The Housing Bubble

Rumor being spread by Denninger is that a big bank in Europe is in trouble.

BTW, why are the banks in Europe in trouble and the banks in the US are supposedly peachy-keen? Did our IB’s sell their IB’s lots of toxic waste without them being the wiser … until now?

it is well known that most of the toxic waste was sold outside the US; I suppose most of the big US banks were in the know about the real quality of this stuff. And I’m sure there is far more of this stuff with EU pensionsfunds, RE/moneymarket funds etc. than with the EU banks. But pensionfunds will not report their losses until well into 2008, or maybe never; some like the Dutch ABP pensionfund, keep part of their assets in hedgefunds, so they don’t have to report anything.

How bad is the Euro stock ass-pounding likely to be as a result of all this toxic junk? I ask because I have a lot of money in VEURX (which so far has been a very, very good bet).

Hmm, ironic, the more the dollar falls, the worse the hit to EU pension funds, banks, etc, the worse the potential fallout to Joe Blow sent his money out of the US. Blowback time.

What?

What a masterstroke of social engineering…debt=ownership.

Unfortunately, there’s too much of a constituency in the non-saving (and non-taxpaying!) class of people that politicians–democrats and republicans alike, have to court them. So declaring everyone a “homeowner” (and making it so by engineering things so folks can effectively rent houses from banks, never accumulating any real equity) is part of that.

(Remember the $300 “refund checks” that W. sent out early in his presidency. People who “pay taxes for a living” like me (total tax burden over 50% when everything added up) were outraged. Why not just put a -$300 credit line on next year’s return, instead of sending out two letters about it, and then sending out checks? Because he was merely buying votes from the “Wal*Mart Moms”.

The mortgage-interest deductions are part of this strategy to buy votes from the poor.

Only the Wall Street Journal had the courage, about 10 years ago, to point out what a terrible threat to our nation and Democracy it is when the majority of people don’t pay any significant taxes

http://www.opinionjournal.com/extra/?id=110002937

Allowing people to live in “million dollar homes” with no risk was an inexepensive (for a while) bone for our Government to throw to the masses to keep them quiet while we fought a war.

Plus slight-too-clever-by-half schemers like Rove looked at the polling data in 2000, saw that like the S Baptists/fundies, home-ownership was a pretty solid deme for the Republicans, and no doubt decided a little push on the pump inflating that bubble would serve as another support in their Permanent Majority&tm;

Hi LAIG,

I was driving down Victory Blvd., east of Sepulveda in the Valley this morning, and I saw the same ugly condo conversions still “On Sale” for $380,000.00 These turkeys are right on Victory in Van Nuys, for heaven’s sake! Might be worth $120K in a sane market. It’s not just the West Side that has a long way to fall…

Smells like…. Victory

my friend bought a townhouse near there for 130 in 1998. You are not far off!

http://www.windermere.com/index.cfm?fuseaction=listing.listingDetail&ListingID=18506649

This place seems nice for the price. And Pullman, unlike Seattle, has summer weather where you could actually use the pool

….Optimistically 100K overpriced….. This is PULLMAN, for heaven’s sake. The middle of nowhere, with one small college.

You have got to be kidding me; $300K in Pullman for that.
There is nothing in pullman, other than WAZZU….LOL

Ummm-well okay. Maybe overpriced. I guess I’m influenced by prices seen on the coast.

I do wonder about how Pullman economy can support $300K+ home prices.

Eh, so a dude in a beemer cut you off before the light again. Same thing happens in South Florida. Any urban place with greedy over-leveraged yuppies (well, maybe not so young) is going to have that kind of behavior.

I’ve been up and down the Eastern seaboard in the last ten years, and every state has their crazy driving quirks. Mass. has some of the most … er … creative quirks, but it isn’t the worst (IMO). I’ll take cutting through the corner lot over speeding, failing to maintain proper following distance, and red light running.

Blah blah blah … I’m sorry you’ve had that kind of experience. I’ve been able to fit in pretty well wherever I go. I feel that having an education makes that easier.

