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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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I did a short Q&A with William A. Fleckenstein, the author of ‘Greenspan’s Bubbles’, and I will post that this weekend. Feel free to to add your thoughts here.
‘Before Ben Bernanke shovels more cash into the U.S.’s money trap, he should read ‘Greenspan’s Bubbles,’ a damning account of how his predecessor inflated two asset bubbles that mutated into $11 trillion in home mortgage debt.’
‘Greenspan bailed out the world’s largest equity bubble with the world’s largest real-estate bubble,’ he writes. ‘That combination easily equates to the biggest orgy of speculation and debt creation the United States (and the world) has ever seen.’
‘Far from being a ‘maestro,’ Greenspan comes across here as a man smitten with his own pet theories and blind to his own mistakes. As the stock bubble swelled in the 1990s, Greenspan became mesmerized by the theory that technology had boosted productivity far more than was understood. He concluded that ‘there was no bubble under way because technology expenditures weren’t accounted for correctly, meaning that stock prices weren’t nearly as high as they seemed,’ Fleckenstein writes.
‘When the ‘new economy’ proved a mirage, Greenspan began extolling the benefits of ‘drawing on home equity’ to fund ‘consumption and home modernization,’ according to testimony in the book. He even told homeowners that ‘the traditional fixed- rate mortgage may be an expensive way of financing a home.’
BTW, the quotes from FOMC meetings in this book are much more ‘damning’ than this Bloomberg article reveals. I put a couple in the post.
When it comes to the overall economy, I’ve been following the musings Fleckenstein, Shedlock, Schiff, and Maudlin for about four years now. I would not say that any single one of them has been 100% prophetic, but their general outlooks have slowly manifested into reality. It is pretty scary when the “chicken littles” turn out to be right.
Good thing I followed some of their investment advice (#1 being not to buy a house in the last few years, #2 being hold some gold, #3 being diversify out of USD).
Between their predictions and the collective intelligence on this blog, my net worth has been increasing at a healthy clip while others around me (including my immediate family) have been in decline. I warned everyone who would listen, but we all know how that conversation usually goes.
It’s more than just the Chicken Littles turning out to be right, it’s that the mainstream media was 100% wrong, and even ostracized the Chicken Littles.
I’ve yet to see an apology from the MSM. Or an acknowledgment that quoting Realtors, building company CEO’s and David Lereah as “experts” was a leading contributor to the hype and illogic of the bubble years. The MSM was a primary force behind this disaster.
Fleckenstein, Shedlock, Schiff and Maudlin were the rare exceptions to an industry which is full of mindless sheep who think that reporting verbatim everything an industry spokesperson says is “journalism”.
“I’ve yet to see an apology from the MSM.”
Do you honestly expect them to ever do so? After all, they never apologized for the tech bubble that they either ignored or, in many cases, directly and indirectly encouraged.
If you’re waiting for an apology, you’re going to be waiting for an awful long time.
Never apologize; never explain.
“benefits of ‘drawing on home equity’ to fund ‘consumption”
That only works short term (as we have seen). The only way to make it work long term is by causing ongoing (wage and price) inflation. Hmmmm….
To bad that the wage inflation part of the theory is not working out as hoped.
Of course it is, it is horrendously expensive. Doesn’t mean that it is not worth it, or people are capable of thinking through and doing anything else.
You could do a standard mortgage and pay $2000 a month for the next 30 years, or you could do an interest only mortgage, with a much smaller payment, but put what is left of the $2000 you budgeted towards the principle … much cheaper than a traditional fixed-rater.
Who has the foresight and discipline? The training? Not many.
You left out “Who has the $2000 a month to spend on a mortgage payment?” Not many.
my suggestion is- with the economy really slumping how bad can things really get? Is a 1929 style depression possible in this day and age?
http://www.nytimes.com/2008/03/14/business/14econ.html?_r=1&oref=slogin
History does not repeat itself, but it rhymes…
March 14, 2008 9:30 P.M.ET
BULLETIN
J.P. MORGAN AND N.Y. FED TO PROVIDE FUNDING FOR BEAR STEARNS
Data show cooling inflation
Wall Street rejoices as Fed’s seen clear for fresh rate cut
Just turned on CNBC, Bear is down 45% for the day.
this is so backroom and borderline corrupt.
What was the unwritten understanding about what Chase quid pro quo?
More meddling, making things worse.
J.P. Morgan’s done this before
RE: Is a 1929 style depression possible in this day and age?
The common thread I always seemed to pull out of stories from the Depression, was that many people retreated to some relative’s farm out in the country where they road the out the storm by a complete reliance on self-sufficiency-aka Dad milked Uncle John’s cows; Ma tended the garden with Auntie Mable; older kids split and stacked the firewood; young one’s fed the turkey’s, et. el.
With the destruction of the family farm and the movement of incredible numbers to the cities with their attendant welfare structures…ah—don’t think this is gonna pan out too well.
Only way out is to print money and dole it to the masses while the Wall Street gangsters and looters gaz up the Gulfstreams.
But when the Teamsters stop haulin’ the food and demand to be paid in hard currency before delivery-ball game’s over.
