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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.
January 4, 2008
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I just listened to Rush Limbaugh on the Iowa caucauses last night. He went on and on about how the media is portraying the U.S. economy and housing crackup as “similar to the 1920s when in fact 96% of the people are paying their mortgages on time.” He says there is no recession. So this is going to be the spin. Heads in the sand. If they don’t personally see it in their own lives, it isn’t happening. That is really disingenuous. Obviously there is no recession for ousted Citigroup and Merrill CEOs but how about everyone else.
On the bright side, perhaps we’re seeing the first step of an early rejection of She Whose Name Cannot Be Mentioned before a couple of good caffeine shots are onboard. Now that is good news.
RL doesn’t happen to lead a double life as a mortgage broker in Vancouver, WA does he?
I love listening to Rush. I was a regular during the Bill years. But this head in the sand thing is not good.
Bye bye Chris Dodd.
I love that 96% of all people are paying garbage. That has been Ben Stein’s line of junk, too. Remember Ben Stein. He’s the guy that made a total a$$ out of himself, along with that jerk Mike Norman, when they laughed at Peter Schiff and said Merrill Lynch was one of the best run companies on the planet.
None of them get it. Their self-interest won’t allow honesty or integrity.
At least Ben apologized for his comments on an editorial in the NY Times
And I still see him spewing his Larry Kudlow type nonsense. He only apologized after it really blew up and Stanley O’Neal was ousted. He did not acknowledge the forces that led to the Merrill blowup. His apology was weak at best.
Now he can get back to the business of trying to financially engineer mortgage bailouts.
Now he can go back to the business of being co-host of “America’s Most Smartest Model”.
I love listening to Rush too, but after a while someone in his position is about as familiar with the “on the ground” situation as that Beverly Hills realtor bimbo was from yesterday.
Peter schooled her.
“I love listening to Rush.”
And I thought I had you figured out. For some reason I figured you to be a Bill Maher fan.
I like anyone who can raise a good rabble, no matter their ideology.
Michael Savage is the only right-wing kook I can tolerate (OK, I like him.) I’m a die-hard Air America listener. Except for Randi Rhodes, the left’s version of Rushannity.
Just like the NRA (National Rifle Association), he has a basic institutional conflict of interest. It is there, whether they give in to it or not. Both would profit hugely from the election of she-who-must-not-be-named.
Not much else old Limbo can say, he has to play to his crowd, that’s where his dough comes from. I saw old Susan Estrogen on FOX and she of course said the exact opposite, we are going belly up. Big night for Obama, if Hilbilary blows it in N.Hampshire then she should head on home. I thought Ron Paul did well considering NO Network will give him the time of day.
RP did some major pwnage on Rudy. Even though Rudy didn’t stump in Iowa, his name alone (being the supposed hero of the day on 9/11 and former NYC Mayor) should’ve been worth a lot more than 4%, dont’cha think?
I’m surprised RP didn’t do better, seems like he has A LOT of support. Or it could be that they’re just more vocal and wealthy than the rest…..
And yeah, nice that he beat Rudy. The 9/11 fear mongering is finally starting to wear off.
They already think RP’s a crackpot, so as much as I’d like to see him turn up the volume, I wonder if doing so would just further the reputation. Unfortunately, MSM doesn’t seem to give him the time of day so he may not have much choice but to turn it up.
I just hope he has the staying power and determination to run as an independent if he doesn’t get nominated. Sounded great on the Ed Schulz show the other day. Well, except for the part where he said he wasn’t interested in running as an independent.
OT sort of The Wealthy.
Friend in Chi town who just got dble subprimed and lost both summer/prim home due to ex not paying $1,200. for HOA..etc.. tried to get her WEALTHY friends , oil bidness/ and just won a $13 MILL lawsuit, to lend her $100,000. to take her out of this spiral and to put their names on the deed.. The WEALTHY said NO to $100,000
“they couldn’t get at it”.
The Wealthy do not want ANYONE near their $ even IF it is their life long dear friends who don’t have as much as they do,but were wealthy with a little W.
Lesson learned.Yikes.
If my friend would have listened 2 yrs ago to sell, but listened to sophomore son instead
..anyway, interesting to hear others close by learning the big lessons.
So the bursting of the biggest credit/debt/housing bubble in history, even bigger than the 20’s, is going to have no impact on the economy?
There were those in the late 20’s and early 30’s preaching about the fundamental strength of the American economy. They were so wrong. Those preaching the same thing today will be proven similarly wrong.
Ben also remarked yesterday in the California thread that this is the biggest asset bubble in history. I’m just curious as to how you guys make this determination. As a percentage of future wages leveraged? As a percentage of actual/real/fair value of the asset? As a percentage of your nation/world’s economic output?
Well, it’s global. Has there ever been a global asset bubble before?
It’s RE and housing. The most expensive asset class. And the percentage increases are unprecedented. What more do you need? The calculators won’t hold this one.
Also, the number of people involved is simply staggering. More than 60% of the entire population of this country is involved in this bubble, and likely for 50+% of them, this is their largest asset class.
That’s what makes this, on a national level, simply staggering. When to take it to the global level, it becomes even more mindboggling; the amount of money that needs to be/will be vaporized in the next few years is without precident.
And there’s the derivitive issue. Nobody knows just what those trillions associated with derivities are actually worth. It may not be a lot of fun when we find out.
You guys are scaring the chit out of me, but I think you`re right.
This is a graph of debt as a percent of GDP through the end of 2002, just before the current debt bubble exploded. At that time, it already exceeded the bubble of the 20’s.
http://www.rense.com/general47/curr.htm
Filter alert - rense.com is filtered by my company as a “racism and hate” site.
I’m just looking for some metrics that I can throw in the face of people that may dismiss me for a nut, if I make that same remark. I’m not at the high level of economic analysis as other posters here are, but as I understand it, the major debt is owed by the USA, the UK, and smaller EU countries like Spain and Ireland (well, maybe Down Under as well.) Germany, France, Italy, Norway, Russia, China, Japan, Korea (and the OPEC nations that don’t manufacture anything) aren’t in debt, am I right? There was an unprecedented amount of wealth destroyed on a global basis from 1942 to 1945. Maybe not technically an “asset bubble” but the end results are similar. What was the economic output of Europe, before and after the Black Plague? Is this greater than that? I’m not trying to be ludicrous, maybe the calculator CAN justify the charge. And that might open the eyes of more skeptics.
