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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.
March 28, 2008
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If I told you 2 weeks ago that Bear Stearns would go from $30 a share one day, to $2 the next, you wouldn’t have believed me.
If I told you the Dollar went from 100 Yen to the Dollar, to 33 Yen to the Dollar over the course of a fortnight, would you believe it possible?
It would probably be better to talk about why those are correlated events, rather than implying that one unforeseen event will lead to another. The former is critical thought, the latter is a basis for superstition.
America has been respected by the world for one thing, most of my adult life…
Financial Acumen
There are a dozen tall poppies the likes of Bear Stearns, that are about to be sheared down low to the ground.
The world is watching…
Didn’t read any correlation to the events into that post, rather just how incredible both are/would be (in normal times, anyway).
Well, as long as you had proof of concept for your time machine. Even I can make perfect market predictions so long as I can do it the week afterwards.
Betting all you’ve got on black swans seems like a ridiculous way to part with your money, particularly if you had to work hard for it.
On the contrary, Nicholas Nassim Taleb, author of The Black Swan, did precisely just that via his successful options trading firm, Empirica Capital. Because Black-Scholes/GARCH equations underestimate the frequency and magnitude of Black Swan events (which are power/Zipf/exponentially distributed and hence underestimated by standard Gaussian bell-shaped curves), he bought WOOM options (in selected markets) and waited for the Black Swan event. His counterparts, WOOM option sellers, banking on absence of Black Swan events, have been wiped out. Check out the New Yorker article on Taleb and Niederhoffer (Education of a Speculator), entitled “Blowing Up”.
–
Aladin,
At some price the global financial system will break down. I don’t know what that is for Yen.
For the past 3 years I had a standing argument with some e-friends that IF the Fed Funds Rate hits 5.5% (forecast of many Wall Street econ-meisters at the time) and the 10-Year UST rate stays above 5.5% for 3 months the US financial system will start to break down beyond Fed’s control. OK, I got a bit lucky and Fed stopped at 5.25%. Maybe, that number for FFR and TNX was 6%, but I sure can calculate interest payments on the outstanding household debt and massive defaults were sure to follow. The point I am making is that at some rates, including exchange rates, the system approaches break down. I think that break down is probable. Interventions can only postpone the inevitable by a year or two.
I just don’t buy Fed “Printing Money” theory because there is no way for the Fed to drop money on households (it can only shower money on bankers and financiers). USG can increase deficit spending, but there are limits to that too. It would be interesting to see how households get more money to spend with falling home prices.
Jas
Question:
What are the alternatives for fiscal policy, now that the liquidity trap has snapped shut? 3 month T-bills hitting numbers that are unprecedented.
Think outside the box. What radical govermental
intervention for restructuring the economy will
backstop the collapse?
Hint: Its tied to Sovereign Wealth Funds,
Globalization, and Securitization. I will add that I
am not a fan of any of those, and I suspect that many
Americans will not take that blue pill very easily.
W-A-R
Exactly what I was going to say Spook. War.
And more of it. National official Arab newspaper had article telling that nation was preparing their citizens for nuclear fallout from “highly respected sources recently”. Which, if you were watching, Cheney was just visiting and kissing the king. “highly respected source”?
Seems our jets are doing test runs along Iranian border. And Afghanistan,India, etc will be in fallout.
That “w.a.r.” will then realign the monetary situation globally.
Or not.
Executive Order 51. National Emergency.
GEORGE W. BUSH
THE WHITE HOUSE,
July 17, 2007.
So this is the national emergancy order put out by bush, and basically says that he will sieze all control of armed forces, transportation and any form of goverment role in iraq…. and the scary fact is that the national emergancy is declared by the president, and the people have no right in this order to fight back….
Oh also he can postpone any goverment function…..I’m thinking Elections?
“what radical govt intervention”
The most effective intervention would be a huge tax credit for house buyers. The credit that has been suggested is $5K/yr for first three years of owner-occupancy. This isn’t really enough to “turn” the housing market, but since the housing market was brought to its ridiculous heights by inane tax policy, probably the way to slow its fall is also through tax policy. I myself wouldn’t buy something for a $15K tax credit, but for a $50K Federal tax credit ($10K/yr 5 years), I would be very very tempted.
Executive Order 51
National emergency
GEORGE W. BUSH
THE WHITE HOUSE,
July 17, 2007.
So this is the national emergancy order put out by bush, and basically says that he will sieze all control of armed forces, transportation and any form of goverment role in iraq…. and the scary fact is that the national emergancy is declared by the president, and the people have no right in this order to fight back…. lemme know what you think…
Oh also he can postpone any goverment function…..I’m thinking Elections?
phew, dodged a bullet, 3 month t-bills over 1.25%
still within a 30bps spread form the 2yr….ridiculous. Liquididty trapped delayed, not averted.
The Fed drops money in your mailbox. The first check is in the mail. Expect more.
War. Executive Order 51, National Emergency.
2007 signed by our pres.
could eliminate elections and so many other things.
google it cause it won’t post, my recent 3 posts
do not get distratcted by things that are not going to happen. We will have an election, and we will not drop a nuclear bomb. Not ever, not on my watch.
now get back to the business of living a decent life, working hard, learning, and loving as many people as possible.
yes, governments intervene. it will be tax policy and currency re-evaluations. It may or may not help. the system always changes.
The FED now taking MBS as collateral from the Investment Banks is pretty significant. How about some discussion on how this plays out. Personally, I think the the tax payers will end up getting royally shafted. This is the first step in dumping all the bad loans on the U.S. taxpayer. The banks will not take the paper back.
didn’t the Japs do that sht ?
2008 the year we turn Japanese
war spending to unwind too
STAGflation on the way
You asked for it …
Oh SIV, oh CDO, oh MBS, oh no AAA
No growth, no jobs, no fun, no wonder it’s dark
Everyone unloaded crap onto the Fed
Everyone stagflates while laying in bed
That’s why I’m turning Japanese
I think I’m turning Japanese
I really think so
cool, but we’re better and can even have FREE-er healthcare unlike the 20 countries where it scks
spenda thon to continue
I agree. But I also expect that Congress will refuse to pay for the bailout. It will not raise taxes to pay for it. It will not cut spending to pay for it. No elected official will vote for it.
So what does that mean? We are going to get the tax no one votes for, and Congress will hold stage managed hearings on price gouging.
Do you see another way out? The only alternative I can think of is having all the money centers load up on Fed loans, calling the loans when due, and nationalizing them, cutting the pay of all involved to the Fed pay scale. That, of course, would require a change of administration, with Goldman Sachs no longer in charge.
“It will not raise taxes to pay for it. It will not cut spending to pay for it.”
When in the last several years has that prevented Congress from obligating obscene amounts of money for unproductive purposes?
Well, after 2006 Congress refused to fund the war in Iraq and the idiotic “Surge”…………..oh wait……………nevermind.
“tax payers will end up getting royally shafted”
Tax payers and those holding dollars or owed dollar obligations are not the exact same groups.
Is the difference really that significant? The typical underwater San Diego condo title-holder–I won’t use the term “owner”–is not a taxpayer of any significance (esp. with all the tax breaks we’re throwing at him!), and certainly has no dollar assets.
Yes, the difference is that significant. Taxes would hit the Ueber Rich (owners of most U.S. corporate and real estate assets) proportionally harder than dillution, which disproportionally punishes retirees owed fixed dollar pensions.
I don’t think a bank can send the fed jingle mail and expect to get away with it..
Why would the bank need to jingle-mail the Fed if the fed is willing to buy the house from them at peak price?
The fed’s not buying anything.. it’s lending.
Granted the collateral (mortgages) sucks, and the fed is doing it just to keep the banking industry breathing.. but in the end the banks will supposedly work their way out of these troubled times, remain solvent, and eventually repay the loans with interest. At least, that seems to be the plan.
I think there is also a regulatory component to the plan which will emerge into public view in due time…
We may call it lending for now, but I don’t see any way that the government doesn’t end up owning the collateral. The only unknown is whether they forgive the banks and let them stay in business or not…which I assume they will, because wasn’t keeping them in business at taxpayer expense the whole point of all this…?
“We may call it lending for now, but I don’t see any way that the government doesn’t end up owning the collateral.”
Is the Fed more likely to conduct REO auctions or just bulldoze all the extra homes? I would guess lots of jobs could be created for construction workers who know how to operate a bulldozer…
Lending what? Guess how the federal reserve got what it is lending out today.
By buying whatever they want (though generally restricted to treasuries) in exchange for deposits at the federal reserve. Deposits created out of nothing.
So while they ‘aren’t buying’ anything now, they can anytime they wish.
My guess is that what ever restrictions the Feds/government has regarding being a helping hand ,they can enacts new rules of the game . Isn’t the Chairman talking about changing the mark -to -market rules ? You would think the whole plan would be how to spread out the losses at the least cost to
FL’s (Focked Lenders ).Wall Street wants to pass the bad paper to the FEDS and move on to business as usual IMHO .The actual borrowers want their mortgage lowered or reduced principal to affordable ,so they can move on with business as usual . Both lenders and borrowers don’t want to pay for their absurd gamble on real estate going up .
