Bits Bucket And Craigslist Finds For March 22, 2008
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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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Apparently even living in your parents’ basement at 52 is preferable to renting
http://biz.yahoo.com/ap/080322/living_with_parents.html
This is the Housing Elasticity Factor. It was taught to me by client in the California downturn of 1990-1997. Singles renting 1 or 2 bedroom apartments double up or get married. People getting divorced put that on hold and hunker down. Grown children move back home with mom and dad.
When you think about the number of available bedrooms in the United States, particularly with all the 5 Bd / 3 Ba or 6 Bd / 4 Ba McMansions that were built in the last 10 years, the SFR occupancy could be under 75%. In other words, every 4 bedroom home has one bedroom open and if the economy continues to shift, those bedrooms get occupied and every 4th home goes completely vacant. That is a lot of inventory, considering we are struggling with a 2.5% vacancy factor in SFR homes today.
Hey, I hope to renovate my basement when the construction industry finally crashes here, in case a parent or child needs to live there.
We sold our 6 bedroom house. That experience alone makes me think how much oversupply there is out there. Few people consider the excess space that was created during the boom.
How many people know couples that are committing financial suicide by cutting the cord to their spoiled rotten children? I know of one couple that has completely destroyed themselves financially and destroyed their marriage. That involves stepchildren. I know of another couple, involving yours, mine and ours, that is well on the way to destroying themselves financially due to the kids. And I work with somebody that continues to allow the kids to sponge off him. There is no way he can retire and he is in his sixties.
But yet people keep telling me that children are such a blessing. In the right situation, yes. In all situations, no.
Depends on your parenting skill. Remember that rather than raising children, you are trying to raise adults.
NYCboy:
I think the best way is what our parents did. You can have anything you want If you earn 1/2 the money we will kick in the other 1/2.
So i had the paper route at 12, cut grass worked at IHOP and Carvel ice cream at 15…..
‘But yet people keep telling me that children are such a blessing. In the right situation, yes. In all situations, no.’
I don’t know about their kids, spoiled rotten or not, but you certainly do seem to know some very stupid PARENTS.
The common thread is that they can’t say “no” to the brats. They would hate to offend them.
My kids don’t ask for anything. I live with one daughter (pooling resources to rent a better place) and am trying to help the other through college. I told the little one to take $100/month out of our joint account and she said it would screw up her budget. Came at Christmas with a bunch of envelopes with her spending money all divided up. I would rather give them some now then leave a bunch to them when I die. I enjoy helping my kids, but then they are the absolute opposite of brats. When they were little, 1st thing I taught them about money was difference between need and want.
“I think the best way is what our parents did. You can have anything you want If you earn 1/2 the money we will kick in the other 1/2.”
My dad encouraged me that I could have anything I wanted, all I had to do was earn 100% of the money.
My parents took half of everything I earned and put them in savings bonds, “towards college.” I actually used most of them post-college. The other half was for me to do with as I pleased, but they taught me that saving up for a big purchase was often better than squandering on little tidbits. Of course, at that time you could still have a paper route as a kid, and babysit at thirteen or thereabouts, and one neighbor hired me for light housecleaning and some filing*, so I put quite a bit in those bonds before fifteen— that might be harder today when you need a car to deliver papers and a license to practice childcare.
Heck, when I hit high school I was supposed to buy my own non-school clothes and shoes. (My parents bought my uniforms and necessary shoes.) They gave me an allowance of $30 a month in the mid-’90s. Obviously, my own earnings were the supplement— that and wearing clothes to destruction.
Thank goodness I pretty much reached my full height in junior high!
*That’s when I learned to use a time clock.
Remember all the Victorians that were turned into boarding houses during difficult times. Why would McMansions be any different? Also, with McMansions you dont have the same concerns about destroying the character or the integrity of the home. There usually is none.
You are a funny guy. Since the homes were built to fall apart, why not make them into flop houses!
Unfortunately the character & integrity of potential boarders is not the same as it might have been in the post-Victorian era. This does create job possibilities for combat veterans as landlords & landladies of boarding houses.
If I understand what you guys are saying, then when prices are falling and foreclosures are rising, Californians who do not cope by leaving the state do so in many cases by living in fewer houses per citizen. Thus even if construction ground to a complete halt, we could have a continued increase in the vacancy rate as home prices fall. Unfortunately, higher vacancies portend lower prices.
(sarcasm tag on)Luckily home prices have not fallen as much in this cycle as they did in the 1990-1997 bust(/sarcasm tag off).
In the nineties bust my wifes cousin and husband moved in and occupied two room of our 4+3, we only had 2 kids at the time. We did it to get through a period of layoff while upside down on the house. I can already see it happening all over with folks I know.
The credit vacuum is inducing a housing demand vacuum. Ongoing home price deflation is the free market’s solution. Not sure to what extent pulling-out-all-the-stops govt & CB intervention can reverse this versus dragging it out for fifteen years like happened in Japan circa 1990-2005.
You can’t.
As long as prices are out of whack with incomes and rents, the builders will keep building and building and building and building …
Any attempt to keep prices artifically high will make the problem get more and more intractable.
Unless monetary policy can somehow magically demolish the inventory, I am afraid the problem was never within the Fed’s reach.
That this simple economic truth (what is it? day 1 lesson 1 of Econ 101?) is also not within their grasp is just plain shocking!
The Federal Reserve understands the simple economic truth.
The Federal Reserve members are politicians and want to keep their jobs.
I recall a former co worker whose adult children completely took over her home to the extent that she moved out of state. Still pays the mortgage and utilities, but her adult children and their children have run of the entire home.
I bought with more rooms than I’d need on purpose, with the thought of taking in our parents or siblings if/as needed. And running businesses out of the home as well.
One of my wife’s siblings (Wasatch Front) is about to move in to my inlaws’ home for a spell as they go abroad. That will be one less household unit with an income to absorb the building glut along the Wasatch Front.
But you sibling-in-law/in-laws situation is preferable to simply leaving one vacant. We’ve already had at least one case on my block of kids partying in a vacant home set at a wishing price (one of half a dozen wishers in my ‘hood).
In the earlier case, the parents weren’t between places or situations and helping out - the mom was helping the kids out after xyz problem, relationship, bankruptcy until they simply outnumbered her and she was ready to retire out of state anyway. She still works, though, to keep up the mortgages, albeit out of state. I don’t know if she was smart enough to keep her low notes and rates, rather than “cash out” her equity.
They are leaving one vacant. They will sell the home they are living in and move to my inlaw’s place. Inlaws will occupy a home overseas for a couple of years. Two homes are currently occupied, while soon only one will be (or the one getting sold will absorb a unit of demand that could have gone towards an unaffordable Wasatch Front McMansion).
Am I missing something here?
“probably be renting again and trying to stick minimal money in the bank,”
Apparently, she has been sticking minimal money in the bank for a long while, so what’s the difference.
“probably be renting again…”
Because renting is so very distasteful and is ususally done by the societal outcasts, she is right to move back with her parents and keep her dignity. She hopes to redeem herself someday by buying a house, may be at the age of 60.
Crazy. I guess she would rather rent from a bank versus a landlord. Just gotta “own” a house. (shrugs)
Velo
lep, I guess she thinks of “minimal” as different from “zero”
Is there a form of HELOC on the basement portion that is being sublet? I see opportunity people!
I can’t handle the stunted development crowd. Move out, ride your bike, eat beans… deal with the consequences of your actions.
Arrgh.
Wait til they start “managing” their parents’ finances…Mom, I’m really worried about you! You’ve got to this medical/financial POA and living will! lol
“Taking shelter with parents isn’t uncommon for young people in their 20s, especially when the job market is poor.”
Would luv to know how many of these twenty-somethings seeking shelter are some of the same smart young folk who saw what we missed circa 2005 about the New Era in home finance, where loans at much higher than historical multiples of incomes suddenly made sense and no savings were necessary.
Here is the latest from Sacramento: It appears Option One is choosing to do a Judicial Foreclosure on a Flipper who purchased 2 houses using Owner Occupied financing. The Flipper paid $670,000 and $528,000 for two houses, receiving $70,000 and $38,000 cash back on the purchases, completed in April 2007. The lender provided 110% financing and the Flipper rented out both houses immediately! The Flipper quit making payments in October and are trying to get short sales approved for $425,000 and $285,000 today. This means the lender (Option One) will eat $493,000, plus costs and lost interest payments in less than one year. Now the bank did not tack an NOD on the door! They sent a process server and are going to court for the deficiency, based on fraud! The Flipper may lose their other assets in the SF Bay Area, like a nice home they purchased in the early 1990’s. This game has taken a decidely serious turn, for a non-recouse state where everybody thinks they can just walk away. With the downturn in the market and the economy, $500,000 seems to mean something to a lender again!
how about chain gangs 1 year roadwork per 10k owed
> an infrastructure play
and best of all, if the Flipper tries to get rid of it by filing bankruptcy . . . . oops, no relief there either (see section 523(a) of the Bankruptcy Code regarding the dischargeability of debts incurred fraudulently)
Is (see section 523(a) of the Bankruptcy Code regarding the dischargeability of debts incurred fraudulently) a state or Fed. code?
If Fed, then it would really be a “hook” on which many FBs may hang?
Sounds like a “check-mate” in the financial chess game.
This story brings a smile to my face and warmth to my heart…
There truly must be a Higher Power.
Bankrupcy law actually IS one of the ennumerated federal powers in the constitution. So federal bankrupcy law isn’t based upon the “stretch to fit” commerce clause.
So how are non discharged debts recovered after bankruptcy?
bankruptcy is federal law.
Debts which are non-dischargeable in bk are recovered like any other debt, through litigation and execution.
lol, execution sounds like a just punishment
Execution seems a little stringent…
“lol, execution sounds like a just punishment”
Agreed, but the sandwich board parade first!
So you are happy to punish one little guy in San Francisco and let the millionairs on Wall Street get bailed out?
I am outraged that the Fed is going to print money to bail out Wall Street investment banks!
The flipper in SF is being pursued by his lender. If the millionaires on WS took money from you using fraud, I suggest you sue them. I personally can only do as follows:
(1) Rejoice at the flipper’s predicament
(2) Curse the WS millionaires and wish them all sorts of bad things
(3) Vote against my reps in Washington when I get a chance
(4) Try to profit from the present economic crisis acting in a lawful manner.
I hope he is able to implead the appraiser, the mortgage broker, and the bank originator for contribution (i.e., make them joint defendants to share the damages), and they all are held liable. Might get some nice precedent.
Lending someone 110% of an inflated appraised value means Option One obviously used this tried-and-true tactic; point gun at foot, fire!
A high school drop out would have had better sense!
I bet most new landlords bought houses to be primary residence then rented them out instantly. Mtg fraud on a grand scale. Lenders should really visit the property a few months after the deal to see who’s really living there and file charges if it is being rented. This frgging bubble would not have gotten so hand if lenders hadn’t been so lazy and greedy.
Of course since they are securitizing the loans and selling them to “sophisticated investors” (this year’s new oxy moron) they didn;t care as long as they got their commissions.
