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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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On The Edge… This old gas bag says we are on the edge. We entered a recession months ago, at least by my way of thinking. Your thoughts on the subject?
http://www.bloomberg.com/apps/news?pid=20601103&sid=aI_HoK4yXcYc&refer=news
From his speech:
“Among consumers, though, spending has been slowed by falling home values, which leaves homeowners with less capital to borrow against, Greenspan said.”
This is a great demonstration of how the American economy has deteriorated into a downward consumer driven spending economy. Mr. Greenspan is not lamenting the loss of industrial production, the lack of export capacity in foreign markets or the lack of available skilled workers. We no longer have an economy based on making products (even complex ones such as microprocessors or antibiotics) but instead we have an economy based on credit. Our economy is becoming increasing based on borrowing from wherever we can and wild speculative investments. Even the government has turned to deficit spending to prop up the economy.
If you don’t make stuff, you can’t buy stuff. Is there any theory in neoclassical economics that makes this point?
We create money.
Actually, we create debt.
No actual theory I’m familiar with, but a good real world example would be most African countries who are not big exporters. They are perrenially impoverished - they have little of value to trade.
Actually, we never left recession since 2000.
However, if you mean “technically”, we’ve been in recession at least since Aug.
Exactly! The credit bubble created a facade of “wealth” when we were in recession all along.
And I remember as late as the spring of 2007 the MSM and pundits saying that there was no bubble and that a sub-prime meltdown wouldn’t have any effect on the economy. Once the rabbit was out of the hat they revised things saying the housing meltdown (bubble burst) started in 2005 in an attempt to shorten the time to the expected recovery based on past dips in the housing market.
He’s beginning to sound like a silly old fart…………..Shame really.
Krugman in a weak essay on the “loss of faith” that caused the bond auction failures, though it mirrors posts here that Wall St. has killed future trust in its products and methods.
http://www.nytimes.com/2008/02/15/opinion/15krugman.html?hp
I would like articles and discussion of house price drops in states other than FL, CA, NY, NV. Try Tennessee, Pennsylvania, Ohio, Texas, Georgia, Carolinas, Virgina, etc. We need more news on those states!
bye fl ben has posted many articles on the states you suggested
A related subject; how and why does the housing bubble seem to burst so differently in various places? For instance, Massachusetts broke in 2005, and Florida sailed on. But now Florida has passed MA on the downside. And California broke even later, yet has now accelerated below both of these east coast states (generally). And Australia was showing major cracks as early as 2004, yet is crumbling ever so slowly.
Ben to add to your post
manhattan and many areas close by are still pretty strong
why have we not seen major declines in the nyc area?
except for the suburbs for the most part prices are holding firm
it is very frustrating but thankfully i am patient
but there sure are alot of people here with major $$$$
There were reports of double digit declines in NYC condos late in 2005, then those reports just vanished. As far as frustrated, can you afford those prices? Here in N AZ it doesn’t matter what most of us feel, there is no way the vast majority could make the payments with the loans available.
no we cannot afford to buy in manhattan unless we eat ramen and never leave our precious box
no thanks
i have been pretty much convinced to stay in my rental which is very close to the city and really large (3 beds)
and it cost me less then what a studio in manhatan cost
I am also frustrated by the disparity. I concentrate my research mainly in Denver, Atlanta and DC/Baltimore. Declines are not even. For the most part exurbs taking the biggest hit, then condos. Housing in good neighborhoods in good locations are not really declining much in my target areas, and in some cases still moving up. I have no doubt they will eventually fall, I just hate the wait. I think a lot of it is that the overbuilt areas are hit hardest and they actually have more houses in the exurbs and condos than ppl to fill them. Whereas there is always a shortage of houses in nice areas with great locations. Red areas are expanding exponentially at this point though.
Laurel is half way between Washington and Baltimore. Can commute to either, plus commuter rail. Near NSA and NASA goddard. Prices are down slightly, for sale inventory is under control, but what is on the market sets for a long time. Maybe if more stuff could sell I would see lower prices?
Yes. I have noticed that too. List prices not down, but not much selling. Any major disruptions in the market, such as acclerated job losses, etc. will force prices down.
Hey Ben, how about a topic regarding those rare few places where prices are STILL not coming down: Manhattan, San Francisco, Portland.
Any predictions for these “special-it’s-different-here” places? Will they eventually come down more than other areas, because the run-up was so high, or will they hold value better because of their supposed specialness?
Does the “they’re not making any more land” ever have any truth to it for places like Portland (with urban growth boundaries) and San Francisco (height restrictions in many parts of the city).
Or should us poor bitter renters just give up and leave…
I can’t really say anything about other places but it appears that here in Mass many people are just holding on to their properties. I’ve been keeping track of SFH and condo’s that appear on ZipRealty in two zip codes. As they pop up I put them in a spread sheet, then I periodically check the assessor’s web site to see what they sold for. About 45% of all the places that were listed on Zip between February and June of last year haven’t sold.
Hi,
Not sure how to interject a new or related topic, so I apologize in advance to those who do this all the time.
My thoughts go to the accuracy of the data used to indicate the ’supply’ backlog, the calculation using the monthly sales figure and the total MLS listings to derive the number of months it would allegedly take to work off the ‘existing inventory.’
Sometimes driving home from errands I end up going by a new upscale community near downtown Orlando called Baldwin Park. At night it seems like a ghost town with very few lights on, very little apparent activity.
So I wonder what the real numbers are as far as months to sell homes “on the market.” Because it seems to me what is actually on the market is only a fraction, perhaps a small fraction, of what people really want to sell but have not listed.
Perhaps someone could estimate this based on unoccupied houses and/or the surplus of homes built in the last five years relative to actual needs for new housing for that period?
Joe
UK’s dipladokus
down in 04 w slight increase in int rates then back up ? usually things go one direction after cracking
I dunno, flat. The BBC said that the last bust in the UK (90’s I believe) had three distinct false bottoms/rebounds, only to see much lower prices.
People need to beware a false bottom in America too. All the “experts” are always calling out the bottom, yet prices keep dropping!
Perhaps a good read of the Crash of ‘29 by Galbraith may provide some awfully good perspective.
Those that fail to learn from history are condemned to repeat it and IF this really unwinds, the prospect of anyone staying whole or regaining their footing will likely be very dim.
prospect of anyone staying whole ??
Exactly….IMO, everyone will pay a price to some degree…
“All RE is local!”
My thought as well. The oversupply is very different in different parts of the country, states, counties, and even towns. Take the Sarasota-Bradenton market for example.
Massive overbuilding and speculative purchases in North Port and downtown Sarasota high rises, for examploe, but virtually nothing new has been built on the Sarasota bayfront or barrier islands. As a result, prices have fallen a lot in North Port but relatively little on Siesta Key. Sales are off everywhere, but where few people must sell, prices are falling more slowly. In the end, all prices will decline a lot, but the speed and extent of adjustment will still depend on local supply and demand conditions.
“Californication”
IIRC, even in 2003/2004, people in California were starting to look elsewhere for “investment” purposes. There was a feeling (at least in San Diego county) that things were getting a bit overdone, but there were opportunities to be had in the slower-growing areas. I definitely remember reading the speculators’ posts on RE blogs…they were always looking for the next bubble area. This was around the time Utah and Idaho were starting to see new “investors” from bubble states.
When they (equity refugees & flippers) invested in these new areas, they used money from their CA homes (HELOCs and cash-out refis) to buy them — and many also had no or low down payments. The credit market was getting even funkier, but the bubble was beginning to really roll across the country. Mind you, San Diego was already stagnating by mid-2004 while other areas were just starting to pick up.
These investment properties were only bought to make money, and the flippers had no intention of holding on to them or sticking around if they lost value. Combine that with no job centers, and the most toxic of mortgages, and you get the sudden crash, as there is no fundamental reason for prices to rise in many of those farther-flung /lower income areas.
