Warnings That Should Have Been Taken Seriously
Some housing bubble news from Wall Street and Washington. Independent, “A report by real estate giants CB Richard Ellis says that a 15 per cent drop in the value of new homes has been disguised through ‘incentives’ offered by developers to prospective buyers to encourage them to buy properties. The report also drives home the fact that Irish homeowners have seen the last of double-digit price growth.”
“‘Developers gave incentives to get people to buy their properties instead of lowering the price of new homes. These incentives equated to as much as 15 per cent of the value of the property so in real terms, the value of new homes probably fell by 15 per cent last year,’ said Marie Hunt, director of research with CB Richard Ellis and author of the upcoming report. ‘The decline in the value of new homes last year was not really as evident as it was in the second-hand market.’”
“First-time buyers who bought new homes last year are now sitting on losses of as much as €40,000 because the property slowdown has knocked up to 15 per cent off the value of their homes. This will push thousands more first-time buyers into negative equity this year.”
“‘The days of double-digit house price inflation are well and truly over,’ said the report, which also found that land values have fallen by 20 per cent over the last year.”
“‘The development land market continues to suffer from a slowdown in the Irish housing sector and the ongoing difficulties in obtaining banking funding,’ said Guy Hollis, managing director of CB Richard Ellis, Ireland.”
The Scotsman. “The £10-15 billion financing package for the rescue of Northern Rock looked on a knife-edge this weekend as it seemed that fears of a potential house price crash were unnerving some potential backers.”
“It is said that Royal Bank of Scotland, Citigroup and Deutsche Bank are increasingly concerned that it is difficult to value Northern’s assets – against which their lending would be secured – against a backcloth of a fast-weakening property market.”
“One analyst said: ‘It is a fast-moving situation, and the worse the property market is looking the more difficult a call it is for those banks to make on what would be very big loans to the rescue-bidders.’”
“One sticking point with the RBS/Citigroup/Deutsche funding is said to be the Treasury’s insistence that banks take as collateral part of Northern’s entire mortgage book, including lower-quality as well as top-quality mortgage assets.”
“One source said: ‘One problem is that there has been a noticeable slump in the outlook for the housing industry in Britain between September, when the Northern crisis became public, and now. In some ways, it is the worst possible situation to try and mount a rescue operation for the bank.’”
From Bloomberg. “Banks may be required to set aside more capital to offset the risk of losses on new collateralized debt obligations and other complex securities, according to Moody’s Investors Service.”
“‘The combination of financial innovation, opacity and leverage is generally explosive,’ analysts led by Pierre Cailleteau in London wrote in a report published today. ‘More capital buffers will be needed or required by counterparties and regulators.’”
“Merrill Lynch & Co. reported the biggest quarterly loss in its 93-year history in October after $8.4 billion of writedowns, almost double the New York-based firm’s forecast three weeks earlier.”
“‘We need to restore confidence in financial results by instilling a more probabilistic view, based on the margin of errors for estimating the value of these positions,’ Cailleteau said. ‘There is a call for more information, but the emphasis should be on intelligibility rather than quantity.’”
“Citigroup Inc., the biggest U.S. lender, and HSBC Holdings Plc in London led banks that took on more than $100 billion of assets from structured investment vehicles they managed as the value of the funds plummeted since August. SIVs had the highest AAA grades from all three rating firms.”
“The net asset value of SIVs…fell below 70 percent as U.S. home foreclosures rose to a record last year, according to Fitch Ratings. Mortgage debt made up 23 percent of SIV assets, with most having no direct subprime link, Moody’s said in July.”
“Moody’s, Standard & Poor’s and Fitch Ratings have been criticized for giving investment-grade rankings to structured securities linked to subprime mortgages.”
“In the past, policy makers have had a ‘Faustian pact’ with banks in which they accepted the risk of occasional crises that comes with financial innovation because the products helped to maximize growth, Cailleteau wrote.”
The Chicago Tribune. “The worst housing slump since World War II is showing no sign of abating. The mistakes banks and brokers made with mortgage-related bonds have left a lingering credit crunch, or a reluctance by lenders to make affordable loans to consumers and businesses.”
“Options are dwindling for the people who will be strapped. About half of the borrowers have less than 10 percent equity in their homes, said Lehman Brothers economist Michelle Meyer, and as foreclosures quadruple to about 1 million in both 2008 and 2009, the supply of discounted homes on the market will cause prices to fall further.”
“Certainly, if this cycle turns out as bad as some imagine, analysts will look back at a plethora of warnings that should have been taken seriously.”
“Merrill Lynch economist David Rosenberg was among the economists sounding the early warnings. In September 2004, he said there was a clear housing bubble, and it could turn ugly. In particular, he raised concerns about consumers overindulging in adjustable-rate mortgages.”
“When Rosenberg wrote his report, home prices in such markets as San Diego and Los Angeles already had climbed 80 percent, and Rosenberg described classic bubble characteristics: overheated prices, overownership, too much debt, speculation, complacency and denial.”