They brought the paper because it was highly rated. I am more concerned with the rating agencies conduct. Is it negligent for investors to rely on ratings from institutions that claimed to be experts and were specifically engaged to review everything and analyze the risk associated therewith? What kind of due dilegence do you expect from financial advisors? Not criticizing or saying your wrong, but it seems strange to me to expect every person in charge of investing monies to look past ratings and due their own due dilgence. It could take weeks or more to understand one of these structures and look at the underlying assets. Often the information is not even available. That is not how the system was designed, nor an efficient use of time. Im surprised rating agencies are not identified more as parties responsible.
How many ways can I spell diligence wrong? Blackberries have their drawbacks. I actually can spell.
I’m sure that’s coming. The lawyers are just getting warmed up.
From the field- I was interviewed for a couple of hours yesterday by the local paper regarding mortgage fraud and especially appraiser culpability.
I have made a practice of reporting what I considered misleading or fraudulent sales to the local property appraiser and the lenders I suspected were invested in projects wherein fraud was rampant. I did this as a matter of course and not necessarily due to an assignment.
As this investigative reporter was seeking people with experience in the field the local property appraiser sent her to me. I was so happy to hear that the local press was on this story. It will read like the Epistle to Paul if they really go after it. As we used to say in the Marine Corps…..the sh*t is wide, deep and continous…. as in a firefight.
I basically laid out the various ways I have seen this phenom play out and I also warned that the criminals are very creative and there are new methods almost daily. It is truly amazing how easy it is to defraud someone who has no skin in the game but holds the keys to the vault. A fool and his money if you will.
When we went off the record she began to tell me of the fools she had encountered. My favorite was the attorney who represented a condo converter who appeared before the “appeals board for a local assessor.
When confronted with the sales data from previous sales in the project he stated that the sales were not real and that there had been cash incentives and all kinds of kickbacks. He was appealing the assessment on the remaining units in the hands of the converter. Enter the FBI post haste.
So as smart as they seem to be their greed gets em in the hind quarters eventually.
In any event the focus of the article at this point is the complicity of the appraiser in the fraud. As I review alot of work for lenders I explained that in many cases I see fools at work and in others I see a system that is broken and thus promotes fools and their wares.
Until there is complete autonomy from the lending process appraisers will be suspect. In fact there is a comment period going on nationally right now to remove the lender and the management companies from the appraiser, completely. IN my opinion the end result will be a round robin blind draw handled through a main frame assignment center run by FHA. They will assign the work from all lenders to unknown appraisers who will not have any contact nor pressure from the lender. No contact no pressure.There will be no need for hitting a number as you can only be blackballed if you do a poor job.
For many years I did all FHA foreclosure work in central Florida. I loved it as I never ever got one call for a number. They wanted to know what it was really worth. This was bliss. I do believe that this type of appraising will come to the field in general and FHA will weed out poor work through their review process and they are very aggressive with poor work.
The final result will be independence if the banking lobby does not get in the mix. Frankly, they have made it clear that they want appraisers out of the process. Two reasons, to get our fees for an automated valuation model, computer driven, and so that all deals fly. I actually heard the President of the ABA say ” we want to get rid of the appraiser”. Like they have a finger in insurance, stocks etc they want to control the loan from craddle to grave.
Well if there is one good thing out of this financial crap my guess is the bankers will be far away from free money. Culpability will finally be a part of the process and individual players will be held accountable. The irony for me is I always assumed this was the case. My attorney father once told me, “never write anything that you cannot afford to have the whole world read.” It has served me well.
“….It could take weeks or more to understand one of these structures and look at the underlying assets….”
Bingo. Not even the Rating Agencies could understand these financial monsters. That is why the RMBS world is melting down. If you have ever looked at the Offering for these securities, what you find is a meaningless bunch of gobbeldy goop (to quote Mom).
Home loans will go back to the basics. Banks will take in deposits, and make prudent loans to borrowers with good credit. All the pundents thought the RMBS market was going to thaw in 6 months. That was 7 months ago! The fatal flaw has been identified and the emporer has no clothes. It will take another 3 years to unwind the EXISTING RMBS debt. Nothing new will get done, except Fannie and Freddie loans, once they have tightened up some more.
True. Too many ppl are at the stage I dont trust the ratings anymore and I dont have time to do the research. I think I’ll pass on that paper. Sell it to the Fed or loan it to them for par value.
“If you have ever looked at the Offering for these securities”
As an associate, I had to draft the offering documents for munis. I now read and comment on offering documents for muni and TOB securization programs, but much prefer swaps. Some things are worse than death.
Gawd, that’s boring stuff isn’t it. I used to do it on the side.
I note I’m just referring to the rated pieces sold to the public. The residuals retained by the Trustor (or other Sponsor) and the valuation thereof on the books of investment banks (or sponsors) are a different story entirely. These were the game pieces as to which an entirely different analysis would apply. My thoughts on their usage would take up too much of Ben’s space, and be rejected.
This bubble was a big ponzi scheme. Loan officers, appraisers, rating agencies, investors all fueled it.
Buying something because of its rating is bogus. how does slapping thousands of sub prime and Alt A mtgs into a bond lower the risk to the investor? The same percent will become bad loans no matter if they are securitized or not. The big investors willingness to buy these bonds backed by people with low credit scores when housing is at an all time high kept this bubble going. It was pretty obvious these bonds were toxic and should have made investors suspicious of just about anything the rating agencies rated highly.
“how does slapping thousands of sub prime and Alt A mtgs into a bond lower the risk to the investor?”
The ratings were obtained by creating a senior subordinate structure (i.e., certain pieces had their debt service paid first from the pool, and other pieces had to live with any residual . . . more loans equaled more chance that at least some were paying which monies would be used to pay the seniors) or slapping on credit enhancement or liquidity (e.g., insurance, letters of credit, shortfall swaps, etc.). The senior subordinate ratios that the rating agencies required proved to be incorrect, and the bond insurers are having their own issues. For example, some munis now are easier to sell without insurance from certain insurers even if no other credit is given in replacement therefor. There is no more faith in the system.
It’s not as if they were buying just interests in the mortage. It’s all about the secondary market credit enhancement and liquidity.
But the common denominator is:
They HIRED only clueless MORONS , don’t you think if they hired Smart Adults like ME..the jig would have been up sooner and most of this would not have happened?
Did Greenspan/Bernake ever stick their heads into a satellite Wells Fargo office and see how cute and clueless the Loan officers really are?
Or has Bernake ever went to a grocery store and actually shopped for groceries? Then he could NEVER get away with saying inflation is low!
———————————————–
This bubble was a big ponzi scheme. Loan officers, appraisers, rating agencies, investors all fueled it.
You may be smart, but I’ll bet you have scruples. You wouldn’t have lasted more than a few months there–you would have probably refused loans to people who couldn’t afford them, you wouldn’t lie and cheat on the forms, and you’d be the lowest earning guy at the company. You would have been fired.
I agree with the dumb attractive kids at the banks bit. When I go into a bank these days to buy a CD or to do any things other than to simply ask for cash or make a cash or check deposit, I have to explain to them what their products are and how they can get me the best rate. Then I have to wait for the confirmations to come in the mail and go in and have them fix their mistakes. Also, I usually get a call a few days later saying “we see you have over 100k in your account, would you like to speak to one of our financial advisors as to how to get that money to work for you.” I usually say “avoiding ppl like you is why I have so much money in my account,” or ask for their MBA transcript and resume. They never call back.
And even that MBA transcript can be pretty worthless. I’ve seen a lot of clueless MBAs.
I did inside sales for mortgages (mostly refis, home equity loans) when I lived in Australia. We weren’t allowed to give advice. I felt sick when people would tell me stuff like “I’m a professional investor. $1 going to principal is a waste to me” or “We’re borrowing 50k to go on vacation”
Stupidity and greed know no geographical boundaries.
I was very happy to quit and become a stay at home dad for the rest of our time in OZ.
Tim, the tranching and creation of senion/subordinate structuring was one leg of the stool. Another was the belief, based upon historic data that mortgage defaults would not be heavily cross correlated. ie, that some mortgages would fail and lead to losses, but they couldn’t ALL experience losses simultaneously. Therefore if one pooled large numbers of them together, even poopy mortgages could be pooled together and a significant amount of AAA bonds created. The third leg on the stool was of course the first to be removed: conventional underwriting standards.
With only one leg, no amount of balancing will support the current, corpulent, RE prices.
Once in a while, I thought about seeking a job as a mortgage loan officer. Their answer would possibly have been, “What does a PhD in Planetary Science have to do with lending money in the USA? You are too old to be a good employee anyway. You dress too casually, too. If you are any good at private mortgage lending, what do you need a job for anyway?” …to that last part, I would plainly have replied, “I don’t, really.” The more serious problem might’ve been that I might’ve balked at the notion of saying “yes” to 90% loans, 100% loans, 110% loans
Growing up our milking stool only had one leg, it was all we could afford apparently. Under good conditions it worked quite well because with your legs under the cow you had a nice tripod effect. Guess what happened if the cow suddenly shifted yuor way too far?
I think we are getting ready to see the market equivalent of the cow slipping on her own frozen piss puddle one frigid January morning and come crashing down on the milker who is precariously balanced on his one legged stool. As one who has lived that experience I can tell you it hurts plenty, darn near killed me, and I was always much more careful in the milking stall after that.
az-lender: That’s an interesting contrast with the trucking industry. Companies LOVE to hire independents. People who’ve been driving trucks that they’ve been paying the note and insurance on have a reputation as being much more responsible than recent graduates of “Bob’s Big Rig Trucking School.”
agree with the dumb attractive kids at the banks bit. When Tim: “I go into a bank these days to buy a CD or to do any things other than to simply ask for cash or make a cash or check deposit, I have to explain to them what their products are and how they can get me the best rate.”
oh, yes. when we first started looking at mutual funds we set up a meeting with out banks mutual funds salesperson (all they do is sell mutual funds). My husband had to explain dollar cost averaging to them.
I set up an independent brokerage account the next week.
–agree with the dumb attractive kids at the banks bit. When Tim: “I go–
Was trying to respond to Tim’s post. Guess I shouldn’t run with cutting and pasting
My memory was that in the early 1980s after buying a place the mortgage company checked up on us to make sure we were living in the house. This might have been routine. Or maybe bacause my sister and I were pretty young. This was is Fairfax, VA - Wash, DC suburb.
I had the opposite in the mid 90s. I had a 1031 exchange and after closing couldn’t find renters-mid 90s CA sucked-so ended up living there myself/changing plans. What that did was get me a much different mortgage than originally would have if it had originally been a owner occupied. Tough mid 90s
Jingle- Got a link to that story? Might be a good read!
The other part of the story that is interesting: Option One failed to detect that somebody was applying for two mortgages on two supposed primary residences. So they don’t even bother checking to see whether there are two applications with the same social security number?
Great IT dept you guys got there.
A judicial foreclosure in California…that’s interesting fo you have a link…I’d like to read about that…
I was wondering when the lenders were going to start going after the fraudulent loan application flipper/ speculator group that thinks they are entitled to all their money while the banks take the loss .
Last Sunday i saw someone dressed up as a Weichert icon jumping around at the entrance to a side street an open house was being held at. Wish I had had my camera. A lot funnier then balloons.
condo woes:
The condominium market is about to get worse as many cities brace for a flood of new supply this year — the result of construction started at the height of the housing boom.
