Weekend Topic Suggestions!
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The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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Name:Ben Jones
Location:Northern Arizona, United States
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More snarkery from realtors that th decline will be confined “only the poor people” in crappy exurban subdivisions. Ah, denial, keeps them warm at night.
http://www.dallasnews.com/sharedcontent/dws/dn/latestnews/stories/011808dnbushomes.284b111.html
For the Used House Sellers it is probably profitable to highlight the top tier housing as stable or appreciating and the lower tiers as falling in price. This will get them sales at the upper end from that fraction of folks who have too much money and do not know better and it will put pressure on owners/sellers of properties less than 1 million to lower their wishing prices - and thus create sales.
What gets me is that somewhere along the line it became ok to want to buy a house at prices so far above the conventional 3 x gross income. Again, I lay this on the Used House Sellers and the Lending Sharks who worked in concert to push what were already bubbly prices in 2001 to the mega bubble prices we saw at the peak.
What was it that made any of that acceptable to the buying public? How did they rationalize putting themselves at such high risk? We have all made fun of the “Buy now or be priced out forever” REIC line of bull, but why did J6P fail to see this kind of misinformation for what it was? Were they blinded by greed? Did they wannabe “Rich and Famous”? And now REIC is still at it with this artificial division between rich and poor. What tactics do they continue to use to “manage” buyers and sellers?
‘but why did J6P fail to see this kind of misinformation for what it was?’
It was a buy high, sell higher mentality. We knew that it stunk to see a house double in price in 3 years that had sat for the prior three years appreciating at the rate of inflation maybe otherwise. But when the momentum of price increase happens, the REIC was on board to pump it along with its pithy commandments.
“only the poor people”
Many Realtors will soon qualify for membership in this group.
January 12, 2008
Real estate agent’s death probed
Staff and wire services
Autopsy results are awaited to determined the official cause of death of a well-known Coachella Valley real estate agent.
Joan Hammond Rothermund’s death was being investigated as a possible suicide by the sheriff’s Hemet Station and Central Homicide Unit, said sheriff’s Deputy Herlinda Valenzuela.
The body of the 58-year-old Realtor was found in a sedan with a bullet wound to her head shortly before 9 a.m. Wednesday at Carrizo Road, west of State Route 74 in an incorporated area of Pinyon Pines, Valenzuela said.
Rothermund was a well-known real estate professional in the Coachella Valley who often appeared on “Real Estate Showcase,” a local nightly cable show, with her business partner, Brenda Rudman.
She and Rudman were agents with Prudential California Realty in Palm Desert.
“Nobody knows what happened,” said local Realtor Bill Waring, who gave Rothermund her start in the Coachella Valley at the now-defunct El Paseo real estate company Lobland Waring almost 30 years ago.
“She had made millions, sold her company over a year ago during the prime and had a home in Beverly Hills and Indian Wells,” Waring said.
“It’s just tragic,” Waring said. “She was so hardworking and driven.”
“The entire Realtor family in the Coachella Valley is stunned and deeply saddened by the untimely death of Joan,” read a statement Friday from Greg Berkemer, executive vice president of the California Desert Association of Realtors.
“Joan was a vibrant leader with a tremendous sense of humor,” read a statement from Chris Gilfillen, spokeswoman for the Desert Estates Network.
Investigators ask anyone with information to contact (951) 791-3400 or (951) 776-1099.
What is Deflation?
If we know what it is………then we can deal with it.
http://www.inflationdata.com/inflation/Articles/Deflation.asp
So we have an engagement………..
Now to the marriage.
CFC/BAC
Here is the agreement………….will it stick?
http://sec.gov/Archives/edgar/data/25191/000089882208000107/exhibit21.htm
I hope BoA insisted on a proper pre-nup.
A little arson with your foreclosure, your Honor?
http://news.yahoo.com/s/ap/20080118/ap_on_re_us/judge_house_fire
I was just going to post that. I am still laughing. The rotisserie plan!
and don’t forget. This didn’t really happen because Texas foreclosures are only the little people
Firebug Medina was Governor Perry’s attorney, great.