Why should a borrower get a bail out if they were not a victim of fraud ,and can prove it .The concept of purchasers coming back a couple years after purchasing something and wanting a 50% reduction on principal or payments is absurd.
If the lenders want to give a break to these borrowers ,than it should be on their books . These are contracts between the lenders and the borrowers .
I think the best plan would be how to spread out the losses into the future for the lenders ,which would mean low profit margins for years in the future . Same with borrowers that over bought ,they would have to eat it for years into the future .
It’s one thing for the government to provide funding for “New Loans ” for people that qualify ,and it’s another thing for government to tamper with bad loans .The only role that government might need to provide is funding for new qualified borrowers that really qualify IMHO.
I think a good topic for discussion might be : What are some constructive ways that the Government/Feds can actually help with the log jam in the credit markets . I don’t know how the market is going to restore trust again ,but some of that has to do with the market being at its true value instead of the inflated value of housing ,and the over supply of homes need to be absorbed . Why would investors want to invest in a declining market ? Not wanting to invest in a declining market is a good business decision ,and how can the government change that ?
A bit parochial, but perhaps we could debate (although I doubt that there will be much of a debate) whether than last domino, Manhattan and close-in neighborhoods in Brooklyn, is finally falling.
All of the financial firms are announcing layoffs now. Even on boosterish sites liked Curbed and Brownstoner bears aren’t being shouted down, and those still suggesting real estate will level off and than soar leaving the bitter renters behind are being described as shills.
This week, post Bear Stearns, the rating agencies are downgrading the debt of NY office landlords. I distinctly remember Northeast banks crashing more than anything else on Black Monday 1987, as the street recognized the hit commercial real estate would take.
Today, the New York Times reported that the Atlantic Yards project in Brooklyn will be tabled, because they can’t find an anchor tenant for the office building and no one will lend for residential.
Moreover, Brownstoner is reporting price cuts at Novo Park Slope, and though the shills have been talking about sales, the site reports no deeds have been recorded. That building is finished. Many others will be coming along behind.
And to top it off, people are still rushing to finish foundations by June 30 to qualify for expiring tax abatements.
It’s enough to make me wonder if a couple of condos would outperform other investments when this all shakes out in a couple of years. At least my kids could live in them.
They will eventually fall. Their fundamentals are so out of whack that they are not sustainable. Especially Brooklyn, but also Manhattan. Just not enough people with a million dollars for a 2bdrm apt. Sure rich foriegners might by high end condos in the Plaza. But ask NYCityBoy about the POS condos going up in his downtown hood. Or the “luxury” half mil and up places here in Queens.
And Manhattan lives and dies on the back of Wall Street. “My prediction, pain.”
Anyone who was here in the early 90s know NYC prices can fall hard. Though many continue to deny it.
I’ve thought the same thing about the Hoboken/Jersey City area, how many people can afford to pay $750k for a 2 br condo, with maintenance fees running up to $500 a month. I’ve seen some evidence of a slowdown, but not anything close to capitulation. We get a lot of financial services employees in this area because of the proximity to lower Manhattan. With the layoffs that are sure to last through 2008 I think the next 6-12 months could start seeing steady price declines.
With maintenance fees so high everywhere, the piti on top would make all the housing too expensive for median income. Just my humble opinion.
hey ed those 500k and up 1 beds in queens will just be rentals
lic is headed for a big fall and lower financial area manhattan is toast. too much inventory and like lic lacking in services
I wish I had a nickel for everybody told me, “you need to buy in Park Slope”. I would have a $hitload of nickels.
I took Mr. Hopper on a walking tour of some of the disastrous developments in my neighborhood. The “Manhattan is special” crowd doesn’t even understand how much of this garbage exists. But it’s different here. Yes, it is. Much of the inventory is hidden in the shadows where the truth seldom walks.
i could see you in park slope pushing a bugaboo stroller and sipping lattes while knitting
The West Side is crowded with new condo projects and late-to-the party condo conversions…and foundations are being poured for a mega project on West End and 86th, and a 22 story tower jacked into a small lot on West 78th to be cantilevered over the NYComedy Club. I walk all over this nabe with my dogs and I’m seeing something I haven’t seen since maybe 2001…signs saying apts. for rent. It may be a standoff now, but the days of ordinary one-beds selling for a million or even 800k are probably behind us.
Don’t forget the “Apple Bank” conversion on 73rd and Broadway, and a totally late to the party, high-rise on 72nd and Broadway.
There are freakin’ condos everywhere. Take a ride down 10th Ave.
What about the 2 hi rises right next to the 7 train at hunters point? No supermarket really close by, maybe a few dive bars, no real shopping, and overlooking the bridge to Brooklyn and next to the entrance of the midtown tunnel…. But hey its 2 stops to grand central and 4 to times square. easily worth 3/4 mill!………And no street parking either!
“And Manhattan lives and dies on the back of Wall Street. “My prediction, pain.””
That is why I wonder if certain parts of DC will resist even more than Manhattan. Some of our high paying jobs, especially the lobbyists, are less economics dependent than the Wall Street jobs. Normal government workers (including yours truely) can’t afford the high end stuff, not by a long shot, but the $650K plus bonus lobbyists can. I think that enough purchasers that are more vulnerable to the down turn are mixed in to all those Chevy Chase/McLean/Georgetown/etc. neighborhoods, but I’m not positive. The lower end stuff has already started falling, especially the stuff that is lower end because it takes 2 1/2 hours to drive to the city. As for the middle, I’m waiting and waiting and waiting…..
‘Sure rich foriegners might by high end condos in the Plaza. ‘
I always wondered even if this supposed rich people influx did happen, how would that alleviate things in the long run? It may help those selling overpriced assets, but real estate that gets marginally higher and higher in price is not the place the last fools showing up want to be.
Coldwell Banker reports over ++60% drop YOY on sales to date.
CAR -california
Tightening Credit? Is anyone seeing/feeling this in your area.Some of our local banks are still pushing zero down 100% home loans with a good credit score.
Chase is still pushing 0% C.Cards on transfers up to 15 months… 6.9% fixed.Just had that offer last week. COFED Bank of Colorado is sending out a big push for first time home buyers.
I’m just trying to find out who/where is all this credit tightening I am reading about?
It seems the merchants of debt have two choices right now: Lend or die, Lend and die. They need to make loans to stay in business, however a lot of people looking for loans are desperate and bad risks.
Ben has said it on this blog before that “builders build”. The same can be said of lenders, they lend. They will keep lending until they don’t have a cent left.
Any cutback in lending for a bank is a layoff. Any increase in stringency for the loans… translates into employees not meeting targets and thus layoffs/fired employees.
Its not a good spiral…
Got Popcorn?
Neil
Well, there are loan-peddlers, and then there are lenders. I could shut down my lending window for a number of years, so long as my clientele don’t all simultaneously decide to pay off the principal. Loan-peddling, an occupation even more unproductive than mine, is dying a well-deserved death.
Ha Ha, the high risks need loans now and the low risks can wait.
Like someone posted a few weeks ago - the would literally have to install a bottomless ATM in almost every house in the nation to stave off the inevitable.
My wife and I were talking about the ridiculous borrow-and-spend habits of the American people the other day. I think it was in response to a commercial that came on television of which I was making fun. She mentioned there is a sign she sees on the way home (asked me if I saw it) advertising “recreational” loans. I asked what is a recreational loan (imagining someone getting a loan just for the fun of it) and she said it had pictures of jet skis, etc. on the billboard.
I guess if advertising is any indication there are still a number of lenders who think the borrow/spend economy is still going strong enough to recoup advertising dollars.
Here’s a thought, if we ever were to return to an economy where people saved and spent within their means, and if one accepts that debt leads to stress, will that lead to a slowdown in the sales (and related advertising) of drugs that help men with a certain stress-related problem? (cialis, etc)
if americans had to live on thier paychecks the economy would
be in huge trouble
the furniture stores are hurting bad-offering no interest until 2013! can you imagine paying for a couch for 5 years?
no, but I can imagine napping on one for five years…Zzzz!
Couches? I could never even imagine making payments for a five year old car!
Furniture free for 5 yrs is for 100% perfect credit.
Just like the other 100% loans for a house
“Here’s a thought, if we ever were to return to an economy where people saved and spent within their means,”
hahahahahaha (snort!) hahahaha…
not laughing at you, but at the thought of this and what it would mean….living with one’s means is such a quaint concept….
Can you imagine someone finally having saved $20K and then walking into the Harley dealer?
Can you imagine someone finally having saved $5K and then walking into Best Buy to buy a TV?
Can you imagine someone finally having saved $8K and then walking into a jewelry store to buy a Rolex?
I have to believe, that as spend thrift as America is, if people actually saved up to buy something, by the time they had all the funds, they’d be quite reluctant to spend it. It’s a lot easier to hand over the plastic than write a check/pay cash.