More than 4,000 new units will be completed in both Atlanta and Phoenix by the end of the year. Developers in Miami and Fort Lauderdale, Fla., are readying nearly 10,000 total new units in a market already struggling with canyons of unsold condos. San Diego, another hard-hit region, will add 2,500 units, according to estimates provided by Reis Inc., a New York-based real-estate-research firm.
http://online.wsj.com/article/SB120614027637056019.html?mod=hps_us_whats_news
Repeating the post from last night’s thread. It’s my little moment of Schadenfreude, with a capital S:
http://www.observernews.net/artman2/publish/Top_Stories/Failing_Seawalls_Spark_Lawsuit.shtml
And repeating my rant:
A completely awesome story. This community (and I use the term loosely) was the lead “upscale” waterfront development in the housing bubble in this part of the Tampa Bay area. They started selling lots in 2002, if memory serves. People were camped out overnight and flipping their contracts, based on the fact that it was the “last major piece of undeveloped waterfront” in the Tampa Bay area. Some of the locals were in absolute hysterics, since the land was basically mangrove mudflats and swampland that required tons of fill to even make buildable. One lady who used to work at a local thrift store pointed out that all it took was a good moon tide for the land to be underwater, sometimes the water wasn’t too far from Rte. 41 during a good full moon.
Mira Bay. You oughta see it. What a piece of crap. Faux tin roofs on faux Key West style McCrapboxes. Faux lighthouse at the entrance (with gas guzzling SUVs and Hummers going in and out). Excavated canals so people can have their boats. Homes priced over one million smackers. In a very mediocre part of Florida on a stinkingly polluted Tampa Bay, with a fantastic view of the Tampa Electric power plant belching smoke into the sky. And for what? Cracking seawalls, sinkholes, shifting foundations and, as one person in the story points out, they can only get their boat out at very high tide. Oh, and did I mention there’s a commercial development going up to service this proud “upscale” community, anchored by a Sweetbay Supermarket, recently in the news because hackers got into their system and have the credit and debit card numbers of their customers? And did I mention that a mortgage broker friend of mine said half the sales in MiraBay were to infestors and there’s a ton of empty properties?
I have NO sympathy for the people who bought in there. NONE. A little bit of due diligence would have made clear that this place was built on shaky ground. Just north, Apollo Beach has been struggling for years with canals that are filling in. Why should it be any different at MiraBay? Let the whole place slide into Tampa Bay and the area will be better off like it was before.
Doesn’t a lighthouse signal to stay away!
Perhaps there is something else you may like to know about this “waterfront” subdivision. It was NEVER waterfront, except along the western edge that bordered the mangrove swamps of East Bay in Tampa (I think it’s actually just above what we call Cockroach Bay).
The Entire waterways were excavated and the canals made by earthmoving equipment. It has not been legal to dredge into any waterway for about 30 or so years now. You can’t get a permit from the DER, Corps of Engineers, or local agencies. Just like it’s been nearly impossible to get a dock permit. Don’t want to disturb the “environment”.
But here’s the catch. I learned this from a fellow engineer who had some connection to the permitting process. There’s apparently a rule of court case or some regulation somewhere that says if you have a boat on a davit that is landlocked from an adjacent navigable waterway, then Corp of Engineers is REQUIRED to provide “access” to the open water. I’m not sure the details or even if it is fact, but I asked in passing one day how they ever got the permits to do this?? I didn’t understand how it was possible. That was the explanation….a legal maneuver.
So, they “developed” the canals, put up the roads and houses, hung up a few boats (didn’t need dock permits) and then applied to the Corps of Engineers to get them to dredge the opening to allow open water access, although they never had any to begin with.
That’s the story. And I believe it, because you can’t get a permit to dredge a canal here in Florida. Many, many years ago, alot of canals were dredged up for existing homes, but environmental regulations put the cabash on that. Many areas, such as nearby Apollo Beach were actually dredged up before EPA regs. So how did they take a “non-waterfront” community and make one. This is what I was told. If it’s true, it was a great scheme to get increased value at taxpayer expense. Perhaps they had to pay for it, but it was still a great scheme.
“That’s the story. And I believe it, because you can’t get a permit to dredge a canal here in Florida.”
Somewhere in this plot there’s a retired cop from New Hampshire, an NFL player, 3 Columbians, an NYC banker, Ted and Martha from Wisconson, and a 2 legged dog.
There’s also a charred minivan in an orange grove somewhere in Hernando County. The body in it has yet to be discovered.
Sounds like a Carl Hiaasen bestseller to me!
Wow, diogenes, thanks for those details. VERY interesting. We have a local self-taught archeologist around here, by the name of Frank Garcia, who achieved some minor fame for his discoveries at the Leisey Shell Pits nearby. He asked Terrabrook (before Newland bought the property) if he could go in and take a look around before they paved over everything. Of course, no dice. That’s a developer’s nightmare, because if there was some sort of significant archeological find, it could tie up the property for years, even though Garcia was willing to sign waivers and all that.
Anyway, that development is showing signs of instability only five, six years after it was even begun. One good storm or hurricane and it is complete toast.
That’s a developer’s nightmare, because if there was some sort of significant archeological find, it could tie up the property for years.
That is very true now. Another short tale:
While I was working on the Monroe County Detention Center back in 1990-1992, there was a discovery of ancient burial grounds on the site. This is located on Stock Island, next to the landfill, immediately adjacent to Key West. The site had a lot of peat and needed piles sunk into the coral reef to secure it from sinking.
The site was shut down for a number of months while archaeologists explored the grounds for ancient remains.
It was my first such experience.
I find it curious that we pay such reverence to “ancient” finds, but pave over more recent graveyards for development.
By the way, if your in the Keys and a Hurricane is coming, I would highly recommend getting drunk and disorderly. The jail has its own generator and is built well enough and high enough to withstand any hurricane…..Concrete on caissons.
Ride out the storm on the public dime.
Oh, and Palmetto, I forgot to mention, in regards to your references to subsidence and cracking seawalls, etc.
The very nature of the development lends itself to “settlement”.
The entire area was under constant earthmoving processes since its inception. None of the development is built on natural ground or soil. I don’t care how much stabilization processes you try to incorporate in attempts to compact earth of building, you just can’t move mountains of earth and excavate nearby soil for water infiltration and get a “stable” ground. It’s bound to shift and settle.
And Yes, there have already been stories about the TOWNHOUSES being bought by flippers who can’t make the payments. I bought a small motorcycle from one of the residents of those million dollar homes last year. He was a commerical contractor, working for a developer that had ventured out into residential because there was soooooo much demand in the past few years, it was almost inescapable. He was worried about his companies work load and future employment.
I thought, how many other “residents” here are marginally financed??
Ok, I get it. Now, what about “coffee pot bayou”? Is that going to slide off any time soon?
Roidy
That’s a dumb comment. No one said anything about “sliding off” into the bay. This discussion was about “settlements” and soil shifting, things that happen when you move mountains of earth.
It sometimes takes years for all the settlement to occur, but I rest assured it will, no matter how much compaction was done in the process.
Coffee Pot Bayou area was developed more than 50 years ago. It’s stable.
You need to visit East Bay in Hillsborough and walk along the muck banks there.
Davis Islands were a muck bank on which houses were built, but is was all dredged up and dropped behind the seawalls, then backfilled.
Mira Bay was different. It was all done with earthmoving equipment and built up from a low-lying swamp. I think long-term the houses will demonstrate settlement failures that show cracks in the foundations. Let’s revisit this discussion in a year or two.
In a bad mood today?
Roidy
Liquefaction.
This looks to be a very interesting developement.
Hi Palmetto,
When developers concocted Mira Bay, with the cliche approval of the Hillsborough County Commission, they destroyed a natural habitat for all kinds of wildlife; they also destroyed prehistoric fossils and an incredible wealth of geological items. I had a friend who was able to get some of the geological materials in the nick of time, but the earth moving machines came in and destroyed everything after that. Environmentalists were dismissed as crackpots for complaining about the destruction of all the wildlife just to build more outrageously overpriced hideous show-off stucco boxes to sell to pretentious suckers.
The developers could not have cared less about the animals they killed or anything else, other than making a fast buck for junk disguised as luxury. And most of our County Commissioners in the pockets of developers could not have cared less, either.
Any fool who would buy a million dollar house in a landfill flood plane in an area mostly inhabited by migrant farm workers would probably fall into the category of “speculator,” since one would have to be completely oblivious of the place and the location to behave so rashly. Now the poor speculators are having to literally lie in the beds they disgustingly unmade.
‘And for what? Cracking seawalls, sinkholes, shifting foundations and, as one person in the story points out, they can only get their boat out at very high tide.’
I can’t help thinking of ‘The Enforcer’ ending with Clint Eastwood after reading some of these stories. A helicopter coming to the scene with the ransom money………..
and there was much rejoicing:
Home builders may find themselves in the worst housing slump since the Great Depression, but an industry group believes the downturn will bottom out this year.
“I am counting on demand stabilizing by mid-year,” said David Seiders, chief economist for the National Association of Home Builders, at a recent press conference.
http://tinyurl.com/36qp4f
I would consider this on-par with my 60-year old co-worker who spends $110 a week on lotto tickets as his retirement plan. When I point out that he’s spent over $50k on lotto tickets in the nine years I’ve worked with him (and add in his twice-daily automobile excusion for Dunkin’ Donuts coffee), he goes into “hear no evil” mode.
Then again, the guy also takes his guitar into the local “mega-guitar-mart” twice a month and pays the guitar tech $20 on top of the string cost to change the strings. Not exactly a money smart guy.
(In recalling this story - on top of another co-worker who, despite being perpetually broke wants to buy now while he needs no downpayment, I realize I’m quickly developing a reputation on the HBB as having some of the most moronic co-workers…)
the guy also takes his guitar into the local “mega-guitar-mart” twice a month and pays the guitar tech $20 on top of the string cost to change the strings
Please send an introduction to me. I can change a set of strings and tune up a guitar in about 5 minutes. This sounds like a great sideline if I can find enough people like this with more money than brains.
I am widely regarded as a sort of crank by my coworkers and friends. OTOH, talking to another friend he shared the story of giving the bums rush to a door-to-door subprime REFI salesman targeting his mostly hispanic neighbors.
Sounds like the warehouse guys my husband works with. Constantly bragging about their toys, running out for Fat Food all the time, dunned by creditors,and complaining about bills and their pay.
There have been a parade of lowlifes through his workplace over the years, and at one point a guy who was fired called one who was still working there and said he found a great new line of work - doing mortgages! They needed more hustlers so the guy quit and went to work with him.
I think I worked with that guy (about 60 by now). He could sell seal poop to an Eskimo, made $70k/year, blew it all on lotto tickets and eventually got evicted from his apt. He was addicted to DD coffee, too. Not sure about the guitar string thaaang, though. He was a “dry” alcoholic, too, so that probably explains the lotto addiction. One of our manager’s wives would pack an extra sandwich for this guy knowing that he’d blown all his money to buy himself any food.
However, $110/week is “only” about $5,000/year. Maybe your co-worker IS a different guy. Your guy just sounds goofy–my co-worker was, well, basically pathetic.
–
““I am counting on demand stabilizing by mid-year,” said David Seiders, chief economist for the National Association of Home Builders, at a recent press conference.”
Mr. Seiders, the demand does not stabilize during recessions. Actually, it goes negative, something that most economists and people can’t imagine. Even Mr. Yun of NAR admitted that the household formation in 2007 was half of what was forecast (expected).
Wouldn’t it be something if we have negative demand for 2008 followed by even more in 2009. Inventory of vacant units will just keep on piling up.