OTOH, places like Boston, LA, San Diego, New York, etc. really do have a variety of well-paying jobs which can keep prices propped up for just a tad longer. Many recent buyers in the bubble areas had large down payments from previous sales, so they have a significant buffer before they are underwater. The poorer areas are negative from the moment of purchase (more 100% LTV loans), so they’re going to be the first to fall.
After the lower end of the market crashes, the higher-end markets will tank as the new buyers for the move-up homes will not be coming in with the tremendous down payments from selling their starter homes.
Just MHO.
Well for the most part the concentration is because FL et al are where the bubble was worst, and so where the bust is looking most impressive. And there have been stories about NoVA and the Norfolk Area.
Define worst. Also, I used to post quite a bit on N VA, but the local press doesn’t cover it as much now. Perhaps bubble awareness and percieved bursting has more to do with the media than straight economics?
And look what pops up. I have to disagree with Shiller on this one:
‘In the America of big-city housing markets, especially on the coasts and in the struggling industrial Midwest, the huge run-up in values in recent years has given way to big drops in prices and sales volume. But in the other America, specifically in small cities like Austin; Grand Forks, N.D.; Yakima, Wash.; and Salem, Mass., the available evidence suggests the real estate market is holding up. Prices there never boomed as crazily as they did in the big cities, and now, even though volume is down almost everywhere, prices in many of these towns are firm or rising.’
‘I would call them backcountry cities,’ said Robert J. Shiller, an economist at Yale University and an expert on real estate markets who predicted the bursting of both the housing and stock market bubbles of recent years. ‘They are just going through normal growth, and they are out of the bubble picture.’
People who spend all their energy looking at numbers in an ivy tower sometimes find simple concepts difficult to grasp. The backcountry is just behind the curve, the rules are the same.
While its apparent that those areas that exceeded historical norms the least have the smallest fall to be back in line, changes in lending criteria and the recession will still have an impact. You cant cut supply without raising demand and have the same equilibrium.
The ivy tower set has not yet collectively grasped the possibility of a sufficiently massive mortgage credit tsunami to roll all the way inland from the coasts and engulf the entire midwest in its floodwaters. The real situation on the ground indicates this, but academic perception is a lagging indicator of reality.
The vast reaches of flyover in our country, is more like a back-story, not backcountry…
Overbuilding knew no bounds, even in the sticks.
I remember stories of people “snapping” up shiny new condos in the “historic downtowns” of these same backwater cities in 2005-2006. As if the young hip urban crowd wants to live in vibrant “historic downtown” Lincoln NB or St. Paul.
Those are gonna leave a mark. You’re either going to have dirt cheap condos (leading to cheaper SFH), or Section 8’s are going to cook on the steel stove.
Not sure I agree with you guys - I agree more with Shiller. Yes the “backcountry” areas did experience some overbuilding, and excessive price increases - however not *nearly* the same as the bubble areas. I’m talking in percentage terms, not absolute terms.
I live in northern VA - moved from CA recently, and have relatives in both FL and relatively rural areas of NC and TN, and have visited these various areas quite a bit recently. Northern VA, FL, and central CA have seen *massive* overbuilding, caused by price increases that were on the order of 200%. Most rural / mid-west / etc. areas have had price increases more like around 50%, and subsequently the overbuilding hasn’t been nearly as massive - there simply wasn’t the huge profit for the builders there as in the bubbly areas.
As a result - now the inventory overload is way bigger in the bubbly areas. I’ve seen some inventory increase in NC etc., but not nearly as much as in northern VA, FL, and CA. Consequently - prices are falling much much faster in those areas, and not falling at all in many rural / midwest areas.
I believe that the reason for this is that most of the RE speculation was driven by anticipation of demand, combined with a supposed “lack of land”, amongst other factors. So looking at the truly bubble areas:
Northern VA: Perceived demand driven by increased gov. spending due to 9/11, slight lack of land due to being on the east coast.
FL: Perceived demand driven by retiring baby boomers, lack of land due to being surrounded by coast.
CA: Perceived demand driven by tech industry (still, despite the dot-bust), lack of land in the tech-industry areas due to land restrictions.
Las Vegas: Perceived demand driven by boomers retiring and gambling; little perceived lack of land though perhaps some for various reasons like water.
Phoenix: Perceived demand driven by boomers retiring. No lack of land.
So now compare those with areas like the mid-west, most of the rural southwest, much of Texas, etc. No baby boomers retiring to Indiana, and certainly no lack of land. Same to a great extent in Texas.
No offense txchick57 - I know you think much of Texas is bubbly - but it’s not even close to the truly bubbly areas. Some urban areas are a bit - Houston etc., but they don’t compare to DC, Tampa, Sacramento, Miami, Phoenix, LV.
“Ivy tower set”? Come on, this is Shiller, the man knows more about historic real estate cycles than any one alive. He’s been talking about this bubble for 5 years. The Case/Shiller index is the most accurate data around. And he has predicted a 30% drop overall in values. So if he sees a difference in certain locations, he probably has a valid point.
To question his expertise shows a lack of knowledge.
‘To question his expertise shows a lack of knowledge.’
Oh really? Funny, I’ve bested 99% of the so-called ‘experts’ on this. Did you even read the story? $400k houses in Austin that probably sold for $150k in lthe 90’s?
Why don’t we get to what really matters; rents and incomes in Austin are way out of whack with prices and have been for almost a decade. I know, I lived in the are for much of that period. How much time has Shiller spent there?
And why the overbuilding? Why the enormous supply of ‘luxury’ condos? Prices more than doubling, the speculation.
Yes, the kool-aid runs deep, even here.
“To question his expertise shows a lack of knowledge.’
Hmmmm. I’m can assure you Shiller encourages thoughtful critical review of this theories. A more accurate statement would be “[t]o not review other’s work critically shows lack of wisdom, even non-experts may have insights that the experts over-looked or ignored.”
Austin and Houston are currently experiencing a “mini-bubble” driven by oil company profits. IMO there is a bubble going on there, but it’s not really the *same* bubble if you will as the housing bubble the rest of the country experienced, in that it’s not the same timeframe and isn’t driven by the same factor(s), and also isn’t nearly as big. It’s driven not by low interest rates and speculation of real estate prices, but instead increased income due to oil profits. Houston and Austin’s mini-bubble won’t pop IMO until oil prices come down, if they ever do. It’ll stop inflating due to economic downturn however (oil price being equal).
(exeter picks ed hopper off the floor, dusting him off)
You’ll be ok Ed. (laughing)
“To fail to question his expertise shows a lack of knowledge.”
Nobody knows everything, not even the venerated Schiller. There are always gaps in knowledge, no matter who you are. Period. To believe everything someone says because of their reputation is putting yourself in the same mindset cults flourish on.
As for oilpatch country, I still maintain that the rules didn’t suddenly change, it’s NOT different here. The economies are a bit better, is all, but the housing industry saw the same bubble as anywhere else. Insanity is insanity, no matter where it happens to be located. The oil patch country is seeing foreclosures and will see more. Oil patchers are no different than anyone else, they just use more meth.
Pullman, WA is about as backcountry as it gets. Permanent population of 9000, a land grant university, and wheat fields as far as the eye can see.
Yet we have 5 new and empty luxury condo developments dangling in the wind. We have 108 homes on the MLS right now (highest in recent memory) with 2 closing per month (and most of the condos and new construction are not on the MLS). We had a huge building spree, rental vacancies are the highest in 20+ years, etc… And a house that sold for $200k in 2000 is now listed for $379k.
Overall, home prices have roughly doubled in the past 6 years, while income and population growth have followed historical trends of the past 30 years– minimal growth for either.
No Bubble here? Sorry, but Shiller is flat wrong on this one, home price gains far outstripped rent or income gains. No speculation? Wrong again, we personally know four flippers in town and have only lived here for a year.