Hi Pen- I do that occasionally. It’s an exercise in self-discipline, though it may not make much sense since we have a cash-back card and we are the penultimate “deadbeats” by the credit industry’s standard, having retrieved thousands by taking advantage of their generosity. It is certainly still true that one can see a significant discount for using cash, especially for luxury items like fine jewelry… personally, I think the best buys there are going to be in the local stores in the “pre-owned” sections. One of the mindsets of the easily led, is that newness conveys value, and while that may be true of mass-produced, short-lived junk (houses included), it is not true of high-quality luxury items. Old money has know this for a long time.
We were buying a couch set at a local furniture store last year and they had to call the district manager to take our check! Could not find him and I was highly annoyed. They said they were only set up for credit cards. I offered to go get the $$ from the bank and they said they couldn’t keep “that kind” of cash on premises. Our total was around $1500 ?!?!
This is the main reason I have a credit card which gets paid off each month.
It’s the pragmatic thing to do. Try booking a flight or a hotel room without one. Now try doing that on a regular basis!
I leave the hard-coreness (”no CC; no credit rating”) to the old-fogeys.
I bet your one of *those* people who holds up the line in the supermarket because you are writing a cheque.
Get a cheque card — they are far more convenient then writing one out.
credit cards are great, despite what Christian bigot Dave Ramsey says. I have a total of $1000 balance on one card (zero balance on 4 cards) at 1.9% rate and $100,000 in savings bonds yielding 4%. You do the math.
“by the time they had all the funds, they’d be quite reluctant to spend it. It’s a lot easier to hand over the plastic than write a check/pay cash”
Obviously, this is an underlying reason for the credit crisis in the first place. When people’s needs are satisfied, you have to appeal to their wants, and to foster desire. one way to achieve this is to develop advertising strategies which prey on human emotion. another way is to develop a creative class able to produce appealing goods and entertainment.
when demand caused by need is sated, and demand created by want is sated, all that is left is credit. I think this is called a late-capitalist economy?
jason zweig just put out a book on how our brain responds to financial situations, and he found that the human brain responds to the gratification of buying/receiving goods on credit in about the same way as in saved cash. That would mean credit is dangerous, like a drug.
Some of us have a natural abhorrence of credit, but many don’t (maybe similar to how some people are more hardwired to eat or consume alcohol or drugs in an addictive manner).
I am pretty sure the free market will survive this crisis, but credit will have to be tightly regulated, and maybe that will change the way we think about a healthy economy (ie with less of an emphasis on consumer spending). This will go hand-in-hand with environmental stress, too. Even knowing this, I have a hard time imagining the future, because I have a hard time imagining a society not geared around consuming. I hope it means people will go back to making their own things, making their own fun, etc. But who knows.
Um, sorry for that massive post! I guess that was a vote for Pen’s suggestion about imaging a save n’ spend economy.
When I said “Obviously”, I meant it would be obvious to everyone here, so I know I’m not making any big revelation. On re-reading my post, though, it looked kind of patronizing, whoops.
“On re-reading my post, though, it looked kind of patronizing”
I didn’t read it that way. No worries.
(thanks, Bob)
Well, I liked the post. It gave me a tiny bit of hope:
I don’t have a natural abhorrence of credit. I have a hard-won abhorrence of it borne of paying off big ol’ honkin’ debt for fifteen years. I think Americans can reform. It should be possible for people to make the transition from “Wheeeeeee, we’re out of food and I blew my whole paycheck yesterday on burritos and movie popcorn so there’s no cash! That means we have no choice but to charge dinner at the sushi restaurant again!” to “Aw, *yeah!* I just figured out I never have to buy paper towels again because I can drain bacon on the free paper bag you get when you get green peppers from that one dude at the farmers’ market.” I have been both these peopletypes. I VASTLY prefer the blissy second type where you spend your time tinkering around with ever-more miserly plans like figuring out that you can re-use your toothbrush indefinitely if you soak it in vinegar and then in bleach. (I do this. Yes, I do. My toothbrush is like three years old. Some of my kitchen sponges are from the late 90s.) It is easier to live in an obsessively scroogey mindstate than in the churning, by turns acquisitive and terrified mindstate of unrestrained spending and debt where you can’t sleep because bill collectors call you at bedtime and tell you how sucky you are. I absolutely think that a national gettingoutofdebt trend would kill Cialis et al dead.
All I know is that the blissy second state means you have lots more time, energy and enthusiasm for **wink** “horizontal jogging” LOL
“by the time they had all the funds, they’d be quite reluctant to spend it.”
Indeed. My wife and I have effectively paid only cash for everything except a mortgage, and the practice is an excellent limiter on our purchasing decisions. It’s soooo much harder to spend money when you first take into account foregone interest on savings.
Then again, if the rates go much lower due to HeliBen’s buffoonery, we may take some of our savings down to the local Chevy dealer and bargain with them on a convertible Vette. Ah, choices, choices.
I can imagine, because we cut up the last credit card 2.5 years ago, and if I want a TV I have to save up to purchase it. Of course I won’t roll in there and spend 5K on a TV, because when you pay in cash you feel the “pain of purchase,” and suddenly you start thinking things like “hmm, I can buy a 1k TV, take a 1K trip, throw 2k in savings for the kids education, and buy new laptops for the whole family for 1K.”
I see where you are going though, nobody would make those stupid purchases if they made them with cash.
The really crazy thing is how would we measure the economy if we didn’t measure it based on “public sentiment”, which is really just how willing people are to go into slavery to Visa for poorly thought out purchases.
I do this all the time; I never buy anything that I don’t have cash in the bank to cover. It’s unlikely that I’m the only one.
Hi Pen,
I remember those days well - save for the purchase, as credit was not an option in early 1980s for a young AF couple.
True - we married with simple, thin wedding bands. (Eloped to boot!)
When meeting my add-on family, my SILs asked, “Where’s the rock”?
I just smiled. Hubby and I were saving for the diamond, and we decided used furniture was a better fit - ah, the good old days.
Yes, we saved for a rock, it’s modest and I actually prefer other jemstones to the ice.
We still save and often change our minds on any given designated purchase(s).
Saving is addictive. Thanks to this blog, I’ve been able to keep our principle and earn a modestly return.
So, please, feel free to imagine one lovely couple who will actually save before they spend!
Best,
Leigh
modest return…grrr
I saw some income demographics for one of the suburban Atlanta markets that has seen a lot of new home building during the bubble. Most of these new houses are in the $600K range, but quite a few are over $1M.
The median household income for this area is $78K .
Guess how many people had a household income of $200K or more that could actually afford (using pre bubble 3X income qualifying) that $600K house ? ONE. That’s right, ONE family out of almost 8000 in a 3 mile radius can really afford that new house they bought.
At a personal level, I haven’t seen this tightening credit. Last week or so I told everyone here about my story about Bank of America trying desperately to get to take a balance transfer on my credit card. I don’t know if this is typical for most people or not. My guess is not since most people aren’t in the same situation as I am in.
B of A upped my credit card limits without my even asking. (Yes, I have more than one - I’m that dumb) They seem quite happy to have me charge as much as I can. I would guess I’m being targeted because I don’t have a mortgage and I have a decent income, so I’m a fairly safe bet for them.
That said, I’ve noticed that I’m no longer getting the plethora of CC solicitations that once poured through my mail slot. That seems to have come to almost a complete stop. I like that.
Oh, and a tip about CCs - maybe you money savvy people already know/do this - but I have one CC I use solely for work related purchases. Makes it sooooo much easier when tax time comes around to have all my deductible purchases listed on one balance sheet. That and I deduct the interest as well.
Shittibank is sending out those “checks” on CC’s weekly! They are beginning to p*ss me off.
I still haven’t seen anything yet like my wife and I took advantage of a couple of years ago… A fixed loan on one of our open Chase CCs for $50k at 3.99% fixed, with only a $75 fee. I arbitraged that offer very nicely with hardly any effort.
I know it’s n ot quite this simple, but there is probably a savings/checking account holder on the other side of that getting 00.10% interest…
‘I know it’s n ot quite this simple, but there is probably a savings/checking account holder on the other side of that getting 00.10% interest… ‘
Bing.Bing.Bing.
With no exaggeration, I get a letter from Chase with that offer at LEAST twice a week, and this has been going on for 6-9 months now. I am honestly about to sign up for the dam_ card just so they will STOP SENDING ME THE OFFER. You think that I didn’t get it the first 50 times? I have enough credit to buy a Lambo over a few cards, and not enough income to support that kind of spending. Don’t they look at this before they send out the offers?
“Don’t they look at this before they send out the offers?”
Apparently not. Taking out CC credit is a perverse hobby of mine; we currently have $322.6k of available credit across eight CCs, although we only ever use one (Emigrant Direct MC) and pay it off every month. I have to admit a certain morbid curiosity as to whether we’ll actually ever be rejected on a CC application.
A 820-830 FICO credit score, relatively high income, and almost no debt makes creditors lap at your heels like starving dogs. It’s rather amusing to watch, actually.
whiskey tango foxtrot!?
I don’t think I could sleep at night with that kind of CC credit. I don’t know how much is too much…but I know 300k sure as heck is.
