Higher ARM Rates A ‘Hurdle’ For Spring Rally In San Diego
Rich Toscano has this at the voiceofsandiego.org. “The ’spring rally’ has certainly been a fixture in recent years. And while 2005’s springtime price increase was more subdued, it nonetheless put the rest of the year to shame. According to DataQuick, the median single family home price rose over 4 percent between March and June of 2005, and then spent the rest of the year going nowhere.”
“Now that spring 2006 is upon us, can we expect home prices to start rising again? A major headwind facing the market is an imbalance between supply and demand that San Diego has not seen for quite a while. There are, simply put, an awful lot of homes for sale. According to ziprealty.com, San Diego county sports over 16,000 condos and single family homes listed for sale on the MLS.”
“This is an increase of 87 percent over the amount of homes for sale at this time last year. That’s not a typo. Last year’s spring rally began with a supply of inventory that was barely more than half of what it is now. Meanwhile, demand has waned despite the increasing availability of homes to choose from. DataQuick’s figures indicate that recent months have seen sales volume drops of between 20 and 30 percent compared to the same period a year ago.”
“There is an even bigger hurdle on the path towards higher home prices: adjustable mortgage rates. It’s been well-documented that San Diegans overwhelmingly prefer adjustable-rate mortgages (ARMs) to their fixed-rate brethren. Last year, 80 percent of all homebuyers chose ARMs.”
“The problem facing the market today is that ARM rates have risen substantially over the past year. At this time last year, the average rate on a 1-year ARM was 4.24 percent. Last week, the same mortgage averaged a rate of 5.41 percent.”
“Let’s say you are a potential homebuyer with a $2,000 budget for monthly mortgage payments. At last year’s ARM rate, you could have afforded to take out a mortgage for $407,000. Now let’s move forward one year. We’ll give you a 3 percent raise, to account for the yearly rise in incomes, and say that your monthly payment maximum is now $2,060. Despite the increased budget, at today’s prevailing ARM rate you can only afford a mortgage for $367,000.”
“All things being equal, then, today’s ARM borrowers can handle a home price of about 10 percent less than they could have at this time last year. As inventory grows and demand remains weak, mortgage rates are placing downward pressure on home prices. This is not exactly the fertile soil from which a meaningful spring rally could be expected to issue forth.”
Buddy of mine just 1031′d from Apple Valley, CA into Big Bear.
Another friend just told me he purchased TEN!!! houses last year. Many in Florida. He had moved from San Diego to San Fran so I hadn’t seen him for awhile.
I don’t say anything anymore.
Might as well explain that heroin is addictive and cigarettes are bad for you.
I’d rather own a home in Big Bear than in Apple Valley. That 1031 exchange might not have been such a bad idea since I think Big Bear would be a better investment area than Apple Valley.
agree as well. question would be will the house be used as a vacation rental, and if so, will it stay positive.
Looks like the 10year is going to cross 5% in April. Short rates are not far behind at all. Given the sky-high prices achieved at record low ARM int rates and the ARMs are resetting, the inventory is set to spike, BIG. Way too many factors working against a rally IMO - Drop starts now and picks up steam in the summer. By fall, they’ll be FALLING…
no, don’t think BB is gonna be real good as an investment. They’ve had quite a pop up there. Gee, we can buy that 2nd home up in the mountains. Just pull out the equity & BAM. Even driving around when things were pretty hot you’d see LOTS of for sale signs. Seems like many people tire of the 2nd home (or it’s expense). I’ve spend quite a bit of time up there (have bought tax props in BB, Arrowhead & Crestline).
Besides, add another fire scare like they had 18 months ago, and you’ll get the marginals bailing.
We WILL have a rebound. Just not as big for not as long…
The sputtering plane will trade velocity for height, but less each time until it stalls. I don’t think we actually stall until August.
GIven rising interest rates, San Diego has developed a new shortage: Of future FB’s…
I don’t see the spring bounce, given that major news outlets are preaching precaution, lenders are expressing faux concern which ultimately must be backed by more precautious underwriting, and interest rates are rocketing upward.
excellent analogy !
I think the high-end homeowners can hold on for higher prices for longer as they have more reserves, while the low end is already tanking, but in the end the high-end will fall quicker and further (relatively)
Not sure what you mean by “high end” but here’s an interesting observation:
A neighbor bought in ‘01 for 255k and just after New Year’s put the place up for 569k, FSBO. He gathered up all his junk and put it in storage to make the place look nice.