The backcountry may not be as bubbly as the coasts, but home prices in our bit of backcountry are still 25% above fundamentals and need to fall.
Hellsbells, go to little podunk Green River, Utah, where over 40% of the population makes under the poverty level (stat released by the city a few months ago). About 4 houses for sale, all over $150k, unheard of prices. 6 years ago you could buy a house there for 50k. No bubble in the boondocks? C’mon, Schiller.
‘To question his expertise shows a lack of knowledge.’
To eagerly accept theories from an expert, just ’cause they say it, even an expert who is right a lot, shows a lack of smartness and an excess of dingle-ness.
Mea culpa. I chose my words very poorly. My response was really to Prof. Bear who lumped Shiller in with the “ivy tower set.’ Inferring that he was someone who did not understand what was going on in the housing market.
of doing.
Of course Shiller can say something we can disagree with. I think I was responding to what I saw was a knee-jerk reaction to disparage anyone who wasn’t nee plus ultra negative about the housing market.
So I ended up doing exactly what I accuse GetStu….Prof. Bear
Sending off a quick off the top response without thinking it through.
Oh well, it gave us all a chance to rant a bit.
Question, I know Austin TX has been booming. Last time I was there on business in ‘06, whole subdivisions were springing up. Nice town! I imagine prices have risen? Have they doubled since 2000 like the overheated suburbs of Chicago? I am seeing actual selling prices 20% off peak in Northbrook IL. Austin IMHO will share the same fate.
I can confirm on Austin. Big engineering firm looking for help on all the civil projects in that part of Texas. This goes back to late 2004.
You may want to look at the Contributors…Big Builders and lenders….I suspect, in the smaller rural area’s the lenders will only lend to builders to meet some perceived demand…That along with the normal re-sale turn over likely has kept the demand/supply ratio some what stable….Now, look at the mid to major metro’s and their outliers…Major, mid & small/specubuilders everywhere you look with money flowing like a giant tsunami….
“but academic perception is a lagging indicator of reality.”
Ever see those type of pictures were… if you stare long enough at them… you suddenly “see” another image?
I think you “get the picture”
I think most of it has to do with CA, FL and NV having many areas in double digit declines, while most other states are flatlining or have marginal changes (except limited areas such as DC exurbs). I think it has more to do with disparity in impact rather than preference in coverage. Why cover a 2% drop when you can cover a 30% drop. Patience grasshopper.
In other words, “if it bleeds, it leads.” Of course they’re going to cover the bigger disasters.
I’m very interested in hearing about the moutains of North Carolina as a relative bought there in December of 2006.
I notice in the moutains of GA and TN, house prices are insane as well. I can now buy cheaper in north FL!
This is a great video, the shaking voice and words of Paulson in a 2 minute video. If you had any shreds of faith left in the Treasury, it will be gone…
http://www.salon.com/ent/video_dog/comedy/2008/02/15/bateman_paulson/index.html
This video helps to explain Hank’s shaking voice…
http://www.greenrushcapital.com/fed.html
I woke up early today still stewing over the very troubling impression I took from yesterday’s Senate Banking Committee hearings. Over the short time span of one year, the message from the top has morphed from “Subprime is contained” to “We are doing what we can to deal with a difficult problem we did not create.”
KAI RYSSDAL: You wanna know why economists drive regular people nuts? Because they say things like this:
BEN BERNANKE: “At present my baseline outlook involves a period of sluggish growth, followed by a somewhat stronger pace of growth starting later this year as the effects of monetary and fiscal stimulus begin to be felt.”
Followed seconds later by this:
BERNANKE: “It is important to recognize that downside risks to growth remain, including the possibilities the housing market or the labor market may deteriorate to an extent beyond that currently anticipated or that credit conditions may tighten substantially further.”
In other words, we’re fine — unless the things that’ve been happening for the past six months keep on happening.
That was Fed Chairman Ben Bernanke on Capitol Hill today testifying before the Senate Banking Committee. He had company at the witness table. Christpher Cox, the chairman of the Securities and Exchange Commission was there, as was Treasury Secretary Henry Paulson.
Senators from both sides of the aisle asked Mr. Paulson why the government’s not doing more about the subprime crisis. And after a bit of that he let us know what he really thinks.
HENRY PAULSON: “I didn’t create this problem. I’m working to try to do something about it. If this effort doesn’t work, then we’ll make adjustments in it. But, again, there are going to be …. I don’t mean to sound heartless, because I’ll tell you, when you’re there and you look at the abuses and you look at the predatory lending abuses, and you look at some of the … it’s heart rending. But what we’re doing is trying to deal with it. And about all I can say to you is if you’ve got other ideas for me, for Pennsylvania, send ‘em on in.”
We ought to note nobody took him up on that offer.
http://marketplace.publicradio.org/display/web/2008/02/14/sec/
so basically everything they have tried has not worked
and we will continue to see the bleeding we are currently seeing for a long time to come
also if there is evidence of widespread fraud and shady practices where are the perp walks? the indictments???
maybe ben can go testify
did he miss-remember anything? like clemens
I personally have to hand it to Paulson for calling any critics who might have been lurking in the room on their bluff. It is quite easy to note the existence of a problem and summarily blame it on whomever currently sits in high office. It is another matter entirely to remedy or even just live through difficult problems.
It is quite easy to note the existence of a problem and summarily blame it on whomever currently sits in high office
Yes it’s easy, and in this case, entirely correct. This disaster was entirely man-made, and the USG and the Fed had the power to stop it at the outset. Indeed their actions did much to create the disaster, whether intentional or not.
I am going to step in and say the only predatory abuse was Banks, realizing the average American is a MORON, who cannot read, is a Financial dope, and cannot fathom the idea of spending $200 an hour for an hour or two of a lawyers time to explain the contract to them before signing it.
——————————————–
I don’t mean to sound heartless, because I’ll tell you, when you’re there and you look at the abuses and you look at the predatory lending abuses, and you look at some of the … it’s heart rending.
“I didn’t create this problem. I’m working to try to do something about it.
Its been my experience that saying this just pisses off your boss. I should know I use that line all the time
“…it’s heart rending. But what we’re doing is trying to deal with it. And about all I can say to you is if you’ve got other ideas for me, for Pennsylvania, send ‘em on in.”
Oh, I get it: Paulson “cares” and he’s “open minded” …a modern day “econmoronic hero”… start making the action figures, in camouflage.
And yet my heart is not rent.
We should have a topic on all the desparate things people do during a recession because they are “broke”; specifically the explosion of lies people tell. I had two contractors try to charge me 3 times the actual cost of a service, I got suspicious when niether one would put their quote in writing. I almost fell for it until an honest contractor explained what the actual cost should be.
Now he gets all of my business plus my referals.
In the long run it pays to be honest.
Spook, I think that’s a great topic. I’d widen it out somewhat to discuss the GOOD things likely to come out of economic hard times, i.e. some people getting their priorities in order, and fools (FBs) and their offspring acquiring some hard-won wisdom.
Since I’m in the “stuff” business, I am seeing either selective desperation or obliviousness out there at the secondhand retail outlets like Goodwill and St. Vincent’s. They are jacking up their prices. Not sure why they do this, perhaps to cover their overhead and maintain a profit. Make no mistake, places like Goodwill and St. Vincent’s run on a corporate model, so they are acting just like any red-blooded American corporation, participating in the double-whammy. (Corporations charging more while their customers are making less). The same is true of Ebay, resorting to desperate measures and disguised fee hikes to maintain profit.
On the other hand, the charity outlets that operate with volunteer staff and donated facilities are giving more deals to clear out excess inventory and keep their cash flow up so they can service the recipients of their charity.
‘Welcome to the year of reckoning: Unemployment is on the rise. Home ownership has experienced the biggest one-year drop since tracking began in 1965. The value of homes–most Americans’ biggest asset–continues to slide; the Federal Reserve is reporting an abrupt decline in consumer credit-card borrowings.’