It’s not just that it’s global, but never have we seen the cutting and dicing that has gone on to produce unprecedented levels of leveraging.
96% of the people are paying their mortgages on time.
Okay, does anyone have a soundbyte-sized anti-spin for this? Something like, “it takes 30 years to pay a mortgage, but only 6 months to foreclose” or “wait until we hit that Credit Suisse chart ’second peak’ in 3 years when all the neg-am HELOC’s reset” or “Those 50% of divorces don’t all hit on the same day either.”
Or, is it just not worth the mental effort? There’s an old axiom: “Q: How do you convince a dumb man that he’s dumb? A: You can’t. He’s dumb.”
Here’s what Ru$h doesn’t get.
Let’s say we have the Bank of NYCityBoy. I pay out an average of 4.5% to retain funds. I lend out at an average of 7% to earn a profit. Now I have 4% of my loans going belly up on assets that are depreciating.
How is that good news for Bank of NYCityBoy? Anybody?
I just bought a house from the Bank of New York (Countrywide serviced the loan). The loan they issued in 2006? $620,000. (90% LTV) My purchase price? $378,000. They lost $240,000 in principle over 18 months! Hard to make that up in volume!!
But but but…
They won’t just give them away!
$378 is affordable. If you really like the home, it sounds worth it to buy (at this time). Congratulations! $240k off is good for you and bad for the bank.
When they finally go to market clearing prices in Florida, DC, ‘the IE’, Las Vegas, Phoenix, and the other mega-bubble markets… I don’t know how most of the banks will survive. Oh well.
The old advice is always buy when its hard to get a mortgage.
Got popcorn?
Neil
Neil:
In the great Mogambo tradition:
The new housing mantra will be:
200THOUSAND DOLLARS IS A LOT OF FREAKIN’ MONEY FOR A HOUSE!
Thanks Neil. It is hard to know where the bottom is, but my after tax cost is the same as renting the exact same house. I paid $125/sf with an open space view lot over a creek and lake, all facing south for an awesome winter microclimate. It has a 3 car garage, covered 10 foot decks off the second floor. I have NO compaints. But for Ben’s blog, I may have purchased a lesser house for $650,000 in April 2006. It has been hard to be patient. But you can find good deals if you search them out. That being said, the market is still heading down in Sacramento. I wanted to buy so I could control my own destiny. The house I rented was foreclosed and encouraged me to buy a bit early. Otherwise I had 8 more months left on my lease. I saved $8,000 a year (on an after tax basis) by renting and waiting for prices to fall. I saved $300,000 in purchase price cost over that 16 month stretch. Amazing. I send Ben $50 every quarter and consider it the bargain of the century.
“I send Ben $50 every quarter and consider it the bargain of the century.”
I heard a rumor that this is very good for your karma.
Congratulations, Jingle!
“I don’t know why the banks had to find new ways to lose money when the old ones were working so well.”
>
-Wells Fargo CEO John Stumpf, as quoted by Warren Buffett
No, banks are much more mysterious and wonderful than that.
Say you deposit $100; the banks will pay you 4.50 interest next year.
But your deposit will be the reserve for $2000 that is just created, and lent out at 7% to earn $140 next year.
Out of that $140 it got from your funds the bank will give you $4.50. 4% default? Oh, the bank will only get $134.40 from that $100 you deposited. Sounds like it should still be doing OK.
That’s only a simple example. There are actually opportunities to create even more money, and to charge you fees.
I can’t imagine why tons of money can’t be made by banks. They have to be extremely greedy to risk losing a good scheme.
Ronin - I think you have the default concept confused. If they lend out $2000 and 4% default, that means they lost 4% of the $2000…not 4% of the interest on $2000. Therefore, the bank lost $80, not $5.60.
(some percentage (40% or more?) of 4% of 2000.)
So they still should make money… as long as they don’t pay out
any exorbitant bonuses, that is.
How about - “If a supposedly managable 4% delinquincy rate is generating this kind of angst and losses in the MBS and related financial markets, what the hell is going to happen if this continues to grow and ticks up to 6% or 8%?”
Quick back of the envelope calculation: 2M foreclosures resulting in $50K losses for lenders or $100B in losses using reported figures.
In the bubble areas, losses will be in the 100-500Ks per house/loan. Losses can easily climb toward $1T.
My question is if 96% are still paying their mortgages on time, how are 4% able to cause such damage to the economy? Is the 96% stat true to begin with? And what percentage of houses are owned outright (not mortgage at all)?
the problem is how do you know if his numbers are correct or the same as how you undertand it?
Sounds a lot like Bush Sr. in 1992. It appears that all of the Republican candidates have their heads in the sand on the economy. If they admit that the economy is bad, they have to concede that the last 6 years of Republican economic policies are a complete failure. I don’t see how any of them can win.
I suppose they could try saying that the enconomic malaise is due to forces beyond their control and suggesting concrete plans of action. Guess that’s too radical.
Tell the truth? Blasphemy!
Also, just out of curiosity, what impact (real or imagined) does the president have on the actions of the Fed? I am curious if the selection of the next president will have any impact on the Fed movements in coming years?
Actually, it hardly matters, the IR will continue to go down for the foreseeable future, imho, no matter what happens. There is simply no other medicine the Fed will consider (like allowing these things to wring out the excess capital). However, unlike times in the past, this time it will not be effective. The problem is not the interest rates, its the now destroyed belief that “Housing always goes up”. Once that myth is gone, the whole charade is over.
Actually, the President has influence (and veto power) along with Congress on tax policy and a number of other economic policies. It’s not just the fed.
I think the only thing that can save the economy at this point is a steep rise in wages. And I don’t see how that can happen unless there’s a serious shortage of labor.
Wasn’t there a story recently where Greenspan’s frequency of visits to the White House went from once a quarter (Clinton) to twice a month (Bush)? Maybe it was in Greenspan’s book?
Not sure of the exact frequencies or the influence the CIC has, but this admin sure seems to like to nudge and wink.
they could always bill clinton for it.
Please, I wish people would stop saying ALL republican candidates. RP got 10% in Iowa! He’s a republican, and he knows more about the problem than any of the democrats do.
