Feeling A Bit Of Deja Vu
It’s Friday desk clearing time for this blogger. “Gresham and its working-class neighboring cities have caught more than their share of the housing pain. On the north end of Main, real estate broker Darren O’Halloran’s sign hangs in front of a vacant lot. O’Halloran bought the plot with a partner and hoped to resell it for a profit. He said he put it on the market in January 2007 for $125,000. He has lowered the price to $95,000.”
“The trouble, O’Halloran says, is that builders don’t want the lot because they already have more homes than they can sell. Even if they wanted to buy, builders and buyers have trouble finding banks willing to offer a mortgage on terms they can afford, he said.”
“‘We’re negotiable on it,’ O’Halloran said. ‘We just haven’t had an offer yet.’”
“Simon Ortega worries because he’s facing rising mortgage payments on his Gresham home thanks to an adjustable-rate mortgage. He said his payment has risen to $1,300 a month, nearly double what it used to be.”
“‘I’m scared to lose everything,’ he said. ‘All the money I put in in 10 years will disappear into the wind. It’s not good.’”
“Oregon’s stubborn housing slump has taken one of Oregon’s highest profile home builders as its latest casualty. The housing boom fueled ever rising land prices, and Randy Sebastian, Renaissance Homes CEO and founder put down millions in earnest money to buy prime land for new home lots. He figures the price of land went from $50,000 an acre in 1995 to $600,000 at the boom’s height in 2006.”
“Renaissance’s first quarter of that year turned disastrous when dozens of buyers walked away from deals because their own homes wouldn’t sell. Renaissance suffered 95 failed sales in the year.”
“Rumors have been circulating about the company’s precarious financial position for much of this year, fueled by a mounting number of construction liens filed against Renaissance by unpaid suppliers and subcontractors. Renaissance Homes expects to file Chapter 11 bankruptcy.”
“‘Obviously, this is humbling,’ Sebastian said. ‘It’s tough medicine. You face big risks in this business, and the market caught up with us.’”
“A slowdown in new-home construction that has galloped through the nation is being felt in the Yakima Valley. ‘Buyers can’t get financing. Everything has pulled way back,’ said Matt Willard, an Ellensburg home builder. ‘This is definitely a different time than we have ever seen before.’”
“Skip Semon, broker at QPoint Home Mortgage loans of Yakima, said while it is true that fewer options exist for borrowers, there is mortgage money out there at attractive rates - as long as they qualify.”
“‘If you go outside the brand-new home market to used homes, there are way more of them and that makes it more of a buyer’s market. It’s a good time for people entering the market without something to sell,’ he said.”
“According to the Municiple Property Assessment Corporation, Windsor homeowners will see an average decline of 5.5 per cent in their residential assessments in 2009. What it means for people like Vicki Bondy, is their taxes will likely go up more than the average homeowner.”
“‘It’s just craziness — our housing prices are going down, not up,’ said Bondy, who vows to appeal her assessment. ‘I’m going to write them and say: ‘Are you out of your minds? We’re all trying to just get by.’”
“Homeowner Scott Nelson has had plenty of time to enjoy the view since he first put his house on the market. ‘I thought it would sell within a few months, but I think all the doom and gloom preached in the paper about the Lower 48, which is in fact true, it kind of reflected how bad some of the properties are doing up here,’ he said.”
“In 13 months Nelson has had four offers and reduced the asking price by $90,000. ‘A lot of folks like to buy something like this, but it’s a little bit out of their price range, and I can understand that, because I feel it’s a little bit out of my price range at this point in time,’ he said.”
“‘It’s like one realtor said to me, you’re chasing the market,’ said Realtor Mary Tutterow. ‘You think you’re pricing it at something that will sell right now and actually that was where something sold three months ago, which is where we’ve always based our comps.’”
“There were no foreclosure deeds recorded in Greenwich from 2003 through 2006, only one last year and four so far this year, according to The Warren Group. Forced sales in Greenwich are usually handled discreetly with arrangements made between lender and buyer, real estate experts say.”
“The town is so private is doesn’t allow for sale signs on properties and kept out of towners off its pristine beaches until the Connecticut Supreme Court ordered them opened several years ago.”
“Real estate attorney Tom Ward said more foreclosures are inevitable with loss of jobs and lucrative bonuses from Wall Street. ‘I think everybody expects that to happen, even in Greenwich, Connecticut,’ Ward said.”
“Developers of new condominiums are finding that apartments they thought had sold are unexpectedly coming back into their hands as buyers - not just layoff victims, but some who are wealthy and employed - default on contracts. ‘Inventory that’s considered 100% sold out is now trickling back on the market,’ mortgage broker Andrea Costa, said. ‘Before, you had people lining up for these apartments. This is definitely new, especially for New York.’”
“At 1 Hanson Place in Fort Greene, a family recently gave up its $70,000 down payment after the father became unemployed, according to the firm that represented the buyer. Mortgage broker Thomas Wiggin, said one of his clients gave up a $75,000 down payment on an apartment in Brooklyn after finding that the financing he’d counted on is no longer available.”
“If buyers can’t come up with the cash, they could lose an even larger amount on their deposit. ‘You could be walking away from $300,000 - that’s not chump change,’ Ms. Costa said.”
“With housing sales down, the rental market may be where the action is. Sellers with no buyers often are opting to rent their homes and investors are adding properties. ‘There’s definitely been an increased demand for rental housing. There’s a lot of buyers that can only rent right now. A couple of my neighbors that moved from Florida and lost money on their homes can’t afford to buy right now,’ says Carlos Cooper, a former commercial real estate broker.”
“Sheena Buntyon will lead Village Property Management, which is currently handling 56 properties. ‘With the economy situation and foreclosure situation right now, it’s a great opportunity for us to start this so we can be the pioneers in the downtown urban sector,’ Buntyon says.”
“At 3:45 p.m., six Boston police officers formed a phalanx around the constable as he walked to a set of steps leading to the house. About 40 activists from City Life blocked the way. There was a jostle of shoving as the protesters tried to prevent the eviction. Four were arrested. Then, the constable walked into the house, followed by a locksmith. ‘We’ve been destroyed by the bank,’ Ana Esquivel said, tears streaming down her face. ‘The bank is too big for us.’”
“Paula Taylor lost her home in Roxbury, several weeks ago, despite a blockade action by City Life. Taylor was at Rowe Street yesterday, carrying a sign and chanting slogans. She said she had not been fully aware of what she was getting into when she signed up for her mortgage. ‘When I went into closing, that was the first time I saw the paperwork, when they gave me the keys. It was a blur, but they told me I could refinance after one year.’”
“Oklahomans who lived through the 1980s oil bust find themselves feeling a bit of deja vu as they are bombarded by headlines about the failure of Wall Street financial institutions, plummeting housing values in large urban areas and families losing their homes.”
“‘I think just an imbalance between risk and reward and a failure to adhere to basic and fundamental lending standards contributed to both situations,’ said Lee Symcox, CEO of First Fidelity Bank in Oklahoma City.”
“‘You had this risk-taking, profit-chasing feeding frenzy going on that created this bubble that has now burst. During the oil bust you saw the same type of activity,’ said state Treasurer Scott Meacham, who previously ran First National Bank in Elk City. ‘The thing just kept getting bigger and bigger and bigger. And then the balloon burst. I think you can call it recklessness.’”
“During Tokyo’s roaring early ’90s…cocky businessmen treated themselves to tiramisu sprinkled with gold flakes in the Ginza nightclub district. They bought Rockefeller Center and acquired the Pebble Beach Golf Links, alarming Americans who thought Japan was taking over the world economy. The Imperial Palace grounds were said to be worth more than Florida.”
“Then came the crash. Corporate titans bowed deeply and apologized. Homeowners quietly panicked. Unemployed salarymen dressed in suits each morning to keep up appearances, but idled away the days on park benches.”
“Japan spiraled from dizzying highs. The outcome: a 15-year recession. Depressed housing prices that still have reached only 40 percent of their 1990 high. Stocks that remain at 30 percent of their 1989 peak.”
“In August 2004, Moody’s Corp. unveiled a new credit-rating model that Wall Street banks used to sow the seeds of their own demise. The formula allowed securities firms to sell more top-rated, subprime mortgage-backed bonds than ever before.”
“A week later, Standard & Poor’s moved to revise its own methods. An S&P executive urged colleagues to adjust rating requirements for securities backed by commercial properties because of the ‘threat of losing deals.’”
“Gugliada says that when the subject came up of tightening S&P’s criteria, the co-director of CDO ratings, David Tesher, said: ‘Don’t kill the golden goose.’”
“‘Let’s hope we are all wealthy and retired by the time this house of cards falters,’ one unidentified analyst told a colleague in a December 2006 e-mail, according to the SEC report. The e-mail was signed with a computerized wink and smile: “;o). ”
“Local Raymond James financial advisor Bill Matthews remembers when the sub-prime phenomenon hit home for him.”
“‘I remember a mortgage banker in this town a year and a half, two years ago, telling me that this person could make a loan to someone who didn’t have any income or any net worth and had a poor credit record and sell that loan to Lehman Brothers,’ Matthews explained. ‘It made you think poorly of the system as a whole.’”
“‘The system was built to make it look like value was there, but it wasn’t,’ said Ashley Burt, president of Gunnison Bank. ‘And now things are repricing to real values. When you do that, boy, you yank a lot of value out of a system and you can’t do that without there being huge repercussions.’”
“Treasury Secretary Henry Paulson’s $700 billion plan to buy devalued assets from financial companies is ‘a joke’ because it doesn’t go far enough to calm markets, said Kenichi Ohmae, president of Business Breakthrough Inc.”
“Ohmae, nicknamed ‘Mr. Strategy’ during his 23 years as a McKinsey & Co. partner, called for a $5 trillion ‘international facility’ to be made available to financial institutions. ‘This is a liquidity crisis,’ Ohmae said. ‘The liquidity has to be so big that people won’t get panicky.’”
“Ohmae compared the current financial crisis with Japan’s 15- year economic decline that began in 1989. Both started with a property bubble, which wiped out companies’ equity when it burst, and like in Japan, the current one could lead to escalating bankruptcies as banks worried about their own survival rein in lending, he said.”
“The financial-market upheaval may lead to slower growth in China and the reversal of the commodity boom as ship orders are canceled and steel supply dumped, said Ohmae. What Ohmae called Japan’s ‘Viagra’ economy and Australia’s ‘dig and deliver’ boom may also fizzle as China weakens, he said.”
“Local economist Rick Harper told nearly 500 local business executives that ‘Wall Street is no more’ Monday at the 12th annual Gulf Power Economic Symposium. He also shared his assessment of the local housing market.”
“On the flip side, there’s the continuing saga of Washington stepping in to prevent complete failure on Wall Street. ‘The bailout scares me,’ said Shane Moody, president of the Destin Area Chamber of Commerce. ‘Who’s going to bail out the government when the time comes? And the time will come.’”
“Isn’t it ironic that the Fed - the central planning institution that got us into this fine mess in the first place - is now expected to get us out?”