Jas
Don’t these housing industry economists realize how silly some of their statements sound to anybody with half an ounce of common sense?
I would caution Mr. Seiders to consider what happened to Mr. Lereah before getting too carried away with unplausible-sounding prognostications.
“Don’t these housing industry economists realize how silly some of their statements sound to anybody with half an ounce of common sense?”
They understand just how rare it is to find an American with a half ounce of common sense. Most Americans are running a common sense deficit. I think they are safe making their ridiculous statements.
My personal guess is that the number of Americans who lack half an ounce of common sense and are also either wealthy enough or qualified to obtain a loan of sufficient size to buy a home at or near current offer prices is too small to prop up current offer prices.
“just how rare it is to find an American with a half ounce of common sense.”
Don’t feel bad. It is equally hard to find someone with 28.349 grams of common sense in the rest of the world.
even if demand did “stabilize” - inventory is going to continue to grow. it’ll take a long time for current inventory to work it’s way back to manageable levels.
and how does Mr. Sedaris expect inventory to stabilize under stiffer lending conditions? I think the only possible positive note in the sort term is that forclosures and other REO properties may become reasonably enough priced to lure some speculators/investors with money and a plan (and also a new crop of fools and dreamers) into the fold.
your half-line is the most important component here - “inventory [of all kinds] will just keep on piling up”
Bottom callers are counting on the Fed and GSEs to pull off a financial miracle. Good luck with that, given the success so far since all the stops started getting pulled out last August.
There seems to also be a great deal of denial on one point we keep coming back to on this blog. There is no obvious way around a record number of vacant homes (supply glut) juxtaposed against the effects of the mother of all credit crunches and a reversion to prudent lending standards (demand shortage). One either needs to see the bottom fall out of prices or a continued building of homes that nobody can afford.
If Seiders has come up with a sensible explanation of how the bottom will play out in light of the above realities, I hope somebody will post it here. Sound bites will only get so many greater fools to buy, and my personal guess is that there just aren’t many out there any more who have access to cash.
Commie!
Did you forget your sarcasm tag? I thought I was making a free enterprise argument — quite the opposite of espousing communism.
Come on, Stucco. Of course you know it was sarcasm. Common sense must be answered with a one-word charged response in this society.
“Racist, commie, bigot, etc.” will all do. It’s like me being called “negative” every time I mention the real situation at work.
NYCB — That’s why I don’t discuss housing at work, unless with priced out renters…
Nicely written, Professor. I too am amazed at how the media and even bearish bloggers react to plans by the Fed - believing that price declines will be significantly slowed - despite mounting evidence that whatever the Fed does seems to fizzle. Much has been written about Bernanke’s education in Depression-era policies. The media’s optimism seems predicated on the idea that this education can guide him through this mess. I’m dubious of this. While it is a positive attribute to learn from history, I think as often as not we learn the wrong lessons. Think of the French generals who sat down after WWI and came up with the Maginot Line. Yeah, it solved WWI, but it sure as heck didn’t solve WWII. I just wonder if Bernanke’s in the same place as those generals. He’s learned his lesson on how to mitigate the Great Depression, but maybe he has no idea how to ameliorate what’s occurring now.
Oh it IS a good idea to prevent the housing bust from going TOO far. We do want to maintain the availability of sane mortgages and reasonable prices for RE. But we are nowhere close to either, IMHO. The RE-litters still think that the prices can be bulwarked at the 2005 level and FBs still think that 20% down and proving income is some kind of insane imposition. My fear is that by pulling out all the stops now the PTB will have NO credibility left when we hit the level of sane mortgages and prices. This means that the overshoot to the downside is likely to by MUCH worse that it has to be IMHO.
“Oh it IS a good idea to prevent the housing bust from going TOO far.”
Barn door left open
Horses have all run away
Hurry, shut the door.
“This means that the overshoot to the downside is likely to by MUCH worse that it has to be IMHO.”
PB’s hunch: The larger-than-expected shrinkage in 3-mo T-bill yields is a leading indicator for larger-than-expected forward housing price declines.
Oh it IS a good idea to prevent the housing bust from going TOO far. We do want to maintain the availability of sane mortgages and reasonable prices for RE.
Why? What’s the worst that would happen? Mortgages become unavailable and house prices drop low enough that the average American can afford to put it on his credit card?
hbb theme song!
http://www.boston.com/realestate/news/blogs/renow/2008/03/the_housing_bub.html
Perfect!…
The other night on one of the Law & Order shows, one of the detectives had a line that went something like this, “I expect real estate agents and perps to lie to me, but not assistant DA’s”.. pretty funny line…
Got the Hummer, granite countertops and vacation to Hawaii right. Perhaps the sequel will deal with securitization.
Securitization?
Got it right here, “The Subprime Primer” - just in case you haven’t seen it (some colorful R-rated words):
http://docs.google.com/TeamPresent?docid=ddp4zq7n_0cdjsr4fn&skipauth=true&pli=1
Maybe one of those shows will deal with the murder of the RE agent Rothmun in Palm Desert, found off the hwy 74 a few months ago.
It all has to be tied up with RE in some way???
Lots of hollywood types live wknds out here, so hopefully that themed ‘Law and Order’ show will turn soon.
In fact, Tyler, Texas had a very prominent murder with top RE agent and his wife. Apparently he was some kind of big wig and church type guy and well, it was money, real estate, honeybun on the side, and wife didn’t make it. RE agent was top dog in Society circles and Church.
Fitch is reporting that the more recently a subprime loan was originated, the more likely it is to be delinquent. Things are getting worse. I still can’t believe subprime loans were originated as late as the third quarter of 2007.
http://www.minyanville.com/articles/index.php?a=16353
I’m not getting that out of the article. But I was looking at some local trustee sales in the paper and they all seemed to be 2004-2007 deeds.
Debt-Gorged British Start to Worry That the Party Is Ending
By JULIA WERDIGIER
Published: March 22, 2008 — NY Times
LONDON — At one point, Alexis Hall had more than 50 pairs of designer shoes and handbags. It never occurred to the 39-year-old media relations executive from Glasgow that her £31,500 in debt ($63,000) would be a problem.
“It was so easy to get the loans and the credit that you almost think the goods are a gift from the shop,” she said. “You don’t fully realize that it’s real money you are spending until you actually sit down and consolidate your bills and then it’s a shock.”
As the United States economy weakens, many Americans are being overwhelmed by personal debt, but Britons are even more profligate. For most of the last decade, consumers here went on a debt-financed spending spree that made them the most indebted rich nation in the world, racking up a record £1.4 trillion in debt ($2.8 trillion) — more than the country’s gross domestic product.
Until now, debt has mostly been a good thing for Britain. In the hands of free-spending consumers, it fueled economic growth. The government borrowed heavily in recent years to invest in infrastructure, health and education, creating a virtuous cycle: government spending led to job creation, which led to greater consumer confidence and more spending, which, in turn, stimulated growth.
Economists say Britain’s relationship to debt is complex, but at its core is a phenomenon more akin to recent American history than European trends. As in the United States, a decade-long housing boom and strong economic growth bolstered consumer confidence, creating a perception of wealth almost unknown in countries like Germany and Italy.
http://preview.tinyurl.com/2p8mou
“It was so easy to get the loans and the credit that you almost think the goods are a gift from the shop,” she said. “You don’t fully realize that it’s real money you are spending until you actually sit down and consolidate your bills and then it’s a shock.”
…this was sort of my point in my post yesterday regarding saving up to buy things using cash…
“Here’s a thought, if we ever were to return to an economy where people saved and spent within their means,”
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.
I can imagine it, Pen!
I bought my chie maharas with cash yesterday. mmmmm, no guilt. I actually find it way easier to spend cash than credit, though, so maybe I am weird. I lock most of my savings away from myself in another bank, so I don’t spend them.
Buffett: “When you combine ignorance and borrowed money, the consequences can get interesting.”
It never occurred to the 39-year-old media relations executive from Glasgow that her £31,500 in debt ($63,000) would be a problem. You know, I want to comment on the mind-blowing stupidity, but I just can’t make this woman sound any dumber.
I believe it’s more like it did occur to her - but she blew it off. Using “never” is rather stupid writing.
“The government borrowed heavily in recent years to invest in infrastructure, health and education, creating a virtuous cycle”
It sounds more like a noose to me.
Sounds like the United States to me.
The U.S. invested in infrastructure? I don’t think so.
Housing stock = infrastructure. The problem is not a lack of investment, but rather poor allocation due to a failure of central planning.
The quote was about the government. They, for the most part, did not finance the housing boom.
Of course, I would not have called a collection of ill-conceived houses “infrastructure”.
That Big Dig thing in Boston sure sounds like a bottomless pit of wasted infrastructure spending.
They started that thing when I was in college and it’s still not completely finished (falling panels, etc.).
In any case, it sure is sweet to get in/out of Logan much easier than it used to be.
Is it worth $16 billion? Somehow, I doubt it.
Though I’m sure those who made a career out of it would disagree.
PB I wouldn’t say that it was a failure of central planning. Central planning tends to exhibit different different failure modes. It’s the boom/bust tendancies of the free market that we have here. Some degree of this is good, creative destruction and all that. It keeps the economy dynamic and moving.
jim a —
I agree with you to a point, but not in respect to the mismatch between needs (affordable housing for working families) and wants (McMansions targeted to junior executive pay scale on up). Govt policies which helped households purchase more house than they can afford are a root cause of the overbuilding of homes aimed at a wealthy segment of the population which is far smaller than demand circa 2000-2005 would have suggested to the ever-euphoric home builders.
“The government borrowed heavily in recent years to invest in infrastructure, health and education…”
At least the Brits might have gotten something useful from their government spending as opposed to the orgy of U.S. borrowing and spending the past 7 years.
sorry but their rail is atrocious. There is a catastrophe looming as train tracks are not repaired, the nails rattling off the tracks or few if any rail nails in place.
I don’t know what the UK version of ‘infrastructure’ is but it isn’t the rr or roads.
‘Infrasture’ in the form of a Signal put into the middle of a road span IN FRONT of a New BMW dealership. Although with the amount of traffic the BMW/MBZ/Infinity dealership get, the ONE original signal was sufficient but now we get the luxury of stopping dead still for ONE car MAYBE.’I predict accident occurage soon.
Waste of $ and yet the new fancy dealership got its own personal signal.
Infrastructure to those who pay.
oops INFRASTRUCTURE. not infrastrure.. sorry.
I believe the rails in Great Britain are now privatized.
British rail - another victim of privatization. Thanks for that Ms. Thatcher
Imagine your economy was tanking and you paid…
$9.50 a gallon for gas?
$35 for a large Pizza Hut pizza?
(just a few prices that a friend told me he encountered, on his trip to the UK, a few months ago)
I just filled up for 1.40 euro/liter here in Berlin.
It was 1.15 euro/liter in Catalunya.
We have relatives in the UK, and when they visit the first thing they do is hit the local mall. They just can’t believe how “cheap” everything is here.
The Brits didn’t put money into their train tracks. No infrastructure improvement there. Expose on how the rails are rattling off the tracks.
So, according to all media and gov sources, “debt is good”?
holy cow this world is in for a rude awakening.
