Bits Bucket For August 10, 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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Has housing prices bottomed? That is the question the NY Times attempted to answer over the weekend with this article:
http://tinyurl.com/6fwadq
I found it to be educational and the methodologies used definitely seem to be better than others I have seen as it tried to take as many variables into the models as possible, such as income, interest rate, taxes, insurance and credit availability. I agree with one of the statements quoted saying that even though some localities have reached “fair price”, due to economic and mortgage trouble factors, prices will keep falling.
What do the rest of the HBBers think? Frankly I am surprised that NY was “fair valued” according to one of the models as I think NY has more pain to come.
I saw that yesterday. The Times might want to research this blog, which has found much evidence to refute this nonsense:
‘In the Midwest, said Mr. Case, “they never had a boom. There was no bubble. There’s just a bust because employment’s dropping like a rock.’
Hey, is Minnesota in the Midwest? I think it is. Maybe this douche bag needs a geography lesson. Minnesota had a massive bubble, starting in 1997 or 1998. Prices are still way too high and have a very long way to come down. I know everybody gets a wetspot over the Case/Shiller index but this guy has said more stupid sh*t than many that are actively involved in the sale of real estate. Case can kiss my rear. He is just another of the clueless masses, not having any understanding of the real world.
NYCBoy,
Agree with you that Case is a DB. I’m from the midwest, too (Illinois). MN used to be a reasonable place to live. At one point parts of St. Paul, MN got as expensive as Newport, RI. If that isn’t a bubble I don’t know what is. On one hand you have Newport, a bastion of old money, the Atlantic coast, and a major tourist attraction. On the other (no offense to Minnesotans) you have 6 months of winter and The Prairie Home Companion.
IMO, there are two very easily identified bubble indicators: failed urban condo projects and overbuilding in general. Both are the result of price distortions. These things can be found in almost every market in the midwest.
It is disheartening to see this stuff in the NYT at this late date. Unless we accurately understand the problem, any attempts to fix things will fail. Prices don’t need to be ’stabilized.’ That just makes the outcome more painful.
Commie! Do you really mean to hint that condos on Robert Street, on the West Side of St. Paul were a bad idea? Take that anti-American crap some place else.
One market that needs to be especially wary of this “Midwestern immunity” nonsense is Chicago. They’re peddling that line here big time and they’re building condos right up to very edge of the abyss.
Within a stone’s throw of me are:
1. A vacant lot that remains vacant even after the planned 17 story condo tower inflamed the locals way back in 2006.
2. A recently and thoroughly remodeled REO on a prime lakefront location at lower than 2000 prices.
3. A BK condo conversion of a large and crappy old “4 plus one” - $13 M.
4. A new condo complex of three towers that is only 54% sold and almost completely dark at night.
5. Countless smaller new construction and converted condos that have had “open house” signs out every weekend for three years running!
Do NYT writers ever leave NYC to do research?
“Do NYT writers ever leave NYC to do research?”
A better question is, do they do research?
Remember Jason Blair?
If they are trying to promote home ownership, why are politicians trying to keep real estate prices high?
It occurs to me that if the government wants to promote home ownership, it should be trying to lower real estate prices, thus lowering barriers to entry.
Encouraging high real estate prices, and then encouraging people to get as deeply into debt as possible, is not in the interest of the average citizen.
In fact, trying to encourage Americans to take on as much debt as possible in the real estate purchase stifles other economic activity.
Money spent servicing the debt could have been spent on a myriad other goods and services.
It seems to me that politicians are mouthing the platitudes encouraging home ownership, while cynically supporting policies that only benefit lenders, NAR, NAHB, and themselves (via higher property taxes).
As someone whose sister paid close to $300,000 at the end of 2006 for a home that would have sold for only half as much ten years earlier, I have the impression that Case is talking up his @$$. These East Coasterly high muckamucks really ought to get out and see the rest of the country on occasion before musing about markets about which they have no clue whatever.
Forgot to mention: The home is in Lake St. Louis…
Yeah, Mr. Case needs to do some additional homework.
Aside from the obvious Midwestern boom/bubble cities (Minneapolis, ChicagoLand), perhaps he should take a gander at the southern half of Wisconsin; western Michigan along the lake from say Holland all the way up to Mackinaw; and suburban St. Louis and suburban Detroit.
Next, he should look at all the FARMLAND throughout much of the Midwest, which has tripled or quadrupled in value since Y2K. The growth in the number of massive, shiny-new grain/feed silos is incredible throughout most of Indiana, Illinois, Iowa, Wisocnsin, Minnesota and the eastern halves of Nebraska and South Dakota.
This poster has never seen anything like it.
Astronomical amounts of money have been sunk into such real estate. While few people would opt to live in a silo, such real estate contributes mightily to booms and bubbles.
Let’s give Case a pass on this one, as few New Yorkers really understand much about Midwest real estate. There’s no reason they would.
“Let’s give Case a pass on this one, as few New Yorkers really understand much about Midwest real estate. There’s no reason they would.”
F-ck that. This guy is acting as some kind of “expert”. I’m not giving him a pass on sh*t. I have seen this moron say one stupid thing after another. He gets a pass, for some reason, because of the index that bears his name. He can blow me. He’s just another moron posing as a “jenius”. He can eat sh*t for all I care but he will be receiving no passes.
Thanks NYCityBoy,
My sentiments exactly.
Thanks NYCityBoy,
My sentiments exactly.
Also, I’ve worked at the Red Cross on Robert Street and had to travel the length of it through West St. Paul to get home. Did those condos come with armed bodyguards?
I agree the NYT needs to do some research. In Wisconsin and SW Ohio the prices went up 80% in 8 years. And the sellers are believing the non-sense that they never had a bubble so they refuse to bring their prices down. There are homes on the market for more than a year with no price reductions.
A friend tried to buy a home in Fond du Lac WI. It was a spec home. They offered 2% under list. The builder refused to even counter it. He told the realtor that he “might” consider $1000 under list if they made an offer on a day when he was in a generous mood.
The seller’s arrogance here is amazing. It may take 10+ years for the comps to force the sellers into reality pricing. Very discouraging !
Whaddaya mean the NYT needs to do more research?
Are you saying that those living in flyover country may be a bit more keen about what is happening in their home towns than a New York sophisticate? Surely you jest!
Perhaps it’s a good thing they don’t know. It’s bad enough that such prigs ruined the Carolinas. No need to have them spoil Wisconsin as well.
“It’s bad enough that such prigs ruined the Carolinas. No need to have them spoil Wisconsin as well.”
You mean pigs. And no geographical area is immune from these ever consuming monsters.
In Case’s defense - I think to a great degree it’s relative. Yes there some relatively small pockets in the midwest that had some bubbles - most notably Chicago and the twin cities. But by-and-large the bubbliness of the midwest is nowhere close to pretty much everywhere else in the country. Literally everything in the west (from the Rockies on) and anywhere within about 200 miles of the coast in the east and south are quite a bit more bubbly than the midwest.