“The housing bubble and the ensuing mortgage meltdown were themselves caused by the Federal Reserve. By keeping interest rates artificially low and driving inflation, it distorted the market and created the impression that houses and sub-prime mortgages were must-have investments. The mortgage and credit crisis that we’re now witnessing is simply that government-created illusion coming crashing down.”
“By the turn of the 20th century, young Americans just like us proved to be the leaders of the Industrial Revolution, and by the end of World War II, the United States had transformed itself from a rag-tag immigrant nation to the world’s economic powerhouse. In between, businesses failed, and no Federal Reserve came by to scoop them up.”
“Now, I ask only that my generation has the opportunity to continue to do the same. We’re not looking for a government to coddle us and we’re not looking for Ben Bernanke to plan our economy; we can run business and we’ll look after our own individual economic futures. And if the economy comes crashing down again, we ourselves will pick it up, just as long as the bureaucrats in Washington get out of the way.”
Four years ago next month, I found out about blogs and started one so I my family and friends wouldn’t have to get peppered with emails from me every day on all kinds of subjects. I did my first blog research into the housing bubble in October 2004. Although I deleted that blog because I thought it of no consequence, what I discovered about subprime loans and other HB related issues caused me to start the HBB in December 2004.
At that time the media was gushing about what a bonanza this was for owners, but I saw trouble coming. I noticed in February 2005 that I was getting more hits than could be coming from my family (50 a day or so), and someone suggested I enable comments. About a month later I think, I got my first comment. It was something like, “Interesting, but why a blog on the housing bubble?” About May, 2005, with zero income and no job, my family started asking me, “why are you giving up a career for this? What are you doing?” I replied, I didn’t know what I was doing but it seemed to be helping people.
Now housing markets are crashing all over the world, Wall Street is on their knees, the GSEs are in receivership, Washington is in a panic and lenders are dropping like flies. I got a call from a big California newspaper reporter about a month ago. Among the questions she asked was, did I think this blog changed history? I told her I had no idea, but that I knew it had helped a lot of individuals, because I’ve received hundreds of emails and letters from them saying so. I got another one yesterday, and I want to share part of it:
“Hi. I just wanted to say a personal thanks for everything you do. If it wasn’t for your blog, I probably would have let my parents talk me into buying a condo I couldn’t afford, at the height of the bubble, and I would be watching my “equity” disappear for years to come.”
“I suspected what was happening was a bubble, but no one was saying it in the mainstream media. The HBBers were like detectives on the case, putting the pieces together in a way that the mainstream media never did, to their endless shame.”
I think every poster here deserves credit for helping each other and hundreds of lurkers make decisions like this lady did.
My thanks for your support! Please check back this weekend.
Ben,
It’s been a fun ride, and in many ways the diary that none of us would have ever been able to keep individually, but playing off one-another’s knowledge of such varied subjects as we see here on a daily basis, not only were our sponge-like minds able to absorb the unfathomable, but make sense of it as well, and predict the future with awesome clarity.
I salute you all…
Ben,
Great to finally get the “How it all started” story out. I’d love to put together a “Best Of Ben’s” posts together to send to the WH & CH ( along w/ the entire REIC Cartel etc. ) to exhibit how regular folks from all walks of life were able to plainly see what so many economists, investment bankers and politicians couldn’t.
My thanks to all contributors as well.
I’d love to see a collection of posts from some of those who ridiculed the notion of a housing bubble. Las Vegas Landlord, Hedge Fund Analyst, I know there were a few other posters along those lines. I wonder what happened to them.
Ben
Dude you’ve saved me at least a 200K man. Thanks for your blog and I think it’s one of the best public services I’ve seen ever.
I’m currently in Bali having a blast on vacation surfing just enjoying life. I worked as a loan officer in 2003 and saw this whole mess about to explode. I couldn’t do it and sleep well at night due to….” you mean these people get a 500k loan and just have to tell me their income on their word???????” My wife and I have saved and are ready to purchase a home that we can actually afford. YOU ARE THE MAN DUDE!!!!!! It’s offshore and 10 second barrels are screeeeeming off the reeff….LIFE IS GOOD!
Thanks Ben!
Hey Ben,
I just wanted to mention that I stumbled onto your blog in summer 05. I had just sold my Sili Valley house for an enormous profit because I had a feeling that something bad was going to happen with all of the crazy loans being made. I’ve learned a lot by mostly lurking around here and making a few comments now and again. I’ve made a tidy profit by putting to action much of the advice debated here. My hat is off to you buddy!
Now… what’s the next move? I’m into gold, cash, energy now. Any ideas on where to invest from here?
Kinda funny that Congress hasn’t been able to do the same thing, huh?
I believe Congress has the ability to accurately predict the housing market.
But Congress has no desire to predict a down market. They were too busy living off fat-cat cheques from NAR and Developers and Investment Banks.
Kind of like a sports network who’s experts know a game will be a washout, but who’s marketers try to sell the game as a competitive matchup in order to attract advertising revenue.
The ride has been scary, I long ago ran out of hand lotion, bailouts and more bailouts have been attempted to no avail, but Ben Jones has stood tall and steady in the background of it all. Thanks for providing a refuge for open discussion during a period of dwindling opportunities for free speech.
Documenting the events of the Bubble will be an important reference for historians. When someone looks back and tries to piece together the sequence of events: who tried to help and who stuck their heads in the sand, you and your fellow bloggers will be remembered well.
Now we need to find ways to dig ourselves out of this hole. It is clear that the “Greed is Good” decades are over, and ‘Wall Street’ and Gordon Gekko will be remembered in the same light as a Leni Riefenstahl film. The problem is that there are too many ideologues stirring the pot. Too many people are still invested in how things were, instead of how they should be. I suspect that we’ll have one of those populist groundswells that produces a new set of leaders.
‘Wall Street’ and Gordon Gekko will be remembered in the same light as a Leni Riefenstahl film
She was wrong ideologically, for sure, but that lady made some damn good-lookin’ , influential films.
Indeed, her films were banned in Germany for how long after the war?
I’m not sure how long her films were banned in Germany, but her last feature film was denied entry an Cannes in ‘54 or ‘55, and it seems like she struggled to find funding for the rest of her life.
Triumph of the Will had a chilling effect on me when I first saw it because it answered the question of “How could the Germans be so duped” for me in a way that no amount of studying the facts surrounding that time in history could.
It was hypnotic and repulsive and seductive all at the same time.
I wonder what will be remembered as the modern day Trimuph of the Will.
One of the most seductive films of all time. Bone-chilling too.
Just recall the “gorgeous” scene with the fires and their sensual glow until your brain tunes in to tell you that those are books being set on fire.
Add me to the list of people that this blog helped.
I think it was February 2006 when I stumbled into here. I’d never heard the phrase “housing bubble” so I didn’t know what I was looking for when I started googling about expensive homes and such, but somehow I managed to find my way here and quickly saw that I was not the only one who thought home prices were out of control without justification and that there was legitimacy to the idea that they were not sustainable.
It was a complete epiphany, a vindication. It was a great day. I had seriously been considering moving across the country merely for cheaper housing (California was insane), but after discovering this thing called the “housing bubble” and this blog, I knew it would all be better - with time.
So far it’s been a great ride, and through this and other blogs I’ve grown to learn a LOT about economics, money, politics, finance, and all sorts of good stuff. This whole thing has really shaped my personal interests in a good way, and of course, it helped me make the right decision regarding owning versus renting.
Cheers to Ben and to all of the HBBers.
The most important contribution of your blog was that it was the first widely read and frequently updated blog that shone light on the housing bubble.
When I used to tell people 3-4 years ago that the growth in housing prices did not make any sense, they used to dismiss it as the ravings of a renter who did not take the safe road to “creating wealth”. It was then that I started looking around for websites/ blogs that supported my observations. I googled “housing bubble blog” and the rest is history.
Though I am mostly a lurker, I have found a lot of useful info and learned a lot. My major non-professional interest has always been in macroeconomics and human perception/ reactions and decision making. The extensive coverage of the worldwide housing bubble on this blog has certainly helped me step outside the ‘matrix’.
Disturbing, isn’t it?
No way to go back either back into the Matrix.
First vist was in Spring of 2005…then you changed the site and I thought I lost you, luckily I found you again.
Thanks for the great work over the years…you (and all the regulars) were a lone voice in the wilderness!
Ben,
This blog has been invaluable me for the massive volume of information you provide about the housing market as well as finding some kindred spirits. In 2005 I was mulling over buying a condo and had an agent take me to see a couple of properties. The first was a fourth floor walk up, upon seeing the apartment I mentioned to the agent that the floor seemed to be on a downward slope. His response was “Yeah, the foundation is sinking”. The price for this gem was $425k. The second apartment he goes to show me I won’t even get out of the car, because it is in a neighborhood so bad I would have had to stockpile automatic weapons to live there safely. I discovered this blog shortly thereafter.
I have family in the RE industry and heard all of the arguments, “Renting is throwing money away”, “They’re not making any more land”, “You can always rent it out if you have to move” etc. etc. etc. No matter what counter arguments I gave it didn’t matter. Those who bought into this mania could not be reasoned with. Needless to say I am still renting and will be moving in the next 6 months. Had I not continued to rent my life would be immeasurably more difficult. Renting has given me the flexibility to make decisions that would have been closed off to me.
Thanks for all of the work you put into this blog, you’ve been a voice of reason in a time when it was desperately needed.
Amen, my brother! Your courage and wisdom and sense of social conscience inspired me to do my own research and start my blog. Thank you, Thank you, Thank you for all you have done to help so many people and inspire us all to speak up and speak out.
Sincerely,
Athena
Athena
If wine sales diminish will this cause more decline in property values in Sonoma (and Napa)? I would think it could be substantial.
Hi Ben,
I’ve been a long time reader of this blog. I think I got my first link to it from dismal.com or prudentbear.com back in 2005. I came here due to my similar views. Main street media is horrible. It’s amazing the accuracy of the prophecies that have been predicted in this blog. Actually quite sad. In the end, we now know the government has stepped in and picked up the tab by (big surprise) printing more money. The nice thing about it is that I think housing now in my area is becoming affordable again. But only in a wake of devastation. Final lesson learned for me is the saying “privatize profits, socialize losses.” is true. I think this sort of thing has gone on for a long time, but with the advent of the internet and independent blogs, more and more people are seeing that the emperor has no clothes and that what has happened (in my opinion) is a massive transfer of wealth to the very elite of society. Also that greenspan is the biggest hypocrite and cause of it all.
-PT
RE: I replied, I didn’t know what I was doing but it seemed to be helping people.
Ben~
I came over to your blog from a link on the Appraiser’s Forum pretty much right after you started up.
It was like finding “family”, which is pretty much how I regard all the regular posters. We have our petty squabbles and varying differences of opinion, but everybody still shows up for dinner.
Relative to your comment on helping people…
It reminds of a scene in the “Bucket List” where Morgan Freeman says to Jack Nickolson…”You know when you get to the Pearly Gates, the question that’s gonna be asked is not how much “joy”
you received in this life…but how much “joy” have you brought to others.