Sorry, you are correct. Hard to believe the others have the same “fiscal responsibility” sense that RP has. Isn’t that one of their “core values”?
Maybe it is politically correct for Rush to wait until there is a Dem in the Whitehouse to call a recession. Blame is everything.
Of course that’s it.
If a Dem gets in the White House, Rush, Hannity, all all the other Right Wing talking heads will do a 180 and start proclaiming this the next Depression. Meanwhile, Air America (what’s left of it) will declare that the Right Wing is merely scaremongering.
The Right Wing and Left Wing sheeple will simply go on believing whatever talking head they’re currently listening to.
That meme’s already being pushed by the right-wing commentariat here in Australia, but so far only on the National Security theme (wrt the Bhutto assassination) rather than the economic theme.
Yup.
You can bet Fatass Limbaugh will be tooting a different tune in January ‘09.
It’s too bad the majority of his listeners are gullible enough to fall for his rhetorical turds hook, line, and sinker.
Just curious, txchick: where does the “She Whose Name Cannot Be Mentioned” thing come from??
dunno. I know the name probably trips Ben’s spam filter and makes him have to read the post first. Trying to save him the work.
I think that’s a ‘Harry Potter” allusion.
All phrases of this nature ultimately derive in the literary sense from ‘She who must be obeyed’ in H. Rider Haggard’s Victorian novel “She”.
Rumpole of the Bailey has a “She who must be obeyed” - his wife.
But it was probably stolen from Haggard’s novel.
A take off on “She Who Must Be Obeyed” from the Rumpole of the Bailey BBC television series? Rumpole calls his wife “She Who Must Be Obeyed.”
Yep. I loved that show. That is what I was referring to.
Note to self - finish reading section before commenting!
“where does the “She Whose Name Cannot Be Mentioned” thing come from??”
LOL. That’s used by my son around the house when family members want to question him about his past ‘fiancee’.
John Kenneth Galbraith wrote a book about the great depression. It was a common theme for about three years that all the experts said there was no problem. History repeats itself, or maybe it is just psychological momentum like house prices can only go up. Infact, some houses are still selling.
“He says there is no recession.”
Take it from an addict with no training (at least of which I am aware) in economics.
Speak not the name of the Iron Maiden, the Witch Queen, lest she grow in power!
Here’s a picture for you:
http://marketprognosticator.blogspot.com/2008/01/picture-is-worth-thousand-words.html
I predicted offerings of “2 for 1″ houses last year, really didn’t think i’d ever see it, though.
A Housing Happy Hour?
I would rather have 2 Yuenglings than 2 junky condos in Cape Coral.
I’d prefer the more liquid investment… hehe
Rents are going down in that place…..
Given the area code that is the prototypical swamp land deal, but it is still a convincing rebuttal to the REIC contentions that prices cannot drop 50%. I wonder if David Learah owned any of those. Thanks for the link.
It’s probably 2 for 1 options or upgrades. I saw a similar sign here and that’s what the “two for one” special turned out to be.
It’s a two for one deal for vacation condos in Florida. The phone number is listed in Davenport, FL which is 15 miles southwest of Orlando. In other words, this “port” city in Florida is hours from either coast of Florida. Good town name. Quite a vacation spot indeed.
What’s the FED’s next move? Cut or no cut? I would guess cut, but in the face of a number of rising costs, will they hold this go round?
IMO the Fed is increasingly irrelevant. Even the stunning new regs they layed down at the end of last year were met with ‘we’re already doin that.’ It’s the same with these politicians plans. This guy wants to do this, this gal that. So what? Nobody can stop the biggest bubble in history from deflating. ‘Oh, but they’ll try!’ Yeah, and we’re gonna have that space station on Mars any day too…
They’ll die trying though.
Die? Politicians will sacrifice anything and everything to stay in power. Who wants to be seen as leading a failed, costly effort? I am amazed that people even listen to what is being said in political campaigns.
The only thing I am concerned about as a taxpayer in this regard are the GSE’s. But we are a ways away from that default. And as I have said, that is much less of a concern to me than the overall direction of this country.
When I say “die,” I mean fading into function irrelevancy with regard to this issue.
“Politicians will sacrifice anything and everything to stay in power.”
This is why, as Professor Bear I believe points out on occasion, that some kind of bailout, though unlikely IMO also, cannot be ruled out.
It’s an election year….anything is possible.
‘It’s an election year….anything is possible.’
Yeah, and so is a comet hitting the NAR headquarters. But my point has been some people never stop going on about it. For years, even though nothing ever materializes and there is nothing to indicate it realistically could. Just endless hypothisizing.
It gets freaking old…
Ben: Might have to disagree with you on this one. There seem to be quite a few that are quitting politics to become lobbyists because it’s way more lucrative. Many rushed to quit at the federal level by the end of 07 because starting in 08 they have to wait 2 years instead of one after leaving office to lobby. 10 years ago, it was unheard of and considered unseemly to be a lobbyist. Seems many in politics after a while are more than willing to trade power for money.
> Politicians will sacrifice anything and everything to stay in power.
Those who don’t are soon no politicians anymore. But I agree with you - voters could be more sophisticated and see through the noise.
> The only thing I am concerned about as a taxpayer in this regard are the GSE’s. But we are a ways away from that default. And as I have said, that is much less of a concern to me than the overall direction of this country.
Yesd, a bailout with tax money is one of the few things, with which the politicians could really screw up. Why do you think the insolvency of Freddie and Fannie is so far away, when house price possibly decrease by 20% from peak in 2008? The next president would certainly have to deal with it. I would count among the dangers from politicians also the FHA “modernization”, pushed by her who should not be named, among others.
I saw on Tool Box this morning that Bush will be meeting with The President’s Working Group (PPT) today or tomorrow and trying to develop a stimulus plan (bailout). I doubt it will come to anything but I do agree they will die trying. They will try to “trickle down” until our backs are wet and keep telling us that it’s raining. Growing up in Minnesota we knew not to eat the yellow snow. These jerks would have put it in a container and told us it was really a snow cone.
Paulson + Bush = NYCityBoy hurling his Lucky Charms
The Fed has always been irrelevant in solving problems. They are basically like the government, the ultimate crowd majority late to every party. The Fed can only follow the markets and exacerbate swings.