A problem underlying the housing bubble: “Wall Street’s five biggest firms together paid a record $39 billion in bonuses, even though three of them suffered the worst quarterly losses in their history and shareholders lost more than $80 billion”
http://tinyurl.com/2zplb6
And the WashPost has the IBs of Wall Street all combined as suffering ~41 billion in loses linked to sub-prime. Just think if they could have contained their own greed and taken the money from the profitable units and used it to cover the unprofitable units they would actually have weathered the first wave of this storm. Corporations do this b/t divisions all the time and they reward the good lieutenants with alternative forms of compensation. But not the IBs, each division is stove-piped and hence the greater organization must suffer the loss. Totally stupid business model. Those rewarded will feel even more empowered to walk and have the means to do it now that they have their bonuses, whereas the alternative compensation could have kept them on board for the future long term benefit of the greater organization. But that is the way of professional partnership firms as they are not corporations.
The electorate may be forming doubts about the utility of corporations in any case. Corporations that do significant damage to the even greater organization, the country, should be put out of existence.
I agree completely. I think almost all of the corporate outrages we have seen– starting with refusal to hire women & minorities prior to the CIvil Rights Act, on to environmental damage, option back-dating, book-cooking, huge bonuses to failed execs– can be traced back to flaws in the corporate organization and governance rules.
Instead of piling new regulations on corporations, we really need to start a separate project aimed at repealing corporation laws altogether. The supposed economies of scale of large corporations are often just a means of aggrandizement for an eilte clique of individuals. Even if economies of scale exist, they come at an unacceptable social cost.
Corporations should NOT have the same rights (or more) as an individual. They certainly shouldn’t be allowed to lobby and to put money to political use.
These social costs are what the electorate will become more & more aware of as they suffer from them. Corporations originally were a way of forming organizations that outlived individuals, as a way of preserving certain activities that benefited everyone, e.g. schools & universities, small governmental units. If a corporation don’t benefit the rest of us, why have it?
The old timers said it better:
We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain inalienable rights, that among these are life, liberty and the pursuit of happiness.
That to secure these rights, governments are instituted among men, deriving their just powers from the consent of the governed. That whenever any form of government becomes destructive of these ends, it is the right of the people to alter or abolish it, and to institute new government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their safety and happiness.
Don’t see any corporations listed there.
A company is only a group of people. What I have seen lacking in my business life is a lack of ethical standards on the part of the individual. Most people do not have high moral expectations of their employers or their elected officials. As long as it works it is all good for most of us. What did most people say when the then president was shown to be morally bankrupt? They said “It has nothing to do with his ability to do his job.” I have walked from high profile jobs at a couple of top companies over the course of the years because my threshold of corruption was breached and i couldn’t reconcile “playing ball”. Hey, someone else was always to step up to that plate in my place.
We reward successful corruption and only punish failure.
To those who blame the evil corporation for the plight of our country today, I suggest that we as a people get what we bring on ourselves. Only babies and idiots deserve to take the part of the victim.
Skye
Hmmm…too many “lackings”. Is that like a double negative? proofread!
The fundamental premise of a capitalist economy is that the individuals determine the utility of goods and services by their purchasing or abstaining from purchasing.
Yes, we have been conditioned (since the advent of this central bank combined with 16th amendment(income tax)) to expect a central body to do these functions. Just take a look at the elite politicians and bankers attempting to tinker with monetary and fiscal policy to “stimulate the economy.” Unfortunately, that is a premise of collectivism.
I am all for your suggestion. It starts with education and knowledge of the differences between the two economic ideologies. If folks don’t like the corporation, stop consuming their products or services. Eventually, they will either change the product or go out of business. Expecting the government to legislate the problem away will only shift the monopoly and ultimately, slowly erode a capitalist economy and our constitutional republic, as written in the constitution.
Hopefully, folks will begin to realize that we will get the government we expect, and deserve. If we truly desire collectivism, I have no doubt that is what we will get. Unfortunately, history has shown that this economic system is destined, in the long run (more than a few years, or even decades), to leave the majority in destitution.
My vote for a starting place is to repeal the precedent (actually wasn’t originally signed into law) of corporate personhood. Number two would be forbidding corporate lobbying. This might open legislator’s time to consider issues important to the nation as a whole….
Try telling an equity prop trader who shot the lights out last year, mortgages or not mortgages, that he’s not getting a bonus because the bond traders were greedy and stupid. He’d leave. There are plenty of jobs for him out there.
Don’t let the door hit ‘im where the good Lord split ‘im. We’re suffering from a super-abundance of people who can shoot out the lights, and from a severe shortage of human beings.
Amen, tresho.
$39 billion must be a pretty healthy bonus per banker. Same people who spiked the tranches with the toxic debt? Its the “reward the guilty” phase of bubble recovery.
