A Real, True Market Taking Care Of Itself
It’s Friday desk clearing time for this blogger. “The biggest residential building ever to be built in downtown San Diego will celebrate its topping-off early this month. Sales at the Vantage Pointe began with a blitz one weekend in March 2004, when 337 units — half of the building — were reserved in one day. Buyers stood in line, excited, their refundable $5,000 deposit in hand.”
“‘At one point there was almost a fight,’ said Brad Willis, one of the first people in line that weekend. ‘I had two fellas in line in front of me and there was some debate about who was first, and I stepped in and I said, ‘Hey guys, chill out.’ It was really kind of a frenzy.’”
“Committed to paying $330,000…Willis, one of the first people to reserve a unit in the building, said he and other potential buyers may seek discounts when they move in, but that in general, he understands the developer’s situation.”
“‘They don’t control the real estate market, and that’s a given,’ he said. ‘But from ‘06 to ‘09 — that’s a pretty substantial delay. … I’m guessing that most people who are still in the game are a lot like me. They want to live downtown, they want a fair price.’”
“Randy Klapstein, CEO of Pointe of View, said the developer will work with the buyers, but might not be able to lower prices past the point they committed to sell the units for already. ‘I don’t know how much lower they want us to go,’ he said. ‘We obviously care about them, but they have to care about us. If they think that a developer can actually build at a loss, then that’s not going to work.’”
“Brisbane’s median house price - currently about $450,000 - will hit $1 million in only seven years time and continue to climb, reaching $20 million by 2044, according to an in-depth research report by property firm Johnston Dixon.”"
CEO John Johnston said as ’staggering’ as the predictions sounded, they were based on growth values of the past 37 years. ‘Brisbane’s median house price has grown by 10.8 per cent annually for almost four decades,’ he said. ‘If values continue to grow for the next 37 years the way they have for the past 37 years, Brisbane will move into the sphere of generational home ownership.’”
“Remax Morningside principal John Kubatov said although he considered the figures a little ‘optimistic,’ they were not out of the question. ‘I’m not sure whether doubling the median house price in seven years is completely realistic but you know, I would say you’d go close,’ he said.”
“It is the Mount Isa residents who are feeling the pinch of the falling property values. Skye Wells and her partner bought a property in Happy Valley for $365,000 in August 2007. Despite spending $30,000 on renovations, she only received a property valuation of $370,000 12 months later.”
“Ms Wells said, based on the lower than expected valuation, they decided not to sell the property. Instead, they rented it out for a higher than expected amount. ‘For investors it’s a good situation because the rent is so good but for people who own a home and want to sell it so they can leave town, they’re not able to - they’re trapped in Mount Isa,’ she said.”
“The declining value of the three-bedroom, 1970s’ brick home in Chedworth Park, Hamilton, reflected the local market where demand is relatively weak. But the owners, who didn’t want to be named, bought the home for $280,000 in June, suggesting they bought well in the prevailing market conditions.”
“In Wellington, the drop for the three-bedroom, weatherboard home in the Lower Hutt suburb of Waterloo was also in keeping with easing values in the Hutt down 6% since January. Owner Darren Walton, who bought the property in 2001 for $215,000, wasn’t too worried as he had no intention to sell. ‘As long as it doesn’t go under $215,000, I’m not doing too badly.’”
“Spain today is in the throes of a dramatic downturn. Jose Luis Valdivieso, a professional driver in Madrid, benefited from the boom but now sees the bust destroying his daughter’s family. Like so many Spaniards, Valdivieso bought an apartment in 2000 and was able to sell it a couple of years later at more than double the price. He repeated the deal, acquiring a much larger place after profiting, again, on the sale of the earlier property.”
“Then came the crash. He has had to watch as his daughter, a more recent homeowner, found herself at a devastating disadvantage. She purchased an expensive apartment, its price inflated by the real estate bubble, in one of the so-so southern neighborhoods of Madrid, availing herself of the cheap loans offered at the time. But interest rates shot up and now she can barely make payments, Valdivieso said.”
“‘The economic situation is worse than we all predicted,’ Spanish Economy Minister Pedro Solbes told El Pais newspaper recently. ‘We thought it would happen slowly but instead it has hit fast.’”
“Leanne Donaldson, 28, and her partner Paul Langford, 25, are in danger of losing their home in Cheshire. They earn a combined total of £30,000 and said they purchased their home in September 2007 for £116,500. They borrowed £122,500. Repayments cost them £800 per month.”
“‘We can’t afford to live,’ says Leanne. ‘We also want kids, but we can’t afford to have them. We can’t carry on living like this.’”
“In Greater Vancouver, August MLS sales were down almost 54 per cent to 1,568 units, compared with 3,348 units in the same month a year ago. ‘This summer, sales went off a cliff,’ added economist Tsur Somerville, who is director of the centre for urban economics and real estate at the Sauder School of Business at the University of B.C.”
“‘I think it was not a willingness to pay more,’ said David Watt, president of the Real Estate Board of Greater Vancouver. ‘We hit a level where buyers simply could not. They weren’t able to borrow more money or whatever. That’s a real, true market taking care of itself.’”
“Heidi Samuda listed her Arbutus Village townhouse for $829,000 three weeks ago. Samuda added that she has bought and sold several times, and has managed to get the price she has wanted, even in markets turning down.
“‘It was just a matter of wait and see and the right buyer will walk through the door,’ she said. ‘I think one has to hold firm to that, obviously within reason.’”
“‘It’s no different than markets we’ve seen in the past in Vancouver,’ added Samuda’s agent, Lorne Goldman. ‘It’s a market where 50 per cent of the people are extremely happy: Buyers.’”
“James and Elizabeth Smith said they are in danger of losing their home in Columbia after nearly 40 years. The Smiths bought their Oakland Mills house in 1969. The couple decided several years ago to tap the equity in their home by taking out another mortgage, using it to pay off credit card debts and to complete improvements to the house. They got behind in payments, and the bank is now trying to foreclose on the home, James Smith said.”
“‘We are, quite honestly, seeing people from every demographic, every socio-economic background,’ said Anne Balcer Norton, director of foreclosure prevention at St. Ambrose Housing Center. ‘From people who have $80,000 homes in Baltimore City to $850,000 homes in Montgomery. We’re seeing every end of the spectrum.’”
“Brittney Heincy, who is trying to sell an East Side rental home, said the glut of homes on the El Paso market has caused prices to slow down.”
“‘There’s so much on the market, so we’ve priced it (rental home) a little bit lower’ than other homes she and her husband saw for sale in the same area, Heincy said. ‘My personal opinion is this will all change when the military (Fort Bliss expansion) hits. I think prices will start going back up.’”
“Rita Ruiz is in a vicious financial circle. After digging herself into debt to try to help her son from losing his home last year, the north Phoenix resident is facing foreclosure herself. ‘It’s getting harder and harder for me to make my payments,’ Ruiz said. ‘When my son put his home up for sale, he didn’t get the full amount that he should have. So he didn’t pay me back what he owed, and I got stuck with the bill.’”