70’s were the era of George McGovern … Mass. doesn’t stand out like that so much any more. Madison is waaaaaay more liberal than Boston, for one thing. (Of course there was the Kerry’s accent wank, but that accent itself is dying.)

I’m proud to be from Massachusetts. I do my best to be a mensch, and I think I succeed. I get along pretty well with most kinds of people. (If I had enemies, I’d know, because they’d be calling in false complaint reports as they’ve done with other drivers.)

Wonder if a lot of this isn’t city vs. country. Rural Mass. is not that different from rural Florida, in lifestyles or attitudes. (Less drifters, though. The weather sees to that.)

RE: Eh, so a dude in a beemer cut you off before the light again

LOL…It’s a lot more than that Bubba-Roo…

At least in FL people can still say, Yessir, no sir…and interact with an element of civility.

But I will concede that the rural West vs. Eastern MA are too different animals.

Hey hd74man,
you’re one of my favorite posters, but I believe you are incorrect. Having NY license plates is sure to annoy more folks than Mass plates. The country is filled with people who hate New Yorkers on principle.
Of course, you could ask a New Yorker what they think about Jersey.

thank you Capt. Randroid.

I understand why hurricane force winds & moving embers could easily spread fires over long distances & completely overpower firefighters. What I don’t understand is the multi-million houses that burn. If I had the $ for that kind of house it would be sheathed in fire proof material & have its own built-in fire suppression system.

Except that they can’t refinance the bulk of them because, as usual, people were using adjustables to push the boundaries of affordability, hoping that asset appreciation would bail them out in the long run.

I think you’re right. Most are seriously overextended and won’t qualify income wise. Also, if prices are falling, how would these loans meet the new appraisals. Probably most owe more than the value of the house. However they do it, it will still be a new loan and have to conform to the new standards. Most won’t qualify.

LOL!

Thx Palmy…

I think that the mark of an educated conversation is that 2 people can agree to disagree. Especially in the case of FL property tax, it’s not like one of us was arguing that “The wall is WHITE” and the other screaming “The wall is BLACK”. It’s a very subtle issue, and frankly, like most of these issues brought about because of the housing bubble, one without an easy solution.

While I would like to claim a “selfless” basis for my concern over the “future generations”, as I have mentioned before, I am only 30 years old, and currently not a homeowner, so, in fact, I am part of the future generation of homebuyers in FL. However, as time progresses I anticipate the inequities in the FL taxing system will grow more and more extreme, which, in fact, will have an more negative effect on those younger then me (because, by that time, I will be a homeowner).

I find it especially intersesting that those with children who are fully in support of portability. Do they EVER want their children to be able to live in FL?

“I find it especially intersesting that those with children who are fully in support of portability. Do they EVER want their children to be able to live in FL?”

Mike, maybe I’m shortsighted, but to me, the property tax issue only became an issue with the bubble. And if the bubble is just left to deflate, the problem goes away. It wasn’t an issue prior to the bubble. Sure, SOH is still in place, but for many, it was a godsend and allowed them to keep their homes during the bubble. Others say they felt trapped by SOH. I guess it is all a matter of point of view.

BTW, I agree that portability is a stupid idea.

IMO, SOH and similar measures are stupid, but they seem to be spreading, not going away. That’s okay–I can keep living in a small rental and pocketing the difference, suckers.

Personally, I think FL needs an income tax. Look at any state or district with a tax or services crisis in the last twenty years, and all of them, save the cases of an economic meltdown of Detroitish proportions, did not have income tax.

It’s not like we aren’t paying as much in taxes in FL, we’re just paying them in impact fees, prop taxes, utilities tax, user fees, excess utilities rates “phantom” taxes, sales taxes, sin taxes, service taxes, transfer taxes, permit fees, tag fees (or they impound your car), HOAs (where the county/city won’t even provide services), etc, etc.

I would say overall, the taxation probably IS a LITTLE less in Florida–either that, or everything is getting spent on roads. I say this because the school system stinks, children’s welfare programs are poorly run and leaky, there are less cops (and more crimes), enforcement of civil laws is almost non-existent until millions of dollars are lost, jails are way overcrowded, and a lot of ROW maintenance and similar jobs are done by PRISONERS at below min wage (slave wages).