“‘About a third of first-time buyers,’ he said at the time, ‘have strapped on so much mortgage debt that roughly a third now pay at least 30 percent of their after-tax income on shelter, and half of the lowest-income households spend at least 50 percent of their income on housing.’”
“Citigroup economist Steven Wieting raised similar concerns. Morgan Stanley economist Stephen Roach also referred to an ‘ominous surge in demand for adjustable-rate mortgages,’ especially among lower-income people who wouldn’t be able to afford higher payments.”
“Roach noted that from 2001 to 2003, ARMs amounted to about 20 percent of new mortgages, but by May 2004 half of the people getting loans were taking chances on them.”
“Meanwhile, Yale economist Robert Shiller emphasized to Barron’s magazine that home buyers were making the dangerous assumption that ‘nothing beats a home as an investment because prices just keep rising.’”
“While the economists were flashing warnings, consumer advocates also were busy asking Congress and the Federal Reserve to stop lenders from tantalizing homeowners with loans they would not be able to afford.”
“Despite numerous hearings, Congress and the Federal Reserve failed to adopt the protections that consumer advocates were requesting. Advocates say they ran into heavy lobbying by mortgage lenders and Wall Street firms involved in securitization.”
“In a House of Representatives hearing in November 2003 titled ‘Protecting Homeowners: Preventing Abusive Lending While Preserving Access to Credit,’ Cameron Cowan of the American Securitization Forum testified on behalf of the fast-growing $6.6 trillion industry.”
“By fabricating bonds from the payments people are expected to make on everything from credit cards to mortgages, he said, the industry was making it possible for more people to get loans at low prices.”
“Cowan urged Congress to avoid regulation and also to stop state and local governments from measures aimed at curbing predatory lending.”
“The hearing, of course, occurred about four years before Wall Street’s subprime-mortgage-related bonds turned into a debacle and a threat to banks and the economy. Cowan concluded his remarks at the hearing this way: ‘Regulation in this area could easily cause more harm than good.’”
“In early 2001, economist Stephen Roach raised a warning flag that enraged many peers: The U.S. risks repeating Japan’s mistakes of the 1990s.”
“It was during the darkest days of the Nasdaq crash that Roach, then Morgan Stanley’s chief economist, began worrying Japan’s malaise could be repeated in the No. 1 economy. The concern was less about the loss of wealth than policy makers papering over economic cracks with easy money.”
“Roach called it the ‘bubble fix,’ a policy then-Federal Reserve Chairman Alan Greenspan is now at great pains to justify. Ben Bernanke hasn’t deviated from that strategy since succeeding Greenspan in February 2006.”
“At its core is a Bank of Japan-like belief that low short- term rates and liquidity are the cure for sliding stocks, plunging real estate prices and lost investor confidence.”
“‘The only lesson the U.S. has learned from Japan is how to clean up the post-bubble mess,’ says Roach, now chairman of Morgan Stanley in Asia. ‘America has failed to learn the much more important lesson; how to avoid dangerously destabilizing bubbles in the first place. The Greenspan/Bernanke ideology still places disproportionate emphasis on the former while ignoring the latter at great peril.’”
“For years, regulators and investors sold an appealing tale: The U.S. has become so sophisticated and efficient at managing risk that a financial meltdown is unthinkable. That was a myth, of course. The aggressive and profitable repackaging of credit risks in recent years made global markets more volatile, not less.”
“Faith is now being lost in the U.S. system. Look no further than Blackstone Group LP’s recent experience. On Jan. 1, PHH Corp., the New Jersey-based mortgage and auto-leasing company, scrapped a $1.8 billion sale to General Electric Co. and Blackstone after the buyout firm said banks reneged on an agreement to lend the money.”
“‘Banks facing further writedowns are reluctant to lend, so the extra liquidity from the central banks isn’t greasing the wheels of commerce as intended,’ says Simon Grose-Hodge, an investment strategist at LGT Group in Singapore. ‘When the likes of Blackstone are getting turned down, you’ve got a problem.’”
“What are the odds of the U.S. sliding into a Japan-like funk? While not great, there are at least two reasons why the risk can’t be dismissed: Denial and easy money.”
“There’s still considerable denial about the magnitude of the U.S.’s problems. Also, all low rates and capital injections from central banks offer markets is breathing room. They treat symptoms of the problem, not the underlying disease.”
From New Orleans City Business. “National homebuilder KB Home has scrapped 35 planned market rate homes in River Garden, the mixed-income development that replaced the St. Thomas housing project in New Orleans. KB Home was the first national homebuilder to invest in Louisiana following Hurricane Katrina.”
“‘It is not wise to flood the market with a number of homes that are not selling and we will not make a decision on what to do with the (remainder of the lots) until our homes sell,’ said Clint Szubinski, president of the Gulf Coast Division for KB Home.”
“KB has sold 11 homes in River Garden since the 2006 unveiling of a first model two-story shotgun home and plans to sell the 12 now under construction before stopping work on the candy-colored subdivision, where 58 market-rate homes were to have been built.”
