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The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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Good morning, Ben. You’re up bright and early in Flag… or are you just getting to bed late?
A contest to guess how many hours Ben sleeps at night?
4
8
He has elves working for him making sure that his blog stays updated.
It may be too early, but I’d find it interesting to know how much publicity is being given to the fact that mortgage rates, predictably, are rising despite the Fed funds rate cut. It’s pretty discouraging that only bloggers seem to notice or care — I don’t find any mention of it in our local MSM.
Mortgage interest rates still seem pretty low. That is, they are under 8%. So, I think it is a nonstory. The most interesting development in mortgages (and other debt markets) is that far fewer loans are being made. It’s a trust issue, not an interest rate issue.
Here is a concrete example. My wife and I went CD shopping. Countrywide offers better than 5%. We bought one at under 5% from a local bank. Why? Because even with FDIC insurance we were afraid. I think this is happening on a much larger scale at all of the banks (except they don’t qualify for FDIC insurance on their loans).
I understand about not trusting Countrywide, but I was wondering about something else. I do my banksing through USAA federal savings bank. It is in Texas. I am not. Since it serves a far flung group of customers and has very few locations and ATMs, it expects people to use other banks’ ATMs and they the banl reimburses you for ATM fees up to about $5 a month, maybe a bit more.
So I am completely dependent on the ATM network for cash withdrawals. Are there any circumstances in which various local banks would stop accepting transactions over the network? Would the network just kick out a bank that didn’t honor its obligations to reimburse for withdrawals by its depositors? Could the whole network be affected?
I’m not really concerned about a wholesale collapse of the banking system - more about what would happen it just a dozen or so had a problem and people got nervous about the others.
I am in WI and also a USAA patron. We use free ATMs (no fee).
Great question - we love the service, but a bit jittery about the geographic distance.
“Would the network just kick out a bank that didn’t honor its obligations to reimburse for withdrawals by its depositors? Could the whole network be affected?”
I will call them and pose the question.
Leigh
I use the free ATM whenever I can. There is one in the Whole Foods. But sometimes you need money other times.
Good luck with your question about how the ATM networks work. I’ll be fascinated to hear the answer. There seems to be a decent amount of information available to them instantly over the network about balances, etc., so I would think the network could just exclude certain banks, but I think it is a valid concern.
Polly,
I use USAA and the Navy Federal Credit Union for my finances. I had the same concerns you did so this is how we run things: I use USAA and NFCU for living expenses and have my pay direct deposited into checking. As extra money accumulates in checking I clean out the excess every couple months.
I use a local bank (Wells Fargo right now) for most of our cash. And I keep a daily lookout for anything that could cause a run. My wife stands ready to run to the bank and clean out our account. Probably a little extreme, but better safe than sorry.
For our investments I have cash in TD Ameritrade. My only concern there is similar to yours with USAA. What if something happens and I can’t get my money out? All I can do is watch like a hawk and at the first sign of trouble pull the account, which can be wired to my local bank. Hopefully that won’t be necessary.
And last it’s good to have 6-12 mos cash on hand (as in your matress) in case the worst happens. Hopefully this is a little extreme too, but a couple of times I have found it quite nice to not have to run to the bank for cash.
In these times there’s no perfect banking fix, but this is what we’re doing. Your milage may vary…
Question about USAA: How can you join? I’m not a veteran, but my father is.
Not sure if he has to start the paperwork, or if you can. As long as he’s already a USAA member it shouldn’t be a problem. If he never joined up and he’s been out of the service a while you may not be eligable. If he’s retired I don’t think it’s a problem. Don’t put it off though.
Go to: https://www.usaa.com/inet/ent_utils/McStaticPages?key=become_member_main to check out becoming a member or call 1-800-531-USAA(8722). Being a USAA and NFCU member is probably the biggest perk I got for my active duty service. Good luck to you.
To the best of my knowledge, unless your dad is a member, and your a dependend, you cannot join.
Looks like I can’t join. Dad resigned his Naval Reserve commission back in the 1950s. And I doubt that he was ever a USAA member.
Oh, well!
I belong to the Army Federal Credit Union, it is a good deal. I think you do have to be current or ex military (I am) to join these, not sure about relatives.
I figure if these military credit unions fold then the US economy is in total collapse.
Slim,
try the Pentagon Federal Credit Union–their CD rates are good. Google for eligibility.
RE: I’m not really concerned about a wholesale collapse of the banking system
A bank collapse is like an auto accident. Just tomorrow’s fishwrap as long as it happens to the other guy.
Back in the ‘90/’91 bust Rhode Island had a MAJOR credit union collapse. Seems the rogues runnin’ it, never paid their
deposit insurance premiums to whatever higher power was in charge of the state’s credit unions.
Every depositor lost all they had put in.
It was fookin’ ugly…Hysterical people on the sidewalk, cops on horseback tryin’ to maintain order. State politico’s yellin’ that everybody would be made “sound”. Right out of the movies.
As the joke goes-how good is a banker’s memory…about 10 years.
Mortgage rates often rise after a fed rate cut. It’s not a conspiracy, it’s just common knowledge. Of course it’s common knowledge that is pretty new to me too when I went to take out a mortgage after a rate cut a few months ago only to see rates jump almost a full point :). I’ve seen a lot of incorrect analysis by uninformed reporters, but fed cuts primary affect short term loans not long term loans. Risk or perceived risk of inflation is a large factor in mortgage backed securities.