Nice…. Reward for fraud and failure. But hey…. You and me? We better walk the straight and narrow…. “Personal accountability” you know. Straighten out Mister…. You’re “lucky” to have a job.
WTF…..
‘Suppose house prices do fall significantly. Suppose there really does have to be a significant adjustment to bring residential property values back towards their normal relationship with wages. How do we as a nation best get there?’
‘Take a 20 per cent fall in average home prices from the present £197,000 to £158,000 over three years. That might sound cataclysmic, but it is not a particularly extreme outcome.’
‘Such a fall would bring prices back to levels of two years ago and would still leave the ratio between prices and earnings stretched by historic standards. But what would be the best path for such a fall? What would be optimal - or least damaging, anyway - for the wider economy?’
‘Is it better that prices should slide gently but continuously for three years? Or would a quicker and deeper plunge in year one, followed by two years of stability or even gently rising prices from a new lower base, be better?’
‘Conventional wisdom has it that a prolonged and gentle slide in prices would be preferable to a more sudden jolt. The latter would be too much of a shock, making people feel poorer and leading to a collapse in consumer spending.’
‘However, classical economics suggests that the quicker prices adjust to a new equilibrium, the better for efficiency, not to mention the millions of first-time buyers currently priced out of the market. A short, sharp shock might be the lesser of two evils. Just don’t expect estate agents to agree.’
I don’t think consumers really could afford the levels of two years ago, either.
I like this as a topic. And of course, I prefer a faster fall in housing prices. Why prolong the agony? It just gives the powers that be more time for idiot tinkering, trying to postpone the inevitable. Like Bush’s “economic stimulus” package. God help us all. The last time he gave the US tax cuts, the twin towers got hit, followed by a disastrous military action, the Patriot Act, the largest deficit ever in US history, and of course, the housing bubble. The powers that be have used every disaster that has befallen this country since 2000 to make things even worse and reward those who have contributed to bad conditions.
The first question is “how does $100 billion worth of stimulus solve a 25-year, multi-trillion dolalr problem?” The answer is…….bwahahaha. You are making me laugh all you political jokers.
One problem is, everything is connected. A rapid fall in housing prices would most likely have unforeseen consequences. For example, President Jackson precipitated the Panic of 1837 just by requiring that government lands be sold only for gold & silver. Gold & silver disappeared from circulation, banks repudiated their own notes & a 6-year depression followed, even though Congress rescinded Jackson’s order about 22 months after he issued it. Ben Bernanke knows all about such things, probably why he sounded so stressed the other day.
What precipitated the problem was done prior to that action. The problem was precipitated by actions quite similar to today, with a substational portion stemming from a central bank and fractional reserve lending. A fundamental premise of Marx’s communism is a central bank. He states it as plainly as that.
We originally opted for a different system based on the principles espoused in The Wealth of Nations (1776). Marx attempted to refute those principles in the mid 1800s. Although when you read his philosophy, one will find his logic quite fallacious.
There was a poster here a few weeks ago who said he got into 100K of credit card debt (normal expenses) and his FICO fell to ~470. He walked, declared total BK, rented and saved, and his FICO went to ~685 in three years…something like that. The point is that he recovered far faster than any of these 5-year teaser freezer people ever will.
And really, there are jobs on the way down as well as on the way downup. Realtors can handle bank sales, construction workers can dismantle the crap housing and recycle the material…not quite the boom pay, but it’s honest work.
oxide, that was me. fico 482 to 704 in 2 years. filed ch 7 on 125,000. new home and new cars life is good if you read bens blog.
Throw Bens post up against what appears to be an engineered effort by the Fed, WhiteHouse and NAR to keep prices in the clouds. There is a confluence of contrived events coming. Zillows already established misrepresentation of pricing, Fed/Whiteouse charade of a one time rebate of $800, NAR’s new distortion campaign, IRS tax refund check season and copious amounts of denial spewed by local RealTards. I’m not suggesting it will be successful but conspiritorial BS aside, it sure looks like a contrived effort to re-ignite this.
Great topic Ben, perhaps we could include Deflation and the velocity of money here as well.
Not only is it better if prices fall, but it is worse for your community if prices fall more slowly than elsewhere.
We are sticking it to younger generations every way we can, but someone needs to work and pay taxes. In competitive regional economics, whoever has the young wins. And extremely high prices relative to entry level wages do not help.