Best be greasin’ up that AK.
Interesting you mention the Teamsters, was at the truckstop getting gas (only one in a 220 mile stretch) and the clerk said the truckers were talking about going on strike.
I’d like to see a thread on the impact to government services that declining real estate prices are having in various states. With foreclosures taking more homes off of the property tax roles, the states not being able to provide as much aid to municipalities and a generally slowing economy I think we will see many states have to make painful choices.
New Jersey is a prime example of a state where local governments are very dependent on property taxes.
http://tinyurl.com/2snhrm
I’m seeing a lot of news from financially strapped cities. How about some discussion about revenue declines and reduction in people and services-both city and state.
RE: some discussion about revenue declines and reduction in people and services-both city and state.
There were riots in Boca Raton when the housing authority ran out of Section 8 vouchers yesterday.
Cops came out armoured up with batons and shields to disperse the crowds who’d been waitin’ for hours.
The lead arrest was of a 28YO single woman with 5 kids who went beserk because she didn’t get her freebies.
It’s all disintegrating.
CA Gov Arnie gave out last week, notices of pink slips to schools in counties, so the schools here locally told over 200
(total in this county) teachers that perhaps they might not be here in the fall.
NYC and NY State are very dependent on income taxes from Wall Street. We already have emergency budget cuts in NYC.
Many states are dependent on sales taxes from consumer spending. I’ve heard the pain is immediate in localities that get big bucks from auto dealers.
This has gone beyond falling property values, I’m afraid. Less income, less wealth, less taxes — and the social service burden goes up.
So are Northern New Jersey and Southern Connecticut. When Wall Street starts laying off people in large numbers, which I expect will happen in the next month or two, the economy of the entire tri state area will feel it. The governments in these states will be in the position of having to either raise taxes in an already weak economy, cut services or both. My guess is we will see higher taxes and lower services and the continuation of the steady drip of outward migration from the Northeast.
Unlike in the 1970s, however, are you sure there will be places in the U.S. to migrate to? Lots of budget crises out there. A county in Alabama is about to go bankrupt.
Plus, areas of the suburbs and Sunbelt which had growing economies and very few public employee retirees in the 1970s will now face the explosion of pension and retiree health care costs that plauge NYC.
At least the immigrants can go home. The non-Iraqis, anyway.
Good point. Maybe a better way to put it is that we here in the Northeast will see our portion of the population decline in relative terms. I do think that the problems in the Northeast are more pronounced than in some other areas of the country in terms of pension obligations, tax burden and in the case of NJ a completely corrupt system of governance. However, you may be right that the grass will not necessarily be greener in other parts of the country.
Wall street employs 5% of the people but pays 23% of the income in NYC.
I guess all the folks here in Queens that tell me the $700K POS houses are going to be bought by Wall Street types might have to rethink their take on this.
Why would someone live in Queens if they were making a Wall St. salary? Isn’t this freakin’ obvious? Do we need to draw a diagram for this?
What kind of federal help will be provided to the states? Clearly, it is in the federal government’s interest to make the states even more dependent on their money…errr printing presses.
Only one kind of help would matter — national health care financing. That would take the retiree health care monkee, and Medicaid monkee, off their backs.
Alternative — liberal bankruptcy terms to stiff retirees and debtholders but allow services to continue at decent tax rates.
will see many states have to make painful choices ??
The only choice the EVER make is to raise taxes….
I think we will see tax increases (don’t we always). But we will also see some service cuts and cuts in aid to municipalities. In NJ the most recent budget has proposed lay offs and cuts in aid to the townships. It remains to be seen what happens to it once the legislature gets a hold of it, but it is the first time I can remember where things like that have even been put on the table.
“I think we will see many states have to make painful choices.”
I disagree. Floridians will continue to litter the state with beer cars regardless of municipal budgets.
When I was very young, I actually bought a “beer car” at the local 5 & 10. It was the size of a pack of cigarettes, had a nice paint job, and inside you could still see the “Blatz” logo. That was when Japan was still recycling US refuse & exporting it back to us peacefully.
Excellent redirect of my typo! Five stars!
I was waiting for this thread!
Discussions with the Sheeple on declining home prices are… interesting.
I was talking to an incredibly bright coworker yesterday who is convinced that real estate prices are only going down in really undesirable areas. So he is looking to take a corporate transfer to “fly over country.” If he goes, he’ll pull a staff of about forty too.
My favorite quote, “I’m ready to buy a million dollar house, but I want a million dollar house, not a shack!” (Yes, he can afford it too.)
Basically, coworkers cannot see declining prices in nice areas. All they can see is the “wishing prices” and the fact they cannot afford. So they’re giving up. They truly believe the NAR propaganda that “this time its different” or “its different here” and are instead planning to vote with their feet.
I don’t know how it is at your work places, but for our offices in California and around DC, its all we can do to stop a stampede. Attrition is bad. New sites that are being opened up in “fly over country” fill up in hours; I’m talking thousands of positions too!
Note: Attrition is retirements as well as young engineers ‘giving up’ on bubble markets. Both want cheaper housing (with the retirees expecting a nice cash payout).