To put it in perspective, check out the OFHEO indices for the various areas. These were all 100 in 1995, so a 5% per year increase would be at 185 in 2008 - about the border of where I’d consider to be any significant level of bubble.
- The lowest city in CA peaked at 240
- The lowest city in NV peaked at 249
- The lowest city in CO peaked at 173
- The lowest city in AZ peaked at 238
- The lowest city in FL peaked at 211
- NYC peaked at 278
- DC peaked at 282
- Philly peaked at 220
by comparison:
- The highest city in OH peaked 163
- The highest city in IN peaked at 171
- The highest city in KY peaked at 170
- The highest city in western PA peaked at 160
- Chicago peaked at 207, but the highest city in IL outside of Chicago peaked at 171
- Most of both Michigan and Wisconsin are in the range 160-190 - upper end barely being a bubble and most not bubbly.
Most of Minnesota is indeed the bubbly range with Minneapolis being 235. I never really considered Minnesota to be midwest, but I guess many do. It’s don’t think it’d driven by most of the same economic manufacturing factors - i.e. “rust belt” as are the other states. In fact Chicago isn’t really part of that either.
You have to be very careful if you use average income and average rent data for the New York area.
The average income is highly inflated by the very wealthy, who are a small share of the population, and only live in certain places. Their expansion causes spillover of the merely wealthy to other places in booms, but not in busts.
And average rent data from private sources only covers market rate units in substantial buildings. Much of the rental housing stock is either rent regulated or in smaller, older buildings, and goes for less.
It has to. Some sources have the average rent in NYC at around $3K per month. Meanwhile, a survey found the average income of the average tenant moving to Brownstone Brooklyn is $50K per year.
A structural shift in favor of central, as opposed to suburban and exurban locations, may limit the decline in the former — but exacerbate it in the latter.
““As long as anyone can remember, as long as we have data, mortgage rates have been about 1.6 percent above the 10-year Treasury rate,” said Christopher J. Mayer, an economist and senior vice dean at Columbia Business School. “Today, it’s more like 2.5 percent above the 10-year Treasury. That’s a gigantic difference, literally reducing the amount of house someone could afford by 20 percent.””
I sense a NYCityBoy aneurism coming on. Here is another douche, vaguely touching on reality but being completely dishonest. This d*ckhead (and I don’t use that word lightly) must have some sort of agenda to press. He failed to mention that the 10 year treasury usually tracks 2 percent over current inflation. Take that number and add on the 1.7 percent and let’s see what we get.
4.5 + 2 + 1.7 = 8.2% mortgage rates (bye bye housing market)
And I was being kind using 4.5% as the current rate of inflation. Here again we have academics getting quoted like they actually know something. My wife wanted to get a subscription to the New York Times. The only way that is going to happen is if she moves out. I won’t allow that sh*t rag in this home (yes, it’s a home, not a house).
The other fallacy is “reducing the amount of house someone could afford by 20 percent”…because house prices will fall to compensate.
If we didn’t have any so-called “affordability products” (even Congress uses that industry term) houses would be affordable.
‘Homes in New Orleans never made gaudy price gains the way they did in San Francisco and Los Angeles, but neither did they bleed value as the housing bubble began to deflate late last year. Because the local market, perpetually slow and steady, does not need to undergo a painful price correction, a recent report from two Washington think tanks argues that buyers who snap up a home in greater New Orleans can expect it to gain value in the next four years.’
‘In a normal, balanced market, the ratio between the sale price of a house and the annual rent for a comparable place should be about 15 to 1, according to the report. During the past decade, the difference widened in many cities to 20 to 1 — even 25 to 1 in the most turgid markets.’
‘It should have been easy to see that this bubble could not be sustained,” the report said.’
‘Morris Davis, a professor in the real estate and urban land economics department at the University of Wisconsin, disagreed that increases in home prices should always track increases in rents. Houses in desirable locations can be expected to appreciate, and he said the buyer has to pay upfront for the right to partake of that appreciation.
“When you own a property, you own the rights to future appreciation. When you rent, you have no such rights,” Davis said. “The cost of owning and renting can diverge if people expect significant appreciation in a market.”
He continued: “Why is housing so expensive in San Francisco and so cheap in Pittsburgh? One way is that house prices don’t make sense. Another is that buyers expect healthy appreciation.
He continued: “Why is housing so expensive in San Francisco and so cheap in Pittsburgh? One way is that house prices don’t make sense. Another is that buyers expect healthy appreciation.
===
Hmmm, all right and good but the implication here is that these are two sides of something, or two “ways”.
For me, appreciation expectation is the cause, “house prices don’t make sense” is a result.
This is still an important point, even if it seems a bit garbled here to me. Paying up front for future appreciation ([i]and especially with huge leverage[/i]) is how we get to “house prices don’t make sense”.
There are lots of cons with “a guarenteed return”. For most of them, you have to spend your own money to gamble though.
haha. just struck me:
Let’s follow the reporter’s logic through the thread of the article:
(rephrasing)
Assertion: Home prices in New Orleans never bubbled.
(therefore, by the assertions given in the rest of the article, folks never came to expect more than the normal appreciation)
Result: Homes could appreciate in New Orleans.
OK, trying again:
We didn’t have a bubble here, but if we are near the bottom of the bubble we didn’t have, then prices might start going up. “Two, if the person is in a rising market, then his or her equity will increase.” Oh yeah, and: Three, if you win the lottery, you can afford a larger house.
“The cost of owning and renting can diverge if people expect significant appreciation in a market.”
Another genius at work.
Buying something in anticipation of future price gains is the very definition of SPECULATION. It’s what makes prices jump way beyond economic “fundamentals”.
So, yes, genius, if people think the price is going to go up, the pay a premium. However, when that doesn’t work out, and most especially if they are leveraged to the max., Selling takes place in earnest. Forget San Fransisco proper. Look at Palo Alto. Prices falling 60%.
I thought that historically owning was cheaper than renting BECAUSE they didnt’ pay for expected appreciation, presumably because they had to be able to afford the payments on their current salaries. If the economics geniuses want to claim that you should pay more for a house because of future appreciation, then, paradoxically, they have to admit that buying a house is NOT a way to build wealth - because you are already paying for the present value of future appreciation.
At least that seems to be the natural extension of this line of thinking, isn’t it?
I think you will find that renting is generally cheaper than buying. Why? Because ownership gives you the right to live in the house forever, to paint it whatever color you like, to poke holes in the walls, etc. These rights are worth someting. Moreover, the government gives residential borrowers a tax break. You are subsised to own, and will pay a bit more to collect that subsidy. Finally many owners seem to underestmate the cost of maintianing their housing investment and are willing to overpay. All these factors bid the price of owner occupied housing above the rental equivalent.
test
From Bill Fleckenstein’s column last week:
http://tinyurl.com/5zapok
“As of the end of the second quarter, vacant rental units stood at 10% (about 3.94 million units), up from the 43-year average of 7.16%. That 2.84-percentage-point difference equates to about 1.12 million excess rental units above the historic mean.”