The fed cut should help with ARM’s and HELOC’s though. Of course in my experience it won’t. I had a 20% arm once, and even when the fed lowered rates they still found a way to increase it. A CPA buddy of mine tried to explain why to me, but I didn’t really follow along too well.. probably because we were on our 3rd 32 ounce beer at the time
Something to do with ranges they are allowed to peg their ARM rate to, and always being able to move up the range even if the rate goes down, so if they are allowed to move it up .25 then they go up with the rate during the increased rate cycles and up the range during the lowering cycles. I think once you are at the top of the range you would see lowering rates.
These days, they’re having a hard time even affecting short-term rates.
http://www.bloomberg.com/apps/news?pid=20601087&sid=agWWLspkjnR8&refer=home
Money-Market Rates Fail to Respond to Bank Measures (Update4)
By Gavin Finch
Dec. 14 (Bloomberg) — Money markets failed to respond for a second day to the biggest effort by central banks in six years to restore confidence in the world financial system.
The euro interbank offered rate banks charge each other for three-month loans stayed near a seven-year high, falling 1 basis point to 4.94 percent, the European Banking Federation said today. That’s 94 basis points more than the European Central Bank’s benchmark interest rate, close to the highest since 1999. The two- week rate soared a record 80 basis points to 4.95 percent.
What we are seeing is the paradox of thrift in action. This WILL lead to (or intensify) a recession.
RE: This WILL lead to (or intensify) a recession.
Citi to lay off 17k to 45(!!!)k.
Gotta luv a service economy.
This is the low wage resource the foreign financial firms need to increase their loan production.
How about a discussion on how FBs are now having to raid their retirement funds to stay afloat now that their housing ATM is running in reverse and taking money from them post reset/carrying costs and they are maxed out on plastic!!
I believe that there is a proposal in the works that would allow a person to withdraw funds from their 401 with no penalty so that they may pay their mortgage. I could be wrong about this, but if a person is so far behind the eight ball that they have to raid retirement funds I am sure I’d just toss them the keys.
How about loosening up the child labor laws for a family, if the family is behind on their payments?
Now there’s an idea, get the brats out working. Perhaps they can lose a little weight while they learn that you can’t get something for nothing.
Na, never happen the parents will want a Gubmint bailout.
Great so now I’ll get taxed to feed these critters when they get old with no savings and don’t even own their home because of their hoATMe mentality.
My dad often tells me how he used to deliver teeth for dentists in Brooklyn when he was a tyke (mid-late 1930s. They gave him a bike and everything to get the job done.
He was 6.
Uh oh. I didn’t get the memo - are you saying I broke the law when we chored our one and only son until he moved out of the house?
You would toss in the keys because you logically see that there is no hope. But a lot of FBs cannot allow themselves to see there is no hope therefore they don’t (What a fool believes he sees).
The NAR and MSM lackeys feed this hope by proclaiming the bottom is near, and no FB wants to sell at the bottom.
Thus the FBs will do whatever it takes to make their mortgage payments.
If there were a law against stupid, I’d be in jail.
Sometimes I wonder (for the greater good of society) if we could find a means test before we allow people to destroy their future (IRA, retirement funds, credit, raiding the cookie jar).
Fast dash to nearby corner!
I’m in agreement with you on this, Leigh.
While many here like to see everybody with an IQ under 120 burn in hell and live on the streets, I think that’s NOT the best way to go for anybody.
Don’t get me wrong, I think all FBs who knowingly falsified information (i.e., the broker didn’t do it after they signed, via copy & paste, etc.), should be foreclosed on. BUT…I’d save the prison sentences for the Wall Street crew, Greenspan included.
That is exactly right. You tell people that the bottom is 4, 5 or 6 years away, and they think you’re some kind of un-American lunatic just making shit up.
But they’ll unthinkingly believe a “report” delivered by some airhead on TV that housing will rebound in Q1 08 because the National Used Real Estate Salesmen Association say so.
If you lead people to believe that riches and prosperity is just days away, they’ll mortgage and gamble away everything they have.
I’m reminded of the story of Pandora’s box. She opens it and all the ills of the world spill out — but she shuts it before Hope can get out. I’ve always felt that the myth was saying, “Yea hope is nice and all, but sometimes it’s just as much of an affliction as pain and fear.”
Hope can make you persist long after you should.
So when they retire, the folks who saved will be taxed to cover the folks who didn’t.
“I believe that there is a proposal in the works that would allow a person to withdraw funds from their 401 with no penalty so that they may pay their mortgage.”
This opens the door to elimination of homestead and retirement account exemptions in bankruptcy. It might even allow new FBs to qualify for higher payments, if they can show they could make extra payments out of their 401K.
Just what we need, drain retirement funds when we are facing large future retirement liabilities for Social Security. Yet another way we can just buy now and worry later.
Don’t forget the pension funds that are heavily invested in this junk as well.
Also — and I know flat will just love this — the govt will receive less in property taxes and sales tax. Not sure how they plan to make up the difference.
Prepare to fund your own retirement during a time when all asset classes are losing value & all the traditional retirement vehicles are decimated by the credit **tsunami**. (said it!)
The government is very happy when people borrow from their IRA for a house! The money has to be paid back to the IRA with after-tax income. Then it gets taxed again when they pull it out at retirement. Only the most stupid FBs would volunteer for such a system.
Euthanasia for the retirement masses when its our turn to retire. Might as well keep working.
My father’s still working at age 82. His uncle worked until age 80. And his father worked until he was too ill to go on. (He died a few weeks later.)
Sorry, I have to ask…what is an FB?
I love this question.