We’re hitting the irrational downside. Note: We truly won’t have panic until late this year (probably the fall), but you can feel the emotions building. Its maybe 5% of the workforce looking to bolt today. By the fall it will be 10%.
Got Popcorn?
Neil
“So he is looking to take a corporate transfer to “fly over country.” “I’m ready to buy a million dollar house, but I want a million dollar house, not a shack!”
And I believe this quote gets to the core of the faulty logic used by nearly every RE koolade drinker. It implies a level of entitlement at any cost. I’m not sure why anyone would want to tie up a million in a friggin shack but they do. And they do it in places where NOBODY could ever afford to buy it if it had to be dumped in a hurry. I see this phenomenon everywhere. A big monstrosity of architectural puke splattered against a landscape of 3/2 ranchers.
Even with price declines accelerating, we’re still at least a few years from prices falling back in line with incomes. For those that have lived in high housing cost areas for a decade, at some point you just want to say “screw it, it’s time to leave”. Even if you can eventually afford something decent in 3 to 5 years, you’ll be able to buy something far better in that other place. Is there enough else about the higher housing cost area versus the lower housing cost area to justify staying? If you look at how people are voting with their feet, I’d have to say the answer is “no” for many people. The exodus of the California middle class didn’t begin with the latest bubble. This bubble just provided the latest shove out the door. Some who left earlier might come back if prices fall enough, but I don’t think that will offset the number of those continuing to leave.
The exodus of the California middle class didn’t begin with the latest bubble. This bubble just provided the latest shove out the door.
Sad but true. Some areas of the US are becoming like the Caribbean. One is either in the ‘elite’ or is poor.
But its not just one coworker. I picked this example due to his influence and willingness to do research. Is he doing research? Minimal. Why? The answer is too discouraging.
Please don’t forget my company is building several new large campuses in “fly over country” to accommodate our workforce. While its a good company, this isn’t charity. They have no choice if they are going to replace retiring workers. Recall that Aerospace will lose 60%+ of its workforce over the next 12 years to retirements. We are the poster child industry for impacts due to the demographic changes.
Its not just California or DC either… its just not so obvious in other markets.
Got Popcorn?
Neil
Interesting comments Neil….
Don’t worry Neil, the gates will be opened soon…
“Microsoft’s Bill Gates asks for visa increase…”
http://tinyurl.com/2v67lk
I think I remember reading somewhere that during the last run-up in CA, in the late 80’s, that the exodus started not too long before prices peaked, then continued well into the period with declining prices that followed. From your observations, this pattern may be repeating itself. Even though prices are now declining and declining quite a bit from the peak, people are still trying to leave.
How many that left during previous boom/bust cycles ever return? My guess is that for most, once they’re gone, they’re gone for good except to visit from time to time. Once driven out, there’s no coming back.
Neil,
I know you’ve declined to identify your employer before, but can I assume it is one of the following, and you work in the El Segundo area?
Boeing
Raytheon
Northrup Grumman
Lockheed Martin
Since Boeing got screwed out of the US gov contract and Airbus got it in a NOBID situation, perhaps it isn’t Boeing that he works for. B’g won’t be needing new “campus’s”.
See how Offshoring works. American workers get s&*()D.
“Sad but true. Some areas of the US are becoming like the Caribbean. One is either in the ‘elite’ or is poor.”
While I know what you’re saying here, I have to disagree - at least from my observation in San Diego. I am not in the ‘elite’ nor am I ‘poor’. I could *look* like I belong to the ‘elite’, perhaps, but I choose financial prudence over display of ‘wealth’. There are *many* who could be where I am, but choose to try to advertise their ‘elite’ status. This is not entirely a ‘reality’ thing, this is a perception and psychology thing. Many more will eventually end up in the ‘poor’ group - but not so much because of governmental or Federal Reserve failure, but because the people are, well, stupid.
Some of stay because we have little choice: we don’t want to abandon family and friends. It just stinks that we were born and raised in areas that have now become unaffordable thanks to the Bubble. So, we wait, renting… and waiting… and waiting…
Your co-worker might have a very narrow definition of “nice area”, and regard everywhere except the absolute elite areas as “very undesirable”. I know I have heard people applying this logic to Australian cities.
When you look at this week’s DataQuick numbers, every county in both SoCal and the Bay Area with the single exception of Santa Clara (7.78%) is showing double-digit median declines from peak, and the Case-Schiller statistics imply that at the moment the median UNDERSTATES like-for-like falls.
And in passing, you must have an incredibly indulgent employer if they will let this guy/gal move a team of forty based on where (s)he wants to buy a house!!
Actually, my employer treats employees well. This employee will just transfer. But he’s good. That good. Quite a large number of people will follow him to ride his coat tails. Its not like we’re having trouble getting volunteers anyway…
It won’t be his whole team either. Not even half.
Got Popcorn?
Neil
I’ve been lurking here off and on for years and I have never been able to post successfully, so maybe this time it will work.
I just wanted to say that I used to work at Raytheon (formerly Hughes) in El Segundo and Fullerton. I quit Raytheon in El Segundo because I couldn’t take the drive and I couldn’t afford to move closer. I then went to work at another aerospace company in OC because I could afford to live close, but had to rent.