Here’s how I see it…
The price of money (interest rates) has been artificially kept down (and asset prices, of all kinds, artificially inflated) in the hopes that people will spend and buy homes at inflated prices. The people with money know all of this, and therefore refuse to loan against artificially inflated collateral, unless the borrower has some skin in the game. The smart money is unlikely to risk their money — via loans, capital expenditure, etc. — as long as things remain imbalanced and unstable.
I think there is a TON of money on the sidelines — waiting to make loans, buy houses, invest in business, etc. — but if this money is invested while **prices of everything** remain artificially inflated by the credit bubble, it’s very likely that money will vaporize as the credit bubble collapses. So…the money sits in cash earning 2-4% (unless your short) and waits.
I don’t see the smart money getting back into circulation until things start to look more compelling. The longer the wait, the more pain there will be, as people (borrowers, businesses & non-savers) will quickly run out of resources and will have to endure many years of hardship.
Best to cut the losses, let the credit bubble collapse quickly and violently, so we can get the money back into circulation and begin anew. The people who control this money are NOT so afraid of violent shake-outs, as they know that’s when opportunities arise.
If we can get to “the bottom” of the credit bubble within a year, we can be that much closer to healing the wounds and getting back on our feet. Should have been done in 2001, but they decided to postpone it. See what good it did?
your short = you’re short, obviously.
Jan. 18 (Bloomberg) — UBS AG, Europe’s biggest bank, will shut its U.S. fixed-income principal finance unit as part of plans to reduce risk-taking after writing down the value of subprime mortgage investments by $14.7 billion last year.
UBS will also cut the number of employees in its real- estate and securitization unit by 50 percent from the peak in August, reduce the capital committed in the unit by two-thirds and create a new risk-management role, Chief Executive Officer Marcel Rohner wrote in a note to employees. The company already closed down its credit strategy desks in Asia and Europe.
The ideal new home buyer…a renter who’s never owned a house. The NYTimes weighs in on the ’shape of the new housing market’.
http://www.nytimes.com/2008/01/18/business/18norris.html?_r=1&ref=business&oref=slogin
New Ideal Home Buyers will then only be able to buy from New Ideal Home Owners … those who have never owned a home. Just great.
Memo to times RE section editors: Read the business section before proclaiming the Manhattan market to be resilient. One of the things poised to kill this market is mentioned in the story: lack of mobility. People buying two years ago had the expectation they could sell quickly, and at a profit so they could afford to risk carrying a large mortgage. Those days are gone, and won’t be back for a long time.
BTW seeing quite a few ads for co-ops here in the boros touting board requirements for “only 10 percent down.” I expect that percent down figure could plunge even further as desperation grows. There just aren’t that many renters — even in NYC, with the cash on hand to cover a large downpayment, and a stomach for that much risk.
” The only way prices got so high was that people who could not afford to buy those homes were given mortgages they could not hope to repay unless home prices kept rising.”
classic bubble unstable feedback
What will the masses do with their Gubmint rebate check? Pay down debt… Not likely, they will rush out to Wal-Mart and send to back to China, IMO.
G.W. will talk about the “stimulus package” today and the FED will cut rates. We’ll get a short term boost and then back on the correction course, no way around it.
Markets will pop up a little today because IBM did well over seas… Right?
I will pump my rebate money right back into my gas tank. That’ll stimulate the economy (not).
Gee, I’d probably put mine in my Roth IRA which is invested in… foreign equities. THAT will help the U.S. economy.
I’ll save half of it, donate at least 10% of the rest, then use the remainder to buy a couple of small items that my business needs.
The headline that the stock mkt Rebounded cracks me up..
After looking at how much it has gone down, and then only to see a “rebound” like that.. well, pardon me, but that kind of gas passes quickly.
Recession Talk is Cheap
http://article.nationalreview.com/?q=ZGQ0NzU2MzIwOGNjYTc3YjI5MmQ1ZDUxMWVjZjA0Y2Y
“The current economy is working through a self-fulfilling soft spot, but the fundamentals remain sound. There’s no reason to think the economy won’t emerge in the next few months in typically vigorous fashion”.
Either this guy is completely delusional or I am. He believes his master the FED can keep this juggling going on forever, without ever dropping a ball… We’ll see.
As Ben says, the FED is irrelevant. I agree.
I really wish they were.