It shows that more eyes are coming to this blog.
FB means F###ed Borrower.
Or as Main Stream Media was telling you all these years, Homeowners.
you mean, Homoaners
F—ed buyer
and GF is greater fool, not girl friend.
“F#cked Borrower (or Buyer)”.
Welcome to the HBB (Housing Bubble Blog).
Thanks guys…I appreciate the welcome. I follow a bunch of housing blogs but this one has not only great articles, but great comments.
Hey Ben, is there a way to put up a link with a glossary of abbreviations and acronyms or other terms? That way, newbies could click and figure out what FB, GF are as well as things like option-ARM, PITI, etc.
Don’t feel bad…..I’ve been reading for months and didn’t know what GF was ’til just now. Too chicken to ask….
PITI is what you crave, when you`re an FB, telling your sob story to the MSM.
ARM PITI……lol
There is no Wikipedia page titled “Housing Bubble Blog” Maybe someone could start one, a portion of which would be dedicated to the abbreviations used here.
forked buyer
There was an article in the new york times on this or something more of an editorial premoting it, but it’s a foolish short sighted idea but most poeple who baught these over prices houses they could not afford are foolish reality tv watching short sighted nitwits anyway….The other thing is I doubt most of these poeple how much in the way of 401K funds anyway…And wall street will loby against this as it would remove a lot of cash from the market, stocks would decline heavily without 401k money proping it up…
If 401k and ira’s are so great how come they put an upper income limit on it? if this tax free vehicle was such a great thing u know that the rich of america would be allowed to take part and us peasants would be locked out. i’ll bet any of you alot of money that the income tax rate vs the cap gains rate will be much higher in the next 10-15 years. plus you get the privelegde of having ur money locked up for 30 years- no thanks
I think this is a great idea for a topic. I think in bankruptcy, 401k’s are protected assets. Encouraging FB’s to raid the 401k when they’re probably going to lose the house anyway is a way to get at those assets. It seems to me like another hand-out to banks and investors at the expense of taxpayers because taxpayers will have higher costs later to support all those retirees with no assets.
Add foreclosures at multi year highs to this and it’s different here alright. I see more overpriced crap here than in Los Angeles.
http://www.dallasnews.com/sharedcontent/dws/dn/latestnews/stories/121407dnbusnewprice.2a486ea.html
From the article… Who the hell are these idiots? Insult? They should be damn glad to get an offer.
“They don’t want to insult the seller by making them a low-ball offer,” Ms. Hulkowich said.
“They don’t want to insult the seller by making them a low-ball offer,” Ms. Hulkowich said.
That’s BS. Buyers don’t care about insulting the seller when there are hundreds (or even thousands) of other homes out there. Until buyers see sellers get realistic, why waste valuable time (not to mention paper) signing & faxing 10+ pages & writing an earnest money check which will likely be cancelled anyway? Been there, done that. Not wasting any more of my time (or checks).
I believe the saying goes if you don’t think you’re insulting them, the offer is too high.
I see more overpriced crap here in the Tampa Bay area, too. If it was Palm Beach I could understand it. Maybe even the tonier parts of Sarasota proper. But St. Pete? Lutz? LUTZ? Gimme a break.
How can a seller be ‘insulted’? It’s ridiculous. This is a business transaction, and either the numbers work or they don’t.
There’s nothing personal involved.
When I was selling my house (Sep 2005) the first offer I got was roughly 50% off what I thought the house was worth. I wasn’t insulted at all. I knew the guy making the offer was a flipper, and he had to lowball in order to make money on the flip.
But I didn’t sell the house to him.
“Surge in Auto-Loan Delinquencies Is Latest Trouble for the Economy.
…
An interesting bit of trivia is that “car delinquencies are closely linked to the health of the economy”, because the “typical delinquent borrower” made a reasonable, good-faith estimate of the future economy, and buying the car “seemed like a manageable payment”. It turns out the economy did NOT turn out as expected..”
….
“With a little history thrown in (“That is the biggest one-month jump in at least eight years”), I will take this interesting bit of automotive trivia ”
http://atimes.com/atimes/Global_Economy/IL15Dj02.html
It turns out the economy did NOT turn out as expected, and now the borrower can’t make the payment. Bad, Bad News (BBN).
This article is hilarious!
A little OT, but about a year ago I heard of a company (I wanted to invest, but I don’t think its publicly traded.) that was making a gadget for a car’s ignition system. If a borrower was late in a payment, the noteholder could (remotely) activate this gadget that would prohibit the car from starting. When the payment was made current, the noteholder could (remotely & instantly) switch it back on.
I thought it was a great idea (don’t know what became of the company or the gadget). Too bad it wouldn’t work on houses.
Speculating on what will happen after the New Year. I think we’ll see some real capitulation and 2008 will be the year that was. Of course, elections will play into all this. Can “they” (TPTB) keep it all gamed until the elections are a done deal? Can capitulation be staved off until after the elections?
“Can capitulation be staved off until after the elections?”
I tell you there is a desperate effort by Smirking Chimp &Co to do just that. He’s even said words to that effect.
As we all know, everything will be just fine when Super Bowl Sunday comes and goes….
have a cookie and you’ll feel right as rain….
… the minute you walk out that door you’ll remember that you don’t beleive in this deflation crap. You’re in control of your own sales price.
Another one for us geeks…
But hope will be way up there for the first few months - waiting for the spring selling season. A lot of people here have talked about a dead cat bounce on home sales. Anyone think it is up for this spring, or is it too early?
“Anyone think it is up for this spring, or is it too early?”
