”
The Baltimore Sun. “Fasten your seatbelts; it’s going to be a bumpy ride. Last week’s announcement that the Federal Reserve was cutting a couple of key interest rates by a whole half of a point, not just the quarter-point that many economy-watchers expected, set off one heck of a party.”
“But for some of us scaredy-cats, the news set off memories of the Carter years and double-digit inflation. It also brought back the dot-com bubble - before that roller-coaster ride dipped precipitately at the end. How long, some of us wonder, before references to the Greenspan Put are replaced by talk of the Bernanke Bubble?”
The Union Tribune. “The fire that Bernanke hopes to put out is the Great American Mortgage Crisis, which has burned brighter and hotter than many economists had previously thought possible.”
“But in the world beyond Wall Street’s movers and shakers and CNBC’s talking heads, the reaction was a bit different.”
“From the Persian Gulf to Beijing to Zurich, there is increasing skittishness about the health of the U.S. economy and the wisdom of our economic policies. Bernanke’s kowtowing to the powers-that-be on Wall Street did nothing to allay those fears.”
“In July, foreigners sold a net $9.4 billion in U.S. Treasury bonds, one of the largest sell-offs on record. Foreign sales of dollars have pushed the value of the U.S. currency to its lowest point ever against the euro. The Canadian dollar, which used to trade for less than 70 U.S. cents, is now equal to the U.S. dollar and will probably soon surpass it.”
“The fact is that just as it required a lot of foreign money to get us into the economic mess we’re now dealing with, it may require a lot of foreign money to pull us out. And if we treat them too cavalierly – or if we make our market too unprofitable – they might take their money and run.”
“Following the Asian economic crisis of 1998, Greenspan and other central bankers created a virtual sea of liquidity in the world marketplace, printing money and lowering interest rates to prevent a worldwide recession.”
“Wall Street firms, awash with cash, helped develop increasingly risky securities for foreign investors who were also awash with cash. Those investors may have had no idea what ‘no down, no doc ARMs’ were. Instead, they probably had the idea that nobody goes broke buying U.S. real estate.”
“Ironically, last week’s interest-rate slashing by the Federal Reserve, designed to keep the economy from falling into recession, may chase away so much foreign money that our economic problems will only grow worse. If you were a foreigner, why would you invest in a country where the combination of an anemic dollar and interest rates robs your investment of its value?”
“In May of 2004, Dean Baker, an economist in Washington who had been warning about excesses in the housing market, sold his two-bedroom condo after concluding that the market had lost its moorings from reality. In a way, he was two years too early.”
“In a replay of the years before the tech-stock bubble burst in 2000, housing market skeptics have spent much of this decade being tarred as the boys who cried wolf. Academics and economists like Mr. Baker came across as gloomy sourpusses who did not want Americans to have fun and grow rich by flipping second homes on the New Jersey or Florida coasts.”
“Some in the real estate industry say the early cries of bubble should be called to account on the grounds of intellectual fairness. If the boosters have to acknowledge they were wrong when they provided justifications for prices that were, well, unjustifiable, then the doubters should also own up to the fact that they were too negative, too early.”
“‘Even the people that were talking about booms busting, my goodness they were talking about it in 2001 and 2002,’ said David Lereah, the former chief economist with the National Association of Realtors. ‘And they were wrong for four years and they only became right at the end of 2004.’”
“He and his former employer had been criticized for the optimistic forecasts they made during the boom.”
“Newspapers during the boom in the 1990s and in the early years of this decade expressed warnings about the housing market, along with more upbeat sentiments. But the critical voices often did not register above the din of the frenzied market.”
“‘You got some of us sitting there in a distance saying that this is a bubble, we don’t know when its going to end,’ said Christopher F. Thornberg, an independent economist. ‘And then you have mortgage brokers and real estate agents who are much closer to the buyer who are whispering in their ear that, well, yeah, there are some markets that are out of line but not this neighborhood.’”
“Almost everyone would agree that of far greater import to the timing and performance of bubbles are interest rates and the availability of credit. Both are set by the market, but regulators at the Federal Reserve exert significant influence over them.”
“The main discussion now, with the benefit of hindsight, is whether the central bank should have taken a more muscular approach in regulating mortgage lending and raised interest rates sooner.”
“Last week, the Fed cut rates sharply to ease conditions in the credit market, kindling some fears of inflation.”
“‘We have had two bubbles in the last 10 years,’ noted economist Allen L. Sinai, the president and chief at a consulting firm based in New York. ‘The only way I would say it won’t happen — and this is arguable — is for the central bank to do something about it before it gets too far, and right now the central bank’s religion is not to interfere.’”
“‘No government should ever be in the business of protecting executives who make the wrong call or bad decisions…”
then don’t fracking do it then.
“My job is to protect ordinary savers.”
then fracking do it then.
“‘No government should ever be in the business of protecting executives who make the wrong call or bad decisions,’ Darling said Sunday at the governing Labour Party’s annual conference.
- These British Blokes are mental midgets.
Our BB will continue to remain ‘Our Boy’ to Wall Street and to hell with the ordinary Joe (Juan?).
Agreed, CBs should get the frack out of the way!
Let Kamikaze lenders crash and burn!!!!
why should the government protect savers? why are savers better than anyone else? if we didn’t have FDIC and the rest we’d have a sounder banking system. now companies like countrywide and northern rock use investors deposit to make bad loans.
the problem is savers aren’t savers, they are investors who think they have money in the bank. that money is loaned out. they are just investors who are guaranteed, up to a point, to not lose their money.
John Law - you can’t be serious! Without FDIC insurance, banks would take the money of savers, put it into crazy loans, and then go bankrupt and tell the savers “gee, too bad!” Is that what you want?
No, savers are not “investors” - not by design. The only reasons we put our money into banks are: 1) it is generally safer than keep huge piles of cash at home and 2) inflation FORCES us to invest. Without inflation, our savings would remain valuable, but thanks to inflation, we are forced to put our money in the hands of the bankers, who will run off with and spend it on stupid things much of the time.
As for “why savers are better than everyone else” that should be obvious - savers actually save their money, so they are less likely to depend upon government handouts or screw up the lending system by not paying bills, lying on their loan applications, and so on.
Plus savers insured by FDIC take a lower yield than the higher risk investments in return for the safety of that investment .
FDIC Insurance was one of the greatest things that came about after the Stock Market crash of 1929 ,that caused the bank runs .
Did any one see Greenspan yesterday on Meet the Press, he was hawking his new book. Tim Russert flatly asked him “are you responsible for the housing bubble”. Greenspan (after the obligatory Ralph Cramdem like hominy, hominy) flatly answered “NO”. He then went on to give his rehearsed explanation, that did not really explain any thing but maybe made the old man feel better, what a weasel.
‘The U.S. is heading toward an economic slowdown but it’s too soon to say whether a recession is on the horizon, former Federal Reserve Chairman Alan Greenspan said Sunday. ‘We’re heading towards a slowdown,’ Greenspan said in an interview on NBC-TV’s ‘Meet the Press’ program. ‘Whether that actually leads to a recession is dependent on things we can’t forecast at this moment.’
‘ He said he expects home prices to drop ’significantly more,’ curtailing U.S. households’ net housing wealth. He repeated that he doesn’t accept blame for the U.S. housing bubble that is now deflating.’
If I am Mr. Greenspan, I am spinning it like this. “It isn’t Alan Greenspan’s signature on those loans. I give the American people the opportunity of a lifetime to lessen their debt obligations with the lowest interest rates of a lifetime and they are too stupid to take advantage of it to help themselves. Instead, they act like idiots and take on more debt!”
See, it isn’t Greenspan’s fault after all. /Sarcasm off
I sort of get your sarcasm but you suggest greenspan forced these people to over extend themselves because money was loose. People seem to take no personal responsibility for their actions. I could have borrowed and extended myself out but I knew my limits. I could weigh 400lbs because I love to eat but I don’t even though food is available 24/7. People blame everyone from Geenspan to wallstreet,mortgage lenders etc, but It all comes down to Peronal Responsibilty.
Technically, Greenspan is correct. He didn’t CAUSE the housing bubble. What he caused was the printing presses to run. And all of that money was bound to end up somewhere. When it became clear that it was rampantly running into real estate, the Fed should have take notice.
Now let’s all remember that they dropped the fed funds rate in reaction to a slowing economy as a result of the Tech Bust. Now they are dropping said rates because of the Housing Bubble Bust.
In another effort to relate the U.S. economy out of the lastest mess, they will print more dollars. The only question is where will the extra dollars end up?
