The Housing Bubble

“recession proof”

What in the he** gave them that idea? They are going to be one of the businesses worst hit by the recession; they are an recreational expense that is EASILY replaced by something far cheaper.

That’s one of the stupidest things I have read in a while, what on earth makes STBX think they are a “staple” item that does not get hit during a recession? Also, STBX is not like LV or Gucci, 2 other companies I have heard recently mentioned as recession proof. The luxury companies are shooting for customers with HH income > 200K. STBX target demographic is anyone with 5 bux burning a hole in their pocket!

A big “thank you” to whoever mentioned shorting SBUX the other day (was it you?). I looked into it and sure enough did. The nature of their product is such that they would get hit fairly hard by a recession, especially a bad recession.

They were down 9% after hours yesterday.

“Starbucks on Thursday stirred concerns about the health of the US economy, reporting its first quarterly fall in traffic at its US stores and announcing plans for its first television advertising campaign.”

And this in the prime coffee drinking cold weather! You wouldn’t know it here in CA at least at the one’s that I pass by.

Wow, what a thread! I like it, even if it is not about housing: How will the consumer respond to hard times?

By the way, I like Starbucks and similar coffee shops and prefer it to staying in restaurants. And yes, I might be one of those faces looking at a laptop, connected wirelessly. But to each his or her own.

“It would be nice if all this could be handled with taxpayer money, but that’s unlikely.”

Whoa… just why does this guy think taxpayers should be stuck? I object to being stuck for the greed of the lenders and borrowers who have participated in this scheme.

“Perhaps some entrepreneurial investor or nonprofit group will buy houses out of foreclosure at low prices and turn them into low-cost rentals.”

That’s already happening, though the pickings may be slim right now. Depends on the situation. Example: investor I know just bought a 3 bedroom brick ranch that got foreclosed at 125K, but wasn’t in the MLS yet. All it needed was a furnace (a necessity in Michigan in November). Paid 29K cash and will just sit on it and rent.

“Which raises a tantalizing prospect: Perhaps some entrepreneurial investor or nonprofit group will buy houses out of foreclosure at low prices and turn them into low-cost rentals.”

They will…at 80x monthly rent or so for generic tract starter homes. Probably in 2010 +/- 1 year.

Just mailed to that paper :
Mr. Editor,

I found the by David Wessel to be offensively myopic. He suggests that tax payers should be made to pay for bad business decisions made by banks, buyers, and investors. This is the very definition of Moral Hazard. If we let any of these people off the hook, they will repeat the same mess.

Foreclosures should happen. Banks should fail. Investors should lose their billions of leveraged bets. They agreed to everything that is happening right now, and we should do nothing to help them. People who lose their homes can rent, and usually for much less money than owning. Banks that fail can be purchased by sound banks, or taken into receivership by the Fed until it has recovered, and then set back on its feet (with every executive canned with no severance package.) Investors that lose money on this will have learned not to throw money at debt without ever looking at the underlying securities.

The coming collapse of realestate, credit, banks, and investment funds will be massive, but ultimately very good for the financial future of our country. The lending was unsound, the investments were unsound, and the borrowers were unsound. Trillions of malinvested money that could have gone to productive expansion of the economy has been lost forever. We can’t go back 5 years and undo this. But we can make sure it doesn’t continue. And every bailout plan I’ve seen suggested are merely flimsy attempts to keep the malinvestment going. The longer before we correct, the worse it will be.

Everyone involved needs to grow up and take it like a responsible adult. Grow up, Bankers. Grow up, Buyers. Grow up, Investors. Go to jail, fraudulent Mortgage Brokers and borrowers.

Sincerely,
Brandon Sonderegger
Menlo Park, CA

(See a rundown of RealtyTrac’s regional foreclosure stats.)

http://online.wsj.com/public/resources/documents/WSJ-foreclosure-rates071114.pdf

Texas? Foreclosures are at an all time high here! What the hell is he talking about?

