Healthy Drop In Prices A Move In The Right Direction
A report from the Arizona Daily Star. “Chris Tanner and his wife found their dream home last year, a four-bedroom, 3,100-square-foot house on the Northwest Side with a pool, a postcard view of the Santa Catalina Mountains — and an uncomfortably high mortgage payment of about $3,000 per month. ‘I knew if we ever fell behind on this mortgage, then we’re done,’ Tanner said.”
“Tanner said past rapid appreciation in the market made him feel pressured to buy his current home. He wound up in a bidding war for it, which didn’t seem like a problem at the time.”
“‘It became apparent that if you didn’t buy a house (then), next year it was going to be $50,000 more,’ he said.”
“Now Tanner expects to lose his house in a little more than a month to foreclosure. A former account executive for a mortgage lender, he could no longer afford the payments after losing a job last year and struggling to earn equal commissions in other mortgage jobs.”
“More than 5,000 homes have fallen into foreclosure in the Tucson region during the first nine months of this year, according to RealtyTrac. That’s nearly double the number over the same time last year.”
“The surge includes homes in virtually every part of town — from lower-income neighborhoods on the South Side to upscale areas near the Catalina Foothills, according to RealtyTrac.”
“Maria Jimenez, who works for Sun Tran, said she is afraid she will lose her home near West Valencia Road and Interstate 19 because of an increasing payment for an adjustable-rate refinance loan she received about two years ago. The payment is set to rise from about $980 to $1,300 in December.”
“Meanwhile, her husband, a roofer, has been unable to keep a job because of the slow housing market. Jimenez filed for bankruptcy to help keep foreclosure at bay, but she doesn’t think she’ll be able to afford the higher payment.”
“‘I still have to pay my lawyers,’ she said. ‘It’s just really outrageous.’”
“Even bankruptcy may not protect Jimenez. Lenders can foreclose on borrowers in bankruptcy with the court’s permission, said University of Arizona law professor Jean Braucher.”
“Many properties repossessed by lenders will likely end up sitting on the market with an already-high inventory of nearly 10,000 homes, said Fred Hubbard of HomeVestors.”
“Midvale Park Neighborhood Association President Joe Miller said some buyers may have stretched their finances to get in. ‘They were probably overly optimistic,’ he said.”
The Arizona Republic. “Home prices in metropolitan Phoenix took a healthy drop in October. No one who owns a home wants to hear that, including me. But real-estate analysts say home prices in many parts of the Valley need to come down after climbing too high during the frenzy of 2004-05. The decline will help the market stabilize, they say.”
“The median price of an existing Valley house fell to $242,000 last month, reports the Realty Studies department at Arizona State University. It’s an almost 10 percent drop from the median resale high of $267,000 the housing market hit in early 2006.”
“Remember, before the 50 percent price run-up in 2004-05, metro Phoenix was long considered a hot housing market for having steady annual home price gains from 6 to 10 percent.”
“Market analysts have been saying for the past several months that Valley home prices were due for a correction as big as 20 percent. Most big builders in the Valley cut prices at least that much a few months ago to keep selling homes. Some say home prices still have some sliding to do, so October’s price drop is a move in the right direction, even if it’s painful.”
“David Highmark, CEO for Northern Trust’s Southwest region, said he senses ‘definite weakness’ in the Arizona economy and predicts housing values will have to drop from current levels before buyers return in force. He also thinks banks and other lenders will report problems throughout the fourth quarter.”
“But he also views the real-estate slump as a ‘healthy’ correction for squeezing out greed and unrealistic optimism.”
“‘People have a tendency to forget what happened in the past,’ he said. ‘You can’t become a good banker and lender until you’ve been through some of these cycles.’”
The Sierra Vista Herald Review from Arizona. “The Herald/Review recently sat down with Melissa Clayton, president of the Southeast Arizona Realtors Association, to ask her about the year past and future in local real estate.”
“Q: What are the foreclosure rates in the county? A: There are more foreclosures than normal. Q: Are lessons to be learned? A: I think the main lesson is not to use your house like a charge card.”
“Q: What are your predictions for the coming year? A: I think there will continue to be foreclosures based on irresponsible borrowing. The bottom has passed here but not everywhere. The market will start picking up and it’ll be a great time to buy a house.”
“Q: Do you have any advice for homebuyers and sellers? A: For buyers: Be serious when you’re writing an offer. This is a not a market that will accept what we call a lowball offer. And be qualified and ready to buy. Don’t wait because it’s perfect for someone else, too.”
“For sellers: 2007 is not 2004. Price your house appropriately and listen to suggestions and your Realtor’s advice… Be ready to look at all offers. Good, bad and ugly.”
The Review Journal from Nevada. “Virtually every major builder in the Las Vegas Valley has pushed big sales this fall, and the price breaks have been steep.”
“Pulte Homes marked down prices 15 percent on certain models, with discounts of up to $80,000 on some completed new homes during one October weekend. The builder’s Del Webb subsidiary sliced $55,000 from some of its asking prices.”
“Rhodes Homes has offered as much as $100,000 off on finished houses. Lennar Corp. has slashed prices on some models by about a third; Lennar cut the cost of a 5,000-square-foot home in its Earlstone community from $911,490 to $662,490, and a 4,498-square-foot home in its Silver Creek subdivision went from $807,290 to $612,290.”
“Pulte Homes had an ‘exceptional’ weekend during its ‘Monster Sale’ Oct. 19-21, said Nick Parks, the builder’s local director of marketing. ‘It’s a new market, and you need to provide the consumer with new value propositions to be successful today,’ Parks said. ‘It’s a positive indicator that the market isn’t as depressed as some want us to believe.’”
“Toll Bros., a luxury builder that also hasn’t marketed any discounts, had zero net sales in the week ended Nov. 11 and a negative net-sales rate of two homes in the week ended Oct. 14.”
“That means the company, whose homes are priced from $345,975 to more than $1 million, had two more cancellations in Las Vegas that it had sales.”
“Toll spokeswoman Kira McCarron said sales of new homes and standing inventory ‘are consistent with current marketing conditions.’”
The Salt Lake Tribune from Utah. “New-home construction along the Wasatch Front dropped sharply for the second month in a row in October to the lowest level since 1990, mirroring the downturn in housing markets felt nationally. Builders locally took out permits for the construction of 530 single-family homes, down from 1,186 in October 2006, according to Construction Monitor.”
“The last time residential building activity along the Wasatch Front in October dipped that low was 17 years ago. ‘It’s definitely the most uncertain time for builders in Utah that we’ve had in at least 20 years,’ said Jim Wood, director of the Bureau of Economic and Business Research at the University of Utah.”