Oh well, I’m young and I think I’ll never get shot/mugged/robbed/raped/stabbed/etc. (OMG get me out of this 3rd world state!!!!)

Not a gator: you obviously have no clue as to how your income tax dollars are spent. We might as well be a third world country, and if Bush has anything to do with it, we will.

Indeed, as a mudslide or earthmovement is a typically excluded event in most insurance policies.

If it were floods, earthquakes, or landslides, there would be issues with whether the properties were insured. Policies for those type of events are either unavailable or have high premiums with limited coverage. Most people have policies which cover fire. Premiums are steeper in some areas than others. Having enough insurance after the Cedar fire in 2003 was a huge issue because costs for rebuilding then were so high due to the bubble (labor shortage) and spike in construction costs. Also, it was very hard for people to find a contractor to build an individual house. Lots of megabuilders that only did whole subdivisions, but very difficult to find someone to do only one. Some solved this problem by working with neighbors and having a contractor come in and do 5 or 10 homes. It should be easier and cheaper to rebuild this time though still a massive hassle.

If someone is upside down, even if the have insurance, I think they are screwed. If they have replacement value insurance, they’re still underwater, particularly if they HELOCed.

I don’t know, but your post raises some good questions. After a local fire in FLA, I was talking to a construction worker who lives across the street. He said he’s seen it happen where people negotiate a settlement with the insurance company less than the cost of rebuilding, tear down or dispose of what’s left of the structure, sell off the lot and walk away. If I was an FB, that’s what I’d do.

Yes, that is corect. The homeowners insurance is typically on a replacement cost basis, with a stated value for the replacement cost of the structure and for the contents of the dwelling. This value is less than the selling price, as the land is not included because the land is not lost.

The agreed replacement cost may be below the actual cost to replace, especially when the foundation is heavily damaged and needs to be replaced, as can happen when a home burns to the ground without firefighting aid (lots of heat cracks foundation).

Also, many of these folks may have a 1% to 3% deductible, which makes insurance more affordable but adds another burden when trying to recover.

“He said he’s seen it happen where people negotiate a settlement with the insurance company less than the cost of rebuilding, tear down or dispose of what’s left of the structure, sell off the lot and walk away.”

That used to be a big no no. The money you got from the insurance company was to rebuild. It didn’t get you out of debt - you still would have your original mortgage. And if you didn’t want to rebuild (like a case I did where the lady’s ex tried to burn down her house) then the insurance company didn’t pay anything.

Lately however, it seems that insurance companies (auto, property) are telling people, “if you take a reduced payout, say 60%, we don’t care what you do with the money”. And so you now see lots of crashed cars still driving around on the road creating a safety hazard. And soon you’ll see even more delapidated blighted areas as people default on their mortgage, take the insurance money and run.

I think it might be open to negotiation. If I’m an insurer, I wouldn’t mind negotiating a cash settlement with the homeowner less than the cost of rebuilding, subject to paying off an existing mortgage. One of the problems I have observed, in Florida anyway, is that sometimes the insurance company works with a contractor who starts out giving a lowball price to rebuild (because he wants his piece of the action and thereby “hooks” the owner and insurer). As things progress, various problems and “situations” crop up, causing the price to go up. This is then between the insurer and their chosen contractor and the owner usually gets caught in the middle. By the time all is said and done, the costs are far beyond what was originally estimated, at which point it is too late, because the contractor has been taking his draws, and now good money must continue to be thrown after bad.

I watched this situation unfold here in FLA. The owner brought in a contractor who gave a quote and submitted that to the insurer. The insurer then sent out “their” contractor, who gave a lowball quote. Now I see the game here. The owner must now decide whether to rebuild or not based on the quote of the insurer’s contractor. The owner’s contractor was probably more accurate in the actual costs to rebuild, while the insurer’s contractor throws out a quote that would enable the insurer to negotiate a lowball settlement with the owner should the owner decide he doesn’t want the hassle of rebuilding. The owner, who probably would have preferred to negotiate a settlement, now has to choose between a lowball settlement price or the hassle of rebuilding and maybe recouping some profit in the future. The insurer and “their” contractor have him gamed. In this case, the owner decided to rebuild with the insurer’s contractor and costs went up dramatically as the rebuilding progressed and various “issues” just sort of popped up that the insurer’s contractor didn’t take into account in his original lowball.