Don’t know about the Main Street economy, but I see no reason the nominal headline stock market prices cannot get back up to where they were late last year and even continue going higher, so long as the prices of gold and foreign currency are not of concern.
This weekend I would really love to see a thread that gives anecdotal details of how J6P is really holding up. I would like to hear what the little guy is saying around the country. Being isolated on this island and not living in the real world makes it very hard for me to sometimes understand what is going on in the real world. I live 3 blocks from Wall Street, for god’s sake. How much further removed can you get from reality?
I see some signs of reality kicking in. One co-worker has a house destroying his finances. Another co-worker has a house languishing for sale in Westchester. Another co-worker bought last year in Jersey for a ridiculous amount and just can’t believe that prices will go down. If we get a weekend thread on “The Trials and Tribulations of Joe Six Pack and Sally Silicon” I might be able to find more to share. I hope you can too. Reality is in such short supply here.
Excellent topic idea!!!!!
Good topic. Let’s hear from around the world. How is everyone doing today? Hearing any chatter at work, reading stories locally? This will paint the true picture.
NEighbor and co worker who is Renter-7 yrs, great tenant, just got a notice from idiot landlord who says he is raising rent to 1600 and this summer to 1750. Meanwhile all the real estate agents are telling clients to NOT raise rents, too much on the market to be had, and much much newer.
What is this idiot landlord thinking?
palm springs.CA.
Would appreciate if you would share any other thoughts on valley real estate. Were in San Diego and its just far enough away not to be able to get a real feel for the situation.
http://www.homespalmsprings.net/
Rothermund was found dead, shot in the head with a gun,duh, anyway, up in Pinyon Crest Jan 12. She apparently worked as Jim Westmann’s (sp?) sales agent.
Don’t know, but they are speculating suicide, but women dont usually shoot themselves, and if she was in that much financial trouble,.. me thinks she was hit..
Wonder if that had to do with all the real estate nonsales out here in Palm Springs.
Just saw a flyer on a house in the desert, big letters…
$100,000. OFF now $695,000.
Whaaaaaaaaaaaa?
Yes, great idea. I’ve met one person, just one, that understands what’s happening and he’s never visited this blog.
‘Another co-worker bought last year in Jersey for a ridiculous amount and just can’t believe that prices will go down.’
May be part due to him/her thinking that greater fools must still abound.
I agree, this is an excellent topic, I was going to suggest something similar, in fact. I was just at a playgroup with my two year old. We all chip in a dollar and rent space from a local church for a few hours once a week.
I noticed two things that were different than usual. One, there was a father there with his kids, usually it’s all women. He looked/talked/dressed like a white collar worker, the sort of guy who’d be at work on a Friday morning. I remember seeing more Dads at my older son’s playgroup back in 2001-2002 too. Also, the box where we put the money had a lot of quarters in it, meaning several people paid with change.
My brother works in a supermarket and he said he’s noticed more people using coins to pay for their purchases too.
I noticed a few dads at the YMCA playroom too, although I haven’t been there in recent weeks.
Finally, in the past two weeks, I’ve met two more people in my town who are renting sfh. Renting: All the cool kids are doing it.
Interesting…
As a matter of fact, I did notice more dads at our most recent playgroup. Will keep an eye on it to see if it’s a trend.
My neighborhood in north Atlanta is a mix of boomer & older affluent and apartment dweller section 8ers. The easiest way to tell what is going on in the hood is at the local grocery stores. Today the Kroger was almost empty. There were a few section 8ers in the store & most were staring at the food like kids looking at puppies in a pet shop window, with very liitle in their hand held baskets. It seemed that most of them were also having to make weighty decisions about what they could in fact buy. In the check out line I was behind an elderly affluent lady who berated the store clerk when her total came to over $100. The old lady said it was “too much money for not much food.”
The street we live on is one of the few middle class townhouse developments in the area. We’re kinda sandwiched between the high & the low. This week one of our neighbors came home & saw a roaring fire burning in the fireplace of the vacant unit next to him (don’t know if it a foreclosure). The neighbor called the fire department. When the fire department arrived, a squatter was discovered living there.
San Diego County:
1. A realtor we’ve used on a few transactions quit RE and started working for an atty. She’s been in the business for over 10 years.
2. Another realtor we’ve used (Central Valley, CA) told me that things basically stopped dead just after summer, and they are having a very rough go of it.
3. We know at least two people who’ve been laid-off in the mortgage business. A couple more who are looking for other work in a non-related field before pulling the plug.