“‘I’ve never seen the market change so quickly,’ said Curtis Dowdle, executive officer of the Salt Lake Home Builders Association, who has been in the business since early 1970s.”
“Another factor was the homebuilding boom, said Jim Bringhurst, president of the Utah Association of Realtors.”
“‘We’ve built a lot of homes in the last couple of years,’ he said. ‘The supply kind of got ahead of the demand. It’s going to take some time for those homes to be acquired.’”
“‘The problem is that consumers are afraid to buy right now,’ said Eric Allen, director of the Utah/Idaho region for Metrostudy, which tracks new-home construction. ‘They are under the impression that prices are going to come down.’”
“Now Tanner expects to lose his house in a little more than a month to foreclosure. A former account executive for a mortgage lender…”
Aside from the Midwest, where lots of people are losing jobs and going into foreclosure, do I sense a recurring theme to articles like these?
‘They are under the impression that prices are going to come down.’
Muaaaaahhhaaaa… so if I shouldn’t be afraid to go straight that line off the side of the rooftop of a building cause I will be under the impression that I am falling????
““Tanner said past rapid appreciation in the market made him feel pressured to buy his current home. He wound up in a bidding war for it, which didn’t seem like a problem at the time.”
In a time where sales have fallen by 50% and credit is tight. You still hear about multiple bids… did anyone ever confirm is these are real bidders or just games by realtors to prop up the housing market prices….
I think we will be hearing more about fake multiple offers soon enough… its all ready widespread fraud in Canada.
‘(The phantom bid) is one of the oldest tricks in the book’
The incoming head of the Toronto Real Estate Board has come out swinging against phantom bidding tactics after denying they even existed when she ran for the job three months ago.
“It’s dirty realty, it really is,” Maureen O’Neill said of agents who fabricate offers during bidding wars. She is now calling on the Real Estate Council of Ontario (RECO) to yank the licences of agents convicted of using phony bids.
“Boot them out, we don’t need them in the business,” O’Neill said. “I don’t think these people should be allowed to sell real estate.”
Phantom bids can be used by selling agents to spark extra rounds of bidding or to spook potential buyers into rushing or raising offers. The practice is considered a breach of ethics under the Real Estate and Business Brokers’ Act of Ontario – administered by the Ontario council – and realtors who are caught can face hefty fines.
There are more than 52,000 real estate agents in Ontario (26,000 in Toronto) and last year they sold 194,793 existing homes in Ontario (84,872 in the Toronto market).
An informal poll of 30 Toronto-area agents taken yesterday by the Star suggests that virtually all believe that some form of phantom bidding exists in the market. More than two-thirds said some kind of structural reform in the way bids were handled was needed to address the problem.
However, more than half the agents said the problem is being caused by “a few bad apples.”
One prominent broker, who handles one of the city’s largest brokerages, calls the problem “rampant.”
I am so glad the Veep is on the side of - cue angels singing - “The Markets”.
“The fact is, the markets work, and they are working,” said Cheney in an interview in his White House office. “And people - some of the big companies obviously - have taken risks. Risk means risk. And there’s an upside as well as a downside in some of the choices they’ve made. We have to be careful not to have this set of developments lead us to significantly expand the role of government in ways that may do damage long-term for the economy.”
The same goes for Democratic efforts to curb the predatory lending practices that left naive homeowners in trouble, says Cheney: “We don’t want to interfere with the basic, fundamental working of the markets.”
Risk means risk. Wow.
So avoiding long term damage to the economy is the goal. A convenient way to avoid mentioning the short term damage slowly (in some places quickly) rising in the throat of America like potato salad left too long in the sun.
Predatory lending = markets are working. Glad he helped us understand that.
Cheney = Crook!
Cheney = Crook!
Risk=Cheney=Crook=credit and Housing bust=Recession!
Cheney hospitalized. His ticker is having a flicker.
http://news.yahoo.com/s/ap/cheney_irregular_heartbeat
You know, I’ve had that condition for years (irregular heartbeat) with no treatment or medication and I’m still here. Gimme a break.
I’ve had an irregular heartbeat since birth and ran competitive cross country and track all through high school and college. It’s very common.
Yeah txchick57, but your heart goes to atrial fluttering with every cool house you see, fall in love with and WANT.
Cheney is so MEAN that his batteries turn GREEN
If The Daily Show was still running new episodes right now, I’m pretty sure their headline for the story would be that ‘doctors discover Chaney actually has a heart’.
yeah. but you are not obese with pacemaker inside your body.
Comment by txchick57
2007-11-26 14:47:09
You know, I’ve had that condition for years (irregular heartbeat) with no treatment or medication and I’m still here. Gimme a break
Yes but your not the VP, yet!
We have to be careful not to have this set of developments lead us to significantly expand the role of government in ways that may do damage long-term for the economy.”
Read that again. He’s against expanding the govt’s role in the mess.. and says risk has a downside and big boys are gonna eat it.. He says the markets work just fine all on their lonesome..
now how the f*ck can you fault him for that? Do you prefer govt gets more involved and maybe bail out the lenders?
I noticed that Joey. Wow. This is the first time I have EVER agreed with Cheney.
The sky is fallin, the sky is fallin!!
The Guv’mint’ CAUSED the mess.
Cheney is the ultimate cheerleader for Corporate dominance of government. The “set of developments” to which he is referring is Predatory Lending, which he is apparently in favor of continuing by leaving “The Markets” in charge. I prefer no bailout of anyone, anywhere, anytime. The chickens done come home to roost already, left the barn, whatever. Predators can’t lend if they ain’t no borrowers. Well, not as much anyway.
But that’s what you get when Cheney got himself picked for picking the Veep and conviently picked himself. And the show goes on.
Right.. the govt.
Cheney hypnotized everyone.. lenders.. FBs.. brokers.. Wall Street.. foreign countries.. all of them were seduced by Dick’s charisma..
Actually, him and Rove did it. The plan goes back decades. Destroy the economy so their buddies, the Martians, can swoop in and buy all our real estate and take our women..
Are “predatory lenders” the guys who go around in the middle of the night, forcing people to borrow money? After we clean them up, mabey next we can go after “predatory stock brokers”. What a lot of crybaby bullsilt.
That’s what I thought, and almost posted such. Until I read the first part of the article:
“Cheney on predatory lending: ‘the markets are working.’
In a new interview with Fortune magazine, Vice President Cheney says that the government shouldn’t intervene to curb predatory lending practices because it would interfere with the “working of the markets“”
I read that to mean that even if it can be proven that someone was given a predatory loan, they won’t be prosecuted.