I think if you substitute the word “knowledge” for “joy”, it pretty much sums up what you’ve accomplished with all your hard work.
My hat’s off to you for a job well done!
You will be well rewarded at the end of the trail.
“everybody still shows up for dinner”
Big kudos potluck for Ben one week from tomorrow at that cool beach on the LH side of the Green just below Swasey’s Beach.
Raincheck at Ray’s Tavern.
Ben,
I’ve been a long time observer and have never before contributed to you. I’ve just put a contribution into an envelope addressed to your PO Box (and I plan to mail it :)). This blog has provided tremendous entertainment, great comfort (particularly in a week like this one), and (hopefully) a bit of wisdom. And, I’ve undoubtedly saved a lot of money by learning from other posters (and if I wasn’t so chicken I might have made a few extra bucks).
Thanks,
CasaTostada (formerly Premature Curmudgeon)
Ben, I discovered your blog right after I sold my house at the peak and was fielding comments from everyone about how crazy I was.
It’s been a sometimes difficult journey (e.g., being a squatter for a bit was a challenge), but you and my fellow bloggers have provided me with a life raft in a sea of really big waves, and I’m surviving, even trying to learn how to surf. Thanks more than you can ever guess.
Nice job Ben….
Ben,
I had already decided that buying another house didn’t make sense for me when I found your blog less than two years ago. I have learned a lot here, from everyone. It hasn’t changed the course I was on drastically, but it has encouraged me that I kind of sort of had the right idea that the wheels on this train were off the track. I thank you and the posters who put the pieces together and shared with me. I’ve shared the knowledge I gained here with friends and family, with mixed results, you all know how that goes.
Reading your post, I thought that all of these things are comments about things that are no surprise here, but a surprise that they are being articulated by the general public. We truely have shared a view of the “greatest financial event of our lives”.
Thank you Ben and all HBBers
Are we in the third inning yet?
[trouble posting, hope this doesn't show up three times!]
Ben,
I had already decided that buying another house didn’t make sense for me when I found your blog less than two years ago. I have learned a lot here, from everyone. It hasn’t changed the course I was on drastically, but it has encouraged me that I kind of sort of had the right idea that the wheels on this train were off the track. I thank you and the posters who put the pieces together and shared with me. I’ve shared the knowledge I gained here with friends and family, with mixed results, you all know how that goes.
Reading your post, I thought that all of these things are comments about things that are no surprise here, but a surprise that they are being articulated by the general public. We truely have shared a view of the “greatest financial event of our lives”.
Thank you Ben and all HBBers
Are we in the third inning yet?
Ben -
Please let me add my thanks. I think I found this blog off of a link from Mish Shedlock’s blog.
This place literally changed my view of home ownership. Through here, I was able to convince my husband to sell and rent. That gave us cash, no debt, and the opportunity of investing into PMs as insurance before the volatility got crazy.
I come here off and on as my poor emotional brain can’t handle the constant stream of info and we lead very busy lives. It’s good to know you and the other awesome posters are here. Thanks again for this place.
Here’s another story for you, Ben. I used to be a school teacher but after my two kids were born, my husband and I decided I would stay at home to raise the kids and my husband would support us with his landscaping business. We had bought a small 3 bedroom, 1 bath house in Sonoma County for $175,000 in 1989 and watched it plummet in value during the 90’s. When I decided to quit teaching, we adopted a very frugal lifestyle and found our money was actually building even though we were a single income family. In 1997, after our second child was born, I suggested to my husband that we try to pay off our mortgage. This was a very frightening decision for us at the time as we had $165,000 left on the principle, but we started dumping thousands of extra dollars into our mortgage and actually paid the thing off in three years. With a paid off house we reasoned that we would be much more secure financially on a single income.
However, just about this time, the house prices started shooting up and I became very worried. I really believe that what goes up must come down and we had dumped $165,000 of hard, physical labor into little stucco shack. By 2004 I was certain we needed to sell our house. We briefly considered buying a bigger place in Sonoma County but the prices were so outrageous and we had become accustomed to no mortgage. We car camped over much of the US and finally decided we’d move to rural Maine. Our house sold on June 30, 2004, for $440,000. We drove all the way across the country and settled in a tiny town in the western hills of Maine and started home shopping.
The more we looked, the more I began to feel the houses were awfully expensive for the locals we were meeting. In December of 2004, my parents gave us a computer so we could keep in touch via e-mail. I had started to hear the term “housing bubble” around this time and I think sometime in Jan. or Feb. of 2005 I googled “housing bubble” and found your blog. Since that time, I have read it every day. We looked for a house for 2 years in Maine. We got to know a lot of folks in our tiny town and I started hearing stories about how the area used to have industries that all left after NAFTA and how the area is prone to severe economic downturns. My husband is a gardener and he desparately wanted to buy a home and be settled with a garden but the more I learned about Maine, rural America and housing bubbles the more I felt buying a home out there would be a huge mistake.
Finally, my husband and I agreed we needed to figure out Plan B. After much discussion we decided to try Canada. We moved up to Fredericton, New Brunswick in July 2006. There were many things we liked about Fredericton but as we spent more time there we realized housing prices were rising there, too, even though wages were not. Almost every home we looked at had a “Mortgage Helper” in the basement (an apartment to rent out.) The grocery stores were handing out mortgages and everyone was paying for everything with credit cards. (Our landlady was putting 4 kids through college on credit cards!) We lived in Canada for a year but with the help of your blog, I began to put the pieces together. We were clearly headed for an economic crash and my family and I were living in an area that historically does not weather crashes well. We had kept all of our money in the US and I was very concerned about having our accounts across the border. After much discussion, my husband and I agreed our best plan was to return to the US. We moved back to Sonoma County and are now renting a nice little house from some FBs who are currently living in Canada! (They are hoping to sell this place next June. Ha, ha!) Thanks to our well-honed frugal living skills we lived only off of our interest and jobs my husband and I were able to do during our travels. In fact we even came back with more money than we left with. My husband reconnected with his old clients and is busy working and we are stashing as much money away as we can while we wait to see what unfolds in the future. Ben, your blog has been invaluable to me and my family during our Housing Bubble Odyssey and I can’t thank you enough! Cheers!
Good Lord. Sonoma to Oxford County ME and then further north to NB????? Had you not returned to Sonoma I may have suggest a proctologist to find your head!!! I’ll take northern CA hands down over anywhere else in North America. If I ever planted there, I’d never want to leave.
RE: We drove all the way across the country and settled in a tiny town in the western hills of Maine and started home shopping.
Patz-Just to make ya feel better, during my appraisal career I ran into a few CA transplants (all exceedingly friendly and outgoing people BTW) who somehow came to think that the typical Maine lifestyle comes off the pages of DownEast Magazine. However, once settled in, they quickly found out you can’t eat the scenery and the natives aren’t exactly what you call the most welcoming new neighbors.
Pretty much all indicated they had been sold on an illusion, and were quite anxious to return home.
You did the right thing not buying.
The state is in very serious economic trouble.
I finally packed it in after 30 years, and I can guarantee ya, I didn’t come out with any $440k in my pocket after 25 years of home ownership.
Count me in among those who you’ve helped. Many, many thanks for the work you do on this blog, Ben.
Ben,
Looking back I made the right decision every time though. Who knew exactly when the music would stop? I got my chair a little early though 
Keep up the great work. I had been what I considered a real estate investor in the 90s and at some point around 2001 I began to lose out on houses because people were paying more. Soon people were paying so much I couldn’t understand where they were getting the money. A coworker of mine listened to me complain literally for years “where the he!! are people getting the money to afford all this stuff?”. He came across your blog right from the start somehow and pointed me to it. It wasn’t long from there before I realized where the people were getting the money. I missed out on the hugest run-up in history though
Thanks for running the blog. It’s nice to know I’m not the only one out there.
Now, if I could just figure out how to make money in the coming era….
Keep up the good work!
Ben,
When I found your blog in a search back in early 2005, almost no one was willing to even entertain the idea that housing prices were unsustainable back then. I knew something was wrong with the market, but I never would have imagined the extent of it without your posts and the community that developed here.
Your efforts have kept me sane and renting while everyone around me was spouting RE cliches and nonsense.
A big Congratulations to you on your success!
-SD_suntaxed
Ben,
I’ve been a lurker since the spring of 2006. Like many others here, I was amazed at what was happening with housing prices and felt certain that they no longer made sense compared to incomes or rents in my area. I discovered the blog doing research to confirm or refute my conclusions, and I’ve been a daily reader ever since. Your observations and predictions (and those of many contributors) have generally been spot-on–kind of scary, in fact, compared to the many economists, realtors, and bankers who frequently state that “no one could have seen this coming.” Nonsense; it was obvious to anyone with a brain, a bit of financial knowledge and a calculator. Anyway, I want to thank you for doing this, and I also want to thank the long-time posters, especially those, like you, who have experience in the housing/financial industry. I wish you great success and prosperity.
epic.
life changing.
you cant make this shit up.
thanks ben.
aaron
and the count begins.
how many here bought a house AFTER READING THE HOUSING BUBBLE BLOG.
and interest rates mattered?
and you were happy?
and you have skin in the game?
and look forward to the future?
and. and ..and …….
Dude, I have been reading here since spring of 2005. Post sometimes as anon.
Been a long wild ride.
I was happy to find your blog. I had sold my last house due to relocation, and sat on sidelines for a year because of a new family member.
In that year, prices here went up 30%. I could only afford (by getting an ARM), the most modest pisshole in a decent neighborhood.
And both my wife and I have PhD’s and work! I am happy with my salary, but the bubble is BS.
STILL on the sidelines waiting for normalcy.
F’ you Greenspan. You screwed a generation trying to stop a recession.
Awesome post Ben.
I look forward to the 12 volume digest set of HBB.
…and in the movie I want to be played by Bruce Willis.
Ben,
Thank you for all the tremendous work you’ve put into this blog, and echo the thanks to all the awesome posters who have made this long, long journey a fun one (remember how it was like watching paint dry, then painting again and watching in dry again…).
This blog is what helped me convince my better half to wait longer than the six months he wanted to wait back in 2004. We made some money in the markets while waiting, too, and when I started questioning my beliefs, you and the posters on this blog gave me the strength to hold on through the ups and downs.
I do think you’ve helped change history. You brought together the news and commenters’ insight in such a way that we were able to see the enormity of this problem on a global scale (hat tip to our international posters).
Thank you for all you’ve done!
We sold two of our properties in 2004 for good enuff $$ in the Mich. economy ( depressed even then ). We made profits on both of them. One was my house from my single days, and one was a condo my husband had inherited from his father, which we rented out for a few years. We then sold it when the association fees and special assessments went sky-high. Our retirement home is paid off, and is presently rented out as an executive rental ( with a real executive and his family in it, LOL ). My husband bought the house we are presently residing in in 2001 due to a job relocation, before anyone really thought things would reach such ridiculous proportions in the RE market. We have a fixed rate mortgage, but in today’s economy, we’ve still lost money on the original value, even though he bought for about $15,000 under what houses in the neighborhood were selling for then. It would cost us about as much or a little more per month to rent a house than we’re paying in mortgage costs ach month, but I’d rather be renting. However, if we have to, we can always put renters in this property if we move again. We’ve had rentals for years so I guess we could handle it. If we move, we’d have our choice of nice homes to rent.