“He also points out that the overall housing vacancy rate climbed to 14.36% against a 43-year average high of 10.75%. (There are roughly 130 million total units, with 18.6 million vacant.) In order to get back to the 10.75% mean, the U.S. would have to create about 4.7 million households. To achieve equilibrium, we would need to create about 6.6 million jobs (assuming 1.4 jobs as creating a household) and not build one additional housing unit.”
If we need 6.6M new jobs and no net gain in housing units to get back to historical vacancies, we are a long way from the bottom - one would think at least 5 or 10 years. My guess is places that are still creating jobs will bottom sooner and those that aren’t will become Detroits.
I remember (sort of) ancient (2005 era) NAR numbers showing that it would take something like 70,000 jobs lost to stall the Dallas (DFW area) house price appreciation, so party on dudes.
It might be worth inverting their crazy numbers just for the laugh. (Don’t do this at home if you live in Detroit. It’s all funny until someone has an aneurysm.)
Outstanding observation by Fleck:
“Folks were often quick to respond: Yeah, but that’s Japan. We do things differently here.
It’s true, we do do things differently here. But what we do differently is we don’t save money, as the Japanese do, and we don’t run a trade surplus, as they also do. Other than that, it’s pretty much the same here as it was there in the 1980s, as far as a preference for obfuscation versus transparency.”
Yes. I’ve been watching at least some of those numbers - and using the level of vacancies as a gauge to tell how close we really are from a bottom. Folks we are nowhere near close.
Prices will overshoot the norm on the downside - I’d stake everything on it. That also means we’re nowhere near close to an economic recovery, since so much of our economy is still based on the ever-evaporating home equity.
The California Market Bottom
The real estate market in California has a 10 years up and 5 years down pattern. We are only 1 year into the 5 year down phase so not looking to buy (for cash) until at least 2012.
Still think the mortgage interest rates will hit 15%+ (like in the early 1980’s) before it is time to buy for cash!
Sold my 20 year California home for 3 1/2 times the purchase price in 2004 (children grown). Invested in inflation hedges (metals and energy funds) and have been renting for 4 years.
Best Wishes!
The problem is that these folks are database miners — they don’t do any of the heavy lifting themselves. These guys need to get down-and-dirty with the data — feel it, smell it.
OK, that may sound weird, but basically these guys have a database of rentals and sales, and they are too lazy to match like-with-like.
This measure is popular but problematic because some economists say many of the homes that people rent (apartments in multifamily buildings) may not be comparable to the types of homes that people buy (single-family houses).
Now, if you get down on your hands and knees and start digging into the data, and compare townhouses and SFH on Craig’s List or offered by rental agencies to similar units for sale on the MLS (or recently sold), then you have a true measure of the price-to-rent ratio. It took me all of five minutes to do that for Vienna, VA, and that quickly revealed that asking prices for townhouses were roughly 40% overpriced. Of course, doing that for every zip code requires a lot of effort, and is harder to automate than Case-Shiller.
Seems like both houses and rentals would be (by definition) overpriced if they are advertised on Craig’s List. The question then for the calculation of the ratio is whether one class is overpriced more than the other. Since I trust the pricing experience of realtors implicitly, perhaps the rentals are out of whack. (I crack myself up.)
Has Cougar91 revealed himself to be a troll by entertaining the possibility that the NY Times might be correct to suggest a bottom is at hand?
Anyone who suggests this is either ignorant, mendacious, or aware of some kind of unannounced government program to prop up real estate prices at all other costs. With the recent implosions of the GSEs and IndyMac, the never-ending insolvency crisis, and growing unemployment offering evidence the so-called slowdown may look like a recession through the lens of the rear-view mirror, there is no way that recent home sale prices have adjusted to market values implied by the purchase demand vacuum.
Has Cougar91 revealed himself to be a troll by entertaining the possibility that the NY Times might be correct to suggest a bottom is at hand?
Maybe not. Fear and greed drive the markets. Before housing became a speculative market, prices traditionally inflated with the loss of dollar value. It was pretty easy to time your entry into the market. IF you were short a down-payment and wanted to buy, you could figure a 4% price increase while you saved up for a year.
Greenspan’s cheap money created maddening price bubbles that made planning impossible……….better hurry, don’t ya know, it’s going up 30%…..
So, now that greed has turned to fear. Do you want to overpay 30% for a house?
Me neither. So, i suspect alot of people who are shopping are wanting to know if the “bottom” is really in.
Probably not, but you can’t fault someone for their optimism, or pessimism, as the case may be. (buyer/seller).
“Probably not, but you can’t fault someone for their optimism, or pessimism, as the case may be.”
A little edumacation can go a long way to clearing up the conundrum of whether to be optimistic or pessimistic.
Dear Prof Bear,
I am no troll. Been on HBB since 06 (didn’t post in the beginning, and not much still) and been a housing bear since early 2003 when I sold my house purchase in 1993. Currently still own SRS (Ultra Short Real Estate) in my portfolio, something that wouldn’t make sense unless I am still bearishing on housing.
I was just pointing out that NY Times has an article that at least seems to go beyond the “housing prices has bottomed” because of “pent-up demand” or “economy has bottomed” crap you usually hear from NAR or Larry Kudlow types. In this case they at least are taking into consideration things like income, interest rate, mortgage and property tax. Do I agree with the whole article? No, of course not. But if you read the pop-up diagram of the 3 models it showed that most of the metros are still very much over-priced, which is what I agree with.
However, it is also true that I don’t agree with some of the posters here, like people who says housing prices will be down 90% or even 100% - taxes owed. I am a bear, but not a doomsday bear.
Hi PB:
I might have thought the same thing except he ended his comments with “What do the rest of the HBBers think? Frankly I am surprised that NY was “fair valued” according to one of the models as I think NY has more pain to come.”
Sounds bearish to me. Not end of the world bearish but still bearish.
“In Various Ways, Economists Try to Find Right Price for a Home
By CATHERINE RAMPELL
Published: August 8, 2008
Let’s be honest. No one actually knows when and where the housing market will bottom. Experts have been proclaiming the bottom is now — this very moment — since Alan Greenspan notoriously predicted the worst was over way back in 2006.”
Catherine is clearly an uninformed moron. Why couldn’t she bother to spend thirty seconds on Google checking out what Alan Greenspan said last week, instead of appealing to what he (mistakenly) said way back in 2006?
Housing, Economy Still Far From Recovery: Greenspan
By CNBC.com | 31 Jul 2008 | 03:46 PM ET
Former Federal Reserve Chairman Alan Greenspan said the US is “nowhere near the bottom” of the housing slump and is “right on the brink” of a recession.
In an exclusive interview on CNBC, Greenspan said the US economy is holding up “rather well” considering the “extraordinary pressures from the financial sector.” But he added that a recession appears inevitable.