Then last year my b/f and I managed to swing a transfer to SE Arizona, where we are much happier and better off financially. The only bad thing is that my b/f insisted on buying a house (against my advice) so I am worried that he is going to have some problems when we have to move at the end of the program in about 4 years.
Keep trying with your posts.
(And that smily doesn’t work right at the start of a line, you need a space in front of it.)
4 years gives you time to do some planning and saving against a possible rainy day.
It would be worse if this program ended in 4 months; much worse.
Neil - I curiously surfed the LA craigslist Real Estate For Sale last night for nostalgia purposes. $500,000 for a 1 bed/1 bath 1970s apartment conversion in West LA was not uncommon. I bought a 1200sqft 2 bed/2 bath in 1999 for $200,000. I thought that was a lot back then.
My work could easily force me back to LA some day, but there is no chance of me buying anything for more than $250 a square foot (in 2008 $s).
And if everyone here is not aware, California’s state tax quickly reaches 9%. With California having high income taxes, high real estate, higher than average fuel costs, bankrupt state, crap schools, ever-increasing congestion, etc, fly over country starts to look pretty good.
Just wait until the Aztlanistas take over. Fly over country will look even better.
Anecdote: We know a couple in SoCal, and the wife works at a public school as a non teaching employee. One of her duties is playground monitor. One day she was approached by some parents. “Thank God, you speak English” was the first thing these people told her. They were new arrivals from out of state and where completely shocked at the transformation of California into a Mexican state.
Except Colorado. Colorado really sucks. Just about anywhere is better. Really! It is. Try Idaho, or something.
Where in flyover country are these people moving to? I ask because there’s flyover country and then there’s flyover country.
Oil City is where everybody’s going.
Yes, and buy great houses for $10k, and live happily ever after on rock solid investments earning 10%. The end.
American Siberia is a place for the outcasts of society…
LOL
I work in Northern Virginia near DC, and I have noticed some of the same things you have. I haven’t seen it much in my office, but that’s because a lot of my coworkers have kids in elementary or high school and don’t want to move them. The desire to move among them is certainly there.
Among those who are single, married but don’t have kids yet, or have kids that are grown up, they have bolted or I suspect are planning to bolt. A lot of this probably has to do with the idea that no matter who becomes President next year, there will have to be some cuts in defense spending. Even beyond that, you still have the high cost of living, the second worst traffic in the nation, an inability to do something as basic as get transit to the region’s major airport (Dulles), etc., etc. In other words a lot of people aren’t frustrated with their job, but with living here.
People fleeing California? That’d be AWESOME!
There’s nothing irrational about people moving away from CA and DC in order to have more reasonably priced housing & stay employed. This should have happened quite a while ago. Question is, what took them so long to wake up?
In early ‘01 schoolmate, sold his home in LQ (la quinta) and moved to Iowa. He emailed me that even though prices were still going up in CA, he bought his home outright and put the rest in savings. I was jealous for a second. And proud that he got out.
WASHINGTON (March 14) - Consumer inflation, which had been pushing relentlessly higher, posted its mildest reading in six months in February as the costs of energy and food moderated. The relief was expected to be short-lived, given that energy prices have resumed their upward climb.
The Labor Department reported Friday that consumer prices were unchanged last month, a much better performance than the 0.3 percent gain that had been expected.
No need to worry. Inflation is contained.
LOL!
costs of food and energy moderated
Not around here they didn’t!! Maybe it’s different in the US.
Still trying to manage with my 35%+ paycut 4 yrs ago. Hadn’t had a pay raise since ‘83 so friends still do not understand why we don’t dine out more often or do cocktails out all the time.
CA and cost of living/rent still hasn’t “Moderated” not a bit. And GAS is $3.49 at cheap station.
Figures don’t lie but liars can certainly figure!
The effect of the housing bust on the financial system would be a good topic for the weekend, along the related options both for government policy makers and individuals seeking to limit the damage.
As per JPMC and Bear Sterns, JPMC is already the product of the merger of a bunch of huge financial institutions that collapsed into each other in the early 1990s — Chemical, Chase, Manufacturer’s Hanover, JP Morgan, and more.
Have we overconsolidated? Another recession like the early 1990s, and how many money center financial organizations will be left?
As I said in bits, I’m collecting these stories about affordable housing projects gone bad, since my mayor (with local nonprofits) is pushing a housing levy, like nothing is going on in the big bad world. Our market is slowing down too, but no one will acknowledge it. I listened to a bunch idiots at a so-called “community conversation” last night and only one or two people seemed to have a clue.
Not to worry, “Not.” The marketplace is doing the job that the affordable housing advocates have been trying to do for years.
Yeah but these bozos want to put the levy on the Nov. ballot, without any real consideration of actual market trends here or elsewhere. So we’ll have the tax with the real correction just getting underway.
How about the increased demand for trampolines in NYC? Looks like it’s gonna get perty messy on the streets by Bear Stearns today.
I was in that building this morning (coincidence not intent) and the scene was surreal. Nothing landed on me though as I left.