Ben, you’ve been doing a great job and I congratulate you on the wisdom you’ve brought to those who were willing to absorb it. Thank you.
“The bailout scares me,’ said Shane Moody, president of the Destin Area Chamber of Commerce. ‘Who’s going to bail out the government when the time comes? And the time will come.”
Short term rates on bonds have been skyrocketing recently. TOB programs are failing as a result (i.e., short term rates higher on the top floaters higher than the trust assets), not to mention the VRDO remarketing problems. The Lehman swap unwinds, or lack thereof, as a result of their bankrutpcy will cost many local governments millions as they scamble to make termination payments, lose or wait for termination payments owed, or go unhedged in troubled interest rate times. I am already witnessing it. There are other waves of problems forming. Those outside wallstreet circles have no clue as to what is about to happen.
I wish everyone luck during the storm.
Tim,
I’ve also started to worry that payroll processing firms like ADP and Paychex may have issues as well? Normally they have an internal “cash cow” as they lend out about 70% of America’s paychecks to money markets, repo agreements and other short term paper.
Well… what the hell happens when they turn around and say to Mr. Manager “Oh, we’ll be needing that cash we floated you 2 weeks ago and, hello..? Hello?”
Yet the stock market is calmed in a display of blissful ignorance. Although everyone knows I am pro-intervention to the extent necessary, I am against what is on the table. We need to focus exclusively on freeing up the credit markets and lessening the impact of bankrupticies. Saving ppl from foreclosure, politics and sweetheart deals need to be removed from the process. This is an embarrassing circus.
Tim,
Most excellent point ( and we’ll be LUCKY to accomplish that! ) There simply aren’t any resources to spare let alone squander? We here in the PNW watched as WaMu fell on their own sword today and I must say, I took no particular pleasure in it ( even though like many here I called their demise long ago )
I’ve just grown concerned that if paychecks start bouncing ( however temporarily ) it will give huge swaths of the work force the perfect justification to walk away from their obligations. Only further feeding the chaos.
I read the AP piece on the current state of compromise on the bailout. What with capping golden parachutes, public ownership, etc. I’ll be surprised if any firm takes this life line.
I rather drown than give up my principles, he said thrashingly.
(nod to hoz)
The bailout should be difficult and distasteful to ensure it is used as sparingly as possible. And I don’t ever want to hear bullsh*t about the ‘wonders of the free market’ from their arrogant Wall Street Welfare Queen pieholes ever again.
I still have problems with it, but it’s an improvement over Paulson’s “Gimme $700 billion and shut up” proposal from last week.
Some wag on the internet said the CEOs who take the bailout should have to attend credit counseling, the way bankrupt individuals do.
“This is an embarrassing circus.”
I am quite convinced that a time of panic (be it due to war, natural disaster or financial meltdown) is the best time to steal very large sums of money unnoticed.
Tim:
Can you define your acronyms? I don’t know them.
An example of a TOB program is where one puts fixed rate instruments such as bonds or mortgages into a trust agreement, which issues two classes of paper. One that pays interest at a daily or weekly rate (and the holder of such paper has a right to tender the paper back in return for principal and accrued interest) and a residual piece that represents all other interests in the trust assets.
For example - assume you have a $10,000,000 8% note. You can put it into a trust that issues $9,900,000 in floater certificates (i.e., securities that entitle you to interest thereon resetting daily or weekly at the current daily or weekly rate payable from cash flow from the note, with the right to tender back weekly or daily, with such put right normally backed by a standby purchase agreement or similar agreement from an insurer or bank, backed by a reimbursement agreement from you - ie bank takes first hit, but you, as orginator and residual holder are obligated to pay back the bank) which you sell to the public. You can retain the $100,000 residual which equals the difference in the rate paid to the floater holders and the cash flow on the note. So for example, if the weekly rate is 3.5%, the floaters get interest at 3.5% on $9,900.000 plus the right to tender back weekly, and the residual holder gets 4.5% interest on the entire $10,000,000 less fees and costs for trust maintenance and credit and liquidity support (i.e., whatever is left after the floater holders are paid what they are owed less transaction costs). This is a way to create massive leverage as you are out very little in principal but get huge rewards. Recently, the daily or weekly rate, as applicable, has shot up to the point it is higher than the fixed rate on the trust assets. Daily or weekly rates have spiked above 8% in some cases because they view all asset backed securities as toxic, even those that have little performance risks. This is higher on the rate of the note. Due to the inability of the debt service on the note to cover cash flow on the floaters the trust explodes. This causes the trust originator to take it all back on their books. The trust originators are usually banks. So rather than being out only $100,000 and keeping the residual. They are stuck with all $10,000,000 of the interests in the trust assets. This eats up their cash reserves and destroys there profit stream. Further intensifying the credit and liquidity crisis. We dont need runs when we have these huge buy backs occuring to cause major problems.
Hope this is clear and makes sense. I type on a blackberry and dont have the greatest eye sight so proofing and editing is almost impossible on this thing.
Great post, Tim. Clear and well written. Thanks for the education and the Herculean effort.
Now…another question…do you have any heartburn medication you can pass my way? I need some ASAP.
This is some mightily unsettling shit, isn’t it? I know very little compared to numerous other posters on this blog, but I understood what you’ve said here and have my eyes wide open.
Thanks again.
Yes, it makes sense. Sounds like some banks created some very risky “instruments”, and are now eating their just desserts. What do I care? If you read the forum, you will see that I suggested to Congress that they guarantee counterparty contracts for the failing organizations.
It’s mind-numbing nonetheless. My head is aroar with all that is going on. What to do…what to consider…what to dismiss. Gad.
I would hope that all those who have money in annuities re-read and heed Tim’s post. It seems things could turn out very badly for them as well.
I replied but my longer posts are not getting through. Hopefully it will show up.
Can you be a little more clear regarding what’s about to happen? I’m not being facetious, you always provide great info so I’d appreciate more details.
Thanks!
My longer emails are not working, and it’s a hard concept to explain. I will be brief so it gets though. Banks bundled up notes, mortgages, etc. and cut them up into pieces. They then sold the majority of the pieces to the public in the form of securities that bore a daily or weekly floating rate that resets, and kept the residual (whatever is left over from cash flow on the underlying asset after paying the weekly or floating rate). The reason there was always an excess historically was that the assets of the trust were long term instruments such as a 30 yr bond that bore interest at say 7% or more (a rate at which the daily or weekly rate would not normally be expected to exceed). Short term rates have shot up above 7% in the last few days because of the current credit crisis and uncertainty of our banking system. This causes the trusts to implode as their obligations to the floating holders is greater than the cash flow of the underlying assets. This results in a cash crunch, and destroys profitablity making failure more likely. Short term rates of this magitude are an anomally but very dangerous. Even money markets are freezing up. If the markets are not calmed, there will be more big failures. As entities such as Lehman fail, contracts with entities go into default. The failure of the healthy entities to get amounts they are owed under contracts with the dying entities sickens the healthy entities. This contagion is not contained and spreading rapidly.
Part I. My longer emails are not working, and it’s a hard concept to explain. I will be brief so it gets though. Banks bundled up notes, mortgages, etc. and cut them up into pieces. They then sold the majority of the pieces to the public in the form of securities that bore a daily or weekly floating rate that resets, and kept the residual (whatever is left over from cash flow on the underlying asset after paying the weekly or floating rate). The reason there was always an excess historically was that the assets of the trust were long term instruments such as a 30 yr bond that bore interest at say 7% or more (a rate at which the daily or weekly rate would not normally be expected to exceed). Short term rates have shot up above 7% in the last few days because of the current credit crisis and uncertainty of our banking system.
Part II. This causes the trusts to implode as their obligations to the floating holders is greater than the cash flow of the underlying assets. This results in a cash crunch, and destroys profitablity making failure more likely. Short term rates of this magitude are an anomally but very dangerous. Even money markets are freezing up. If the markets are not calmed, there will be more big failures. As entities such as Lehman fail, contracts with entities go into default. The failure of the healthy entities to get amounts they are owed under contracts with the dying entities sickens the healthy entities. This contagion is not contained and spreading rapidly.
Tim,
Thank you for your very insightful post (as always).
This is the whole “borrow short, lend long” thing, right?
I never did understand that. It assumes short-term rates will always be lower than long-term rates or that rates will not be going up, no?
Sorry so many questions!
Don’t they then take some portion of that $9,900,000 (received from sale of short-term securities) and do it all over again? Or is that amount protected within a single trust?
A few answers:
“I never did understand that. It assumes short-term rates will always be lower than long-term rates or that rates will not be going up, no?”
Fixed rate assets were placed in the trusts when it was created, such as fixed rate mortgages. These rates do not reset. The floating pieces coming out of the trust, however, reset daily or weekly. It is the new reset rates that are causing the problems. The fixed rate on the trust assets are not subject to reset. Also, theoretically, if you believe rates will spike short term but be much lower after a short period of increased rates long term rates could be lower (e.g., say you believe rates will be 10% for 1 year and then be 1% for 20 years, you would want 10% for a less than one year obligation but may be happy with 5% long term return, but such situations are rare), but again the real problem is that assets that went into the trust were fixed prior in time and dont reset.
“Don’t they then take some portion of that $9,900,000 (received from sale of short-term securities) and do it all over again? Or is that amount protected within a single trust?”
There are complicated rules regarding reserves, but that aside you are correct. Putting aside reserve complexities, say you had $15,000,000 in cash, you could buy 10 million in fixed rate notes, sell a $990,000 piece and repeat again and again so your exposure is many, many times the cash out the door. Also the residuals were posted as collateral in many circumstances. Last year a $100,000 residual could be valued at millions allowing for greater leverage. The mark to mark on many that were valued in the millions last year is now zero. That requires cash collateral replenishment under collateral posting requirements. Cash is hard to get. Creating chain defaults in the system.
Thank you, Tim!!!
I don’t know if I could have figured it out by reading your longest post 3 times …. but I did a glimmering by reading each new attempt. So, thanks for your efforts.
“Those outside wallstreet circles have no clue as to what is about to happen.
I wish everyone luck during the storm.”
I don’t know the details, but I know the general principle: Sh!t rolls down from Wall Street to Main Street.
We saw this big time back in the mid-1970s (virtual elimination of arts and music programs in public schools) then again in the early 1980s (major cutback in pothole repair)…
BTW, San Diego sure does have a lot of pot holes for a city with no snow, ice or salt!
RE: Tim’s informative posts
The convoluted financial techniques such as the ones explained by Tim are representative of the dark cloak under which enormous wealth is extracted from our economy by Financial Wizard activities that produce zero productive output. Congress is a similarly credentialed institution except the players there sell their soul for peanuts compared to the financial barons.