‘No two downturns are exactly alike, and neither are consumer reactions. But there are patterns that cut across recessions and generations of consumers. It’s time for those of us who battled through the last significant recession in the early 1990s to remember what it was like, and for those of us who were too young to become aware. The pivotal marketing question: How will this recession affect consumer behavior?’
I think that people are pretty much spent out, as they’ve bought everything they could have ever wanted, and have no do re mi to keep the ruse going…
I have never seen such a dropoff in sales, across the board.
The value of homes–most Americans’ biggest asset–continues to slide
Well no, the market price is sliding, which is only the value if you’re selling it. If you’re keeping it, the value is the yield, i.e. the equivalent rent. A fundamental truth whose ignorance is the root cause of the idiocy of the last few years.
Although in many bubbly areas, the increase in the housing supply driven by overbuilding, WILL lower actual and therefore imputed rents. It will probably take awhile, but it’s inevitable IMHO.
“…How will this recession affect consumer behavior?’
Some please locate the Avatar known as: “Death Spiral” we need an answer to Ben’s inquiry pronto!
“It’s time for those of us who battled through the last significant recession in the early 1990s to remember what it was like, and for those of us who were too young to become aware.”
Ben, I find that comment interesting because I was in my 50’s then and I and my friends didn’t even know there was a recession until you brought it up on this board. Which tells me that it was localized in selected areas around the country. At the time I was living in Kern County CA and we had the military funding (china lake, edwards), ag, oil, etc to buffer us. This time is definitely different as it is national and probably global as well.
DFW forclosures highest ever. No bubble here, though.
http://www.dallasnews.com/sharedcontent/dws/bus/stories/DN-foreclose_15bus.ART0.State.Edition1.38b1a3e.html
Yes, places like Texas are where the MSM continues to hide from the housing bubble facts. DFW has been at near record levels of foreclosures since 2005! And they almost always have over 10,000 new houses sitting for sale. Houston has had about 50k houses for sale since 2005!
Please folks - remain calm. There is no bubble in Texas:
http://www.nytimes.com/2008/02/15/business/15homes.html
There is a tiny bubble in Texas, save for a few isolated neighboorhoods. Prices elsewhere are simply falling down and will eventrually be at parity with Texas house prices. I use the prices in Texas as a model to “predict” where house prices elsewhere will ultimately reach.
In 2005, you could get a 2000 square foot house in most of Texas for under $150k and this remains the case today but a few thousand cheaper. Meanwhile in Florida, youd be looking at around $300k for the same house. I am now starting to see those houses dipping below $200k and soon they will be below $150k.
Sorry, but this only proves FL is not “different”
my topic suggestion is employment and how this current economic enviorment will hit many of us (hbb’s) in the pocket
i personally have noticed a dramatic downturn in my business and am getting a little nervous about job security
hopefully like myself most of us can withstand a possible layoff due to good planning and saving but the j6p of the world may be in for a rude awakening
how are you preparing for possible major downturn in earnings if god forbid it is to happen to you?
The news this morning stated the the New York Times was laying off at least 100 reporters….
do you think they wee RE reporters.(heh heh)
wee=were
oh, whatever.
it’s early danni lol
i am off to jury duty today (civil case)
i will talk to you guys later
p bear- should i buy the dip?
just kidding have a good one
What business are you in mg? I have been getting work the last 2 weeks going on video shoots as a audio tech. Sure its free lance, a day here and there…but its nice to have friends who worked at CNN and the Reality shows. 2 months ago went on a shoot for American Idol and was with Paula Abdul all day.
aNYCdj-
I am pleased to hear you are getting some gigs. Cultivate those friends and contacts in the biz. Maybe freelance is the way you really want to work anyway. Not everyone is cut out for 9 to 5.
Financially, I’ve got my house in order, but I’m anticipating a slowdown in biz, though it hasn’t hit yet. For the first time, I’m thinking of leaving NYC if things worsen dramatically, and renting upstate where I have family. I’ve always ridden things out here in the city, but I find this time I’m ready to go.
Some of the folks on this blog have been spot on with their forecasting of events related to housing and on up the financial food chain. (I won’t name them)
How about some insight from those same folks with vision (or on the inside?) as it relates to the economy and markets? As contentious as the topic may be, I believe most here can separate sound forecasts from nutjob speculative fearmongering.
Most Wall Street investment banks have shut down many of their securitization programs indefinitely. Despite what those on CNBC may say, or the markets may indicate, those on the inside do not yet see the bottom in terms of write downs and losses. Just this last week there was a massive failures in the remarketing of auction rate securities and FGIC was downgraded. These are extremely significant events, and the announcement of such events is growing exponentially. Until investors feel the credit and liquidity problem has stablized all bets are off. These problems are getting worse not better. Most ppl do not see the connection to other areas of the economy, but almost every major company and municipality in the US has exposure to failed securitization and derivative products.
I take this as a hopeful sign that the damaging sybiosis between the home construction industry and Washington pols may be dying.
In case you don’t understand my use of the term “destructive” here, drive around the nearest McMansion tract home development to your own neighborhood and count the number of “For Sale” signs on each block.
Personally, I think the builders should focus their energies on supplying housing which is suitable for end-users, and leave Washington out of the loop.
Thursday, February 14, 2008
Listen to the show
Home builders cut off political funds
Upset with the lack of action towards the housing crisis, the
National Association of Home Builders said it would not be contributing money to elections this year. Jeremy Hobson reports on the power of money in politics.
http://marketplace.publicradio.org/display/web/2008/02/14/home_builders_pac/
I’d like to see a thread on how the credit contraction has affected local governments’ ability to raise money.
http://tinyurl.com/2qyt9o
Has anyone seen anything resembling what happed with the Port Authority auction where they had to pay 20% on auction rate securities?
I actually heard a commercial on the radio last week, urging people to buy bonds (state or muni, I can’t remember now). They were trying to really push how “safe” these investments were and were touting the tax benefits.
I’ve never heard a commercial like that ever before. Definitely unusual.
Believe it was on KNX 1070 in So Cal.
Return to school! I am returning to the local JC to take math, chem and physics courses. It has been 40 years. I started out in physics and graduated in political science.
I do not know what opportunities it will provide me, however, what else is there to do? If things really get bad (I am an independent WC insurance broker) in my profession/trade, which it will with layoffs, I need a fall back position. It sounds like layoffs will hit all professions and trades!
I suspect that “when the going gets tough, the recent immigrants will leave the US). Someone has to remain to rebuild our country. Besides, I am stuck, I have no country to flee to. Besides, I have no foreign language skills or relatives in another country.
Its time to upgrade my skills, which I believe may be useful and the US in the future!
excellent advice
i am pondering a return to school as well
But for what? We all are pretty computer literate. Learning new programs are no problem. But most programs today are custom tailored to that company or field. And all the employment ads want you to be familiar or have experience with them. And lots of companies especially in the legal field, will not even give you a free trial version if you are unemployed… The classic catch 22.
Hauling around heavy video and lighting equipment and setting up for on location video shoot can’t be outsourced people still need to be interviewed for breaking news on the 24 hour news stations, commercials still need to be shot. They can always hire cheaper but in the end could cost them more for overtime and doing a one day shoot in 2.
But i’l tell ya getting up at 430am Monday, picking up a PA, driving from Queens to Yonkers, loading equipment at 6 am and driving to Hoboken for a 8am start time in somebody’s private apartment….then loading it all back in the van and doing it all over again at the 2nd location, then finishing up at 6pm loading up and driving back to Yonkers then back to Queens at about 9pm , is rough on an old out of shape body . LOL but i did fine and have more work coming down the pike.
An aside, I suspect, in my opinion, that a number of professions will be dead from an employment standpoint, if the US sinks to third world status. Those jobs among many, will be real estate, finance, mortgage, IT and law. I may be wrong, but I suspect that these are not areas of time spent in future training/education.