Real estate? — Unlikely, we’ve been there, done that
Foreign Currencies and Stocks– Yes, if foreign central banks don’t inflate their currencies to help their exporters in face of a weak dollar. Chinese stock, in particular, since the dollar peg on the yuan acts as a spring-loading device, once the peg is gone, the value of the stocks will explode.
Gold — More money in circulation, same amount of gold, so the number of dollars an ounce fetches could certainly rise
Oil - More money, less oil everyday and increased demand.
These are good bets, but the fact is nobody knows where all of the printed money will end up, and the next frenzy and bubble will be. Those who figure it out early, or get lucky, will get rich.
At some point when all this nonsense unwinds, all that money will be used for one thing only: to pay off existing debt.
Greenspin also notoriously encouraged people to use ARMs as a vehicle to get into housing when they might otherwise not be able to. One of my kids took his advice and almost had to eat wallboard when the ramen ran out.
Yes, Tim Russert actually called him on this too and had one of his quotes from a few years ago where he said technology had made it possible to offer these new “loan products” while minimizing risk. He explained this away saying he was misquoted and he actually has a 30 year mortgage himself(he of course stammered a little through this explanation).
I had just begun to give AG a pass for this oft-quoted remark, because people here had posted the exact words he used, which could be interpreted as merely referencing past data (all of his remarks were in the past tense.) But boy, he didn’t use that defense with Russert. I think he really did think it was a good idea for people to go get ARMs when he made that remark.
Chip, I hope you didn’t teach your kids to blame others for their mistakes. To bad your kids would listen to Greenspan and not you. I’m sure you advised him not to do it.
I think Greenspan is quilty of holding the interest rate to low to long . Also he was pretty dumb not to spot that a speculation bubble was taking place . But as far as the fraud in lending ,I don’t think he expected that or knew it was happening .
Returnto — they listened to their friends, who were doing the same thing.
Why don’t people take into account that reduced demand from leaner economic times caused by the increase in oil prices offset the increased demand?
Less oil everyday sounds like chicken little peak oil talk. While this may be true 10 to 20 years from now, it’s probably not true now.
there is lots of evidence that it’s happening now.
Just look at the oil drillers, they are way up. It is taking longer and drilling deeper to find smaller and smaller oil deposits. Also, mexico has already said that their big oil field is past peak.
Energy returned on energy invested
He went to work for Deutschebanke. GWs bother is working for Lehman, the old man is involved in a hedge fund, the Clintons get millions from the Arabs; Do we have a chance?
Old: Musical Chairs
New: Musical Houses
The fat lady just ran out of hot air…
“Thousands of homebuyers have abandoned plans to move house after the British banking crisis surrounding Northern Rock led to fresh uncertainty in the housing market. David Salvi, director of Hurford Salvi Carr, said his office had compared the traffic with that of the other property websites coming through internet search engines and that the same trend was evident elsewhere.”
From the linked article:
“Mr. Baker said he knew he would never be able to call the top of the real estate market precisely, either as a home seller or an economist. He noted that he was also too early in calling the tech bubble in 1997. “Sure it could go somewhat higher,” he said of the real estate market. But, he added, “I felt the need to talk about it, and do anything I could to bring attention to it.”
I feel better knowing even an economist timed this wrong. This bubble, particularly here in the O.C., is really taking its time bursting. I thought for sure sellers would be dropping their prices by now. Not so for many and, sure enough, those are the homes that aren’t selling!
I don’t think reality has set in for most people. Now that the Fed has started cutting again many feel a set of fresh cuts will help them out of this mess. What they don’t realize is it will actually make things worse.
Yeah, I still dont see California prices going down much, at least in decent areas. The funny thing is all of the brokers, builders, sellers etc. keep saying it is dead and you cant sell a home, well yes you can at a fair price that people can afford and feel good about. TAKE YOUR MEDICINE!
Here in the beach area (Manhattan, Redondo and Hermosa) you have a lot of mature homeowners that have been here 30 -40 years. Probably, only a samll percentage are new buyers from the last 5 years. These folks have very little desire to sell or move, that is why we work with a lot of homeowners that are remodeling.
The downside to “mature homeowners” is that they’re unlikely to get in trouble with toxic mortgages and be forced to sell.
The upside to them is that they are getting old enough to start kicking the bucket, allowing their greedy heirs to do whatever it takes to cash in their inheritance.
I agree!!! And where does Wall Street get the idea that the FED has to cut interest rates again. What Whores!!!
If the Fed doesn’t cut rates, the stock market won’t go up.
Therefore, the Fed has to cut rates.
“I thought for sure sellers would be dropping their prices by now.”
The friends that I have that are trying to sell their houses here in Texas have already priced them at their break even point with no one showing any interest. I think the majority of people who NEED to sell right now have no wiggle room on price and no money reserves to write a check at closing.
It’s much worse in Clownifornia I’m sure.
Yep, I can definitely relate. Due to a job relocation in 2004 we had to sell our house in Texas. It took a year of renting it out at a loss(after not selling for 6 mos) and a year on the market for it to sell. We had to take $20k to closing! We weren’t trying to get rich or anything, it was just a matter of circumstances why we had to sell. Those 2 years were the most miserable 2 years of my life!! We could have easily walked away, but our credit and financial future mean more to us!! We now live in LA and RENT!! I refuse to pay these outrageous prices for these POS!
I just had a conversation with a co-worker today who bought in 2000 in the San Gabriel Valley who said prices will not come down. I asked her if her salary doubled since 2000. She said no. I then proceded to ask her if she could afford to buy her house today. She said no. I then asked her how in the world then could you expect me to buy your house today? She said, “Oh, I guess you are right.” DUH!!! I have to give her credit though, she refinanced twice since she bought and did not take any money out. She is happily setting with a low 30 yr. fixed rate loan.
I think it’s roughly akin to a dam bursting. The weakest point has to give first, then the rest comes tumbling down. In this case, the weakest point is the house or two or three in a neighborhood that either is foreclosed and dumped, or an FB who pulls the trigger to end the pain. Those prices set the new comps. RE agents, finally tired of trying to sell overpriced housing and increasingly hungry, show those comps to the other wishful sellers and reality sets in. The sharpest among them are the first to cut and run, if they can. Saw this in action over the weekend — accidentally happened to be in a room where an agent was telling a seller that his RE was worth half what he wanted — half! He was obviously pissed. All that remains to be seen is whether he is one of the ones who really needs to unload. Someone will.
Chip,
That’s a helpful point. I’ve been wondering why prices haven’t come down at all here in my out-of-the-way city in ND. Even this weekend (the end of Sep) I saw MORE “for sale” signs than ever, and people are just now starting to have all-day open houses. Granted there wasn’t a huge bubble here, but median prices were still 4x-5x median incomes, and most of the houses are either decades old or brand new POSs. I think people have finally figured out at the end of the summer here (winter comes fast here) that there’s a problem, and the weakest link hasn’t broken yet.
I know 3-4 families personally that are going to have a much harder time than they ever thought, and convincing them of that has been an uphill battle.
The one thing this town has going for it when the recession/depression hits is we’re right on a major railline. In fact, the railroad is one of the main employers around here.
I was out in Ladera Ranch yesterday, trying to get a feel on whether prices are rationalizing in one of my target areas.
Bottom line: Not yet. Too much stupid money is still working its way through the system (on the path to final capitulation in February 2009, i.e. two years after the last stated-income 2/28s were made in February of this year).
Even so, prices are down. A Realtor told me candidly that some homes have recently sold for as much as 20% off their previous sale prices. (I think he had me pegged as a bubblespotter and was trying to convince me the market was near the bottom).
BTW, I was told that there were 15 closed sales in Ladera Ranch 92694 in the last 30 days. According to Realtor.com, there are 389 properties for sale. That works out to an inventory of more than two years, at the current rate of sales.
Bulla delenda est.
Too much stupid money is still working its way through the system
I agree. Saw a couple of open houses in the Mar Vista area yesterday. Bottom line: distressed borrowers have ugly and expensive houses, there’s no way around it. I am not in the market for a faux mansion, nor for an overpriced beige box. That said, in one huge fake Mediterranean thing I saw a couple of blocks from Santa Monica Airport, I overheard the realtor tell a vaguely interested customer that a sale had fallen through because the buyer couldn’t qualify for a loan. Oh, the schadenfreude. We need a lot more of that in my area, though, for reality to set in.
Hey Cassiopeia, we look around the Mar Vista area a lot too. I mentioned this on the blog two weeks ago but we went into one place that was asking about $950K and when my wife saw the rate sheet she burst out laughing and told the realtor he was seriously deluded. For the record, she was right, this place was worse than a tear-down, it was a raze-the-building-and-salt-the-earth kind of place.