“The Imperial Palace grounds were said to be worth more than Florida.”
It is becoming easier to spot the homeless in Tokyo. Two years ago it was the sight of fifty plus grown men dozing in front of Ikebukoro station - this trip it was daytime public urination in Ueno Park and even a dude passed out on a Shibuya sidewalk.
Fifteen years plus of economic stagnation takes a toll - even amongst prodigious savers.
Say, how about Buffett peddling fear today on the MSM? Any Buffett worshippers care to explain?
I have a friend that had retail locations in Guam, Saipan and Tinian, and business was going gangbusters in the 1980’s, with almost all of his business being, selling to Japanese tourists, and by 1993 he had closed up 1/2 the stores, as the few Japanese that were still coming, weren’t buying anything.
What a crazy guy he is…
I get a call from him in 1992, and he wants to know how many copies of the Madonna book “Sex”, I can locate for him?
I tell him i’m not in the book business, but I can buy it @ 40% off of $50.00 list @ Crown Books (plus tax) and ship them ups to Guam pretty cheap, and he tells me to buy as many as I can get, as his Japanese customers want the USA version.
So, I send my minions out all over Los Angeles & Orange County, buying 27 here, 14 there, 31 here.
Maybe we bought like 700 books, in total.
I think I made $6 a book…
Craziest bit of business i’ve ever done.
Oh… ‘that’s’ what “Viagra Economy” means!
They’re not making any more land, but land can become so overpriced that it’s essentially worthless to the real economy. IMO, real estate is both the safest and riskiest investment you can ever make. It just depends on whether or not it is sucking up a disproportionate amount of a society’s capital from activities that provide legitimate growth.
I’ve heard from a Japanese neighbor that it is socially acceptable in Japan for men to urinate in places like golf course, though not acceptable in places like a city sidewalk. I’m not sure about a park in Tokyo, though.
A friend was @ a Japanese Major League Baseball game, and the pitcher was Japanese, and the batter up was an American mlb reject, and the pitcher threw at the batter’s head a few times, and after the third helping of high hard heat heading his way, the batter took off and chased after the pitcher, who was running away from him, and it went all over the outfield, Keystone Cops-like, until the batter caught up and gave him some noogies to the forehead…
From my childhood, I vividly remember an episode of the Japanese TV show “Ultraman” where the eponymous hero put out a fire by urinating on it. The scene was shot from behind the big silver dude, and it was pretty obvious what was going on. I’m amazed it made it past ’60s US television censors.
It’s socially acceptable here to pee at the golf course also. You’re just hanging out with the wrong crowd.
Ben
And thank you! I have read / contributed to your
blog practically since the beginning. It has been
a great source of information. In particular,
it is great to correspond with many like-minded
individuals.
I have passed the HBB URL to many others that
I know. As recently as last year, most of my
acquaintances were in denial that the local
(So Cal/Orange county) real estate market
could crash. Oh, how quickly attitudes change!
I’ve given ben’s URL to countless individuals, but few of them ever went, and none of them ever got it. I could never understand how in the world a person could be so stubborn, how a person could so easily abandon logic and reason, to blind themselves from the fire and walk right into it. I don’t think I’ll ever be able to understand what makes people do that.
I responded, but it hasnt shown up. Hopefully, it wasnt too long to get through the filters.
Fed Reserve Bd Governor Fisher (Dallas) has been misquoted in the press on the bailout, so here’s the text.
http://dallasfed.org/news/speeches/fisher/2008/fs080925.cfm
Goodbye Ben - Does anyone in Congress have a pair? (scroll down and watch this video)
http://market-ticker.denninger.net/
Ben and community-
Your intelligence and wit helped keep our sanity and not lose our shirt/skirt. Salary vs. housing prices didn’t make sense to us in So Ca, and this community validated our belief system. Love to you all.
Fisher’s address is well worth a read. I was impressed by a number of his comments…
I think I just read we are going to be 455,000 dollars in the red for every person in the country.
So. That’s 1.5 Million or so for my family.
How is this medicare/SS thing supposed to work again?
This is the law of unintended consequences, as applied to the Feds efforts to stamp out inflation for the last 30 years, and our idea that debt is somehow the same as income.
The actual total combined US debt however is around $60 trillion or $175k each, so not to worry
“‘Let’s hope we are all wealthy and retired by the time this house of cards falters,’ one unidentified analyst told a colleague in a December 2006 e-mail, according to the SEC report. The e-mail was signed with a computerized wink and smile: “;o). ”
Boooooooooooooooooooo!
A few somebodies deserve to be tarred, feathered and rode outta Manhattan on a rail.
I re-read the post and still couldn’t find that. Can you link the exact quote? That is truly hideous, and given that was well past peak, no particular vision required to make ‘that’ statement?
And of course whatever you do, don’t be a stand up guy/gal and report it to regulatory authorities!
Din, the quote is contained in Ben’s copy above, and is near the bottom of the original Bloomberg story, here.
ET-Chicago,
Thanks for posting that! Very interesting read. Uh… I’m not sure how much “reverse engineering” any of us would need to determine that most of this was cr@p paper but whatever..?
The article also points out that the Rating Agencies were under immense pressure to “not lose deals” and just like you can’t be “a little bit pregnant” once they compromised their integrity in the slightest, it opened a flood gate.
Not surprising that eyebrows were raised as early as 2004 ( which of course you know, was like WAY before the “boom” right? )
On the forum, I commented that it was really clear to me around Spring 2004 that we had a serious problem.
A lot of economic variables were not behaving the way I expected. Housing was just one of them. Of course, at the bottom of all of them was loose credit.
IIRC, neg-am loans were being bandied around for my “high earner” friends, and it simply made no sense (”just rent”) so I remember being confused.
Another clue came a little later when “first edition” prices of books skyrocketed. In particular, Joyce’s Ulysses went through the roof. This made no sense either. Either the world has created legions of new lovers of modernist literature (highly doubtful), or there’s a basic problem somewhere else.
Anyway, I found Ben’s old blog (but didn’t comment much) and also Toscano’s blog, and the rest is history.
Can you say, “smoking gun”?
JAIL!
Crisp and Coles real estate careers are OVER:
http://bakersfieldbubble.blogspot.com/2008/09/no-soup-for-you.html
That’s part one. Part two is jail time. Part three is will they reform the system so that the real estate hydra can no longer grow replacement heads.
Crispy, it’s been a long road and you stuck to it through thick and thin. Thanks for keeping us all posted.
Thanks!!
Ben,
why not make a nice ticker or link to the recent infamous JPM presentation that predicted 58% decline in CA, 64% decline in FL and the bloomberg article that confirms a 41% decline in CA from the peak.
A year ago, people at dinner parties would have thought that such n numbers were absurd.. now they are the reality.
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a4T6.PE8BqTQ (they have hidden the 41% drop deep within a long article).
Merrill Lynch & Co. analyst Edward Najarian expects the losses to be in the 15 percent to 17 percent range, according to a Sept. 9 report. Housing prices in California declined by a record 41 percent in August, the 11th straight monthly fall, the California Association of Realtors said yesterday. Almost half of Wachovia’s option ARMs are in California.
Should I, after tea and cakes and ices,
Have the strength to force the moment to its crisis?
But though I have wept and fasted, wept and prayed,
Though I have seen my head [grown slightly bald] brought in upon a platter,
I am no prophet—and here’s no great matter;
I have seen the moment of my greatness flicker,
And I have seen the eternal Footman hold my coat, and snicker,
And in short, I was afraid.
~ Leslie Appleton-Young
No! I am not Prince Hamlet, nor was meant to be;
Am an attendant lord, one that will do
To swell a progress, start a scene or two,
Advise the prince; no doubt, an easy tool,
Deferential, glad to be of use,
Politic, cautious, and meticulous;
Full of high sentence, but a bit obtuse;
At times, indeed, almost ridiculous—
Almost, at times, the Fool.
- Ben Bernanke
Wierd… where I live (SF Bay Area) people still think those numbers are absurd. People here actually still think the value is the same or hasn’t gone down much. Some actually think the value has gone up!
Just a few days ago, the President of the United States comes on television and says “the economy is up $hit creek”. The day after, a co-worker is talking about pulling equity of his condo to buy a new Audi.
Go figure.
Just a few days ago, the President of the United States comes on television and says “the economy is up $hit creek”. The day after, a co-worker is talking about pulling equity of his condo to buy a new Audi.
yep
“Even if they wanted to buy, builders and buyers have trouble finding banks willing to offer a mortgage on terms they can afford, he said.”
No! Actually, builders and buyers have trouble finding banks willing to offer a mortgage on terms they CAN”T afford.
“The town is so private is doesn’t allow for sale signs on properties and kept out of towners off its pristine beaches until the Connecticut Supreme Court ordered them opened several years ago.”
Would brown lawns be considered a “sign?”
Nope,
The only summer our lawn was green was the one it was for sale.
From the original post:
“With housing sales down, the rental market may be where the action is. Sellers with no buyers often are opting to rent their homes and investors are adding properties. ‘There’s definitely been an increased demand for rental housing. There’s a lot of buyers that can only rent right now. A couple of my neighbors that moved from Florida and lost money on their homes can’t afford to buy right now,’ says Carlos Cooper, a former commercial real estate broker.”
“Sheena Buntyon will lead Village Property Management, which is currently handling 56 properties. ‘With the economy situation and foreclosure situation right now, it’s a great opportunity for us to start this so we can be the pioneers in the downtown urban sector,’ Buntyon says.”
True story from down the street: A longtime neighbor decided to buy a house elsewhere. He rented his former residence to a set of tenants who have proven to be a huge headache for me and my neighbors.
We suspect that they’ve transitioned from merely being obnoxious people with a pack of nasty, barking dogs to being drug traffickers. Three police officers were over there yesterday.
I’ve heard (via the grapevine) that the property owner (an accidental landlord, methinks) wasn’t too happy with these tenants within a few months of their moving in. We, the neighbors, sincerely hope that he grows a pair and tells them to move out.
Moral of the story: Opting to rent your house isn’t as easy as falling off a log. Tenant screening is essential.
RE: the property owner (an accidental landlord, methinks) wasn’t too happy with these tenants within a few months of their moving in. We, the neighbors, sincerely hope that he grows a pair and tells them to move out.
Hopes nobody’s knocked up.
Maine real estate tenant case law has demonstrated that if the current tenant is a pregnant woman, she and/or her significant other, shall not be dispossessed of the property in the fall or winter months, even if rent is currently in arrears; and that the landlord is ordered by the court to carry the fair market rent burden of the tenant until snow clears in the spring…
Amateur landlording ain’t for the faint hearted
Amateur landlording ain’t for the faint hearted
no it is not!
If you are the “owner”, I would say consider renting out your house only if you can easily easily afford leaving it vacant for a month, if you live nearby, if you enjoy fixing toilets, if you are thoroughly prepared to start legal proceedings two days after the rent is due and if you can easily afford costs associated with legal proceedings. You have to project an attitude of seriousness and intent onto all your dealings with prospective and real tenants.