What exactly are we supposed to lose sleep over? The amount I stated was available credit, with the most we’ve ever used in a month being ~1.5%, and with any balance always paid in full.
I wasn’t saying I thought you would misuse the credit or anything…I would probably be worried about identity theft at minimu. That’s just me, I wouldn’t want that much credit from cards. We’ve probably got 50k at most (I’m really not sure). That’s more than I ever expect to use.
That’s a perfect defense against identity theft! How can someone steal your identity and open a credit card account in your name if you already have an account with everybody?
Freeze your credit report?
Why the he!! haven’t you bought a house yet with all those CCs?!? Commie!!
Seriously though, many people just don’t get that managing your credit wisely, and hence your score, can only serve to benefit you when you really need it. I have only 4 CCs (one newly opened for 0% @ 15months and the other 3 unused with over $100k of credit available) and moved an emergency $6k expense to that 0% card that I plan to pay off during that ensuing 15months. That will save me over $1k of interest payments vs other methods and allows me to keep remaining cash in interest earning accounts. In effect, the CC company is paying me interest to owe them money.
I bet they’ll still send you the offers after you apply and get the thing. I’m thinking of calling up Geico and cancelling my service because every single week they send me a direct mail ad with a lizard on it who wants to tell me I can save money if I switch to Geico. I’ve been switched to Geico for ten years but the bastard lizard will not stop harrassing me. Last night I got a “hilarious” fake charity letter from the way-played-out Geico caveman. Boil in hell, Geico spokescretins!
–
The % of households who can get easy credit terms is declining fast, especially, as recession picks up steam and job losses mount.
Abusive lending stops one way or another. It is only a matter of time, no?
Jas
Was in BofA today. 30 yr. fxd @ 6%. home equity @4.75%.
New gimmick started today; seems when an indivdual makes a purchase with a debit card the bank rounds the amount up to the nearest dollar, transfers the difference from checking into savings AND matches the deposits for one year. I asked the teller if the bank is now encouraging saving. He just chuckled. This bank is actually encouraging the use of debit cards.
Did anyone see this? Banks are writing down their own bad debt and booking the difference as profit. Imagine if individuals did that:
http://www.portfolio.com/news-markets/top-5/2008/03/20/Lehmans-Debt-Shuffle
Bank Shot, back pocket.
“The continued victimization of the few Americans with savings accounts”
Honestly, I want to cry whenever I hear the news about bailouts and “cramdowns” to aid and abet greedy specuvestors Only the tiny sliver of Americans who aren’t in debt, are productive, and have bank accounts are going to be forced to pay for their greedy idiot neigbors.
On Yahoo! Finance this morning they were running a story that argues that debtors make better savers than non-debtors. Go figure.
More and more I think the proper response to these events is to do everything possible to limit buying anything - especially for major retail outlets and from major brand names - whenever and where ever one can.
As for real estate, if I didn’t already own there is no way I would buy again. The past five years since I bought have been one heck of a journey. This goes far beyond just prices - it includes long term issues like taxes, utilities, insurance, and HOA. In big cities especially, owning will ensure that the hoses and tubes of “the matrix” are crammed far up all one’s orifices.
I tend to agree…except that our Government is lowering interest rates, punishing the savers so Sally Specuvestor can keep buying house. That means that it may make sense not to put off purchase of durable necessities.
(For example, we’re getting some work done on our (100% paid off) house, taking advantage of the glut of contractors available! No, not granite countertops. We’re getting a new “cool roof” (light-colored roof to lower a/c costs–good thing I don’t have an HOA to tell me what color my roof should be), replacing sliding patio door with modern insulated glass, etc.
I meant to say that it makes sense to spend your dollars now on things that may save you money on energy, rather than to wait for the government to devalue your money further (to pay for Sally Specuvestor and Harry Howmuchamonth)
Good moves! I’d like to put in a water harvesting system in the retirement house. Makes so much sense to do those kinds of things. We visited Bermuda a few years ago and every house harvests rainfall out of necessity. Interesting place… physically and financially.
Put in Solar quick, and have the loan /state financing.
Kaching.
Actually, when we got solar, we discovered it was CHEAPER to buy the same components from a state with NO REBATES and have them trucked to CA to be installed by a licensed contractor.
The rebates that CA had in place simply caused in-state vendors to raise their prices!
The past five years since I bought have been one heck of a journey. This goes far beyond just prices - it includes long term issues like taxes, utilities, insurance, and HOA.
Tax issues in Cook County will be very interesting in the next couple of years. As we’ve discussed before, it’s Death By A Thousand Cuts.
HOA / assessments: Something that’s bitten a few people I know in the ass, including in the building I used to own in (a major plumbing issue after I moved out). I’ve met a few clueless people that never even factored assessments into their total costs. Youch.
Yeh, I read that. And then I read a Ric Edelman excerpt about how only suckers pay off their mortgage free and clear. I am so tired of this codependent advice from analysts and so-called experts. Who is telling people to live beneath their means and defer their spending urges until they can afford something more than a piece of cr@p?
If I’ve heard that one once I heard it a thousand times. The Real Esate Insiders on the radio finally said,”okay if you just have this [weird] thing about paying off your mortgage” like it was a unexplainable fetish. “Some people are just like that.” I’m glad I admitted to myself that I was “like that” and paid it off.
I have a different point of view. I buy things that I need and sometimes even want when I see a great price. It’s not like I’m losing money - I’ve just transferred it into another form. I’m not going to go without just to prove a point to government or corporation. Living well is always the best revenge.
everything you read or hear is about paying down your cc debt if any extra money comes your way. the msm just assumes everyone is toting around 5 figure cc balances
i could not sleep at night knowing i was carrying that much debt at god knows what % interest
but apparently many others do not feel the same
California woman slain while calling 911 from the L.A. McMansion that she just bought for $2 million
http://news.yahoo.com/s/ap/911_killing;_ylt=Arud0U33vess5aT7NB8usfYDW7oF
Man, talk about sinking way too much money into a house in the wrong neighborhood ….
There goes the neighborhood!
I personally, have wondered about the risk of buying a home from a-less-than-savory character (or someone who owes money to the wrong people). If people who are looking for the previous owners aren’t aware that they moved, you can find yourself dead. I wonder if that’s what happened here?
Sometimes seclusion behind hedges and walls isn’t such a great thing.
There was an orlando sentinal study published a few years ago that showed that “gated communities” didn’t have any lower rates of crime! Cars still got stolen; houses still got broken in to.
My parents live in a gated community and they love it. I will say my dad`s new ping irons that I bought him did get borrowed permently, they think a construction dude. Once the hood got built out a few years ago, they have not had any problems in the entire hood. I have mixed views on it, but it is nice. I would not pay the coin for it though. And remember you have to pay for your on roads once it goes public. $$$ Well they did have a little problem if you remember the loomis fargo heist, those folks lived there until the feds caught up with them, made a movie about them, very funny. Live in a trailer on day the next day your living in a 9000 sq. ft. house. Its called moving UP. LOL
Lane
Move into a “gatted” community & defend yourself.
I live about 5 miles from West Covina. South Hills is a nice area, but all you have to do is cross the street and you are in the ‘hood.
West Covina is a large Phillipine community, but cross Azusa Ave. and you are in Valinda, which claims a good number of drive by’s.
The downside of flaunting your wealth (or borrowing power) too flagrantly.
“Man, talk about sinking way too much money into a house in the wrong neighborhood …”
That house was likely up in the hills overlooking the 10 fwy. In the same general area to the south is Walnut, another hi-end wooded communty of many well-to-do Asians. Some years ago there was a violent armored car heist in Walnut in which the security guard/ driver was killed.
These exclusive remote hill communities are not 100% completely safe, though the odds are slim that you will be a victim of a home invasion crime. There are semi-ghettoized ratted areas in the flats to the west & south ( la puente,valenda & city of industry-which has a really gritty aspect along the narrow railroad-centered industrial corridor ). To the north is gritty Covina(a separate city from west covina), and decaying Pomona to the east/northeast.
Any criminal(s) can simply drive up into the eclusive gated hill communities from these unsavory seedy areas and enter an exclusive gated community, pretend to be a delivery driver , and go into these exclusive gated communities and burglarise/rob /commit murder at random. Easier to do as the sparsely populated semi-wooded Hilly aspect & tall hedges of these estate tracts make it easier to commit home invasions sight unseen.
Any signs yet of a XXXXXXX?
Don’t know what a 7x is, but I sure miss watching gold dance on its days off-
Rhymes with “fail route”…
Central banks float rescue ideas
By Chris Giles and Krishna Guha in London
Published: March 21 2008 22:02 | Last updated: March 21 2008 22:02
Central banks on both sides of the Atlantic are actively engaged in discussions about the feasibility of mass purchases of mortgage-backed securities as a possible solution to the credit crisis.
Such a move would involve the use of public funds to shore up the market in a key financial instrument and restore confidence by ending the current vicious circle of forced sales, falling prices and weakening balance sheets.
These “rumors” have been specifically denied, and I mean very specific.