And still, the prices remain stubbornly high. Something better give soon!!!!
Until there is alternative free market for money creation, all booms will end in busts.
Yep, until we can each ink jet our own cash - all booms will end in busts.
Until there is no money CREATION or DESTRUCTION there will be booms and busts.
Booms and busts, booms and busts, go together like a horse and carriage… let met tell ya brother, you can’t have one without the other… booms and busts…
“‘Even the people that were talking about booms busting, my goodness they were talking about it in 2001 and 2002,’ said David Lereah, the former chief economist with the National Association of Realtors. ‘And they were wrong for four years and they only became right at the end of 2004.’”
My goodness!
Rot in hell lying ba$tard.
I called them as I seem them. Here in so cal it was officially a bubble as of 2002 - any idiot would have known once he saw the sheep camping out overnight to buy houses. Once there’s a bubble, it will bust - it’s only a matter of when.
Lereah and his ilk still don’t get it. We had a housing bubble in 2002, that doesn’t mean it had to pop in 2002. But if it goes higher from there, it just has farther to fall when it finally does bust.
Rule 1: Don’t try to time the market. Buy on fundamentals. Fundamentals said bubble way back in 2002 when I first started looking at homes. Hindsight being 20/20, I could have bought in 2002 and sold in 2006 (when I moved) with a nice profit. But sans appreciation gains, I would have lost a significant amount of money vs. renting.
My sister bought in mid-2002 in Fullerton. The market was heating up but the $200k she paid for the condo then was supported by rents in the area. Top-callers in 2003-2004 would have been correct but for the complete abandonment of prior lending standards, allowing boatloads of GFs to become FBs, last holders of the burning match.
My sister bought in mid-2002 in Fullerton. The market was heating up but the $200k she paid for the condo then was supported by rents in the area. Top-callers in 2003-2004 would have been correct but for the complete abandonment of prior lending standards, allowing boatloads of GFs to become FBs, last holders of the burning match.
Yes, I suppose we bubble-callers do look rather stupid. We knew they were crazy, but we didn’t accurately predict exactly how crazy they were.
You can’t predict anything when fraud is involved and the mortgage rules changed monthly.
Not true. There were many HBBers who predicted that the bubble would burst in 2006. Those were the ones who knew early about the explosion in 5-year ARMs. 2001 + 5 = 2006. The rest of us had to come here to get the low down, but I saw the first month-over-month declines in 2005, so was able to predict the first year-over-year declines in 2006 with or without this blog. This blog helped a lot, though.
what a dip$hit! Yes, there were those that called the bubble early. It continued to inflate, as bubbles are want to do. Calling something a bubble doesn’t bring about the popping of the bubble. Only when it has inflated past the point of capacity will it pop. And they all pop.
Calling the bubble, and the bubble actually popping are two different things.
‘And they were wrong for four years and they only became right at the end of 2004′
Well, Mr Lereah, pray how do you tell the time on a clock with no hands? You see those guys who called the bubble knew it was getting dark and that it would soon be midnight when everything will turn into pumpkins and mice. You on the other hand, proclaimed from the rooftops (no pun intended) that midnight has been postponed indefinitely. That is why they were right and you were wrong. Dead wrong.
Lazarus — good one.
“‘Even the people that were talking about booms busting, my goodness they were talking about it in 2001 and 2002,’ said David Lereah, the former chief economist with the National Association of Realtors. ‘And they were wrong for four years and they only became right at the end of 2004.’”
Bubble at the end of 2004, Liarach? Seems you were quoted on this blog just before you were jettisoned by Liars Anonymous saying there was no bubble. What was that, three months ago? The audacity of this man. Cut em off and feed them to him, just like Maigrat in Germinal!
DP
OK, Lereah, and so how wrong were you with your book (published in 2005), “Are You Missing the Real Estate Boom?: The Boom Will Not Bust and Why Property Values Will Continue to Climb Through the End of the Decade - And How to Profit From Them”?
He says that the bubble callers only became right at the end of 2004, so his book published in 2005 must have been wrong at the time it was published.
Additionally, he confuses calling the housing market a bubble (which it was, even in 2000-2002, at least in some areas) and predicting the immediate bursting of the bubble. These people were right to call it a bubble, but that doesn’t mean that they were predicting the timing of the bust.
“He says that the bubble callers only became right at the end of 2004, so his book published in 2005 must have been wrong at the time it was published.”
Right on.
I heard NO mention of a housing market crash until Robert Talbott called it in early 2003. A the time he was almost right — there WOULD have been a pop if lenders hadn’t opened the I/O spigot. It was a false pop. I personally called for a pop in late 2005, right when selling stopped. I didn’t account for a long 18-month period of no selling at all. It was during those 18 months that 1) ran out of buyers for good 2) no major resets yet 3) those few resets were living on CC’s and ramen before finally defaulting.
Got attached product?
he’s doing his job. by saying the boom peaked at the end of 2004 (as opposed to summer 2005) he’s giving his masters extra material: “Look, we’ve been in a down market three years now, this is as far as prices are gonna drop - its time to BUY!”
No, because if the market continued to go up from 2002 onward based on faulty lending and hit the market appraisals ,and speculator short term demand was driving the demand ,than it was a false market that never should of been (as you can see by the foreclosures and financial stress and prices crashing ).
I think it’s absurb that a market could be pushed 5 years beyond its breaking point by faulty lending , faulty risk ratings on CDO’s, and faulty realtor myths ,and hit the mark appraisals.
Had I know what type of lending they were doing I would of called the crash in 2002 /or 2003 . I remember people walking around saying “who has the money to buy at these prices “,(who knew,only the people in the business ). Well ,nobody had the money ,and nobody had the down payment ,so the REIC just let the people go on crazy low down liar adjustable loans anyway .
One thing that I don’t understand is how some people are saying that the investors in loans might be liable for the FB’s . The investors in loans were just as stupid and conned as the FB’s that bought into the ponzi scheme . It’s the commissioned salespeople like mortgage agents and real estatae agents and Wall Street people selling this junk paper that are behind the extended frenzy. It was the rein of the commissioned salespeople ,(the middlemen )that keep this baby going . Not to mention a inept MSM who got major advertising dollars from that market making machine that didn’t want to be challenged .Greenspan should of raised the rates and Congress and the lending regulators should of acted sooner when any fool could of seen it was getting out of hand .I think in part because nobody stopped the mania i the public thought it must be OK. I was certainly shocked when I found out about the crazy lending .
1990 (bust) to 2000
homes took till 2000/01 to get back to even in real terms, and this with a backdrop of increasing wages and stock prices
contrast w now
“‘Last week shows what happens when an event in one part of the world can affect us all within just a few weeks,’ Chancellor Alistair Darling will today tell the Labour Party conference. ‘The time was when a small bank in an American state got in trouble, it was bad news for that town or maybe that state but nowhere else. But today, when a Florida householder defaults on his mortgage, the effects are felt not just in America but across the world.’
Oh! Chancellor Darling, please believe me
Our homes would never do you no harm
Believe me when I tell you
I’d rather blame the A.R.M.’s
Oh! Alistair Darling, if you believe me
International finance has much to atone
Don’t think you’re all alone…
http://www.youtube.com/watch?v=CKtJ7k85hYQ
“But today, when a Florida householder defaults on his mortgage, the effects are felt not just in America but across the world.”
Ha, we Floridians have the rest of the world by the balls! OK world, send us each $1 million, and we’ll think about paying the mortgage. And my kid wants a pony. Oh, we need someone to take OJ off our hands in case he skates on the Vegas thing.
And I still want some scrambled eggs.
Oh, yeah, and the $1 million, too, of course.
Olympia, you’re at the wrong end of the country. Get your own racket. Or get a new name, like “Sarasotagal”
‘The time was when a small bank in an American state got in trouble, it was bad news for that town or maybe that state but nowhere else. But today, when a Florida householder defaults on his mortgage, the effects are felt not just in America but across the world.’
Darling is not this naive, is he? Subprime lending is not limited to the States. Northern Rock and a group of other British lenders were making bad loans too. Like Countrwide et al, they are heavily reliant on the CP market for funding. Some argue poor lending and price increase expectation in the UK is worse than here.
If you don’t know Chris Wood, here is an introduction from the Telegraph where he describes how bad it’s going to get in London:
He said, “If you told me that I had to choose in the next three minutes whether to buy an apartment in London or New York, I’d be choosing New York every time at the moment. The UK economy is heading for a sharp shock. It just remains to be seen how bad.”
http://tinyurl.com/2qm49v
LOL. Reminding me of the bible quote “it is better to marry than to burn.” Not much of a choice, New york or London.