Today, he brought all the stuff back and stuffed it in the garage. He can’t afford the rent on the storage!
He’s a wreck but still hasn’t lowered his asking price a nickel. He’s had open house every weekend and not one offer.
My point is that with a low mortgage and solid equity he looks like he can hold out. But he’s got a HELOC plus two other houses that he speculated on. The negative monthly and declining prices are taking him down.
For every speculator house in Phoenix, or wherever, there’s a “genius” like this guy who’s put his whole family at risk.
well I live in the poorest district in the whole of canada, so I would rate anything ‘valued’ at more than 250 as high-end … the point is that guy is taking pain, moving his stuff and evrything, but he is still hanging in hoping to get enough to cover his debts …
And isn’t that the sad story of Greed, he has already lost about 10K just in extra payments waiting to sell the home. He’ll eventually have to take down the price more, but won’t see that his greed for his “earned” appreciaion has cost him profit in the long run.
Wow, greed is strong!
It wouldn’t surprise me to see an echo boom (i.e. suckers rally) at some point. Given the recent direction of the bond market, I don’t think it will be this spring though. If (and it’s a very big “if”) Bernanke starts cutting rates later this year, it could have a significant impact on short-term ARM rates. This combined with easing home prices from a slower spring & summer, could bring some potential buyers off the sidelines, while at the same time easing pressure on those with existing ARMS.
Like your analogy illustrates, this is juts a temporary increase in altitude. Ultimately the law of gravity prevails.
feepness: I’m not so sure - there is substantial downward price presure at these levels of inventory - sales look to be 30% down from last year - the buyers are waking up to the fact this boat’s run out of steam and they can wait and see what happnes - mainstream media is starting to get on the bandwagon of a RE meltdown and the realtors are sounding more and more scared with every posting they put on realty times…
Plus rates have risen enough where buyers just can’t afford last years prices - and those where with the pool of buyers stretched to the max on I/O ARMs.
I suspect panic will kick in late summer - there just are not enough buyers to generate a spring bounce at these inventory levels.
We should stop using words like stall, it isn’t mathematical. It’s here, we know it’s here. Whether it is -5%,-10%, or even -20% and which of the next six months it occurs we still have a fall.
I keep trying to tell myself to stop using the voodoo words. They are a mask.
Dunno man - I kinda like the word stall - I took a flying lesson back when I was younger and got to practice some stall recoverys - was an interesting experience to say the least.
Basically the aircraft slows until it can’t retain altitude and stalls… then the horitzon spins and you get a gut wrenching feeling as the aircraft literally falls out of the sky - prices are stalling - next comes the uncontrolled plunge….
The stall is that split second when you are flying level and the plunge is about to commence - that’s pretty much where we are now in the housing market
All the people that I really hate bought a house in the last two weeks.
That number includes two people.
The rest keep asking my opinion.
That number represents about 50.
I expected inventory to drop a bit, but it hasn’t.
In fact, it’s gone UP in the last week in Orange County, and San Diego.
No Spring Bounce here, friends.
Keep moving.
I have heard, however, that the local book stores are doing quite well.
Probably a great deal of realtors searching for reading material during empty open houses.
Might be a good time to invest in Borders.
That is, the kind you read.
Question to Rich Toscano:
“Rich, can you please help the Realtors of San Diego understand that it is in THEIR BEST FINANCIAL INTERESTS to tell the sellers to start LOWERING their prices? I know they have to eat. Telling sellers to keep their prices at ridiculous levels will only prolong the pain. Just my two cents.”
Drove by an ‘open house’ last weekend on my way home from work.
(sound effect:)
(bird chirping)
Zzzzzzzzzzzzz.
can you please help the Realtors of San Diego understand that it is in THEIR BEST FINANCIAL INTERESTS to tell the sellers to start LOWERING their prices?
Realtors haven’t come around to that yet, although it’s probably not far off. For now, their strategy is to try to jawbone investors into not putting their properties on the market unless they absolutely must. They desperately want to recreate the impression of a housing shortage, so they can crank up the “buy now or be priced out forever” jukebox again.
Wrong most of the Realtors I know have been preaching to their clients to drop their price and sell now for the last 6 months. Seller’s are not listening. They prefer to get market updates from their former neighbors and co-workers who sold a year ago.
That’s right Mr. Income Stream.
Sellers always push the price barrier when it’s a hot market (i.e. what did the highest price in the neighborhood just sell for? OK, I’ll add 10%…)
Then, when things turn sour, they look to the comps from 6 months ago and say “see, this, this and this home sold for…”
Man, if you guys are right, this really sucks.