(the lender wouldn’t be prosecuted)
What is predatory lending? Giving money to someone who really, REALLY, wants it?
No, predatory lenders shouldn’t go to jail any more than predatory borrowers. Instead, they should all just suffer from those own bad money engagements.
I don’t know, that’s what regulators are for.
Hmmm…perhaps Cheney will send Paulson a memo!
“We have to be careful not to have this set of developments lead us to significantly expand the role of government in ways that may do damage long-term for the economy.”
Cheney knows where to go for quid pro quo- he’s an oil man through and through. He’ll look to the House of Saud and the other ‘westernized’ oil nations for help. Without the U.S., they are dead meat. Note that Abu Dhabi just bailed out Citigroup to the tune of $7.5billion…
“Predatory markets = markets are working”
Seeing that mortgage lender after mortgage lender have all gone *poof* over the span of a few months, and now it’s hitting every corporation and bank that had any part of all this, including FNM and FRE, I’d say the markets were working. If you lose your house, just rent one of the millions of vacant ones. No big deal.
off topic maybe, but USA Today has huge housing trouble coverage.
USA Today story: Credit Crunch.
http://www.usatoday.com/money/economy/2007-11-25-credit-crunch_N.htm
“Most economists still don’t foresee a recession. But the risk of a downturn is growing with each bout of bleak news. About 18% of economists who responded to NABE’s survey put the probability of a recession starting within the next 12 months at 50% or greater. That’s up sharply from the 11% of economists who said so in August.”
Is it me or are economists incredibly blind ? I wonder if they can forecast what they will eat for lunch at breakfast !
downturn = recession
recession = depression
“Most economists still don’t foresee a recession. But the ….’
- All they need to do is contact Juan Sixpack and he will verify that the bottom is falling out quickly.
Anyone that doesn’t think there’s a recession on the way should have seen what it looked like at some of the shopping malls I went to on Friday. Sure- there were lots of people buying junk, like tater twisters, socks, and underwear, but I didn’t see many flat screen TV’s or laptops flying off the shelves. People seemed to be looking, but nobody was buying.
What are tater twisters? I noticed the same thing here in NYC two days ago. I was browsing the stores in the Union Square/Flatiron area and they seemed strangely un-crowded for the season.
I changed my mind and went to a mall Friday, and only ended up spending 20 bucks on food with my kids.
And after 1PM, when the mall-wide sale was done, the place was starting to empty out.
Tater Twisters were big in the 80’s and 90’s. They seemed to only come out during Christmas along with all the other casually useless gadgets like electric razors, vacuum cleaners, and padded socks. I sort of use the term to indicate like items.
They tend to be things that people buy who haven’t a clue what the person they’re buying for actually likes.
Shouldn’t it be Jose Sixpack? Just sayin’
“Most economists still don’t foresee a recession”
A more precise bit of reporting would be:
Most economists who failed to see the housing bubble, also don’t see a recession.
I’m so happy that the old media is starting to cover this topic with gorgeous graphs, charts, and experiences of others. There is still an area that they ignore, and the bloggers ignore too: Where did the money GO?
All of that liquidity created went somewhere. It is wrong to say “Billions are wiped out!” when they’re not.
If you HELOC and mortgage 100% of a $500,000 home, you receive $500,000 to give to someone else. Some of it to buy the title, some to buy cars and furniture and TVs and vacations. Yet the money still exists out there, it didn’t just disappear.
We’re talking about trillions in money essentially recently created. That money is out there. It didn’t just go back to the original back to be de-liquified. It exists. Probably in the accounts of a few, but if so, those few have their share of a huge pie.
Yes, Mozillo took out a huge bonus, as did other CEOs. Yet their $150m bonuses don’t total up to more than a few billion, maybe $10b at most, right? So where is the big money at?
The Old Media, and the blogosphere, is ignoring an important part of all bubbles: they bust eventually, “robbing” the middle and lower class of billions or more. Yet those billions ended up somewhere, unless they were only on paper and not loaned or HELOC’d against.
The money exists. Almost every two bits of additional liquidity injected is out there in some form, somewhere. I’d love to know where.
The money borrowed into existence from thin air will revert back into thin air when the writedowns and bankruptcies occur.
Into thin air, that’s ultimately where the trillions will go.
But a bankruptcy does NOT cancel money that existed.
Example:
I loan you $500. You go and buy a burger for $500 (Paris Las Vegas has them). The restauranteur who sold you the burger spends $200 on the meat, labor and equipment for said burger, pocketing $300. Now, you pay me back $100, but default on the rest. I lose $400. You lose nothing (gained a burger). Burger guy and all his employees share in the $500 that is still out there, somewhere. My bankruptcy/writeoff does NOT cancel the $500 out there that I loaned out.
Now lets say I give you a $500 note for you to give to others to use (with me guaranteeing them $500). This is me created money out of future collectibles. Others accept that $500 note, and give you the said burger. You stop paying me, so I can’t pay them. Normally, the risk takers would be the last person accepting my note. But in this case, there is no way to differentiate $500 in new USD versus A.B. Dada’s $500 promise.
In a fiat economy where anyone could “create” money just by making a promise, risk takers would know who guaranteed the funds. In a fiat economy where the government “creates” money, no one can tell if it is new money, old money, or whose guarantee.
But many of the billions never existed. If a home was bought for $200,000, could have been sold at $400,000 for a brief moment in 2006, and now can only fetch $300,000, they are counting that $100,000 difference as ‘wiped out’.
But the collateral that backs the loans diminishes in value thus the money the collateral produced diminishes as well.
My “wealth” as represented by the equity in my house increased from $26,000 to $550,000 over a period of thirty-four years. This was “thin air” money but could have been converted into the spendable green stuff if I decided to use it as collateral for loans.
When this thin air money diminishes and reverts back into thin air, so will my potential collateral diminish and revert back into thin air.
I should have mentioned “I don’t mean paper gains.” I mean specifically HELOCs that were loaned, spent, and now not repaid.
The banks that loaned money for HELOCs and mortgages that are going under still owe that money to someone else — the depositors who put money in the bank. Yes, many loans were sold off to investors who will lose their shirt (CDOs, specifically). But some part of HELOCs/mortgages are based on FDIC insured deposits (CDs, maybe money market accounts), or guaranteed investments such as pensions or other future payments.
The money actually HELOCd (not just paper equity) was spent into the market. It exists. It is probably waiting to turn into another bubble down the line.
The banks that have to pay CDs, money markets (and the pensions that owe retirees in the future) will be new money added through Fed-injected liquidity. Yet the old injected money still exists.