Being from Rochester, I can attest to your comments about school districts and locations. As to “Same house, same street, variables of 10’s of thousands,” that would an example of a street that is in both Henrietta and Pittsford. The home in Pittsford will cost thousands more than the Henrietta home.
As far as school taxes, the dazed citizenry approve of increased taxes each and every year for nearly all munnicipalities. School taxes have outpaced inflation by over 3-1. It’s a farce how people complain about taxes in this burdomsome taxed state, but they always vote to raise their taxes. The teachers profit, the admins profit, the usinons profit, but the kids don’t get that same profitable outcome.

From the following: http://tinyurl.com/2p3rck

As DiNapoli’s report shows, school costs continue to escalate faster than the paychecks of those called upon to pay the bill, and faster than costs in the economy as a whole.

DiNapoli’s report pointed out that one reason school costs are escalating faster than hikes in the overall cost of living is because the price tag of fringe benefits for teachers and other school employees shot up an average of 12.2 percent a year from 2000 to 2005.

But who wants to force those workers to pay more for these benefits — chiefly health insurance and pensions — as many workers in the private sector have been forced to do?

Certainly not school boards, apparently, which have OK’d hundreds of contracts in the past seven years that don’t address the issue.

As you can see, it not the kids who benefit. School and property taxes continue to kill upstate. Thanks for the rant space.

There are some particular issues in New York. Adjusted for the cost of living, NYC public schools have long had very low spending levels, the rest of the state much higher. Even though NYC has a high poverty rate, the city’s share of public school aid was less than its residents’ share of state taxes — funding was actually redistributed AWAY from the poor. And in every recession, school aid to NYC was cut, while to the rest of the state it was increased, most devastatingly in 1995-96.

Well, some advocates for the NYC schools sued, and the lawsuit dragged on for a decade. And in response, school boards in the rest of the state started hiring like crazy, paying people much more, raising property taxes, and demanding more aid because their property taxes are too high.

At the end of the process, NYC public school spending per child, has risen to the national average. The city still has the lowest paid teachers in the region, despite being one of the few places in the country with a local income taxes, and there has been little gain in achievement, because most of the kids got most of their education in the bad old days. But there is some improvment.

But in order to maintain the gap with the city’s schools, the rest of the state raised spending to ridiculous levels. In fact, local goverment employment has been soaring in the rest of the state and falling in NYC since 1990.

In CA you don’t always know where you child will be going to school. Here they like to bus kids from one area to the next even in the new housing developments and every so many years boundaries are redrawn. What you say had some truth perhaps 20 years ago but as housing starts increased everyone wanted to migrate to the newer areas.

Here in CA that’s gone by the wayside with busing and everyone chasing each other into the next new neighborhood.

I’m an assessor who sends out a questionnaire to every new home purchaser within my city’s boundaries. One of my survey questions is how much concern is the quality of our school system have to do with your choice of location? Less than 15% say it has any influence. I have 10 years of data on this.

hjALmar’s reputation is pretty much in the crapper…

Why is he everywhere, all of the sudden?

Redemption time for him, as well as those trying to cash out their hedge fund investments…

Has come and gone.

“Alan Greenspan really made a mess of all this…”

The dot-com and housing bubbles were designed to transfer wealth away from middle-class boomers who held more than any previous generation. Eventually the MSM touch on the subject.

Throw a dart at the financial pages. If you hit an asset play, please let me know.

I don’t like any of them, save a few examples… (USAA, et al)

The most important thing to consider about matters financial in our country, is this:

Discovery has recently shown us, fraud was rampant at the highest levels of finance in our country, and it’s one thing for fraud to exist at lower levels and no further, but when it’s at the tip top, it only has one way to spread…

All Over.

A good Weiss rating.

This is one place where it pays to pay for advice. Weiss does a good job of rating individual banks, and were able to provide me lists of the safest and least safe bamks in any state, as well as their rating.

BTW, they saw the problem with money-market funds breaking the buck several years ago. As a result I hold safe money in treasury only (not GSEs) funds.