“Japan spiraled from dizzying highs. The outcome: a 15-year recession. Depressed housing prices that still have reached only 40 percent of their 1990 high. Stocks that remain at 30 percent of their 1989 peak.”
And Japan was/is a nation of SAVERS…
The last article Ben posted above was written by a journalism student at cal poly. Really well done and a good read. Hopefully she can put her skills to good use once she’s out of college.
Ben (and fellow bloggers),
I thank you all for giving me mental support while I witnessed the RE market in San Diego from 2004-2007 when I was stationed there in the Navy. At the time I had emotional regret not jumping on the apparent gravy train by purchasing a house, but my cognitive side wouldn’t allow me to sign papers that had loan amounts that looked like phone numbers. So I “threw money away” and rented. Of course, things have progressed the way we non-greedy and responsible folk thought they would. I now know a lot of unhappy (and underwater) home-dwellers. But I am absolutely disgusted that some of my tax dollars may be used to bail out even so much as one bankster or flipper with the No Banker Left Behind Act 2008. Do not allow the media, politicians or even your neighbors to extort you into supporting this theft. Even if it does hurt us all by not passing, at least we will have some integrity, which to us bloggers is priceless (unlike banksters and politicians).
“No Banker Left Behind Act of 2008″ LOL!
I was stationed there 1986-1989 and came ‘this’ close to buying a place just before the Berlin Wall fell and base closures were the order of the day. Good on ya’ shipmate and stay cool.
No Banker Left Behind Act of 2008 => The U.S. Septic Bank
The reality is that the costs associated with uncontrolled market collapses and bankruptcies would be higher than an orderly unwinding, and would still be born by the “taxpayer” directly or indirectly. That said, that does not appear to be the primary focus of the clowns running this circus.
Proof?
I’m not sure how you could know that. All it would be is more orderly.
Personally, I’ll take my chances with no bailout if we can get those house republicans to hold. I may come out ahead.
Judging from constituents appeals to their congressfolk, it seems the vast majority of Americans would rather “take their chances” with no bailout. I count myself among them as well and I’ve let my senators and representative know that. Its going to be ugly either way.
The constituents are not generally in contact with the trading desks and don’t understand what is happening within the banking industry right now. Politicians may care about the opinions of those in the dark that vote, but those subtantively trying to protect this Country from behind the scences certainly shouldn’t. Have we been so Bush-asized that any constituent’s opinion is worth something regardless of faulty assumptions or lack of knowledge??????? I am for democracy, but an uninformed democracy in crisis situations is disasterous. Screw the Me Me Me crowd. It is what sold out this Country and I will not tolerate it any longer. Before ppl whine about what they are paying for, they need to understand the consequences of not paying. When bankruptcies pile up, which is the inevitable result of non-intervention at some level, taxpayers pay period. I am not talking about anyone on here that has an informed opinion and is against bail outs, but am referring to the media asking ppl at walmart what they feel about the banking crisis when these ppl couldnt pass basic tests on how the industry works, or intelligently discuss the failure to act. There basic view is I dont want to pay for chit. Too damn late for that.
That said I have stated numerous times that I oppose many aspects of the plan. I only support making sure that major institutions are kept alive long enough to satisfy their obligations to not result in killing off healthy entities that have outstanding contracts with such entities. Much of this can be resolved by brokering deals to have those failings acquired as we have seen with WaMu and BS. I would not agree to the plan without revision.
Im living it right now. The transaction costs with dealing with Lehman right now in connection with derivative unwinds are going to cripple many of those that have outstanding contracts with them. The credit and liquidity markets are totally frozen right now. I could post a long thread explaining all of the ramifications, but I have already tried earlier today and they are not making it through. Unorderly gyrations of the type occuring now with respect to credit and liquidity markets cause related defaults that occur simply because of the violent gyrations. Those defaults cause other defaults and so on. The swings are causing more damage right now than the underlying realities.
OK, so stop dealing with Lehman right now. BFD.
BFD? There are billions of dollars worth of unwound Lehman transactions. You do not have an option of not dealing with someone whom you entered into a contract with before bankruptcy for which there are outstanding obligations. If you need the cash flow and/or hedge to stay afloat you are SOL even though you would not be otherwise having cash flows problems. In the last week, you cant even get replacement hedges. There are any entites include town, cities and municipalites that are facing their own cash problems because of this mess and as it magifies there will be defaults. Ppl cant pay what they dont have because they lost their hedge or they cant get what they are owed. These are not ppl that recklessly took crazy mortgage risk, but simply did anticipate for the collapse of major institutions.
Tim, if you want to send a longer thought/post to bluprint55@gmail.com I can post it on an external site and put a link here.
Tim,
The freeze you speak of due to Lehman BK is exactly the argument against a “bail out”. The leverage is too high. You can’t un-ring a bell.
Tim, I think you are fearmongering. You haven’t given us a clear argument for how it’s better to use the Bush bailout than to use capitalism. It’s all just been alphabet soup and disconnected generalizations from you. I have seen you post coherently before, so I don’t know why you won’t do the same right now.
My longer posts are not showing up. Remarketings of billions of dollars of securities are failing or impossible given the rise in short term rates during the last 10 days. This will drive banks further into the brink as they struggle for cash they dont have. I do not support the Bush plan. Part of my problem giving clear examples is that what I hear is from the traders at banks I represent and not from the media. I am not at liberty to disclose the details. Not even money markets were working property this week. Short term rates have shot up past 8% in many cases. Talk about a serious problem.
Tim, start a blog of your own just to post your own longer posts. I for one would be glad to get your thoughts on the situation. Certainly the media are covering up the issues you have referred to.
So, Tim ,if the situation is the emergency that you state ,than
why aren’t the politicians being honest with the public .I don’t see how did would be anything but people taking loss on the security that tied to a unregulated fund .
I’m totally going to paraphrase here, and am making assumptions I’m not qualified to make. But here is what I think Tim is saying:
Banks make money by borrowing short-term money (usually lower rates) and lending long-term (usually higher rates). They make the spread in the middle. I believe there is extra leverage in there as well.
Right now, Tim is saying short-term rates (what banks have to pay) are HIGHER than the long-term rates (what banks take in).
What was once a profitable spread is now a loss.
Not sure if this is what Tim is really trying to say, but that’s my amateur interpretation.
———————-
BTW, I agree that this is one of many parts of the system that has caused our current “crisis” and this needs to be unwound. Taxpayer money should not be used to encourage this kind of gambling.
The securities are backed by insurers like Ambac, MBIA and AIG, with reimbursement obligations of the originators. While it is true that these companies should take their hits for their bad decisions, these entities have trillions of obligations owed to less culpable entities. As they go bankrupt and such obligations are not satisfied chain defaults are created.
As far as honesty with the public, I have never really seen that out of politicians, but it was made very clear that if something is not done disasterous results will occur. Politicans cannot name the entities at greatest risk of going down or all the possible scenarios, nor should they necessarily, as the run will make the worst outcome more probable.
Very close CA Renter. The only caveat is that rather than viewing it as borrowing and lending simultaneously, I am referring more to the securitization process (i.e., what is done on the back side with the existing notes as opposed to current long term rates). The real problem is that they were using fixed (actual or synthetic) rate mortgages to get leverage based on assumptions of future short term rates and risk of defaults that no longer are holding true because of extraordinary circumstances. There is limited faith that the insurers will satisfy their obligations with respect to tenders creating spreads that are irrational. An interesting commentary is that Ambac insured paper is trading for less than the same paper not insured by Ambac. This is not rational under any circumstances, other than traders being told by buyers I dont want any Ambac insured paper period. Forseeing this is why I stated as soon as the Ambac and MBIA downgrades were announced that this was going to bring the credit crisis to a head. As for what I mean by synthetic fixed rates, please note that even variable rate debt can be synthetically fixed via total rate of return swaps prior to being securitized.
“”So, Tim ,if the situation is the emergency that you state ,than why aren’t the politicians being honest with the public.”"
I don’t how old you are but that is truly naive and were it not for the complete seriousness of the situation it would be funny as hell to boot.
“…it was made very clear that if something is not done disasterous results will occur.”
Financial market version of yellow cake uranium?
“There are a lot of buyers that can only rent right now”….hm, not really buyers then, are they? I’m sure there are a lot of “Superheros” that can only walk right now too…not sure waiting for superpowers to kick in will help :-).
Don’t forget the porn superstars that cant lose their virginity.
“The auction comes as the number of real estate sales are off 34 percent from last year in Greenwich [Connecticut], but the median price of $1.96 million is only down 4 percent, according to Healy’s firm.”
It’s 11:59 pm, Greenwich time.
Luv,
Jen
1 minute to zero hour?
not on subject, but I thought you’d like to read this Aladinsane… others too.
http://online.wsj.com/article/SB122231175151874367.html?mod=googlenews_wsj
shizo,
Once the manipulation of computer-blip precious metals is shown for what it is, a mechanism to keep prices down, and the practice is stopped…
Imagine what will happen to the physical price of the precious?
Doesn’t the US keep gold reserves as a hedge agains the dollar? That’s what I’ve always thought.
Would t’were that it were, V.
How would that make the bankers any money?
“It’s a good time for people entering the market without something to sell,’ he said.”
Not nearly as good as it will next year! Or the year after that!
If things go the way it goes, next year we will be able to buy a house with just down payment that some of as saved, whole house , like J.P. Morgan bought WAMU…
One of my concerns with this RTC II concept is that they will try to package and sell in bulk to the chosen few at enormous discounts. God forbid we let 100% of the savings pass to the end-user. It’s just too unamerican.
“One of my concerns with this RTC II concept is that they will try to package and sell in bulk to the chosen few at enormous discounts. God forbid we let 100% of the savings pass to the end-user. It’s just too unamerican.”
The cabal will take title of the prime cuts using taxpayer money for the financing. Un-American? You bet!
If that’s the case, maybe the agents ought to get the buyers to start paying their commission.
Agents?
“On the flip side, there’s the continuing saga of Washington stepping in to prevent complete failure on Wall Street. ‘The bailout scares me,’ said Shane Moody, president of the Destin Area Chamber of Commerce. ‘Who’s going to bail out the government when the time comes? And the time will come.’”
=============================================================
Moody is on his.
‘We’ve been destroyed by the bank,’ Ana Esquivel said, tears streaming down her face. ‘The bank is too big for us.’
The bank might have played the part of the enabler, but in no way were they responsible. You can blame your own greed, ignorance, and fear for your loss.
It’s really difficult to be a Buddhist these days. The four Brahmaviharas? I kissed Karuna good bye a awhile ago and Upekkha is about to follow shortly too.
Whiners …
Congrats on the blog, Ben, i have spent a lot of time here over the last few years for shizzle.
I remember having a conversation with a neighbor a few years ago, an open-minded sort who asked me what i thought the end result of the bubble would be? Well ah, i guess increasing foreclosures leading to cascading bank failures and maybe even global economic collapse. Felt weird to hear those kinds of phrases coming out of my mouth, i worried i was turning into some kind of nut.