They are right (at least in the areas I’m following). In at least one coastal Cali area, the marching orders are “only use last month’s comps, then SUBTRACT a small percentage”.
However, it is up to the seller to agree to this.
Unfortunately, there seems to be no shortage of realtors that will “overbid” the good realtors, initially agreeing to the seller’s high selling price, with the intention of talking the seller down after the ink on the agency agreement is dry.
That is definitely happening in my area. Went from getting 2-4 new listings in our small town a day… and as soon as I started posting the inventory numbers on a weekly basis… suddenly the listings literally stopped for two weeks. Now they are starting to trickle in again, but I swear there was a backroom lunch meeting telling agents to stall buyers as long as possible hoping for a spring rally…
Don’t forget that real estate agents also compete against each other. Agents who are too assertive about convincing the seller to lower his price may end up talking themselves out of a job.
When I interviewed agents to sell my loft last year, I ran across several who were obviously trying to convince me that they could sell my loft for more money than the other agents. I found them unconvincing, but if someone is trying to squeeze every dollar out of the sale of his home, he may be swayed.
You know, maybe this is the soft landing. What with the short horizons of RE types their vision only extends through the spring season - leaving the fall-into-fall for another day.
I would venture to say price appreciation in the spring will be negligible,
‘Spring Bounce’ has hereby been postponed…
…to 2010.
I was getting cocky about inventory, but San Diego daily inventory numbers show increases, however WOW rate of increase is slowing during March (sorry if the data format is ugly):
Day Date Inventory WOW
Monday 3/6/2006 17442 207
Tuesday 3/7/2006 17551
Wednesday 3/8/2006 17595
Thursday 3/9/2006 17608
Friday 3/10/2006 17649
Monday 3/13/2006 17690 153
Tuesday 3/14/2006 17763
Wednesday 3/15/2006 17802
Thursday 3/16/2006 17808
Friday 3/17/2006 17843
Monday 3/20/2006 17953 106
Tuesday 3/21/2006 17968
Wednesday 3/22/2006 17999
Thursday 3/23/2006 17993
Friday 3/24/2006 18059
Monday 3/27/2006 18183 30
Tuesday 3/28/2006 18151
Wednesday 3/29/2006 18186
Thursday 3/30/2006 18198
Thursday night 3/31/2006 18213
Great stuff. Wonder if this is the first blush of the sell crowd. Second wave on the way?
May is a big month for listings .
Yeah. School about out, time to sell and move before next fall.
Should have a couple more rate hikes by then.
Eventually SD inventory will hit a quasi-permanently high plateau, as the steadily increasing inventory is mitigated by falling sale prices…
Awhh gee Get Stucco,
You always have great commentary. Practical explanations for any adjustments in the market… they definitely make sense.
I’ll keep collecting my data as it’s part of my morbid morning routine. We’ll see what April, and then May get us. I’m enjoying just looking at the cycles that occur within a week (what days realtors add to the MLS).
My guess (and Bearnanke knows nothing Col.) is that this is the pause before more inventory is added. I think that the first burst that has gotten us to the inventory levels we are at now are by those who have at least been following things and were either investors bailing, or people starting to get squeezed by ARM resets (nobody let’s themselves get kicked out of their hom during Christmas). The next inventory burst won’t be a burst, rather the soft landing of increases in home inventory…meaning inventoryies will increase, just at a slower rate since there are no buyers. End result inevitably is prices. Who knows how long this will take. Of course I’m no expert.
Interesting perspective, if you assume a constant YOY number of people putting their homes on market, then even if people started buying as many houses as they were last year, inventories wouldn’t go down, just stop growing. Most readers of this blog probably believe more houses are going on market now than this time last year!
no worries about the slowing increase, that was bound to happen. look at vegas, it stayed in the 14,000’s for the entire 4th quarter last year, and then it took off again this year to land at 18,000 in 3 short months.
Bubble Markets Inventory Tracking
OT but worth visualizing. Damn, some poor bay area flipper wasn’t at the right place at the right time.
SAN FRANCISCO, MARCH 29: John Suhrhoff found a Louis Vuitton bag on a Sausalito park bench. Inside, police say, were a 12-carat diamond ring, pearl and emerald jewelry, a Cartier watch, and roughly US$500 (euro414) in cash.The contents were worth US$1 million (euro830,000). But the respiratory therapist did not think of heading to a pawn shop-he took the bag to police Monday afternoon.