In CA, there is a section of the insurance code, called the “unfair claims practices act”. If their is a dispute, as I recall over the cost of repairs, you can request that the insurance company find and assume responsibility for the contracting and repair of your home or if you can show that the insurance’s company’’s original settlement was insufficient, you may go back for additional settlement funds. I looked up the statute, 3 years ago and I am not a claims adjuster.

If this happens to you, I would strongly suggest legal advice from someone practiced in insurance law.

Also, a standard homeowners policy will only replacement cost less depreciation if no actual repairs are performed. If the policy states replacement costs, you will get the cost of replacement at the market, not what the claims adjuster states is the replacement cost.

While involved in insurance, I am not totally familar with personal insurance policies. There are blog websites my assist to some degree in these types of questions.

Good luck with your insurance company in building repairing your home.

I say give one warning, then let them burn.

I have two friends currently behind the fire lines looking for survivors or looters (San Diego sheriffs). So you don’t even want to imagine what I was going to type about the people who would endanger rescue workers. My full support goes out to the crews doing the best they can in these impossible conditions.

Neil

Fine, I won’t piss on you when you are burning either. I bet you are the same person who would never carry a gun to defend yourself. These police are here to protect and SERVE. We want their help, not their control. Don’t you people get that it is the bravery of the everyday man that gives you your freedom, not the control of a police state???

To be a little more level headed, I applaud the attitude of those who believe they make a difference. They do. I applaud the aid that professionals give who often show up and save the day. To imply that the work that non-professionals do somehow negates the work of the professionals on a massive level is ridiculous. Communities have banded together for many millenia to fight the threat of fire. Professional medical, fire, emergency, and police services exist to supplement the services our communities should be providing.

“Fine, I won’t piss on you when you are burning either. I bet you are the same person who would never carry a gun to defend yourself. These police are here to protect and SERVE. We want their help, not their control. Don’t you people get that it is the bravery of the everyday man that gives you your freedom, not the control of a police state???”

I do believe in guns so don’t be so quick to jump on me. And reread myh post - you have an absolute right to stay and defend your home. You do not have a right to expect the police and fire fighters to DIE trying to rescue you, yet another idiot, thinking he can save his home with a hose. I don’t disagree with people staying even if I think they’re morons. I disagree with the policy that says rescue workers have to stop their work to try and talk these idiots out of a dangerous situation. Stay if you want, but don’t expect the nanny state to come save you. The only negative stories I have heard are about the dunder heads who stay behind wasting the valuable time of the professionals as they try to talk them out since they aren’t allowed to dart them.

And since you can stereotype - I know your type too - you want to be able to do what you what but the police had better risk their lives when you do something incredibly stupid or you will sue them for not “serving and protecting you.” Your house is not more important than a fire fighters life. I am sure you think it is and will gladly risk lives for your macho games.

And yes, I’m in a bad mood because my friends are losing homes and idiots like this are insulting me. Bite me and learn to read.

Well, I’ll drop it, but you did say , “I’m getting pretty pissed at the macho men staying behind to protect the homestead, putting police and fire fighters at risk trying to argue them out.” IMHO, in *most* cases, the emergency workers will do more good going into the guy’s back yard and helping him cut brush than standing around arguing with him to leave. If that is what you are arguing, then I agree with you. It seemed to me that you were angry with people trying to save their home, rather than with an idiotic policy that has the police badgering citizens to stop defending their homes. Further, you are calling these people idiots instead of heroes. They are using the little means available to them to fight back against this monster of a fire. Just leaving it to the pros obviously did not do the trick for over 600 people’s homes. I believe the firefighters have done a great job during the fire, saving what they can. But my whole point is, even the firefighters have limited resources, and when you contribute your effort to fight the fire, it makes a difference. In many cases I witnessed firsthand, it made the difference between losing your house and saving it. It is the difference between taking responsibility for yourself, and throwing up your hands and expecting protection.