“Councilman Richard Alton said the mortgage crisis has affected him on two levels.”
“‘I lost my job about eight months ago in the banking industry,’ Alton said. ‘And my wife, who was in real estate, lost hers four months ago. So we have felt the effects of the economic strain. It has pushed me into retirement a little early. But it’s OK. We’re all in this together.’”
“Realtor Alex Fox is staging a one-man parade of homes that starts today at an upscale Woodland housing subdivision he’s been marketing for more than a year. Fox said he has spent more than $100,000 to decorate and furnish six of the homes for his event.”
“The parade is an effort to overcome changes in the lending market earlier this year that put several of the homes back up for sale. ‘The market changed and lending programs crashed,’ said Fox, also an agent in Vancouver.”
“The mortgage lending debacle did away with jumbo mortgage loans, a product Fox had counted on to finance prospective buyers of the nine high-end homes his event will feature. Six months ago, he had buyers lined up and ready to go.”
“‘But the sales didn’t close,’ Fox said.”
“Britain’s plan to cut taxes and offer incentives to first-time buyers is sure to fail and smells a bit of Ponzi. It would be far better to acknowledge that British housing prices are much too high and likely to fall substantially from here, and to try to do what little can be done to soften the side effects.”
“Attempting to keep the unstable enterprise afloat by luring new buyers is a strategy headed for failure, and where it succeeds is bound to be a disaster for any unfortunate buyer who takes it up.”
“‘Encouraging first-time buyers to enter an over-valued and sharply falling market seems like an odd thing for a government to be doing,’ said Ed Stansfield, a London-based economist.”
“I had to listen to the definition of Robert Shiller’s proposed ‘continuous workout mortgage’ four times to be sure that I understood it. I could listen to it a hundred times and not believe that an educated person could say something like the following: ‘The mortgage contract lowers your balance if home prices fall and protects you against price falls.’”
“Whom, exactly, does he propose to take the loss in such a circumstance? How likely is it that a lending institution would make a loan in a situation in which the value of the house might decline? People who can’t afford to buy in a neighborhood with reliably appreciating values could kiss their chance getting a mortgage goodbye.”
“The previous writer who applied the term ‘ivory tower’ to Shiller was spot-on. I guess that things like this are what I’ve expected from Shiller ever since, years ago, I heard him ask if San Francisco is really a better place than Cincinnatti.”
“It made me wonder when the last time was when he got out of New Haven…or, even, the house.”
My thanks to those who support this blog and the forum. Please check back this weekend!
thanks for the great work.
foreclosures continue unabated. what has happened to the much touted plan recently passed by congress to stave off foreclosures. in the words of Mayor Juliani. nothing. nada.
What this whole thing reminds me of is the rise in oil prices.
It was only in January 2008 that the prices went above $100.
It was only in July 2008 that they hit a high of $147.
And now producers are complaining of lower prices…
Same with the high home prices. They were a phantom that lasted for a brief period.
People were astounded when they reached a certain level ($100), only to have it reach higher. And the complain and express ’shock’ at it reaching $100 again.
Talk about short-term memory loss.
Yes and each time, when you try to remind them prices usually drop, you get this real serious reply…mmm, I don’t think so, this time it could be different, oil to $200 bbl etc. LOL. Every friggin time.
“The four most dangerous words in investing are ‘This time it’s different.’”
– Sir John Templeton
So are you telling me that Ford & GM should have not panicked and stopped all the auto lease?
You know at $80 oil SUV resale prices will rise again…….all is well !!!!!!
Something tells me that purchasing SUVs had more to do with ‘liberating equity’ than with gas prices.
You don’t understand that “money” is merely a symbol for access to resources, especially energy.
Like a plane with smoke wafting from its engines while airline staff invite passengers to board, perhaps the best thing that can be said about the tax cut and the offer of “free” loans is that they are unlikely to attract many customers.
In nearly 5 years of following this asinine asset bubble, I would have to say the Reuters article from Britain is probably the best (only?) I’ve seen to point out the idiocy of our govt’s trying to support bubble prices. It actually is quite funny, I would hope many HBB’ers will read the full article and send along the link to friends and relatives for all to enjoy. Why can’t our own country come up with decent editorials?
I work for Riverside county (CA) and we are tripping all over ourselves to do the same thing. It disgusts me that we are using the taxpayer’s own money to inundate them with bad financial advice so that we can keep taking their tax money to do more asinine things to ….
Dang.
I missed the last quarterly fundraiser for HBB.
Ya know you must put the banner up for ones like me!! (Lest I forget the knowledge you help me obtain).
Thank You Ben. Moneys and sprinle on top.
Leigh
4 years and 7 score ago value-wise, it was probably worth waiting in line in the heat of the bubble with 336 other wreckless souls…
=========================================
“The biggest residential building ever to be built in downtown San Diego will celebrate its topping-off early this month. Sales at the Vantage Pointe began with a blitz one weekend in March 2004, when 337 units — half of the building — were reserved in one day. Buyers stood in line, excited, their refundable $5,000 deposit in hand.”
“‘At one point there was almost a fight,’ said Brad Willis, one of the first people in line that weekend. ‘I had two fellas in line in front of me and there was some debate about who was first, and I stepped in and I said, ‘Hey guys, chill out.’ It was really kind of a frenzy.’”
“Willis, one of the first people to reserve a unit in the building, said he and other potential buyers may seek discounts when they move in, but that in general, he understands the developer’s situation.”
And like all bottom pickers, as it goes agin the mope he will whine and break his contract.
lol
“Here’s your JT!”
The worst danger I see to the economy is the collapse in contract law we seem to be going through. Part of what makes the US economy, over the long term, so resilient is our ‘one law, one language’ economy. (Ok, the later has been more of a goal than a reality… but work with me…)
The schadenfreude meter is pegged when I consider what real estate deposits (down payments) will be required next year. I doubt it will jump to 50% down… I still think 25% down required is the best estimate anyone could come up with.
I have a coworker chaffing at the bit to buy a San Diego Condo. Would it be too evil to start encouraging him just to shut him up? You know… create a knife catcher for the ‘good of the cause?’
Got Popcorn?
Neil
As noted, this bubble was fully international in nature. No need to complain about American stupidity. Stupidity knows no boundaries.
This was an interesting mix of reports.
But let it be known, housing will never return to the inflation-adjusted levels of a few years ago.
The sooner this is accepted, the faster we’ll be out of this mess.
This bubble is without peer…
The whole world (1st & 2nd) played along in some capacity.
The Germanic countries had perhaps the least involvement, from the overall price of housing going up, but German Banks picked up the bubble-slack by going All-In on a hand consisting of blind-faith-straight bonds of dubious resale value.
It’s interesting how fast the outlier countries are going in the crapper…
Ireland, New Zealand, Spain, Latvia, et al
3rd world, too!