It’s a double-edged sword. The Fed previously injected money that was loaned out and then deposited into someone else’s account (which was loaned out again!). To save many banks, the Fed will inject MORE money, even though the old money still exists somewhere. So it’s a double (or way more) injection policy.
Someone has the money spent from HELOCs and mortgages. It’s out there, somewhere.
Actually you have it a bit reversed in your example. You borrow $500 dollars and spend it, interjecting $500 into the economy. Now you declare bankruptcy and default on the loan. That costs the lender the amount of money he did not get back. If it was the full amount $500 spent - $500 loos by lender = $0 net value.
Also keep in mind that much of the value of the house increases were on paper and only involved real money during a transaction. What we are seeing now is the much of the money interjected during transactions being countered by defaults on the loans. That is where the money is.
Credit money, commodity money, and money substitutes all function as money. Treasury debt functions as money, except not on the scale that most folks see everyday in normal transactions. Most credit money, in these days, is simply digital. When a default occurs, that credit just vanished the same way it was created.
The total, according to the Treasury and Mint, of physical paper and coin in circulation is less than $900 billion. With derivatives in excess of $500 trillion, you can deduce there is a large sum of credit money in the world.
Advances in hard commodities is quite possibly the result of folks seeing the future and using whatever forms of money available to buy hard commodities, regardless of whether there is inflation or deflation. Deflation will be the result of massive defaults and bank runs. Inflation, in larger quantities than previously seen, will be the result of Fed and Treasury attempting to paper over these ominous defaults. Either way, not looking good.
Actually you have it a bit reversed in your example. You borrow $500 dollars and spend it, interjecting $500 into the economy. Now you declare bankruptcy and default on the loan. That costs the lender the amount of money he did not get back. If it was the full amount $500 spent - $500 loos by lender = $0 net value.
Right. So the lender MAY owe depositors up to $500, and the lender either goes under, or they borrow from the Fed to pay their depositors as the depositors withdraw the money (that was used to loan $500 to me).
But there is no $0 net — you’re forgetting that I spent the $500. The $500 is out there — in the market, somewhere. That’s why I bring it up. Most people think the money just disappears because it was created out of thin air, and goes back there, but it doesn’t, because the $500 is still out there (I spent it!), and the bank still has to borrow $500 from the Fed to pay the depositors the money they think the bank has of theirs.
“I loan you $500. You go and buy a burger for $500 (Paris Las Vegas has them). The restauranteur who sold you the burger spends $200 on the meat, labor and equipment for said burger, pocketing $300. Now, you pay me back $100, but default on the rest. I lose $400. You lose nothing (gained a burger). Burger guy and all his employees share in the $500 that is still out there, somewhere. My bankruptcy/writeoff does NOT cancel the $500 out there that I loaned out.”
But, you got the money by borrowing it from a bank that packaged the loan into an asset backed security. The asset backed security was bought by a money market fund that the restaurant guys put their money in so that they could get a rate better than bank CD.
When you go bankrupt, the asset backed security gets marked down, and the money marekt fund takes a hit, so the restaurant guys that put their money into the fund take a haircut.
Or, perhaps you borrowed the money from a bank that loaned you money that was in an FDIC insuread account. You go bankrupt, the bank loses the money. Or, if the bank goes insolvant, FDIC pays and the money is gone from their account. OR, if FDIC goes under, then the treasury sends a check to the depositor and adds the money to the national debt. Then the govt, sells bonds to cover the debt to suck the money back out of the system, and raises taxes to pay increased interest on the debt.
The money DOES get wiped out at some point in the system, unless the govt re-prints it.
Oh I see the money every day. I can show you your $500 a trillion times. It is splattered all over $65,000 houses with $150,000 asking prices or in the empty malls from here to there or the fancy new shit hole little shopping sub villages. It’s everywhere, but it ain’t liquid.
The money went to the Chineses and oil exporters. They loaned it back to us so we could use it to buy more from them. Then they loaned it back to us so we could buy more stuff. Then they loaned it back to us so we can buy more stuff.
Now we can’t make the interest only payments on all the money they’ve loaned us.
That is part of the reason that global growth can’t possibly withstand a U.S. recession. How are the Chinese going to keep selling us stuff? If they can’t, then their economy is toast.
That is not so. The Chinese are increasing exports to other countries and thus reducing their dependency on us. Furthermore, as their own domestic economy develops, they will eventually become more self-supporting. They have the means to become an independent economy without us. We will be reduced to a second-tier world power and may end up without much of a middle class — that is, with an economy much like the third world (developing) nations we see today in Latin America, Africa, Asia, etc.
An excellent point. Thank you.
Yes there will be a global recession, including China.
But coming out of it, I am not so sure whether US will still hold the same share of the global wealth and output. This is the same as the rich and poor families going into a recession and out of one, the prepared and resourceful one will come out better than the contrary one.
I suspect the hit to the Japanese and Canadian economies will be greater than the Chinese, by comparing percentage of export to the US with their GDP.
And the way we are devaluing the dollar, I think everybody is aware that loaning the US dollar is not such a good idea. If you haven’t noticed, those dollar receivers have been buying gold and resources, or CITI, instead of buying good old US bonds (though they still have to buy because there just isn’t enough opportunities to use up all the trade dollars).
Part I - Where did the money go?
Starbucks
All manner of restaurants and dining
Fancy clothes
Cars
Boats
Second Homes
A wide variety of other consumer products
Healthcare and elective surgery
Notice anything about these? They are all basically consumption items which are by and large nonperforming or depreciating assets. Nevertheless, that is where a huge percentage of people who HELOC’d dumped the cash they borrowed from the bank. Some may have speculated on stocks. A very few may have started businesses or engaged in productive behavior.
Part II - But where did that money go?
Corporate Balance Sheets, which led to
Corporate Stock Dividends
Corporate Bonuses
Corporate investment schemes
Corporate portfolio
*then*
Private investment schemes
Private portfolios
Vacations
Lobbyists
Country Clubs
Airlines
Luxury Real Estate
Part III - But that money went somewhere too!
Yes, it did. Money is fungible. Money travels from pocket to pocket. Where the money “went” is impossible to quantify and it matters not. The money has been transferred repeatedly. The rate at which money is transferred is called the “velocity” of money, and is measured by economists. When the velocity drops or stalls, it means people have elected to hang on to their money. The great calliope of spending spins to a halt and a recession ensues - because suddenly nobody is spending the money anymore. Businesses which do not have a sound model or which are dependent upon discretionary spending fail in droves because their products are cut first from cash-starved consumers. Look for this in February after the Christmas bonuses are all spent and after Wall Street hits the bricks in January.