How long can people go on hoping until there is a recognition that the white knight isn’t arriving? I suppose, millenia, since many are still waiting for the Second Coming.
In the past month inventory in my town went down from 121 to 98 this morning. I’m predicting come Spring the inventory will see highs like never before…
The quantity of houses that sell won’t matter to me so long as the prices go down.
I’m seeing the same change in inventory almost everywhere Danni. The inventory is still up a net 30% since 2/27/07 though.
Same here in the Mid-Lands of South Carolina, the used house pitch books in the grocery stores are much thinner. I certainly see a flood of “new” listings come spring. Just about everyone around here buys into the RE BS lock, stock & barrel.
I’m also seeing a decline in inventory. Some is probably the “holiday effect”. But I’m seeing a lot of homes in the MLS are also for rent on Craigslist, so I presume a lot of the “dropped inventory” went to rentals. Anecdotally I’ve seen a lot of people who can afford their house and don’t have to sell are taking them off the market, some until spring, some indefinitely.
So, let them take it off the market for the ’spring sale’.
All it means is they have the carrying costs for 3 or four extra months before they try again…just increases the financial pressure to unload that sucker. It’s all good.
imo, sales will pick up when prices stop falling.
Correction. Sales will pick up when we come off the insane fantasy prices by another 40-50%.
I think, with all the candidates promising in one form or another to keep house prices propped up (an obscene notion, in my opinion, it won’t be ’til 2009 that the correction intensifies.
Here’s another one…how do you pick a good appraiser? I want to find one who is brutally honest and realistic about the market.
If I was looking for one I imagine I would first find out how many years has he/she been doing appraisals. I would want to find someone who has at least witnessed a downturn in RE.
I would go to your local bank or banks (not mortgage broker) and ask who they use. They typically will have an approved appraiser list . . . usually updated once a year to clear out the hacks. Also, the type of appraisal you need will determine who you use, i.e. commercial vacant land, multi-tenant building, strip center, farm ground, high-end residential, etc. Find someone with expertise in your area and don’t be afraid to ask for references . . . they will provide them.
During the boom, appraisors knew if they didn’t deliver the numbers, that realtor/broker wouldn’t send them any more business. Because of that, I’d select an appraisor (and home inspector for that matter) who is based 45-60 minutes away from the agents office, and I would insist on being there for the appraisal (or inspection). Maybe I’m paranoid, but I’d have a hard time trusting anyone “too local” (i.e. too close & entrenched to the broker) to be independent.
RE: I want to find one who is brutally honest and realistic about the market.
Call a couple of your local hard-core divorce, bankruptcy, or foreclosure attorney’s-they let ya know.
You best be on the stick in court, or you’re gonna get ripped up.
Nothin’ like the prospect of cross examination to separate the good from the hacks.
Mortgage Lenders Face Long Rehab
http://www.thestreet.com/s/mortgage-lenders-face-long-rehab/newsanalysis/financial-services/10394507.html
“The mortgage industry will not ever again be the way it was in the last four years,” says Ajay Rajakhyaksha, head of U.S. fixed income strategy at Barclays Capital.”
RIP to the crazy stuff, I hope. Speaking of which, there’s some sort of irony in the fact that credit card companies, lenders, etc. have for years now been issuing crazy “contracts” that they can change to up the rates if someone so much as sneezes, and along comes the “teaser freezer” which sort of changes the game plan for the lenders. I guess, what goes around, comes around.
Largely gone are the subprime, jumbo and other exotic options that were readily available during the housing boom. Now the only type of mortgages on the block are the blandest around, all conforming to underwriting standards set by government-backed loan guarantors.
Ken and Barbie (the plastic people) are so out of the game.
“Largely” gone? Countrywide reported it made $17 million in subprime loans in Nov 07 vs. $8-9 billion in Nov 06. Yes, million vs. billion. Subprime is largely gone in the same way pets.com stock is largely worthless.
Now the only type of mortgages on the block are the blandest around, all conforming to underwriting standards set by government-backed loan guarantors.
———————
Get out! The mortgage guys told me those “bland” mortgages were obsolete & that no “savvy” buyers were using them (usually with a condescending chuckle at my insistence at using a traditional FRM).
Sooo happy to see these idiots lose their jobs & go back to flipping burgers!!!
“Are you now crying: No, this was not what you wanted? A mindless world of ruins was not your goal? You did not want us to leave you? You moral cannibals, I know that you’ve always known what it was that you wanted. But your game is up, because now we know it, too.”
John Galt
When will the Fed level with Americans? Stop the charade, Mr. Bernanke. It’s time to come clean. We need honesty not more smoke and mirrors. You cannot fix the housing bubble crash. Don’t be cocky. You cannot control it. Let prices fall. Let the market clear. Stop the shenanigans. Stop mocking Mr. 6Pack. It’s over.
MMFL, you just said everything I wanted to say. I’ve been reading about the “crisis of confidence” in the markets and even between banks. Occasionally I post that our fiat money is based on confidence and that as long as there is confidence, the money will have value. “They” can try to game the system every which way and eventually, unless confidence is restored, Atlas will have to Shrug. Your recipe above is an excellent recipe for restoring confidence.
Mistakes were made.
The Fed doesn’t drive the markets.. it reacts to them, based on a prediction of where things will be months ahead.. on where markets appear to be heading. But, as far as predictions are concerned it relys on indicators that are available to all, and it’s no more insightful than anyone else.
That reasoning is what the Fed sells. It is what Americans want to believe. A simple lie is much more believable than a complex truth.