4. Another couple of people we know in the construction industry are picking up other jobs, not in construction field.
5. Almost everybody we know who’s bought a house, or cash-out HELOC’ed, is living paycheck-to-paycheck. They openly talk about how stressed they are about finances.
6. We know one family that lost two homes to foreclosure. Both parents were in the RE business. (Quite frankly, they deserved it, and don’t even seem bothered by it.)
7. The sportfishing industry in So Cal has been slower over the past year — and seems to have slowed down even more over the past few months. Also, there’s been a rather significant uptick in tackle/gear/boats for sale.
8. When people find out we’ve sold property (three transactions, a fourth in escrow pending some legal work) over the past six months, they ask in amazement how we did it so fast (all in escrow within 30 days). They still seem to miss the connection between lowering the price & selling.(????) They ask if we had to “give it away.” (not kidding, their words) A couple of these people have asked because they’ve been trying to sell their homes (on and off the market, over and over and over, again) and “just can’t seem to find the right buyer.” [rolls eyes]
9. Best of all…whenever someone discovers we’re renting, they say, “Wow! you are soooo lucky/smart!” Totally different responses than what we got a few years ago, by far.
What will the proposed $1600 per family rebate do to the current state of the economy, housing market and the FB? Hmm… now the FB can pay the mortgage for one more month or put a security deposit on a rental unit. This guy might be able to buy his own appliances once he leaves the church shelter:
Evicted man makes off with $1,600 in appliances
http://tinyurl.com/24526w
According to the famous Credit Suisse reset chart we’ve about finished the first quarter of the greatests all-time bubble blowout. I am curious what other people think the news, markets, etc will be like as we get to halftime and then the postgame season.
Where are we (relative to the housing market) in your part of the Country??
Some have alluded to the housing market boom and crash as the old five part-denial, bargaining, acceptance psychology when getting news of fatal illnesses such as cancer.
Personally, I found another psychological indicator for financial markets to be much more enlightening. I have posted this in the past (don’t recall where I found this), but here it is again;
Beginning with the start of a new “boom” mentality and subsequent mania:
-Optimism
-Excitement
-Thrill
-EUPHORIA (top)
-Anxiety
-Denial
-Fear
-Desperation (mid-way to collapse, about near equilibrium of former levels)
-PANIC
-Capitulation
-Despondency (bottom)
-Depression
-Hope
-Relief
-OPTIMISM.
From my perspective, here locally, we have reached the point somewhere between Denial and Fear. A year ago, we were at the anxiety stage where the market declines were viewed by the “investors” as a temporary set-back, with lots of talk from the Realtors™, about how the market would come back in the spring, summer, new years…blah, blah, blah. This reached the denial stages during the past year, and FEAR is beginning to be seen here. Prices are falling, houses are sitting, mortgage re-sets are coming and the reality that buying houses to flip to someone else for a higher price than you paid has reached it’s end. Bagholders are everywhere. Brokers are still trying to generate interest of the “fence-sitters” (make me gag).
Desperation has not yet set in, but is getting near. We’ve had some good sized reductions from builders, but that mentality has not captured the over-all market (after all it’s different here). I think we will see that by Summer as the re-sets FORCE people to SELL. I am beginning to sense some desperation, but it’s not the general sentiment.
My hope is that we will see this stage by Summer and perhaps panic will ensue by year’s end. That will be shopping time for me. This will still be too early to call a bottom, but close enough not to have made a severe financial error. Bottom in Spring 2009??
Probably not, but call me an optimist!
Where’s your market today?? EVERY MARKET’S DIFFERENT. Right??
I went for a my bi-monthly massage for a bad back, service related and the lady who has seen me for many years stated, “boy we are in big trouble in this housing nightmare.” Well so much for relaxing. She went on to give chapter and verse about the whole shabang. I had specifically not brought it up during my visits as I need a few minute away from it. But there it was, a massage therapist all over the issues. She pretty much hit it on the head all the way, including global issues.
Then she said, ” her business is off about 80% because of all this stuff.”
My massage /spa owner friend has said her business is down easily 50% if not more. And it is high season now. Coachella Valley.
Too funny!
My accupuncturist and I had this same discussion this past week! Her husband is in the RE field and thinks we are heading for a depression.
My masseuse is losing clients like crazy. She used to be a legal secretary, but became a masseuse and physical trainer to get away from the grind and do stuff she enjoys. I’m guessing that the local nouveau rich are cutting back a bit.