Bernanke is still “shocked, shocked I tell you” that this problem is so big. He is still looking over the notes of his “$100 billion in losses” speech. These clowns need a bigger box of Crayons for writing those ridiculous speeches. Do you think he drew a picture of a little house with purple flowers in the margins of that speech? I wonder what color the sky is, in Bernanke’s world.
Bernanke should be fired immedietly for saying that out loud. Anybody “shocked” by this downturn who works in any field of finance is either:
A) An idiot
B) A liar
Either way, they need to be let go. To say such a thing just demonstrates a total lack of understanding of the fundamental economic realities of RE. Totally unacceptable for a Fed chief, imho.
That sounds like a lot of deliberate distortion. You are tuned to politicians and have difficulting interpreting what academics say because the persuit of objective truth has become so completely alien in public discourse? Bernanke has repeatedly admitted for some time now that he “wishes he knew what these things were worth” with respect to CDOs and such. That is admitting that he doesn’t even have a means to measure how messed up the situation is. Growth projections have been seen to go down to around two percent for the long term after this period where they are likely to go to near zero or even negative. All this adds up to the Fed pushing on a string. If growth is stalled and unlikely to roar back, then high or even moderate interest rates such as we have now are overshooting their proper levels, right?
This view of markets as being only ever about day to day gaming masks what is really going on. This bubble has been building since the mid to late nineties when regulations were changed, fell away, or become meaningless. The correction is going to be of a similar magnitude to the run up. The Fed rate has little influence, but that influence stretches fifteen years into the future.
You wonder what color the sky is in Bernanke’s world and I wonder what color the sky is in your world. Anger at the Fed for not having much influence as we all know they don’t? Anger at the Fed for pushing on a string which we all know is pretty much their only option at this point? Anger at the Fed for not having any way to reliably measure just how messed up things are because CDOs and SIVs and all the rest are so totally obfuscated? Anger at the Fed because they alone were unable to overpower the mania which was global in scope? Angry at the Fed for not making things worse by insighting panic with big red numbers?
It seems like the only thing that would make people happy would be a special conference by Bernanke where he screams that the problems are huge, HUGE, HUGE and then uses a time machine to create a vortex to the mid nineties so that he can jump in, go back, and made the big, bad thing not happen. Realistically pushing on a string has been his only option for a while and we should all be glad that he raised rates when he did in order to prick this damned bubble.
I think NYCB was quoting the quote, not Bernanke.
Could somebody interpret Mole Man’s post for me?
He’s saying it’s too easy to “blame” everything on Bernanke, et al. I agree with him to some extent.
Now back to the important news of the day. Brittany Spears and her trailer trash standoff in L.A.
I’m not blaming Bernanke for everything. I am saying it is their lying and stupidity that makes things worse. This “we can’t tell the truth or the sheep will panic” attitude is BS. Mole Man seems to be adopting that attituded, implying that Bernanke can’t be honest about what has transpired before.
I hold him accountable for his stupid statements and actions since he has been head of the Fed. Nothing else. Tell the f—ing truth, Mr. Bernanke or face being criticized.
He can’t escape criticism no matter what he does. It’s the nature of the job.
If they’re so impotent as regards the bubble, then perhaps they should focus on other things (inflation, protecting the dollar) so as to avoid the collateral damage they’re now causing.
Americans in WWII were not “panicked” when they were told to Pitch In and help the cause.
Americans can take alot when told the truth. IMHO, based on our 20c hist the citizens of this country would rather DO something than “go shopping” as previously instructed, although, seems like lots of people shop. I think Some shopping is done purely out of boredom and lack of something important to do.
IMHO. And probably not doable these days, so much is based on What you Have, rather than who you help ( who needs the help not politicos…)
that means the rich will have to fork in a lot. it’s not going to happens.
It would be kind of fun to see Bernanke on Saturday Night live in 13 years, doing a Cramer impression ala:
That Cramer, HE HAS NO IDEA HOW BAD IT IS IN HERE! I have the heads of 15 firms whining in my outer office for bailouts that won’t help. HE HAS NO IDEA WHAT IT IS LIKE IN HERE! I’ve been IN THIS BUSINESS for 25 YEARS and we are…
Celebrity host: Ben, … BEn, … BEN!
Politicians want to appear as doing something to help the poor people from their own stupidity. In the end, Ben is correct, nothing can be done. The media will probably have a field day and a pony show they’ll display of how politicians helped some poor sob keep his home. That will be the end of it.
On another note, I’m starting to hear more and more from family members who were a bit complacent when purchasing homes. One of them is a patent lawyer, who purchased a 750,000 home and said he is getting sick and tired of watching his $5000.00 a month mortgage payment go up in smoke. He explained he looks at the statement every month and very little is coming off the principal. I have not done the math to see if what he was telling me was the truth but he said he got a 30 year fixed at 5.82%. He also went on to say that he believes his house is worth 50k less. In reality its probably worth 100k less or more.
Tell him that you thought, “renting is throwing your money away.” Bwahahahaha. Fly me out to where you live and I will gladly laugh in his face. Bwahaha. But I thought all lawyers were so smart? Bwahahaha. What a great morning. Dodd and his braindead ideas are DOA and lawyers are losing their a$$es. It don’t get any better than that.
He explained he looks at the statement every month and very little is coming off the principal.
Did this highly-paid lawyer learn what an “amortization chart” is only AFTER he signed the papers? Maybe he was out sick the day they taught law in law school. ( Few Good Men)
Geez, I learned that lesson when I was paying off student loans. One little $2500 loan was $30 a month, $20 principal and $10 interest. Even that was too much highway robbery for me, and I saved up and paid it all off at once.
If it’s any consolation, tell him that were the loan only for $75000, the amount of principal paid off would be correspondingly less, a tenth of what it is now.
Amortization charts should be introduced in high school math.
I agree with Ben about the FED being irrelevant. We have no money and no manufacturing to back up the perceived faith/confidence/trust in the greenback. If banks/businesses have to borrow cash then they will be paying the LIBOR rate. Wall Street outsourced US manufacturing in the name of free trade and now Wall Street is going to be outsourced to London/Hong Kong. Wall Street has been feasting on the destruction of US manufacturing for the last 30-40 years and living high on the hog while destroying American companies and people’s lives and all the while the POLS watched and did nothing while taking the so-called soft money (bribes) from wall street.