I know of stories in Mexico, Ecuador, Panama.
And don’t forget the HGTV shows in Argentina, Belize, etc.
Also, the Shanghai stock market is down 60% from its high.
Ditto for oil.
This thing was a huge global cluster****.
And Ben’s recent forum topic on Kenya!
Laos is still booming!
Challenge anyone to find Laos on a map! (anybody except the intelligensia here of course)
Cambodia had a bubble, but it’s hard to tell if prices are dropping due to lack of public records. Prices in Phnom Penh, Sihanoukville and Siem Reap all doubled or tripled, the the salaries stayed the same ($50-$300 per month).
Cambodia had a bubble, but it’s hard to tell if prices are dropping due to lack of public records. Prices in Phnom Penh, Sihanoukville and Siem Reap all doubled or tripled, but the salaries stayed the same ($50-$300 per month).
Hear you on the 3rd world. My in-laws spent well over $300k for a house in Mexico. It’s a really nice (pool, huge lot, fruit trees etc) but, get real, where’s the market for these places in Mexico (it’s not even near the coast)? No locals within 200 miles can afford those prices - it’s entirely driven by money from the US, which was in a bubble. What does that portend for values there?
Some of those houses look ‘cheap’ with only a $300K price tag.
Till you realize that the ‘natives’ will clear maybe $10K/year, if that much.
A lot of these places were built for the ‘coming wave of retirees’ from the US…good luck with that!
As hard as it may be for some to believe, the US is STILL quite the force in the world economy. Very few, if any, of the growing countries have grown w/o having the US consumer involved.
Ask yourselves this:
What would happen to the Chinese economy if the US stops purchasing from there? Ditto for India.
Met a guy when I was working in Liberia, Costa Rica last year. He bought a condo for $199K. The real estate agent told him it was a great investment as the new phase of the project would be selling for $205K.
Oh, the condo was only his for 10 weeks out of the year. Seems that it’s some sort of super timeshare. Oh, he was a school teacher from Philly with a non-working wife and 3 kids.
Straight to the moon Alice!
Take a look at Bangkok rents and condo prices. The price appears to be about 200x rent for a nice condo.
Interestingly, and inexplicably, the Vietnamese Class A housing market recently crashed in values as well. The result? Rents skyrocketed!
And Laos is a truly lovely country! I recommend a visit!
This type of logic is needed on the American side of the pond:
“‘Encouraging first-time buyers to enter an over-valued and sharply falling market seems like an odd thing for a government to be doing,’ said Ed Stansfield, a London-based economist.”
“It’s getting harder and harder for me to make my payments,” Ruiz said. “When my son put his home up for sale, he didn’t get the full amount that he should have. So he didn’t pay me back what he owed, and I got stuck with the bill.”
Wow, that’s cold. Some real family values there, yep. I dunno what this “son” (and I use the term loosely) owes her, but she oughta just accept what he is and sue his nasty ass and lien anything she can get her hands on, including garnishment of paychecks. Short of that, I suggest she go on one of those TV Judge shows and at least get five thousand back (small claims limit).
“When my son put his home up for sale, he didn’t get the full amount that he should have.”
LMAO! Now THAT’s priceless. Yes, he got the amount that he should have, it’s worth what someone is willing to pay for it.
This attitude of people “should” get this or that is mind-blowing. Forget my advice, Rita, you had it coming. I’m sure your “son” “should” be crapping gold pieces.
Never lend money to family. Just give it to them and hope they will eventually pay it back.
I never loan money. I give money.
Especially to relatives.
It’s always a gift trust me
You got that right, same here.
This one is classic. Instead of consolidating households to keep one they botch it and may lose both.
When I was a young adult I certainly wanted a place of my own, but instead I moved in with mom and we both prospered as a result. Mom needed relevant education and I needed a place to live we. We found a place 1/2 way between my work and her school. It wasn’t the greatest fun, but now (decades later) we’re both self sufficient, mom’s house is 100% paid for and I’m ready to buy my 4th house with ~30% down and currently have zero debt.
Sometimes being uncool can really pay off.
I’m betting she just “assumed” he’d pay her back and there was nothing in writing.
You mean Judge Judy where the family BUM is always sued?
“‘It was just a matter of wait and see and the right buyer will walk through the door,’ she said. ‘I think one has to hold firm to that, obviously within reason.’”
Who knows, maybe Donald Trump will walk through the door…
sold my home studio city area of los angeles in 2004,and have been renting ever since,its been slow but prices are down in this part of the world,if you can call a 500k starter down.wife has been patient but i ran out of time .Renting has been great,but shes waited 4 years for a house.this bubble has been great for me i now get to buy a home for about 100k less than the one i sold.i sure wish i could wait longer……
You’ve held out this long…. why not hold out for another 6 or 12 months. You’re sure to save some tens of thousands if you wait at least until January.
How did you run out of time? Did you sign a contract promising to buy a new house within 4 years. FYI, you will not lose any tax breaks by waiting longer. They got rid of that.
Just make sure you offer way less than asking price. Keep making way low offers and being hyper critical of the properties. That way you can be “looking” for a house, but just don’t find the “right” one until you get a real deal.
My wife and I just looked at a house on a really neat lot. A little digging turned up a flood zone that overlapped the back yard, a sagging front porch, a 15 year old furnace and ugly stained tile on the kitchen counters. There was a porch off the master bedroom and the screen door was hanging by one hinge and the main door was severely damaged. Plus the neighborhood HOA has covenants against storage sheds, the place has only a 2 car garage, and I’d have to turn left onto a busy road without the benefit of a traffic light to get to work.
Clearly this house is unacceptable at nearly any price.
“‘I lost my job about eight months ago in the banking industry,’ Alton said. ‘And my wife, who was in real estate, lost hers four months ago. So we have felt the effects of the economic strain. It has pushed me into retirement a little early. But it’s OK. We’re all in this together.’”
No, we aren’t all in this together. Jeezily, Dick. You’re on the ‘Retarded Bald Monkey Team’, and I’m not.
I just got home, after I left work early today, as this is the end of the summer and the sun is shining through the tall trees in long lazy gold streaks. It’s gonna rain hard soon, but meanwhile there is no place prettier than here. I believe I shall open a beer, fiddle in my garden, pick some dahlias, and make salsa with fresh basil and cherry tomatoes, and probably call up friends and invite them over for later, and paint a daisy on my new wooden table I made from pallets–it’s for a fundraiser–and not be anxious in any way at all this whole lonnnnnng golden weekend.
And how can this be, Dick?
Because I got a mortgage I could afford, Dick. I didn’t listen to people like you OR your wife, Dick.
And now I must go, because I want to put on my raggy cut-offs and pick some flowers. Bye, Dick!
BWAHAHAHAHAHA!
Ahh the joys of looking at weeds with chilled beer in the hands.