Only 4 days left to get your job application into CLSA Academy. If I was between 25 and 35 yrs of age, I would apply. As I have said before I would use Mr. Wood for investments to avoid, not for purchase recommendations.
I’m tellin’ ya, I’ve said this a number of times, England likes to hide behind the wide skirts of the US. Always wagging its finger at us, while doing the exact same thing, sometimes on steroids. And I would argue that the US FED probably takes marching orders from the BOE, although I have no way of confirming that. Meanwhile, Hanky Panky goes on his dollar diplomacy travelling medicine show. And when Bush makes a point of holding a press conference to say the economy is doing well, don’t drop the soap.
In the years to come, the US will be blamed for a whole host of miseries around the globe, some of the blame will be deserved, some not. Which is why I say globalization is THE WORST. IDEA. EVER. As a US citizen, I have no intention of taking the blame. I’ve been fiscally responsible and I don’t have a defaulting loan.
However, our CONgresscritters and financial “leaders” have screwed up big time. They “represent” the American people. If other countries are eager to punish the American people, then the “representatives” can take the punishment on our behalf in international courts, as far as I am concerned. Sovereignty or globalization? Can’t have it both ways.
Here, here. Unfortunately, wars have been fought for less reason than the coming collapse. You can bet this’ll all be blamed on us….
… when Bush makes a point of holding a press conference to say the economy is doing well, don’t drop the soap.
When Georgie Boy or his minions say anything, odds are the opposite is true.
The economic well-being of our country, sadly, is but one aspect of a multi-pronged fit of incompetence on the part of BushCo. Not only do they continue to screw up in multiple arenas — domestic economics, international economics, immigration, statesmanship … you name it — on an everyday basis, they continue to engender ill-will toward the US all over the world.
The less-than-stellar Herbert Hoover (He Who Led Us Into The Great Depression) had nothing on the current Boy President.
That’s what scares me.
Thank you Mr. Soros
And thank you, Dick Cheney
the entire notion of engaging a topic to say that it isnt so….should send off the alarm of “Holy Crikey….!!”
Why are the Auzzies saying “The Banking Systme is fine.”
nothin to see here.
the question si when the impact will hit the more desirable zip codes in places like the Westside of LA and Manhattan. My brother is frustrated right now. He’s got a new baby and is moving this week to a new, larger rental. But at some point, he’d like to get into the game when home prices in the Brentwood/Westwood/Santa Monica area return to vaguely sane levels. He looks every weekend but the prices have continued to go up. I know these places are always the last to feel the swings of the market, but that doesn’t change the frustration for him.
has he tried meditation? It’s a good way to escape being driven by your WANTS and DESIRES…
“has he tried meditation? It’s a good way to escape being driven by your WANTS and DESIRES… ”
Thanks for your judgement. Extremely helpful insights there. Of course, my brother should be villified for wanting a home at the right price. How silly of me.
“My brother is frustrated right now. He’s got a new baby and is moving this week to a new, larger rental. But at some point, he’d like to get into the game when home prices in the Brentwood/Westwood/Santa Monica area return to vaguely sane levels.”
your brother should be careful not to “prematurely pounce” and remain patient - this one has a long way to go (congrats on the new addition to the family)
NYCMike,
Quite seriously, Your brother with a new baby is not in a bad position at all. Newborns require very little room, and at least here in Manhattan, the expensive suburbs are starting to pile up inventory and prices are cracking…like Westchester, Litchfield Cty in Ct. and certainly Orange and Putnam Cty. Brooklyn is beginning to get some real price resistance. By the time his newborn is ready for a backyard,
say in 18 months or so, he should do pretty well. I’m extrapolating from NYC prices, but we crashed hard in 90-92. Patience is everything…he’ll get his house at a decent price.
I want to live in La Jolla and I refuse to be happy until I do…
Your bro could get a nice place in the Hood with out razor wire in the mid 500’s. Don’t know what a shack in Pacoima or E LA goes for these days. Is he a snob and so much better than the rest of the losers? hehehehehehe
Hey pismo,
chill. The man has a new baby and is looking for a reasonable deal. When the specuvestors and the FBs are flushed out, decent folks with prudent finances should be able to buy well-made homes in stable, safe neighborhoods.
Which reminds me, Mike, tell your bro that patience will also prevent him from buying in a nabe that goes section 8 or ends up with rooming houses filled with illegals. Let this thing play out a bit.
I follow these markets closely myself, and prices are not rising. They are not falling much YET, but the weakness is starting to show. This time next year, it will be clear to even the most ardent westside housing bulls that the bloom is off the rose.
Mike — has he worked out the rent ratio of owning versus renting? It sounds like he moved for the space increase, rather than because his landlord wouldn’t renew the lease. If the cost of owning is greater than 150x his monthly rent, you might be able to show him how he can invest the difference in cash flow each month, “pretending” to be an owner, and save up a decent nest egg for when prices truly do correct. The 150x is arbitrary and based on an assumption that your brother is really eager to buy. Many of us won’t buy until the ratio is 100x or maybe 120x for just the right place. In my experience, and based on what I’ve read here, the rent ratio gets more insane (higher ), the higher the value of the property being rented — which means that usually you get much more house for comparatively little more rent. If there is a significant downside risk to that approach at this point in the bubble/bust, I’m not aware of it.
Right now the cheapest house, with a minimum of 2 bedrooms, in the entire western half of Los Angeles (OK, north of Inglewood folks) is 500x our monthly rent.
Yes, it’s still positively ludicrous to buy. NYCMike, we’re in the same position. It’s REALLY hard to wait this out but it’s either that or we’ll be eating Top Ramen every meal for the next 30 years.
By the time the baby can walk, he’ll be in a new house.
as bad as the r/e bust may turn out to be, there will remain islands of relative price stability — perhaps only a 10%-15% drop from bubble peak. remember that so much of this bubblemania occurred in places that no sane person would ever want to live, whole communities that, absent starry-eyed dreams of never-ending price appreciation, would have never been built.
once the bubble has finished deflating, in 5 or 10 years, there will remain the attraction of the rare neighborhoods — yes, in manhattan and parts of l.a. — where real (and unreal) people always have wanted, and always will want to live.
i.e.: flight to quality.
… or, as fundamentals truly return to real estate measure as a solid long-term investment, the old threesome indicators will once again rule:
“location, location, and location.”
On the other hand, let’s not think that for all or most of Manhattan (for example), “it’s different here.”
I don’t think that’ll be the case.
agreed. harlem, the lower east side, washington heights and other areas of manhattan will be most adversely affected.
the gold coasts of the upper east and west sides will likely, as new york magazine predicts, be the last to fall (slightly), and the first to rebound.
ya know, in many of these no-reason-to-exist-except-speculation ‘communities’, values will plummet to $0.00. they will literally be bulldozed!
many other of these highly speculative but marginally justified mc-communities will lose 80% of their value!
by those harsh standards, a 20% haircut for the rarified, blue-stocking, historically rational and locationally sane residential enclaves will seem quite reasonable.
most people in my nabe, almost all with considerable equity or downpayments, are sure not gonna complain if their places lose 20% (or even 25%) of their value — and ultimately rebound rather succumb to the wrecking ball!
Manhattanite,
Manhattan crashed hard in 90-92, including the Village and East and West sides. Google the NYtimes for articles on how to rent your coop for some fraction of the carrying costs during that period. If the financial sector takes a hit, the market tanks. Like that.
that’s why i already rent half my place for the full maintenance.
He is in no hurry to move. Content with waiting it out right now. It’s just that it can be frustrating seeing many areas crater around you while the places you want to live hold firm. He has a one year lease with an option for year 2 at no increase and can get out with no penalty on 60 days notice in case the market really tanks and he wants to strike. He is perfectly content to wait until the time is right and something is affordable relative to continuing to rent.
I agree . I also think the builders jumped the gun on baby boomer demand . By the way they were building ,the builders were acting like all the baby boomers were going to retire at once .
MSNBC interviewed an energy analyst who predicts that we’ll be paying $4 for regular gas by next year, and probably $5 the year after.
Rising interest rates & foreclosures, tighter mortgage standards and Americans getting whacked at the pump and the grocery store.
I say we move past Denial sometime next year. It will just be too ugly for too many people.
Gas will be $8/gal if Bush bombs Iran.
Oh, is that why Ahmedinejad (sp, too lazy to look it up) is here? I guess this is as good a place to take cover as any.
He needs to be taken into custody and sent to Club Gitmo.