It’s not just Americans that have been taking on large amounts of debt. The British have gotten into the act as well.
http://tinyurl.com/22np2p
“The average British adult has 2.8 credit or debit cards, more than any other country in Europe. A growing number are borrowing to pay for vacations, furniture, even plastic surgery. As a result, Britons are spending more than they earn, racking up a household debt-to-income ratio of 1.62 compared with 1.42 in the United States and 1.09 in Germany.”
“1.42 in the United States”
When the local Kool-Aid drinkers here begin mouthing off about Fed actions and “the near bottom in real estate” and how the recession will be averted… I simply say that many people have more debt than income.
I think I need to start mentioning this figure.
It appears Option One is choosing to do a Judicial Foreclosure on a Flipper who purchased 2 houses using Owner Occupied financing. The Flipper paid $670,000 and $528,000 for two houses, receiving $70,000 and $38,000 cash back on the purchases, completed in April 2007. The lender provided 110% financing and the Flipper rented out both houses immediately! The Flipper quit making payments in October and are trying to get short sales approved for $425,000 and $285,000 today.
So if I”m doing my math right, this wasn’t a 110% financing, it was really closer to 200%.
Idiots.
Yes there is a lot of scorn to be had for these sorts of buyers, but my real disgust is for the lenders who fueled this fire.
Problems in the condo market are likely to get worse before they get better.
http://tinyurl.com/2d6a88
“More than 4,000 new units will be completed in both Atlanta and Phoenix by the end of the year. Developers in Miami and Fort Lauderdale, Fla., are readying nearly 10,000 total new units in a market already struggling with canyons of unsold condos. San Diego, another hard-hit region, will add 2,500 units.”
“Lenders of all sizes have $42 billion of condominium debt on their books, according to Foresight Analytics. In just three months — between the third and fourth quarters of last year — the delinquency rate rose to 10% from 5.9%, says the Oakland, Calif., research firm.”
“The market is careening around like an over-medicated Hollywood actor on Sunset.”
Mr. Paul Kedrosky
It’s the best puppeteer show in town.
“The market is a piece of flotsam bobbing on a tsunami tide of volatility.”
Can’t wait for a Local Observations thread; have many errands to run today. Local Atlantic City rag has article today about realtors’ confidence in Ocean City/Cape May Co., N.J. market. Forget it. Ocean City will really be a bloodbath. For the past ten-fifteen years, bungalows have been razed and replaced with$600k+ McMansions at the shore on postage stamp lots. The real bills for the funny money that fueled the boom are coming due and realtors continue loudly to “whistle past the graveyard,” trying to convince themselves and others that there are plenty of prospective buyers just “waiting on the sidelines,” ready to “snap up” bargains of a lifetime. Ain’t gonna happen.
it might happen, depending on what the “bargain price” is? no?
There are some cottages in Ipswich, MA that are priced in the $500k kind of range, that I wouldn’t buy at the $500k price, but, would certainly consider for $100k.
Awhile back, I made the statement, that 70% of the US population is taking some kind of antidepressant. With the recent disclosure, that many water sources contain drugs, hormones and antibiotics, I’m not surprised. But, something to think about? In order for these elements to show up in the water supply, drugs and hormone use in the US must be rampant. There haven’t been any studies as to how these elements are affecting the population, but its obvious, the boyz on Wall street and most of the goverment is drinking the water. Being rational, I mean really rational, Americans have become just plain stupid! Take yor drugs this morning?
Let’s just say that if New Yorkers are drinking anti-depressants, I haven’t noticed the effects.
“antdepressant”
Does caffeine qualify? (I am thinking about quitting, but would have to start sleeping more and blogging less…)
Caffeine is my life support. I have been working 14 hours a day 7 days a week for the last 6 months. I have such cumulative fatigue that I use caffeine to tap every last reserve I have each and every day.
70%? Do you have source data to back this up? Doesn’t sound right to me.
From Wikipedia –
“In the United States a 2005 independent report stated that 11% of women and 5% of men in the non-institutionalized population (2002) now take antidepressants.”
Thanks, that sounds more reasonable. Urban myths are created pretty easily by mindless, unquestionling repetition.
I would say 1/3 of my personal coworkers use either anti depressants or sleeping aids as work situation deteriorates.
Is booze an anti-depressant?
I sure hope so.
Lurker here,
Interesting anecdote from the workplace this week.
I was talking to a co-worker about his kids’ housing situation. Three brothers, all “chipped in” together to buy an abandoned frat house in Milwaukee for $150k about a year ago. The place is over 5,000 square feet and is in huge disrepair. It was owned by the local college and sold as a fixer-upper. They plan to live in the house for 2-3 years, do all the sweat equity themselves, then resell it. I don’t know who is going to want to buy a 5,000 square foot house, but I’m sure somebody will.
I say “chipped in” because they put absolutely NO skin in the game — 100% financing (what’s wrong with this picture). These “kids” are in their late 20’s and 30’s, all college-educated, with professional jobs. So how is it they had no down payment?
And get this, one of the three kids is a bank examiner for the Federal Reserve. The more I think about situations like these, the more I realize that we’re all f**ked…
All is good. They just said so on Fux News. The bottom is in. It’s a great time to buy. All of the bad is priced in to the market. Yaddie yaddie yadda.
Cramer keeps calling the bottom, some folks at work think the worst is over. I think we are in the eye of a hurricane.
If you keep calling the bottom, eventually you will be right.
“Whatever you do, don’t sell Bear Sterns!”
Cramer
I am no attorney, but I would think that luring GFs into buying just before prices crash would open one up to legal exposure.
All is good. They just said so on Fux News.
Only Jonathon Hoenig and Peter Schiff indicated commodities are still alive and the dollar is doomed. I go along with them. Wayne Rogers is getting more and more grouchy and shrill because he really knows Peter Schiff is right, but hates that fact!
Tens of millions of new car owners will take to the roads in the next two decades in India and China. “New car owners”, meaning people who never owned or even drove a car before. India and China are not going to stop the drive of their citizens to get into the higher classes.
This bodes for more demand for oil, which is finite. The world used up about half of all oil reserves in the last 100 years. It took tens of millions of years of nature’s power to create those reserves.
Those who think oil is infinite, I invite to buy an Escalade and a Hummer.
This GOOD news about the bottom and all is just in time for
…drum roll…. spring/summer selling season.
So, as soon as allergy season is over and no one is getting a mortgage, maybe end of summer we will all hear silence from Fux news,cramer etc.
I am assuming that it is Milwaukee, WI and not the suburb of Seattle.
Everyone knows its different in Milwaukee, everyone wants to live there.LOL
If it is by Marquette, then the numbers should work when completed. I sent one son to Marquette and the apartment/room rents were outrageous. UW Milwaukee, MSOE, no idea.
Hoz,
Not Marquette. It’s by Carroll College, actually. Which is in Waukesha (Wauwatosa? not sure), a suburb of Milwaukee. The dad (my coworker) tried to nix the deal before they bought it, because he thought it was going to be way too much work. Apparently it had been a frat house for many decades, and it was in really really poor condition. But when they submitted to buy it, the appraisal actually came in at $225k which surprised Dad and made the kids think they were sitting on a gold mine.
Comments about heating a place so large (below) are probably on target. Dad said the three families are currently living on the 1st floor and renovating the 2nd. When the 2nd floor is done they’ll all move up to the 2nd floor and start renovating the 1st…
My question is: who will want to buy a house that big when they’re done with it? Sure it’ll be huge, but located that close to a college — who would want that location?
They should transform in into 2 condos or duplex.
Sell 2 or 3. But then..
5,000 sq feet is desirable for a lot of mopes.
A large house next to a private college is desirable for many. And its only 15 minutes from Miller Park. Party on dudes.
Fix it and lease to students. It might work. Nice religious boys and girls, nothing bad will happen. They might even help with the repairs. (Right!)
Stupid is as stupid does.
– Forrest Gump –
“And get this, one of the three kids is a bank examiner for the Federal Reserve”
Why am I not surprised by this…
They’ll be able to throw some killer parties, though?
Who the hell is giving 100% financing to 3 unrelated parties purchasing together - and with limited credit histories and perhaps a barely-livable property?
Whole thing sounds like fun, though. They’ve probably got a better shot of coming out of it okay than many potential flippers and speculators - at least they’re living in the place.
Probably will cost them as much to heat it in the Wisconsin winter as their payments. I’m guessing it’s space-heaters in individual rooms and the bathroom from November to March.
I’m guessing it’s space-heaters in individual rooms and the bathroom from November to March.
At least that’s what they’ll tell the arson investigators….
http://tinyurl.com/2m2qgb
Notice the common theme in all of these cases. It screams “entitlement” to me. I could work up no sympathy.
Obviously these people NEVER sold anything on ebay or Craigslist or even had a garage sale….or else they would have known something was seriously wrong with the price of their house after 90days and no offers.
————————————————————–
We have been trying to sell our home we built in California for the past 2-1/2 years. The home now has been for sale as a short sale and still no offers.
1st Why do ppl think they can only start a family when they own something? Parents didn’t own until we were 5&9. Kids don’t know the difference. As long as their parents love them, food and roof is all that matters to kids.Attention.
#2 Desk Attendant??? what is that? Aren’t we bloggers ALL desk attendants?
#3. They all seem so whiny to me. don’t they?
#4 WHY do ppl buy something, not rent, before they Sell something else?
Things that make you go hmmmmmm.
“Why do ppl think they can only start a family when they own something? ”
yeah, I’ve been thinking about this lately. Somehow I had that idea in my head, too, though I don’t know where/how/why it got there (a little brainwashing snuck in?). Isn’t it actually safer to rent when you start a family, as there is less risk involved? Then you can buy when both parents are back to work full time, later.
WHY do ppl buy something, not rent, before they Sell something else?
This has always made me go ‘hmmm’ too. Why not sit in a rental unit for six months or a year?
Fascinating. I can’t believe the Dayton “desk attendant” is only 34. I would have guessed 54! And maybe Theresa Taylor shouldn’t have blown discretionary funds on Botox. She is scaring me.
Theresa and hubby look scary. He a contractor.. scares me, has a look of da mob..
my reply disappeared into the ether, but that article was very strange for me. A few decent people mixed in with the losers. (I couldn’t believe that woman in Dayton, Ohio was only 34.) Egads. Plus I can’t imagine why you would put your financial humiliations on CNN for the world to see.
Also on CNN this morning: a report on the spread of arson in foreclosed and for sale homes.
Another SoCal surf bum, not all that different from many others in in the area that they aren’t planning for the future, and think that someday they’ll just buy (read finance) a sail boat and sail off to Mexico.
While living in the OC for a couple of years it was interesting to discover how many people live their lives like this, just living for the next wave, and not really caring about the future because they think the government’s going to take care of their retirement. Don’t get me wrong, I love the surfing culture, the ocean, the beach, surf fishing, deep sea fishing, etal, but they should reap what the sow, which in this case is nothing.
BESTTO2BUY.ORG………….the latest Realtor(tm) scam.
Have you guys been noticing a rash of Billboards in your neighborhood with the big words: Besttime2buy.org splattered across the middle. I have noted several, along with some radio ads.
On the signs, there is no REALTOR logo or association. It makes it look like some community service or something. It is, in fact, an advertisement from the NAR. What scumbags! They apparently want to dis-associate themselves from their ads because people have finally wised-up to the fact that they are not “professionals” looking out for your financial interests, but uninformed parasites, hoping to skim off some money for riding along on a transaction.