The thing that pissed me off about the retiring couple is that they most likely put a lot of people into bad real estate deals before the business came to a dead end for them .The couple pocketed enough money to retire early ,so they are not in the same boat as a lot of people . When I think of people with kids losing their jobs and being worried about getting a new job and feeding the kids ,it makes this
jerks life look like a day at the beach . I’m sorry but I hate it when the fleecer acts like they are one of the fleeced .
Maybe Schiller hasn’t completely lost his mind - what he is really advocating is renting with a fancy lease attached and a big security deposit.
His proposal (as I understood it) is that bank effectively invests in the property, and the “homeowner” pays a fixed monthly payment. Sure, there is all that gobbldygook about “continuous adjustment”, but net/net, the bank is the beneficial owner because they take the risk, and the buyer is a renter.
But the so-called buyer gets to think he owns something, and pays the property taxes to prove it.
Ingenious financial engineering
But wouldn’t it be simpler for people to just rent? And what sort of investor would buy or make that sort of loan when they could just buy the property and rent it out? Maybe the same investors who buy REITs? Certainly not banks.
I have always suspected that the drugs are better in the ivory towers, and this proposal is further evidence. As George Carlin would have said, they have the blue food.
Does the bank only have a downside risk, or do they also reap any upside rewards when the “owner” sells?
Hard to say from watching the video. There are three reviews of his new book which touts his “fix” for this problem on Amazon. Search for this ISBN to see what you think: 0691139296
The reviews are pretty interesting. I probably won’t bother to buy the book, as it sounds like a lot of hot air to me.
I can’t say I know much about these things, but I’ve been fantasizing about making a similar deal with a bank, only we would set the price of the house really low (to pay low rent/mortgage and low taxes), and then the bank could have a percentage of the appreciation, if any, of the house when it does get sold. I know, no bank would go for that, but I do get some wild ideas sitting in my rental condo and watching this bubble unfold and the only people who understand are in this blog.
If you are in California, visit your local library web site and search for the book. If it’s not in the system, see if your library is a member of “Link+”, a state-wide inter-library loan program. You can search there, usually from the same search page, and have it sent to your most local library for pick-up, all for free. I never buy books anymore. My library’s website can find anything, and when I’m done, back it goes.
This type of thing was also proposed during the 80’s. Nobody went for it because it encourages moral hazard and usually won’t keep the owner/tenant in the house for very long, since they can probably rent elsewhere for less. Just kick the deadbeats out and sell at a loss.
“‘There’s so much on the market, so we’ve priced it (rental home) a little bit lower’ than other homes she and her husband saw for sale in the same area, Heincy said. ‘My personal opinion is this will all change when the military (Fort Bliss expansion) hits. I think prices will start going back up.’”
They’re serving Starbucks there, aren’t they?
I’d like to know what they’re spiking the Starbucks with.
It’s a B-52 coffee.
‘The mortgage contract lowers your balance if home prices fall and protects you against price falls.’”
“Whom, exactly, does he propose to take the loss in such a circumstance? How likely is it that a lending institution would make a loan in a situation in which the value of the house might decline?
well, shoot! I like this idea, but with a small correction, Mr. Shiller. I propose that in a like way, should home values rise so would the mortgage contract balance.
Now where are the buyers to buy into this happy, balanced plan?
What both you and Professor Shiller are proposing fall into the category of housing price insurance. There is no conceptual reason that the cost of a mortgage could not be reduced by a mutually agreed amount to reflect a transfer of potential future home equity gains from the home owner to the lender. Similarly, there is no conceptual reason that a lender could not charge a premium to provide the borrower with insurance for lower payments in the event home prices fall. I believe these risks could be directly hedged by purchase of CME futures.
However, the recent episode with subprime loans in unrepayable amounts to unqualified buyers makes me highly skeptical whether our mortgage lending industry as recently constituted could come up with an honest, workable insurance program that was mutually beneficial to buyers and lenders.
Read the Trillion Dollar Meltdown. It explains how they did just what you are explaining (insurance) by using models to build tranches to determine risk thereby selling off the toxic (yet high yield) products to hedgefunds and other governments (China for exmpl). Homes became Wallstreet fodder to bet on. These models work great when defalts are at 0.27%, but literally IMPLODE with MASSIVE force at 1-2% to the tune of what they were leveraged to 100-150:1.
That’s right. And just think the big D word that gets increasingly tossed around in this blog happend when people leveraged 20:1 in the late 20’s.
Systemic risk is the Achilles’ heel of any plan to offer home price insurance. I personally have no problem with the financial sector innovating these kind of harebrained insurance schemes, provided that taxpayers who are nonparties to the insurance arrangement are not asked to chip in bailout money when the schemes blow up.
This weekend might provide some interesting insights to what happens to Uncle Sam’s balance sheet when systemic housing price decline risk blows to smithereens.
“‘At one point there was almost a fight,’ said Brad Willis,
“welcome to the party pal”
News from Vancouver, BC-media’s jumping all over the housing prices being down and inventory skyrocketing. This after years of living in lala-land “this is not a bubble, population increases, we have mountains, blahblahblah” Oh I can’t wait until prices plummet. Down, baby, down!
Personally I think Shiller has lost his marbles and now wants to cash in selling his crackpot ideas in book form.
http://tinyurl.com/578uok
Let us all agree that both Case and Shiller are dumba$$es. The only thing of any value that they provide this world is their index. The rest is bull$hit with these guys.
I am so proud of Lost in Utah for joining me in my, “I Don’t Care to Ever Buy Again” club. I will be sending out her Welcome Kit soon. It includes a cool hat, whistle, copy of Hustler, a guide on the secret handshake and a club member number. Your number is 0002. That feeling of never caring to own again hit me more than a year ago and not once have I felt like I needed to “own” anything.
People used to own slaves and yet the masters would often walk around in great fear of that which they owned, either escaping or killing them. It doesn’t seem like much of a difference to me between owning people and houses. Often times the slave is really the master and vice versa.
“I think Shiller has lost his marbles”
The dude is talking his book (double entendre fully intended). Look for him to seek opportunities going forward to use CME housing futures and similar products to ‘insure’ against future housing price crashes. I expect any such product will work about as well at a large scale as did the portfolio insurance that was popular around the time of the 1987 Black Monday event on Wall Street (i.e., not very well at all). It is easy to ignore the endogenous impact of wide adoption of systemic risk insurance in generating misplaced confidence and encouraging foolish risk taking, particularly when the too-big-to-fail players can rest assured the government will shore them up as needed.
Fannie and Freddie down big in after hours, on reports of a bailout plan being worked out with the treasury:
http://www.reuters.com/article/marketsNews/idINN0528080220080905?rpc=44
FNM is current down 20%, FRE down 17%.
Doh.
For all you guys who say you feel sorry for the FB, having been hoodwinked by so many unctuous and supercilious self-purported experts in the field, I present to you property firm Johnston Dixon, a company that only an FB could trust.
A loaf of bread was up to around 20,000,000 marks at one point too.