“Slow sales and sinking prices at River Garden, which was developed by HRI Properties and remains under its management, factored into the KB decision to leave the state, Szubinski said.”
“‘Our lack of success contributed to our decision to not make any future investments here,’ he said.”
“Market rate sales began to lag soon after KB sold the development’s first market-rate home for $329,000 in February 2007. Prices plunged by as much as 30 percent on the remaining homes by November, said real estate agent Polly Eagan of Keller Williams Realty.”
“‘(KB) was motivated to sell, they offered a huge drop in prices and now the houses are selling,’ said Eagan.”
“But some River Garden residents worry what will happen in undeveloped vacant lots.”
“‘People are concerned about the way things are going,’ said Chris Daigle, who bought a new double-shotgun on South Chippewa Street last year. He paid $300,000 for the pumpkin-colored home before KB Home sheared prices.”
“A nearby yellow New Orleans-style home with a wraparound porch at 1901 South Chippewa St. is listed down 34 percent to $279,000 from $425,000. Daigle does not begrudge his new neighbors for getting a deal he missed. He said the development will lack the density and economic diversity promised to him when he bought in.”
Erin go Broke
“First-time buyers who bought new homes last year are now sitting on losses of as much as €40,000 because the property slowdown has knocked up to 15 per cent off the value of their homes. This will push thousands more first-time buyers into negative equity this year.”
So if your incentive to buy a house was an expensive car, for example, and you purchased this house/car package with 100% financing then defaulted on the loan, you don’t just walk away, you get to drive away in your free car.
Nice.
Ive seen people use the “cash back” scam then they walk away from the house and pocket the free cash
If you could just merge identity theft with housing fraud - including successfully opening a bank account with the fake/borrowed name - you could really have a nice scam to pocket 50k or more on a cash-back deal with really minimal risk.
Not that I’m looking for a new hobby …..
If someone takes out a home equity loan to buy an expensive car and boat, and then walks away from the house, can the banks go after the car and boat?
Depends. In a non-recourse mortgage, they cannot. All they can go after is what is listed on the mortgage document, and the car ain’t there. In a recourse mortgage, they can, since the car is just another asset you own. But they might prefer to go after your bank accounts and garnish your wages first.
It’s actually worse than that –the Realtor typically includes the cost of incentives when they record the sale price to county tax asssessor. So, $375k house + $75k car + $50k cash-back (”on the down low”) = $500k recorded sale price. Nice way to juice the comps.
And collects 6% commission on those incentives.
The bank can only go after assets if the house is in a recourse state. But I have no idea how it works in Ireland.
Yep, they’re sneaky buggers, eh?
When I sold my home and was discussing a price reduction with my realtors, they kept hinting at doing some sort of “incentive.” I kept saying, “why don’t we just drop the price?” Then came the uncomfortable silence and stares, followed by their “You don’t want to dilute the value of your home, do you?”, followed by my “So I take the hit but you don’t, even though your hit is only 1.5% of my hit?”
They are mostly pure evil. All that over about $175 to them.
“Dilute the value of your home …”
If you sell it, it’s not yours anymore. Who cares?
The Devil is in the details…
“In the past, policy makers have had a ‘Faustian pact’ with banks in which they accepted the risk of occasional crises that comes with financial innovation because the products helped to maximize growth, Cailleteau wrote.”
“For years, regulators and investors sold an appealing tale: The U.S. has become so sophisticated and efficient at managing risk that a financial meltdown is unthinkable.”
Reminds me of the claim that “we are all Keynesians now” by Nixon, and its assumption of the ability to manage away the business cycle, just before the onset of stagflation in the 1970s. After futzing around for half a decade, Volker was forced to solve the problem in the most painful way possible.
Painful, yes, but it was the only way possible. At least then the patient was healthy enough to take the medication. This time around that same prescription would surely kill it. I guess that means one possible outcome which is a severely weakened economy for a decade or more. Our economy will resemble a decrepit person that is wheelchair bound and sucking on oxygen while wearing Depends.
Reminds me of Douglas Adams. His perspective was that the impossible is far more likely to happen than the improbable. This is because when we say “improbable”, that means we know the risk and we’ve calculated it. When we say “impossible” (or “unthinkable”), on the other hand, we simply haven’t a clue of the mechanism or likelihood of the event. I thought that was funny when I read it, but it’s served me well in my estimation of reality since then.
“‘The only lesson the U.S. has learned from Japan is how to clean up the post-bubble mess,’ says Roach, now chairman of Morgan Stanley in Asia. ‘America has failed to learn the much more important lesson; how to avoid dangerously destabilizing bubbles in the first place. The Greenspan/Bernanke ideology still places disproportionate emphasis on the former while ignoring the latter at great peril.’”
I read up on Fed Ben yesterday…
He only scored 1590 on his SAT test, so he isn’t a dummy.
But i’m thinking he’s just “book smart”, as in he knows all about the Great Depression of a different time and different place, and how to avoid a similar event, should one come to pass.
The world is so vastly different from the 1930’s, though.