I suspect the hard sciences and trades needed to rebuild the US’s factories and infra-structure.
Finally, I would like to suggest that no one 55 years or older count on social security. At this stage I am willing to work until I drop, however medical insurance will be critical in the future.
Just one person’s opinion.
Social Security will be the Achilles heel, of the economy…
So many boomers have bupkis, and are counting on it being there~
I expect to see something similar to the Bonus Army, of 1932.
http://en.wikipedia.org/wiki/Bonus_Army
This one will be the Boomer Army…
Sorry, I meant 55 or younger should not count of SS benefits.
I should also say that in the next 4 years, no matter what your age, forget SS benefits, unless you are physically unable to be retrained or physically handicapped.
Welcome to the our future.
You can count on getting benefits; what you can’t count on is what those benefits will buy.
It will be similar to what happened to Soviet retirees, who received 47 Rubles a month in the early 1990’s, which almost paid for a candy bar, after hyper-inflation reared it’s ugly head.
LC and all,
Education and certification is always a great way to get ahead of the competition when applying for a new job, especially if it’s not in the industry where you have your experience.
I see an opportunity in the assisted living industry, which is going to be experiencing growth for the rest of our lives. I was talking to an independent insurance agent with a large book of this business and he’s never had a market for the WC coverage, which would indicate that some of these are self insured. Loss Control is much easier to sell when the accounts have high deductibles or when they’re self insured. They know how much WC is costing them and they should be willing to invest in order to address these costs.
So for me, I’m already gearing up to learn about the industry and give myself an opportunity in the future.
Lip, be careful and thoroughly review your opportunities in loss control, no matter the speciality.
As a former LC representative for 20 years with various major line insurance carriers, you will be “cannon fodder”. Companies will only hire you and employ you if it makes a difference between them and their competition, otherwise they will have need for you. I did not learn this basic truth until I became a broker.
Everyone in insurance talks about the reducing the claims which directly impacts upon insurance costs, however all insurance companies and employees are really concerned with is clever ways to reduce their premiums without doing anything.
Insurance over the last 20 years has not about improving safety in the workplace for the clients or the employees, but about financial (read toxic financial instruments).
If want to proceed in the health insurance area, medical credentials or health administration, would be your best bet. Stay away from the safety profession, because no one will ever listen to you. Very frustrating!
I hear ya, I recently came to the same conclusion myself. It really sucks to realize your career is based in something that’s getting phased out.
I work for one of the 10 biggest “financial services” companies in the US and one good thing that is that they have financial products for everything. So I’m in the process of networking within the company to see if opportunities will open up in the future. Just a way of managing my own risk.
For many the future will bring a multitude of new changes and we need to be ready to go onto something else. Since I’ve read “Who Moved My Cheese?” by Stephen Johnson MD, I just look to the future and try to roll with the punches that come my way.
Good luck in your endeavors in the future. Are you thinking about teaching? I know for a fact that there are many opportunities to teach out here in AZ where the population is still growing.
Lip, I am to old and events/info has changed to rapidly to teach at this stage of my life with my level of knowledge. What I am now trying to do is upgrade my knowledge in the hard sciences in order to get up to the speed in the hard sciences.
Let me tell you, for those that haven’t reviewed math in the last 20 years, you are in for the shock of your life. I took calculus in the late 60’s and repeated the same series in the 80’s. Upon taking the same series in calculus in the current period, either memory has totally failed me or something has changed. I can not believe what students of 18-22 years of age are required to know and produced.
I am totally “blown away!”
If you have not kept up with the current math requirements (read no children studying hard sciences). You are in for a shock!
Go to Amazon to purchase a math, physics or chemistry text as recent as 2006 (real cheap-$50 vs. $150 current texts). You can not believe what the level of knowledge required of today’s students.
I hate to say this, but If you can not balance your check book, this future required knowledge is way over your head!
Lip, be careful and thoroughly review opportunities in loss control no matter what industry.
As a former LC representative for 20 years with various major line insurance carriers, you will become “cannon fodder”in this field. Insurance companies will only hire you and employ you if it makes a difference between them and their competition, otherwise they will have no need for you. I did not learn this basic truth until I became a broker(very idealist).
Everyone in insurance/private employers talks about the reduction of claims, however all insurance companies/employers are only really concerned with is making a profit and transferring the costs to someone else-”Hot Potato”(Read sub-contractors, clients, insurance companies, the public)
Insurance over the last 20 years has not been about improving safety in the workplace for the clients or the employees, but about financially passing the costs onto other parties (read toxic financial instruments).
If you want to proceed in the health insurance area, medical credentials or health administration, would be your best bet. Stay away from the safety profession, because no one will ever listen to you. Very frustrating!
Ben, may I have a do over. Previous post made little sense.
Here’s my two bits on school. Don’t bother, unless you really need to learn computers and the tools one needs to be current (I have 3 degrees from major universities, just sayin’.) Having a sheepskin isn’t what it used to be, it’s been commonized to the point of little value (except in technical fields like engineering and fields such as medicine and law where you can’t practice w/o credentials).
Better to start your own business creating something of value, whether it be an actual product or a necessary service. Learn enough about healthcare to work for some family who wants one-on-one caretaking for their elderly parent. Produce something that people need, even if it’s just trivial sounding, like soaps (ha - something I never use) or healthy products that don’t cost a fortune. Beekeeping is becoming a lost art (as are the bees), but there’s a strong demand for local honeys (OK, have fun with that one). If you can get out of debt and live simply, you don’t need to make a lot of money. Don’t just switch to the slow lane, get off the freeway! Start an internet business that has quality products at reasonable prices (because you’re the producer). Hellsbells, it’s easy to get a wholesaler’s license, get one and buy everything wholesale that you need and use. I have one, and I never pay retail for coffee or much of anything anymore. the only thing I pay retail for is groceries and gas, and I try to buy what I can from local farmers. Business owners don’t care what you do with their stuff, they just want to sell their product. I bought my sister a 20 caret topaz ring for $100 wholesale, she had it appraised by a local jeweler for 10 times that (it was godawful, but she loves it, a blue Barbie-doll skating rink). You can buy all your jewelry from the same places the jewelers do, but w/o the gazillion-times markup. Few even ask for your license, but it’s easy to get. there are a million ways one can cut back and live even better, IMO.
A two year program in X-ray Tech plus a year intern isn’t a bad fall back position. If things pick up you can always moonlight on weekends or after hours. I had a friend here in CA (going back 10yrs) pick up $2K for one weekend a month on call.
Start a business which is more dependent on need not just wants. Start a disaster remediation service business. Then quickly diversify into many different services for both commercial and residential services. Offer both inside work as well as outside. Start up capital for this type of business is relatively low may be 20K. You can recover your initial investment within a month or two.
It is better to control your own financial fitness on your own rather than depend on a corporation. Remember it is very easy to make money but it is more difficult to make a living especially in a recession.
I have 23 years of experience helping setting up small corporation as well as companies that have gone public.
I just came across this gem of an interview on American Public Media’s Marketplace show from last December (which I missed when it aired). My question/topic: Have these proposed rules actually been implemented, and if so, how are they working out so far for the affected markets?
Nancy Marshall Genzer: Hello, Tess.
Vigeland: So what did the Fed exactly propose in terms of cracking down on lending practices?
Genzer: Well Tess, one thing they’re going to do is they’re going to outlaw something that’s been called a “liar loan”. Tess, you could actually sit down with a loan officer and say, without any documentation: “I’m Tess Vigeland, I make a half a million dollars.”
Vigeland: Hahaha!