The bag is now en route to a Toronto family who had been in northern California for a wedding.
“Every person I know or associate with would have done the same thing. I’m glad to be able to help,” Suhrhoff, 56, said on Tuesday.
The Canadian family told the Marin Independent Journal they were sightseeing Sunday in Sausalito, a tourist hub known for its waterfront views of San Francisco.
Shahla Ghannadian briefly left her husband in charge of the purse, which contained jewelry she wore at the wedding.
Ghannadian realised the bag was gone when she returned to her San Francisco hotel. The family went to police and did not have any luck-and were told chances were slim the bag would be returned.
“You have to be a real man to return that bag. Even the bag is expensive. We’re really, really thankful to that guy,” Ghannadian’s son Ali told the paper.
Sausalito police said Suhrhoff had thought the bag contained costume jewelry.
It was unclear whether the family offered him a reward.
Karma’s a bitch.
I would have done the same thing.
People would probably think I’m crazy, too.
But I know this:
We all came from neutrinos.
Can there be any more proof of an eternal connection?
I have done this, maybe 20 years ago, maybe $5000 total value. That was a lot of money for me then.
No jewellery but more cash plus passport, airline tickets etc. I actually saw the bag fall off a car roof as it pulled out from a parking spot.
When I handed it in the police told me the owner had reported it lost at another station but was so hysterical she was insisting she had lost a white bag instead of black. Names matched though, so I left my details and figured the 3-month rule wasn’t going to apply.
Didn’t even get a thank you card, but I would do the same again.
I hope John Suhrhoff get a reward . Its nice to hear a good story
He will get his reward sooner or later. Being a good person is reward enough for people like this guy.
I hear you .
“Pay it Forward” - great movie about passing on good deeds. Uplifting and, eventually very sad ending.
Everyone who blogs on this page should tell one person or family per day that R.E. is in the sh-tter and the bubble is popping. That will be their good deed or deeds for the day and they will be rewarded in heaven. They will not come back as a cockroach.
Pismo,
you son of a beech… everytime I try your technique, I get crossed eyes staring back at me- or just change of subject. Nobody loves to hear this shat- even though we all know its true.
It’s too late to tell them RE is in the shitter…it’s like rubbing salt in the wounds. I was preaching this early last summer to some close friends. Apparently they didn’t heed my advice, because I just recently found out that they went ahead and speculated on Phoenix condos. My friend sent me an email saying he hasn’t been able to sell the condos (he bought them at pre-sell) and is now thinking of renting them (good luck). I wanted to say “told you so”, but decided to keep my mouth shut. I hope the I.O. cash out refi he took on his primary residence to do the speculating isn’t going to reset anytime soon.
Speaking of things that are ‘good’…
Many people have the incorrect idea that many of us on this board are ‘not good’.
Some people think we’re all here looking for death and destruction.
I’ve tried to explain that high home prices are actually BAD for EVERYONE in the long term.
In the short term- well heck yes high home prices are great.
But, as those who are living in Florida right now are finding out…
…there’s that little ‘property tax’ problem…
Totally OT- but hey- the best stuff on Ben’s incredible blog always are, aren’t they?
By the way, Ben, I haven’t said this in a while…so I have to say it again:
You are doing an INCREDIBLE job with this little blog of yours…and we all really do appreciate your efforts.
Karma shall come to you too, my friend.
A very, very sweet Karma…
We all come from neutrinos, you know.
My Name is Earl is on tonight.
Am I the only one who thinks Jamie Presley is sexy in her white trash character?
Hey ……I think the people on this blog are good .Just because you people want to get a home at a decent price doesn’t make you bad . I admire the fact that you guys were not part of the herd.
I totally agree.
I mean, the time I’m wasting on this could easily be better spent.
Problem is…
I would really, really like to have a baby- with my wife-
…without going bankrupt.
Sometimes I wonder if there’s a study going on out there that shows the American birth rate declining as a result of all of this nonsense.
Probably is.
I’m 39 now, and I’ve been talking to babies since I was 37.
They seemed to ‘appear’ magically in my radar.
I hadn’t really noticed them before.
Babies are really, really interesting to me now.
The amount of stuff they learn in a day dwarfs what you and I learn in two or three years.
My reproductive life is being postponed by a Housing Bubble.
Isn’t that sad?
That is really sad , but its true . May your housing nest be good in the future .