“When the velocity drops or stalls, it means people have elected to hang onto their money. The calliope of spending spins to a halt and a recession ensues - because suddenly nobody is spending the money anymore.”
There it is.
Some months ago we bloggers had a discussion/argument/disagreement over just what money was. Was it a medium of exchange? A store of value? Something else?
I contend it serves as both a medium of exchange or a store of value but rarely both at the same time.
When it is a medium of exchange people are willing to part with it because they sense it’s value rapidly diminishes with time (inflationary expectations).
When it becomes a store of value is when people sense its value will increase over time (deflationary expectations).
I suspect we are in a transitionary period whereby people will begin the think of money less as a medium of exchange and more as a store of value.
Money that used to be easy to get via equity cash-outs and credit card borrowing will not be easy to get in the future. This will make money that much more dear, more valuable, something to hang onto rather than something to fritter away on junk. Thus the economy that was used to the fritter will soon begin to suffer withdrawl symptoms.
In the end, it went to China to buy more useless junk, toys and gadgets.
“Toll Bros., a luxury builder that also hasn’t marketed any discounts, had zero net sales in the week ended Nov. 11 and a negative net-sales rate of two homes in the week ended Oct. 14.”
But what happened to all the pent up demand ?
I thought there was no way that LV builders could ever keep up with the new fundamentals in LV ! It will be the retirement area of choice for millions and millions of people and they need to buy their second (retirement) home now to avoid being squeezed out of the market !
I can’t wait for Toll’s next statement.
I can’t wait for Toll’s next statement.
Na-na-na-na… From Bermuda.
And yet the REIC tries the FUD that this will be a “V” turnaround.
I’m doing another dinner… if you’re interested click on my name (blog link).
Got popcorn?
Neil
between these these dinners and all that popcorn you are going to be known as the “Big Blogger” instead of Neil
It is interesting that many people that were “pressured” into buying because otherwise they were going to be priced out forever, were in someway connected to the real estate economy. All those people, including the lawyers, are going to suffer financially.
———–
“Now Tanner expects to lose his house in a little more than a month to foreclosure. A former account executive for a mortgage lender, he could no longer afford….
“Meanwhile, her husband, a roofer, has been unable to keep a job because…
“‘I still have to pay my lawyers,’ she said….
It is very interesting. I think of it as the Kool-aid vendors drinking from their own pitchers.
I LOVE the fact that the banks got totally caught by the housing bubble. They made so much money with the dot com bubble and in the housing bubble so far. It’s great to see them in such pain week after week. They needed a good kick in the a$$… its great to see them get it from their own stupid actions.
They are reaping what they sowed, but I don’t know why anyone would love the threat of an impending insovency of our financial institutions.
Screw the financial institutions! Any reasonable investor should have recognized that the obscene profits over the last 7 years were done only by exorbitant risk. Where was the Fed and the Treasury and Congress when these institutions were booking 20% growth per year? I will be closing out my shorts before the end of the year.
I will take every bit of profit I can this year. Tax rates are not going to get lower.
Just want to give a little shout-out to the Hoz here. Kudos! Given the stock market today, looks like your prediction of 11,000 before year end just might play out.
Thor.. if i may..
I don’t know why anyone who fully understands the potential impact would love the threat of an impending insovency of our financial institutions.
Those who do love the idea must also love the proverbial cutting off of one’s nose to spite one’s face..
I abhor the financial structure in the US.
If there was a single thing that has placed the American people in jeopardy it has been the rise of the financial empire.
In 1970 the S&P500 only 5% of the companies listed were financial companies. Today 40% of the S&P500 are financials.
This is not good nor is it healthy. Manufacturing has been shunted for banking. Anything to get rid of this bogus wealth scheme, can only be better for Americans.
Does banking as it is currently practiced improve the economy? Or is it just a means to transfer wealth from the middle class to the rich? IMHO it is the latter.
Why are you surprised? The US is the UK’s offspring. Take a look at just how many British graduates and working people are in banking, economics, etc…they rule the world that way without lifting a finger…and in the old British imperial way, they just tell people what to do for them.
Hoz, i see this country as being kinda like a business.. When it first opens it’s doors it has certain priorities. After a while it needs completely different things if it is to continue to grow. Everything changes with time.
The reasons why we went from a manufacturing to a service economy are debatable, but what’s not debatable that we are still the biggest, meanest dog on the block.
Change carries some risk, but if there is no change there is no growth.. and if there is no growth a business dies.
OK.. so we have had an abberation in the last couple years.. there was a loophole in the protections emplaced after the Depression that allowed leveraging to the point of disaster. It will eventually sort itself out and we’ll all learn a lesson and move on.
But just like with a business, inevitable setbacks do cause panic in some of us. People start questioning the foundations on which things are built.. they forget lessons already learned and consider using defunct methods or starting over from scratch. This is bad management, imo.
We will recover in the coming years. There will be another spurt of growth. The banking system will evolve. But despite our best efforts to make sensible changes, there are plenty more bubble-events and various sundry financial disasters waiting down the line no matter what we do now.
Nozferatu.. you got it exactly backwards.
The USA was spawned when it revolted against Brit Imperialism. The country then invited whoever else was strong, smart and disastisfied enough with various other forms of oppression worldwide..
Foreigners and citizens too, who think the USA is imperialist, deserve a dose of genuine imperialism.. just to teach them a lesson..
Sorry but we have genuine imperialism here now…the only difference is that we’re too busy trying to keep our pants up to notice.
As they say, the best form of slavery is the type you don’t you’re enslaved. People here are content being in debt and working for the man for the rest of their lives…so long as fuel is cheap, credit is abundant, and you can lease a BMW for $399 a month. Nevermind that 40% of every dollar of our taxes are going to funding a war, we have some of the worst schooling in the world for such a wealthy country, health care is crap in general, etc…the most basic issues that we can’t even get a fair shake at.
The sooner people in this country wake up and realize the power they may once have had no longer exists, the better off you’ll be in starting to make a change.
I suggest people read some books about the history of the US and put 2 and 2 together about imperialist countries elsewhere. While we feel we are “FREE” (whatever that loaded word means), it comes at the price of our sponsoring oppressive regimes elsewhere and then we have the audacity to turn around and complain about them…????
This is off topic I’m sure but let’s not even try to deny it. And as far as inviting others? Let’s ask the hordes of slaves brought over here regarding how they feel about that invitation you speak of.
Very nice rant.. managed to play the slavery card, the lazy, ignorant American thing.. surrender to Al Qaeda.. crappy schooling.. healthcare.. a whole crapload of stuff.
Not one word about how the USA is Imperialist in the slightest, but still nice in any case.
–
The “Right Direction” will get a hell of lot righter with recession.