So, with $20,000,000 houses a gallon of milk will cost you $50. A lunch at McD’s complete with synthetic beef and algea grown soft drinks will be $100. What’s the point again?
We’re getting to the point where future prices become meaningless. That’s what makes it so hard to plan ahead. We have no idea what our currency is going to do. It’s hard to hedge against inflation and deflation at the same time, but unless you have the inside scoop there’s no way to know which way they’re going to throw the switch.
“Brisbane’s median house price - currently about $450,000 - will hit $1 million in only seven years time and continue to climb, reaching $20 million by 2044, according to an in-depth research report by property firm Johnston Dixon.””
Wow, I’m afraid. I better run right out and buy a bunch of houses. Its a good thing this “expert” warned me in advance.
I can’t believe this idiot gets paid for his work. He sounds like my last boss at GE with his bull$hit numbers. I wanted to do a SixSigma on how much money he was wasting on bull$hit meetings feeding us imaginary numbers.
Yes , and I remember when I was a kid in the 60’s them telling us in the Year 2000 We would all have flying cars like the Jestsons and many would be living on the Moon as We were running out of land and food here?
Big V, you are talking about my home town, Brisbane, Queensland (not CA).
Things are truly crazy here, with a median family income of $65,500 as at 2006.
Asking (wishing) prices have increased as demonstrated in the article.
JT:
The bubble has yet to burst in OZ. Variable Int rates for all (normal for Aust) have helped keep a lid on
prices. But wage/price differential is way out of wack, and still widening. It’s only a matter of time before the Big Burst.
Wiz, I feel that “negative gearing” has a large input, as the impetus and ability to reduce one’s taxable income in the land of Oz is ever reducing.
Does that mean “It’s different here” or not?
We all know what happened when Keating removed negative gearing for one month in 1986 or so…..
The affordability issue is crazy in QLD, with an unemployment rate of <3.5%, perfect weather, and a resources/construction boom. The generally accepted principles of affordability seem to have gone out the window - i.e. 120 x gross monthly rent or 3 x gross income.
I’ve been waiting in vain for the crash for the last five years….
The longer it goes, the worse it’s gonna be!
At first I thought it was Brisbane, CA, then I went back and read Ben’s posting again.
Source: N.Y. Times (March 25, 2005)
Trading Places: Real Estate Instead of Dot-Coms
Ron Shuffield, president of Esslinger-Wooten-Maxwell Realtors says that “South Florida is working off of a totally new economic model than any of us have ever experienced in the past.” He predicts that a limited supply of land coupled with demand from baby boomers and foreigners will prolong the boom indefinitely.
The question, my industrious friend, is not whether or not you will build at a loss. Rather, we may parlay on the amount that you will be expected to lose.
Dang, you beat me to it! This f-ing clown is going to learn the hard way that the market does not care one bit what it cost them to build their unneeded POS condo tower. Get the Joshua Trees ready for that developer. I love it! LOL.
You must remember that a lot of these homes carry 2005 LAND prices. If the value of the land has ‘collapsed’ 75%, a newer home will cost less to build than an ‘older’ home.
At the same time, material prices went up due to the false demand during the runup. Hence, material price will also fall.
Ditto for labor pricing. Back when it was hard to get people, labor costs also went up.
This is a red herring. Costs for building a house will continue to go lower.
And ask yourself this question:
Is it better to receive some $$ for your product…or none at all?
Yeah the baseline costs for a home are effectively the same nation wide something like 60-100 dollars a sqft or so.
This is ignoring ridiculous land values.
Remember the lawsuits developers would file against members of any board or council who recommended against the developments.
You know where they are, notify them that all clean up and restotation costs for the next 5 years are on their dime.
Even Spitzer could handle this without dribbling on the sidewalk.
Friday HBBers:
I would like to gather your opinions on the aesthetics of green houses. Most specifically, furthermore, on the marriage of cream-colored window sashes with green houses in general.
Case in point:
The flipper house across the street is nearing its debut. Old roof (which neither leaked nor sagged) has been replaced by new roof (exactly the same as the old roof). Back yard has been replaced by imposing stone outhouse. Something has been done to the bathroom. The outside wood paneling has been painted from cream to a light green color, but the trim on the door and windows has been left cream.
No more questions, sir.
Green is a great color, but….I guess it would come down to the shade of green.
Green is a great color, but….I guess it would come down to the shade of green.
Right, kinda like McCain standing in a giant vat of pea soup las night.
A story to share. I just called up an agent regarding a REO I found on Craigslist. I was informed that she was the agent for the buyer so I didn’t get the address because she wasn’t giving it to me unless I made her my agent.
Also told that each house gets multiple offers because they are swamped with bids (San Jose of course).
Told her she just scared me off and I’ll try again next year when there are even more houses on the market…………:-)
The crawlies are still creepin’ out of their holes.
You should have told her that, while others may be greedily swallowing her poison line no questions asked, you, potential buyer are “different here”, so will not take bait, click!
“You just typically don’t build 650 units in one project, even in very optimistic times,” said Peter Dennehy, vice president of Sullivan Group Realty Advisors. “And definitely it was being started at a time when the market was recognized as being — mature.”
If worse comes to worst, perhaps they can convert the project into an apartment building.
With nearly 600 other MLS listed condos for sale downtown presently, “toast” comes to mind.
Maybe they could convert it to a Condotel… whoops, that’s not working out so well anymore, especially with fewer tourists here lately.
Self-storage rental space for FB’s belongings that won’t fit at Mom and Dad’s house perhaps?
Homeless shelter?
‘The mortgage contract lowers your balance if home prices fall and protects you against price falls.’”
“Whom, exactly, does he propose to take the loss in such a circumstance?”
Unless this scheme is government subsidized (which does not seem out of the question, given the source of the idea), the buyer would have to pay an insurance premium for risk protection against falling prices. The liability for providing this kind of insurance could be reduced by funding the insurance with CME housing market futures, a product which Robert Shiller himself helped to develop.
I don’t see why this idea seems so questionable to anyone who recognizes that it is just another variant on myriad household insurance products that are already routinely offered and purchased. I personally have no problem with this idea, so long as taxpayers are offered adequate assurances that they will not be asked to chip in bailout funds in case systemic risk leads to widespread losses under the scheme. But if CME housing futures could be used to hedge against systemic risk, perhaps bailout concerns are moot.
“I personally have no problem with this idea, so long as taxpayers are offered adequate assurances that they will not be asked to chip in bailout funds in case systemic risk leads to widespread losses under the scheme.”
HAHAHAH!!!! Good one.
Unless this scheme is government subsidized (which does not seem out of the question, given the source of the idea), the buyer would have to pay an insurance premium for risk protection against falling prices. The liability for providing this kind of insurance could be reduced by funding the insurance with CME housing market futures, a product which Robert Shiller himself helped to develop.
I have another idea! It will make me a gazillion dollars when I package it into my products!