Genzer: They wouldn’t require any proof of that. So that’s no longer going to be allowed. Also, lenders are going to be prohibited from engaging in a pattern of lending to borrowers who cannot afford to pay a loan at its higher rate. That seems to be pretty much common sense — if a borrower can’t afford to pay, then you shouldn’t give him the loan! Also, one thing that they’re doing is they’re going to sort of crack down on pre-payment penalties, but they’re not going to ban them altogether. This is where, Tess, you’ve got this loan, you don’t make a half a million dollars a year, let’s be honest. So you go out, you get that lower interest rate loan, you pay off the first one that you lied to get and they penalize you for that by thousands of dollars. Now they’re still going to be allowed to do that, but you’re going to have about a two-month window where you can prepay that expensive loan you lied to get and you won’t be penalized for it. But it’s only a two-month window.
Vigeland: Does this do anything to help those who are already facing foreclosure?
Genzer: No ma’am, it doesn’t. This only applies to new loans.
http://marketplace.publicradio.org/display/web/2007/12/21/fed_home_lending_reqs/
The problem is we can either try and stop the insanity and prevent this poo from happening again or we can try and protect the borrowers, banks, builders, brokers et al from the negative consequences of their decisions. For the most part, these are conflicting goals. Prices are not falling because of a “credit crisis.” Rather we have a “credit crisis,” because current prices are unsupportable. Out in bubble-land MOST people cannot afford to make amortizing payments at market rates on loans for the current price of their homes. Many of us bought pre-bubble and can easily afford to make amortizing loan payments on the price that WE paid for our houses. But I would certainly be unwilling to purchase my current house at the current price, even though I probably COULD get financing.
I think there may be some confusion of the term “credit crisis.” In most cases it is not being used used to refer to credit decisions in connection with the ability to purchase a home, rather it is being used to refer to the expectation that debt service will be paid on the interests in mortgages coming out of securitizations. The falling credit quality of those providing insurance and/or letters of credit with respect to those securitizations has resulted in the value of the securities to decline, resulting in them being put back to the investment banks which cannot remarket them (aka the liquidity crisis). This has frozen the securitization industry. As a result, banks cant get them off their books as easily as they used too which is causing them to rethink their lending standards. In the securitization arena there is a very serious credit and liquidity crisis.
And of course the worries about debt service on bonds are driven by a rise in defaults on the underlying mortgages. Rising defaults are also responsible for doubts about the ability of the monoline insurers make good on future claims. And those underlying mortgage defaults are being driven by 1.) borrowers inability to make agreed payments according to schedule and 2.)inability to refinance because of falling house prices. A year ago, it was just the vulnerable and stupid (subprime) who were defaulting. Now it’s stupid loans up and down the FICO and income range that are starting to look dodgy.
True.
And I should have been a little clearer it is the COMBINATION of 1.) and 2.) together. For many of those loans there was never an expectation by either the borrower or the lender that the loan would be carried to term. Refi-ing was everyone’s plan. Inability to make full, amortizing payments brought the whole mess to a screeching halt once the appreciation fairy stopped making her monthly rounds.
‘They are just going through normal growth, and they are out of the bubble picture.’
No Robert. The volume is declining everywhere. This is the dying echo of the last equity locusts who are ignorant of true regional value and thus overpaying. This, too, will wash out soon enough. National recession is baked in the pie.
Nellie, bar the door! FIRE!!!
Citigroup Fund Bars Exit By Investors After Bad Bet
By David Enrich
Word Count: 1,294 | Companies Featured in This Article: Citigroup, Morgan Stanley
Citigroup Inc. has barred investors in one of its hedge funds from withdrawing their money, another black eye for the financial behemoth’s troubled foray into new types of investments.
Citigroup suspended redemptions in CSO Partners, a fund specializing in corporate debt, after investors tried to yank more than 30% of the fund’s roughly $500 million in assets. To stabilize the fund, which had an 11% loss last year, Citigroup last month injected $100 million. The fund’s longtime manager, John Pickett, has left, following a bitter dispute with Citigroup executives and complaints from investors that he put too much money into into a single investment that went bad.
http://online.wsj.com/article/SB120304381506270735.html?mod=hpp_us_whats_news
You can check out anytime you’d like, but your money can never leave…
Welcome to the Hotel Clownifornia
What will happen after day five? The showdown between NY State govt and Wall Street is titillating.
Spitzer Warns Bond Insurers
By Karen Richardson and Damian Paletta
Word Count: 1,095 | Companies Featured in This Article: MBIA, PMI Group
The clock is running out for bond insurers to save their triple-A credit ratings.
In congressional testimony yesterday, New York Gov. Eliot Spitzer gave a three-to-five-day time frame for the bond insurers to raise much-needed capital or find other ways to resolve their problems.
Mr. Spitzer urged banks, private-equity funds and investors that are working with bond insurers on various rescue and capitalization plans to “act with some increasing rapidity, because time is short,” adding that a congressional move to resolve the issue would likely be too slow.
http://online.wsj.com/article/SB120303419189870081.html?mod=todays_us_nonsub_page_one
Hi Scott
Housing Rests On a Negative Equity Problem
By Scott Patterson
Word Count: 519 | Companies Featured in This Article: Campbell Soup, J.M. Smucker, Hormel Foods
Amid the hand-wringing about complicated credit turmoil lately, the economy’s fate still hangs largely on something simple and understandable: the value of your home. When housing stabilizes, consumers and banks will be able to breathe easier about their balance sheets and start thinking about the future. Yet deeper housing risks loom.
Sales of previously owned homes fell 21% in the fourth quarter from a year earlier. Prices declined in 77 out of 150 metropolitan areas, says the National Association of Realtors.
As prices fall, more homeowners are finding they owe more on their mortgages than their homes are worth. Economists call this “negative equity.” The problem with negative equity is that it gives people an incentive to walk away from their homes and their mortgages, making the debt the problem of the banks.
Some homeowners did that in Texas in the 1980s. It is hard to prove it’s happening now to any large degree. But many bankers see it as a problem.
http://online.wsj.com/article/SB120303447307470075.html?mod=todays_us_nonsub_money_and_investing
It is hard to prove it’s happening now to any large degree.
The problem is in defining “large.” The problem is small, percentage wise, but is certainly larger than those pooling, tranching, insuring and buying MBSs anticipated. The huge amounts that borrowers are underwater by is unprecidented, so their behavior is unpredictable.
“the economy’s fate still hangs largely on something simple and understandable: the value of your home.”
I never really understood this argument…we are in this mess *not* because the collateral (houses) securing the loans have gone down in value. We are in this mess because loans were made to people that couldn’t or wouldn’t pay, and without a sufficient loan-to-value to protect against any loss in value of the collateral.
Would we be in this fix if every lender required a 20% down payment and a documented income with a 35% debt-to-income ratio? No!
It’s not that house prices have come down…it’s that stupid loans were handed out to begin with.
And of course stupid loans were what permitted prices to get as high as they did. You couldn’t have idiots talking about 400k “affordable starter homes” in CA if that meant that first time home buyers were had to come up wi 80k cash as a downpayment.
Amen, Jim!!
“…But many bankers see it as a problem”
Circumstantial evidence: “like when you find a trout in your milk”
Truth in 2008
This website speaks the truth about the US’s financial status and keeps a running total on the annual debt the total “unfunded” liabilities that they’ve run up. Both parties are responsible and none are addressing this issue.
http://www.truthin2008.org/
I thought deficits don’t matter….. Who said that?
Exeter,
I bet it was a Republican since you’re bringing it up, but I have already said,
“Both parties are responsible and none are addressing this issue.”
Question is, do you or your liberal buddies care?
In the past the Dems have fretted over this subject but now that they’re in control of the Congress, the subject matter isn’t noteworthy anymore.
The fact is the day is coming in the future, maybe the near future, when these liabilities affect all of us. Electing Obama, Hillary, or McCain as President isn’t going to change any of this. They need to quit spending. Period.
Did you hear about the bill that Obama is sponsoring in the Senate? It has to do with raising “all the people of the world” above the poverty level. I can only imagine how he intends to do that.