Markets ARE Screaming Recession, But Economists ARE Blind to the Reality
There was a melt-up in US Treasuries today and the Scam Market not only couldn’t hold the gains but it is tanking.
Vast majority of economists, who have access to the public, get paid to mislead the public. That is what the free market in information is all about. Thank God for the HBB. (And Ben too).
Jas
CFC is going down with Goldilocks today However on bright side we still have low employment, low inflation and Oil is still under 100 per barrel.
This a prediction of Larry Kuntlows take on todays Gliches.
OT
My source (a guy on Ham Radio) is buying a car in EL Ay.
He got a good price because thet are shutting down
20 Ford Dealerships in Southern Cal.
were doomed
Wow….20 ??….That is serious contraction even for a area as big as L.A….
Local news here in PHX gave quote from state treasurer.
“What was our worst case scenario 2 motnhs ago, is now our best case scenario.”
Sales tax receipts are down.. but AUTO sales tax revenues are WAY, WAY down. NO ONE is buying new cars here in PHX.
It is obvious that ‘Kia’ will take over the dealerships.
Details??????
All of the Detroit manufacturers have been talking about consolidating their dealer networks for a long time now. The rationale being that fewer, stronger dealers is better (for Detroit, and the dealers that survive)
In our local market, there are twice as many Ford and Chevy dealers than there are Toyota and Honda dealers.
The dealers that will be consolidated don’t like this plan, and have been resisting it. A recession will serve to expedite the process.
“Chris Tanner and his wife found their dream home last year, a four-bedroom, 3,100-square-foot house on the Northwest Side with a pool, a postcard view of the Santa Catalina Mountains — and an uncomfortably high mortgage payment of about $3,000 per month. ‘I knew if we ever fell behind on this mortgage, then we’re done,’ Tanner said.”
I wonder if the author put these statements in as a joke, and to mock the ppl being quoted, or actually feels bad for ppl that went out and bought their dream home they knew they could not afford.
“Home prices in metropolitan Phoenix took a healthy drop in October…”
Make that “a healthy dump.” Looks like the laxative has finally kicked in.
According to the Arizona Republic article “market analysts” are predicting a 20% drop in prices in the Phoenix area. Try more like 50% from their 2005 peak. The whole place, from Scottsdale to Mesa to Phoenix to Gilbert is littered with empty houses in foreclosure. I predict the Phoenix MSA will bottom in 2009 with prices at 2001 levels.
Whats the current amount of listings in Metro Phoenix…Still over 50,000 ??
You missed Melissa’s money quote,
“The bottom has passed here but not everywhere.”
My mom lives in Sierra Vista and wasn’t really looking to sell, (bought in mid-90’s) but I was shocked to hear 5,000 F/C’s in Tucson alone! I just don’t recall it’s being all that big? What percentage is this of their total inventory/population?
Crazy. Just crazy.
Calling the bottom and “it’s different here” in one little phrase. Too clever. She must have gotten it straight from FunYun.
Talk about talking out of both sides of your mouth! Check this out:
A: For buyers: Be serious when you’re writing an offer. This is a not a market that will accept what we call a lowball offer. And be qualified and ready to buy. Don’t wait because it’s perfect for someone else, too.”
“For sellers: 2007 is not 2004. Price your house appropriately and listen to suggestions and your Realtor’s advice… Be ready to look at all offers. Good, bad and ugly.”
Make the world a better place,
Punch a realtor in the face!
Wilson
Trout alert. Stupid cow.
Took the words right out of my mouth.
I never saw if you decided to break bread Billary. Did you??
insert “with”. Sorry.
I’d like a breakdown on precisely a “Bad” and “Ugly” offer comprises of since the “market” won’t go for “Lowball” offers. Is a Bad offer simply a good offer that started misbehaving once it hit it’s teens and rebelled ? Is a Ugly offer one with bad penmanship and coffee stains ?
“Q: What are your predictions for the coming year? A: I think there will continue to be foreclosures based on irresponsible borrowing. The bottom has passed here but not everywhere. The market will start picking up and it’ll be a great time to buy a house.”
Why does anybody listen to what someone from the REIC has to say in reference to whether or not it’s a good time to buy? That’s like walking into a car dealership and asking one of their fine salespeople if they think that today would be a great day to buy a car?
My retort to Realtors when I hear this great time to buy B.S. is the time to buy was ten years ago and the best time to sell was two years ago. Personally, I am not interested in catching a falling knife.
“This is a not a market that will accept what we call a lowball offer.”
Oh I think it will and like it.
“Q: Do you have any advice for homebuyers and sellers? A: For buyers: Be serious when you’re writing an offer. This is a not a market that will accept what we call a lowball offer…”
Tears in my eyes ROTFLMAO!
Makes sense to me once you realize that 30% off last year prices is a serious offer rather than a lowball offer under current circumstances.
On ‘My First Place’ on HGTV last night the realwhore told the buyers that they don’t want to insult the buyers with a low offer when they offered 9k off a 235k price. I yelled at the TV how insulted i was with that offer - not even 10% off. It’s a damn business transaction you idiots!! And the realwhore was a friend of the buyer’s family.
sorry - insult the sellers
“This is a not a market that will accept what we call a lowball offer…”
…and that would be why homes aren’t selling faster & you aren’t getting much in the way of commission checks these days. Jeeze… lay off the kool-aide at least 24 hours before talking to reporters.
10 year bond at 3.7….refinance boom around the bend.
Nope, no equity to refi and if Freddie goes, so do 90% of all mortgages.
I hope you’re not a wishful thinking LO, ’cause Hoz is right - zero to negative equity = no soup for you!
Interesting day; the dollar collapsed again today and money is fleeing into Treasuries where it can be further eroded.
I think too many people think that the USD could only go down so much… say 70%. But I’m starting to think it could go down 3x as in hyperinflation.
With fractional reserve banking, just how much money did companies like Countrywide print up the last 5 years? Is there really any total being discussed? Was it 3x money supply increase in 5 years?
Lennar cut the cost of a 5,000-square-foot home in its Earlstone community from $911,490 to $662,490,
A quarter million discount (assuming you bargain, ‘just a little.’) So Mr. & Mrs. peak buyer, how do you feel? Can we have a lifestyle argument on real estate?
Or how we renters are missing out?
Got popcorn?
Neil
My nephew just purchased a house in Brentwood Ca….Short sale….REAL SHORT !!…..List price $925,000……Purchase Price $675,000….
The new comps.
Yup, God Bless the falling-knife catchers. Without them, how could we know how far and how fast the market is cratering? Keep on “taking one for the team”, guys!