For what? Oh, forgot, no reason required…
In case my other post got lost….he’s a terrorist. Reason enough. Better yet, assassinate him.
Just gotta have a common enemy to demonize don’t we.
Do not mistake the man for the movement.
Hey Blano, I think the guy’s a mjor league scuzz myself, but as long as the UN is in NYC, and the diplomats are allowed to move freely in a 25 miles radius, them is the rules.
Arrest him or assasinate him…come on, do you really want to give gunmen carte blanche to take out American diplomats whenever it suits them?
When some anti-Semitic German diplomat in the 1880s visited NYC, then Gov. Teddy Roosevelt made sure that only Jewish cops guarded him. Too bad Bloomberg didn’t follow suit–or have only women cops giving orders, sans burkas.
Well, you don’t assassinate him here…..wait ’til he gets back to Tehran. They’re already after our troops in Iraq, might as well start picking them off now. Actually, it’s about 25 years overdue.
Yes, yes: the MSM lies about the economy, the Fed and housing;
but the MSM always tell the truth about Iran!
LOL
MSM has trained half the country to babble like idiots. It’s sad.
They’re already after our troops in Iraq
Really now? I thought US troops in Iraq were under attack mainly by Sunni extremists funded by Saudi Arabia - and a number of whom are Saudis themselves. But we’re not allowed to talk about that, are we, just like we’re not supposed to remember that 3/4 of the 9/11 hijackers were Saudis (and none were Iraqi or Iranian).
There’s a good reason the Iranians endorsed Bush’s re-election in 2004. Bush took out Iran’s #1 enemy, Saddam Hussein, and turned Iraq over to Iran’s Shia allies. No wonder the Saudis are getting so pissed with the US they are moving toward delinking with the dollar.
Some of your guys are giving me a tummy ache. I suggest you read some history. Seriously, crack open some books!
Why hasn’t gas spiked now that oil is over $80??? Anybody???
The man behind the curtain? PB usually is pretty good at sorting out questions like this. Wonder if it is just too much for the economy to take, given all the backstabbing and unwinding that presumably is going on behind the scenes.
Why hasn’t gas spiked now that oil is over $80??? Anybody???
Blano, the explanation that I heard is that there is a time lag, and there had been adequate refining capacity. That situation has now reversed, so we may see a pullback in the price of oil, even as gas prices rise. This neglects the recent storm activity in the gulf, which may increase gas prices even more, followed by a rise in oil prices if we have a cold winter.
maybe the texas pigmen are a little wary about increasing their prices so close to an election year.
Blame the Texans for the Mars polar ice caps melting while you’re at it. Sheesh.
“Why hasn’t gas spiked now that oil is over $80???”
My husband has been asking the same thing. Barrel price reported up on the boob tube and it seemed the station attendants marched out and started changing prices minutes later. But not this time. What’s going on?
And the other thing: how much of that price increase is from the dollar drop?
Not in my neck of the wood ,the gas stations went up 20 cents .
$5 Gas WHO HOO……..I have an 11 year old Ford Escort 4cyl Station Wagon, with a whopping 51,000 miles…..i could drive it LESS!
“The government of Prime Minister Gordon Brown, which insured the deposits of Northern Rock customers to stop a run on the bank, seems willing to sacrifice its investors and executives to lawmakers looking for someone to blame.”
PM Brown defecated Yellow, in his previous turn…
“The paper says the government is now embarrassed by its decision to sell gold. But you wouldn’t know it from Gordon Brown’s behavior; the guy’s not embarrassed at having destroyed the UK pensions industry, for instance, or taxing dividend payments so badly that sales of mutual funds to private investors have collapsed. Why would he be embarrassed by selling gold at the end of the 20th century? Everyone else was doing it, after all.”
http://www.dailyreckoning.com.au/gordon-brown/2007/04/17/
Deutschland didn’t do the housing bubble with the rest of the 1st world, this go round…
But it appears German banks were feasting like a subprime wolfpack, along with the rest of the scurvy band of pirates
Like the little kid whose face is smeared with chocolate and crumbs, asking mama “What cake? I didn’t eat any cake”.
Palmy — great visual. That’s the fun part about being a grandparent — I don’t have to figure out how to handle those situations any more — I just give ‘em more cake.
I’ve heard some say that the best part of being a parent is becoming a grandparent. I have some friends who ultimately took mercy on their estranged, wayward daughter when she had a kid. And as a result, the daughter measured up and became a good mother and a good daughter. All because of a grandchild. I know it doesn’t always work out that well, but this one did.
Palmetto, I try to be a good mom, which means I get to scold, bitch, ground almost as much as I get to do the nice stuff. I can’t wait to be a grandma. Then you get mostly the nice stuff. More power to you, Chip.
A God bless to all you great parents out there. Teach your children well. Kudos to you and Chip, cass.
Kids and grandparents have a common enemy - YOU!!!
Learned that trick from Grandpa Ben Bernanke, I’ll bet!
rala — good one.
Is this guy just taking happy pills or is he in denial?
Without a Widespread Economic Crash, a Housing Crash Is Unlikely
http://tinyurl.com/38azl2
He states: So a widespread housing BUST in an environment of anything short of an ECONOMIC bust just does not make sense to me. And that’s the way it is.
Sounds like the Bill O’Reiley of housing matters.
I would argue that we’ve already HAD an economic bust, covered up by the housing bubble. Now that housing is bust, tell the man what’s behind door number 2 and thanks for playing!
“So when did that housing drop happen? In the Great Depression. So yeah, if the economy drops by 25%, the overall housing market could drop by 25%. That makes sense. But what does NOT make sense is to see that kind of widespread drop amidst a situation where MOST people have their same job.”
I suspect that when the GD began, people were able to afford their mortgage payments, had some equity and did not have re-setting ARMs. IMO, the environment of indebtedness that exists today can hardly look like that of the pre-depression months or years, and that is what undermines his premise.
Actually, prior to the depression (which led to the creation of Fannie Mae) most mortgages were ARMs (fixed rate loans are still the exception outside the US) and credit watching folks would see similarities to today. More debt was taken out against stock market assets rather than homes, then.
Bluto — any idea how the re-sets worked back then? Frequency, index, all that?
Bluto — I may be mistaken, but I thought that down-payment requirements, pre-GD, were much, much higher than we see today.
For those of us who didn’t quite grasp the Goldilocks analogy (er…me) here’s a good read.
http://business.guardian.co.uk/markets/story/0,,2175725,00.html
Leigh
So what if people like Baker, Shiller and Thornberg were early? That doesn’t matter if you are buying a house as a place to live. And if it is a bad deal (and that is an extreme situation, given the many advantages of homeownership) so what if it will be an even worse deal in two years? If you are planning to sell in two years, you shouldn’t buy!
Timing the market is important only to flippers. And if nothing else I hope the unwind of this bubble will demonstrate that short term flipping of individual properties is a stupid move, given the massive transaction costs, in all but a bubble market.
The housing bubble in the US is the fault of GWB, Greenspan, Bernake, stupid J6P and of course tax cuts for the rich. We all know that.
So how is it possible to have had a housing bubble in England? After all proud socialists have been running the country since 1997. They have “FREE” health care, high taxes, no guns (at least for law-abiding folks) enviro-friendly policies including Kyoto and of course being non-American a brilliant, well educated population. They have everything the left in the US craves. Theirs is a utopia that Hillary hopes to turn the US into.
Yet they face the same housing issues we do here. What gives? Isn’t socialism supposed to solve all our problems?
JJ:
Kinda cool to see one of those smug anti-Americans get theirs too, huh?
Tax cuts for the rich don’t cause any thing but letting the rich keep more of THEIR money. I’m not rich and don’t resent those who are. Do resent politians who want to help themselves to other people’s money. Forget the exact figure but top 5% of taxpayers pay 30% of taxes. Of tax cuts cuts benefit the rich, their the ones that are paying.
Latest I read was:
Top 1% pays 35% of taxes.
Top 10% pays 70% of all taxes,
Top 25% pays 83% of all taxes
Top 50% pays 97% of all taxes
I agree with leftists who say the rich don’t pay their fair share. Quite true, their share is too high.
That top 50% probably counts a lot of folks who make 40k a year. Like to provide a source for your observations?
It’s the top 5% and their tax burden who interest me.
Check out this link. It only shows data through 2004, though.
This link shows a nifty graph.
This may be a double, post - apologies.
Try here for a nifty graph, and here for oodles of tables. Unfortunately it’s only up-to-date through 2004. Of course, this is only income tax and (AFAIK) does not take into account state, local, property, sales, excess phlegm or constipatory taxes.
This may be a double, post - apologies.
