The Housing Bubble

The only place there is no inflation is in my rental.
Whipped cream in a can is five dollars.
Rice cakes go for four dollars.
Gas over here is three eighty.

I went to a party last night attended by several lawyers and Wall Street types. I heard a lot of talk about “mortgages”. Several times I heard the CNBC party line of, “the worst is behind us”. I sat down with one of the guys at the party and discussed this entire mess in depth. You would have been proud of me. I very clearly and calmly used every fact I’ve learned over the past two years to refute this ridiculous claim. I told him the stock market was no barometer for reality. By the time he left he was literally shaking. He is a pretty nice guy so I didn’t do it with malice. But it was good to educate one of these guys.

Denial is rampant in Fantasyland.

If people in this country start dying of starvation, the stock market will ralley. Why? Because it won`t have to look at their ugly faces anymore.

“We’ve taken quite a clear position on this in saying that a strong dollar is in our nation’s interest”
- Paulson

“The dollar is not money any longer but a handful of paper distributed in the world without commodity support,”
- Ahmadinejad

inflation for J6P and deflation for the Wall Street crowd; if you spend just a few 1% of income on food and energy, can avoid most taxes and get a 10-30% pay increase every year, the times are good.

My diesel is 4.51 and has been above 4 for quite some time here on Maui.

“It looks gas will hit $4.00 a gallon soon…”

Just paid $3.93/gal this morning, Washington’s Columbia Basin.

One of the guys at the party is losing his job at JPM. They are shipping it to India. They had to train in their replacements. They are trying to relocate people within the company but the laid off JPM employees have to compete with the influx of Bear people that will be laid off.

Somebody please tell me how the f-ck prices here in Fantasyland are going to remain in the stratosphere. I love a good fairy tale in the morning.

and you thought subsidies were only for Agriculture.

anybody else see it that way? or is this just good monetary policy from the reds?

Here’s a good article about the central banks secretly suppressing the price of gold.

http://www.gata.org/node/6241

Figured I would weigh in on this question, because, IMHO, the answer is simple.

The only education that is worth 200K is an Ivy League education in finance, medicine, management, law, and perhaps a few other fields that I am missing.

All other private colleges, imho, and all other fields of study, there’s absolutely NO reason to go anywhere other then a public school. If you’re rich and it doesn’t matter, by all means, send you’re kids where ever they want to go. Otherwise, unless you’re child is studying in the “big money” fields (and at an ivy leage school) I would say there is almost NO cost justification to send a child to a 2nd tier private school (or to send them to Harvard to study art or history).

“Mr. Stanyon said he had his fingers crossed that his son might want to attend a state college in New York that costs about $15,000 a year. Instead, Christopher set his sights on Siena, a private college near Albany, that costs nearly $35,000 a year.

“With $15,000, I could take care of that relatively easily,” Mr. Stanyon said. “But now we’re looking at $140,000 to $150,000 for the full four years, which is not something we were prepared for.”

The stupidity is astounding. What the freak does it matter where little Christopher does his undergrad? If he plans on going to law school the only thing that will matter is where he gets his legal degree. These people are baboons.

I love this piece of wisdom. “Ms. Sullivan said, “She’s going into an adult world now, when you start making your own decisions.””
That is not the adult world I know. The adult world I know is to make one stupid decision after another and blame all of your failures on others. This kid will learn that soon enough. She will join the hoards of “victims” roaming our street in traveling bands.

“Fraud was a basic feature of the run-up in U.S. housing prices that eventually led to the current crisis and record foreclosures, according to an economist who focuses on white-collar crimes.”

Breaking f-cking news there. Good thing there was an economist to tell me something so obvious. Jack Daniels and Cheerios. Mmmm, mmmm, good.

“‘Why doesn’t the SEC have a chief criminologist? Why doesn’t the Fed?’ he asked.”

Oh, great. Black balaclavas in that office over there at the Fed. Then what? Does the Waffen-HS request that they be brought into the fold? Your papers, please.

“the UK can weather the storm if it keeps its head.”
Depends if it is square rigged or a Porpoise class (submarine).

Where are you heading in S. Jersey? That’s my home town area, I grew up in Cumberland county. Just wondering; definately let me know what the area’s looking like. There was quite a bit of new development when I was last there, but, compared the S. FL, the prices were laughable (cheap).