Now that commissions have been squeezed so hard, discount brokers make most of their money by banking, that is, (1) having large balances of deposits of their customers in trading accounts which pay little or no interest, and (2) making a wide spread on margin trading. Some rely on model number (1) whereas here Schwab appears to be going exclusively for model number (2) - they’ll break even to get the dough, but they know that most customers will use higher balances to increase their margin trading, which is a 1-for-1 match against cash balances, and where they can easily make 5% in the spread.

I am going to defend Chuck Schwab. I do not know specifically about their banking side, but I hold their investment group in high regard. I have checked on their money market investments, and Chuck has managed to keep them out of the subprime slime. Service has been top-notch. Perhaps the banking move is a way to lure regular banking customers into a “better” option. It is tempting.

Hi Polly!

Good question. Spike and I are also USAA. I also use free ATM, as you say, one good turn deserves another.

They are a private company. I too would love to learn how to determine performance.

Leigh

My son who just joined the service in June first got screwed by US Bank (by far the worst bank I know) and then by B of A. He now has USAA and everything is copacetic.

I’m Captain Pasta hailing from the Pasta Consumption Center of America. A 1# box of De Cecco linguine is $2 if you can believe it. It was 3 for $1.50 just 4 years ago.

But the economy is roaring and inflation is non-existent…… riiiiiiiight.

i too find it interesting that prices remain stuck.. Seems like at this point sellers would see the writing on the wall.

Could it be that a lot more sellers than we realize figure they are willing and able to hang in there for years, and wait for recovery, despite the high costs and losses? (and despite the slim chance of a recovery).

i think of these MBS packages and their downgradings.. sure, there are bad loans in there but how many? To what degree has negative emotional hype affected their value?

maybe a whole lot of people will bite the bullet and pay off and hang onto their FICO.

They, and Craigslist, might do very well.

I heard that in terms of pounds per person, clothing buying has doubled in 15 years, furniture nearly as much. With new stuff so cheap, thanks to cheap energy and the Chinese, old stuff isn’t worth as much.

Lots of garage sales in the 1970s. Even in the early 1990s recession, we got most of our children’s clothing and equipment buying from/selling to neighbors. We would have done so anyway, but that isn’t true of others.

You could always go back and look at how pawn shops have done in past recessions. The problem with ebay is that shipping costs have gone crazy and craigslist is a much easier way to sell big stuff, furniture, cars. I used to buy a lot of kids clothes and shoes on ebay but now it is usually cheaper to check the clearance rack at Target or to wait for a sale at Sierra Trading Post or Amazon.

To do it, you would have to agree to add funding to the program.

Not with this president.

(It seems like the government might help the most amount of people actually threatened with homelessness via this route as opposed to the various mortgage bailout schemes.)

Forget it. There is a reason that until, say 100 years ago, “liberals” — those concerned with the less well off — were AGAINST government programs and restrictions. Because goverment redistributed income up.

That may not have been the case during much of the 20th century. But that era has apparently ended.

When foriegn countries start seizing their overseas assets to cover the USA’s debts.

LOL

…maybe with a scale size-replica 20lb trout nestled in the branches?

A coupla misguided gas station owners went at it, in the shuffling madness of the motor city.

“Detroit police say a war between two gas stations took a shocking and tragic turn with a station owner shooting his rival who was irate over a gas-price cut.”

“Investigators say the confrontation started when the owner of the BP station on that corner went to the Marathon station to discuss with its owner why he’d dropped the price for a gallon of unleaded gas to $2.93 per gallon, three cents less than BP.”

“The discussion quickly escalated into a fight with two more people from the BP station brawling with rivals at Marathon. One man was hit with a baseball bat in the melee. And then, police say, the 51-year-old owner of the Marathon station pulled out a gun and shot the owner of the BP, a 45-year-old father of five children.”

http://www.wxyz.com/news/local/story.aspx?content_id=294c7893-a059-43bd-81ce-afc69f90cff2

Will you take back this hellwhole that was once yours, Canada?