Try this URL:
http://www.hoover.org/research/factsonpolicy/facts/6771827.html
for a nifty graph, and
http://www.taxfoundation.org/news/show/250.html
for oodles of tables. Unfortunately it’s only up-to-date through 2004. Of course, this is only income tax and (AFAIK) does not take into account state, local, property, sales, excess phlegm or constipatory taxes.
and 50% of the population pays ZERO taxes.
How do you give a tax cut to someone who pays no taxes? Can’t! So therefore, by default, all tax cuts are for the rich.
We’ve had negative income taxes for the bottom portion for several years now. It’s much more efficient than direct welfare payments (as it rewards one for working rather than for not working).
“‘Even the people that were talking about booms busting, my goodness they were talking about it in 2001 and 2002,’ said David Lereah, the former chief economist with the National Association of Realtors. ‘And they were wrong for four years and they only became right at the end of 2004.’”
No wonder Lereah has no clue what’s going on. He substracted 2002 from 2004 and came up with 4 years.
Also who can feel sorry for Deutsche Bank. They are the #1 bank for foreclosures in our newspaper. They’ve even beat out Countrywide. So they’ve given out more subprime loans than even sleezy Mozillo.
Also it really amazes me how England and the rest of Europe can’t see their own housing bubble, which pricewise is way worse than the good old US of A.
“Also it really amazes me how England and the rest of Europe can’t see their own housing bubble, which pricewise is way worse than the good old US of A.”
That’s because the standard policy of England and Europe is to blame the US when something goes wrong. It’s only human nature, after all. People just can’t be wrong, goes the same for nations. Must be someone else’s fault.
Actually Palmetto, lots of people in the UK, Ireland, Holland, Spain et al can now see the housing bubble. Historically, over the last 50 years or so, if you compare housing price trends in the US and Europe, Europe typically lags the US by 12-18 months. Its also interesting that now in the British press that the exact same sentiments and comments are being made that exactly mirror the comments that were being made in the US 12-18 months ago (plateauing prices….etc etc).
Europeans don’t feel superior - they’re just at a different point in the cycle and also they don’t have the same transparency that we enjoy in the US.
You really do have a chip on your shoulder..don’t you..
You really do have a chip on your shoulder..don’t you..you’re no better than the little Englanders…
Being a combo of Spanish and Irish, I have no great love for English elites and can see right through all their tickety-boo pip-pip and all that rot finger wagging across the pond.
As for a chip on my shoulder, make that fish n’ chips.
Oh, yeah and a couple of weeks ago, I got a nice lecture from a smiley faced European lady who wanted me to know how badly we US folk have screwed up. Gave me a good piece of her mind, she did. Smiling all the while.
Yeah..bigger chip than I thought….
I hate Lereah and his lies as much as the next guy, but if people were “talking about booms busting” in 2001 and 2002, and “they only became right right at the end of 2004″, that is 4 years. 2001, 2002, 2003 and 2004.
Classic fence post error. Four fence posts. Three years.
I guess if they started at the beginning of 2001, but weren’t right until the end of 2004, then they would have had 4 years of crying.
However, Liareah still makes the mistake of confusing a prediction that the housing bubble will eventually pop with a prediction that it will pop tomorrow.
Anyone still watching the “flip that house” type shows?
New one this week was set in Atlanta. The husband, wife flip team had an investor that bought a house and put up the money, and directly hired the bulk of the sub-contractors. Pretty hard to figure out exactly what the husband and wife “flippers” were doing there except putting on a deck and doing some other landscaping and exterior work, while pretending they were the flippers… More like they were just sub-contractors of the investor while making a tv show.
Anyway, small little house that they decide to rip the roof off of and re-pitch to give enough room to put in a master suite in what was the attic. They pull the roof off, then heavy rain is coming, so they tarp over it…. Without pitching the tarp so the rain would run off. Result is house is filled with water and toatally trashed. All sheetrock, wiring, floors, etc are going to have to be replaced.
They did get the new roof on and continue with the remodel, but the contractors are screwing lots of stuff up.
The people making the tv show eventually have to show up at the investors office while he is in the middle of a business meeting and demand they gat paid $8K they are owed.
Then the job site gets shut down because permits were never pulled. Then a FSBO sign shows up out front. Then they learn the investor is in foreclosure.
$212K owed on the house, plus likely going to be sub-contractor leans as lots of people weren’t paid, and the place still needs about $35K worth of work. No way they could sell the place for close to $250K, so…..
Show ends with the trashed house getting foreclosed on.
Wow….. just wow!
What the HECK are they going to do for episodes next season.
Next season? Sounds to me like you just described the grand finale. No sequel. The house just got killed off.
For months I’ve been watching disaster flip after disaster flip saying “This has to be the last season of these shows”.
Then I heard they have already ordered new episodes for next season and have already signed their “flippers”.
Now, the flippers being able to get loans to buy places is another story.
I expect a “where are they now?” type show in a couple years. Go back and look at the flipped houses, how many law suits happened, how many buyers got foreclosed on, how many flippers went to jail or bankrupt, how many divorces happened, etc, etc.
I’d love to see the same “where are they now” for the “Extreme Makeover: Home Edition.” They came to my town, and there are serious problems with the house.
My wife works with the wife of a guy that owns a tile laying business. He took his crew up to work on an “Extreme Makeover” house. He laid the tile, then the producers of the show told him he needed to have his guys doing landscaping, hauling trash, painting and such, because they were behind schedule. Oh, and without extra pay.
He said no way. He’d have to pay his guys, but wouldn’t get paid by the producers, so it would eat up all his profits. They’d already put in a 12 hour day and wasn’t making his guys do menial work that would eat into his profits. So, they flipped open the contract he signed (that was much more like an “extra on a tv show” contract than a sub-contractor construction contract) and showed him where it says that if he doesn’t cooperate with their requests and that means they don’t meet their tv production guidelines, then they don’t have to pay him anything!
He asked for volunteers, and about half the guys agreed to stay. Seemed to apease the producers as they did pay him.
You mean on those shows the producers pay some of the costs ….that’s cheating
I think people will continue to watch these show, and I think the rating can go up. Flips gone bad make for a better show. Human nature likes people getting burn due to greed equally to the little guy overcoming adversity and making it.
Cinch
The little guy overcoming adversity and making it especially likes to see people getting burned due to greed. Well, not really, the little guy overcoming adversity is usually too busy to want to gloat.
Yeah, ratings and ad revenues are up!
But, who are they going to find that can get a loan, is willing to get a loan, and is willing to take mass losses just to make a tv show.
I will say, more and more, these shows are relying on “made for tv” drama.
Oh…. I have to go into the crawl space, at night, and I’m all alone, and it is dark, and I’m so scared….. Oh, alone except the camera dude, and dark, except the bright arse light he is shining on you to record you!
In Atlanta there are many, many people who are convinced flipping works. In my hood, there are 5 or 6 homes being gutted as I type with the intention of flipping. These are homes that were bought in the $400K to $600K range pre-renovation. Mind you there are already 5 or 6 flips for sale as well, have been for sale for 6 months plus with a few teenie price reductions. Prices in the $700K to $800K range.
I foresee 12 homes for sale in 6 months from now.
I know, I know “Flippers’ Divorce Court”!
“‘Even the people that were talking about booms busting, my goodness they were talking about it in 2001 and 2002,’ said David Lereah, the former chief economist with the National Association of Realtors. ‘And they were wrong for four years and they only became right at the end of 2004.’”
If you read between the lines, you can certainly tell that Mr. Lereah is not telling the truth and is just saying this to save face. The real boom in property prices begain in late 2003 and early 2004. The time period of 2001 and 2002 had no significant runup on property prices as compared to 2004-May 2006. I wonder what kind of grades this guy got in college, because he is certainly in my book getting an “F” with his incorrect information!
Those outside the industry have a legitimate excuse in getting the timing wrong if they did. You could see that prices were significantly outpacing wages, but it wasn’t necessarily clear why at the time (total evaporation of lending standards during the big runup). Someone in the industry, such as Lereah, has no such excuse. He had all the information and still got it wrong, entirely wrong.
‘And then you have mortgage brokers and real estate agents who are much closer to the buyer who are whispering in their ear that, well, yeah, there are some markets that are out of line but not this neighborhood.’”
What they were whispering in their ear was that they were commision only and if they kept quiet, they would all line their pockets with loads of money! In the eyes of the public, they were informing anyone who listened that property values would always keep climbing and to buy now or be priced out of the market to create even more demand. Now they are crying to the public and blaming it all on the media.