Ben:
What a waste of money this bubble and war has been, i would love for us to spend $100 billion searching outer space. We should have had a colony on the moon by now…and then mars….
I would love to do some space traveling, but i guess bailing out FB is far more important then finding the origins of our existence.
As someone who grew up during the race to the moon, the collapse of manned space exploration was a disappointment to me. When I saw the mock ups of the new lunar space craft and the new target year (2020) to return to the moon I was even more disappointed.
The new spacecraft bear an uncanny resemblance to the old Apollo craft (I guess those slide rule nerds in the 60’s were pretty smart after all). I also find it amusing that it took us less time in the 60’s to from nothing to the moon than it will now.
I realize that we are no longer in a race, and that it was miracle that those primitive 1960’s space craft worked at all. Plus space exploration no longer captures our imagination, which is probably why Sci Fi TV shows are so soap opera like these days.
I have come to accept that I will probably not live to see manned exploration of Mars.
in Colorado - get out of my head. I had to make sure it wasn’t me that wrote that post. I am hoping to live long enough for us to just get back to the moon.
After watching “Mars Rising” on the science channel I also realized how little progress has been made in propulsion systems. One would think that after 40 years that we might have something by now that could get a ship to Mars in less than 6 months.
By the year 2000 we will undoubtedly have a sizable operation on the Moon, we will have achieved a manned Mars landing, and it’s entirely possible we will have flown with men to the outer planets.
-Wernher von Braun, 1969
I used to twiddle bits to steer spacecraft, now I’m “Entrepreneuring” as a writer of advertising copy. I’m coming around to the feeling that the brave new service economy sucks. - Me
OMG,
The three of you sound like me. I would be happy to see a Moon base, anything that shows we are heading back to exploring space before I die.
The Fed will cut at the end of the month but its too early to tell by how much with so many outliers in the daily bids due to year end issues. Need to see what the data looks like about three days before the FOMC when a clearer picture should emerge.
I use the Fed Funds data maintained by the NYFED at their website to keep and eye on what is going on.
http://www.ny.frb.org/markets/omo/dmm/historical/fedfunds/index.cfm
They’ll probably cut again, but it won’t help. I predict that they will eventually come back down to around 1%. It’s all about the stock market.
Will the FEd “go to the mattresses”?
I am seeing more reports of that commercial RE weakness many have been looking for:
‘A sluggish economy, credit crunch and rampant construction took their toll on San Diego’s commercial real estate market in the fourth quarter, with office vacancies spiking to their highest level since 1996.’
‘Investors who had been fueling the market by buying up buildings – often at record prices – retreated to the sidelines as the credit crunch made financing more expensive. Meanwhile, tenant demand, which had been softening all year, pulled back substantially in the fourth quarter because of fears of a possible recession.’
‘Going into 2007, San Diego County’s office market was considered among the best in the country, especially by institutional investors looking to buy offices. Many of these institutions paid high prices for local office buildings.’
‘These and other buyers made their deals expecting to increase rents. ‘But what happened is, because the economy has slowed down, rental rates aren’t going up. In fact, they’re coming down,’ said Chad Carpenter, a principal with San Diego-based Equastone, a real estate investment company.’
Remember when housing first started to slow, we were told that commercial would fill the gap? Looks like there was a bubble there too.
Not to mention the duality of spurned investors hoping to increase rents over market value.
IT IS THE GOOSE THAT”S GONE
Residential RE, or Commercial RE, or Corporate Debt, or Municipal Debt
It is all of the above. Redidential RE drove construction of supporting Commercial RE. Massive spend and derivitive RE lending drove Corporate and Municipal revenues. The Goose is now Dead!
You kill the goose and there is no more eggs. Not only that, the gander was a pimp and now wants to be paid back. There simply is no more money and the goose is not dropping any more eggs.
Right now a lot of people are still living their savings and declining access to credit. Each new day puts more and more at the point of insolvency and no ability to raise cash. Each day we hear about people, business, and governments not being able to meet financial obligations.
Without the goose, there is no main course.
Many commercial rents in NYC are so high that small businesses have no way to survive. The toll on neighborhoods is awful. Just walk down Bleecker Street and you see how terrible it is. Small businesses go belly up and are replaced by high-end boutique stores. Coach just moved in. Ralph Lauren has a couple stores, across the street from each other. My understanding is that these stores don’t make money but have to be there for the name recognition. They are like a loss leader. How can small business compete with that? There will be complete destruction in any serious economic downturn. I would guess that areas like the Meatpacking District will be anihilated. There is no economic justification for some of these trendy new areas. They better pray for rich foreigners to keep them viable. Prayer shouldn’t be part of any business plan.
NYCB: I was chatting with an independently wealthy 70-something guy last night - told me had just bought an apartment in NYC - 1200 sq ft on the 59th floor of a new building under construction - I think he said 9th Ave. and 43rd, around the Port Authority - you know it?
Anyway, I guessed 1.2 million. He said you’re not even close. 1.75 million! Even I was shocked, and I think I have a pretty good feel for prices.
BTW, COH (Coach) is going to feel some big pain real soon.
The parts of Manhattan I used to visit in the early-to-mid ’90s (Chelsea, Soho, Bowery) are mostly unrecognizable to me. As you say, a lot of the quirkiness has been driven out — replaced by boutiques, upscale shops, national chains, international chains. It’s increasingly sanitized and, well … boring. (Note that I’m talking about Manhattan only, not the other boroughs.)
We’ll see what sticks around and what doesn’t, though. Anyone who has forgotten what our big cities were like in the ’70s and ’80s is in for a rude shock if hard times are a-comin’.
When it comes to commercial I think its pretty obvious that a lot of open space will be available once RE agents and mortgage brokers “downsize”, but what about all those brand new bank buildings. With much of banking now computerized and done at ATM machines, online or using credit cards the only reason I could see for all those new bank buildings is real estate loans so what happens to all the new bank buildings? Or will they be busy with foreclosure business?
Its seems today that in some locations there are more bank buildings then there are gas stations or fast food places.
My observation as well. In fact where I live (Leesburg VA) there are 31 banks, and 12 fast food restaurants.