Ya know….. find on this blog where I’ve endorsed or supported any candidate of either party. You can’t do it. But because I criticized the mind numbing hypocrisy and knee slapping backpedaling of (r) supporters from the current crime leadership, you label me as “liberal” as it is the only means you have to defend yourselves. It’s quite hilarious to hear those who voted for these morons attempt to draw anyone and everyone into the mess. The old group respsonsiblity thing isn’t gonna work for housing and it won’t work for the (r)’s either. The had 8 years and complete power and still couldn’t shake the old reputation of pro-big business, to hell with the voter. And there is a reason that old reputation is hanging around their necks……. Because it is a fact.
Dear Exeter,
I’m not that pleased with this bunch myself. Fact is, the Senate, led my McCain, served to block some of the legistlation that I approved of. Soon the tax cuts that were voted into law earlier in W’s rein will revert back to what they were before. I blame McCain for this, yet I have to consider whether he’s better than Obama or Hillary. For me, I cannot imagine having to do this, but McCain might be the best choice. Can I do it? To be honest, maybe not.
I called you as liberal because that’s what you seem to be, especially compared to me. If this offends you, I’m sorry.
Thinking about becoming a perpetual tourist?
We are.
Our biggest concern is not financial motivated, it’s more about our country being out of control, that can’t distinguish right from wrong…
Events like what happened in a hall of higher education in Illinois yesterday, are becoming all too common and accepted as the norm, no thanks.
We plan to travel a lot, and stay in a given country for 3 months or so, and then move on, to a sojourn somewhere else.
Why am I not surprised you’re a PT. I will probably be joining you shortly.
“We plan to travel a lot, and stay in a given country for 3 months or so, and then move on, to a sojourn somewhere else.”
Aladin, I certainly hope you will come to Madagascar… it so happens tomorrow will be 3 months here for me, and I couldn’t be happier. It is like living in a bygone era.
Warning: internet access is slow. Still get to read HBB every day, though!
DP
Will everyone still want to live in California if the already shaky public education system is cut to the bone? It looks ugly on the ground for SD County school districts.
GUEST COMMENTARY
State budget will decimate educational system
By Ardella J. Dailey
Article Launched: 02/15/2008 03:09:21 AM PST
Twelve months after declaring 2008 “The Year of Education,” Gov. Arnold Schwarzenegger now proposes $4 billion in cuts to education funding.
http://www.mercurynews.com/alamedacounty/ci_8270171
Black Vader is showing his true colors…
Red.
For Arnold, this is probably payback to the teacher’s unions who fought so hard against him. As for the school system…
“We must ask ourselves a series of vital questions: How do we prepare our youth to meet the demands of a democratic nation? How do we address persistent inequality in our society? How do we maintain our economic prosperity in an increasingly competitive world? And how do we make a better world for each of us today and for future generations of Californians?”
How about just teaching the three R’s. As for “making a better world…” perhaps if they learn the three R’s, they can figure it out for themselves?
Black Vader is just a corporate company man, with a recognizable face, nothing more.
My interpretation of the widening yield spread between the 10-yr and the 30-yr: The 10-yr is reflecting the near-term economic outlook and the 30-yr is reflecting the long-term inflation outlook. As the latter becomes an increasing concern, the gap widens further.
http://www.marketwatch.com/tools/quotes/intchart.asp?submitted=true&intflavor=advanced&symb=TYX&origurl=%2Ftools%2Fquotes%2Fintchart.asp&time=8&freq=1&startdate=&enddate=&hiddenTrue=&comp=tnx&compidx=aaaaa%7E0&compind=aaaaa%7E0&uf=7168&ma=1&maval=50&lf=1&lf2=4&lf3=0&type=2&size=1&optstyle=1013
I know two youngsters who are recently married, both graduates of Law school and who accepted jobs with large and prestigious law firms in NYC last year in their securitization departments.
Their combined salary is about $330,000 their first year on the job and they have always lived “well”.
They have been brought up to expect the best and that things will always get better…
I’d love to here some predictions on what will happen
to these to upperclass, rotten spoiled little children.
I would think the outlook for lawyers will be quite rosey over the next few years… other than they will probably overpay for a NYC shoebox to live in, of course.
Lawyers are used to having a steady supply of manna from heaven, when collecting a slice of settlement, but of what use are lawsuits when the money well goes dry?
Why are you on their backs? I would think, given the level of financial disarray the securitization industry brought on to the economy that the legal battles to come will dwarf most scandals in the past. Anyway, two people who worked hard, got an education and were highly recruited in a very competitive industry should be celebrated - It should be the mortgage broker who “convinced” or “allowed” some working stiff making below average wages to sign some no-doc option ARM for 12 times annual salary so s/he could drive around in some leased BMW and live in a underwater McMansion that should be condemned. Our country’s only hope is that enough people work hard, get an education/skill and become productive members of society….
“I’d love to here some predictions on what will happen
to these to upperclass, rotten spoiled little children.”
If they were brought up right, and they ignore their peers, they will save/invest a significant portion of the $330K a year, and they will end up doing very, very well in the long run.
The alternative is that they didn’t learn to delay gratification, and they keep spending money to keep up with their peers. If that’s the case, they could end up up to their eyeballs in nice toys and debt. Fun while it lasts…
I would like to see a discussion on what is for sale on Craig’s list and what does this say about the economy. Look at Craig’s list to see how the average Joe is doing. You can look at each city from any where in the world.
I see a lot of car repair shops going out of business. Woodworking tools for sales and machine (laths, mills etc.) for sale. Also, I can see desperation in home sales and boats for sale. You see the same boat for sale or see the price lowered each week.
I believe Craig’s List is a look into the average American consumer soul.
A small predictions:
Someday we will see Craig’s List economic forecast. House listing across the US.( Price, Numbers, trends etc.) The price of used boats, cars, etc. (increase/decrease). Great Idea for someone to start and become the next great quoted index!
I would like to say something, if I may,
The highest wages goes to those that specialize. Unfortunately, based on my own personal experience, when the times change, you become irrelevant, and your worth in the market place is that of an unemployed uneducated employee working as a greeter at W***mark.
This country has serious problems in providing work and supporting families. I am afraid that we are returning to the 1930-1940s. Not everyone can have a PHD and if everyone did so, there would not be enough jobes available to provide them with gainful employment.
This country has to get off its “high horse” and start producing for everyone in the USA. It will take the efforts of tradespersons and knowledge oriented persons.
The last I heard, that all persons are equal in the”eyes of the lord”.
Lets stop the war between the classes, the level of education and those that are “looking out for themselves”
America, like everywhere else, has “to hang separately or hang together”!
As Jack Nicholas says paraphrasing, “I think I heard that somewhere”.
Lets, see, maybe the American Revolution, the Civil War, WWII?
I was talking to my mom last night about the Great Depression, and she stressed how important it was to live on the farm during that time. They never lacked for food, although money was always tight.
She told me about 25 Cent a bushel wheat, and grain elevators full of it, unsold.
95% of the people that lived on the farm, 75 years ago…
Don’t anymore.
My grandmother told me that she didn’t notice The Great Depression. They were poor and their neighbors were poor, and life was pretty much the same for them.
Side note: she went on to become a mini real estate mogul, which she left to her kids, who ended up losing it all during the last real estate bust. Not so easy come, easy go.
Back then, poor meant HUNGRY, not “will they cut off my cable.”
… and it will once again mean the same.
My cousin and I were talking about farming during the GD just today. Our dads grew up on a farm during the depression (my dad was still a kid at the time), and they said they didn’t really know there was a depression. Of course, it’s all relative; and when everyone around you is poor, it’s not such a big deal.
On the farm, they always had food to eat and, just as important, food to trade for anything else they needed.
If they ever needed extra help on the farm (during harvest, etc.), no problem finding willing workers who would quite literally work for food.
Of course, protecting that farm was very important as well.