I grew up with my dad making the worst coffee in the world. Folgers grounds. But he’s cheap, so he uses half the amount recommended. But that makes it weak, so he over brews it. Ah yes, bitter brown caffeine water… and he drinks it black! (Well, brown)

If you were never going to use the equity it shouldn’t matter

In the spirit of your nick, Ecclesiastes 1:9 says.. “..there is nothing new under the sun.”

But i prefer to quote Don Ameche.. “Things Change”, and a fall in price could become important.

Actually, if you owned a house pre-bubble AND did not HELOC it AND do not plan to sell it and move out of San Diego (for example) AND have any need for a move up house - i.e. growing family, nicer neighborhood, closer to the ocean - you are much better off if prices fall.

I.e. you bought a $100,000 house that went to $400,000 but wanted to move up to an $800,000 house. If prices stayed the same (all loans at 7% - all equity used for new purchase) You are looking at a $300,000 down and $500,000 loan for $3,307/mo. plus $733 for taxes = 4,040/mo.

If both houses “values” were cut in half and your existing home was worth $200,000 and the desired home worth $400.000 - $100,000 down and a $300,000 loan which is $1,984/mo plus $367 in property taxes for a total payment per month of $2,351/mo. Same house. Same standard of living. Heck of a lot less money.

Sometimes you have to run the numbers but as long as the person didn’t buy recently and/or didn’t HELOC the property and they want to stay in San Diego, they are better off with lower prices if they ever want to move. Even moving from like to like would mean much higher property taxes.

People freak out when their “net worth” drops, but so often this is a false number. Sometimes just running this scenario for them helps out immensely. Unfortunately, if they are retiring and moving out of state then this is a bad scenario for them. (Although it can be argued that prices are dropping everywhere.)

First Corinth, Thanks for posting this interesting question.
From my POV:
I built my house in 98-00 and never calculated what it cost, nor what I’ve added since then. As the local “comps” are somewhere between abandoned travel trailer and new-ish doublewide mobilehome, the construction guys kept telling me that I’d “never get out what you’re putting into it.” I’d reply that I had no intention of ever getting “anything out of it” because I had no intention of ever selling it. This was my home.

They thought I was nuts, but I paid them in cash every Friday, so they eventually cut me some slack and quit harping on me.

And sure enough, when I moved in, the county assessed it at about 10% of what a comparable place in any other part of California would fetch. Boy, was I pissed at myself for wasting all that money on thoughtful design and high quality material and workmanship!
So no. The equity fluctuations have had not one iota of effect on my outlook or my finances. I could never replicate this place for anywhere near what I might be able to afford even IF I could find the skilled labor and a comparable piece of property to do so, so I’ll probably die here. A happy camper who still has no clue as to what her home is “worth.”

(The problem is the white trash FB’s from elsewhere who think they can move up here on a budget cut…and end up trashing their land because they can’t afford to maintain it. On the other hand, as their property values tank, it’s just that much easier for me to buy them up, doze their POS trailers, and let the land revert back to nature.)

‘But I don’t know. It’s easy for me to sit here and be irritated at a seller who refuses to let go of his/her notions of their home’s “value”, but what if it were me?’

Here is the beauty of a free market:

- Sellers are entitled to fantasize forever about the ever-increasing value of their faux chateau. Under a free market system, they cannot be coerced into selling for one penny less than they know their home is worth.

- Would-be buyers can sit on the sidelines forever if they believe homes are overvalued. They may rent indefinitely if they don’t think homeownership is a smart financial mood.

- The stalemate can continue forever, and nobody is the worse for it!

Signs of a recession:

txchick57 buying things on e-bay.

just to be sure it’s not missed (and to give the knife a little twist) i’ll predict unexpected, widespread mainstream media layoffs as advertising revenues dry up.

IMHO, a recession exists when there is a general slowdown in the velocity of money.

Basically, less demand for goods & services which results in job losses & a general feeling of economic malaise.