This is in an age of technology, where there’s very little reason to visit a physical bank. I’ve gone into a bank branch about 8 times in the last 10 years - mostly to open and close accounts. ATMs I’ve gone to a lot of course, but you don’t need a physical branch for that.
So - what gives? How could an industry that provides such a minuscule amount of real physical service afford to own so many buildings, and hire so many employees?
Think about that.
They physically need a place to handle and store a lot of money and paper, they serve as a depositary for valuables (safety deposit boxes), and they provide offices for making loans. Also, they need a certain level of security, and part of the security has to do with quality buildings and not consolidating too much money or power in one place. Finally, a powerful image is important.
Finally, a powerful image is important.
I think that this is the clincher. Here in Loveland lots of local banks have each built their own 3 story Taj Mahal. From what I have observed, each bank only occupies a small percentage of the floor space, and most of the upstairs windows are peppered with “For Lease” signs.
Typical tenants I have seen in these buildings:
Starbuck clones
Post office satellite offices
Realtor offices
Title companies
In other words, nothing of any substance.
Hey . . . if Craig Hall says it’s over (in August), it’s over. That boy has been through it twice now, he knows.
Power Shares SRS (mostly commercial RE) spiked circa 8% yesterday.
On the fundamentals, there is no comparison between commercial space and housing. Commercial office and industrial rents have trailed inflation since the early 1980s, and are down 40% to 50% since then. In many markets there has been relatively modest construction since the overbuilding of the 1980s — San Diego has has more than most markets. Retail may be the one exception, but not if you conclude that older malls are obsolete.
Where there may be a bubble is in the prices paid by investors from 2004 to 2006. A recession would dent the fundamentals, rent and vacancy, but to so much. The killer would be that the pro formas used to justify the purchase prices assumed rapid rent escalation and a huge sale price at the end.
Just as we had housing price declines without a bad overall economy, so we will have commercial real estate price declines and bankruptcy without really bad fundamentals.
I pulled all of my money out of a TIAA-CREF real estate fund some time ago. It is a very conservative fund, no leverage, large apartment buildings and office buildings for the most part. But annual returns were in the neighborhood of 15-20% since 2003, so I actually read the prospectus in detail and discovered that recent purchases had horrible cap rates 4%, 5%… a few even worse. So those 15% returns were based speculative asset appreciation, but they pulled in more investors forcing fund managers to purchase commercial real estate with weaker and weaker fundamentals…
So I would have to agree that commercial real estate will start to fall in 2008.
We are in TIAA-CREF, too. I convinced my husband to stop putting money in the real estate fund, but he still has a chunk sitting in there, which I couldn’t convince him to move, since it is still doing so well. Please give me some arguments! BTW what’s your allocation look like now?
–
Recession Forecast From a Bimbo
“We can’t have a recession if everyone is gainfully employed.”
That was the comment from a bimbo named Diana Garnick played on Bloomberg. What caught my attention was not what the bimbo said but her eye movements and facial expression while sharing this “important” insight with the world. She is the founder of the Ladies in Red. And she was wearing red to draw maximum attention to her propaganda. The most important and some of the best paid jobs in America are for propagandists and we can see that Ms garnick is “gainfully employed.” And so was Greenspan for a very long time.
There are few problems with Ms Garnick’s pronouncement. First, no one has informed Ms Garnick that not everyone in America is gainfully employed. Second, right smack in the middle of the last recession the unemployment rate was 4.6%, lower than what it has been since Sep’07. Third, employment doesn’t start to fall until few months into a recession. Forth, the serious job losses take place a year AFTER the beginning of the recession.
Employment is the laggiest of the lagging indicators for a reason. But, propagandists make use of it to deny recession and push Scams. Bubbleheads don’t need much more than fluff to remain “positive” even when they are losing money in Scams because it is just temporary or even a buying opportunity.
This recession is not going to be an ordinary recession and losses in Scams are not going to be recovered for decades. Beware of propagandists who appear on the boob tube.
Jas
“We can’t have a recession if everyone is gainfully employed.”
We can obviously have a recession in housing since while people are employed they are not employed gainful enough to pay for the prices asked for the housing so they stopped buying. In fact America as a whole is not employed gainful enough to pay for what its is buying since that is why we are going deeper and deeper into debt.
Diana Garnick needs to focus on “gainful” since that means that you are increasing wealth and that is not what most people are doing, they are at best holding their own and many are going down, and if you add in government debt and future obligations then few in the country are “gainful”
Bingo, I was thinking the same. We have too many pretty-people these days and few real workers.
We have too many pretty-people these days and few real workers.
It never ceases to amaze me how many people I know who make a living doing some of the weirdest stuff.
One guy I know is a martial artist (master level). He has a small school that barely breaks even, but pays the bills by giving self defense seminars in distant towns every weekend. Usually he and 3-4 other guys (each with a different specialty) rent a ball room at a Holiday Inn somewhere and charge macho guys who want to “learn a few moves”, but don’t want to sign up for a martial arts program $120 for a weekend’
s worth of seminars.
There can’t be a recession tomorrow, I had a job yesterday!
She may be a math wiz, but she doesn’t know what words mean.
Goodbye 401K.
Jas will like this
http://www.minyanville.com/articles/index.php?a=15398
I like it too, FWIW.
What is your estimated budget for purchasing a house in your area after the smoke clears and the dust settles? What kind of house are you looking for i.e. number of square feet, rooms, land size, brick/wood, etc. Better to have a harder number than the 3x income, etc. type of parameters.
I plan to pay no more than $335,000 in Pensacola, Florida for a 3,000 sq. foot brick house with 0.5 acres in a good school district in a convenient area of the town. I would pay up to an additional $100,000 if the house was located on waterfront that had access to the Gulf.
This would not represent the lowest price that I expect in the area but represents the price level where I would become a buyer.
I am pretty much entirely in agreement with you.
I will start getting interested when the new homes are selling for about 100/sq/ft in Palm Beach, and then tack on 30-60K for the lot (or 100K+ for a waterfront/deep water lot)..
100/sq/ft builds a very nice home, I have been in lots of them built recently (in non/small bubble areas) and they are great; all the upgrades you would want, and solid construction. The only thing is down here in S. FL, everything is CBS, so, no brick for me. Other then that, when I see 100/sq/ft for a nice home in FL, I will start to get interested about the market again. Until then, it’s all just noise.