In an exclusive interview on CNBC, Mr. Magoo comments on his handy-work. “I gave the markets what they wanted. They wanted cheap money to expand their asset purchases, and I supplied it.”
“i told everyone that prices were getting a little frothy, but profits sheets were going like gang-busters, so party-on, I say.”
The longer misleading articles like this one keep denial alive and kicking, the longer it will take for the housing market to find a bottom.
Actually, it might just lead a panicked capitulation down the line.
That mass herd running towards the exits is exactly what “they” don’t want but keep spinning, and they are well on their way to achieving just that.
I can see that possibility, in case the herd reaches a sudden collective consensus that the MSM has been misleading them all along.
Here is some recommended reading for Ms. Rampell, just in case this ignoramus ever decides to dismount her journalistic high horse long enough to educate herself a little:
—————————————————————————-
Finance & Economics
The credit crunch one year on
Mission creep at the Fed
Aug 7th 2008 | WASHINGTON, DC
From The Economist print edition
In a special section marking the anniversary of the credit crunch, we start with the Federal Reserve. Its creative response to the crisis may have staved off catastrophe, but may also have put its independence at risk
——————————————————————————
Fannie Mae loses $2.3bn and cuts dividend
Fannie Mae warned that the US housing crisis would last well into next year as it reported a $2.3bn second-quarter loss and slashed its dividend after recording $6.2bn in credit-related and investment losses - Aug 8 2008
——————————————————————————
The Great Panic
by Jeffrey Cane Aug 8 2008
How the world changed one day last summer.
LOL wow thanks for the morning laugh–reading the article brings back old memories of 2005, before I discovered the blogs. Nice piece of penmanship from the real estate industry. I think they (people whose income is tied to real estate values) are hoping for a bear run on the back of recently enacted bailout legislation.
Sat inquired on a house bought in 1995. Earliest tax value is 1999 at $277, 2007 tax value is $564. Seller asking $625k or $118 a sq ft. My offer was $300k cash if the realtor thought the seller would be interested in closing in a week. It has been on the market now for 5 months. forgot to ask the original asking price. My offer was roughly $55 a sq ft.
The reason the bottom is a long ways is off is not because the realtor said the seller would rather rent the house out for a few years till prices come back. But that she did not ask for my name or number to call me back in case something changed or she had another offering.
No matter the location, a $300 cash buyer is a prospect worth remembering. Until the realtors do that, the bottom is a long ways off.
In the meantime, there is now 2 rent houses out of 4 houses and one more for sale out of 6. Supply will break the prices.
But that is good work Bear. 50% offers telegraph a very powerful message. Stay on them.
That’s the weird part of your story - that someone presents him/herself to a realtard, saying that they have $300K in cash available for a property, yet the realtor is too thick to say,
“Hey, there’s no way that this seller will consider your offer, but others very well might. Here’s my card. Let’s talk - at your place tomorrow at 10 a.m., if that’s convenient. I’ll help you find an outstanding buy!”
I went to an Open House yesterday (Sun) In a posh NoVA McMansion neighborhood.
The Realtor greeted us at the door asked our names (we said only our first names) & proceeded to follow us around like a dog & point out the finer things.
He never asked us if we were in the Market, had an existing house to sell (we don’t!) or anything much about why we were looking
He never asked us to fill out any contact info for follow-up
We were the only ones looking as it was raining.
Did I mention we were driving the Lex 330 & were dresses to the 9’s as we’d been to a Business Brunch for our Company?
I guess we didin’t look like we could afford the place ( $ 900K )
Any suggestions for stateside markets that will recover first?
I see NYC as being the last once the slide starts. When will the bust hit the Europe other than UK/ Ireland/Spain, and can their soveriegn currencies handle it?
Anybody notice that you can now buy a Euro for $1.50? A month ago it was $1.60. It seems the Private Reserve Bank went begging to its European counterparts to help it out. Maybe they can coerce the dollar into a little bit better health. But wait! New York City is surviving in large part thanks to all of the Europeans that are coming over here and spending big bucks. What happens to all of that spending if the Euro drops to $1.30? What happens to the NYC economy? How far can oil go down?
This is getting more and more interesting. There will be major ramifications for NYC, its merchants, and housing prices.
Do Bernanke and his Private Reserve Bank buddies want the dollar to strengthen and up the price of our exports? That, too, has been one of the few bright spots. There are so many questions and so few leaders.
there are several explanations for the recent euro crash / dollar rally. Traders now think that the ECB is done raising rates too.
Dutch central bank president Wellink, who currently is a spokesman for the ECB, suggested yesterday that for the ECB an inflation number of 5-10% is (temporarily) acceptable. The current EU cpi is 4.1%, but rumour has it that numbers that come out in the next 2 weeks will be very ugly. I think he is preparing the public for official inflation numbers in the 5-10% range, with the ECB standing aside becausing raising rates is politically unacceptable in Europe (dangerous for the housing markets and not acceptable because it hurts the big companies - so the EU kleptocrats won’t allow it). The recent euro decline will make EU inflation numbers even worse.
I think all this is a strong argument for exiting euro currency long positions, and some of that money flows back into US$ for a (short?) bounce.
“But for the time being, a return to a relatively “normal” oil price in the $60 to $80 range would take the sting out of the current inflationary surge, and that in turn would allow the Bank of England to contemplate cutting interest rates to stave off recession and help the housing market. Keep your fingers crossed, and keep your eye on how oil traders react to titbits of bad news.”
Lord, let me keep these housing prices artificially inflated. That is all I ask for. Amen!
I don’t expect oil to go down much further for a prolonged time, and I guess the ECB in in the same boat judging from recent comments (they have repeatedly stated that they expect inflation to be far above their official 2% target for at least the next few years).
But even if oil plunges for a longer period, the major problem remaining in Europe would be that inflation expectations are now out of control, causing unions to demand yoy wages rises in the 5-10% range - and sometimes they get it. Of course not everyone and the average Joe gets this wage rise, but many already above-average workers do. This train has left the station, and I don’t think it will stop just because oil temporarily pulls back or because the ECB is warning governments and unions about a wage/price spiral.
I believe what just happened with Georgia and Russia may have some impact.
Don’t confuse intervention with sound fundamentals. Paulson made a deal with foreigners; we bail out Fred/Fan and they prop the USD. This is just a brief correction. USD has only now reached the top of its downtrend line. Let’s see where it goes now.
“Don’t confuse intervention with sound fundamentals.”
Do these sound fundamentals include the destruction and evaporation of hundreds of billions of U.S. dollars?
Less equals more. The less dollars in circulation the more valuable the remaining dollars become.
“Do these sound fundamentals include the destruction and evaporation of hundreds of billions of U.S. dollars?”
Somehow I doubt that Big Ben and Big Hank fully anticipated that development.