He may grasp the situation at hand better than anyone else on the planet, but that does not imply the problems are easy to fix or even fixable.
Let’s not confuse intelligence with wisdom, or common sense. The only “lesson” Greedspan or BB seem to have learned form the Great Depression is, “avoid deflation at all costs”. Never mind that the rampant easy credit and buying on margin might have been averted in the first place with a few sensible regulations. “Regulation” (other than taxpayer subsidies that benefit banskters & corporations) is an anathema to a supply-sider.
There were many intelligent people who “purchased” homes with toxie loans. Buyers with knowledge, wisdom and common sense did not. So much for high IQ!
I agree, HARM. I recently read BB’s essays on the Great Depression to try to get some insight into what conclusions he drew from his extensive study of the GD. His analysis is all very brilliant and IMO all very beside the point. He knows the anatomy of a extremely well, but I don’t think he’s ever seen a forest. I could see after reading his essays how it was possible that he didn’t see this coming. It was all contained.
For some reason this posted in the wrong place.
Also, I meant to write, “He knows the anatomy of a tree extremely well…”
And now, magically, it’s back in the right place. Ben’s gnomes are playing tricks on me.
I think it will be upon him before he recognizes it. Can’t prevent something “should it happen”. He will be amazed, simply shocked and amazed (again).
The world is much more similar to the ’30s than we’d all like to admit. Bernanke is a Monetarist through and through, believing that just by keeping the money supply from deflating that crisis can be averted.
What he doesn’t realize is that it was the prior expansion of money that caused the crazy imbalances in today’s economy, and that his “saving the world” approach to diffusing the credit crunch by pumping more liquidity into the market only delays the inevitable to a darker day than the one we would see if he let things take their natural course immediately.
Cause and effect… cause: excessive expansion of loans where they did not exist as money before. Effect: eventual contraction of money supply and crisis
U.S. IN RECESSION, SAYS TOP MERRILL ECONOMIST
Merrill in Recession, Says U.S.
Flatlander-
LOL, post of the day!
Chicken(merrill lynch)Little
I have noticed that NAR and RE agents have been worried about potential buyers getting Too Much Information, (TMI) about properties.
Have no fear realtywhores and friends, as here is the ONLY little titbit of information they REALLY need to know.
The Nation is in a Recession and Real Estate is an absolute BUST and it’s GOING DOWN for the next 5-6 yeasrs MINIMUM. Have a nice day NAR
WASHINGTON (MarketWatch) — The U.S. economy is in a recession, David Rosenberg, chief North American economist for Merrill Lynch, wrote Monday. “Friday’s employment report strongly suggests that an official recession has arrived,” Rosenberg said in a note to clients. Other Wall Street economists have said much the same thing. “The key question now is how deep the recession will be and how long it will last,” wrote Richard Berner and David Greenlaw, economists for Morgan Stanley, in a note to clients on Monday. Over the weekend, Harvard economist Martin Feldstein said he believed there was a greater than 50% chance of a recession in the United States this year. Feldstein is on the committee of academic economists who typically determine when recessions begin and end.
I’ve been looking over past #s for unemployment and GDP.
Basically, it looks as though output and corporate profits take the hit first, with unemployment rising only later. Since output is the measure of recession/expansion, and the data needed to determine this is inaccurate until lots of data comes in, we are probably already in recession.
On the way out, the economy booms for a while before most workers benefit, as we have had one initially “jobless recovery” after another.
“Feldstein is on the committee of academic economists who typically determine when recessions begin and end.”
Bwahahahhahahahaha!
One way for high-profile economists to abet recession prediction success: Tell everyone a recession is on the way. (Wall Street variant: High profile analyst makes “a call” that moves markets in the direction of the moving herd of sheep.)
LMAO
Paulson: No Easy Answer to Mortgage Woes
http://biz.yahoo.com/ap/080107/paulson_housing.html
How many degrees in finance & economics has the US generated in the last 15 years? We’re a “smarter” Nation right? The “free” Markets can “innovate” a “solution” for anything right? What the heck does anyone need with “common sense” anymore…just find someone, anyone..and tell them that your an American and your “entitled to accumulate debt” because…that’s how the American Gov’t “rewards” it’s citizens…Listen America…where is the incentive to: “SAVE MONEY” ?
“He [Paulson] said this raised the possibility of a market failure and was the reason the administration brokered a deal with the mortgage industry to freeze certain subprime mortgage rates for five years to allow the housing market to recover.”
With this comment, he admits the bailout was for the banks, not the mortgage holders.
What’s a “market failure?”
Shouldn’t that word be forbidden among free-market extremists? The market is always right!
The market only fails if sellers are unwilling (for whatever reason) to drop their wishing prices to a level the market will bear.
“How many degrees in finance & economics has the US generated in the last 15 years”
WAY too many. We’ve become a nation of traders with nothing to trade.
America is a nation of shopkeepers & keepshoppers…
“How many degrees in finance & economics has the US generated in the last 15 years”?