I call it a “down payment”. It provides an insurance premium for risk protection against falling prices.
Where’s my bonus?
Bingo! You win the kewpie doll!
“The Treasury is finalizing plans to backstop Fannie Mae and Freddie Mac, the mortgage financing giants that have been struggling with billions of dollars of losses from soured loans, the Wall Street Journal reported Friday.”
I’m not posting a link because that always delays my posts, but it’s on the front page of the WSJ site. Announced after the markets closed on a Friday. Expect fireworks on Monday?
Oh, for those who believe that this wasn’t leaked early to certain players, take a look at the chart for FNM today, starting at about 11:00 AM EDT.
None of you saw Freddie Mac’s 8K filed today? Huge potential change in voting ownership.
After Hours $5.70 Change: -1.34 -19.03% Volume: 9,099,249
Changes current
Freddie $4.05 and Fannie $5.47 down 22%
Bottom pickers found out they get nothing? lol
“You’ll get nothing and like it.”
U.S. Rescue Seen at Hand for 2 Mortgage Giants
By STEPHEN LABATON and ANDREW ROSS SORKIN
Published: September 5, 2008
…
The plan, which would place the companies into a conservatorship, was outlined in separate meetings with the chief executives at the office of the companies’ new regulator. The executives were told that, under the plan, they and their boards would be replaced and shareholders would be virtually wiped out, but that the companies would be able to continue functioning with the government generally standing behind their debt, people briefed on the discussions said.
It is not possible to calculate the cost of any government bailout, but the huge potential liabilities of the companies could cost taxpayers tens of billions of dollars and make any rescue among the largest in the nation’s history.
…
Under a conservatorship, the common and preferred shares of Fannie and Freddie would be reduced to little or nothing, and any losses on mortgages they own or guarantee could be paid by taxpayers.
Will some GSE shareholders get “preferential” treatment?
Investor uncertainty over the long-term fate of the companies has left a pall over credit markets. It has been unclear which investors, if any, would suffer should the government intervene to prop up the firms.
The answer, in Paulson’s plan, is that holders of preferred shares and subordinated debt, a riskier but higher-paying class of debt, might be made whole. Government leaders were reluctant to allow holders of those assets to incur major losses becausethey are widely held by banks, and major losses could cause a wave of bank failures.
http://online.wsj.com/article/SB122064650145404781.html?mod=mktw
Former Regulator: Move On Freddie, Fannie Now
By David S. Hilzenrath
The federal government has the power to put Fannie Mae and Freddie Mac into receivership now and should do so without delay to prevent the mortgage funding giants from digging taxpayers into a deeper hole.
That’s the assessment of Armando Falcon Jr., who from 1999 to 2005 headed the agency that oversaw the companies’ financial stability.
“I would force the more accurate accounting of their assets and liabilities, and that would show them to be insolvent,” Falcon said in an interview.
“The reason you have to do it now is to reduce the cost of resolving the two companies,” Falcon said “We know from the savings and loan crisis that forbearance in dealing with insolvent institutions only increases the cost of resolving the failed institutions,” he added.
So does this move put us into an all cash RE market?
“Take a load off Fannie”
Great video & editing!
Yes, very clever editing. Great effort.
Haven’t these writers paid a bit of attention to the forty percent (40%) one-year drop in the median sale price of used homes in California, our country’s largest state, between July 2007-July 2008? Or the Case-Shiller/S&P Index levels that recently dropped almost 20 percent YOY on a national basis
Why don’t preposterous statements get edited out of such reports before the authors suffer public embarrassment? Perhaps if one confines the discussion to economic models of reality, it is never essential to determine whether the predictions from such models are accurate?
September 5, 2008, 3:58 pm
Foreclosure Effect on Home Prices May Be Small
Even though data Friday from the Mortgage Bankers Association indicated that U.S. foreclosures hit a record in the second quarter, that won’t necessarily translate into big declines in home prices.
That appears to be the conclusion based on the findings of a trio of economists in a National Bureau of Economic Research paper.
“Even in the face of an extreme foreclosure wave such as that experienced in 2007, our evidence indicates that foreclosure shocks have relatively small effects on U.S. house prices,” the authors, Charles Calomiris of Columbia University and Stanley Longhofer and William Miles of Wichita State University wrote.
The authors’ model incorporated MBA foreclosure and Ofheo home price data from 1981 to 2007, and used home foreclosure forecasts for 2008 and 2009 from Economy.com. The model included data on employment, building permits and existing home sales. In their paper, the authors said the study was first to estimate the effect of foreclosures on home prices for all the U.S.
Even under an “extreme” foreclosure shock scenario, with foreclosures up 75% compared to the baseline in 2008 and 2009, U.S. home prices only decline about 5.5% between the the second quarter of 2007 to the end of 2009, the authors estimated.
Home prices, they wrote, “are quite sticky,” and “fears of a major fall in house prices, with all of its attendant negative macroeconomic consequences, typically are not warranted even in extreme foreclosure circumstances.”
“We conclude that a reasonable estimate of the future path of U.S. housing market prices is that they will remain essentially flat, on average, for the next two years notwithstanding the large predicted increase in foreclosures,” they wrote. –Brian Blackstone
Wh, wh, wh, wHA?
You have got to be kidding me. These must be the same people who want to vote for McPopeye.
At this point, I am frankly amazed at how persistent the denial phase of the housing bubble remains.
Denial is easy to maintain for those who do not read. If we would just sit back and accept that the boob tube is god, we’d all be happier.
You know… ignorance is bliss.
Got Popcorn?
Neil
Somewhere over the rainbow
Way up high
There’s a land that I heard of
Once in a lullaby
Somewhere over the rainbow
Skies are blue
And the dreams that you dare to dream
Really do come true
Some day I’ll wish upon a star
And wake up where the clouds are far behind me
Where troubles melt like lemondrops
Away above the chimney tops
That’s where you’ll find me
Somewhere over the rainbow
Bluebirds fly
Birds fly over the rainbow
Why then, oh why can’t I?
Some day I’ll wish upon a star
And wake up where the clouds are far behind me
Where troubles melt like lemondrops
Away above the chimney tops
That’s where you’ll find me
Somewhere over the rainbow
Bluebirds fly
Birds fly over the rainbow
Why then, oh why can’t I?
If happy little bluebirds fly
Beyond the rainbow
Why, oh why can’t I?
That is a lovely song, but what pray tell does it have to do with economists who cannot shoot straight?
PB,
Those economists that you posted about above remind me of “Some Where Over the Rainbow.” Your economists are hoping the housing debacle will be “Where troubles melt like lemondrops, Away above the chimney tops.”
Kip Yarburg(lyrics)and Harod Arlen (music). Ira Gershwin wrote the ending blue bird lyrics, when Kip and Harold needed some help with it. The song was rejected 3 times, before it finally was left in the movie. I love that era of music.
Yip Harburg! (not “Kip Yarburg”).