Interestingly, the SFR “for sale” inventory in my area has hit a 20 year low according to paperdinero’s site. But rental SFRs are popping up where they never used to be available. Perhaps another sign of the nouveaus digging in to try and wait this out?
Denial is over, mass depression is here.
Another J6P-related suggestion, although it’s not housing-specific. On Wednesday “Evil Capitalist” seemed to be saying that there was no reason for him to employ J6P-in-tech because it was so much easier (and profitable) to work with recent immigrants on the hard stuff and contract the easy stuff out overseas. I believe that what he’s saying is true right now, but what is the likelihood that the top 0.01% of knowledge workers from around the world (those that are very smart, very motivated, and willing to work and think like an owner while having very little actual ownership stake) will be available and affordable in the future? Seems kinda bubbly to me…and likely that those guys will eventually be EC’s competition rather than his employees. Will the skills required to manage J6P rather than just fire him ever make a comeback?
One thing that comes to mind is what is a “recent immigrant” in this context or for that matter J6P? Most non-immigrant workers in tech that I have worked with do not qualify as J6P especially after the dot com bust.
As for the immigrants I assume that EC isn’t talking about immigrants from Europe and Japan, but from India for the most part. To get a good tech/knowledge worker from India, they would have to be educated in the first world or if in India at IIT (India Inst. of Technology) or equivalent. Needless to say very few Indians go to IIT or an equivalent institution. I have worked with guys who went to IIT and they were VERY GOOD. However, they were so sucessful that they generated more jobs so it doesn’t end up being an either IIT guy or non-immigrant.
Maybe the immigrant part doesn’t even matter. Maybe the real question is will his business always be profitable enough to employ the top 0.01% from around the globe and ignore the rest? Or will the top 0.01% eventually be able to start their own businesses right from the beginning and skip the “apprentice to the rich American” phase of their career?
What is the best way to symbolically thwart the misquided intentions of our glorious and heroic politicians with regards to these “rebates”?
a. Buy only staples (food, gasoline) with it
b. Buy physical PMs
c. Spend it overseas
d. Puff up the old mattress
e. Donate to a worthy cause
Use it to short the market?
Sorry to beat a dead horse (again), but does GSE debt have a gubmint guarantee or doesn’t it? I heard a news item on American Public Media’s MarketPlace show yesterday evening which rekindled this rumor.
My guess is that when and if push comes to shove, the GSEs will have to start announcing major write downs just like other NYSE-listed private sector lending institutions (Citi, Bear, Merrill, etc). Otherwise, why would they have a NYSE listing?
Here is a link to the story with a transcript:
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Thursday, January 17, 2008
Fannie, Freddie seen as white knights?
(The Fannie Mae building in Washington, D.C.)
Fannie Mae and Freddie Mac have been under close scrutiny the last few years, prompting Congress to call for tighter regulation. But now the Bush administration wants them to ride in and raise more money to buy more mortgages. Jill Barshay reports.
http://marketplace.publicradio.org/display/web/2008/01/17/fannie_mae/
Technically, no they are not gauranteed. Freddie Mac and Fannie Mae’s main direct benefit (of which I am aware) is that they get below-market rates for borrowing from the govt which they use to finance loans. In that sense, they are “subsidized” by government. Otherwise, currently there is no gaurantee of solvency.
However, there are many who believe that if they truly became insolvent, the govt would “have to” (politically speaking) bail them out.
I’d still like to hear thoughts on why so many foreign countries got housing bubbles at the same time, especially if (as Krugman says today) the problem was capital flowing into the United States.
Good stuff here…
Mr. Bernanke asked a good question: “Why is the United States, with the world’s largest economy, borrowing heavily on international capital markets — rather than lending, as would seem more natural?”
His answer was that the main explanation lay not here in America, but abroad. In particular, third world economies, which had been investor favorites for much of the 1990s, were shaken by a series of financial crises beginning in 1997. As a result, they abruptly switched from being destinations for capital to sources of capital, as their governments began accumulating huge precautionary hoards of overseas assets.
The result, said Mr. Bernanke, was a “global saving glut”: lots of money, all dressed up with nowhere to go.
In the end, most of that money went to the United States. Why? Because, said Mr. Bernanke, of the “depth and sophistication of the country’s financial markets.”