Precisely. However as a sage once put it when greed confronts intelligence, the outcome is seldom ever in doubt. IMHO a degree in economics is actually a handicap when it comes to understanding human nature because you just can’t model greed.
The academic field of economics has evolved into applied mathematics predicated upon a fundamental assumption of human behavior that is both simple and wrong. People do not make rational decisions with necessary information. VERY few economists (Shiller is a notable exception) study actual human behavior (individual and group) and attempt to understand the psychology behind it.
Powers of observation served me better than any school I ever attended.
This is an overly simple description of economics. Economics makes certain assumptions about rational behavior when studying models.
One problem, is that what economists mean by “rational” varies from what most people would consider rational. For example, most on this blog would likely consider it “irrational” to sell everything you own, steal, prostitute, etc for another hit of herion. An economist on the other hand might call that rational behavior, but you have to understand the context. When the economist says its rational, he means in a very limited scope with respect to that one person’s value system. He does not take into consideration a larger sense of how a person should behave (such as, according to a religious value system or some such thing). On the other hand, when people frequently use the term “rational” as you just did, they typically mean the word in the context of their own value system, not necessarily the value system of the subject.
Economics doesn’t make any claim (or at least not much) with regard to philosophy or psychology. Economists don’t try to explain what might drive a person to become so obsessed with gettng high, that’s left for psychology to explain. They simply accept the preferences of that individual (or many individuals) and analyze what may happen next based on those preferences or change in preferences.
When applying economics, it is important not to get personally/philosophically involved with people’s decision making. That doesn’t mean its not important in a more absolute sense, it just means that economics is designed to address certain things and does so in a certain way. If you want to understand how an aggregate economy of individuals might behave, economics is an excellent tool. If you want to change a person’s value system or understand how a person’s value system might change, psychology is probably more appropriate.
“If you want to understand how an aggregate economy of individuals might behave, economics is an excellent tool”
Do the Chinese have an aggregate economy of individuals? How would their behavior differ from say: India?
Which of the two would have a greater effect on the price of say: toilet paper?
That’s a really good point. I retract my entire position.
On a side note, my refrigerator is doing a terrible job at boiling water, can anyone recommend a better model/brand?
Good points, bluprint.
However, a model is only as good as the assumptions that underpin it, and it behooves a good scientist to keep asking whether the assumptions are tenable.
We can clearly see here that the assumptions were broken, and not just broken, deeply broken.
In Adam Smith’s time, the study of econcomics was called the study of socioeconomics. The old timers had it right. Humans are not rational all the time, as I keep harping. Social mood, emotions and irrationality creates extreme markets such as skyrocketing gold (from fear?).
That story pissed me off- the fix is to let the housing market retreat to historical market levels and let the banks, lenders, and borrowers pay for their mistakes.
The feds will delay the inevitable if they try to meddle with a fix. The fed should really concentrate on seeking out those who perpetuated fraid in this mess, not trying to protect their wall st. buddies.
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No warning will dissuade someone in the throws of speculation!
This is not an original; just my recollection and paraphrase of someone famous.
Jas
Greed and speculative bubbles are like eternal lovers. One can’t live without the other.
This is certainly not original. Just look around you.
Weird typos in that article.
http://www.minyanville.com/articles/BKX/index/a/15430
“In fact, if that is the case, we may not even have seen the first out of the first inning yet.”
Yikes.
$1.05
We’ll see.
Excellent article.
What we here have been calling a solvency crisis they are calling a debt crisis.
Whatever word you choose to use the meaning is the same: We are screwed.
“probabilistic view”
Great word
“emphasis should be on intelligibility rather than quantity”
Great word. Great quote.
“By fabricating bonds from the payments people are expected to make on everything from credit cards to mortgages
By fabricating incomes.
By fabricating home values.
By fabricating the importance of overpaying for a home.
This whole thing is one big fabrication.
I’m going to fabric store!
That’s why it’s called a “bolt” of fabric….
When there is too much, run away.
“I’m going to the fabric store!”
See if they have anything in 60’s psychedelic..because this has been one long strange…”trip” babeeeeeeeeeeeeee
Hey Ouro Verde,
If your ever in one of those “funky Leucadia” thrift stores and you see a t-shirt with one of these on it…buy it for me would ya?
http://www.petermax.com/
And who says Americans don’t make anything anymore?
WE print money and give out credit! Were dam good at it.
If you had even metioned the R word (RECESSION) 3 years ago, NAR and the MSM media would have tried to put the cottage door on your chest and crushed you with rocks
“A report by real estate giants CB Richard Ellis says that a 15 per cent drop in the value of new homes has been disguised through ‘incentives’ offered by developers to prospective buyers to encourage them to buy properties.”
How many months ago did we beat this topic to death on the HBB?
“In a House of Representatives hearing in November 2003 titled ‘Protecting Homeowners: Preventing Abusive Lending While Preserving Access to Credit,’ Cameron Cowan of the American Securitization Forum testified on behalf of the fast-growing $6.6 trillion industry.”
“Cowan urged Congress to avoid regulation and also to stop state and local governments from measures aimed at curbing predatory lending.”