No need to short SKF, just go long UYG. SKF is an inverse fund, so, (not an expert here, so feel free to correct), shorting SKF is a bet that the financial markets are going to go higher (a bad bet IMHO).

I sold all my LEH45 May calls and UYG shares yesterday. Waiting for the next pullback before I get back in; but not brave enough to go long SKF (which would make money on both sides, UYG makes money on the up, SKF on the down).

Try to get a great job in Atlanta.

Would the 20% cover the cost difference in CA ? It might depending on your salary level. The money aside is the job better ? More secure, more responsibility, more long term opportunity, more interesting ? Or if a lateral move do you want to live in CA ? I would not mind returning.

Don’t move from DC to SV just for the 20% raise - this isn’t enough to compensate for the drop in standard of living in the Bay Area. The biggest difference, IMO, between DC and the Bay Area is the quality of rental properties in the 1500-1800/mo range. You really have to see for yourself what kind of rental that range gets you out here in SV - and determine whether you are willing to take that hit.

If you have no experience with California, you should at least take a trip out to SV and have a look around. Be prepared to pay up if you want housing in one of the best areas. The real question is: 20% raise over what? You need to get a salary that is well above median for the area in order to live reasonably well and still be able to save any money. I wouldn’t consider living in SV on a salary of less than $120K single or $200K household, and that would not be enough to live well.

Also check out traffic and transportation options. Some of the commutes in the area are pretty bad, so you would want to make sure you could live close to your employment.

Bay Area has better beer. When I was in DC a few months back, I walked into a bar. I asked: “What microbrews do you have.” Bartender said: “What?” I said: “Microbrews, which ones do you have?” Bartender said: “Oh, you mean whiskey?” Me: “No! Microbrews!” Bartender: “huh?”

So I pointed at something on tap, Liberty Ale, or something like that. it tasted like piss! We in California are spoiled.

“move from DC area to Silicon valley for work, with about a 20% raise” Tony Bennett didn’t sing “I left my heart in DC”, there is a reason the Silicon Valley has high house prices. Take One night in San Fran overlooking the Golden Gate bridge, and then make your decision

The graphic showing YOY job growth shows that the last time this dipped below negative in SD, around mid-1991, was after the official end of the last U.S. recession (which ended in March 1991). Nonetheless, YOY job growth remained negative in every subsequent period until late 1993. If the same pattern played out this time, we would be talking about labor market recovery some time after 2010. I don’t mean to suggest this has anything to do with the SD County housing market…

Jobless rate increases in S.D. County
Area feels pinch of declining housing market
By Dean Calbreath
STAFF WRITER
April 19, 2008

For the first time in 15 years, San Diego County suffered a year-to-year decline in jobs last month, as the regional economy continued to feel the effects of the declining housing market.

(Graphic: County job growth)

Between March 2007 and March 2008, local employers cut 1,700 jobs from their payrolls, according to data released yesterday by the California Employment Development Department. Unemployment last month surged to 5.3 percent, up from 5.0 percent in February and 4.2 percent in March 2007.

I see Vacant Retail, Commercial & Industrial properties everywhere in my little myopic world of Anaheim Hills and Orange. I work my shop almost every Saturday, out of the 30 or so business’s on our street maybe 3 to 5 are working, where as 10+ were working every Saturday last Summer.
The talk on the kids Soccer field has progressed from Housing to Inflation, now Employment is on the table.
Is that a Recession I smell over the hill, or is it a full blown Depression Landfill. We should know by Fall.

“The governor’s efforts could help save construction jobs by shifting carpenters and other journeymen from residential developments to public works projects, said Michael Bernick, a former Employment Development Department director and research fellow with the Milken Institute in Los Angeles.”

This could be useful at the national level to address longstanding infrastructure needs and keep people working, but instead we’ve decided to borrow money and send out checks. Yes, there would likely be borrowing to address the infrastructure needs, but at least that would be borrowing for legitimate investment versus borrowing for consumption.

Here’s a twofer from BusinessWeek online.