The country owes Paul Krugman a debt of gratitude for saying what needed to be said:
“Right now, Mr. Bernanke is in crisis-management mode, trying to deal with the mess his predecessor left behind. I don’t have any problems with his testimony yesterday, although I suspect that it’s already too late to prevent a recession.
But let’s hope that when the dust settles a bit, Mr. Bernanke takes the lead in talking about what needs to be done to fix a financial system gone very, very wrong.”
Everyone was printing money and cutting rates. We didn’t invent negative real interest rates; the Japanese have held rates down for a decade. When one nation cuts rates to the bone it pressures others to follow or face economic stagnation. All that money running around the world looking for a home after the stock market bust had to go somewhere. It didn’t just go into houses (Chinese industry boomed) but where else would money go? With stocks out of favor, savings rates way below inflation, and lots of money available to borrow against real estate what do you expect them to do? The average person can’t open a factory or lever up and do currency carry trades so they buy something tangible, something they think they understand. They buy real estate.
Bond insurers spark new credit concerns
By Aline van Duyn and Saskia Scholtes in New York and Stacy-Marie Ishmael in London
Published: January 17 2008 19:09 | Last updated: January 17 2008 23:23
Fears that the credit crunch might be entering a traumatic new phase grew on Thursday as investors lost confidence in the insurers that guarantee payments on billions of dollars in bonds.
Shares in Ambac Financial and MBIA, the world’s biggest bond insurers, fell 52 per cent and 31 per cent, respectively, as Moody’s Investors’ Service raised the possibility that both might lose the triple-A credit rating on which they depend.
http://www.ft.com/cms/s/665b9482-c52e-11dc-811a-0000779fd2ac,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F665b9482-c52e-11dc-811a-0000779fd2ac.html&_i_referer=http%3A%2F%2Fwww.ft.com%2Fhome%2Fus
How do you think the housing bubble and crash is going to affect your life? No change? never buy a house? get laid off? make a ton of money?
I sold and moved out of state in 2006 because of this bubble. Now it seems I am in a state of limbo waiting for the next shoe to drop.
I sold in 2003, and moved out of bubble country in 2006. I may move back at the end of this year if prices drop enough.
Though the $US is at its lowest level since 1989 against the Swiss franc, movements in the value of the S&P 500 since then dwarf currency fluctuations. Any thoughts on where this comparison is headed?
http://www.marketwatch.com/tools/quotes/intchart.asp?symb=C_CHF&time=20&freq=1&comp=&compidx=SP500%7E3377&compind=&uf=0&ma=&maval=&lf=1&lf2=&lf3=&type=2&size=1&txtstyle=&style=&submitted=true&intflavor=basic&origurl=%2Ftools%2Fquotes%2Fintchart.asp
This chart is in nominal terms. To be accurate you would have to adjust the s&p for inflation and survivor bias. This chart adjusts s&p for inflation only:
http://bigpicture.typepad.com/comments/files/modifiedshiller.jpg
You should also adjust the CHF for deflation. Unfortunately I have not found a chart of inflation adjusted CHF. I suspect s&p would still outperform but with the obvious high volatility. For example I would have rather bought CHF than s&p in 2001 because 7 years later I would still have a loss in s&p, even before adjusting for inflation.
Kellner: Stimulus plan may fail because people may end up using it to pay off debt or replenish savings.
Maybe they need to attach strings to that $500 (or is it $1200?) rebate, in the form of a spend-it-now-or-lose-it feature. I suggest distributing coupons by helicopter drop which must be spent at the local mall within seven days or else the value drops to $0.
http://www.marketwatch.com/
As for the Joe6pack local anecdotes:
I went to Home Depot yesterday and it was emptier than I’ve EVER seen it. When I wanted to know when the gladiolus bulbs would arrive I had the undivided attention and helpfulness of three (3) whole helper men in those darling canvas aprons who leaped to the computer to find out every least little detail regarding pending gladiolus shipments. Only to find out that their supplier just went bankrupt, so no bulbs for a month. Maybe that’s part of the anecdote, come to think of it.
What are the odds of recession at this point? I am almost certain I heard on NPR this morning that BB says the odds are 50:50; is every random outcome in the real world just about as likely as getting heads on a fair coin toss?
I think a good topic for discussion would be, just how much we boomers are going to extract out of following generations. Social security, medicaid, medicare, heating assistance, homestead credits, senior discounts……the list goes on..and will get bigger, as we are a very large voting block. AND, because of society becoming so obese, we will out live the up and coming generations.