When houses are 50% of what they are now, and mellow yellow is 50% more than it is now, i’ll be in the market for select properties in areas of California, where I think wealthy boomers would rather be, than the big cities that are holding them captive, currently.
I want something small and easy to cool and maintain. I’d like a few acres so I can plant fruit trees and keep a nice garden. I’d love to keep chickens but understand that might not be permitted. I want nothing to do with HOAs.
You can keep poodles, parakeets and pythons, but no chicken? Strange country America
In a little town in Oregon, $100/sq ft for a 1500 sq ft house, add $50K for the lot, $200K total, maybe a tad more. This is about 5 times the average income in this area. For this, I expect all the amenities, in a nice area, 3/2, a garage and a view of a volcano. These types of houses used to be in this price range as little as 4 years ago, now they are $350K and up.
We have a long way to go to entice me out of my cheap and comfortable rental.
“What is your estimated budget for purchasing a house in your area after the smoke clears and the dust settles?”
Median income X 5:
$65,000 X 5 = $325,000
Median rent X 120:
$2500 X 120 = $300,000 (I am guesstimating median rent, though…)
I am thinking between $300,000 and $325,000 ($2008).
“I just listened to Rush Limbaugh on the Iowa caucuses last night.”
Hopefully he wasn’t reporting under the influence of Oxycontin.
It wouldn’t be any more surreal than anything else we hear in the MSM.
It seems to me housing and the recession are being soft-pedalled by both Rep’s & Dem’s. Reasons? Huckabee’s 23% across the board sales tax promoted on Leno sounds outright devastating to the middle class. Comments?
If the sales tax is a substitute for the income tax and is backed up by some sort of Constitutional Amendment against income taxes, I’m all for it.
Most likely though we will get a sales tax on top of the income tax.
Right, p’cola. That’s why I can’t back the so-called Fair Tax (as it’s called by its supporters, or National Sales Tax, by detractors). You have to be realistic. There is no way Congress is going to eliminate all taxes and replace it with one tax on sales.
Unfortunately, we ARE going to have both. The new National Sales Tax will start at 2-3% and will be used to pay for National Health Care. It will have a fancy, important-sounding name that includes the words “fair,” “just,” and/or “investment,” but definitely not “tax.” It will eventually morph into a large European-style VAT.
Improved High Leverage Enhanced Value Tax.
A 23% sales tax will spawn a gigantic black market. Crooks will make money at the expense of the law abiding. Think booze in the Twenties, drugs today.
If its a VAT, then only the final markup by the “retailer” wouldn’t get taxed. VATs are used a lot in countries where tax evasion is common.
In the end we will still buy our stuff at Kroger, Safeway, Albertsons Target and Walmart, etc.
5% unemployment.
NAR Spin: “Now that people have more time to evaluate their housing options we expect sales to soar in the early part of 2008.”
Recession fears have a negative effect on housing demand, as would-be buyers become precautious about making big-ticket purchases when their job security become tenuous.
Or any non essential purchases for that matter.
Here’s the big question for me in 2008. We need some work done in our basement, a gut rehab of a 21 X 10 space, including the installation of a second shower for our home, possibly handicapped in case an aging relative needs to live down there (the adjacent space is semi-finished).
Construction has been overheated in NYC due to the biggest construction boom since the early 1960s, public infrastructure projects, and Lower Manhattan rebuilding. Construction costs have been high, contractors busy.
Can I plan on starting work by the end of the year?
Will the California Building Industry Association have to revise their forecast in light of today’s developments in the labor and stock markets? The graphs do not show the least bit of evidence that residential building permits (single family plus multifamily residential) have troughed, aside from the higher forecast levels projected by CBIA for 2008.
The figures I produce below are estimated by eyeballing the charts; sorry if my rounding is rough:
California building permits
Bubble peak 210,000 (2004)
Recent level 110,000 (2007)
Decline to date (110/210-1)*100 = 48 percent
San Diego building permits
Bubble peak 17,000 (2003)
Recent level 7,000 (2007)
Decline to date (7/17-1)*100 = 59 percent
Residential building permits are a leading indicator of future residential construction activity.
Builders alliance is upbeat about ‘08
State group looking past gloomy reports
By Emmet Pierce
STAFF WRITER
January 4, 2008
http://www.signonsandiego.com/uniontrib/20080104/news_1b4homes.html
Is the inventory glut in your hood limited to McMansions?
Check out the eye-popping office space availability numbers for San Diego in the list posted below. Also note that twelve years ago was 1996 — at the end of the previous housing bust.
County faces glut of office space
Credit crunch, building boom push vacancies to 12-year high
By Mike Freeman
STAFF WRITER
January 4, 2008
A sluggish economy, credit crunch and rampant construction took their toll on San Diego’s commercial real estate market in the fourth quarter, with office vacancies spiking to their highest level since 1996.
The county posted an overall office vacancy rate of 14 percent in the fourth quarter, according to a report by the CB Richard Ellis brokerage firm. That’s up from 10.4 percent in January 2007.
Credit turmoil this fall, when big lenders took billions in write-downs on their subprime mortgage holdings, helped stall the commercial real estate market, according to CB Richard Ellis.
Investors who had been fueling the market by buying up buildings – often at record prices – retreated to the sidelines as the credit crunch made financing more expensive.
Meanwhile, tenant demand, which had been softening all year, pulled back substantially in the fourth quarter because of fears of a possible recession.
Office vacancy
Demand for office space in San Diego County softened in the fourth quarter. Direct vacancy tracks offices that are empty now. Availability includes sublease space, offices that are on the market but not yet vacant and buildings under construction.
DIRECT VACANCY | AVAILABILITY
Downtown 13.4% 18.9%
Mission Valley 14.9% 20.7%
Kearny Mesa 11.8% 16.9%
Sorrento Mesa 8.4% 26.5%
Carmel Valley 8.7% 18.6%
Carlsbad 24.3% 32.6%
University City 9.8% 18.8%
Rancho Bernardo 25.2% 34.6%
Overall 14.0% 21.5%
SOURCE: CB RICHARD ELLIS
http://www.signonsandiego.com/uniontrib/20080104/news_1b4office.html
“Carlsbad 24.3% 32.6%”
Wow PB that must be all those new buildings I’ve been photographing. They tore the hills away to buid mortgage offices. I better go do another driveby off Palomar Airport rd.