Try this exercise PB, formulate opinion , opine, and postulate what the tea leaves are telling you, and then allow the confirmation to come back to you. This is the excerise that I try to employ. A difficult task and painful, but by reading into whats happening, and allowing the information to come back, you get the confirmational bias you are trying to discredit.
see my post above to Jas. Again, I try to do this without going to the blogosphere first, rather second to confirm bias, and begin discredit. When confirmational bias is mutually exclusive of discredit, you have answers.
POTOMAC WATCH
By KIMBERLEY A. STRASSEL
The XXXXXXX Briar Patch
March 21, 2008; Page A12
More bank failures and what that would mean for us? if there are no more bank failures then the FED can keep extending the loans already made until profits return. Maybe years but managable, japan did this. Now if RE keeps going down and new loans are needed from the FED to the banks what do we end up with? Can the FED loan 4 trillon dollars to insolvant banks for the next 10 years without really screwing up the economy ? I would like to hear ideas on what could happen ? I think this is the big question now how much more money is needed to stabilize the economy.
Stuff I would really like to have but don’t need-
A glossy, authentic pop-up bar in the art deco style- similar in function to the groom’s parent’s bar in the original Father of the Bride, starring Spencer Tracy.
The West (Fox)Theater in Trinidad, Co and a couple of million to fix it up.
Off-grid power and water system.
A recumbent bike.
A luxury caboose, to travel the rails in style. (please… no comments about my caboose.)
A week of living in Frank Lloyd Wright’s “Falling Water”.
A vacation in Banff.
A presidential candidate with whom I agree about everthing.
A luxury caboose, to travel the rails in style.
I’ve read that Amtrak is more than happy to attach privately-owned rail cars to their trains, for a fee. In fact, there are a few companies out there that have restored luxury rail cars that do just that.
I would like to have the bar, the theater and the caboose, too. In addition, I would like to purchase all the sugar corporations in Florida and convert them and a couple hundred miles of surrounding swamp and tract home landscape to minimally managed, sylviculture-type range land, some of which would be set aside for sheep. All the lamb in the store comes from fargin’ New Zealand! You can’t even GET mutton anymore.
Because there’s no crystal ball telling us how long we have on earth, I’d like to explore the balance between living and saving. I see lots of comments from people being proud of how cheap and frugal they are. I see others pass judgment on how others spend their $. I wonder what is the balance. I have hardly any overhead and minimal debt with no long range responsibility for kids or parents. I don’t waste money, but I also tend to buy better quality (always look for best price) rather than quantity on some stuff.
You and me, are they crazy. I have a relative who saved everything for a rainy day. Even though she lived into her nineties, she never enjoyed that rainy day. Carpe diem, man.
I haven’t bought anything since Christmas and yesterday I bought 2 pair great (expensive) shoes. cash. no guilt!
(my tv, on the other hand is like 9 years old, bought for $100 after the last one died. my sister in law finds out tv very amusing and laughs at it!) everyone has priorities…
I am always curious about how people spend, save and invest their money, in or out of housing. So any topic about that is pretty fun, at least for me.
Read “The Millionaire Next Door.” The authors’ surveys of wealthy people reveal how they spend, save, and invest. The authors define wealthy as being in the top 3.5% for household wealth with liquid assets of at least 10X annual living expenses. The results may surprise you.
I did read that! It was fascinating.
I’d recommend also reading “Fooled by Randomness” by Nassim Nicholas Taleb, which “disputes” the conclusions drawn in Millionaire Next Door. Not to say it’s not worth reading, but it’s nice to read a different perspective on things as well.
Check this out… 52 year old lives at home with mom and dad so she can save up for a down payment. If she didn’t live with her 80 year old parents, she’d have to *gasp* “go back to renting.”
http://news.yahoo.com/s/ap/20080321/ap_on_bi_ge/living_with_parents
It’s one thing to live with your 80-something parents because they need you.
it’s quite another to live with your 80-something parents because you need them - especially if you need their $$$ because your lousy financial choices have come home to roost.
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A great topic — Effect of the Housing Bubble burst on divorces and marriages. According to this woman (divorce attorney) on Faux Business News people are choosing to stay in loveless unhappy marriages because of not being able to sell homes or afford to buy a new home after the divorce.
Add one more thing to lowering of the housing demand.
BTW, housing demand goes negative during most recessions and the forced lowering in the divorce rate could be one contributor.
Jas
A work friend got married in February. The plan was for her to sell her place, her husband to sell his, and for them to buy a larger place together (they want to start a family soon). So far, no nibbles for either of them. They’re smart enough not to buy until both places have sold. It looks like they’re going to Plan B - renting one and pulling the other off the market until next year and trying again.
I know two couples in similar straits here in Chicago. In both cases, a one bedroom condo that hasn’t sold is putting the freeze on upcoming joint house purchases or moving plans.
But nobody wants to give ‘em away …
“A great topic — Effect of the Housing Bubble burst on divorces and marriages.”
Good topic. A couple of years ago my husband and I were joking about making a self help book for FBs whose foreclosures are straining their marriages. Sort of one stop shopping self help. I think it could make a lot of money! We’re not quite cynical enough to pull it off, though.
people are choosing to stay in loveless unhappy marriages because of not being able to sell homes or afford to buy a new home after the divorce.
Not being able to buy a decent place after a divorce was what led me to this blog, ironically enough. The price-to-value ratio didn’t make sense to me. And now I know my instincts were right.
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I just remembered that a partner in an accounting firm with pretty high income still shares the home with his ex-wife after the divorce few years ago. I would think that had the home prices in the area been cheap (Woodland Hills) or rents were cheap they would be living in separate dwellings.
Another reason why some econ-meisters were/are wrong about the actual demand in recent years. The demand was never 1.65-1.9M annual units, as the estimates have suggested, for the past 6 years.
Jas
I think this is an excellent topic. The burst of the housing bubble is going to have a huge impact on divorces and marriages.
I’m not sure a lot of people will stay in marriages due to the housing bubble. It can and will happen, but for it to happen people need to be aware of the housing bubble beforehand. What I see is people getting divorced and then trying to sell their house, but being unable to sell, end up in a bizarre roommate situation with their ex-spouse.
Even when those bizarre roommate situations doesn’t happen people can be stuck with an albatross of a house they don’t want. I have a coworker who lives in WV (which many HBB readers should remember) who bought a house in WV at the top of the bubble in 2005. He got divorced and got stuck with the house. Now, he’s trying to sell or rent the house in order to move to a place closer to our office (which is a lot closer to DC). This why I think there will be less divorces (or less “effective” divorces) from the perspective of housing demand.
What about marriages? I think the marriage rate will be lowered as well. There will be the general economic uncertainty of course, but there could be other reasons. Some people claim that a lot of men are engaging in a marriage strike:
http://en.wikipedia.org/wiki/Marriage_strike
I don’t know if that’s correct or not, but if it is then expect the marriage rate to take a beating. One reason I could see it being true now is the infamous “Suzanne Researched This” commercial:
http://www.youtube.com/watch?v=Ubsd-tWYmZw
I can easily imagine thousands (or millions) of single men watching the “Suzanne Researched This” commercial and vowing to never get married after seeing it.
While more single people would in theory increase housing demand, the type of housing these unmarried people will want are more likely to be apartments if the rent or condos and townhouses if they buy. Since they won’t have a family to tie them down they would be more likely to rent. If nothing else, people in this situation will want to be mobile.
You are right about that commercial. But most of the men I know who are about my age are married or planning to get married soon. However, I do know that in Spain many young people refuse to get married for political reasons (stemming back to the era of the rightist regime). Soon, I guess they will be adding money reasons.
Like I said, I don’t know if the whole “marriage strike” is real or not. It could be delayed marriage for example. The collapse of the housing bubble could flip this into reality.
For what it’s worth, among the people I know, women are actually a little more careful about money than men, in general. Most of the married/partnered men I know are more stable financially than the single men, who often spend a lot of money on day to day luxuries, but have little in the way of savings or future plans. I started asking around for financial advice, financial planner recommendations etc. a couple of years ago, so I started to get a little picture of who was interested, or had a clue among my friends.
Most of my girlfriends (late twenties/early thirties) were raised to assume that we would be financially responsible for ourselves, as well. I just don’t personally know any “Suzannes” myself. Or, maybe I know lots of successful Suzannes, who do actual research and make smart decisions and who have their own money. I know just as many house-proud/house-crazy men as women, they’re not being Suzanned into anything. Of the people I know who think housing is overpriced, it’s about half/half men women.
I don’t think this is generational, ethnic, racial, or male or female. It’s a pretty equal opportunity mania. I haven’t seen anything to the contrary in my own world, anyway.
RE: I haven’t seen anything to the contrary in my own world, anyway.
It’s been a key acknowledgement by the feminist press pandering to the “men are complete losers” dogma, that single and divorced women have been the highest participants in the recent purchasing bubble.
Suddenly all the superiority crowing appears to have stopped of late.
For what it’s worth, among the people I know, women are actually a little more careful about money than men
Tell that to my sisters. None of them have credit cards because their credit is destroyed. They need such encouragement.