We’re 3 weeks into the gold bug nightmare and the handwriting is on the wall. Natter all you’d like about fiat currency, the fed blah blah etc, FCB’s will do every last bit of heavy work for the US Fed. FCB’s have nowhere to go but down, thus inflate. Watch commodity demand continue to evaporate. This is just the beginning.
I think the US housingbubble is just part of a worldwide housing/credit bubble.
Up to now national (and regional) housing markets around the world are acting fairly independently, but maybe that is just because housing is very illiquit, even more so in Europe because of all government interventions. US was the first housing market to correct, UK/Ireland are running 1-2 years behind, rest of Old Europe is at least 1-2 years behind UK/Ireland (maybe with exception of Spain, but part of their problem is of course the Irish and British specuvestors at the Costas). ‘New’ Europe, Turkey, the Gulf states (?) etc. are probably even further behind. In most of Europe the question is not when things will bottom, the question is if the market has topped and in many countries that is still undecided.
I doubt the US can really recover when there is still HUGE downside risk in Old Europe. I think that is only possible if worldwide economies and credit flows decouple (but who knows, with stalled WTO talks, war mongering, a bankrupt US etc.).
Friday Aug 8,2008 The TImes (UK)page 6/7
Prices back to 2006 and still falling-22,000 pounds wiped off average house.
Don’t have the link, have the actual paper with great Thermometer Graph and one of the entire island with rates.
Gary Duncan gives good commentary.
Prices to fall 20-35% more, job loss, mortage rates rising, less folks interested now/waiting for better prices. Makes up for a nice stew just like the early ’90s according to Gary.
Regarding foreclosures:
We recently put an (inflated) offer on a foreclosure being sold “as is”. After the inspection I realized my mistake (the house had a lot of problems that I had not identified initially) and withdrew my offer. Ironically, the seller came back and agreed to fix the problem. I said no dice because by then I knew I had overbid by 10’s thousands of dollars. Now I am fighting to get my earnest money back.
Lesson: Don’t allow your realtor to write a contract you cannot get out of. We will get out of it using the financing contingency though.
WTF were you thinking?
We had the inspection done on our foreclosure purchase, and received the report, before we ever made an offer. It gave us ammunition to low ball even further than we had intended to.
Yeah, you risk “wasting” a few hundred dollars if the inspection turns up really bad news and you don’t move forward. But it’s cheap insurance.
David,
I’m glad this came up. As is will be the way most are done because the lenders can’t afford to fix these places up. But there is no reason a complete inspection can’t be done post foreclosure. And careful title inspections need to be done as well.
One thing to be wary of, too, at least in Florida (I don’t know how it works in other states) are non-permitted additions and “improvements”. I took an exterior look at a place that has been foreclosed by one of the first sub-prime lenders to tank. They’re willing to provide financing on this place, too, I don’t see how that happens since they’re supposedly bankrupt, but, whatever.
Anyhoo, it is a funky but interesting property. However, before I even made an offer and hired an inspector, I asked the realtor how much of the additions had been permitted. LMAO! He told me probably none, since the property is in the country records as a 1BD, 1BA house! And then he said the bank would have to handle any violations prior to closing. Wonder if they will. I’m sure they hope some unsophisticated “investor” will buy and get stuck with having to cure the problems, since these “run with the land”. I had my own expensive education on this sort of thing years ago, when I had to vacate an easement on a property I owned.
Gasp. My buyers paid us $100 in a check I haven’t even gotten yet for a 9 day “option” to walk away. They even wanted the $100 back at closing (which isn’t as common, apparently.) My impression from my recent foray onto the Dark Side is that sellers will bend over in this market, if the buyer appears credible.
Are option periods not normal for “as is” properties? (Whispers: You don’t need an inspection…. This IS the house you are looking for…”. Clearly, realtors ARE the spawn of the Dark Side if they start using the Force against buyers
)
Interesting article. Has yet another bubble (oil) burst?
http://www.telegraph.co.uk/opinion/main.jhtml?xml=/opinion/2008/08/08/do0801.xml
Financial parasites in between.
“There is a long-running argument as to just what proportion of any commodity price movement can be traced to speculative activity by hedge funds and others, and what proportion to physical demand. But when the oil price swings up or down by $5 or more in a single day, you may be sure that the fluctuation is not being caused by a sheikh on one end of the line arguing with the manager of your local petrol station on the other: it is the financial parasites in between who are moving the market.”
I think EU pension funds and the like are heavily involved; they are trying to double their losses from the US subprime crisis ;-(
I’m sure a number of US pension funds were involved, too.
Globally speaking, I can envision a future where the UN starts looking into the crap, since it does have a tendency to endanger the stability of nations. Maybe we can send some “peacekeeping” missions in to the hedge funds, LOL. Or maybe “detain” some of the hedge fund managers at places like Gitmo.
Yep, tankers doing crazy eights offshore. Why does this not surprise me?
“Less sophisticated, perhaps, are the more traditional oil players, who have simply been holding tankers full of the sticky stuff offshore while the barrel price was rising. They will now be instructing their captains to steam into port sharp-ish and unload at the best cash price they can get.”
” … tankers doing crazy eights offshore.”
Crazy eignts must be an east Coast phenom. Here in Southern Calif the tankers just sit empty and at anchor while adding barnacles to their hulls.
I just now returned from my Long Beach/Seal Beach bike ride and counted a dozen or so tankers sitting high up out of the water both in the outer harbor and offshore.
If the oil bubble has burst, then is it a good time to ditch metals? This is a serious question. Where is Aladinsane? Did he get BBQ’ed when he went up to the roof to work on a solar panel?
Personally, I’m in the “metals are not an investment” camp so people holding them doesn’t seem too stupid to me. I believe they are just a hedge. They are a fire extinguisher in case the Private Reserve Banks really f— things up.
PMs are more highly correlated (inversely) to USD than oil. Remember, high commodity prices are a symptom of inflation, not the cause. Bailouts continue, financials continue to provide bad news, LIBOR remains high, mortgage default rate is still rising, unemployment rising; nothing has changed. The FredFan bailout was a short-term negative for PMs because it showed that Da boyz will keep the system going at all costs, reducing the attractiveness of gold as catastrophe hedge. Bailouts require huge inflationary injections of fiat. After traders stop thinking of recession they will return to inflation concerns. Fed next move will be to lower rates, not raise as people are currently anticipating. I will buy this dip in commodities next two weeks.
“After traders stop thinking of recession they will return to inflation concerns.”
Yes, but when will this occur? You apparently think this is far more imminent than I think it is.
yes, I agree. I think it is just a short period (weeks, a few months at most) for reloading the ratecut guns - and a good time for those who want to protect their savings to stock up on commodities and gold before inflation efforts begin in earnest. We ain’t seen nothing yet, the ECB just joined the Bernanke crew in their (hyper)inflationairy policies.
When central banks collude, financially prudent (but uninformed) households are certain to lose their savings.
How can an “uninformed” household be considered “fiscally prudent”? Bit of cognitive dissonance, that.