The Other Orange County:
http://www.businessweek.com/bwdaily/dnflash/content/apr2008/db20080415_242666.htm?chan=top+news_top+news+index_top+story

Slideshow: The Real (Foreclosed) Homes of Orange County:
http://images.businessweek.com/ss/08/04/0417_orangecounty/index_01.htm

” ‘A lot of companies are in shutdown mode right now, not to mention that it’s competitive fighting everyone else who’s getting laid off,’ Rodriguez, 25, said during a fruitless visit to a state jobs office on Wilshire Boulevard near downtown Los Angeles. ‘I should be making money and spending it on entertainment, but I haven’t been able to enjoy myself at all.’ He’s now living with his parents and feeling helpless.”

Not that he should be paying rent to his parents or saving for a rental of his own. Not that he should be paying off his education/getting an education. Not that he should be paying his cost of living or saving a down payment to buy some time…..

No. The guy is worried about making money so he an spend it on entertainment.

And the CityBoy is already getting pi$$ed off. Things like this infuriate me:

“Tightfisted consumers have made life difficult for John Rodriguez. Two months ago, he lost his job at a furniture warehouse store that closed because of a lack of customers.”

Why can’t they write that as, “increasingly responsible citizens have caused an economic reordering that continues to clear out excessive business activity”? Of course that would not allow for all the world to consider themselves a victim. Great nations are never made up of victims.

It was always going to end in tears.

Rochester is immune. There’s this company in Henrietta that makes some laser thingy that is going to hire 2 people this year.

They’ll need housing.

Bizzaro…. that was a quick trip from the fantasy “there was no bubble here, therefore sales and prices won’t fall” to the hard grim reality we’ve forecasted on this blog. I contend the denial in upstate is far more insidious than the more notorious areas.

Enjoy the schadenfreude brother.

UK bankers have 350 years experience extracting the last drop of blood, sweat and tears of debt/wage slaves.

I’m shopping a rate for a decent sized CD thats coming due in July. As I talk to the local bankers, there is one common theme; don’t go long on CD’s, the yields will be going up.

This Libor scandal is interesting. They are claiming that the reason the Libor rate was fudged was so banks wouldn’t have to report their true cost of borrowing. But since Libor is used to price derivatives as well, I wonder if they were all gaming the system to help stop the damage from their derivative holdings. It wouldn’t surprise me.

In any case, rates tied to mortgages, business loans, cars, etc. are going to go up as another market manipulation fails.

It’s very very complicated.

I tried once to write an Excel-style spreadsheet for the mess, and before long I was on the floor, rocking back and forth, whimpering like a wounded puppy.

Here’s the “executive summary” (which is technically wrong but essential in all its details, I hasten to say, before I get Taser-ed by someone.)

You have a teaser rate (A) for the first 3 months, and let us say, your payments are P1. After that, there is a typically a rate reset (B) for the remaining portion of 5 years (57 months.)

However, what is really happening is that even though you need to pay P2 to fully amortize, you still have the “teaser payment” P1.

So what happens to the difference (P2 - P1) each month? It gets added back onto the loan balance which brings us to the dirty fact that P2 is not actually fixed but going up each month. The owner doesn’t feel “shocked” even though they are in fact getting tasered.

Now, some of the loans, you have an option of paying less than (P2 - P1), in which case, you guessed it, that gets added back onto your loan balance.

Now, in the good case, you come up on 5 years, and there’s some loan balance, and you get to pay the full amortization at rate C for the next 30 years.

The bad case is you hit the “edge conditions” which is called a recast. Generally, when you hit 130% LTV of the “original balance” (or some such.)

The problem is that the media uses reset and recast interchangeably but they are, in fact, different beasts.

Has your head exploded yet?

The recast can occur at any time depending on the “edge condition”, and your loan resets immediately to the full amortizing payment at rate D for 30 years.

In addition, there may be rate caps for B, C and D, in which case, what happens to the difference in payments? You guessed it. It goes back onto the principal.

Who needs a drink at 9am? I know I do.

Funny, the original ARMs seemed scary back in the 1980s and those were reasonable rates that ended up working pretty well at the time. I’m still not sure I’d go even for a nontoxic ARM.

Why is it that none of the “finance reporters” understand market value? It looked like that dude’s head was going to asplode when Schiff explained tuition.

“Peter, I don’t understand. If college is too expensive for kids, who is going to lend them the money? Bernanke, print these flunkees some loot for their kegger!”