Your supposition was perhaps correct in the few years after the creation of the fourth central bank in the US. However, it is no longer. The market is doing the only logical thing, and attempting to predict what the Fed will do. The Fed says it is reacting to the “free market”, and it is believed by the electorate.
By definition, a central body that plays a significant role in setting the value of money is not a market economy. Not by any stretch of the means.
What we are currently witnessing is the age old question of which came first, the chicken or the egg? Is the Fed reacting to the market, or is the market reacting to the anticipated actions of the Fed? It is obviously the latter. The individual actors, which make up a market, are all trying to figure out what the Fed, and the Treasury, and the Congress, are going to do.
Their reach has permeated every facet of the important makings of a market, money, taxes, and the law. Since none of these appear to have any semblance of consistency, there is no way to plan economic endeavors in any long term venture. Why would anyone spend their labor and investments only to see subsequent monetary value, taxes, or legal mandates change to obliterate one’s endeavors? Most people won’t, unless you have certainty on what those changes will be. I suppose, based on that reality, we will witness more money accumulated by those who can determine where the new money (inflation) will be sent first.
The Fed will never level with Americans. It goes against the reason for it’s existance.
What’s going on in the markets isn’t an irrational panic. It’s a wholly rational panic, because there’s a lot of bad debt out there, and you don’t know how much of that bad debt is held by the guy who wants to borrow your money.
http://www.nytimes.com/2007/12/14/opinion/14krugman.html?_r=1&ref=opinion&oref=slogin
The whole point of most politics, is the idea that “we need them.” The politicos want, no need, us to believe that we need them. So they create problems. Inflation is a problem, deflation is a problem, rising health care is a problem, terrorism is a problem, retirement is a problem. As long as we are scared enough to keep supporting the people who are here to fix all our problems, they stay in business.
Regardless of your political pursuation or what flavor of economic theory you personally accept, if they were to level with us it would have to include an honest discussion of the possibility that we don’t need central planning or that they can’t effectively control the money supply or that central planning might do more harm than good. They don’t want us to get a hint of that possibility, ergo they will never level with us and will always hinder any possibility of the regular folks getting a glimpse behind the curtain.
Well put.
Love your post, mrktMaven!!!!
I wonder about the alleged lack of liquidity / solvency by the banks, and how this alleged lack is reflected in the spread between what the banks pay for funds vs what they charge for funds.
For example, it is harder for a consumer to borrow, and mortgage and credit card rates are increasing.
For banks that are borrowing from each other- assuming they can even do so- rates are also appearing to be on the rise.
Yet when banks borrow on the retail level, the rates are following. The rate they pay private individuals- on instruments such as CDs, MM accounts, savings accts, NOW accts, are falling.
Why is this spread increasing? The effect is counter-intuitive, if it is true that the banks are insolvent/illiquid. It seems this risk, as well as the increased need, would drive the interest rates they offer higher.
Is the banking system colluding in agreement to offer retail lenders less, so that they can benefit from a broader spread? (Similar to what they did when the Fed lowered its interbanking rates to around 1pc)
Lending presents a high risk right now, so rates would understandably be driven up..
Risk-free CDs, MM accts, etc. are popular considering current market turmoil, and a lot of money is being poured into them.. so banks don’t need to “sell” these time-deposits by offering high yields.
There’s no need to explain it with conspiracy or collusion. Banks want to borrow our money at the least cost and lend it at the highest return.. no different than any other business which wants to buy their product low and sell it high.
The stock market is still at historic highs. I don’t know that consumers are flying out of there to more secure instruments
CDs and MMs have always offered lower risk, nothing has changed.
In fact, 5 or so yrs ago, the last round of interest rate reductions by the fed forced people out of these bank instruments to find someplace with higher yields than 1%.
So unless there is a mass selloff of stocks, if banks needed more liquidity you’d think they’d be competing with each other for your money… instead they are very gentlemanly each lowering their rates.
Sort of the way airline fare hikes propogate across all carriers almost instantly.
Funny is all.
Only successful airline fare hikes propagate instantaneously. Many have failed & have been withdrawn by the airlines proposing them.
Why is this spread increasing? The effect is counter-intuitive, if it is true that the banks are insolvent/illiquid. It seems this risk, as well as the increased need, would drive the interest rates they offer higher.
Well, it is called a paradox. As I mentioned above, it’s the Paradox of Thrift. Google/Wikipedia it.
Who’s looking forward to the recession, and how do you plan to respond to it?
I love recessions. During the 2001-02 one, travel costs got insanely cheap (mostly plane tickets and hotels, but there was no upward pressure on gasoline, either). Also, stores and service providers seems to actually give a crap about customer service, becasue people were worried about their jobs and about keeping what little business they had. Who else, like me, tries to be countercyclical and INCREASE his spending during a recession? I might even buy me one of them newfangled flatscreen teevees, if only someone comes up with something to watch on it.
Also, what kind of recession do you think it will be? The last one was a deep corporate recession (thanks to cutbacks in tech and capex spending) but a mild consumer one (thanks to the housing bubble). I think the 2008 recession will be the other way around. Joe and Juanita Sixpack have no money left and their housing ATM is bone dry, but it seems companies are still willing to spend and invest. I *think* there is more demand for my line of work in tougher economic times, but really who knows.
Anyone dependent upon consumer discretionary and those who function at the retail level will get hammered. It’s already happening to the Detroit3 which in turn is filtering out in the midwest. I expect it to spread.