Okay…for the fifteen-millionth time, many of the long-time HBBers are WOMEN!!!!!! Additionally, in many cases, we (women!) were the ones who had to drag our husbands, kicking and screaming, into rentals to wait this damn thing out.
Enough with the misogynistic comments, please!!
Direct your complaints to Century 21 and the REIC. They are the ones who thought that portraying women as harpies who gang up on men was a good idea.
If the commercial was a male realtor and the husband berating the wife into buying a house would the reaction among women be any different than the reaction that men have to seeing that commercial?
I’ll state up front that this post will seem biased - because it is.
I am staring down the gun barrel of divorce right now, and I can say for certain there are a lot of ‘once bitten, twice shy’ men out there. If our final effort to make it work fails, this man will not be marrying again. Ever.
The “Suzanne Researched This” commercials are symptom of the greater problems and attitudes facing men and marriage in this day and time. I’m finding an awful lot of men my age (late 30’s, early 40’s) whose wives woke up one day and decided to ‘do better’ while feeling entitled to a pound of their husbands flesh for the rest of his life. The deal for men is a raw one, even here in Texas which doesn’t have alimony.
In my situation, my house, purchased with the intent to stay in it until the kids were grown-up and gone is going on the market in a couple weeks at a fire-sale price. This is happening for reasons other than the possible divorce, and it may help in saving the marriage. In any event, it will be one less complication hanging over us.
Sorry to rant. I guess my points are these:
1) I expect more divorces due to the HB crash, not fewer. There will be an increase in the number of couples sticking it out until they can unload their house, but they will be dwarfed by the number of marriages destroyed under financial strains.
2) The “Marriage Strike” is real phenomenon, though I think it applies more to men previously married than than you, foolish men getting married for the first time.
What happens when you have a bunch of 40-year old freshly divorced men who’ve had a financial roto-rootering and are starting over again from ground zero?
They’re going to be more careful. Much more careful. At that age, they have to think they only have 2 more decades of being able to earn a good living, and they still have children’s educations and retirements to fund. They’re going to live more modestly, avoiding debt and saving furiously for the future demands that loom. They’re going to be a lot more cautious about letting another woman attach themselves to them.
RE: I am staring down the gun barrel of divorce right now
Hang tough, brother. You have my complete empathy.
I completely validate all your viewpoints.
If you go the divorce route, It will look like the world is crashing down around your ears for about 1.5/2 years-after that things will get better-I guarantee it.
DON’T do anything rash. Draw close to your good friends and family. Talk shit out with them.
If she’s got it in her mind to split-she’s goin’…I put limited stock in counselling. PROTECT YOURSELF!!! Get a good lawyer and don’t give away anything.
Just always remember- there will be light at the end of the tunnel.
God Bless.
I’m sorry about your situation. In one case, an older colleague of mine told me (over the cubicle wall) that he was on his third wife and third house. Implication: His two ex-wives got the first two houses. In another case, a man with grown children divorced his wife and figured he made out like a bandit because his only deal was that he had to pay his ex-wife $45,000 per year for four years and then after that there is no more obligation. Perhaps he was right. He’s older than me (I’m 48) and asked me for investing advice. How sad. Okay, as an equal opportunity guy, here’s one for the women: A woman friend of mine was pregnant with her fourth child when her husband (the father of all those children) left her. She had a college education. He had a semester left of college. Instead he moved to Vegas and downsized his income so that he could not afford child support, and he was a druggie. Okay so it’s not always the women’s fault.
Out of four boomer children, only two of us were ever married. One of us had children. Now two of us are single and two of us are divorced. All college educated and our parents were the best parents in the world (and we miss them immensely). So there is something to think about.
Beware of the birth dearth. Children were needed in the 1800s and early 1900s to help on farms. After WWII, the men back from war were so happy to be alive, they started families and it only took one breadwinner to raise a family of six from 1946 to 1970. Now it takes two breadwinners to raise a family of 4.
There is really no incentive to have a traditional family. I think the last of it disappeared in 1976. Families with more than 2 children are an oddity these days (”Are you Mormon or Catholic?”).
RE: What I see is people getting divorced and then trying to sell their house, but being unable to sell, end up in a bizarre roommate situation with their ex-spouse.
Been there done that…2 years with an adulterous spouse under the same roof.
Pure hell.
The best three years of my life were when I was in a non-marriage with a very beautiful and very intelligent Kuwaiti woman. Each of us had different career paths and had to separate after an incredible 3 years. I am against marriage, per se. It’s the sanctioning of the idea that government or some religious organization must be a partner in the marriage, which should be an intimate relationship between only people. Without a government license, it’s not a marriage, no? Then there are tax considerations, legality issues on divorces, etc. Suze Orman is for pre-nupt agreeements. However, leave the loywhore (”lawyer”) out of it - just have a live-together non-marriage. And when my woman and I had disagreements, it felt good to be a sovereign individual without government snooping in.
Bill,
That’s all good and well for someone who doesn’t want children.
However, for those of us who want families, it’s been proven time and again that married parents are the best family foundation for children. Better financial stability, emotional stability, social safety net in later years for all concerned (kids of divorce are less likely to be there for their divorced parents in old age, and divorced parents are less likely to take care of their children in times of emergencies — new “families” tend to get in the way).
BTW, it’s not only men who suffer in divorce. It’s a fact that divorced women fare much more poorly than divorced men in almost all aspects.
The fact that marital assets are split between the divorced parties means that BOTH people will be worse off after divorce. Nobody wins, especially the kids.
BTW, for all those men who don’t want to get married but hope to have some generous woman have “your” children, would you be willing to give up “naming rights” of the children she bore? There is no reason for children to take on their father’s/sperm donor’s last name if he is not married to their mother. It is no longer a “family name.” Since the mother is the one who “does all the work” it would only seem right that the children take her name instead, right?
SIL’s sad tale:
- Bought and sold several homes (3? 4? I lost count…) during the bubble years (1998-2007)
- Last bought in $600K+ McLuxury home market in Utah (last summer)
- Vanishingly few Utahns make enough to afford this price range, and a Deseret News article posted here last week confirms the McLuxury home glut along the Wasatch Front in the $600K+ range
- Divorced last month w/ lotsa kids and lotsa house they can no longer afford as two separate households
Thinking out loud - our we, due to a recession/*D* - about to experience another baby boom?
Interesting thought.
Leigh
Doubt it. Baby booms occur in life-affirming celebrating times, like when we defeated Nazi Germany and Japan and the men were happy to be alive and home. Was there a baby boom in 1929? No. We are near 1929.
Japan, yes. No question.
The Russians defeated Nazi Germany.
The Russians defeated Nazi Germany.
———————
That’s how I hear it as well.
My mother lived in Vienna during the war, and they credit the Russians. The Americans were thought of as cowards because most of their fighting was done from the air — they would indiscriminately bomb anything below them. The Russians were on the ground fighting the Nazis, not the Americans.
Retirement pension fund managers are still going to invest their peoples funds in mortgages - “off with their heads” (alice in wonderland) http://news.yahoo.com/s/ap/20080321/ap_on_bi_ge/state_pensions_mortgages;_ylt=AjeHX4TBY_XU0Kp01pPmXuOyBhIF
Why is building still going on? Not just building but the permitting processes? We’ve got homes in foreclosure all over the place, and some bozo in South Florida is going up to propose a 250+ condo unit/mixed use/commercial property on a bit of left over land sandwiched in between two very noisy fright corridors. Warning, PDF, look for Historic Depot Square.
http://mydelraybeach.com/NR/rdonlyres/egpjwaieamsqrffiy5hwafujhzitbwdm4dn3ejzpuojadu7qg7w4fre6wzh2gvtzzvzv5p6otvxysvo5nodhfpfvd6f/SPRAB+Agenda+03-26-08.pdf
Are they in this for the business losses now? Or are they expecting everything has “turned the corner” like David Johnston on Marketplace this evening?
http://marketplace.publicradio.org/display/web/2008/03/21/wall_street/
Palm Canyon Drive, seems a few projects that have been taking yr or more, are finally being Green Fenced, so does that mean building is about to occur? 2 sites didn’t have those fences 6 months ago. But since they are right in the middle of the city, perhaps they are being forced to start building.
I don’t know. Just saying, saw them tonight on drive by.
March 20 (Bloomberg) — U.S. Treasury three-month bill rates dropped to the lowest since at least 1954.
Investors pushed the rate as low as 0.387 percent as the loss of investor confidence in credit markets deepened. Surging demand for Treasuries is causing failures to deliver or receive the securities to climb to an almost four-year high in the $6.3 trillion a day repurchase, or repo, market.
“The market’s insane”, said David Glocke, who manages $75 billion of Treasuries at Vanguard Group Inc. in Valley Forge, Pennsylvania. He sold bills maturing in one week at a 0.05 percent yield. The biggest thing overall is the flight to quality.’
CIT Group, the largest independent U.S. commercial finance company, drew on emergency credit lines and said it may sell assets. Protracted disruptions in capital markets and downgrades of its credit ratings prompted the New York-based company to borrow from backup lines.