“If the oil bubble has burst, then is it a good time to ditch metals?”
At the risk of inflaming anyone’s passions, I did pick up some DEE on a lark back at The Fourth. Only time will tell, but still…
There are hundreds of billions of dollars of new government spending programs that have been enacted in the last 3 years, and those are non-military and non-Constitutional.
Nether of the two top candidates are likely to veto the spending bills arriving on the desk on the oval office the next 4 years. $100s of more billions.
Ergo Inflation.
Regarding foreclosures:
Also, have a friend or knowledgable inspector (who will agree to work by the hour) do a cursory inspection of the place with you before you write the contract. It is not a legally binding (inspection) and he won’t be able to properly inspect the water heater or HVAC system but at least you will have some piece of mind before putting your money on the line. If your realtor balks just say he is your uncle.
I’m curious. What can an inspector NOT do on a pre-contract inspection that he CAN do on a post-contract inspection? The pre-contract inspection on our vacant foreclosure was as thorough as it would have been post-contract.
And really, what are these guys inspecting for? Code? Design? etc? I’m very skeptical of the inspection biz for residential. Anyone can call himself an inspector.
The stupidity of developers is as great as ever. This is why as many as possible should be allowed to fail.
http://tinyurl.com/5c3nrw
“There’s going to be another million people here in the next 10 years,” Mr. Mardian predicted. “Where are they going to live?”
How about in any of the 5 million houses currently empty?
“It’s gorgeous here, we don’t have any natural disasters, no forest fires, no hurricanes, tornadoes or floods, good schools, lots of cheap land, the cost of living’s down, we have proximity to the Colorado River, to Flagstaff, to Las Vegas, to Phoenix,” said the mayor, who won election in May on a platform of being friendlier to developers.
Anybody see anything wrong with this statement? I get so sick of all of these developers, and their staunch supporters like Olympiagal, thinking the entire world was created for suburban nightmares. I’m guessing the developers will destroy any pluses, if there ever were any, that this place might have had.
The times is leading people to think that Kingman is a safe place to buy a house? I posted some info in the forum about Mohave County; they have about 20 properties a day going to foreclosure auction. When I drove through in June, the whole place looked like it was on sale. Read the article; 80k new houses?
Do I smell an investment opportunity coming on? I can’t wait to get in on “the ground floor”. By the way, where the hell is Klingon, AZ?
Exactly NYCityBoy. In the middle of nowhere.
Kingman doesn’t have natural disasters, it is a natural disaster.
Kingman is in the north west corner of AZ. Lots of CA and NV speculators ran up prices and the developers went nuts. There are so many bulldozed subdivision sites the country looks like an Inca desert drawing.
Kingman isn’t in the middle of nowhere, but you can see it from there.
There are some very comparatively low prices on new shacks in AZ. I’m seeing 70k price tags on stuff built in 2005. I don’t know the history there so I have no way to judge if 70k is cheap in reality.
“Driving this development is not so much that the world has discovered Kingman, but that the Las Vegas region is starting to run out of land and water to sustain its growth.”
There’s no water for Vegas, but there’s water for Kingman?
“A $240 million, four-lane bridge across the Colorado River is due to replace the two-lane road that now crosses the Hoover Dam between Arizona and Nevada in 2010, making travel between the areas much easier.”
“When that happens, Mr. Salem predicted, it will be difficult to keep what he calls “the Kingman secret” quiet any longer.”
The “Kingman secret” is how big a deranged doofus it’s mayor is.
“It’s gorgeous here, we don’t have any natural disasters, no forest fires, no hurricanes, tornadoes or floods, good schools, lots of cheap land, the cost of living’s down, we have proximity to the Colorado River, to Flagstaff, to Las Vegas, to Phoenix,” said the mayor, who won election in May on a platform of being friendlier to developers.”
A long term drought in a place without enough water isn’t a natural disaster?
Bill,
Good question. Up here in Northern Virginia this particular seller (bank) would not permit an inspection without a ratified contract. Once they had the ratified contract in hand only then did they turn on the water and gas and allow my inspector in. Prior to that only the electric had been turned on. They had my realtor (and me)buying into this ridiculous notion.
It is a very sleazy and underhanded way to do business because essentially they want your money before they’ll let you really look at the goods.
So just say, “No”.
What’s the big deal? If you don’t like doing business with some party, don’t do it.
I have been watching ZIP on my hometown for about 3 years now. About 2 weeks ago they started placing the word “Foreclosure” under each foreclosure listing. At first I thought it might be to give them a stigma. On second thought, I think it is to help bring out the jenius “investors”. It’s the “everything on sale must be a deal” mindset that helps to sell these pieces of $hit. And many of them are just that. They should be torn down.
Bill,
The inspector could not evaluate the water heater or the heating system prior to the water and gas being turned on. My particular inspector commented to my (former) realtor, after I fired her, that it is asking a lot of the buyer to enter into a contract in this manner without a proper inspection.
it is asking a lot of the buyer to enter into a contract in this manner without a proper inspection. Rather it’s a blatant attempt to cheat the buyer.
But cheating buyers is how the new eCONomy works! Drive up prices on “assets” and then sell them to some new sucker before they know what they are getting. The only other options is, you know, honest work for honest pay, and we can’t have that!
Didnt Japan do the same thing.
http://www.nypost.com/seven/08102008/business/lost_sovereignity_123879.htm
“One sovereign fund, said to have earmarked $29 billion to purchase foreclosed residential real estate, recently hired a West Coast mortgage broker and is starting to search for bargains, The Post has learned.”
Damn! I guess we will have to wait another four-five years for these greater fools to lose their shirts snapping up foreclosure homes (similar to the way Japan lost its shirt snapping up U.S. commercial RE in the early 1990s) before we can hope for true capitulation.
Footnote: How has purchases of U.S. corporate assets (especially financials) worked out so far in the down leg of this cycle?
It’s worked out very well. Very well indeed for the bondholders.
Sure, they can buy up houses - no problem. But, can they also create the jobs that it will take to fill those houses so that they can sell them again for a profit?
Sovereign Bagholders.
You know it won’t work out well but you just know news like this gives Bernanke and Paulson a woody.
It should give the US taxpayer a woody too, logically speaking.
Them California investors might jest have some competition for these tens of thousands of one dollar houses in N. Ohio! Might just start paying us to move into those frightening structures. Or, better yet, start a permanent stimulus payment fund to keep what little economy is left out here. Obama knows what midwesterners need: another $1000 for energy, then a few more thousands for food, medical, etc. Oh, don’t forget rent money. Jobs?? The pols know that no one believes any talk about jobs. The next 12 months should provide some fascinating blogging.
Obama knows what midwesterners need Not by a long shot. What I “need” is $2/gal gas, $2/mcf natural gas, 5% interest on my savings accounts, and a $100/month premium for my health insurance, all without raising taxes on me.