As I’ve said before, I’ll sleep on a park bench before I pay 675K for a house, I don’t care where it is.
$675k can be a hefty sum to pay for the priviledge of starring at your neighbors vinyl siding and ugly little yard gnomes…Oops!…b..b..But It IS sunny California
RE: Purchase Price $675,000….
Still not bad for some vinyl & glue put together with immigrant labor.
Enjoy the property taxes and upkeep expenses.
OK, so just what should a house sell for (on a $/sq ft basis) in the Inland Empire? That 5000 sq ft house for $662K is $132/sq ft. How low can they go?
My grandpa moved to Brentwood from Bethel Island a while back. He has since passed away. He paid 28,000
scdave,
Still too high. Does your nephew have a job close by? Does he need to commute?
There wasn’t an O. Simpson previously listed on title, by chance, was there?
“‘It became apparent that if you didn’t buy a house (then), next year it was going to be $50,000 more,’…
Well, what was apparent to me was that where prices used to be 100K, all of a sudden they were ‘from the low 400’s’. And what was also apparent was that earnings did not seem to have quadrupled in two years and across the board. And it was very apparent that people who would pay twice last year’s price must have a screw loose.
OT:
CountryWide is on very thin ice
http://online.wsj.com/article/SB119610325216704176.html?mod=googlenews_wsj
I wonder who will be first to fail, CW or Citi?
BTW, I am in not in favor of financial ruin, against it actually.
Just heard report that 42% of CFC’s assets are negatively-amortizing mortgages. Did I hear right? CFC and at least a couple of the HBs have got to fall soon. They’re like the Redwood trees - the roots are shallow and intertangled with others, so when one falls others often follow in days or weeks.
I heard the same report. I find that hard to believe. I would like to see something to back that up. If that is true I don’t see how they can avoid chapter 11.
BTW, I am in not in favor of financial ruin, against it actually.
I’m all for mistakes being punished. Including a shallow society that puts puts money (customers of said business) strictly on how cool their TV advertising is. Or how frequently that TV advertising or football field sponsorship is referenced.
J6P slurps up name brands with no consideration of what is behind it.
“I’m not in favor of a sinking , against it actually.” - Guy standing on the deck of the Titanic telling people to get to the life rafts.
At this point, the financial system could care less if we want ruin or not. We have about twice as much debt as we had just 10 years ago, and we were struggling with payments back then. We managed to make the payments as long as we did by borrowing more money. But, now we’re to the point where if we borrow any more, we won’t even be able to make interest only payments on our debt.
So what happens to my Citi credit card if they go under I wonder?
I’m strongly against continental drift, but….
Thin ice…they’re blowing the last of their hot air and skating in the snow fog and mist..”Thar she BLOWS”
Dow down over 200, gotta watch Cramer and see what to buy.
S&P is the new ABX.
I was sort of expecting a dead-cat bounce today, given all the rosy talk about how great Black Friday was.
Dead-cat splat!
Funny….
I would buy FXP and EEV (but I have already bought a lot these last few days). (These investments are suitable for me, my self and I and are not suitable for any and/or all).
I’ve been looking closely at those, along with REW. I’ve done well with SRS and SRPIX.
“‘The problem is that consumers are afraid to buy right now,’
Buyer: “I’d like a home loan”
Banker ” No way Jose…you & the other x3 co-signers have terrible credit”
Buyer: “So what?…look here’s the deal: At least I’m NOT afraid to buy!… Now can I get a loan?
Banker: O.K., …look here’s the deal: 16.5% interest & 25% cash down & a pre-signed doc waiving your foreclosure rights in the event of default & a 2 year prepaid PMI policy…now was that a singlewide or a doublewide?
“A banker is someone who lends you an umbrella when the sun is shining, and then asks for it back when it starts to rain.”
Up to 20% drop in prices in PHX?
This is just as much of a lie as saying prices won’t fall at all. Now that they are off 10%, they have to change the lie… sure, they are donw, but they won’t fall much MORE… so now is a great time to buy (or drop another 10% if you are a seller.)
Where is the PPT - THey must be online shopping?
They don’t have money to be online shopping. They are trying to remortgage their ATM err… I meant home.
I think the DOW has entered a serious bear market.
Ha. Maybe but I bought in at day’s end and some AH. Feels like August now and you know what “they” did to the greedy shorts in August.
“Market analysts have been saying for the past several months that Valley home prices were due for a correction as big as 20 percent’.
- They meant to say ‘20% correction for this year alone!’
S&P just went negative for the year; NAR even admits that this year and next year housing will decline in value; and major investment banks, Freddie and Fannie lost 30% or more in stock value virtually overnight. This is just the beginning. Almost anyone worth listening too says the next two years will be much worse. This ship is sinking fast.
Got cash and a loaded automatic?
I have access to both. Now, a question… Where should I invest, say, a hundred bucks a month?
I’m more bearish than most. I have all my money in CDs right now (other than my 401k as I hope to not see that until 20 years and invest the same amount each month so even if it goes down i will be buying more at lower cost so it should even out ok over a long period - with respect to contributions, if you have a big chuck of money, its usually less risky to divide it up into equal monthly deposits since you can never time exactly right). No more than 100k with any institution. I think opportunities will be better at the end of next year. My real estate “paper rich” friends call me a fool, but this year alone I made 5% while S&P went negative so it was the right play. Not much, but at least I sleep well.
I’m curious about this play. What if you can’t get your money out of your bank for one reason or another. Is this a real worry? I believe in the depression people were unable to get their money out of the banks, not only in the short term, but forever.
My understanding is that the government guarantees funds up to 100k per person per institution. That’s why I never keep more than 100k in any one institution. I do not believe a similar structure existed at the time of the Great Depression.
Sure, FDIC insurance…but *when* will you get your money? 1 month? 6 months? 1 year? One could get foreclosed in waiting for FDIC insurance to pay off. And it’s my (possibly incorrect) understanding that it’s other banks that provide that insurance. This crisis could hit all banks.
“Q: What are your predictions for the coming year? A: I think there will continue to be foreclosures based on irresponsible borrowing. The bottom has passed here but not everywhere. The market will start picking up and it’ll be a great time to buy a house.”
Irresponsible borrowing?!?! What about irresponsible lending?!?!? I understand that FB’s made their own beds, but lenders (and realtors, brokers, etc.) certainly provided the sheets and stuff. The bubble grew as it did becuase banks loosened their standards far too much.
every little greedy bastard wants a piece of the pie.
OT but somebody told me the heard 145 million people went shopping on black friday.
Here is my take on how that worked.
300 million in the US and half went shopping.
So each car had 2.5 people in it to go to the mall.