Weekend Topic Idea:
We sort of know what’s coming because of this blog.
Using intuition what do we “feel” is coming?
Also what do others do when the news is so foreboding?
I organize my drawers and clean house like my mom.
Nice ! I’ve spent less time doing real work at work and more time using my intuition as to how this credit crisis is affecting my day to day activities. Its been obvious now that things have slowed down appreciably even in technology and that my employer is reluctant to spend any new money and hoping to push most discretionary technology spending into 2009. Intuitively, I could always “feel” this was coming as far back as 2005. Now that its here I’m trying to see what’s next. For many, including my, I’m afraid its going to be unemployment. I’ve started spending my time on other things and just coming up with what I would do next under a credit strained economy. I think much of it will be living off interest from savings and relying on my spouse.
“Using intuition what do we “feel” is coming?”
I “feel” that… when people through out America are finally “forced” to get new tires in the coming months / years…the old tires are going to be rather “bald”…If I worked for Sir Greenspent, this would come to be commonly known as the: “Used tire thread” index
Is it hard to find tires for a 49 Dodge these days?
I “feel” that my credit union has gotten swept up in the housing mania and I need another place to deposit my paychecks. The CU had a house built a year or so ago and gave it away to a homeless family. Quit touching and all but not a prudent way of overseeing depositer’s money. They are quite active in Southern Calif with lots of branches, many of them in the Inland Empire; Not a good sign.
I also “feel” that if offered an early retirement incentive that I should turn it down. I have 42 years with the company and there are those who say it’s time I put myself out to pasture. No way, not with the economic stormclouds forming on the horizon. (A job, like one’s mind, is a terrible thing to waste.)
Also, I “feel” cash is currently king and will become much more kingy, and deflation, not inflation, is in our immediate future.
FWIW.
Did anyone catch Ben Stein on Kudlow’s show yesterday? Ben was blaming the market ’short’s’ for creating the problem. When challenged he said that they could keep up the pressure forever BUT the real kicker when challenged was ‘that the ’short’s’ have missed up the WS MODELS’. In physics and chemistry when doing my thesis every ‘model’ had its limitation and I had to be able to know them in order to defend my dissertation.
Market cheerleaders are responsible for historically overvalued asset prices. As Ben’s dad might have said, “Anything which cannot go on forever will stop.” This bit of long-lived wisdom certainly applies to mania pricing.
Whither the monoline insurers?
Finance & Economics
Insurers
Unsurance
Feb 14th 2008 | NEW YORK
From The Economist print edition
Sitting uncomfortably in the spotlight
INSURERS are used to losing sleep over hurricanes, floods and fires. These days the catastrophes are of the credit rather than the climatic kind. Unexpected losses at the world’s largest insurer, American International Group (AIG), are fuelling speculation that the industry is set for more write-downs. Meanwhile, the fate of bond insurers continues to move markets as they wrestle to prevent their debt from being downgraded. The latest twist is a “rescue” offer from a bond-insurance whippersnapper called Warren Buffett.
Characteristically, the deal being offered by Mr Buffett is more cheeky than charitable. His recently formed bond insurer, with its AAA rating, would assume the risk in the $800 billion of municipal bonds guaranteed by three troubled “monoline” rivals, MBIA, Ambac and FGIC. In return, it would receive several billion dollars of up-front fees, calculated as a percentage of their future premiums. For $5 billion in capital, at a stroke, Mr Buffett would capture a third of the municipal-insurance market. “I did not dream this up in one of my pro-bono moments,” he told CNBC.
The market would benefit, too. The monolines have acted as a transmission mechanism, infecting America’s $2.6 trillion municipal-bond market with the disease they caught handling collateralised-debt obligations (CDOs). If the insurers lose their top-notch ratings, so would the municipal paper they guarantee. This prospect has caused several muni-bond auctions to fail this month. It also led to surging costs for borrowers such as New York’s Port Authority, which saw the interest rate on some “auction-rate” securities jump from 4.2% to 20%.
http://www.economist.com/finance/displaystory.cfm?story_id=10701714
Mhari Saito: John and Vicki Glicken spent years working to improve their credit so they could get a loan for a house.
John is a building maintenance man. Vicki is a administrative assistant. They managed to pay off their debts and fix their credit report.
In 2005, they paid $183,000 for their first home. It’s a ranch house in Lyndhurst, Ohio, a quiet, middle-class suburb of Cleveland.
John Glicken: And we have a fence in the backyard. Y’know, the American dream, with the two dogs…
Vicki Glicken: It’s not a picket fence, but it’s a fence and it’s ours for now.
The couple got a zero-down, interest-only adjustable rate mortgage from First Franklin, a subprime unit then owned by National City Bank. They planned to refinance a year later, but then John lost his job. Vicki took a second job. John couldn’t find work for nine months, but they kept up their mortgage payments.
John Glicken: I cashed in a 401k. We’ve exhausted our savings. The record’s there of lump sum payments.
At the same time, the interest rate on their mortgage went from 7.25 percent to 10.25 percent. No one wanted to refinance their loan. Home prices were tumbling and they couldn’t sell their home for what they borrowed. They filed for bankruptcy protection last October.
Now, John and Vicki sit at their kitchen table with a new letter from their lender saying their interest rate is going up again on March 1. Their mortgage will be $1,694 a month and that doesn’t include taxes or insurance.
Vicki Glicken: We were naive in a lot of areas.
http://marketplace.publicradio.org/display/web/2008/02/15/arm_reset/
Kai Ryssdal: Let me say right off the bat we love to get email from listeners. Good or bad, it’s always nice to hear what people think of the program.
The other day we got this from a guy in Las Vegas. Longtime listener, he said, but he’s getting sick and tired of us feeding the negative news hysteria about a down economy.
Don’t just take our word for it, though:
[clips of "down economy" stories on TV news]
You could sum up what we’re talking about here with the phrase consumer sentiment. The University of Michigan compiles one of the most well-regarded surveys of exactly that and this morning the good folks in Ann Arbor offered up a sobering number: 69.6. That’s the February index.
We asked John Dimsdale what it really means.
John Dimsdale: The last time consumers were this depressed was right around the recession of 1992. In fact, the Michigan index has only dropped this low during recessions, including those in the 70s and 80s.
Economist Gary Shilling says it isn’t the media that are getting consumers down:
Gary Shilling: They react mainly to their own circumstances: to job availability, to the prospects of a raise or a bonus, to the prospects of being laid off…
http://marketplace.publicradio.org/display/web/2008/02/15/consumer_confidence_low/
Fear-and-greed tug of war afflicts muni bond market…
Friday, February 15, 2008
Listen to the show
Economic fears could hit public works
Highway construction
Investors’ concerns with the credit crunch are showing up in auction-rate securities, which raise money for everything from roads and bridges to hospitals and museums. Marketplace’s Bob Moon explains how these investments work and why we should be concerned.
http://marketplace.publicradio.org/display/web/2008/02/15/auction_rate_q/
I suggest PREDICT THE UNPREDICTABLE. Are you tired of all the’experts’ saying how an event was unpredictable. I am I think we at HBB can predict the future events. What will the next shoe to drop be - Will it be:
The monoline insurers go bankrupt or does WB save the day?
One of the banks go into default? If so which one?
The leveraged hedge fund $$ defaults at a rate it sends the market tumbling?
We enter recession (OK too easy and not really a future event)
Any ideas or suggestions?
“We enter recession (OK too easy and not really a future event)”
I personally maintain that the most accurate predictions are those which forecast that what has already occurred but which is not yet common knowledge. I believe this blog is reasonably effective in this respect.
Man in the News: The veteran of value
By Francesco Guerrera
Published: February 15 2008 18:52 | Last updated: February 15 2008 18:52
“Creditworthiness is like oxygen: you don’t notice it when it’s around.”
http://www.ft.com/cms/s/0/c8583966-dbe4-11dc-bc82-0000779fd2ac.html