What value has any of these leeches added to the transactions of suckers who bought into their “there is no bubble”, “real estate only goes up” “If you don’t buy now, you’ll be priced out forever”, “real estate is you best investment”>???.. blah, blah, blah…….
So, two years ago when you were telling everyone there is never a better time to “buy or sell”, and 3 years ago you were telling everyone that there’s no better time to buy because prices would keep going up, and NOW………..it’s the best time to buy.
Well, which is it??
Answer, none of the above. Truth: There’s never a better time to make a transaction that pays a Realtor a Commission Fee.
There you have it. Truth in advertising.
You people are useless, parasitic scum.
I love the NAR. These are the guys that are going to save our a$$.
The NAR is going to entice knifecatchers to commit their money to the system and add to its liquidity. Without fresh money the system comes to a halt.
Like them or not, the NAR guys are our friends.
I am wondering if more liquidity to a few knifecatchers might make housing prices unintentionally go the way of BSC’s stock price. I am looking forward to watching this natural experiment play out.
Next weekend, desert area, Robert Allen Seminar-3 day FREE, on how to buy with no money down.
I know he has got my friend hooked. She has reserved her spot.
Lordy.
FREE means IF you want the “secret” in writing, you have to BUY their program. NOT FREE, usually several hundred dollars later.
Fell “victim” in ‘79. I knew it at the time, but wanted to SEE the program, so I paid. Lesson learned early on. FREE is not.
Along with the other issues of being cattle in a convention room with hundreds/thousands of other cattle.. mooooooooo
And one other thing..that gal that is doing Fixflip that this site/we all bashed, WHERE are those $30k homes she is buying to resell at $40k? It isn’t in CA or west coast or east coast?
Ya gotta add lots of zeros to Wishing prices and REO prices.
Totally OT, But I know there are several lawyers and people with a lot more tax experience on here…
Does anyone know how to claim the proceeds of a legal settlement where the case was taken on contingency, and thus the proceeds are 1/3 of the settlement amount? Must I claim it all as income and deduct the fees? Only claim my part as income, etc? It seems silly to pay a CPA to address this lone issue.
And yes, I know, don’t rely on tax or investment advice on the internet…
And now back to your regularly scheduled programming….
J
My bar exam was over 10 years ago, and since then I have only practiced in the finance world, but if I can remember correctly it is tricky because it depends on what the the award was intended to compensate your for. For example, lost wages recoveries are taxable, and pain and suffering recoveries are not. At least that’s what I remember.
More garbled black berry speak, but you get the point. It all depends on the facts.
Same here, but punitives I think are totally taxable, if he got any.
I figure it’s taxable (what isn’t these days!), but I’m curious how to handle the lawyer fees. Are they deducted, or do I consider the taxable portion only what I received after the lawyer got her cut?
Thanks.
I’d go with asking an accountant the question, but here is some stuff from the IRS:
http://www.irs.gov/pub/irs-mssp/a9lawsut.pdf
It is a training manual on the IRS website. Looks a few years out of date, but that doen’t mean the info is necessarily wrong. Depends if there has been a change in that area. Current administration has passed a lot of tax bills, so be careful.
Also probably worth it to go to a bookstore to look up lawsuits and attorney’s fees in one of the tax prep books. It is the sort of thing they would cover if they claim to be “comprehensive.”
Thanks, polly. I had checked out the IRS literature on their website, but it seems targeted towards personal injury suits rather than something like copyright. I hadn’t thought of the tax prep book angle….I’ll give that a shot.
ISTR that the general idea is that if the money is supposed to make you whole for a casualty that you have not deducted you wouldn’t declare it as income. ie, if somebody hit your car and the money was used to repair it. You would THINK that the attorneys fees would be deductable up to the amound of damages.
Pay the CPA that specializes in this. It’s all taxed differently and AMT can bite you in the fanny. Pain and suffering is different from lost wages and how lawyers fees are deduct is different from all that. I do taxes and I would not even begin to touch this. If it sounds too good or too bad to be true get a second opinion.
Went with a friend to BofA this week to close out an account; while sitting in the customer service area waiting for help, a management type came out and asked each waiting person the nature of their visit. One lady piped up saying that she was in a hurry to see a loan officer about financing and that she also wanted a listing of REO properties and that she was in a hurry. She said that if they didn’t help her within 5 minutes that she was going elsewhere. I really should have stayed and questioned her but my friend didn’t want to wait and decided that she’d cancel on-line.
And somebody at BofA got to fill out a Suspicious Activity Report (SAR) on that character. I’m sure they were glad to see her. Bwahahaha.
Looks like the 2005 seller mentality is finally under attack here in Colorado; I wrote about this overpriced POS on 2/4/2008:
http://www.recolorado.com/Search/propertyDetail.asp?mls_number=610345
There have been two price reductions from the original $238,900 in the last 45 days; the first was down to $224,422 and now it sits at $212,212. Way to chase the market! No doubt the seller thinks they are being clever by using numerical palindromes for those last two prices; is that some kind of Feng Shui thing or is the seller getting so desperate that they are now specifically targeting dyslexic FBs? Maybe this will be the new numerology trend in home pricing? You heard it here first!
For those who do not want to follow the link: a 1360 sqft bi-level (hope you like lots of stairs) located in an exurb of Denver (Parker) which backs to an insanely busy road (Mainstreet). The road behind the house is elevated about 8ft above the nonexistent backyard so I hope the FB who picks this up enjoys the view of a retaining wall, noise, and the distinct possibility of a FUV crashing through the wood fence (no guardrail of course) and into their house on a steep downward trajectory. I always see a massive pickup and FUV parked in their driveway so maybe the risk has suddenly dawned on them. But that’s OK, the magical paladin (palindrome) price will protect them until they sell.
I think a good price would be $169,691, maybe they should try that…
Here’s a little gedankan (thought experiment ala Einstein) I started. As prices fall a bit, some homes seem more reasonable when compared to others in the area.
My wife will show me a place for sale and say, that price is low.
But, I then ask, lets accept that anything more than 4X income is not a good deal. So when we see a 2 bdrm condo in Queens for $425, or a SFH for $525, down $100k from last year, we still must ask. Would a person making $100K+ a year really buy and live there. The answer almost always is “no”.
We’ve become a bit desensitized to the extreme lunacy of this bubble. But I try to keep in mind what home prices should be based on the fundamentals.
True, I grew used to the new prices of houses, but still don’t get the 20K+ price of cars. Go figure.
When I bought my last home in 2002, I played with the idea of buying more house than I was comfortable with. My first house was less than 2x my own income and I even had a roommate. PITI was 225 and it would have rented easily for 350. Prices started inflating and I thought gee, maybe I should have bought more house. Realtors were saying to buy as much house as you could possibly afford. Figured I blew it being overcautious.
In 2002 there were plenty of bigger houses in the 200s which I considered out of my league. I had a huge down, too, 120k. I could have bought any number of places but I was too old to make the leap of faith. Bought a fixer for 159k instead. I actually miss the first house and could have stayed there forever but for a step coming to live with us & we needed more room.
Gracie what part of the states is this?
Sounds like a fantasty early/mid 90’s price to me.
Love to see those home prices again. ???
“…But I try to keep in mind what home prices should be based on the fundamentals”
Alice is still in Wonderland…
Chapter 5: Advice from a Caterpillar
Alice asks how she can get bigger, but the Caterpillar asks her to recite “Old Father William” instead. After doing so (with a few errors), the Caterpillar tells her that one side of the mushroom will make her bigger and the other side will make her smaller. The Caterpillar disappears leaving Alice all alone. Alice first tries the right side, which makes her chin get stuck to her foot. Then she tries the left side, which makes her neck grow very long. A pigeon flies into her face, believing she is a serpent, but Alice tells her that she is a little girl. She then eats different sides of the mushroom and gets back to her usual height.
House prices are in the reformation of the contorted distortion mode.
Alice w/ some White Rabbit
http://youtube.com/watch?v=3LdwGUXoXyA
For all of you Jefferson Airplane fans:
One pill makes you larger
And one pill makes you small,
And the ones that mother gives you
Don’t do anything at all.
Go ask Alice
When she’s ten feet tall.
And if you go chasing rabbits
And you know you’re going to fall,
Tell ‘em a hookah smoking caterpillar
Has given you the call.
Call Alice
When she was just small.
When the men on the chessboard
Get up and tell you where to go
And you’ve just had some kind of mushroom
And your mind is moving low.
Go ask Alice
I think she’ll know.
When logic and proportion
Have fallen sloppy dead,
And the White Knight is talking backwards
And the Red Queen’s “off with her head!”
Remember what the dormouse said:
“Feed your head. Feed your head. Feed your head”
Loved Grace Slick’s voice
“We can’t solve problems by using the same kind of thinking we used when we created them.”
Albert Einstein
Apparently Einstein realized the folly of Hair of the Dog hangover cures.
P.S. I believe physicists have a much better handle on the nature of irreversible processes than most economists. Physical examples of these include tsunamis and land slides. Economic examples include market crashes.
I further submit that many govt officials seem very much in the dark regarding their ability to control both natural and economic processes at any and all scales of magnitude. This group of individuals appears oblivious to the possible causal connection between implementing control systems sufficient to neutralize small-magnitude events and fostering endogenous buildup of systemic risk that will eventually result in large-magnitude events beyond their capacity to control.
“I further submit that many govt officials seem very much in the dark..”
The result of a non-curable disease called: pensionitis
more like cranial rectitus (head up their ass)
P Bear. Most excellent post. Thank You!
They are still going to try, though.
http://www.marketwatch.com/news/story/central-banks-mull-buying-mortgages/story.aspx?guid=%7B19410245%2D4C72%2D499F%2DB3AA%2D145238C529CC%7D&dist=hplatest
nonholonomic = Can’t put Humpty Dumpty back together again.
But really, we’re in the Schrodinger’s Cat zone here. An assesment is an expectation value. Price and sales conditions are complementary variables, and you never know the actual price until a sale (observation) is made.
I believe physicists have a much better handle on the nature of irreversible processes than most economists. Physical examples of these include tsunamis and land slides. Economic examples include market crashes.
Excellent post, PB. Only 1 quibble: the physicists I encountered as an undergrad were more interested in splitting things apart and abstracting forces to the point of purity. I remember 1 undergrad lecture that explained a physics theorem like this: there’s a lion in a room in a room with no doors and windows. There’s still a tiny percentage chance that he can get out, so that’s what we are basing this theorem on. I remember thinking, gosh, did I miss something or did we just jump into the world of magic?
I think you’re looking for geophysicists. I did some of that course work as an undergrad. That involves much messiness (as in real dirt), unknowns, and standing in front of rock formations and going: “eh gads - thank the heavens I wasn’t here when this happened.”
I had in mind the thermodynamicists. There is an important connection between the laws of thermodynamics (entropy law?) and irreversible processes — sorry my physics studies are too far in my deep past for me to hold forth on this without reviewing some.
N. Georgescu-Roegen applied these ideas to economics. I believe in due time his ideas will eclipse much of what was done by mainstream neoclassical economists in the 2nd half of the 20th century (only my subjective opinion here…).
“Here’s to alcohol: the cause of, and solution to, all of life’s problems.”
- Homer Simpson
“Here’s to debt: the cause of, and solution to, all of life’s problems.”
- Federal Reserve spokesman
LOL. To a man with only a hammer…
…everyone’s wearing a nail-shaped hat.
most excellent, jim a.