I really don’t get why you need to postpone having a baby due the housing bubble. I’ve raised 3 perfectly decent children in a rental house.
It’s not a status thing, I assure you.
I live in Huntington Beach, Ca.
The apartments here are thin.
I mean, the walls are thin.
If my next door neighbor takes a poo, I can pretty much hear it. No one likes to hear people pooing. At least I don’t have to smell it.
Babies are loud.
Heck, I’m loud.
I don’t want to screw up my neighbors night with screaming and crying and weird baby sounds.
Must be some odd midwestern sense of guilt I got raised with.
I don’t want to ‘impose’.
Kids are loud.
They should be.
I was really, really loud when I was a kid.
Never really thought about my neighbors.
But my mom and dad did.
That’s probably why they got a house, right?
Just have the damn kid already. Rent a single family home if it makes you happy. Still much, much cheaper than buying. You don’t need to worry about school districts for 3 or 4 years. By then you should be able to buy (or move somewhere cheaper).
So, rent a house. Have babies while you are young…they’re a lot of work. Do it now!!!
Yeah, I don’t get why you have to wait either. If you are truly ready, you’ll have regrets if you postpone. I bet if your neighbours were reading your comment and this blog, they’d think you are out of your mind.
Thanks for the very good advice.
Thing is…I ask myself this every stupid day…
…”If I give up now, how many people will give up with me?”
When you point out that the emperor has no clothes, you’d better be prepared to back it up.
Backing off means losing.
People have been listening to you.
The words you say actually mean things.
This bubble is entirely made up of FEAR.
I HATE fear.
I’d rather pierce a hole in the skin of fear-
-than cave in to it, and live with the consequences.
In short…
The more we talk…
The more we show people the value of NOT being scared of being ‘priced out’…
…the closer America gets to getting back to what is REAL.
Giving up now, to be selfish, would be a sin.
This will not stand.
I refuse to retreat into sad security in the name of comfort.
Truth means too much to me.
I don’t give a crap about money.
Must be the trained journalist in me coming out.
I can smell a turd when I smell one.
And this ridiculous appreciation rate from the last few years…
…it’s a turd.
At some point in life, we do what we have to do.
I’m doing that now.
And I quite simply refuse to give up…
…until things make sense again.
But god dammit-
-I really do love babies.
Argh.
auction…you can borrow my kid for the weekend. have him back monday morning please.
Can I take him/her surfing?
If not, can I teach him/her to swim?
In the ocean?
Man, do I love the ocean.
I had a ‘conversation’ with a sea lion the other day.
I was wearing a black wetsuit, with black booties and black gloves.
I think he/she thought I was some sort of genetically screwed up sea lion.
It probably made no sense whatsoever to the young sea lion, but I kept trying to ask him/her where the mother was.
He/she just bit on my surf board.
Probably sounded like this:
“Heeeeeeeyaaaaaaa wahhhh wahhhh yaaaa hewahhh!”
So I said…
“Well, of course! I thought you’d never ask!”
“yeeeewahhhh hawwww hawwww!”
“Sorry, I have no idea what the f you’re talking about!”
But hey, it sure was fun!
Can I take your kids to talk to sea lion kids?
They don’t play DOOM, but they sure are animated!
When I was in 5th grade I learned how to make a baby from a movie at school. It’s really simple stuff. Try moving to an affordable area. Maybe then the anatomy will perform, without the stress of ridiculously overpriced housing
*Rent* a house, have a baby. Get on with your life, man. tick tock tick tock…
Auction:
Jon Lansner and OC Register played this blog.
Jon:
Server transition/problems lasting for weeks is not an believable excuse for killing your RE blog.
I noticed that OCR wiped the existing comments clean as well and quickly rushed up a bunch of postings with no comments to hide the death of the newborn OCR blog.
Something is rotten in OCR blog land.
I am suspicious about your phrasing “Yes, we aren’t accepting comments.” That is awfully strange diction/syntax for a professional writer. Unless the point is to obsfucate.
I must compliment your PR coup to placate the Ben Jones Housing bubble blog with a brief arbitrated appearance.
I am reminded of Mark Twain’s quote never to pick a fight with a man who owns a printing press. OCR can and will publish whatever it wishes just don’t try to disguise it as a civic discourse or real journalism.
Sausalito police said Suhrhoff had thought the bag contained costume jewelry
He didn’t know what he found.
Gold, silver, & precious metals are at all-time highs, according to NPR’s marketplace at 5:32p pacific.