It is no surprise that those that want to game the system don’t want anyone looking over their shoulders.
“Roach called it the ‘bubble fix,’ a policy then-Federal Reserve Chairman Alan Greenspan is now at great pains to justify. Ben Bernanke hasn’t deviated from that strategy since succeeding Greenspan in February 2006.”
It looks to me like the fix is already in (again!)… Or is that just a DCB?
http://www.marketwatch.com/tools/marketsummary/
we’re setting up to make an intraday double bottom in the indices
unless this time it’s different!
Maybe a DCF (dead cat floor)?
One thing is for sure: Whatever force is driving the motion of U.S. headline stock market indexes is moving them in perfect synchronization. The correlation across any pair of them must be 99 percent or so.
“They treat symptoms of the problem, not the underlying disease.”
That pretty much sums up the nature of the underlying disease, which is a myopic emphasis on political expedience.
And the underlying disease is Wall Street. Is it no surprise that New York real estate is still strong? The gangsters looted the nation and the money is being invested back in New York. I imagine some will find its way to Florida too, so the loot can be safely buried in real estate. See Enron and OJ for more information.
Ok, I gotta ask……what’s a shotgun home???
You can shot a shotgun through the front door and have the cartridge go out the back without hittint anything n betwee.
Gun shot goes in the front door and out the back.
long skinny house 12 ft wide. I had to wiki it myself. Learned something!
A house built to accommodate breezes blowing through them. Usually found in hot climates.
But that’s bad feng shui! LOL. You are not supposed to be able to see your back door through your front door. But that’s true of my house. Maybe that explains my run of bad luck.
Also, the correct southern term is shotgun SHACK, not home. It was a style of house that poor white trash lived in.
Kids were watching Dave Ramsey last night and he was saying that the whole sub-prime thing is way overblown and that the media was being melodramatic. He said a few places had some problems, but other places were doing great. I couldn’t help but think what a horrible disservice he is doing to people who look to him like some sort of god and might actually buy in this declining market. Luckily kids know he is wrong about this - they just like his get out and stay out of debt advice.
He was a big loser once and it seems that he has learned nothing.
I agree he is doing a disservice. I wonder how he is going to spin this as it continues to get worse. I like his get out of debt message, but have had to turn the channel a couple of times when his rants about how the economy is great get out of hand.
A long narrow home.
Wow, I just read something I thought would have never heard come from the Bush Administration: “After years of unsustainable price appreciation and lax lending practices, a housing correction is inevitable and necessary,” Paulson said.”
Look out below…it’s finally been accepted at the top of the ladder this whole fiasco could have been avoided if people would have acted responsibily and lending standards had not been thrown out the door. They finally understand which makes me think…it’s worse than we could have ever imagined.
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Atlanta Fed President Lockhart says that painful adjustments would be necessary. Isn’t this another confirmation of the recession?
Looks like our economy manager are moving from denial (of the recession) to acceptance. What do you think?
Jas
“Looks like out economy manager are moving from denial (of the recession) to acceptance. What do you think?”
I think our economy managers are moving from PUBLIC denal (of the recession) to PUBLIC acceptance.
None of them could have been so dumb as to not to have seen this coming.
I think I can already hear the helicopter rotors approaching in the distance.
Mr Bear,
…if you change your handle this year…from M.A.S.H.:
Radar: “incoming”
They are looking at inflation on one side and the economy on the other, and they know they are going to be hard pressed to do much.
At least now they can blame it all on something. It isn’t like this whole mess was a failure to regulate and manage, right? lol
“After years of unsustainable price appreciation and lax lending practices, a housing correction is inevitable and necessary”
After months of constant blows by the invisible hand of the free markets Paulson cries “uncle”.
LMAO!
“Certainly, if this cycle turns out as bad as some imagine, analysts will look back at a plethora of warnings that should have been taken seriously.”
They were taken very seriously unfortunately. Don’t believe Greenspan when he says he was a bumbling idiot. He committed an act of treason and worked with the Bush Administration and Wall Street to push it under the rug and allow them to screw as many Americans as they could before he exited and the SHTF.
This would be plausible, had Greenspan not done the same thing for Clinton in 1998, Bush’41 in 1992, Reagan in 1987.
The “Greenspan Put” has been around as long as Greenspan has been presiding over the Fed.
And anyone else who gets the job - regardless of whether he is batting right or left handed - will protect Wall Street first or foremost.
You want a new Fed, in terms of politics, you have one choice.
It is a home that a shotgun can fire through the entire house, mostly drywall and thin siding. Houston has neighborhoods of these.
Let’s see I need an uzi house.
Built of cement no windows.