‘The time was when a small bank in an American state got in trouble, it was bad news for that town or maybe that state but nowhere else. But today, when a Florida householder defaults on his mortgage, the effects are felt not just in America but across the world.’
ALL BANKING CRISES ARE GLOBAL.
Churchill was here once arguing for easy money…
“‘No government should ever be in the business of protecting executives who make the wrong call or bad decisions,’ Darling said Sunday at the governing Labour Party’s annual conference. ‘My job is to protect ordinary savers.”
The U.S. and the U.K. appear to be an ocean apart on this point.
“Nine months into the meltdown of the home loan market, investors are still waiting for banks, brokerage firms and other companies to come clean on losses incurred on those securities.”
Don’t hold your breath, unless you want to suffocate.
“Not enough, Mr. Egan argued. ‘They are still marking to model, not to market,’ he said.”
Try ‘marking to fantasy.’
“the central bank’s religion is not to interfere.”
WHAT??? How is reducing the interest rate by 0.5% when oil is over $80/barrel, the stock market is near all-time highs, and gold is over $730/oz not interfering? I’ve never seen a central bank decrease interest rates when the economy is not even in an official recession. Well, these guys aren’t very good Catholics if you ask me.
These guys are just as good Catholics as the child-molester priests, IMO.
you said, PB.
it, you said it, damn my keyboard.
i thought the last “recession” officially ended, at the latest, by the fourth quarter of 2001. That didn’t stop AG from cutting rates in 2002.
“‘Even the people that were talking about booms busting, my goodness they were talking about it in 2001 and 2002,’ said David Lereah, the former chief economist with the National Association of Realtors. ‘And they were wrong for four years and they only became right at the end of 2004.’”
The people talking about booms busting were not wrong, just early in predicting the timing of an inevitable crash. The person talking about the people talking about booms busting, whose own mantra of “Real estate always goes up” became ridiculous in the face of an obvious bust, was just plain wrong.
I guess DL would count the IMF writers who composed one of my favorite pieces on the duration of housing busts as “wrong,” as they already foresaw problems as of 2002 (when they were presumably already planning or perhaps working on this April 2003 publication entitled “When Bubbles Burst”):
http://www.imf.org/external/pubs/ft/weo/2003/01/pdf/chapter2.pdf
P.S. Go to the reference section of this and you will discover how deeply BB has researched the topic of booms and busts…
“‘Even the people that were talking about booms busting, my goodness they were talking about it in 2001 and 2002,’ said David Lereah, the former chief economist with the National Association of Realtors. ‘And they were wrong for four years and they only became right at the end of 2004.’”
Yeah, and I seem to remember in 2003, 2004, 2005, and even into 2006 you were STILL denying anything was amiss. So while the evidence was overwhelming and was clearly indicative of a bubble, you were not only wrong, but also self-serving, and appallingingly parasitic.
“my goodness”, my ass.
Just like doctors are wrong when they tell you to quit smoking before you actually have lung cancer? Are all those quit smoking ads too negative and too early?
The housing market in Denver started going beserk in the late 90’s. By 1997 it was impossible to buy a decent house in a decent neighborhood on a single engineer salary. So it kept going goosed on loose credit, that still doesn’t change the fact that housing was beginning to cause problems for middle income Americans long before the bubble finally burst.
I just went to move.com, and in case Mr. Lereah is still working there, I sent them this little email:
Shame on Mr. Lereah for his observation that “…the people that were talking about booms busting, my goodness they were talking about it in 2001 and 2002.”
Mr. Lereah makes the mistake of suggesting that those who called the housing bubble early were in error; however, those I listened to at the time explained we were in a bubble (which, arguably we were) but no one could predict when the bubble would pop. In fact, as true students of economic history know, bubbles are driven by psychology, easy money and fraud and it’s impossible to call when such a bubble might burst.
Let me ask Mr. Lereah, pointedly - were more people hurt by listening to warnings about a housing bubble a few years earlier than its pop, or by listening to Mr. Lereah’s monthly call that “the housing market has bottomed” after years of denying there was a bubble in the first place?
It’s a shame Mr. Lereah continues to lie to the public, and it’s a shame your company continues to serve as an organ for his self-serving propaganda.
On a lighter note:
I’ve decided to take advantage of all this inflation by shopping for a new violin (while people are still trying to pay their mortgages). Maybe I’ll sell my current one later, when I can get more dollars for it. Does any one here have any advice on how to find a good violin in 3/4 length? Not a student one. Like one of those $5k ones or so.
check out ebay. You just might find some bargains there right now.
I’m going to go out on a limb here but what about:
http://www.usedviolins.com/
Not very many 3/4 size violins on this site but there are a lot of violins of various age and makes (German and Italian). Scroll down to the bottom of the page.
Last time I visited a fiddle shop (May 2007), the proprietor (Paul Ashley) told me he was surprised at his recent inventory buildup. Perhaps you should try giving him a call, as I am recently certain his “months supply” has subsequently increased:
http://www.hammondashley.com/sandiego.html
recentlyreasonably (sorry for the thinko!)BIg V — not knowing any better, I think I’d call the office of the nearest orchestra of notable size and sweet-talk whomever answers into hooking you up with one of the better string people there. They should be able to give you good leads. For that matter, do Phoenix or Miami have decent orchestras?
Phoenix does, certainly (and they’re solidly in the black, rare for a symphony these days). Don’t know about Miami.
“Both are set by the market, but regulators at the Federal Reserve exert significant influence over them.”
How can Mr. Market function with so much intervention standing in his way?
I asked this above, but maybe you can answer….between the Fed cut and oil being over $80, why hasn’t gas spiked (yet)????
‘Tis a puzzlement. Rational expectations suggest that gas prices should respond immediately to news of higher oil prices, but perhaps this is offset by a drop in demand as pinched consumers cut back on discretionary travel.
Some analysts agrue that oil moves due to the US dollar, and demand has little to do with this movement. Note that we are post Labor Day, and seasonal demand is not as high as Summer.
Cinch
Anyone who thinks RE wont go down see Japan’s situation since 1990.
http://www.housingjapan.net/forsale/
Wow, it took 10 years to hit bottom from the peak. Geez, I hope this one goes somewhat faster. Otherwise, we’re about eight years away.
All these bailout measures currently afoot are likely to drag the correction out for many more years than necessary.
Did Japanese government ‘Interfere’ with correction?
Yes, indeed. The Japanese Government protected any number of banks who were seriously underwater on non-recoverable loans, especially the late 80’s bubble madness where Tokyo CBD was significantly more per sq. ft than anywhere else on Earth.
Basically,all the problems were just swept under the carpet, and ignored. Substantial funds were injected into the banks to keep them standing. Welcome to 10+ years of stagflation….
The gragh after 2010 is totally delusional. As if! get real! consider the 90s boom in tech and the role Japan took in that era, Japan should have already recovered from the slump but hasnt. Prices will continue to be flat for decades to come.
“‘The public’s appetite for buying and selling property completely dropped off after last Thursday [13 September], although some of this has now returned. We do not believe it is a coincidence that our quietest weekend of the year occurred immediately after the Northern Rock share crisis,’ he said.”
A lot of buying and selling of RE is probably unnecessary and a bit unproductive. Just makes commissions for agents and brokers. Looked at form a distance, existing (older) home selling & buying is simply exchanging homes among a set of people. During the bubble years many didn’t think twice as they traded houses.
Now chastened, people will hopefully buy and sell only when it is absolutely necessary. This will actually help bring stability in our communities.
“This will actually help bring stability in our communities.”
You’re singing my song, NeilT. Stability is so desperately needed right now, the instability factor is my biggest beef with the bubble and its bust. My nice little area has been majorly destabilized, and it is one of the better off communities on Florida, hasn’t been quite as savaged as many areas.
If I could make a bubble comic book, I’d invent a character called Bulldozer Man, or Backhoe Man. It’d be my alter ego. He’d go plowing through Mc$hitbox developments, eagerly dozing entire subdivisions. Maybe I could get together a superhero group, like Implosion Man, Wrecking Ball Woman, etc. If I was clever enough, I’d paraphrase the SuperMan riff with DozerMan.
Fun and games in Detroit this weekend……
http://www.detnews.com/apps/pbcs.dll/article?AID=/20070924/METRO/709240342&&imw=Y
The Wall Street Journal started its Housing Bubble discussion back in Oct 2002. They must have seen this since 2001…
In the SF Bay Area we started our bubble with a 100% increase in short 2 years in 1998. By 2000 the homes were still selling well over anyones income. By 2001 we saw shacks selling for more than Malibu or Newports sizable beach houses. Rancher homes were selling for more than Huge homes in Beverly Hills… What gives…
The real sad thing is many old timers left and many incoming folks really believed these prices were normal. Yes an Ecklard is really worth $1M in Cupertino…. they never even knew it sold for around $150K few years ago. Its like selling a can of Pepsi as if was expensive wine.