Not even close. Gold’s all-time high is $850 back in 1980 and silver’s is $50. Adjust that for inflation and you’re looking at $2500 for gold and about $150 for silver.
OT, but for all of you gold bugs out there…any opinions on the GLD and the IAU ETFs (vs. ‘the real thing’)?
I’d like to start an office pool, betting on when San Diego’s median y.o.y. falls to -10%.
My bet is mid to late June.
Unless interest rates go into a rapid rise, my bet is early 2007 to see a YOY fall of 10% or more.
Mid September is my bet. Once the summer “rush” is over and houses still haven’t sold because the sellers were trying to hold to their prices (based on what their neighbor got in June 05), the reality of having to lower their prices will set in and you will see everything start reducing, probably by more than 10% YOY.
US Treasuries are getting volatile. The yield on the 10 yr is now 4.85% the highest in 22 months. That will definitely put a head wind into the spring rally.
OT - but why do people tend to track the 10 year, and not the 30 year? Didn’t the gubermint start issuing the 30 again?
From the AP
“Banks often package their mortgages in investment pools and sell them as bonds called mortgage-backed securities. They trade like 10-year bonds because the underlying securities — the mortgages — are typically paid off in no more than 10 years as people refinance their homes or move.”
Actually the 30 year bond can compete with the 10 yr bond causing the 10 yr to drop and yields and mortgages to rise.
ABP-
Does anyone know of a friend, or aquaintance that works for a title company in California, New England, Florida, Arizona?! Are they being laid off?
If so, what are they saying about it? What companies–Chicago, First American? Transnation? Fidelity?
In our market (Seattle & Puget Sound) we have not seen any obvious title company layoffs (if so, they are being very quiet about it), although mortgage is another story.
I can tell you personally that the mortgage industry is alive and well.
Everyone’s trying to get into fixed rate loans as they see the rate going up.
All the whacky loans are losing ground by the day.
Hence the lack of demand.
If you know people in bad loans…be a good samaritan.
Get them into a fixed rate loan as soon as possible.
I stand alone on this board with this prediction.
You are free to attempt to castrate me if you’d like, but I firmly believe it will come to pass…
…Mr. Bernanke is taking the Prime Rate up to 7%.
Auction Heaven, people cannot afford fixed-rate loans at current prices, this is why those “whacky” loans got so popular - hence the lower demand.
>>…Mr. Bernanke is taking the Prime Rate up to 7%.
Sorry, I didn’t make myself clear.
People that are in ‘bad loans’ should refinance into ‘good loans’- aka fixed rate loans.
Yes, it’s a few bucks to do it, but if I’m correct…
And he goes to 7%…
…can you see the misery?
Yes, I realize people want to kill me for saying 7%.
Unfortunately, I’ve crunched the numbers, and he HAS TO go to 7%.
Upfront costs to switch? Yes.
But can you imagine a $5,000 per month ARM at 7%?
From a sheeple that bought last year?
See where I’m going?
Hi there auction,
Just wondering what numbers you are crunching to get 7% on the prime rate? The question is, to me, will the FED be leading the 10 year up or will the FED be following. If he’s following, the sky is the limit in my opinion,
“Unfortunately, I’ve crunched the numbers, and he HAS TO go to 7%.”
please can you explain how you crunched that number
a lot of people simply cant refinance into FRMs now because their situations are that messed up - upside down etcetera
I think he’s following.
In short, lowering the rate was a very good attempt at getting Americans to invest again.
‘Free Money’, as it’s been called.
Problem is, Americans didn’t really create new stuff, as intended.
We made the iPod, and that’s about it.
Instead, we took the golden opportunity to invest in new businesses and new technologies…and we got greedy.
We got suckered into the the Real Estate Mania.
Good intentions, bad outcome.
What ended up happening was that the Fed gave away free money to people who couldn’t see past their homes.
This was NOT the intention.
Instead of inventing, creating, and thinking outside the box…
…we all became obsessed with Real Estate.
It was the easy way out.
Alan Greenspan was NOT happy about this.
He felt it was a betrayal, of sorts.
It was actually generational, and I really don’t think you can fault him for it.
His generation = save and build for the future
Our generation - Screw you and the horse you rode in on, I’m gonna get mine
Kinda like an uncle that built a business only to hand it over to a nephew with a fond admiration of strippers.
We’re importing EVERYTHING.
We aren’t exporting ANYTHING.