2 people get out of the car to go shopping and .5 person is left to drive around the parking lot all day looking for a parking spot.
I went to the movies instead, they were mobbed so there is the other half of the population.
The theaters were packed?
From what I read on this blog, I am expecting the Sherley Temple movies to be poplular again.
My family just nursed our hangovers………..:-)
Wasn’t txchick or someone else thinking about making a move at S&P 1400?? Looks like you’re just about there.
Yeah, that’s one spot, and then the Mar/Aug lows around 1370 is the line in the sand.
Wouldn’t shock me to see a break of those lows just to get every last bull to heave; I’m thinking about buying some more around 1360-1350 and tossing the whole thing in the drink if it doesn’t recover after that.
I’d love a topic by txchick57 on the ‘natural support levels’ of the S&P.
Neil
Get out yer Fibonacci calculator and slap it on there. You’ll see.
I’ve got caramel corn myself!
lol
Man… this downturn has forced me to read up on Fibonacci and Elliot waves. Sheesh!
olive oil and salt! (I’m a purest.)
Got popcorn?
Neil
I don’t look at the charts the same way you do young lady, (I wish I was nimble like you, but my fingers keep hitting the sell button) I do not see any possible support until DJIA =12,000; S&P 500 = 1220; Nasdaq = 1700; Russell 2000 = 600. I am always willing to change my outlook if the circumstances change. There is no reason at this time for me to change my outlook.
The bulls will not heave, they will keep buying the dips expecting a rally. A whole generation of bottom pickers! They will hold their losses until it rebounds in years and then think they are geniuses. Very few investors know how to take losses or profits!
From the original post:
“Many properties repossessed by lenders will likely end up sitting on the market with an already-high inventory of nearly 10,000 homes, said Fred Hubbard of HomeVestors.”
True story:
Fred Hubbard was the sellers’ agent when I bought the Arizona Slim Ranch. To say that he was clueless is a major understatement. The guy was so clueless that MY agent had to help him with his paperwork.
From our former Treasury Sec. under Clinton.
Is there a way out? Yes, says Summers, and he prescribes three steps: Lower the federal funds rate to stimulate the economy, and potentially offer low- and middle-income families tax breaks or add spending to foster confidence; establish a clear policy on declining credit availability; and keep up demand for housing, perhaps through direct government loans to home buyers.
Existing adjustable-rate loans likely to default should be automatically converted to lower, fixed rates in many cases, Summers contends.
So he is advising that we kill the dollar by lowering fund rates, reward those who took out foolish loans by locking them into lower fixed rates, and have the lose even more money by lending money for homes directly? And who is going to pay for this; the tax payers of course.
Hey! You got a problem with that?
…..
“add spending to foster confidence”
Adding to the already killing level of deficits will “foster confidence”? On what planet??
“perhaps through direct government loans to home buyers.”
Guaranteed by what? Our good looks? LOL!
Right, our good looks, warts and all! I am just waiting for the slim balls in D.C. to trot out some half assed direct Gubmint loan package. Paid for by we the chumps on the hook for so damn much debt it can never be re-paid so what the hell.
Drop large amount of money out of helicopters.
“I knew if we ever fell behind on this mortgage, then we’re done,’ Tanner said.”
I wonder if all the FBs had this thought before they signed the Mortgage papers. It should part of a questionaire in the loan process.
1. If you miss ONE payment for unforseen reasons, are you F^&*kD? Yes or No
My wife and I 275K+ a year. If I had a mortgage of 5K and missed a payment, you’re next payment is now 10K. Crazy thought. I may be in a postion to cover but just by plowing in 10K after a missed payment is….unthinkable…..
How the mighty have fallen…………..
http://www.marketwatch.com/tools/quotes/intchart.asp?symb=CFC&sid=1426&dist=TQP_chart_date&freq=1&time=8
Wow. I’m not sure what it means but wow.
Yep, It sure was a lucky move on old Tan-mans parts to sell of so many of his shares when he did. Phew… I hate to see such a nice old guy take a beating.
What is real scary is to change the CFC to C. The shape is the same!
(Luckily the vertical scale is much smaller though… so far.)
“The S&P 500 extended its worst monthly drop in five years as all 10 of its main industry groups fell.”
So much for “rotation” out of consumer, housing and financial stocks into other stocks. Onto phase two.
Whew!
Something new to talk about besides ‘contained.’ Bloomberg today was discussing how business loans will be tough to get for a few years.
Got popcorn?
Neil
“Q: What are the foreclosure rates in the county? A: There are more foreclosures than normal. Q: Are lessons to be learned? A: I think the main lesson is not to use your house like a charge card.”
“Q: What are your predictions for the coming year? A: I think there will continue to be foreclosures based on irresponsible borrowing. The bottom has passed here but not everywhere. The market will start picking up and it’ll be a great time to buy a house.”
“Q: Do you have any advice for homebuyers and sellers? A: For buyers: Be serious when you’re writing an offer. This is a not a market that will accept what we call a lowball offer. And be qualified and ready to buy. Don’t wait because it’s perfect for someone else, too.”
CAN YOU LIE ANYMORE MELLISSA CLAYTON?
b b b [/b]
bold off
“Remember, before the 50 percent price run-up in 2004-05, metro Phoenix was long considered a hot housing market for having steady annual home price gains from 6 to 10 percent.”
So for all the Phoenix home sellers (who bought in 2003 or earlier), here’s your math:
Year Real Value Bubble Value
2003: $200k $200k
2004 $212k $212k
2005 $225k $318k
2006 $239k $337k
2007 $253k $357k
This is assuming real 6% appreciation per year, and one year (2004 to 2005) of the 50% bubble. So now your house is overpriced by about 30%. There’s only one way to sell now - cut the price by 30% or more, or else plan to sit in it for at least six years with no increase in real value. Of course this assumes that the bubble bursting does not “disrupt” the historic 6% appreciation rate, which it will. So plan on more like 12 to 15 years of no increase in value. Want a HELOC? Better pay down some principal first!
But, 6% is just as unsustainable as 50% if household income is only going up by 1% per year.
You can do 6% price inflation with 1% wage inflation for a year or two… but 5 years in a row means the affordability has fallen by 25%.
6% a year would have created a bubble. NOT as big as 50% in one year, but bubble that would have to correct. 30% off is NOT CLOSE to bottom of this bubble.
Most folks don’t realize that we actually had a bubble in 2002, roughly equivalent to the late 80’s and late 70’s bubbles. Then instead of popping in 2003 as would have naturally happened, Greenspan gave it a shot of adrenaline and we had our first hyperbubble. If you want a non-bubble baseline price, I’d go back to 1998 or so.