By 2005 we saw another spike of 100%! so the cries of a bubble totally disjointed from basic economic fundemantels. No wonder the highest level of ARM and exotic loans has fueled prices in SF Bay Area.
They are leaving and taking their toys, with them.
“In July, foreigners sold a net $9.4 billion in U.S. Treasury bonds, one of the largest sell-offs on record. Foreign sales of dollars have pushed the value of the U.S. currency to its lowest point ever against the euro. The Canadian dollar, which used to trade for less than 70 U.S. cents, is now equal to the U.S. dollar and will probably soon surpass it.”
Countrywide Saves 35,000 Homes from Foreclosure
Thirty-five-freakin’-thousand. Countrywide calculated it will lose more trying to resell these homes than cutting rates and payments on these homes.
I am curious to see how long these measures will keep these 35,000 people in their homes. A decent fraction of them are probably ready to walk, “help” or no. Another sizable chunk probably can’t keep up with reduced payments anyway.
This reminds me to buy some popcorn on the way home from work…
Notice they don’t say what exactly Countrywide is going to concede to these FBs. Since most of the mortgages are owned by an investor somewhere, I’m pretty sure Countrywide’s options are limited. The only real way to keep the FB in the house is for the bank to eat the difference between the loan price and the house value. In that case, bank’s better off foreclosing.
Great ,but if Countrywide than plans to pass those below market loans off the FHA ,than who cares . If I thought that Countrywide was taking the loss on those re-writes I would be happy ,but I don’t think that is what the end-game plan is .
It has always been my opinion that the lender that made the junk loan is the one that should pay for re-writing the junk loan if they are trying to avoid a foreclosure .
Housing Bubble history from Tucson. In March 2002, I attended an Arizona Small Business Association meeting that featured University of Arizona economist Marshall Vest.
He began his talk by recounting the events of 9/11/01. Dr. Vest had been at the World Trade Center, which was the site of that year’s National Association of Business Economists meeting. More on his experiences at:
http://wc.arizona.edu/papers/96/wraps/sept11/01_1.html
After covering that topic, Dr. Vest went on to share his thoughts on the state of Arizona’s economy. At one point, he expressed concern over what was happening in our housing market. He drew a graph with the top line showing house prices rising like up like the Matterhorn. Below that line was a line with a much gentler slope. It symbolized job growth.
Between the two lines was quite a gap, and he circled it, saying, “There’s the bubble.”
“The fire that Bernanke hopes to put out is the Great American Mortgage Crisis, which has burned brighter and hotter than many economists had previously thought possible.”
I didn’t know you could put out a fire by pouring gasoline on it. Silly me!
I would think a helicopter pouring gasoline onto a forest fire would pose great risk to its occupants’ survival prospects.
“Ironically, last week’s interest-rate slashing by the Federal Reserve, designed to keep the economy from falling into recession, may chase away so much foreign money that our economic problems will only grow worse. If you were a foreigner, why would you invest in a country where the combination of an anemic dollar and interest rates robs your investment of its value?”
The US housing bubble helped lure foreign investors’ cash, a lot of it. What guarantee is there that those financiers have learnt their lessons? I wish they realize the certain risk and NOT send money this way. We need to feel the pain and fix our economy.
Just wanted to share this everyone….from a realtor. I wrote asking her to let me know when they reduct the price from 439 to 399. Cited there is a house next door at 415K. And there is 6 acres seperating the first house on the street from the corner. She also refuses to acknowledge the foreclosure across the street from 10/06 that is still vacant. Cant wait for the comments
From realtor:
It’s actually not my opinion, but the reality is that corner houses and first houses on the street are less desirable. When you buy a resale you are buying their taste in everything. Any upgrades or amenities in the house are part of the package of the house. In Granger, there are currently 4 homes priced between $400,000 and $450,000, mine is the largest. If you don’t think it’s a good value, I highly doubt I will be able to convince you otherwise. If you want to see it and put an offer infront of them at $399,000 we can see where that goes. My clients will not be reducing the price to $399,000 because then an offer will come in at a price that they aren’t willing to sell. They don’t have to sell, they want to sell and their motivation is quite different than that of the neighbor.
The realtor’s response seems very reasonable. First homes and corner homes are indeedless desirable. I wouldn’t want one. More noise as more cars drive by and more succebtible to crime as it is the first house a burglar will have acccess to off the street.
true….but this isnt a typical subdivision. There is 6 acres of farmland from the corner to first house. The house above is between 2 other houses. There is no noise. But there is an abadoned foreclosure across the street the agent refuses to acknowledge….for 1 year in a supposed 400-700K neighborhood…..nothing to see here folks, move along
OK. If the seller doesn’t have to sell, then he doesn’t have to. Let him keep it.
“then the doubters should also own up to the fact that they were too negative, too early.”
That’s the problem, Ben, you were just soooo negative, sooooo early, fess up now:)
Fears that Fed has sparked price bubbles
By Joanna Chung in London
Published: September 24 2007 19:58 | Last updated: September 24 2007 19:58
Emerging market share prices rose to record highs on Monday, raising fears that last week’s interest rate cuts by the US Federal Reserve are already generating new asset price bubbles.
http://www.ft.com/cms/s/0/894c1c72-6ac6-11dc-9410-0000779fd2ac.html
Dollar falls to fresh low against euro
By Peter Garnham
Published: September 24 2007 11:56 | Last updated: September 24 2007 11:56
The dollar fell to a record low against the euro on Monday as the prospect of further cuts in US interest rates continued to weigh on the currency.
Last week, the Federal Reserve cut US interest rates by 50 basis points to 4.75 per cent, a more aggressive move than most investors were expecting.
“The downside risks to growth are clearly dominating the Fed’s views at present and developments in the data are likely to drive the decision of whether to cut rates again this year,” said David Woo at Barclays Capital.
He said the focus of the market’s attention would be on the US housing market.
“We expect some further bad news from this sector over the next month, which could increase the market’s pricing of aggressive Fed easing in the months ahead and be negative for the dollar,” said Mr Woo.
The dollar fell to an all-time low of $1.4130 against the euro, before pulling back to $1.4105, still down 0.1 per cent the session.
http://www.ft.com/cms/s/0/2701b01a-6a83-11dc-9410-0000779fd2ac.html
“‘Even the people that were talking about booms busting, my goodness they were talking about it in 2001 and 2002,’ said David Lereah, the former chief economist with the National Association of Realtors. ‘And they were wrong for four years and they only became right at the end of 2004.’”
That’s this shill’s latest tactic - trying to cloud the issue by equating being early with being wrong. If I build a building without a proper foundation, then I guess everyone who predicts that it’s going to collapse and kill people are “wrong” if they expect it too early. Absolutely pathetic.
The fact is, both he and we knew all along what was going to happen. People like Ben chose to warn about it, while shills like him chose to lie and lure people to financial ruin for their own gain.
Insight on why home sellers prefer to hang on to falling knives until they have lost their shirts…
Economic View
A Reality Check for Home Sellers
David G. Klein
By AUSTAN GOOLSBEE
Published: September 23, 2007
ECONOMISTS and other humans don’t always see eye to eye. “Economists tend to think people are crazy because they won’t sell their houses for less than they paid for them — and people think economists are crazy for thinking things exactly like that,” said Professor Christopher Mayer, director of the Paul Milstein Center for Real Estate at Columbia Business School and an authority on real estate economics.
With house prices falling in many markets around the nation, this particular quirk of the human psyche might end up costing the economy a great deal, Professor Mayer says.
Classical economics can’t explain this behavior. That’s because people who refuse to sell their houses for less than they paid for them are violating a cardinal rule of the market: stuff is worth what it’s worth. It doesn’t matter what you paid for it. But when Professor Mayer and his co-author, David Genesove, a professor of economics at the Hebrew University in Jerusalem, studied the Boston condominium market in the 1990s — scene of one of the biggest real estate busts in recent American memory — the actual patterns of human behavior did not seem to follow the standard rules at all.
From 1989 to 1992, prices in Boston fell sharply, with condominium prices dropping as much as 40 percent. For a great many of those who bought condominiums during that period, selling could be done only at a significant loss. And, basically, many people refused to sell.
http://www.nytimes.com/2007/09/23/business/yourmoney/23view.html?ref=business
I’ll bet you see 40% + drops in housing prices in Boston again after this mess blows over (or something worse).