That is an excellent and powerful statement about the taxing effect of running the Fed’s printing press on American household wealth. My only doubt about what he said is that he implicitly suggests the Fed’s money printing strategy will continue to play out into the indefinite future. Personally, I believe dollar debasement is not a sustainable policy, and will reach a breaking point sooner rather than later without a change of course, which currently seems rather like the Titanic steering straight into an iceberg.

And yet the FXP is down…

Did you notice how this massive drop occurred just after the stories materialized that regular Chinese were begging, borrowing and stealing to get money in the stock market. Cho6pack got in and took it right between the cheeks. The little guy loses, in all languages. The greedy little guy, that is.

http://tinyurl.com/42hyw8

More on decoupling or lack thereof.

I can’t wait for youth hostels to become popular again. Those things (if run correctly) apparently can turn quite the profit.

They are just “selling a lifestyle”, and that worked in the magic fantasy fairytale world of HELOC’s and Goldilocks but it seems to have disappeared.

nice that the US now has a Google economy instead of a financial economy; on the internet everything IS different

End of the game for me is when price/rent and price/median income return to historic norms. I don’t really care about the appreciation of the homes returning to a postive number, or the actual dollar value of the home. Once the historic norms are back in I will start to think about stepping up to buy. If I can buy with 20% down and then turn around and rent the home out cash flow positive, that’s the bottom in my book.

Will/could prices fall further? Absolutely, in fact, they probably will. But, again, my investments are in INVESTMENTS, not in my home. I want a place to live, and when the rent/own ratios start to turn normal (or even positive, cheaper to own then rent) that’s when, for me, it will make sense to buy.

What areas will pull out first? My guess would be the areas that have seen the least building and least out migration. Unfortunately, that’s not an easy place to define.. Shooting from the hip, I would guess small, out of the way towns across the country with little/no building boom and a stable population.

The places that we all talk about all the time (FL, TX, CA, NYC) are toast, they have such a deep decline to endure that they will certainly NOT be the first places to start to recover. There’s just WAY too much inventory in all these areas, it will take much longer for them to reach bottom.

This would be a good weekend thread topic.

IMHO, to remove possible outliers, when the nominal YOY median has increased for 3 consecutive months in a market, then that market has reached the end of the actual ‘bust’ phase.

When the REAL YOY median (accepting there are issues with CPI measurement; I would use headline rather than “core”) has increased for 3 consecutive months in a market, then the recovery in that market has commenced.

If a market is covered by Case-Shiller, then I would use that metric rather than the median.

I know of five people here in SD who own multiple properties who never had incomes.
It is sickening that people bought homes to fix up and sell for profit.
Seriously, none of these people have money, yet somehow purchased and heloced their way into building an empire.
Anybody know people like my friends?

“My Enron stock sublimated several years ago, but my Bear Stearns stock only recently subprimated.

New Era business model:

1) Retain executive talent through stock options and other incentive-based pay tied to company stock price;

2) Use special financial vehicles and other accounting gimmicks to produce a stream of earnings that always go up;

3) Rely on analyst reports that “earnings always go up” to drive the stock price through the roof;

4) The moment clouds appear on the horizon, top managers and other insiders cash out their stock shares in droves;

5) Greater fools who bought shares on the belief that earnings will always go up subsequently learn they have been subprimated through accounting gimmicks that hid bad news off balance sheet.

Capital Sublimary Inlfation (CSI): The process of identifying non-liquid equity evaporations while passing through the virtual capital markets.. “short term gains from buying the panic”….:

Dude, i just got some sweet BSC CSI, PBR ME ASAP.

“after strong pressure from Dutch financial and political authorities the IMF is ‘reconsidering’ its report that placed the Netherlands at the number 2 spot of overvalued housing markets worldwide.”

When in doubt, lie!

I am blessed with a mid-range wine palette. I won’t drink hooch, but the Aussie/Chileans in the $7 - $15 range are all I need.

sounds like jingle mail to me…

Is that in Squatterville, Utah?

Statistical Bust..

the gears of the global financial industrial complex will continue, unabated.

Paying your debts, building and servicing things, investing, saving, and doing good works never goes away. The recovery story is very cloudy.

Clouded by Cultural Conservatism, sound investing, good strategy, and strong ethical behavior as it relates to the good.

Fair competition never goes away. The global financial complex actually lowers the playing field.

How low should the participants have to digress for normalcy to manifest? The things that are normal are what is so.