I just want to clue you guys in to this website, which is showing promising negative “appreciation” in the Bay Area neighborhoods that I checked (even though DataQuick has been suspiciously reporting gains all over the Bay Area).
http://www.bestplaces.net/zip-code/San_Jose_CA-79512600000.aspx
Bush+Paulson+Bernanke
Axis of See no Evil
You forgot the 4th axis: “Dickey Boy” Cheney
“Shotgun shack” is a vaguely derogatory term for a small, cheap, one-story house. Usually, these shacks have only one main room, with the front door directly aligned with the back door, and thus the idea of firing a shotgun into the front door and having the shot go out the back door. Historically, poor southern blacks lived in these shacks, usually as renters, on the edges of large agricultural operations where they worked. The American rural South still has many of these shacks, some falling down, others still occupied.
In Atlanta they are called historical gems. Throw in a granite countertop and you got yourself a luxury pied-a-terre! Yuppies eat that crap up. Dont bother with the asbestos or lead paint removal, or adding insulation, they dont mind. That’s if it’s got granite countertops of course.
Yeah. Here in San Jose, they’re either called “cottages” or “bungalows”. They usually won’t allow pets (because the cottage is pristine, you know), and often describe their 80-year-old ovens as “cherished”. I always want to call up the owner and say “Hey, if you cherish that oven so much, why don’t you take it with you?”
And they say those clawfoot bathtubs have value, but who can move one?
Check out this list of losers.
http://www.thestreet.com/s/kass-what-to-do-when-the-smart-guys-lose/newsanalysis/investing/10397271.html?puc=_tsccom
Holy crap!
Now I won’t feel so bad if I lose a 10 spot when my jeans go through the laundry.
OK, how do you keep your job if you make a bone-headed investment like one of these?
“…Despite the protestations, dogma and dismissive comments regarding a recession from the permabulls, who apparently still believe in fairytales (Goldilocks), higher commodity prices, weakening consumer spending and years of heavy borrowing has become the backdrop for economic and investment disappointment.”
Yeah, well I saw for myself just this morning, Goldilocks… sporting a new tattoo, ride up in her Harley (HOG) with a box of Krispy Kremes (KKD)and walk into Starmucks (SBUX) and man I mean to tell ya…her AS$ has gotten rather WIDE!
River Garden - check out this house. It has some style and charm. The historical society (office) approved this development, that could not have garages.
http://www.housingzone.com/probuilder/article/CA6384960.html
are we buying these for the welfare bums of NOLA ?
110 billion and mo to go
flatffplan,
What really ticks me off about the federal lending laws is the welfare bums can’t be discriminated against, even though they don’t earn their income.
Someone with a disability (physical or mental), the sick, the elderly, I have no problem using tax money to help (its our moral obligation), but I agree with you 100%.
Slow sales and sinking prices at River Garden…
Not to mention slowly sinking houses. Maybe New Orleans is the one place those floating Mississippi riverboat condos (genius idea, not) would actually be useful.
That part of New Orleans doesn’t really sink. You’re thinking of the areas drained in the last century, which is where the subsidence is. Along the river is good land (relatively speaking).
Banks reluctant to lend? Naturally. Put yourself in their position. The bottom IS NOT IN and it’s pretty obvious that neither the banks, Bahgdad Ben Bernanke or Godfather Paulson know at what point property prices will bottom out. In fact, according to the Godfather’s remarks today as he attempts to hype up the 5 year mortgage freeze on sub-prime, 1.8 million resets in the next two years could cause the property market to collapse.
Pretty scary for banks who are closely watching to see when the water is safe to swim in.
One thing IS certain. The bottom is still a long way off. Now is NOT a good time to buy. Thus, for example, if Joe Sixpack goes to his bank for a mortgage, they are going to look at it through a microscope. The banks figure his application for a $400,000 loan at this point, could very well be upside down by $100,000 (or more) in 2010. Even if Joe Sixpack comes up with 15% deposit, a $100,000 drop would still put the bank underwater. That said, there are very few who can come up with a 15% deposit in a country with negative savings and giant credit card debts.
So, if anyone is dumb enough to think of buying at this juncture, follow the money. Do not follow the loan pattern of Freddie and Fannie which are simply government chartered propaganda hype machines, trying to breath life into a dead property market. The money to watch is bank money. Once they start easing (probably slowly at first) we could be near the bottom but one thing is 100% guaranteed. The CEO’s of most banks are being very careful now that they see others of their like walking the plank. Before the bank CEO’s start lending at a normal rate again and give the order to loosen up the money spigot, they are going to have to be 200% sure the bottom is in.
I just unloaded a condo i had in Scottsdale(Nov 07 bought in Feb 05) for a really nice profit FSBO. It was sheer luck due to the location.
I had an interest only loan. It adjusted and i had no problem with the adjustment. My dad told me I was an idiot for not going 30 year. But, I told him that as long as values were going up it was a good move AND-I told him that greenspan said people should be going with adjustables(i needed to bolster my argument to him so I did not come off as a complete moron).
The moral of the story is, I played with fire and got lucky. Greenspan should be tarred and feathered for his directives.
I’ve learned. I’m renting and will be for the next several years(despite friends and associates saying I’m throwing money away by renting) and I invested the condo proceeds in SLW-Silver Wheaton.