Now my question after perusing these most excellent comments:
Is the current Federal Reserve using the same kind of thinking and policies that got us into this mess?
I submit : NO
Reasons, please?
I am renting a home in Jupiter Fl. and have been for the last 2 years, every week I look at Realtor.com. This week I read astory in the Palm Beach Post that Palm Beach County had a net gain of about 100 people last year and Broward County lost over 5000 people.It did not strike me until I searched a 30 mile radius from my jupiter zip 33458 and over 37,000 properties came up , 40 miles had too many listings to show. That leaves a lot of Palm Beach County left not to mention Broward and Dade. I am not sure who is going to buy all these properties but I think I am going to rent for awhile longer.
I dont follow the single family market in Fl, but I do follow the condo market as I work on their financing sometimes. My numbers indicate that the Miami/Hollywood condo market is the most overbuilt in the nation. Many lenders refuse to finance any new project there at this time.
My word! That many? Thirty miles and 37,000 properties?
Roidy
By Any Means Necessary
http://nationaljournal.com/crook.htm
Most of the loans were securitized, how do you find the lender and have them take the hit?
Nice article, what I see is that all the economists are predicting mild recession but they are also coming up with worse case scenerios. Robert Rubin was on TV last night doing the same thing. Theres no recession but here is my worst case scenerio which was in essence recession/depression. My guess is they all know what’s coming but they don’t want to spook the public, so they say no or mild recession but just in case here is what could happen.
The problem is that none of these measures will make current prices supportable in bubble markets. He’s right, alot of these loans should never have been made. There was never a chance that the borrowers could afford to make the scheduled payments. And RE prices in bubble areas have been supported solely by these fantasy loans for years. The FED simply can’t halt the price decline here. Real prices will continue their decline until they are affordable.
Worst of the Credit Crunch Avoided
http://www.smartmoney.com/aheadofthecurve/?story=20080321-credit-crisis
The fed might have started another crises with the collapse of currencies and commodities. How many funds were on the wrong side of the trade and will be forced to liquidate other holdings? Or go out of business?
The requiem for many a financial heavyweight, still awaits…
“….the effect of the Fed shifting tactics would be to radically change the market’s expectations for future inflation.”
but, what happened to firmly anchored inflation expectations? The FED by not capitulating to market demands of a full point waves a magic wand and inflation expectations take a turn higher?
Thus slowing the dollar collapse, and bringing down the price of oil and gold. Throw in a spash of margin tightening in the commodity complex, a dash of taxpayer guarantee of TBTF IB’s, and a skosh of FCB/SWF Globalized Securitization of “enhanced paper products” and its game on for financials?
You and Hoz are gonna get your run for financials, but I am playing double top on Commodity with these “new inflation expectations”.
sometimes Im scared of talking to you chick, cuz Im just a dumb hillbilly.
Friggin Oregon ex California commie! Dumb hillbilly, m’ass. You don’t know a dumb hillbilly. You should meet some of Lars in-laws. I swear their Norwegian ancestors settled in the worst part of the state because it reminded them of home. Rocky, cold and damp. Oops that’s Oregon also.
Vozzie, there are so many ways to make moneys in this economic environment that I doubt very much that what I do is what Txchick or what any other reasonably sensible investor does (sometimes they overlap on small positions -fer sure.)
you crack me up hoz.
Its actually American Indian Texas born, California educated, Hawaiian tanned and Oregon settled backwater hillbilly commie fascist bastard who votes conservative fiscal policy.
Cool lets go to the Menominee Reservation and go fishing.
Now I know why you drink that Pale Ale crap!
Lone ranger: Tonto, Tonto we’re surrounded by hostile Indians!
Tonto: What’s this ‘we’ white man.
so you actually vote for republican fiscal policy? the policies that continue to spend like drunken sailors.
“smaller gov’ but continue to make more gov?
Amusing, but Mr. Vozzie never wrote “Republican fiscal policy”. Generally a bad assumption to make synonymous.
get ready for the runup to one massive margin call. The employment numbers in two weeks will be the next inflection point.
Will that be a good time to buy the dip in U.S. stock prices? Are will you guys keep your powder dry for later in the year?
Signed,
Non-dollar-cost-averager
CA employment numbers are up. This was reported yesterday.
I’d like to thank whomever it was that gave me the financial beat-down a few weeks ago when we were discussing opportunity costs regarding downpayment funds.
As a result of our disagreement and re-examining our finances my wife and I have decided to elimnate all of our debt first. We’ve cut some big a$$ checks and we’ll be 100% out of debt within a few months.
Good for you. There is no better feeling than being debt-free. (Well, ALMOST no better feeling).
This should really help with the oversupply of housing.
http://news.yahoo.com/s/ap/20080321/ap_on_bi_ge/living_with_parents;_ylt=Aip682yOr6uMu87ezOc4hZ6s0NUE
NYT article today supports the theory that the housing bubble is predominantly due to a lac of regulation. Noted that places like the US and England ended up with huge housing bubble, while France and Germany which have stricter and enforced regulation of lending institutions did not. They have all had relatively low interest rates so that can’t be the primary cause.
Another interesting piece of info
England Debt to income 1.62
US was only 1.4
I’ll bet the ratio is much higher than this if you exclude the top 5%.
Anyone have info on Debt to income ratios of other countries. This seems like it might one of the better metrics to measure bubbles.
Does anyone know what historic debt to income ratios have been in the US??? say pre 2000
World trade decelerates almost to standstill.
http://us.ft.com/ftgateway/superpage.ft?news_id=fto031920081902264812&page=1
“This is a substantial deceleration,” the institute said. “World trade volume growth is on a downward trend.” The last time annual growth in trade went negative was in 2001, when the shallow US recession that followed the bursting of the technology bubble and the shock of the September 11 attacks caused global commerce to contract.
The institute said that imports into both the US and European Union fell in the three months to January.
What happened to decoupling?
The rest of the world has a minor decoupling. Japan grew in the 4th quarter at 3.6% and China is slowing down to a growth of 9%.
Much as I love the FT, the news is Euro/US centric and ignores the rest of the world. Europe is toast along with the fried US.
Chinese inflation will eventually force China to more rapidly revalue their currency. That will slow economic growth.
Hoz, got another source for ft news regarding rest of world?
The Intl Herald is as right as WSJ and none have real info regarding S. Am or Asia/africa lets say. Reading other language sourced news is just fundamental understanding, no real grasp in monetary (spanish,german,french, portuguese ) terms.
Thanks for insight you might have.
The times of India
Business World Online Philipines
Project Syndicate - commentaries from around the world
Gulfnews
Shanghai daily
Business and economy India
Brazil Economy Watch (blog)
Alea (blog)
Andrew Leigh (economist Australia - Blog)
Ajay Shah (economist India blog)
Bangkok Independent (nationmultimedia.com)
South China Morning Post
The Emirates economy (blog)
The Daily independent Bangladesh
for SA try this link and have fun:
http://www.abyznewslinks.com/southre.htm
Recession fears mount on jobless, factory data
http://news.yahoo.com/s/nm/20080320/bs_nm/usa_economy_dc_1
Factory activity in the U.S. Mid-Atlantic region shrank for the fourth consecutive month in March, according to the Philadelphia Federal Reserve Bank’s business activity index, which came in at minus 17.4 this month.
“The key message from this survey is that things are quite bad, but that sentiment has, so far, weakened further than hard activity,” Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, New York, said about the Philly Fed report.
The Labor Department’s report suggested a further deterioration in the job market, although it said increases in first-time claims last week and the week before reflected, at least in part, a strike by autoworkers.
It said 378,000 initial claims for jobless benefits were filed in the week ended March 15, up from 356,000 in the prior week. Economists had expected a rise to just 360,000.
U.S. has entered “recession of choice,” ECRI says
http://www.reuters.com/article/economicNews/idUSN2022052120080320?pageNumber=1&virtualBrandChannel=0
By Pedro Nicolaci da Costa
NEW YORK, March 20 (Reuters) - The United States has entered a recession that could have been avoided had policy-makers been more willing to heed warning signs and take preemptive action, according to a New York forecasting firm.
The Economic Cycle Research Institute, a firm that focuses on identifying peaks and troughs in the business cycle, made its official call on Friday, stating that the U.S. economy had “unambiguously” entered a recession.
Yet ECRI researchers believe the current troubles were far from inevitable, since a precocious wave of negative sentiment about the economy during 2007 gave the Federal Reserve, Congress, and the White House plenty of time to act.
“This is a recession of choice,” said Lakshman Achuthan, ECRI managing director. “The business cycle does not sit around and wait.”
He said both aggressive interest rate cuts last year, combined with a more immediate fiscal stimulus package than that delivered by Washington, could have prevented what may prove to be a painful downturn.
“We wasted our luck,” said Achuthan.
Perversely, this inaction is likely to hit low-income Americans even harder than usual, said Achuthan, because the Fed’s belated liquidity injections have pushed food and energy prices to record highs.
“Now they are throwing a lot of liquidity out, (but) it’s going to food and energy,” he said. “This non-discretionary consumer spending makes up the lion’s share of the low-income consumer’s budget. So the Fed is trying to help out, but it’s really hurting the low-income consumer.”
If there is one silver lining in the current economic turmoil, it’s that inflation, according to ECRI’s own gauges, is tame enough to give the central bank wiggle room to continue taking action.
“While consumers are losing the battle at the pump, they’re winning the war at the check-out counter” for goods other than food and fuel, Achuthan said, citing falling prices on personal computers and other electronics. (Editing by Dan Grebler)
Thus as predicted by many
Deflation in the things people want - House/computers/electronics/ I’d throw in large fuel guzzling cars
Inflation in things people need
food,gas
Oil and gas will fall as fewer can afford it and cut back on travel. There are already articles that public transportation has seen a huge increase in ridership. I sold all of my oil when it went over 100, hope I”m right.
The numbers they report are even more impressive when you consider the collapse of the dollar. Deflation in electronics, and the drop in manufacturing ect.
Just wondering why when the consumer is cutting back on driving/gas, so prices go down a bit, why are the MSM and gov etc stating that when the consumer starts driving in the summer they are already planning the increase in costs at pump?
Because the airline industry is raising prices and cutting flights, so people will drive cars on their vacations. For a family vacation, driving a car is still cheaper than flying even with gas at $4.00/gal.
I just took a trip from LA to Vegas and back, and driving was not only less expensive but about as fast when you count airport delays and taxi lines.
True, but it’s neat knowing that when you fly, some TSA hack is required to scan and scrutinize your “basket” as you pass through the line.
Yes sir, those computers and other electronics are a bargain! So who cares about food, electricity, housing, and gasoline? Starving consumers winning by buying non-necessities, doubtless on credit, are just the ticket for making my day even brighter! Thanks Mr. Achuthan! (God bless you!) Achutan (God bless you!)
My Saturday morning adventure to look at a foreclosure and basic online research.
Saw an open house ad for a foreclosure by Deutsche (New Century) and decided to stop by and look at the 2bdrm 2 bath condo with two garage parking in a relative nice neighborhood in Alex. Anyhow, the place is an absolute mess and is being offered “as is.” I decided to lookup the property information when I got home and I am just shocked. Absolutely shocked! Why? Because I have been harping on affordability since 05 when I moved from DC to VA.