How reassuring to find out I’m ok. guess it’s ok to start drinking again, huh? not that i ever quit…
Ode to the Beach Boys…
Lets go serf’in now
Everybodys learning how
Come on and safari with me
(come on and safari with…)
Early in the morning well be startin’ out
Some appartchiks will be coming along
Were loading up our pitchforks
With the points sharpened
And headin’ out singing our song
Come on (serf’in) comrade wait and see (serf’in safari)
Yes I’m gonna (serf’in) take you serf’in (serf’in safari)with me
Come along (serf’in) comrade wait and see (serf’in safari)
Yes I’m gonna (serf’in) take you serf’in (serf’in safari)with me
Lets go serf’in now
Everybodys learning how
Come on and safari with me
(come on and safari with…)
At huntington and malibu
They’re shooting crack
At rincon they’re powdering the nose
We’re going on safari to devil’s island this year
So if you’re coming get ready to go
Come on (serf’in) comrade wait and see (serf’in safari)
Yes I’m gonna (serf’in) take you serf’in (serf’in safari) with me
Come along (serf’in) comrade wait and see (serf’in safari)
Yes I’m gonna (serf’in) take you surfin (serf’in safari) with me
Lets go serf’in now
Everybodys learning how
Come on and safari with me
(come on and safari with…)
http://www.youtube.com/watch?v=FS7SUFz36lg
Diana Olick is a tool. I don’t know what made me want to vomit more, her assertions or her pic. I wanna see stockades in Times Square. And various rock-laden fruit and vegetable missiles careening thru the air at high velocity. NYC Boy and FPSS, get on this ASAP.
http://www.cnbc.com/id/26904853
Ben:
Thank you for all of the hard work you have done to present housing bubble information and allow for a free discussion of ideas and opinions.
I knew I couldn’t afford a home in SoCal, so I didn’t even attept to try - my assumption being that the only reasonable way to buy a home was to put a significant percent down and have an affordable payment - and at those prices I knew it was impossible. I just chalked it up to crazy California people buying houses.
I don’t really remember how I happend onto this site, but when I did, I was struck by the things people were saying. I guess I never thought exactly how people were buying these homes. Thanks to this blog I educated myself as to exactly what happened and I was stunned.
I spoke with many people about this crazy situation - some listened and believed, some did not, some have come around over time. I take no solace in being “right” and I am certainly not smarter than everyone else. The simple application of common sense leads one to the conclusion that all of this craziness had to stop at some point.
My frustrations, which sometimes appear as posts on this blog, come from the fact that all of this was preventable. I can only home that the magnitude of this financial disaster will lead to real changes in people’s attitudes about debt and financial responsibility. If that truly happens, perhaps it will be worth the terrible cost.
JohnF
Oh yes! Ben, though I may disagree with some of your opinions, there’s no doubt your blog rocks in a BIG way. Keep rocking, and let us know what the NEXT big bubble is in, my guru.
Thank you, Ben, for all your work putting this blog together and keeping the rest of us informed.
I’ve been reading the HBB since November, 2005, and was the motivation behind selling my house in Visalia, California shortly thereafter and not buying again when I moved to the north state. Even though prices in Eureka have “only” declined about 15% from the peak, the markets elsewhere in the state have tanked and I’m sure the REALwhores in Humboldt county will eventually see that this place is not “special.”
What is fascinating is that the liberal MSM still does not get it. It is not about “keeping the poor homeowner victims in THEIR homes.” Rather, it is about the fraud and speculation that is currently unseating the United States of America from its economic throne. I have no idea how all this will pan out, be in hyperinflation in a desperate attempt to keep the game going a little while longer or the deflation in assets currently underway AKA Japan-style. However, Ben and all the posters here have made me and my family more knowledgeable and prepared for whatever comes along.
Thanks to everyone!!!
RE: Rather, it is about the fraud
YUP, that 5-letter word “FRAUD”…it’s exactly that’s what this is all about, Anthony.
Fraud in the appraisal report; fraud in the origination; fraud in the underwriting; fraud in the securities ratings, fraud in the GSE accounting; fraud in the MBS sales to the world from the Wall Street gangsters.
And it’s not even on the radar relative to the any terms of the bail-out.
No where do I read the words “FEDERAL FELONY” bandied about for curing any of the above.
The next victims…scamming the fixed income elderly with reverse mortages who must cope with the coming hyperinflation.
“We’re going to run out of water next year, and people don’t have a clue,” said Mark Weston, general manager of the Helix Water District in La Mesa”
http://www.voiceofsandiego.org/articles/2008/09/26/news/01restrictions092608.txt
=============================================================
All indications point towards a less than normal snowpack in the Sierra Nevada this winter, and what’s the value of a house in San Diego going to be, when it has no water?
OMG, people will have to cut back watering their lawns and washing their cars! We’re doomed!
Lol.
Where do you think your water comes from, king?
Where I live most of it comes from wells.
Aquifers around you are at the lowest levels seen in quite a long time, and being in an area with millions of people sucking at the teat, spells future problems for many.
==============================================
“An underground aquifer that stores much of the region’s water supply could reach an all-time low by year’s end, officials said.”
“The Main San Gabriel Basin, which spans 167 square miles beneath the San Gabriel Valley, is approaching its lowest water level in 75 years. “It is not the lowest we’ve ever been,” said Carol Williams, executive director of the Main San Gabriel Basin Watermaster. “But if conditions continue, it is very possible we might hit a historic low by the end of year.”
Whittier Daily News
Looks as if I might have to cut back watering my lawn. No big deal.
I know a desert dweller who has to haul in all his water. I learned from him how little water each of us really needs.
As is usually the case the forces of Supply and Demand will act to ration out water if it gets to that point.
Hope all the experts are wrong, and we get snowed under up here, because i’m anxious to wax my skis poetic in the silent kingdom of the Giants.
One of my wells is down to 35′ static level. Last summer this time it was at 23′. It averages around 25′ in August.
Failed to note location, mountains of northern LA county.
Alad, I appreciate your posts, but you have to lay off the doomerism. This ain’t TB2K or GLP, homie.
Could we go Easter Island? Sure, but do you want to be like one of those fools, buried in ash at the boat houses of Herculaneum, with their little satchels of mellow yellow strapped about their persons?
It sounds like you do.
Ben, how do I get rich-as-shit off this thing?
It is fun to be gloomy about all the stuff we are running out of (water, energy, gold, etc)… folks have been doing this at least back to the time of Reverend Thomas Malthus.
Almost forgotten: HOUSES
Muggy,
Try and imagine in your mind that Californians have been just as deceived about the health of deposits of freshwater, as the rest of the country has been duped by Wall Street financially…
It’s that bad.
I wish it wasn’t so, but it is.
Fair enough. I don’t know enough about Clownifornia. I spent a weekend in L.A. and couldn’t stand it. I listened to the Red Hot Chili Peppers in middle school and that is about it.
My real question is this (because you’re a smart guy): are you really going to give a crap about your wealth in a Mad Max scenario? Seriously.
I’m not making fun of you either. I lived in NYC pre/post 9/11 and decided that I could no longer stand packing a bugout bag every day and wearing sneakers because I might need to run… I finally said, “f%ck it” and left. If your daily routine involves preparation for collapse/death, you need to:
1. See a shrink
2. Quit/start drinking
3. Move
4. All the above
Maybe you are truly insane, and that’s cool, but I can’t imagine your friends and family letting you go that far down the hole. At some point you have to fight for something.
Any bailout protests here in Los Angeles?
Hi
Landlord in FTL. Just rented a SFR for $100 more per month than last year. Value is crashing, we protested tax ass. reduced from last year by 90K. down to 280K.
but Rent rose. tennant looks good, first last +security + pet deposit. Blog is great. Ben been lurking for 2 years.
My RE portfolio is down quite a large ,but now looking for more SFR. Thanks Russ
Posting from the Fed Up site
————————–
TRILLION DOLLAR MARCH
Update Friday 8:00 AM
Where: West Lawn of the Capitol Building
When: Saturday, Sept 27, 11:00am to 5:00am
Priority ONE, get the word out, phone, email, blogs, media, do what you can!
A couple of points, when discussing location, please say west lawn of Captol, (there is, also a west lawn of the White House)
Time: official time for public: 11:00am to 5:00pm, according to the rules we need to allow an hour before and after for setup and clean up.
What we need:
Bring or make your own signs, there are ideas on the FEDUP site. No profanity, on message, non partisan.
I need an idea of who can print handouts and how many are being brought.
I need at least 1 or 2 people to be there early to help me offload equipment, not sure what time they will let us start setting up, but I will post when I know.
We will need volunteers thru the day to man the info table and compile a contact list.
If there is anyone out there that will take the lead on getting info to media, that would be great, I am going to be busy working our reps to see if we can get some of them outside to speak to us.
More to come soon.
http://www.tickerforum.org/cgi-ticker/akcs-www?post=62255
After watching too much of the debates, Im convinced everybody is going to remain in denial until forced to take the next step. Whats that?… acceptance that we dont have any money.
I gotta mention, nothing is meant by the reference of Yurtle towards any type of baldness. It is the idea of the story, finacialsense did a great writeup on that, however; the childs storyboook is available for anyone who wonders what is going on right now in the uhh Capital.
I think they are gonna use missles to improve GDP same as smaller countries do, such as Sir Lanka, wasnt it?
Improve productivity through the threat of. What a stragetium
Comrad = from .com to radical change. Nice.
Ben,Keep up the great work. I had been what I considered a real estate investor in the 90s and at some point around 2001 I began to lose out on houses because people were paying more. Soon people were paying so much I couldn’t understand where they were getting the money. A coworker of mine listened to me complain literally for years “where the he!! are people getting the money to afford all this stuff?”. He came across your blog right from the start somehow and pointed me to it. It wasn’t long from there before I realized where the people were getting the money. I missed out on the hugest run-up in history though
Looking back I made the right decision every time though. Who knew exactly when the music would stop? I got my chair a little early though 
Thanks for running the blog. It’s nice to know I’m not the only one out there. Now, if I could just figure out how to make money in the coming era…. Keep up the good work!
I also thank Ben for this awesome blog. I have been reading and posting since it’s inception. At that time, I thought I was alone on thinking the price runup didn’t make sense. Then finding this showed me that I wasn’t alone. I have loved the education and the comradary we have all developed.
HOUSE TALK
SEPTEMBER 26, 2008, 5:25 P.M. ET
Is Now a Good Time to Buy a Home?
By JUNE FLETCHER
…
For those who are cash-rich, either because they are too wealthy to be badly hurt by any economic swing, or because they were presciently pessimistic and liquidated their portfolios before the meltdown, the coming months—and perhaps years– of uncertainly will provide an unprecedented real estate buying opportunity, of both trophy estates and income-producing investment properties. “The smart people know that the world is not coming to an end,” says Lanse Robb, an agent with LandVest, a brokerage on Boston’s toney North Shore. “They’re making their moves.”