I like reading conversion stories.
get an arm loan”
greenspin 2004
Time for Fed Overkill
http://www.thestreet.com/s/the-time-for-fed-overkill-has-arrived/newsanalysis/investing/10397340.html?puc=_tsccom
“…what we really need is the resumption of normal financial risk-taking.”
What fool signs this guy’s paycheck?
This guy wants the fed to lower interest rates so much that little old ladies will be forced to send their money to Wall Street instead of keeping it in CD’s. Then Wall Street can get their cut, and finance more speculator condos in Miami. Great plan.
You have pretty much nailed a description of the War on Savers, IMO… The only thing I have to add is that Wall Street knows how to make dough on both legs of the round trip through a broad trading range. The down leg is when grandma gets fleeced, once she has submitted to the pressure to seek higher yields in the stock market.
“‘People are concerned about the way things are going,’ said Chris Daigle, who bought a new double-shotgun on South Chippewa Street last year. He paid $300,000 for the pumpkin-colored home before KB Home sheared prices.”
Looks like the clock has struck 12:00, the Housing Ball’s over, and Mr. Daigle’s splendid coach has turned back into a pumpkin. Sad, sad little Cinderella…
In connection with the rent v. buy question, I stumbled across this extremely negligent article. I encourage you all to comment as it could get ppl in real trouble.
http://finance.yahoo.com/expert/article/mortgage/59677;_ylt=Aort0zDCZlExUGWNwxhctzi7YWsA
“Reading between the lines of your letter, you have never fallen in love with a house and are content with your lifestyle as a renter. So be it. Don’t let anyone talk you into doing what your gut tells you not to do.”
Sounds like very good advice to me. But yes, the stupidity of advising a larger down payment over paying off huge amounts of debt (and not even questioning whether this guy should buy at all considering his inability to stop spending) is frightening. And the next question about reverse vs. HELOC - how about “sell the house NOW if you don’t want it anymore?”
Oh well, one out of three is better than some we’ve seen.
Characteristic vernacular shotgun shacks? No. Shotgun “homes.”
Luxury shotgun homes.
Price reduced.
OT, but can anyone explain the situation in Portland and Seattle?
The CA equity locusts are gone and although there are definitely some very big companies there, I can’t understand why their market hasn’t budged yet (except for overbuilt condos).
My theory: Because of the “credit crunch,” the CA equity locusts are no longer buying, true. However, the CA locusts that already bought, bought late (2006?), riding the coattails of the mythical “rolling bubble.” [btw, the rolling bubble was quashed because interest rates don't roll like demand does, interest rates are instantly national.] They are probably still in Year 2 of a 3-year I/O loan, both on the Portland house and the California HELOC that provided the cash for it. Therefore, their payments haven’t reset yet, they don’t need to sell, and they can still hold on to a wishing price. Portland now is probably a lot like CA in 2006.
Musical chairs still going on. Seattle had a housing boom LONG before the rest of the USA ran up.
There’s a great old roller coaster at Carowinds in Charlotte NC called Thunder Road. It’s a double coaster, with two symmetric sides. The ride includes a really tall hill, with the ratcheting chain to pull the cars up the hill. What usually happens is that one side will get a little ahead of the other - then when hits the top of the hill it takes off, while the other is still there at the top of the hill. Pretty soon though the other one takes off too.
That’s my mental image of CA vs. Seattle and Portland.
But the rents for a house that would cost more than $500K are in the neighborhood of $1600 max. I just don’t understand why people haven’t done the math and stopped buying.
According to a guy I met at a New Year’s Eve party who had just bought a house it was because Portland is different. It may stay the same price for a while, but it won’t go down like those other cities. Meanwhile, this idiot didn’t know what type of mortgage he had! My first exposure to a complete FB.
JJinla- 1. People cannot do math. 2. People have been ingrained to own.
I want to own so I can punch out walls, redo kitchens, etc., but I know math.
It doesn’t really matter….people will still buy even in these conditions. Believe me, if no-doc loans came back tomorrow, you see a line of people overbidding on homes yet again.
these conditions and no-doc loans are mutually exclusive
“‘Banks facing further writedowns are reluctant to lend, so the extra liquidity from the central banks isn’t greasing the wheels of commerce as intended,’ says Simon Grose-Hodge, an investment strategist at LGT Group in Singapore. ‘When the likes of Blackstone are getting turned down, you’ve got a problem.’”
I think we are MUCH better off when vultures like Blackstone are unable to buy US companies. All they do is lay off employees, gut any pension funds, sell the assets, and move anything remaining of the companies to the third world. Doing this should be illegal.
jjinla-
King County median went down MOM four months in a row beginning late summer. Last month, the median went down YOY by 50K. All of this was reported in the Seattle Times.
Anecdotally, friends took a big hit on their beautiful home overlooking Lake Washington. OAP= 630K (May ‘07). Sold for 480K in Nov. (Seward Park).
Judging a whole market based solely on the fact that there are still some buyers out there is a huge (whacky!) mistake. People are still buying houses all over the US, even in FLA. Trust me, people will be buying all the way down to the bitter bottom, everywhere, including Seattle and Portland.