Thus…Americans need to be ‘taught’- by a drastic raise of the Prime Rate-
- how to learn, create, make, and EXPORT.
Painful medicine, but there it is.
Thus, the Prime Rate needs to be raised to a level high enough to ‘teach us a lesson.’
There is no such thing as ‘Free Money’.
What the Fed is really saying is this:
“Get back to WORK.”
“Globalization means that you need to COMPETE with other countries. Just because you are American DOES NOT MEAN you are more valuable than an African worker who thinks up a cure for Herpes.”
“You just might get your ass kicked, if you aren’t careful.”
Does that make sense?
Numbers are really, really interesting.
It’s the interpretation of them, however, that is more interesting.
That’s my interpretation.
“We gave you an opportunity, and you squandered it.”
“Now, GET BACK TO WORK.”
He’s following all right. His rate “hikes” are simply rubber-stamping what the credit market is already doing - that is, tightening credit due to the realization that they’ve been monetizing garbage for years.
Unfortunately, this is completely TRUE.
They say that ‘no good deed goes unpunished.’
When you give ‘Free Money’ to a culture addicted to selfishness…
Rate hikes are the only way to bring them back to reality.
‘Garbage Elimination Rate Hikes’ might be a good way to understand it.
It’s a perilous situation.
We still think we’re somehow ‘better’ than Indians.
We aren’t.
We still think we’re ‘better’ than Chinese.
We aren’t.
Where are we going now?
Africa.
Who do you think we’re going to ask to make our cars next?
Yep…Africans.
Fords made in Somalia. Coming to a driveway near you.
But what we’re missing is this:
As Americans- WE LEAD.
In short, we got diverted.
As the rates rise, HOPEFULLY, we’ll see this, and respond.
There is NO SUCH THING as ‘Free Money’.
Never has been.
First, we’re gonna pay for it.
Next- if I can raise my voice loud enough, with all of you- we’ll ‘get it’.
Have we done all that we can to make the world a better place?
Or have we all been worrying about appreciation rates?
Do I really have to answer that?
In a little while, someone will interview Mr. Greenspan.
He’s gonna say everything I just said.
And- he’ll be SAD.
Can’t we prove him WRONG?
Are we really just a nation of spoiled slackers?
YES
If that’s true, we’re screwed.
We”ll be working for the Chinese, soon enough.
We made the iPod, and that’s about it.
Read the back of your iPod. “Designed In California” followed by “Assembled in China”… Didn’t even “make” that…
I hope you mean the Fed Funds Rate.
The prime rate is already at 7.75%
Bearnanke sez my brother ain’t a bear but will stop two quarters too late in raising rates (looking in the rearview of course). 7%? No way, the damage to the housing market, and then economy would be too damaging…unless, you tack on some event that makes US Bonds unattractive, in which case why stop at 7%?
Well assume that the closing costs were roughly $50k to get into that sunny SoCal home with a non-conforming loan, so you are or close to being upside down. Now a refi into a fixed mortgage will load another $20k+ in origination and other fees to the grand total in addition to much higher fixed monthly payments. Sound doable, or is it time to remove your favorite key fob from the keys?
First American and Fidelity have been laying off since November, ‘05 in San Luis Obispo county.
Another feel good story…A man foul hooked the world record large mouth bass near San Diego. If he claims that he regular hooks it, he is automatically a multimillionaire. Why? Because every rod manufacturer/lure manufacturer/bass boat manufacturer wants him peddling their wares. What does he do? He takes a picture of it and tells everyone he foul hooked it…That gives me back some confidence in our fellow humans. So, two good stories today…Well done!!
Kind of like the story about the guy who found the Louie Vuitton purse with 1 million dollars worth of jewerly and cash in it up in San Francisco. He returned it without taking a single thing. No word on a reward yet.
An 11 carat diamond was in there along with other jewelry and cash….in a $1000+ Louie V purse.
There are some people left with honesty and integrity…
SoCalMtgGuy
Good to see you back SoCal!
I have just been REAL busy with the new job. Drop me an e-mail and I will fill you in. I miss posting/blogging more…but it doesn’t pay the bills like my new job does
Take care…I’ll be around. I actually got a new post up tonight.
SoCalMtgGuy
What’s “foul-hooking”? As for the other story, I like the fact that the Canadians are named “Ghannadian”.
“Foul hooking” means the fish was hooked in a place other than the mouth. In other words, the fisherman moved the hook into the fish as opposed to the “fish [voluntarily] taking the bait or lure in its mouth.” The fish was pregnant, I believe, and could not move quickly. He basically “gaffed” her with the hook.