Details
Original owner paid $147k from the developer in 1995 and sold for $170K in 2000
Owner number 2: sold for $251k in 2003 (80k increase)
Owner number 3: sold for $347k in 2007 (96k increase)
and Deutsche original had it listed for $357k and now $322k
Now, what were the fundamentals that would cause significant price increases, that would allow banks to make loans on assets that did not change fundamentally since the mid to late 90s? Was it the presence of these new owners that caused prices to inflate? In other words, were the original owners rather ugly and the beautiful people added charm and charisma, which led to an increase in the value of the propert? Just curious…since I am part of the reality based community.
Fundamentals. Fundamentally the bank has new buyers.
End.
Nothing new to see here!
This has got to hurt…The DOJ can come here to downtown San Diego and have their hands full for a few years investigating fraud. Back to 20th century prices if I extrapolate correctly
702 Ash St #404
San Diego, CA 92101
Price: $259,900
Beds/Baths: 2 / 2
Square Feet: 1,120 sf
Sales History
Date Price Held Return Annual
11/20/2006 $710,000 2y 41% 18%
11/05/2004 $505,000 n/a - -
Still seems kinda expensive for a small, used condo.
Tim regarding your comment about big victorians that were turned into apartrment during rough times I have a few comments. Most of these units were in demand in rough times because they were located close to downtowns. The problem with the Mcmansions is that they have sprung up in locals located near and far fron Cities and the town centers. The Mcm’s that are outside of these urban areas will not be attractive for apartment conversions. Many will be bought at the bottom of this cycle for 30% of there ariginal; “market value” because they are not economically viable as singles.
It’s not as though we don’t have any data points from past downturns to work with. What happened to the McMansions that were built during the last bubble in the 1980s, in places like Palmdale/Lancaster? Most of it was converted to Section 8 housing by the mid 1990s. There was plenty of supply relative to demand, so no need to carve the units into pieces. I expect a similar result this time, except there’s an even greater glut to work through. Other states could pay their discharged prisoners to travel to California to buy houses, and there still wouldn’t be enough demand to soak up all this junk.
In the new book “Where Does the Money Go: Your guided tour to the Federal Budget Crisis” I came across an interesting statement:
In 2005 President Bush asked political powerhouses Senator John Breaux of Louisiana and former Florida Senator Connie Mack to head up the President’s Advisory Panel on Federal Tax Reform to devise a plan to simplify taxes. When the commision issued its ideas in lates 2005….the National Association of Realtors said proposals to change the home mortgage deduction would cause real estate prices to plunge”
(The book cites an Omaha World-Herald article, 11/5/2005 for that information.)
Now, if Our Government was in cahoots with the NAR to keep house prices propped up in 2005, this is a serious crime! It’s interesting that tha NAR didn’t bullshit that the home mortgage deduction helped “affordability”. They were quite honest in admitting it does EXACTLY the opposite.
I personally oppose the Home Mortgage Deduction even though there was a time I benefited from it. All it does is inflate house prices. If they got rid of it, house prices would simply drop. AND THE NAR, and President Bush KNOW THIS.
Don’t worry AMT is destroying the home mortgage deduction. It amazes me the number of people I meet at work who constantly talk about their mortgage interest deduction. These people make the same amount as I do, so I know they are getting only a tiny fraction of those deductions. Yet they have no clue how AMT works.
Can someone explain, hoz,pb, tx, measton, etc WHY the fed/our congress doesn’t want to FIX the AMT?
Aside from the taxes. But it wasn’t meant to do what it is doing and will continue to affect in progressive manner in the first place.
LOL
Aside from the taxes…….HHHHAaaaaahhhhhaaaaaaaaaa. What more reason do you need?
Round and round the cobbler’s bench
The monkey chased the weasel,
The monkey thought ’twas all in fun
Pop! Goes the weasel.
A penny for a spool of thread
A penny for a needle,
That’s the way the money goes,
Pop! Goes the weasel.
A half a pound of tupenny rice,
A half a pound of treacle.
Mix it up and make it nice,
Pop! Goes the weasel.
Up and down the London road,
In and out of the Eagle,
That’s the way the money goes,
Pop! Goes the weasel.
I’ve no time to plead and pine,
I’ve no time to wheedle,
Kiss me quick and then I’m gone
Pop! Goes the weasel.
To “Pop” is the slang word for “Pawn”. Weasel is derived from “weasel and stoat” meaning coat. It was traditional for even poor people to own a suit, which they wore as their ‘Sunday Best’. When times were hard they would pawn their suit, or coat, on a Monday and claim it back before Sunday. Hence the term ” Pop goes the Weasel”
The song of inflation and hard times.
Because a fix to the AMT implies some sort of resolution to Bush’s “temporary” tax cuts of 2001 and 2003 - and since he’s not willing to compromise on these, a bipartisan fix to the AMT will have to wait until after the 2008 elections.
Home mortgage phases out for incomes above $150,000 through a mechanism separate from AMT. Read the tax form and you’ll see the misc. deduction phaseout calculation.
It’s worse than that for people who live in high tax states and have kids or other deductions. People earning as little as 70k can be hit .
I’d guess that’s partly do to the rise of tax preparation software. Type in the numbers and you don’t KNOW whether you’re paying AMT or not.
Turbotax tells you whether or not you have to use the AMT calculations instead.
Connie Mack is the goon that married Mary Bono.
Both were married when they um uh, met. And now those two republicans are thrice married and that is “Family Values” and Mary Bono-other guy-Mack was in town stating how good the economy was/is. Just PR stuff. Connie Mack is an ass. Met him yr ago. Slimy. Anyway, he is a junior congressman from Florida.
So, Florida etc produces lies/theft and malfeasance of GOV law.
Does anyone believe this
http://news.yahoo.com/s/nm/20080322/bs_nm/central_banks_talks_dc;_ylt=ArIkQfhWWHAYqzALC9mI8MSs0NUE
FED and Bank of England discussing plan to buy Mortgage backed securities.
My guess is what they are planning is directly loaning $$$ to Hedge funds to do it for them, then giving said hedge fund a guarantee of profitability just like they did with the sale of Bear Sterns.
I believe that the conversations between the gang of 5 certainly discussed buying MBS. I also believe it was put to rest.
If you wish to know what the Federal Reserve can do in this situation look at Mr. Bernanke’s paper from 2004 on ways to stimulate the economy in a ZIRP environment. His playbook is coming right out of that paper.
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.
“The Federal Reserve is not involved in discussions with foreign central banks for coordinated buying of MBS”
Prof, If you learn bank speech this seems to imply the Federal Reserve is planning on buying MBS. The understood implication is that the Federal Reserve will buy MBS without Foreign Central bank participation.
Thanks for that insight, now I get it.
Sort of like “non denial denials.”
Sounds reasonable. I have a son who speaks like that. He says he wants to be a scientist, but I am expecting him to become an attorney some day like his FIL.
They also forgot the pilot program didn’t go too well.
http://www.reuters.com/article/idUSN0525557220070405
I never believe anything until it has been officially denied.
For what it’s worth, on 21 March 2008:
“The Treasury Department announced today that it would expand savings opportunities for investors. Beginning with the 13- and 26-week bill auctions of Monday, April 7, 2008, all Treasury marketable bills, notes, bonds and Treasury Inflation-Protected Securities (TIPS) will be available to the public in minimum and multiple amounts of $100. Marketable Treasury securities have been available in $1,000 minimums and multiples since August 1998.” {Before that the minimums were ~$5-10,000 each}
It costs nothing to open a Treasury Direct account, the paperwork differs a bit from opening a bank acct, see http://www.treasurydirect.gov Once opened, a TreasuryDirect account works very much like an online bank account. Your other bank accounts can be linked to your TreasuryDirect account to allow transfers between accounts, although the paperwork is more involved, such as that needed to link a bank account to your TreasuryDirect account. The current Treasury paper interest rates are so low that most banks pay more on their CD’s, so I have taken all my $ out of Treasury Direct for the moment. Brokerages like Fidelity also offer no-fee access to the Treasury paper auctions, which might apply to some managing their retirement accounts.
Hurry up and get your T-bills before interest rates bottom out at historic low levels…
Cute
Offical Media Outlooks on the Great Depression - 1927-1933
Good one. Here’s another interesting chart and one that bothers me. Look at budget deficit (adjusted for inflation) and notice the almost perfect correlation with the direction of the stock market since 1992. When deficits rise - and we are looking at rapidly rising deficits, possibly to a record as a per cent of GDP a year from now - stock market generally goes down.
http://www.kowaldesign.com/budget/
Stop worrying about the distant future (one year out). Didn’t the market have a big gain over the past week?
I didn’t notice a huge gain, but I am very happy to know that txchick is backstopping the market in the short term. And I say that with all sincerity. If she says up, I’m thinking up is more likely than down. For now.
This just gets funnier and funnier
http://www.236.com/news/2008/03/21/eliot_spitzer_5341.php
Does anyone else think the MSM may have gone overboard with the panic alarm bells at this point? So far as I can tell, the U.S. dollar has stabilized in recent days and the U.S. stock market had a good week last week.
Why all the apocalyptic fear mongering now that the worst appears to be over already? Does it just boil down to strong hands trying to scare weak hands into giving it away for free?
Briefing
Buttonwood
Apocalypse now?
Mar 19th 2008
From The Economist print edition
Investment havens in a time of panic
Jezus Professor, thanks for the brand new panic attack.
I like it - go agrarian. I recall BiM’s comments last weekend about how urban will hold up better than rural. BiM, if you’re out there -here’s a friendly “bet”: you take any city (or combination of cities) in CA, FL, or MA; I’ll take State of North Dakota. We’ll compare OFHEO appreciation 3 years from now. (Don’t get me wrong - I’d rather live in Newport Beach than Bismarck, too.)
Reality of the last 7 years is finally reaching Wall Street.
“Economic Scene
Worries That the Good Times Were Mostly a Mirage
Until a few months ago, it was accepted wisdom that the American economy functioned far more smoothly than in the past. Economic expansions lasted longer, and recessions were both shorter and milder. Inflation had been tamed. The spreading of financial risk, across institutions and around the world, had reduced the odds of a crisis….
The great moderation now seems to have depended — in part — on a huge speculative bubble, first in stocks and then real estate, that hid the economy’s rough edges. Everyone from first-time home buyers to Wall Street chief executives made bets they did not fully understand, and then spent money as if those bets couldn’t go bad. For the past 16 years, American consumers have increased their overall spending every single quarter, which is almost twice as long as any previous streak….
First, Wall Street hasn’t yet come clean. Even after last week, when JPMorgan Chase and Wells Fargo announced big losses in their consumer credit businesses, financial service firms have still probably gone public with less than half of their mortgage-related losses, according to Moody’s Economy.com. They’re not being dishonest; they just haven’t untangled all of their complex investments….
The second problem is that real estate and stocks remain fairly expensive. This shows just how big the bubbles were: despite the recent declines, stock prices and home values have still not returned to historical norms….
For prices to return to the old norm, they would still need to fall 30 percent across much of Florida, California and the Southwest and about 20 percent in the Northeast. This could happen quickly, or prices could remain stagnant for years while incomes and rents caught up….”
NYT
March 23rd, 2008
http://tinyurl.com/2pbthr
Come on CNBC shills start humpin and a pumpin, I need this market unchanged to up on Monday! Tell them to ignore this article. Fog the mirrors.