I might even buy me one of them newfangled flatscreen teevees, if only someone comes up with something to watch on it.
i totally agree with that. something like that you need a teevo for all the commercials too.
I plan to capitalize on it in ways that will soon be known to all in HBB-land. In other words, keep an eye on my nickname. It will soon be hotlinked.
“Also, stores and service providers seems to actually give a crap about customer service, becasue people were worried about their jobs and about keeping what little business they had”
I agree with this 100 percent, service in general how gone in the tolet accros the board, and mainly because low skill service jobs were plentifull basicly if you have a pulse you can get a job even if you are the worst employee ever, in a recession these job will disappear quickly, and quality should go up hopefully. Just like there were so many unqualified useless POS RE agents and mortgage brokers out there, a lot of other position normally filled by smart competent poeple seem like they were filled by funcitonally retarted lazy poeple…
How many things are working together to make this possibly the biggest bust in our history? A lot of players are in motion; biggest credit expansion in our history, biggest housing price bubble in our history, lowest savings rate, biggest personal and gov’t debt, low tide for manufacturing…..
A FB xmas song…
Dashing through their dough
In a most consumerist way
O’er the fields of cash-flow
Never saved any pay
Bells of exit do ring
Making spirits fright
What fun it is to laugh and sing
A foreclosure song tonight
Oh, jingle mail, jingle mail
Jingle all the way
Oh, what fun it was to ride
Until the time came to pay
Jingle mail, jingle mail
Jingle all the way
A 41 Cent stamp on an envelope
Ought to get it there ok…
excellent
I would like to hear about changes in the RE “standard of practice” related to the bubble - pre and post.
Here’s an example. I noted earlier this week that there were at least 2 open houses on a Tuesday, and then today while walking to my commuter stop, I saw a sign for an open house. There were also open houses the day after Thanksgiving (Black Friday). I’m not sure about a “typical holiday season”, but I can’t recall many open houses during the week last year.
We’ve never had many sign-twirlers out east, but I wonder if they have now disappeared as an unnecessary expense out west.
Back in the Chicago area, Tuesday open houses were commonly held for other agents and brokers, not buyers. Don’t know about the Black Friday thing, though.
The posters here seem divided between those who believe there are hard budget limits on liquidity creation (Ben) or moneys that could potentially be dropped from helicopters (Hoz) and those who are flummoxed by the concept of macroeconomic budget constraints (I confess to being in this camp, though I plead ignorance rather than paranoia regarding the ability to endlessly print one’s way out).
Would those who have a clear picture be so kind to enlighten us who claim no grasp of the concept of macroeconomic budget constraints? What is the real limit on the use of moneys to reflate the economy (assuming there is one)? And how does Ben Jones see it so much more clearly than some of us (like me)?
Additional question: What is the difference (if any) between money and moneys (aside from the superficial grammatical distinction between singular and plural, as both words are plural in common usage)?
LOL, I do not believe any new moneys are needed. The moneys have already been printed and looking for a home.
RE: Money vs Moneys
In the US, many people refer to the dollar as money 1:1. Fungible items subject to Basel II margins are moneys - the multiplier effect 200:1 .
…looking for a
homenew bubble.I have a question in light of the latest round of worry about the latest government intervention in the housing market; are the housing bubble bail-out hand-wringers (HBBOHWs) missing the point?
As an accountant, I know how money flows, and assets and liabilities are recorded. The current financial system boils down to blips on the Feds hard-drives and bank hard-drives, but it’s really just a lot of paper and electronics. I am too old to get worried about debits and credits moving from one to the other, or some perceived injustice about Wall Street benefiting at my expense.
Are you worried about being ripped-off? Guess what; you are ripped-off every day by this system. And if this financial house of cards has produced a housing bubble, the real outrage is not that one bank or the other won’t suffer as it should; but rather that this system exists in the first place.
I have always viewed this blog as a chronicle of what will probably be one of the most significant financial events of our lifetimes. But I realized early on that I also had the opportunity to be constructive and try to show people what was behind this devastating price bubble. As I said, I can’t get worked up about a problem I have known about for over twenty years. But for those of you who are outraged, what are you doing about it? How are you preparing your finances and the ones you care about?
IMO, simply bemoaning ones perceived impotence in the face of the system is no better than being apathetic about it. Have courage and think for yourself. Educate others. And be confident, because those that would take from you are not all-powerful.
Germany and Japan were utterly wrecked, in the aftermath of World War 2…
We have a lot of the same wreckage here, but no bombs or bullets caused it, it was of our design.
In both Germany and Japan, rebuilding broken countries took a few generations, and old ways of thinking had to be discarded.
I anticipate something similar here…
In my attempts to sway friends and family to my way of thinking, i’ve been a dismal failure, unfortunately.
Similarly, I don’t percieve this ending without something on par with the disruptive forces aladinsane discussed. I’m not that old, it’s not my rant, and I don’t want to make a speech, but when a system is fundamentally broken no amount of magic tape can keep it functioning. I believe, and I think most people here also believe, that the system is broken. Clearly, you do too. And if it is broken, you only have two options.
1) Repair it.
2) Sweept it away and build something else that isn’t broken.
I don’t think #1 is even possible anymore. How can you repair a system built on confidence and lies.
I’m a capitalist, not a socialist; and I’m not in favor of revolutions, as they are messy and I have a fondness for human life, particularly my own and mine (which is less redundant than it sounds).
But I’m also a rational anarchist. So have your revolution. I’ll join in for the bits I know.