And you are wrong about me being the suing type also. I’m one of those idiots who does crazy things with full knowledge of the consequences, and would only be grateful if someone tried to help me in a catastrophe, but would never expect it. I’m also the guy you will find first in line to help my neighbor when the fire comes to his house. But I’m also the guy who is tired of most other people I see throwing up their hands at the slightest misfortune and expecting insurance, government, police, or lawyers to solve every small dilemma they may have. 500,000 people evacuated, and only about 1000 houses burned. Human life is the most precious thing in this world, but how much did that disruption cost our society?

Finally, apparently firefighting isn’t a skill requiring some superhuman training that you will die without having. They send prisoners right out into those firelines to cut brush just like the homeowners should be doing.

Again, reread my post. I am not saying people shouldn’t stay (although I think they are morons) I am saying if they do so official policy should be to ignore them and not waste the time that is being wasted on them. Just watched another case of trying to get a guy out in 100 foot flames using a hose on his house. I think he should be allowed to stay and the fire fighters ignore him. Do you really think everyone using a hose on their house is a genius? If so, they are smart enough to stay behind. But if they decide to stay then their widows should not be allowed to sue because 3 fire fighters don’t spend 30 minutes trying to talk them out. I don’t know if you are watching the same news as I am but the people they are showcasing are idiots.

I’m not sure why you have to demean fire fighters. Yes, they are using prisoners for the grunt work that requires bodies that can work. And a lot of fire fighting is just plain hard work. But this is one job where experience can be the difference between life and death and the prisoners are not being sent into all situations or being allowed to make decisions that lives depend on. I don’t know what you do for a living but if it has to do with being a travel agent I strongly suggest you rethink the relative importances of your career and theirs. (And I am not trying to put down your career - simply saying that more people would desire an experienced fire fighter when needed then a travel agent and far more would have a lot more respect for the former profession than yours or mine.)

And try to keep in mind that you took my very general rant about people on the news and attacked me. Telling someone you would let them die because of their position, well let’s just say I take it personally and I will fight back. Guess we’re both tired of stupid people - we just have different definitions of stupid.

FYI: San Diego, Los Angeles, Orange County all are right next to a huge body of water called “the pacific ocean.” Making fresh out of salt water is doable these days.

Calfornia has had fire, slides, and earthquakes as far back as I remember. Heck, EVERY part of the US has something you have deal with: tornados, hurricanes, muggings, etc.

Would be great if some of those thousands of lurkers decided to jump in and post their thoughts…we could always use fresh eyes on this blog.

good work, Be.

Let us know when the book comes out. Also, we will campaign for a Pullitzer!!

All in all, a pretty fair (and informative) article.

I liked this part best:

Jones: It has really grown in the past two years. Comments are two- to ten-times my word counts on any given thread. I couldn’t be happier with the folks that hang out on my blogs. Obviously, they are a bright group and they attract similar posters and lurkers.

I second that emotion

If I could see this from my humble desk in Arizona, why didn’t the media pick up on it? They weren’t skeptical enough when it counted. And this is just one example of hundreds.

This is what i don’t understand. I figured out there was something wrong in late 2004, and I thought I was a genius, and then I started wondering if other people had picked up on this “Housing Bubble” so I typed it into google, and found your blog. And also realized that I wasn’t really that smart, just using common sense.

The Silent Majority.

Hence why most of the folks here are not FB’s.

Just wait ’til Grinchmas.

It was a good run these last several years for the buy’n'holders. I wish I had thought of it, but after sinking $1800 in an iMac G5 in 2004 (which, due to overheating problems, has spent much of its life as the most expensive paperweight I’ve ever owned!), I thought it was best to diversify.

Just don’t agree with this oil bull bias. Remember the Asian flu? If we have a recession and the market for cheap junk takes a dive down the can, industrial demand for oil DROPS.

Ride this while you can, because the worldwide economic indicators are screaming “Danger, Will Robinson!”