Well, I heard they are going to build a tunnel to Hawaii. When that comes in, the secret about West Coast real estate will be out and buyers will be too late.
They think they’re the smartest guys in the room picking up homes at 50% of pie in the sky values?
Oh well, carry on then. Check back w/us in a year or two and let us know how that whole thing worked out.
Apparently the folks at Conde Nast Portfolios don’t see any need to paint lipstick on pigs.
The Credit Storm
From mortgage rates to stock returns to market volatility, nearly every corner of the financial world has been upturned over the past year as the credit crunch spread throughout the economy. Click the next tab to see where trust and optimism have been replaced by uncertainty and fear.
Aug 8 2008
“Bernanke tag cloud”
Poor BB…
My observations around the Bay Area are that the sales are still slower than molasses.I live in Alameda,CA. The story here is similar to the rest of the Bay: Crappy, tiny little houses that were 600k two years ago are now 400-450k. Still high( too high) but not insanely stupid, crazy, nutty high. Anything remotely halfway nice or of a decent size is still around 550-575k: down from their highs of around 600-650k. In other words, yes the prices are lower, but who cares? 550k is still way the hell too high, even for dual-six figure wage-earners. Nothing is selling out here though. At least 10 homes for sale around me were sold just last year. Perhaps the buyers are in trouble. I secretly hope so. Lots of “reduced price” signs.
The Peninsula ( Palo Alto, sunnyvale) are still ridiculous and on a different planet from the rest of the area. 1 million bucks for little homes. Apparently, there’s a lot of buying, tearing down, and rebuilding of Mcmansions on tiny lots out there. Stuff seems to sell too. I attribute this to the “quite dot-com”- better known as the infamous Web 2.0.
You get a sense that the VC money is drying up though. So perhaps Web 3.0 is in order? Either way, the prices still need to withdraw a lot for me to be even curious. If not, plan B is ready to be launched, which means me and my Wife move away and out of California to somewhere more reasonable.
Reply to Faster Pussycat
Regarding foreclosures (or any transaction) your point is taken. However, all the foreclosures in my area area are listed “as is”. The main point is that if one is considering purchasing a foreclosure one needs to have someone experienced help them through the process to avoid any potential pitfalls.
Dude, you know you can post a comment directly below the comment you are responding to, right? Instead of putting your comment in the text box at the bottom, click the “reply to this comment” link that corresponds to the statement you are responding to.
My bad, thanks.
I am wondering if this article considers the role of off-balance-sheet entitities in creating the illusion of comfortable bank capital cushions?
Most banks have cushion of capital
Experts: More failures likely but not on IndyMac scale
By Mike Freeman
STAFF WRITER
August 10, 2008
Is your bank safe?
For the first time in years, that question is being asked by depositors as the decaying housing market continues to take its toll on financial institutions.
The housing bubble is dead. Long live the housing bubble.
CONDOMINIUMS
First condo-hotel in Baja opens; others in planning
By Sandra Dibble
STAFF WRITER
August 10, 2008
ROSARITO BEACH – Baja California’s first condo-hotel has opened: a 271-unit, 18-story tower rising at the southern end of town on the grounds of the Rosarito Beach Hotel.
Sixty percent of the units in Pacifico Tower, a Rosarito condo-hotel, are reportedly under contract. Units start at $190,000, and association fees have not been set.
Hugo Torres, owner of the Rosarito Beach Hotel and the city’s mayor, is the main investor in the $55-million project, Pacifico Tower, financed through Mexico’s Banorte.
NATION’S HOUSING
KENNETH HARNEY
New law addresses second-home sales
August 10, 2008
…
Property owners in markets with high appreciation rates could sell their principal residences for hefty profits – pocketing the first $250,000 or $500,000 tax-free – and then move into their rental condo or vacation property for a couple of years and repeat the process.
In effect, it was a form of financial alchemy where taxable profits could be magically transmuted into tax-free gains – at least up to the $250,000 and $500,000 limits.
That practice eventually caught the eye of tax reformers on Capitol Hill. Last year the House approved a bill that would ratchet down the rules on such transactions by distinguishing between “nonqualified” periods of rental or investment use and “qualified” periods of principal residence use. It resurfaced this year in the housing bill as a “revenue offset” – a way to raise an extra $1.4 billion over the next decade.
Free ipod for 139k!
http://rochester.craigslist.org/reo/788270021.html
NOTE: AS A GIFT, IF A BUYER SUCCESSFULLY PURCHASES THE HOUSE AND CLOSES, GETS A FREE “iPod Nano”!
“…AND CLOSES…”
It’s even hilarious to watch them admit that simply closing the deal is no longer a given. They’re learning.
I can’t wait to bask in the booming Rottenchester economy.
Hint: get out atlas, look up Greely, (CO that is).
House is in Greeley, that’s Colorado. Flag for overpost.
A snap-shot of Tampa and surrounding areas the past couple of weeks.
Sign-holders are back on street corners trying to unload condos. Apparently, builders are getting more desperate to unload inventory.
Prices are falling. There are LOTS of projects from every part of Hillsborough County with ads for “Prices starting in the low 100’s”.
There is an old project in Ybor city that is now going for $99,000, when prior units were boldly advertised for $169,000.
I saw a roadsign billboard in East county by KB Homes, if i recall, that had townhouses around $89,000, though it may have been another builder. Still lots of inventory.
And……..lots of roadside signs for “Investor Specials”. I have seen cardboard signs advertising houses as low as $59k. This is, of course, the ghetto areas, but, a couple of years ago, some of those were fraudulently “flipped” for over $200,000.
You can find signs at almost every major intersection from Tampa to Clearwater to New Port Richey and Zephyrhills south to Ruskin.
My favorite shadenfraude moment is touring Clearwater Beach. All the “planned” developments that I wrote about last year that had stopped, ALL have for sale signs. Most are vacant lots, some have foundations poured and partial construction. One in particular, is a waterfront that was planned for 16 units, i believe, or maybe 32, i forgot, with 8 boat slips. It has rebar coming out of the foundation and the sign post is listing Tennessee First Bank. Imagine that. They went all the way to Tennessee to find financing, or contrarily the Bank went shopping for Florida “can’t miss” developments.
Across the street is the vacant land of 3 former hotels, and the partial construction of another failed project. Down the street, at the entrance to this cul-da-sac a recently vacated property sits empty, apparently sold and no development proceeding.
And immediately to the side of the Tennessee Bank project is a completed 4-story condo. It has been selling units for about 2 years.
There are a few cars in the lower parking level. IT is mostly empty.
Down the same street, every other townhouse that was completed has a for sale sign. Those that don’t have Hummers and Mercedes 500 series in the driveways………sucessful Realtors ™ who managed to unload the other units before the sales stopped.
In the meantime, more hotels/motels are still being razed and the Aqualea, the Hyatt project at the center of Clearwater Beach is still going up……….a long, long, process that is probably much slower, had the market not collapsed.