You say you want a revolution
Well you know
We all want to change the world
You tell me that it’s evolution
Well you know
We all want to change the world
But when you talk about destruction
Don’t you know you can count me out
Don’t you know it’s gonna be alright
Alright Alright
– John Lennon and Paul McCartney –
You say you want evolution, man?
Well the ape was a great big hit
You say you want a revolution, man?
And I say that your full of $h1t.
-Brian Hugh Warner
That album had a lot of Beatles references, actually.
‘IMO, simply bemoaning ones perceived impotence in the face of the system is no better than being apathetic about it.’
There we go! Right on.
I mean, I adore delivering a good rant with lots of cussing and creative terms and so forth, and I also much enjoy hearing a good rant, and a good conspiracy theory too, but some posters here sometimes sound like Eeyore on crank. And if you’ll recall your Winnie the Pooh, Eeyore had to go live in some stickpile out in the forest, because no one could stand his presence, where one day Tigger secretly ate him, because no one was around to hear his screams.
See, quit being so pessimistic and pouty, or one day Tigger might come eat you, too, and who wants that? Besides me, because I love the cycle of nature. But your mom could be saddened.
“Educate others.”
I have tried to do this, despite personal blind spots on some aspects of the unfolding bubble bust. So far I have had one personal success, and three personal failures in my efforts to advise friends and family. (Unfortunately, the three failures are all close relatives who are now stuck in overpriced homes they cannot afford…)
I don’t feel impotent. I wasn’t aware of the storm brewing, I got out of debt and huge house simply on the basis that it was best for me to take a different path. I’ve been roosting here learning that it wasn’t just me that saw things out of whack. I’ve managed to open the eyes of one of my children regarding the dangers in her path to buy-buy-buy and she is a happy renter/saver. This is because of what I have read mostly on this blog.
Most of the people I know are lemmings.
HBBOHW, here.
I’ve been trying to warn people for YEARS about housing & credit problems. Everybody was high on bubble money and sneered at my “ignorance,” although a few did hold off and one sold an investment property right at the top (and didn’t re-invest in RE, as was her original plan).
I’ve written to newspapers, regulators, and politicians at the federal, state and municipal levels.
I’ve filed formal complaints against certain parties who I thought were in violation of various laws and forwarded suspicious transactions to the FBI and other enforcement agencies.
What more can a person do????
As for my family, we have over 10% in foreign currencies, some gold & GLD and the rest mostly in cash and short positions (very few, perhaps less than 2% in long positions).
Very worried about what’s to come because I don’t see any easy way out of this. We might have gotten out in 2002/2003, if the PTB had put a halt to things, but now it’s going to be ugly, no matter what we do.
Expecting social, political and financial ramifications due to the bursting of the credit bubble; but it has to be done.
Ready to leave the country on short notice if necessary.
….which is why I repeatedly mention Austin Fitts and her Solari website…recognizing the reality….withdrawing from it….getting locally involved/creative…..by way of both starving the beast and creating real wealth for communities
I copied that the other day, MaryLee. Thanks for the info!
For years this blog’s readers and contributors have asked the question “when”. Well, now it appears that Judgment Day is finally upon us and a reckoning hath been wrought large.
Unfortunately, it now seems that my fellow Housing Bubble acolytes and I, although vindicated, now stand to suffer even greater ignominy at the hands of our elected officials and the Federal Reserve.
Perhaps we should all now focus our attention on how we (those of us who purchased houses we could afford with fixed-rate mortgages) are going to protect ourselves and our investments from the onslaught of housing bubble populism in the form of:
-Questionable Federal Reserve Policies in Light of Recessionary and Inflationary Threats
-Federal & State Market Intrusions to Protect the Foolish from the Consequences of Their Own Poor Judgment
-The Horrifying Prospect of An Eventual Fannie/Freddie Collapse and the Resulting ~$8 Trillion+ Taxpayer-Funded Bailout That Will Result
“Taxpayer-Funded Bailout”
How’s that going to work out given a negative national savings rate?
I guess you are talking about future generations of taxpayers here…
Good Topic …How to be constructive in a unfair world .(That sounds like a title of a book ).If I knew what interventions were going to be applied ,I could be more constructive I think .
I have a question for the HBB crewe. Are there bigger or smaller than ave drops coming in housing price for so called premium locations (ie waterfront)? Many of these had larger price run up so will they have the similar larger drop? I want to think of the expensive market like a bigger boat…it just takes longer to turn. Am I wrong?
I like the following link as a perspective on what home values have done historically:
National City
You can zero in on what area you’re interested in. It’s been pretty accurate for my locale.
So I was at my Citibank branch rolling some CDs, and I was talking about housing and mortgages with the branch manager. She stated that the bank automatically deducts 10% off any appraisal that comes in, in addition to requiring 20% down with a fico of 680 or 10% with a fico of 750. Here is the question, if I walked down the hallway to the banks loss mitigation department and said I will buy a house from you, but you must deduct 10% off the price to match the banks requirement, would they do it? In reverse would a bank finance a home that there loss mitigation dept was selling at the price the bank was selling it for?
We are all homeowners now.
And it looks like the handwringers were right about a bailout passing into law. (Go ahead and make fun of the bottle of lotion sitting on my desk if you like…)
Senate Passes FHA Overhaul
Aimed at Stemming Mortgage Woes
By MICHAEL R. CRITTENDEN
December 14, 2007 1:14 p.m.
…
The Senate legislation would increase the size of loans the FHA is allowed to insure for first-time and low-income homeowners. The level would be set at the size of mortgages Fannie Mae and Freddie Mac are allowed to purchase, currently tabbed at $417,000 and referred to as the “conforming loan limit.”