It was like a bad acid trip except you were sober.
Something to tell to future generations. You were there when the first Investment bank failed in the Meltdown in 08.
My only regret is that you didn’t have Olympiagal with you, her way with the words would have been perfect to document the whole thing for the history books.
Why are the talking heads spouting a end in sub-prime write-downs? How can they perceive an end when they have no idea what the underlying value of any of the assets are?
Subprime has ended! Now we are into Alt A and then we go into Option Arms and lastly Prime.
Minor omissions; all of that!
“Why are the talking heads spouting a end in sub-prime write-downs?” Wishful thinking, desire to avoid panic, herd mentality. Pick 1 to 3 of these.
I think we should start the oil bubble blog this weekend!
Oil isn’t a bubble. It’s still cheaper in the US than the rest of the world, and most of our perceived price increases are the result of the USD decreasing.
The real “bubble” in the world is US dollars. Oil, gold and silver are rising relative to decreases in USD (and expectations of future decreases).
Those who call price increases in commodities “a bubble”, don’t understand the underlying reason for the rises in commodity prices. It’s not the commodities themselves that are being speculated on: it’s the currency they’re priced in.
“The real “bubble” in the world is US dollars.”
SOHONYC, you’re drinking the commodity Kool-Aid! Oil is, like everything else a function of supply and demand. Right now we’ve got ample supply and steady to decreasing demand. The recent run up in oil has been speculation and dollar hedging.
Stocks aren’t profitable nor is real estate. Commodities are the next logical place to put capital for short term gains. When everyone decides to cash their chips in at once, LOOK OUT BELOW! We had this issue before in the late 70’s and early 80’s. People dollar hedged and drove up the cost of oil right before the crash.
Gold at $1,005.00.
I think it would be good to find any media stories about people who held the line during the bubble and how they feel about all this FED intervention for gambler’s anonymous, sort of an HBB open house.
I doubt there are many media stories out there but maybe some small localized media may carry some info. I know that my local FL papers (Bradenton Herald and Sarasota Herald Tribune) are completely focused on the same mantra as the MSM (while being constantly accused of being doomsday sayers by local Realtors(TM) and developers), but maybe there are some rays of light out there somewhere.
This is a 2009 story. You’re too early with this one. Not yet.
I did mention yesterday that ColdwellBanker in the desert consolidated 2 of its offices. So, I guess the NAR CAR is correct, “now it the time to buy”. Just dont’ need as many RE agents. I guess.
I would like to see a thread on what people’s plans are for where they are going to live. Are you going to rent indefinitely or buy at the certain point? What makes me ask this was this thread at Northern Virginia Housing Bubble Fallout:
http://novabubblefallout.blogspot.com/2008/03/fairfax-times-has-little-piece-on.html
What that thread is about is tenants despite paying their rent on time who are facing eviction because their landlords weren’t or stopped paying the rent. In many cases the landlords ran off with the security deposit.
My plans assuming everything else is equal would be to continue renting until it makes more sense to buy and even then I wouldn’t necessarily buy. However, everything is not equal. The one problem with renting now and in the future even more so are these landlords who run into trouble or just decide to take the rent and run. Do we keep on renting regardless or buy even if prices haven’t hit bottom for the area we want to live yet? For me I’m not sure what the solution is. I don’t think apartment complexes are the solution since they could run into this trouble as well.
Renting is the way to go. And if it were to become feasible to own, then, me and many others might be to close to retirement ages, meaning, that you don’t want to make payments in later years in lieu of saving for future retirement.
Make sense?
From the HP.
This one’s not surprising, but what is amazing (and illegal) is that Bear’s CEO Alan Schwartz put out these false and misleading statements this week:
Exhibit A: “Our balance sheet has not weakened at all,” he said. “We don’t see any pressure on our liquidity.”
Exhibit B: “We don’t see any pressure on our liquidity, let alone a liquidity crisis”
Exhibit C: “there is absolutely no truth to the rumors of liquidity problems that circulated today in the market”
So where is Elliot Spitzer?
I believe he was sleeping on the job
Are you blogging on the job
?
Nope blogging at home, drinking my coffee, watching the fog move in and out over the hills and enjoying the discussions and witty comments.
Are you blogging from work?
Yes I am.
What’s the true cost of housing? IE, what does it cost to own a home and what’s the average $ return for $ put into renovations. Everybody seems to think that owning a house is a virtual goldmine - you slap down some granite counter tops (please… stop with the granite counter tops - you’re killing me) and you get back another $100k in equity or sales price. I know that growing up, my family moved a lot. My father bought and sold many homes and it never made him rich nor did he ever think about it that way. Now, it seems like people just think of homes as easy money. (easy money lost for so many FBs)
So, from you people in the know (not being a home owner myself), what does it cost to own a home in real dollars and sense and what’s the TRUE return on investment.
Once a home is paid for you get to enjoy the advantages of imputed rent. This allows your cost of living to be much lower than your neighbors who have to pay out actual cash in rent.