I still get goose bumps when I hear Judy Garland sing “Somewhere Over the Rainbow”
Nice movies.
But in the real world, Mister Potter always wins.
Charles Calomiris of Columbia University and Stanley Longhofer and William Miles of Wichita State University wrote.
“Even though data Friday from the Mortgage Bankers Association indicated that U.S. foreclosures hit a record in the second quarter, that won’t necessarily translate into big declines in home prices.”
But then again it might…….. and if it does these clowns will write how they predicted a crash in housing
“…and if it does these clowns will write how they predicted a crash in housing.”
That is the maddening thing. These guys and others who either lied like crazy or simply missed the unfolding story completely will later on pretend they saw it all along. And good ol’ Ben Jones will have a field day holding documentary evidence up to their lies, damned lies and revisionist histories!
Somebody has to serve as the modern-day version of the Great Depression Era’s Irving Fisher…
BwaHaHaHAHAHAHAHAAAAAAAAA!!!!!!
Silver State Bank, Henderson, Nevada, was closed today by the Nevada Financial Institutions Division, and the Federal Deposit Insurance Corporation (FDIC) was named Receiver. To protect the depositors, the FDIC entered into a Purchase and Assumption Agreement with Nevada State Bank, Las Vegas, Nevada, to assume the Insured Deposits of Silver State Bank.
The branches of Silver State Bank will open on Monday as Nevada State Bank in Nevada and National Bank of Arizona in Arizona. Depositors of the failed bank will automatically become depositors of Nevada State Bank or National Bank of Arizona. Deposits will continue to be insured by the FDIC, so there is no need for customers to change their banking relationship to retain their deposit insurance coverage.
Over the weekend, customers of Silver State Bank can access their money by writing checks or using ATM or debit cards. Checks drawn on the bank will continue to be processed. Loan customers should continue to make their payments as usual.
As of June 30, 2008, Silver State Bank had total assets of $2.0 billion and total deposits of $1.7 billion. Nevada State Bank agreed to purchase the insured deposits for a premium of 1.3 percent. At the time of closing, there were approximately $20 million in uninsured deposits held in approximately 500 accounts that potentially exceeded the insurance limits. This amount is an estimate that is likely to change once the FDIC obtains additional information from these customers.
Silver State Bank also had approximately $700 million in brokered deposits that are not part of today’s transaction. The FDIC will pay the brokers directly for the amount of their insured funds.
Customers with accounts in excess of $100,000 should contact the FDIC toll-free at 1-800-523-8177 to set up an appointment to discuss their deposits. This phone number will be operational this evening until 9:00 p.m. PDT; on Saturday and Sunday from 9:00 a.m. to 6:00 p.m. PDT; and on Monday and thereafter from 8:00 a.m. to 8:00 p.m. PDT.
Customers who would like more information on today’s transaction should visit the FDIC’s Web site at http://www.fdic.gov/bank/individual/failed/silverstate.html. Beginning Monday, depositors of Silver State Bank with more than $100,000 at the bank may visit the FDIC’s Web page, “Is My Account Fully Insured?” at http://www2.fdic.gov/dip/Index.asp to determine their insurance coverage
In addition to assuming the failed bank’s insured deposits, Nevada State Bank will purchase a small amount of assets comprised of cash and securities. The FDIC will retain the remaining assets for later disposition.
The transaction is the least costly resolution option, and the FDIC estimates that the cost to its Deposit Insurance Fund is between $450 and $550 million. Silver State Bank is the second bank to fail in Nevada in 2008. First National Bank of Nevada, Reno failed on July 25, 2008. This year, a total of eleven FDIC-insured institutions have been closed.
Sweet Baby Jeebus! Go look at the news! I take one afternoon off to fall asleep in the garden and look what happens to Fred and Fannie.
Oh, wait…we already knew this was coming. *breathe in and out calmly*
Okay, then. Back to the salsa.
I wish I could find my rake. Did I throw it into the forest in a snit or something? I just cannot find the dern thing anywhere.
“I take one afternoon off to fall asleep in the garden and look what happens to Fred and Fannie.”
Yeah, when I get really hammered and pass out in the garden I, too, call it “sleep”. Booze hag!
Now, go check out the venom on the Fannie and Freddie boards. It will be some fun while you sober up.
“Fannie and Freddie boards”
Links, please?
Maybe the Yahoo boards?
http://messages.finance.yahoo.com/mb/FNM
Lotsa yahoos on them, anyways.
Yes, links please.
‘Yeah, when I get really hammered and pass out in the garden I, too, call it “sleep”. Booze hag!’
Nuh uhhh! Frowny frown!
I was ASLEEP, and I know this because I woke up and my head was gently reclined on a blanket and not perched on a boulder or in a mud puddle. That’s the difference I notice! So there!
Gal, keep us up to date as to the rake’s progress.
NR
Questions to answer going forward:
1) Does whatever happens this weekend qualify as a bailout?
2) What are the implications of whatever happens for future housing prices? (Perhaps the forward-looking and efficiently-priced CME housing futures will divine an anwer next week?)
3) Should we expect some kind of housing price respiking operation to accompany the reconstituted GSEs going forward?
U.S. Rescue Seen at Hand for 2 Mortgage Giants
By STEPHEN LABATON and ANDREW ROSS SORKIN
Published: September 5, 2008
WASHINGTON — Senior officials from the Bush administration and the Federal Reserve on Friday called in top executives of Fannie Mae and Freddie Mac, the mortgage finance giants, and told them that the government was preparing to place the two companies under federal control, officials and company executives briefed on the discussions said.
The plan, which would place the companies into a conservatorship, was outlined in separate meetings with the chief executives at the office of the companies’ new regulator. The executives were told that, under the plan, they and their boards would be replaced and shareholders would be virtually wiped out, but that the companies would be able to continue functioning with the government generally standing behind their debt, people briefed on the discussions said.
It is not possible to calculate the cost of any government bailout, but the huge potential liabilities of the companies could cost taxpayers tens of billions of dollars and make any rescue among the largest in the nation’s history.
“Sept. 5 (Bloomberg) — Treasury Secretary Henry Paulson met with regulators and executives of Fannie Mae and Freddie Mac today as the Bush administration prepared to announce a plan to prop up the firms hit by $14.9 billion in losses the past year. ”
and
“Pacific Investment Management Co., manager of the world’s biggest bond fund, and other large investors may put in their own money once the Treasury decides to inject government funds, said Newport Beach, California-based Pimco fund manager Bill Gross, in a Bloomberg Television interview. ”
more weekend bailout work for Paulson and heli ben
Paulson has been in contact in recent weeks with foreign governments that hold billions of dollars of Fannie and Freddie debt to reassure them that the United States recognizes the importance of the two companies.
This summer, Congress passed a plan to provide unlimited government loans to Fannie and Freddie and to purchase stock in the two companies if needed.
Critics say the open-ended nature of the rescue package could expose taxpayers to billions of dollars of potential losses.