Top economists are scratching their heads over those near-zero 3 mo T-bill rates. The metaphor I prefer is a liquidity tornado whose devastating vacuum has sucked s-t T-bill rates down to levels that nobody could have foreseen.
Zowee! My 3% fixed rate I bonds of 2001 and 2% fixed rate I bonds of 2002 look like winners compared to 0.05%!
Can we do a topic on protecting your cash while the correction takes place? Cash will be king, but only if inflation doesn’t destroy it.
What do people think about Treasury Inflation Protection Security or TIPS as a place to park money while waiting for the housing bottom to fall? I’d hate to buy gold or silver now because of the extremely high prices. TIPS sound safer.
“I’d hate to buy gold or silver now because of the extremely high prices.”
High compared to what?
Not compared to anything. I’d just be scared to buy these commodities now. It would be like buying a house in 2005.
Who knows when the gold bubble will pop. Maybe gold will double it’s current prices. Maybe it’s already peaked. But when it does pop, it will crash fast. The housing bubble will take years because houses are not very liquid. Commodity corrections take days or even hours.
The thing that I, like most people with savings, fear is that there is no place to put my savings to protect them against inflation other than to gamble with them and risk losing everything. It’s scary even for those of us smart enough not to chase bubbles.
I like this topic — safe places to put your money during the bust. Also, which banks are “safe” — not as exposed to this mess.
TIPS are currently paying negative real interest rates. And they could get hammered when rates start to rise again. Although TIPS were very good to me last year, I wouldn’t be putting any money in them now.
Dove, for my inflation protection, I buy mostly precious metals bullion and hold them. However, I have an equal amount of money into series I bonds and just started dabbling in ten year TIPS. The nice thing about Series I bonds and TIPS is that the yield never drops below the fixed rate. Precious metals can dip below their fair value, whatever that is. The cool thing is that if you have socked away six months worth of expenses in series I savings bonds at least 5 years ago, you can cash them out immediately without interest penalty. in other words, they are as liquid as cash. My 2001 series I bonds have a fixed 3% rate. That was a slam dunk. I could have theoretically bought $120,000 worth that year. I would have a lot to crow about if I did so!
I honestly think we need to open a “full-reserve” bank. Many of us are trying to figure out the best place to hold our savings while everything around us melts down.
IMO, a full-reserve bank could do well in this environment. We’d also know exactly how much money we could lend out, and be able to qualify the borrower(s) and price risk accordingly.
(repost attempt, lost all my links) Why are builders still trying to build? Not finish what they’ve started (they’re barely doing so), not sell their inventory (half off!), but requesting permission for new buildings and communities? One builder is starting the groundwork to build a 250 unit condo on a sparse stretch of land wedged between two very highly used freight transportation corridors (with mixed use space on the first floor). This is just one city in Palm Beach county - no idea what the rest of the county is doing.
Okay, guys…Help? No really. HELP!!!!!!
My niece and her new husband (Chinese born, on track for US citizenship,) are living and working/grad schooling in San Diego County. I just found out they are actively looking to buy a house. AAAAACCCCKKKK!!
Please. Anything. I’ve given them the standard HBB talking points, but my evil brother-in-law and the rest of the So Cal. family are pushing hard to draw them into their demented REality, (which includes massive investment in the SD market.) If there are good deals to be had, the fambly likely has a line on the property.
These are good, smart kids, but I fear that the pressure may prove their financial (and thus, marital) undoing. Any resources/good arguments would be most appreciated. Thanks!
You can lead a horse to water…
Direct her to piggington.com.
WEEKEND EDITION
Bernanke’s quiet skipper makes waves
N.Y. Fed’s Geithner is steering Wall Street into uncharted waters
By Greg Robb, MarketWatch
WASHINGTON (MarketWatch) — When the phone rings at 3 a.m. alerting the government to a financial emergency, the call doesn’t come in to 1600 Pennsylvania Avenue but to an apartment in Manhattan.
The government’s go-to guy on crises big and small is a quiet, unassuming public servant with a wife and kids, a winning smile and an aversion to the spotlight.
His name is Timothy Geithner and he’s the president of the New York Federal Reserve Bank, which is the Fed’s outpost on the front lines of the credit maelstrom now rocking the nation.
I feel for this guy. He sounds like a dedicated public servant who is caught inside a financial maelstrom beyond his or anyone else’s control.
Man in the News: Timothy Geithner
Krishna Guha and Gillian Tett
Published: March 21 2008 18:09 | Last updated: March 21 2008 18:09
Does this dollar rally have legs?
Dramatic dollar reverses course
By Peter Garnham
Published: March 22 2008 02:00 | Last updated: March 22 2008 02:00
Wild swings in foreign exch-ange markets pushed the dollar to record lows this week before a dramatic turnround as commodity prices tumbled and traders cut back their bets against the beleaguered currency.
The dollar plunged to new lows of $1.5904 against the euro and Sfr0.9637 against the Swiss franc and dropped to a 12-year trough of Y95.77 against the yen on Monday. The falls came after news Bear Stearns, the troubled US investment bank, had been bought by JPMorgan Chase renewed fears over the extent of the damage caused by the credit crisis.
The pound also suffered, falling to a record low of £0.7912 against the euro as currency traders punished the UK’s reliance on the embattled financial sector.
The US Federal Reserve responded to growing signs of panic in financial markets by announcing fresh liquidity injections and cutting its Fed funds interest rate by 75 basis points to 2.25 per cent on Tuesday.
We told you so! BwaHaHaHaHAAA!!!
PAGE ONE
Woes in Condo Market Build As New Supply Floods Cities
By JENNIFER S. FORSYTH and JONATHAN KARP
March 22, 2008
Have the inflation hawks at the Fed said “enough already”?
Federal Reserve, commodities could lift dollar next week
The Associated Press
Published: March 21, 2008
NEW YORK: Slumping commodity prices and a Federal Reserve that has begun to exhibit restraint in cutting interest rates may allow the dollar’s modest rally to continue next week.
Those commodities really crashed. Oil all the way down to 107, gold over 900. What a slaughter…
Are we in a Bloodless Depression?
An economy undermined? Experts assess the real costs of a financial crisis
By Chris Giles
Published: March 18 2008 19:01 | Last updated: March 18 2008 19:01
Is this denial plausible?
Fed Says Not Discussing Coordinated MBS Buying
By Greg Ip
Word Count: 400
The U.S. Federal Reserve, responding to press reports, said it is not discussing coordinated purchases of mortgage-backed securities with other central banks.
“The Federal Reserve is not involved in discussions with foreign central banks for coordinated buying of MBS,” a senior Fed official said.
OK, now for this week.
The MSM domino to fall is U.S. awareness that a real estate bubble had inflated and is now bursting in Europe and elsewhere. What was described as a subprime problem, and then a U.S. problem, is going global.
The question is, how will this affect the U.S.? We’ve seen foreign banks and investors burned by the U.S. bubble, and foreign economies strained by the U.S. economic downturn. Will we get some blowback — less inflows to finance our twin deficits for example? Might the idea that we are ALL screwed help the dollar?
Not as long as Bernanke keeps printing money like Gutenberg printed Bibles and loaning it out to anyone who scrambles up to the open window. No credit, No down payment, No collateral, No Problem.
Yes, in relative terms - the Euro will fall. However, what’s the use when all currencies begin to lose value at a rapid pace?
Spain’s economic growth, which outpaced the euro-region average, provided a quarter of the single-currency area’s new consumer spending during the past four years, according to the European Union’s Luxembourg-based statistics agency, Eurostat. That’s more than five times the contribution of Germany, where the economy is three times the size.
Now, a glut of properties weighs on the market, and interest rate increases and tighter bank lending standards make it more difficult for buyers to finance. The supply of new homes in 2006 outstripped demand by about 50 percent, according to government estimates.
Mortgage interest rates more than doubled since 2005 as rising credit costs sparked by the U.S. subprime crisis compounded eight increases by the European Central Bank. The 12- month euro interbank offered rate, or Euribor, calculated monthly by the Bank of Spain and used to set mortgage rates, was 4.79 percent in December, the highest since 2000.
From Bloomberg, this a.m.
Posted in Bits Bucket, the koreans have stopped buying our Treasuries. With a plunging currency no one is going to take losses for the pleasure of maintaining our consumption economy. Long rates should rise, but if the Fed holds them down by monetizing debt (which they are currently doing), we will have low rates and high (hyper?) inflation.
RE: the koreans have stopped buying our Treasuries
Got the word tonight from my silver hoarder friend…
His Silver Eagle purchase source indicated the Feds have suspending minting, and as a result had nothing to sell him,
except gold.
Bad omen. Can any PM posters confirm?
CNN will have a most excellent program on the economy this evening at 8pm (EST?)
On their website a preview of subject covered.
http://tinyurl.com/ypoj37
One interesting point in article among many:
“Not since the 1930s. They didn’t have the Fed funds target rate back then, but effectively we had a zero-interest-rate policy for a good part of the ’30s. If the Fed responds this time with as much cutting as it did in the last two recessions, we get to zero. And then the problem is, What if that isn’t enough? And there’s a pretty good chance it won’t be.”