Still, the beach is packed. There is little parking available and all the locals are having stay-cations. They don’t stay there, they just drive over, like me, and lay out in the sun. They do buy snacks, meals and parking, so business is pretty good for the vendors.
A ray of hope in the slowing economy………good day…….sunshine!
Question about Zip REalty.
Are they a NARscum operation?
I believe that they are paid significantly lower than most RE agents, so in general you’re dealing with the bottom of the barrel. Of course, I don’t know if the difference between the world’s best realtard is that huge between the world’s worst. Basically, if you’re willing/able to do all the research yourself and do not rely on the realtard for anything (which you should do regardless), then you can survive dealing with Zip Reality. The rebate is nice to get.
Thank you Walt.
This is rich — almost worth saving for a 5am preemptive first post!!! Maybe the U.S. voters will wake up and demand action, now that news of the GSEs’ role in the mortgage catastrophe is hitting the pages of popular magazines like Newsweek.
P.S. For those unfamiliar with the financial catastrophe du juor of the 1980s, “The Predators’ Ball” is the name of a book about the junk bond era when Ivan Boesky and Michael Milken ruled the financial world.
BUSINESS
The Predators’ Ball
Fannie Mae and Freddie Mac have helped defang laws that might have prevented the subprime mess.
By Michael Hirsh | NEWSWEEK
Published Aug 9, 2008
Aug. 18-25, 2008 issue
Roy Barnes is a self-described “small-town” lawyer with a mane of silver hair and an Andy Griffith drawl. But like Griffith’s Ben Matlock, the TV character he resembles, Barnes is the furthest thing from a rube. He comes from a family of bankers, and back in the ’90s Barnes saw, far before many in Washington, what was happening as deregulation took lending further away from the local banks and gave it to mortgage brokers and Wall Street. So when Barnes was elected governor of Georgia in 1998, he decided to push through the toughest antipredatory lending law in the country. The 2002 law made everyone up the line, including investment banks on distant Wall Street and rating agencies like Standard & Poor’s, legally liable if the loans they sold, securitized or rated were deemed unfair. “There has to be accountability,” Barnes told NEWSWEEK. “In the end you have to be able to say, do I really want to make this loan? Because I may have to eat it.” “A victory for Georgia consumers,” the Atlanta Journal-Constitution called the new law, which was also hailed by AARP and the NAACP.
It was when Roy Barnes started talking about accountability that the Feds began marching into Georgia. Barnes found himself besieged by lobbyists from major banks and national regulators—as well as Fannie Mae and Freddie Mac, the government-sponsored mortgage issuers whose mandate is to help people obtain affordable homes at fair prices; today, Fannie and Freddie are so financially fragile that the government has agreed to bail them out if necessary.
The major mortgage issuers hinted that they would turn Georgia into a financial pariah if the state made them liable. They let Barnes know in no uncertain terms that he was something of a “country bumpkin” when it came to banking, says his legislative aide, Chris Carpenter. As Barnes recalls, “They would say—and Fannie Mae and Freddie Mac were part of it—’This is a complex global market. If you start interfering with the free flow of money, then Georgia will become an island that has no credit’. I kept telling them, ‘You’re in for a crash here’.”
“It was when Roy Barnes started talking about accountability that the Feds began marching into Georgia.”
It was when Edwin J. Gray began to talk about accountability that the Keating Five marched into his office.
There truly is nothing new under the sun.
Stronger dollar pushes commodities lower
· Strengthening greenback hits crude oil and metals
· Jefferies-Reuters CRB index plunges 10%
* Richard Wray
* The Guardian,
* Monday August 11 2008
Traders are braced for heavy falls in oil and commodity prices this week, heralding the end of the so-called commodities boom, after the US dollar posted its biggest one-day gain against the euro for eight years on Friday.
Analysts said the spread of economic contagion beyond the US has reduced demand expectations for commodities and interest rate forecasts, especially for the eurozone, which makes other currencies less attractive against the dollar.
ECONOMIC PREVIEW
Consumer spending heading for a fall
Economist: ‘Frugality is now replacing frivolity’
By Rex Nutting, MarketWatch
Last update: 12:01 a.m. EDT Aug. 10, 2008
WASHINGTON (MarketWatch) — With the stimulus checks just a memory, U.S. consumer spending is set to decline in the third quarter for the first time in 17 years, economists say.
The rebates were big enough to keep spending on the positive track in the second quarter, but U.S. households didn’t spend nearly as much of the windfall from Washington as Congress expected. Instead, they saved it and used it to pay down debts heading into what could be a long winter.
Economists estimate that between one-sixth and one-fourth of the money was spent.
“Frugality is now replacing frivolity,” wrote David Rosenberg, chief North American economist for Merrill Lynch, who suggests that the consumption patterns of the 1950s could be coming back. “Ozzie and Harriett” is in; “Sex in the City” is out.
“Instead, they saved it and used it to pay down debts heading into what could be a long winter.”
” …they saved it …”
Did they save it in a bank? If so then they helped replenish the bank’s depleted reserves, a good thing.
“… and used it to pay down debts …”
Were these debt payments made to a bank? If so then they directly went to build up a bank’s depleted balance sheet, which is another good thing.
(But by staying in the bank as reserves the money was taken out of circulation, which is a bad thing.)
From Atlantic City, NJ: I reported about two months ago that the $2B Pinnacle Casino project indefinitely put their construction on hold– until credit environment stabilized. The project’s smack dab in the middle of the city, on the boardwalk; delay leaves a big void. This week the City of Atlantic City voted to use its power to issue tax free bonds for the benefit of the Revel Casino, which needed some $54M, IIRC, to keep going on its construction in the city’s inlet, also a $2B project. In an editorial, the local paper called the decision a “no brainer.” I agree; City’s decision manifests its lack of any brains. This really will not end well for the city.
There was a car show in Winnipeg yesterday and a man was selling his 2006 STR8 Hemi so he could pay cash for a condo in Florida. It’s a rare car as only 100 were made for Canada. Compared to prices in Canada, real estate in the USA is a bargain.
“Compared to prices in Canada, real estate in the USA is a bargain.”
Tell your friends, tell everyone you know. And tell them to hurry it up, these prices won’t last forever.
http://www.bloomberg.com/apps/news?pid=20601087&sid=a2BlE0hgjpIw&refer=home
Freddie to Stop Buying Subprime Loans in N.Y. State
Aug. 12 (Bloomberg) — Freddie Mac, the second-largest U.S. mortgage finance company, will stop buying subprime loans issued in New York state as a new law takes effect that holds investors accountable for mortgage fraud.
Freddie won’t buy loans dated on or after Sept. 1 that meet the state’s subprime definition, the McLean, Virginia-based company said today in a lender bulletin on its Web site. New York Governor David Paterson last week signed new foreclosure and lending laws that tighten legal protections for borrowers.
The legislation holds mortgage buyers like Freddie liable in ways that “we have no way of monitoring and preventing,” company spokesman Brad German said in a telephone interview.