I am heavily invested in oil and it has paid me well over the last several years. I, too, am not bullish on Wall street!!! Oil has been a great investment for 2 reasons. Explosive global demand and a hedge against the falling dollar (oil is traded in dollars). My only reservation in oil is that if “the inflate until you deflate” crowd push too much air into the balloon it will pop and with it the demand will shrink and oil asset values will decrease. Do I lose sleep over this? NO because as any smart investor in stock does, I have stops at preset limits below the highs in order to ensure that I capture my gains. Oil will continue to be a great investment as long as global growth still occurs. Many people “FEAR” themselves out of investing in great opportunities. Risk management is the key. Risk management includes understanding the “Big Picture” macro economic fundamentals that are affecting the “Price” of assets, whether it is Housing or oil does not matter. They both follow a basic set of fundamentals and when these fundamentals are skewed one can see it for what it truly is a nd reposition their assets accordingly.

p’raps true, but you have to look amongst active investors, not the general public

Wall Street has been anti-Gold for quite some time now, although they’re cool with Gold stocks, (computer blips) which is why you shouldn’t own any.

As the same source has also commented, what you make on an asset depends on what you pay for it.

By historical standards, much of what’s on the board right now is waaaay overpriced.

Guess what, with all these earnings misses, they have all become even more overpriced!

I am not all in cash, but I’ll be darned if I’m going to overpay for financial assets–any more than I would overpay for a used car or a house. Which btw are going down. Glad I waited.

don’t have the links, but there were some excellent discussions with graphs on that subject last year (going back more than 100 years), I think on the Contrary Investor website (check monthly MO/archives).

“Do you have any stats that show that data? Like, for example, a study showing the return for all the 20 year periods in the past century?”

S&P 500 Index, if you bought in 2000, you would be at about the same level now (7 year span). The jury is out on if this will be extended longer (possible consumer lead recession could prolong the time span of 0% gains to 10 years or more).

1962 - 1975 is about the same…that’s 13 years. 13 years for 0% return (approx).

Just like with housing as an investment, you make your money when you *buy*…if you pay ‘too much’, ‘average appreciation’ won’t save you.

Keep in mind that you are looking at the US markets when people talk about stocks. That is the market of a nation that has had tremendous social and political stability for 140 years or so - especially compared to RoW. Take a look at the performance of stocks in most other major nations over that kind of long time frame. Russia, China, Germany, France, Japan and many others have all had stocks effectively go to ZERO at some time during this period.

Our nation has been blessed by geography (no hostile neighbors) and foresight. The social stability we have enjoyed is currently being undermined by a combination of mass immigration and multiculturalism - which stands our successful policy of assimilation on its head. Inflationist central bankers have increased the pressure by destroying savings and (unnecessarily) magnifying income inequality.

1962 - 1975 is about the same…that’s 13 years. 13 years for 0% return (approx).

But stocks back then paid higher dividends, so you would have done better during that time period than 0%.

“you would have done better than 0%”

yes, you better should - because the 0% return above is nominal, without inflation. During times of stockmarket underperformance inflation tends to be above average, so even the dividends won’t save you. Looking at real returns, it can take 20-30 years to get even if you start investing at the wrong time (said otherwise: on a big timescale you are lucky if you can pocket a serious real return). And problem is, most people cannot afford to wait 20-30 years to start investing …

That’s assuming you weren’t heavily invested in companies that went under in the 1970’s.

OTOH, by the mid 1970’s it was a wonderful time to buy … but nobody had money because inflation was so bad. Oh well.

Yo Wrong, Momma.

They are trying to add one of those housing “Burn Maps” that won’t get them pitchforked.

not necessarily

I’m unemployed, as well.

We had groves in OC as a kid. I remember the diligence, as late summer came around, to make sure the property was clear around and under the trees. The sanata anas always came and with it the fires. It was like playing fire lotto and you never knew it your number would be called.

Now, I say this while living in one gigiantic flood plain. We’re actually due for a hell of a flood. Anyone who doesn’t realize this is newly moved to the CV or in denial or both.

My husband, who hates Chicago winters, is thinking a little snow is looking pretty good.

I suspect that living anywhere in CA is a long-term game of Russian roulette. For instance, the CV was completely under water as recently as the mid-1800s. I would guess another 300-yr flood will occur again in less than geologic time, and the levee system in place will not suffice to stop it.