Buying a house and paying it off makes sense if:
1. The price you pay makes sense, meaning the price is in line with your income and comparable rents.
2. You won’t be moving.
3. Your taxes, insurance and maintenence costs are reasonable.
” … what’s the TRUE return on investment?”
The return on investment is the lower tax bracket you get to enjoy due to not needing to earn the extra thousands of dollars that would be paid out in the form of rent.
Houses on my street rent for about $2,000/month. That’s $24,000 after tax money that is paid out. To clear $24,000 one would have to earn more than $30,000-or-so that what he currently earns. This extra 30,000-or-so dollars will shove him into a larger tax bracket.
But with imputed rent the only extra money he needs to earn for housing expenses is the money for taxes, insurance and upkeep. This keeps his income needs low and thus lowers his taxes.
DJIA = 12K or bust?
Since I have no articles to post on the topic, I will refrain from conjecturing on how the DJIA can magically remain perched at 12K against the backdrop of a hailstorm of shoes dropping from the sky.
when rain turns to hail…sometimes Mr. Bear, you just go with intuition, everything in life does not need to be deductive.
That’s the funny thing. Intuition gets you reasonably close to the truth when the situation is too big to bail. Sorry if I am sloppy on the details — it is one of my personality flaws to be lazy about details. Luckily there are accountant folks out there in the world to keep folks like me on the straight and narrow.
I think it’s a round number thing. The dow seems to go with trend long term, but gets stuck on round numbers short term. It hovered at 10,000 in 2004 and 2005. 10,000 is a really big round number. It hovered at 11,000 in 2006. I’m not a stock market expert, but if you look at the long term charts you can see a lot of hovering and bouncing off of round numbers. Then there are long trends of changes between round numbers.
It got unstuck from the round number in a hurry today…
I think it wants to hover around 10,000.
Realistic Budgeting: What are some of the things we really should do without as times get tight? And how can we whittle down our spending? I have seen numerous comments here that range from severe pauper living levels to a bit pampered, but not many at that end. What is a realistic budget line item set for J6P?
“Realistic Budgeting: What are some of the things we really should do without as times get tight? And how can we whittle down our spending?”
We’re cheap all the time, but as the economy tightens, we’ll spend more. In order of importance:
As little square footage in the house as you can live with, a timed thermostat to let the house get cool overnight, no AC if you live in the north.
One car at most, carpool/bicycle/transit otherwise.
Eat at home preparing from scratch, bag lunchs.
No cable TV, free urban entertainment, play cards, talk, read books from the library, listen to the radio.
Vacation in a tent in a state park,.
Used yard sale and free hand me down kids clothes/funiture whenver possible.
All departures from the above thought about for a while first, rather than purchased on impluse, and must increase happiness sufficiently to justify the cost.
Keep your broadband connection though - BitTorrent is your best entertainment value…..
Especially if your provider isn’t Comcast.
Tell me more about Peter Schiff and people like him who say or said to only buy with 0% down and take all the equity you could out of a home and invest in non-USA - seems these people get free housing or almost free, they have to pay the mortgage to stay there - they are making money outside of dollars
I’d like to see that, too (budgeting/priorities for spending, saving, etc.) There are a lot of smart people here whose advice I would value on these topics.
Personally, I will continue to rent as long as my landlord stays alive. No joke: he has owned the property free and clear for 20 years, but his children plan to wait till he croaks and then sell off all his remaining land and property to developers, and evict me and several other renters he’s got. We are almost all long-term renters of 10 years and up, all getting an exceptionally good deal from him, so it will hit very hard when that happens. It won’t be possible to find another place as nice for as little $$$ in my neck of the woods. Depending on where prices are I might consider buying, since I have pets and it’s hard to rent with them (another reason I love my landlord) but I don’t want to be forced into that choice. Currently my strategy is to light a candle and say a prayer daily for my LL’s continued good health. Heh.
It might be more helpful for you and the rest of the renters to buy your landlord some really top-notch health insurance.
Tell me how I can invest in non-dollar investments. Brokerage firms or is there a direct way???? Everyone says get out of the dollar - but I do not know enough to know how - a little help????
http://www.europac.net/
How about discussing how the tax code could be used to resolve this housing issue.
http://www.nysscpa.org/cpajournal/old/10917112.htm
Abstract- he Tax Reform Act of 1986 has contributed to the decline of the real estate industry. The changes that have contributed to the decline of the industry include the elimination of the capital gains tax differential, the increase in the period for writing off taxes for depreciable real property, and the limitation of the deductions of passive investment losses. These changes have reduced the market value of real property, created an incentive for divesting real property, increased the difficulty of divesting real estate, and reduced the attractiveness of investing in new housing and construction.
Destroying real estate through the tax code. (Tax Reform Act of 1986)
The tax reform act of 1986 “crushed” the commercial real estate market by changing the rules in the middle of the game….It would be Equivalent IMO to changing the tax law today that eliminated “all” deductibility of mortgage interest on houses….
How about a thread on what HBBers see as the future of the good ole U-S-of-A??
Great Britain after WWII.
You mean we’re going to have to rebuild New York?
Weren’t they in a recession from about 1945 - 1956?