Schweit, Bradley. “WON gives the inside scoop on Mac Weakley’s Dixon Lake behemoth.” Western Outdoor News Mar. 31, 2006: vol. 54, #13.
From a Canadian fishing forum about the 25lb. 1 oz. bass: I know the US has an obesity problem, but I didn’t think it included fish, yikes! Does McDonald’s have underwater drive-thrus? That would explain a few things
http://forums.fishontario.com/
Foul hooking is snagging the fish — she ( almost certainly in this case) didn’t take the bait but was ‘hooked’ somewhere other than the mouth. We also had the largest Rainbow caught in Ontario (CA) recently and there is some dispute since she was hanging around ‘farmed’ fish pens gobbling the food falling from the cages — go and angle in the above site — fish is almost as round as it is long.
“Kilgore Trout once wrote a short story which was a dialogue between two pieces of yeast. They were discussing the possible purposes of life as they ate sugar and suffocated in their own excrement. Because of their limited intelligence, they never came close to guessing that they were making champagne.”
- Kurt Vonnegut, Breakfast of Champions
Shiller article with graphs etc. looking at the home prices for more than 400 years– for europe, very good comparison.
Since when is Amsterdam in Norway (look at the right-hand y-axis label)?
Doh, never mind! I missed that both Norway and Amsterdeam were being graphed.
Auction,
This is in reference to posts above.
Commence with the baby-making! “They” are keeping you from buying a house. Don’t let them keep you from anything else. You don’t know what tomorrow will bring. Live your life today!
If not, you can use our kids — who are all happily living in our wonderful rental HOME — alternating weekends with Cereal’s, of course!
I’m sure they’d like to learn how to surf.
Commence with the baby-making, Auction!!!!
Auction Heaven:
I second this comment.
We are renting a nice enough SFH in downtown HB and my wife is due this month.
It works out fine.
I just set up an anonymous e-mail for this blog. I would be happy to buy you a beer.
Auction,
1. move into an apartment where you can’t here the neighbor pooing.
2. start a family now. If you wait too much longer, people will think you are your kids grandpa instead of father.
3. leave a box of branflakes at your noisy bathroom neighbors front door.
4. next time your hear your neighbor in the toilet, start making strange, loud grunting noises along with the ones he’s making.
I second number 4.
You have heard of a sing a long. Make it a grunt a long.
Auction, you’re acting weird tonite… drinking? You’re on a rampage but with reason. I totally agree with your frustration. Go make babies
Rent a nice sfr in the OC like we are.
OT: No UK Bubble?
Just as with the changes to the US’ CPI, I don’t trust these changes in valuing assets. Inflation, of all assets, is higher than reported, if one is honest. When prices are moving up, economists like to say it doesn’t matter, it’s transitory. I remember when OPEC was saying they wanted oil at $20-25 barrel, and this was just a few years ago. Now that home prices are going down, or stalled (same thing really, since overtime they will decrease vs other assets), since govts view this as good inflation, they will fudge the numbers. It is infuriating.
The article reveals the fatal flaw in their reasoning:
The new analysis of the housing market suggests that so long as real interest rates do not go up again, house prices seem sustainable at their current high rates. But there will be little room for further rapid growth, just as Ms Earley and Mr Ellis believe, because real interest rates do not seem likely to fall much further.
But that is not the end of the story, according to Mr Miles and Ed Stansfield of Capital Economics. They argue that if the justification for high house prices is low real interest rates, homebuyers should not feel too comfortable, since it is difficult to find reasons why real interest rates will stay at their current low levels.
So the whole theory depends on interest rates remaining at historic lows forever. This is the same nonsense we’ve been hearing from the NAR for the past few years.
In every bubble, economists try to seach for some new rationale or valuation model to justify what is really a psychological phenomenon. Remember the new valuation models for dot-com companies? P/E was yesterday’s news, suddenly it was clicks and sticky eyeballs that determined a company’s value. Of course, we saw where that led.
Auction,
I agree, you need to make some babies! Hope you got started last night
My two little ones are very happy in our apartment. I am actually having to bribe my daughter to make her happy with a possible move because she loves our little hovel so. We occupy the bottom 2 floors (1st floor and basement) of a victorian house. We put our bedrooms in the baement so our neighbors about can’t hear us at night…and so we can’t hear them. Anyway, my kids are 2 and 3 now and sleeping thru the night woohoo!!