If the general public was unaware before, they can’t say they didn’t know going forward.
Paul Krugman’s, unabashedly liberal, take on McCain’s economic speech.
http://www.nytimes.com/2008/03/28/opinion/28krugman.html?ref=opinion
But since Krugman was one of the few early voices sounding the housing bubble alarm and regularly quotes sites like Calculated Risk, he may be worth listening to.
The thing with Krugman is I think Bush drove him insane. He used to be a lot more objective, but he’s been so pissed off the past five years I think it has clouded his judgement.
He has been called “shrill” since he started pointing out that Bush’s economic plans were a scam, that the War in Iraq was fiasco, that we have a Kleptocrasy run from the White House, and that an economy “based on people selling houses to each other” is doomed to fall. If being right repeatedly means one is insane, then I would hope for more insanity.
This is an old right wing tactic to belittle those that oppose you. I know you didn’t mean it that way, but be aware of it’s origins.
I guess you prefer people like Bill Kristol or Larry Kudlow, wrong about everything, but not shrill.
Yes, Paul is really pissed.
“Because I think we know something that we didn’t then. The Federal Reserve was clueless back then. They were only concerned about protecting the nation’s gold reserves, and the federal government believed that austerity and cutting spending was the answer to recession. I think we know more than we did then, and just the fact that we have a big federal government is a stabilizing factor. But the current problem is still pretty awesome.”
Ok, so the Fed was clueless in the 30’s. I assert that they are just as clueless now. When we have prosperity, the Fed should be lean and austere so that when times are bad they can prime the pump. Nest, I give you this current mess. That speaks for itself.
Roidy
Something I thought would be interesting to discuss is what I’ve been noticing in many of the areas I’ve been seeking to possibly relocate to if the prices don’t become acceptable in the Bay Area. These areas include: Atlanta, Nashville, Austin, Raleigh, and Houston.
To me, it appears that there’s some sort of price-ratcheting from the lower end in these cities. What I mean by this is that just 2 years ago during the height of the boom, homes could be found in the greater Nashville area for under 60k. Now those homes are 150k, which doesn’t sound like much to us, but just from a pure mathematical perspective the prices at that level more than doubled pretty quickly.
The misconception I think many who relocate might have is that ” x” place might be a lot cheaper, but what you pay for there is now signifigantly higher than it was, which to me suggests a secondary bubble occurring specifically in lower cost areas. This has been discussed before, but I think the lower end in many lower cost markets seems to be almost catching up to the middle markets in these places, which makes zero sense to me. To me, I think it would appear that anything 150k or lower is being sold pretty quick while the other end- all those Mcmansions- are just sitting there. That would explain the slowing in these areas.
So the big question that I wonder about is whether some of these other lower cost areas are in fact catching up in terms of the national median?
I second this suggestion. This is something I’ve been looking at since moving here (Charlotte) a year ago. Despite having been born and raised in North Carolina, when you move here from San Diego, prices look pretty cheap. What I’ve concluded- Charlotte’s been attracting a lot of transplants from high priced areas (NY, FL, CA). I know a lot of people who have either moved here for the sole reason that they can afford their first home or buy a much bigger home (and usually in the middle of nowhere, and they usually want it to be exactly like where they came from- but that’s another rant entirely). The low end/less desireable areas have stayed pretty flat here- it’s the middle to high end/more desireable areas that have taken off. The low end also makes our price appreciation look more stable because it is minimizing the effect of what are some pretty bubbly areas. I believe we are just lagging behind other markets, because so much of the growth has depended on what other markets are doing. Sales have dropped off sharply in the past year, inventory is up, and the Case Shiller has dropped off in the past few months (even more so than the winter has been historically).
What I noticed when I visited Nashville and Knoxville was fairly similar to your observations. But what I saw was that there was a fairly large detachment from value. Yes- there were quite a few homes in the 100-150k range, which sounds reasonable enough. But most of these were small, ugly 1970’s brick suburb homes with dismal yards. It seems like the South has no end to incredibly ugly houses. Just two years ago, you could find a historical, restored, turn of the century beauty for under 100k. Now those are mostly gone to the middle to upper middle price bracket.
Secondly, anything located anywhere remotely ‘cool’ is a lot more than it used to be. They’ve turned the entire downtown of Knoxville into luxury lofts. All the old buildings that used to be banks, stores, etc are now 350k lofts. That in my mind is a foolish way to develop a city and it only relies on outsiders.
I came back disappointed. The sad reality is that the boom just barely seems to have ended there and the stage of denial is still fairly high. But in the meantime, the area seemed to have been transformed and many of the things I liked about it are gone.
The most surprising thing is that a few years ago, I was considering Austin, TX until their prices started getting a bit too bubbly. But the price differences between say- Knoxville and Austin are not as severe now. Austin has better job prospects for my field of work, so It might well become a city on my list once more.
Prices in Raleigh are stagnant and too high to be supported by local incomes. The bottom end for anything decent is about 250k, or 100k more than it should be (3 times household income = 150). Apartments can be had for $700. There is a lot of downside to come in RDU.
Sounds almost identical to Pullman, WA. Median income is $50k, but even modest 3/2 1970’s ranches start at $250k. We looked at houses this week for the first time since last summer, and after seeing 10 homes decided to stop looking for another year. Can’t see paying $270k for a small 3/2 fixer upper in an OK neighborhood.
It also sounds similar here in Mobile. You can buy a good house in the better neighborhoods for $250k-350k. The best areas can cost over $500k. I don’t know why, these prices are far above median family incomes. There hasn’t been sharp increases like some other places, just a steady appreciation upward (although I’ve heard Katrina added maybe 10% increases on houses in certain locations, not where I live though).
I do think we will eventually see a drop in prices here (no area of the country is immune) probably like 10% or so.
Martin Wolf at the FT suggests the Fed’s insertion of a $29 bn guarantee to sweeten the JPM buyout of BSC implies the rules of capitalism have changed. A similar view is offered in this WSJ article, Ten Days That Changed Capitalism.
Are Wessel and Wolf right, and if so, what are the future implications?
I would like to know what exactly constitutes a “good deal” in today’s market environment: What would be good mortage terms, what would be a good price, and what would be a good investment. I know we haven’t reached a “bottom”, but it’s not like there will be some ads on TV telling everyone the bottom has been reached.
What should we (realistically) be looking for?
…and by “investment”, I don’t mean flipping. I mean a long-term personal financial investment in one’s own home.
How about so called saavy investors catching falling knives. How about people who decided to rent and have instead taken a bath and lost their shorts.
Do you trust what realtors tell you??
Look at this property. $129,900 PRICE reduced with up to $60,000 in help towards a down payment.
http://tampa.craigslist.org/rfs/621675808.html
I’d like a topic on how to make money during the “financial event of our lifetimes”. As near as I can see, people are making money day-trading or waiting patiently for real estate to pencil out.
What else is there? It seems like making money on picking the next Bear Stearns is mostly educated luck without insider information.
The real money is not by picking the next Bear Stearns, it is by picking the next Apple or Google or Widget. Short selling is the ability to play both sides of the market.
The next great money opportunity for an individual with great credit will be in 2 years. The various states will be offering moneys to establish businesses in the harder hit areas. A good idea and you will get lots of moneys… as an example, the lumber industry is getting crushed and there are hundreds of mills shutting down. In 2 years, some state will provide the funds for the saw mill along with a co-generation facility and working capital.
Just pick your state and there will be thousands of opportunities in hundreds of industries.
I like Oregon for Opportunity.
you heard it here first.
Interesting ideas. Thanks for the responses. I consider it kismet since I’m in Oregon and I know the lumber business (my dad owned a mill in the 70s). Maybe that’s my destiny in two years
Oh, and of course my powder is dry.
I originally put this in bit buckets, but its actually on-topic, so here it is:
For anyone looking to debunk false optimism on mortgage resets:
http://www.nakedcapitalism.com/2008/03/bloomberg-pronounces-hope-for-subprimes.html
Topic: will own vs rent ratio ever touch 1:20 again?
Related topic: Has there ever in history been a real estate bust (at least in the U.S.) when the own vs rent ratio did not touch 1:20? (My guess: never. But perhaps this time is different?)
Finance & Economics
Buttonwood
Requiem for a prudent man
Mar 27th 2008
From The Economist print edition
A fund manager’s career has lessons for today’s investors
IF THE recent credit boom has taught us anything, it is that investors can be persuaded to forget about the risks when the returns look attractive. Sure enough, they are now paying the price.
It is a lesson that Tony Dye, a fund manager who died on March 10th, understood only too well. In the late 1990s, he became widely known (and occasionally mocked) as the “Dr Doom” of the financial markets. It is true that one rarely came away from a conversation with Mr Dye feeling more cheerful about life. On occasions, indeed, he could sound rather paranoid, as when he talked about the “dark forces” that were propping up the stockmarket.