New Century left behind a brand new building full of vacant office space in my hood last year (at SR 56 and I-15).
Where and when will the dollar’s slide bottom out?
CURRENCIES
Dollar sinks lower after disappointing jobs data
By Lisa Twaronite, MarketWatch
Last update: 10:40 a.m. EST Jan. 4, 2008
SAN FRANCISCO (MarketWatch) — The dollar dropped Friday after dismal payroll data cemented market expectations that the U.S. Federal Reserve will further cut interest rates this month, with the odds now increased that the cut will be on the larger side.
The dollar index, which measures the greenback against a basket of six major currencies, was at 75.780, down from 75.890 late Thursday.
http://www.marketwatch.com/news/story/currencies-dollar-drops-after-jobs/story.aspx?guid=%7BFE72D6CC%2D9019%2D4C19%2DAB1C%2D623802C77781%7D&dist=hplatest
Peak liquidity
REVIEW & OUTLOOK
Oil and the Dollar
January 4, 2008; Page A10
Oil prices finally hit $100 a barrel this week, albeit briefly, but breaking through that symbolic barrier is ominous and higher gasoline prices are sure to follow. Supply disruptions in various places and surging demand in China and India are part of the explanation for this decade’s upward trend in oil prices. But perhaps the biggest factor has been largely overlooked: the decline in the value of the dollar.
Since 2001 the dollar price of oil and gold have run in almost perfect tandem (see nearby chart). The gold price has risen 239% since 2001, while the oil price has risen 267%. This means that if the dollar had remained “as good as gold” since 2001, oil today would be selling at about $30 a barrel, not $99. Gold has traditionally been a rough proxy for the price level, so the decline of the dollar against gold and oil suggests a U.S. monetary that is supplying too many dollars.
http://online.wsj.com/article/SB119941453085566759.html?mod=googlenews_wsj
Interesting that it took 7 years for the wsj to figure out about the 2 non-renewables, that rule the world.
ASIALINKS DAILY VIEW
A Comeback Year for the Dollar?
January 4, 2008
The dollar has started off 2008 with a nearly 2% drop on the yen and 1% fall on the euro, after falling 6% and 10% on those currencies last year. Yet while the U.S. currency could face rocky times in the next few months, some investors believe it could rebound later this year against currencies in the developed world.
If the U.S. escapes the housing bust and credit crunch without a severe recession — as many economists still expect — then the currency could be primed to recover when the dust settles later in the year. Even if the U.S. economy does worsen, the fallout could spread to other countries, hurting their currencies. And the U.S. has an improving trade position on its side.
http://online.wsj.com/article/SB119939977962465961.html?mod=googlenews_wsj
Divergence…
http://www.marketwatch.com/tools/quotes/intchart.asp?submitted=true&intflavor=advanced&symb=C_CHF&origurl=%2Ftools%2Fquotes%2Fintchart.asp&time=4&freq=1&startdate=&enddate=&hiddenTrue=&comp=c_eur+c_jpy+c_gbp&compidx=aaaaa%7E0&compind=aaaaa%7E0&uf=7168&ma=1&maval=50&lf=1&lf2=4&lf3=0&type=2&size=1&optstyle=1013
Ever heard of the Olduvai theory?
“The Olduvai slope (1979–1999) - Energy per capita ‘declined at 0.33 %/year.”
“The Olduvai slide (2000–2011) - ‘begins in 2000 with the escalating warfare in the Middle East… marks the all-time peak of world oil production’.”
“The Olduvai cliff (2012–2030) - ‘begins in 2012 when an epidemic of permanent blackouts spreads worldwide, i.e. first there are waves of brownouts and temporary blackouts, then finally the electric power networks themselves expire.”
http://en.wikipedia.org/wiki/Olduvai_theory
Proposed questions:
1) Who wins and who loses if there is a bailout?
2) Is subprime too big to bail?
3) Where will you get $50 bn - $75 bn, given there are no moneys?
4) Shouldn’t the first question be one of ‘whether’, not ‘how?’
How should the US economy be rescued?
Published: December 20 2007 11:55 | Last updated: December 20 2007 11:55
Lawrence Summers Q&A
Washington must inject between $50bn and $75bn in tax cuts and other fiscal measures into the US economy in the near future to offset the mounting risks of a full-blown recession, said Lawrence Summers, the former Clinton administration Treasury secretary, recently.
He warned that, without timely action, the average US family could lose up to $5,000 in income, the country could suffer hundreds of thousands more home foreclosures and national debt could significantly increase - “even in a mild recession”.
The Fed’s fear of stoking inflation was outweighing the need to prevent the economy stalling, as it had in the past, he argued: “For most of the postwar period, economic expansions did not die of old age. They were murdered by the Federal Reserve in the name of fighting inflation.” (You can read the full speech here: The state of the US economy: Risks of recession, prospects for policy.)
So is the risk of inflation being overplayed? Is there a significant risk of recession? What should the Fed do? Put your questions on these matters and the US economy in general to Mr Summers now. He will answer them live online on Monday, January 7, at 3pm.
http://www.ft.com/cms/s/2/80400fbc-ae73-11dc-97aa-0000779fd2ac.html
“…the average US family could lose up to $5,000 in income, the country could suffer hundreds of thousands more home foreclosures and national debt could significantly increase…”
How much has the average US family lost due to the financial shenanigans of highfalutin financiers who have learned through repeat experience that any failed gamble will lead to a bailout at the expense of US taxpayers and their children?
“I think the only thing that can save the economy at this point is a steep rise in wages. And I don’t see how that can happen unless there’s a serious shortage of labor.”
C/girl: You’d just be trading one problem for another with a steep rise in wages, throwing the retired population into abject poverty; and they vote.
What you really should be concerned about now is how deep will a recession reach from all this foolery? Can the PBCG bail out underfunded plans? How protected is your (or parents) pension? The PBCG only guarantees those who retired 5 yrs before the company goes broke? Will wages be negotiated downward (and why not, if cost of living goes down why not wages?)?