Yes, and during 45-56 alot of our most famous from UK went to Art schools and became some of our fashion designers, graphic illustrators, musicians. They were from low low income families and school wasn’t an option but the UK gave them the opportunity to go to these Art schools.
Really cool BBC program on that era and what / WHO came from it.
Many of our most famous came through this school program.
I’m curious about how the death of professional sports plays out…
Ceo & corporate owners welsh on multi-year multi million $ contracts with players, and the hoi polloi refuses to pay $8 for a hot dog and $10 for a beer anymore.
Corporate sponsors and advertisers are not long for the world, either.
Game called on account of financial ruin…
On a scale of 1 to 10 of issues I consider significant, the fate of the pro sports industry is a -10.
Sports are an important part of the circus equation, of the empire…
The hoi polloi hasn’t a clue about matters economic, but will gleefully tell you the nightime batting average of his team’s all field-no hit 2nd baseman, that pulls down $6 million a year.
S.P.Q.A.
Exactly. Sports are the opiate of the masses, except on Sunday, when religion takes over for a few hours.
I suspect that the gospel of prosperity not being what it is, anymore…
Will cause the flock to lose faith, in a big way.
Not a bad thing, really.
hell no, the masses will flock to put their ‘faith’ into the hypocritic religious leaders like the ol tent revival days when everyone was dirt poor but it was something to do. Then the pretty daughters got knocked up by traveling tent revival …well it was a movie I saw once. lololol
Doesn’t seem likely. Sports made it through the depression in the 30’s just fine. Worst case scenario is reduced ticket prices and more day games for all the out of work people.
Perhaps a thread on how to advise loved ones who are about to lose everything? My parents and significant other are afraid to even discuss cutting the price on the houses they have for sale. I want to convince them how bad things are, not in an attempt to be right, but to help.
I believe this stock chart provides a nice illustration of the concept of self-similarity, but at increasing scales of magnitude (compare 1987, 1998, 2008…).
Coincidentally, I just sent that same exact link to a friend who is in denial about the precarious condition of the financial system. Pretty soon all of the financials will resemble that BSC chart, or worse.
bernanke, is speaking right now about home mortgages, and the dow is tanking as he speaks. he should have read bens blog in the summer of 2005. i sold in aug 2005 and left the inbred -empire ca. for nw az. best move i ever made. thanks ben!!!
Tags
1929 panic runaway
Potter, he wants to loan .50 on the dollar.
How about a thread about how to politically organize against the coming bailout? If there is one thing we can actually do, it is to create a political action committee (of the financially responsible) to oppose irresponsible bailouts.
Now they tell us!
I just don’t get it! Why is everyone so brainwashed? Why do we need cell phones? Why do we have cable tv?
If people would realize, that dumping these gadgets, they could be saving each month. Ok, so no cable, no sports…so what! Sports is an overblown visual recreation, played by over paid steriod users. Take away their audience… Cell phones,,? What the hell did people do before 1996. Get rid of it, save a hundred a month. Cable, get rid of it save another hundred a month. Quit buying new cars save thousands on payments, interest ans insurance. Quit eating out….learn to cook save more money..and loose weight. Do you really need all those drugs? Pills to sleep, pills to stay awake, ridilin for the kids…yikes! If your in your 20’s and 30’s do you really need health insurance? Do you really need home security? ADT get rid of it!Brand name clothing, why?. its all made in China regardless of whos name is on it. Instead of filling your gas tank, put in the amount you need on a daily basis…believe me it will relieve you of that lead foot. How much gas is now sitting in gas tanks…think about that! No mp3’s, no netflix. Definetly no magazines…their just pages of ads anyway. Newspapers are old news. Wide screen tv’s, stereo surround, hell you probably can’t hear and have loss of vision anyway. And my final cut..the internet…I’m doing fine and I don’t need to know how shitty the world is!!!!!!
End of Rant
Terry, you just ended American civilization.
I’m not giving up my MP3 player. No way no how.
I pay a hundred a year for my cell phone, I’ll hold on to it a while longer.
I agree with most of your items, Terry, but not having health insurance is a dicey gamble. We went without in our twenties for two years (we actually once went to the Haight Ashbury free clinic) and got away with it. My 30-year-old nephew was diagnosed earlier this year with a low grade malignant brain tumor. His insurance enabled him to see a neurosurgeon at a renowned tumor institute, where he got great treatment. He is now doing well but takes an oral chemotherapy that costs $10,000 per month. Without insurance all of our pooled resources could not have bought the treatment he had.
For the Weekend -
Does the supposed fed bailout of Bear Sterns qualify as a bailout?
It’s an orderly liquidation sale. We’re in the cleanup phase.
March 14, 2008, 4:40 pm
Four at Four: Gone Baby Gone
Posted by David Gaffen
To all the Chicken Littles out there: good call.
(playing taps)
We are gathered here…
The Fed: Time for Tough Love?
I’d enjoy seeing a discussion of “What do we need more of?”
Let me explain –
I believe we’re all agreed we don’t need more big-box stores, more nail salons, more doggie boutiques, more payday-loan joints, and especially not more mortgage brokers and used house salespeople. I’d add that I don’t think we need more small used car lots or more ambulancer-chaser lawyers, either.