Additionally, the Senate bill would require homeowners to make a cash investment of at least 1.5% in the value of a home. That is half what the FHA currently requires.
The House of Representatives passed its version of the legislation in September, and the White House has said it supports congressional efforts to modernize FHA.
If enacted, the legislation would mark the first major piece of legislation passed this year aimed at addressing the rampant problems in the mortgage markets.
http://online.wsj.com/article/SB119765283748029731.html?mod=googlenews_wsj
‘And it looks like the handwringers were right about a bailout passing into law.’
This is what I mean by perceived impotence. Wallow in it if you like, but I don’t see any bailout. They won’t appraise. It’s far below the bubble medians, much less theMcMansion medians. And why would a FB sign up for more punishment?
“I don’t see any bailout. They won’t appraise.”
Ben —
Your perspective is sincerely appreciated.
Ben,
Even at $417K, that is still way to high, even for a fairly high-income earner to handle.
Additionally, by lowering the downpayment requirements (heard they are working on zero-down, too) AND lowering FICO score requirements AND increasing DTI ratios (haven’t checked the most recent bill, but these have all been part of what I’m reading), we can be sure that the existing FB loans will be refinanced, probably with GSEs and/or with FHA (that’s us) holding the bag.
Yes, we have every right to be pi$$ed about this!!!!!!!!!!!
Given the passage of the bailout bill through the Senate, I guess it is time to make a New Year’s resolution to keep renting forever.
How about a discussion of steroid use in baseball instead of worrying about the economic situation?
(Headline story in today’s SD Union Tribune)
http://www.signonsandiego.com/uniontrib/20071214/news_1n14mitchell.html
GS (and any other HBBOHWs),
Care to form a taxpayer-advocacy group, aimed at eliminating the trasfer of risk from Wall Street to the taxpayers?
If Howard Jarvis could do it, so can we!
Very serious. If anyone else would like to work on this, please post on Bits Bucket threads over the next week.
Regarding Howard Jarvis…not WS related, but you know what I mean.
Someone mentioned earlier this week about lack of Christmas decorations. Last night was the first I’ve been out in weeks and was very surprised coming home to note how few houses in the neighborhood were decorated.
The last two years has seen every house in the neighborhood competing for the most lights, etc. This year two houses have a few lights (white only) and one has a blow up display. Yes indeedy, I do think this is a reflection of the availability of money in these households.
Plenty of lights in my part of NE OH, not known for its availability of money.
Did anyone catch the last tv show of the ‘real housewives of OC’. Man I wish everyone of those people could get Exnv’s Joshua Tree treatment.The interesting part was that one owns or runs a large MBz dealership. His stepson went to work for him but wants to make $100K per year instead of the $10 per hour he makes locating parts. One woman wants to sell a piece of RE for $3M completely furnished and comes with a ferrari in the garage. Without the car and furnishing, $2.6M. Another has a kid getting her RE license. I can’t wait to see what happens over the next few months as the slow down really hits.
Has anyone noticed that banks are seeming to charge more fees and do other things that may indicates the squeeze is on? My direct deposit used to be posted at first light on payday, but now it is still pending well into the afternoon. Got float? And my bank used to cover overdrafts in checking from savings for free. Not any more.
My branches have all had teenage tellers for awhile now. I don’t mind that too much.
But at Citibank a couple of weeks ago I was in a hurry to get to my lunch spot before the rush, and while in line someone was taking orders for the whole banks takeout from MY destination. How rude
Real estate salesperson fees.
How are they being affected by the large numbers of starving sales people and the few number of sales? Especially when it is very apparent that they are incapable of doing what they purport to do- ie, be very savvy about the market, and then sell your house.
How hungry are they? Are they still able to command 6-7%? Or are sellers willng to price their house fairly able to do a reverse auction on the rate, across a number of real estate companies?
NOW they tell me!
Foreclosure Crisis: Current Crisis
(image of a miniture (SIC) house on top of a deed)
The Current Crisis
California Foreclosures
Economic and Social Impact
The impact of the current crisis will not be isolated to individual borrowers or investors, but will be felt broadly by individuals, communities, and governments across the nation. The high number and rate of foreclosures along with the weakening real estate market are taking a heavy toll on the economy, especially at the state level.
Because of the crisis, residential investment and construction spending are dropping, as is consumer spending, due to decreased home equity wealth. The reduction in income in housing-related industries is also trickling into other parts of the economy as demand for other goods and services declines. As a result, all levels of government are bracing for huge shortfalls due to the loss of taxable income and reduced property values.
California is expected to face a nearly $10 billion shortfall, while the Los Angeles metropolitan area alone could experience over $8.3 billion in lost economic growth in 2008. (The San Francisco Bay Area will see a loss of $5.4 billion in economic growth.) According to a report by the US Conference of Mayors, California cities may see a decline in collected property, sales, and transfer taxes of nearly $4 billion in 2008, and they project a reduction of home prices of up to 16% for the state.
The social impact of the foreclosure crisis is also taking a heavy toll. Communities with high numbers of vacant houses are reporting increased levels of crime and have had to divert additional resources to address this issue. Meanwhile, families experiencing extreme financial hardship are at greater risk of social instability.
http://boxer.senate.gov/features/mortgage/econsocial.cfm
The writers strike looks dumber and dumber with every passing day…
Just one more group of folks so removed from reality and of the looming storm that they decided to deflate their life raft as the surge crests above their heads.