Supporters, however, argue the government had little choice but to support Fannie and Freddie, which together hold or guarantee $5 trillion in mortgages — almost half the nation’s total.
“A government takeover could cost taxpayers up to $25 billion, acording to the Congressional Budget Office.”
How many wager the GSE bailout will cost taxpayers less than $25b?
How many wager the GSE bailout will cost taxpayers more? (I do…)
Let’s see
currently 1 in 9 mortgages are late or in foreclosure.
10% of 5 trillion is 500,000,000,000
Lets say they can recoup 2/3’s of that amount selling the property
33% x 500 billion = 167 billion
I’ll be conservative and bet 150-200 billion
Not bad when one considers the war in Iraq will eventually cost us 1 trillion or more.
Thanks for the back’o'the envelope estimate…
You can set your calender by it, Yep its Friday.
Failed Bank Information for Silver State Bank, Henderson, NV
September 5, 2008
This bank was closed by the Nevada Financial Institutions Division and the FDIC was named Receiver.
McSame & McDame = “We work for you”…and maybe our own children will as well!” I noticed that McSame gave credit to: Lincoln, Roosevelt, & Reagan…no mention of the Bush Dynasty…Shrub: “I feel so alone…Laura are there any pretzel in the pantry… I think Yale is play Harvard this week”
Geez, Dandy Andy must have been some kind of “special” employee…one month & one week later…the bank falls into collapse?
Previously:
Comment by aladinsane
2008-07-28 15:53:54
http://thehousingbubbleblog.com/?p=4798#comments
McCain’s son resigns from boards of Henderson bank
Silver State Bancorp, the Henderson-based holding company for the similarly named bank, reported that Andrew McCain, son of Republican presidential candidate John McCain, resigned today from the boards of directors of the bank and bank holding company.
The company cited “personal reasons” for McCain’s resignation, and a Silver State spokesman declined further comment.
http://www.lvrj.com/breaking_news/25941494.html
Like father, like son.
Ahh, but Sen McCain’s son was one of three members of the audit committee. Think risk management without fear. He should have known the banks positions, before the debacle. This is an expensive FDIC bailout 22% of assets. 500MM smackers, a lot of moneys.
The smoking calculator?
Andrew McCain sat on the board of this bank from February until March, a total of 5 months. So you think he has such a powerful influence that he can bring a bank to it’s knees in 5 months? If he actually does have that kind of power, I definitely want him running my show!
Pardon;
February until July.
He was shown the exit via the gangplank of the $$ Titanic, just before it got underway.
Sheila & commissars had to of course know how politically damaging it would be to McCain-the elder to deep-six this bank, and being the undertaker, they had many other future cadavers to work on, but chose this particular corp’se…
I’m a home builder, and I dont see building costs coming down significantly.
What is happening in my area, is that people who want to build, end up spending more than the house will appraise for when it is finished. The value of existing homes continues to drop, yet it costs more each year to build. Certainly if the economy crashed, where excavtors and masons were
on breadlines, you might get people to work for minimum wage. If materials sat unsold for years, they might sell at pennies on the dollar.
If things were this bad however, I dont think there would be any buyers anyway, at any price.
So, if the raw building costs to build a home are more than the
people can afford on average salaries in any given area ,than the builders have no choice but to stop building ……right ? If the American salary does not cover the cost of even a entry home ,than either the American salary is out of whack or building costs are out of whack …
….right ?
It’s a vicious circle jerk…
New materials to build a home have a set cost, and after the homebuilder put all the pieces together, they earned what we used to call “profit”.
I know of no used truss stores, or anybody that wants used chipboard, or most used materials. As in no resale value or hardly any.
It doesn’t matter anymore what those materials cost going in, does it?
So the manufacturers of the new materials, most of which ramped up their operations in the past 5 years, suddenly are getting assetfixiated and can’t breathe, a good number of them (including companies around for 50+ years) going bankrupt, as it went from feast to famine, almost overnight.
The collapse of an industry, right before our very eyes…
‘The collapse of an industry, right before our very eyes…’
Wheeeee! I think I’ll hop up and down making happy bunny noises for a bit, and then run out and tell the trees your pronouncement. They’ll be as happy as me to hear it.
2×4 score years ago, the future foreclosed still lusted for truss.
“I’m a home builder, and I dont see building costs coming down significantly.”
Thats bullshit and you know it. Allied trade benches are FULL, scabs are doing odd jobs and I just paid $5.47/sheet of half inch cdx plywood YESTERDAY.
My area may be different than yours, but here is my situation…
Upstate ny, summer home area for NYC types. No local resident can afford more than a modular home even in the boom. I can build for weekender/summer market, but the costs of building to their taste level exceedes what the house would be worth when it is done. So a potential homeowner either goes in over their head or they buy an existing house and fix it up. It is the death of an industry…oh well
We have 80 to 100k of fixed costs before the first stick is hammered together to make a house(not including land). Watershed approved septic systems, long driveways, clearing for views, buried electric to site, concrete etc. I dont see these costs coming down, especially with fuel at 4 to 5 dollars a gallon. I’m not complaining, I just see the handwriting on the wall and dont see some magic solution to the housing industry once existing home prices fall enough.
I thought lumber was going for half of what it was going for in 2005.
“The value of existing homes continue to drop, yet it costs more each year to build.”
Which puts the housing industry into depression mode.
People here argue the difference between depression and recession; Here’s a handy definition: A recession is a function of illiquidty, a depression is a function of insolvency.
In a recession the value of assets are not the issue, the cost of turning assets into cash is the issue.
In a depression the value of assets is the issue. If the value of the assets is questionable then these assets cannot be turned into cash. Nobody wants to loan money against collateral that has an unknown or declining value.
In both cases, recession and depression, the issue is ultimately the same: There is a need for cash. In a recession cash is expensive but available. In a depression cash is unavailable.
In either case, recession or depression, cash is king.
FRE/ FMN + universal” healthcare = a socialist country
spin it anyway you want
I have not seen the price of any goods or services come down in relation to new home construction in the northeast. Every year it costs more to build
Daniel Mudd at Fannie and Richard Syron at Freddie Mac will now have to make a go of it in an actual private sector job:
Syron, who like Mudd has been criticized for his multimillion-dollar paychecks as his company’s stock lost 90% of its value, has been looking for a successor since onetime President Eugene McQuade declined the CEO job last May. Syron has suggested at times that he wouldn’t be averse to spending more time with his family.
“If I had better foresight, maybe I could have improved things a little bit,” he said last month in response to a New York Times report on his handling of risks tied to the housing bust. “But frankly, if I had perfect foresight, I would never have taken this job in the first place.”
Oh, yes, such a bother to make millions in tax deferred compensation. Maybe some golf? The kids miss you.
A Tabasco-marinated Joshua Tree for this overpaid stooge.
what should be the normal house cost to annual earning ratio earning .
At what assumed interest rate and future wage and housing price inflation rate?
3