But what do we need more of? More specifically, what could productively occupy some of the unused commercial property (like a lot of strip malls, with lots of vacancies)? What businesses could new and laid-off workers get into, and have a chance of long-term success? (either serving local customers, or mail and internet customers)
I know we need to get manufacturing back, but even if we do I’m not sure that’ll return lots of high-paying jobs; I think manufacturing will be more and more automated, with fewer and fewer jobs per unit output.
So, what do we need more of, in retail, services, whatever? The only things I can think of for myself is that I’d kill for good customer service (in so many areas), really good education (for children and adults, I’m all for continuing education). Cash-only medical clinics, with no insurance fuss? Ideas?
“Ideas?”
How about a factory that produced solar cells that snapped together and could be used on a house in the place of shingles. The sun blares on roofs all day long, might as well make use of all that free energy.
Also, this same sunshine blares on cars parked out in the open, in parking lots and on the streets. If solar cells were built into the roofs of electric cars the cars could probably absorb enough rays during the day to run them.
Big breakthoughs in batterys have arrived (I’ve seen electric powered model airplanes and helicoptors), so the application of viable electric storage devices isn’t out of the question.
The Western part of the U.S. has lots of desert areas with lots of sunshine. Building solar panels the size of billboards seems doable. The nation’s power grid infrastructure already is in place; all is needed is to feed power into it.
Domestic gold mines.
Excellent idea .”What do we need more of “.How about for starters ,jobs that were out-sourced to be returned . How about bringing the manufacturing based back to America . How about changing over our energy systems to decrease our depending on foreign oil . How about rebuilding rails systems ,roads ,bridges ,you name it ?
How about expanding think tanks . How about expanding the medical research field ,so maybe medical costs could be reduced by new products for a change . How about expanding higher education ,and how about expansing lower education .
I have nothing against other countries expanding as well ,but I’m not asking China to give me a job so I can spend the money in the United State, so I can lend the money back to China again .Look ,trade between countries can be a great thing , but when it starts affecting jobs for Americans and it starts sitting the wage standards ,than I draw the line . I know that the big bad world is very complex now ,but half of the people cannot support the other half here in the United States if the current trends continue .
My weekend suggestion is putting landmines on the US/Mexico border.
A few of those out there and I’m sure we will not have any more illegals crossing.
I don’t know if this fits here, but I recently bought an FDIC-insured CD through my brokerage account with Fidelity.
This is a quote from the prospectus Fidelity sent me {PDF}:
“Payments under adverse Circumstances
As with all deposits, if it becomes necessary for federal deposit insurance payments to be made on
the CDs, there is no specific time period during which the FDIC must make insurance payments available.
Accordingly, you should be prepared for the possibility of an indeterminate delay in obtaining insurance
payments.
As explained above, the maximum $100,000 deposit insurance coverage applies to the principal
and accrued interest on all CDs and other deposit accounts maintained by you at the Issuer in the same
capacity. The records maintained by the Issuer and the Firm regarding ownership of CDs would be used to establish your eligibility for federal deposit insurance payments. In addition, you may be required to
provide certain documentation to the FDIC and to the Firm before insurance payments are released to you.
For example, if you hold CDs as trustee for the benefit of trust participants, you may also be required to
furnish an affidavit to that effect; you may be required to furnish other affidavits and provide indemnities regarding an insurance payment.
In the event that deposit insurance payments become necessary for you CDs, the FDIC is required
to pay the original par amount plus accrued interest (or the accreted value in the case of zero-coupon CDs) to the date of the closing of the relevant Issuer, as prescribed by law, and subject to the $100,000 limitation.
No interest or accreted value is earned on deposits from the time an Issuer is closed until insurance
payments are received.
As an alternative to direct deposit insurance payment from the FDIC, the FDIC may transfer the
insured deposits of an insolvent institution to a healthy institution. Subject to insurance verification
requirements and the limits on deposit insurance coverage, the healthy institution may assume the CDs
under the original terms or offer you a choice between paying the CD off and maintaining the deposit at a different rate. The Firm will advise you of your options in the event of a deposit transfer.”
However, this is what the FDIC posted their FAQ page:
“How long does the FDIC take to pay insurance on deposits after an insured bank fails?
Federal law requires the FDIC to make payment as soon as possible. Historically, the FDIC pays insurance within a few days after a bank closing either by establishing an account at another insured bank or by providing a check. Deposits purchased through a broker may take longer to be paid because the FDIC may need to obtain the broker’s records to determine insurance coverage”
It’s hard to believe the same insurance coverage is being described.
KAI RYSSDAL: Nothing like a little federal bailout to get people talking about giant cracks in the financial system. The news this morning that JP Morgan and the Federal Reserve Bank of New York are going to prop up Bear Stearns got everybody’s attention. It was the collapse of two Bear Stearns hedge funds last spring that started the subprime ball rolling toward recession. Usually when the U.S. economy slides, so slides the rest of the world.
Commentator Robert Reich says that’s not gonna happen this time, thanks to China and the Middle East.
CLICK!