But the average buyer probably doesn’t have the cash to gamble on real estate–and shouldn’t, at least for now. Income growth has stalled for the vast majority of Americans for the past eight years, and home equity has been vanishing rapidly since the peak of the boom in 2005. (Last month, median existing home prices nationwide fell 6%, to $221,900.) The roiling stock market is hardly a comfort either, as everyone who has peeked at a 401k statement over the past week knows.
More critically, jobs are evaporating at an alarming pace. According to government statistics, the unemployment rate rose to a five-year high of 6.1% in August. There have been eight consecutive months of job losses, with a year-to-date total of 685,000. And layoffs aren’t likely to end soon, since factory orders fell 4.5% last month—twice the rate that analysts expected.
Without healthy job growth, it’s likely that the supply of unsold homes will grow. Currently it’s at 11 months, more than double the median supply of two years ago. Until that inventory is burned off, home prices will continue to stagnate or fall in most markets. A government bailout that unfreezes credit markets and staunches the flood of foreclosures that are also depressing prices should help, but the fix will take a long time.
Ben, we found your blog in early 2005. We couldn’t understand how the houses being built around us were selling for such high prices - upwards of $800,000. How could so many afford so much? We lived in a modest sized home with a modest mortgage and made good salaries, and felt we somehow didn’t know the secret to the obvious wealth around us. We found your blog, and started learning about the bubble and the mortgages. I learned so much from the contributions of the readers….I had never heard the term ‘tranch’ before! Shortly after (summer 2005), my mother sold her 1000 sq ft, 60-year-old home for $570,000 (this is California) to a young couple with only one income and a long commute - the $0 down cash back scheme. Our real estate agent at the time advised us to sell the house quickly because the market was going to turn. Not all agents are bad! He even had a few choice things to say about appraisers…We took the money and ran, forgetting about the sentimental value of our childhood home! My mom now lives in happy retirement.
In mid 2006, we started anticipating the coming crash, waiting for it, waiting for the media to recognize it as newsworthy. As it unfolded, as each wave happened and we were reassured on the front pages that the problem was contained, we looked at each other and said ‘more to come’. In anticipation, we paid off our mortgage last year (figured we would get more worth that way than losing our investment in the stock market), and are hunkering down.
We’ve spoken to family and friends, shared your blog with coworkers, and watched as those around us became aware or bought in to the hype. One good thing….you can sure buy a lot of stuff now on the online classifieds for pennies on the dollar!
Many thanks to you for the blog and for the contributors for their postings that were informative, educational, and spirited!
No evidence yet that central banks have run out of liquidity…
Central banks step in as bail-out fears mount
By Norma Cohen, Economics Correspondent
Published: September 26 2008 08:09 | Last updated: September 26 2008 13:41
The Bank of England moved on Friday to inject longer term cash into money markets as part of a co-ordinated effort with the US Federal Reserve, the European Central Bank and the Swiss National Bank.
The intervention came after White House talks over a $700bn bailout for the US financial system broke up late on Thursday without agreement.
McCain was probably right: He would have had more luck brokering a bailout agreement than debating Obama.
Let me be the first to report honestly (so far as I know):
OBAMA WINS DEBATE BY A LANDSLIDE
Poll results for first presidential debate: Obama wins
By George Harris, Kansas City Star Readers Advisory Panel 2008
Who won the debate?
Ignore all commentators’ opinions expressed without evidence. The winner is determined by the numbers, especially the votes of the undecided. Here are some preliminary answers:
CBS Insta Poll shows Barack Obama won 39% to John McCain’s 25% with 36% saying the debate was a draw.
Insider Advantage reports those polled Obama won 42% to McCain’s 41% with Undecided 17%
CNN reports voter opinions that Obama “did better” 51%, McCain “did better” 38%
No, please, not another CIC who does not know the difference between million and billion…
New York Times
Op-Ed Columnist
McCain: Bearish on Debates
By GAIL COLLINS
Published: September 27, 2008
John McCain looked a bit off his game during the big presidential debate. Maybe he was exhausted from parachuting into Washington to resolve the financial crisis. Really, there are only so many hills a man can charge up in the course of a single week.
The debate had barely begun, the financial crisis barely addressed, when McCain started off on government spending. “You know, we spent $3 million to study the DNA of bears in Montana …”
Oh, no! Not the bear study. Congress is working feverishly on the $700 billion rescue of the national financial system and McCain is complaining again about the $3 million the Senate blew to help determine whether the grizzlies are still an endangered species.
Just in case anyone in the McCain campaign team is interested, $3 million is only 1/233,333 of $700 billion:
700,000,000,000/3,000,000 = 233,333.333…
From The Times
September 27, 2008
John McCain falters as bailout swamps US electionTom Baldwin in Washington and Suzy Jagger in New York
Press reaction to bailout | UK banks could benefit | US critics gloat | Gerard Baker
The Wall Street bailout threatened to swamp the US election last night as John McCain abruptly left Washington to face Barack Obama in his first presidential debate, with a planned $700 billion rescue deal teetering on a knife-edge.
The Republican nominee appeared to blink first in a game of the highest stakes as he raced down to Mississippi for the debate. He had previously pledged to remain in the capital until a deal to save the banks was agreed.
The presidential campaign was overwhelmed by the turmoil raging in financial markets as America’s political leadership was stalked by the fear of failing to agree a deal — and of a voter backlash if they did agree one.
Related Links
McCain escapes after skirmish in Washington
Bush sums it up: ‘This sucker could go down’
Bank ‘irresponsibility’ must end says Brown
President Bush admitted yesterday that “we got a big problem” as the bailout’s prospects see-sawed.
He told Congress and rebel Republicans that they must move quickly to avert an economic catastrophe. “There are disagreements over aspects of the rescue plan but there is no disagreement that something substantial must be done,” he said.
Mr Bush later held crisis talks with Gordon Brown, who assured him of Britain’s support for the bailout plan, “whatever the details”. Mr McCain’s retreat from Washington came as Democrats claimed that his intervention in negotiations on Thursday had wrecked an outline deal, with a White House meeting between congressional leaders, presidential candidates and Mr Bush descending into a shouting match.
Hank Paulson, the US Treasury Secretary, was later reported to have resorted to getting down on his knees as he pleaded with Nancy Pelosi, the Democratic House of Representatives Speaker, to help him to save the deal.
But the mood on Capitol Hill may have shifted with the overnight collapse of the Washington Mutual Bank concentrating minds.
From The Times
September 27, 2008
Anger, fear and deadlock, then President Bush sums it up: ‘This sucker could go down’
It was supposed to be the meeting that solved everything, but even the Treasury Secretary on bended knee couldn’t clinch the deal
Gerard Baker in Washington
The Cabinet Room in the White House has been the scene of some tense moments since it was rebuilt during the renovation of the West Wing by President Franklin Roosevelt in 1934, in the midst of the Great Depression.
John Kennedy spent long hours there during the Cuban missile crisis as the world seemed to be hurtling towards nuclear war. President Bush convened his first Cabinet meeting in the white-stuccoed room after the terrorist attacks of September 11, 2001, beneath the sombre gaze of busts of Jefferson and Franklin.
But not since the days of FDR himself has there been such a high-stakes gathering with so many potentially far-reaching implications for the tottering global economy as the remarkable and contentious meeting that unfolded there on Thursday afternoon.
It was supposed to be not much more than a photo-opportunity, a demonstration of national unity in the face of economic crisis. There, for the first time in anyone’s memory, the incumbent President was meeting the two candidates battling to succeed him, together with the entire leadership of the Senate and the House of Representatives. The aim was to conclude the week-long deliberations over the plan announced by Hank Paulson, the Treasury Secretary, for a $700 billion bailout of the nation’s banks and to get legislation through Congress by the weekend.
Related Links
US banking crisis: Q&A
McCain falters as bailout swamps US election
McCain backs down to attend debate
When the photographers had been dismissed, President Bush spelt out what was at stake. According to senior advisers briefed on the detail of the meeting, he told the assembled leaders that it was not just the US financial system that was in peril. He made it clear that the entire architecture of the global economy was at stake.
The US’s financial credibility was in jeopardy. If a deal were not concluded to back the bailout, there was a chance that global investors, including central banks around the world, would lose faith and begin selling their huge holdings of US government debt. That would send US interest rates through the roof and produce a Latin American-style run on the dollar.
Underscoring the seriousness of that threat, earlier in the week David McCormick, the senior Treasury official for international policy, had been dispatched to Asia, to reassure the Chinese and others that US credit was good and urging them not to dump Treasury bonds.
When the President concluded what was described as a dire prognosis, there were general murmurs of support. Democrats around the long mahogany table, led by Barack Obama, the party’s presidential candidate, concurred with the general assessment. Some noted that they had been given a similar assessment by their own economic advisers, such as Larry Summer, Treasury Secretary in the Clinton Administration.
But as the meeting seemed to be moving swiftly towards a sombre consensus, there was a bombshell.
John Boehner, the slim, chisel-jawed, 58-year-old leader of the House Republicans, had been listening with evident irritation. Now he spoke up to denounce the Paulson plan. Mr Boehner and his party colleagues had been deluged all week with angry calls from constituents protesting at what they saw as a huge taxpayer giveaway to undeserving Wall Street bankers. He told the gathering that he and his colleagues could not support the plan and produced one of their own.
The plan did not seem to have been all that well thought through, according to some who saw it. It was an odd mix of half-baked proposals to deal with the financial crisis and the usual Republican menu of tax cuts. Its centrepiece, a rough-and-ready plan to force banks to pay for insuring their assets against possible losses, looked as if it had been “cut and pasted from some comments by an economist on the Financial Times website”, according to one who saw it.
A Republican involved in the negotiations said: “It was not a serious plan. It was irresponsible and unhelpful and driven more by politics than by a desire to solve the financial crisis.”
Mr Paulson politely explained that its main idea was unworkable. But as the temperature in the room rose sharply, Mr Boehner pressed on, backed by his colleague, Richard Shelby, the leading Republican on the Senate Banking Committee. As voices rose in anger, Barney Frank, the Democratic chairman of the House Financial Services Committee, asked him angrily why he had not spelt out his plan earlier.
As the meeting seemed to be breaking up in disarray, the focus of administration turned to Nancy Pelosi, the Democratic House Speaker. Numerically speaking, with a big Democratic majority, Mrs Pelosi already had enough votes to pass the plan. With a big majority assured in the Senate, why did she not just press ahead, she was asked? The whole deal could be done without the House Republicans.
But Mrs Pelosi would not take the political risk of passing a potentially unpopular measure with only Democratic support, leaving Republicans free to attack her and her colleagues in the campaign for congressional elections to be held in little over a month.
Mr Paulson, a former chief executive of Goldman Sachs, perhaps showing the strain of what must have been the worst week of his professional life, pleaded with Mrs Pelosi, the daughter of a trade union leader, to reconsider.
He half-jokingly went down on bended knee and clasped his hands as if in prayer. “I didn’t know you were a Catholic,” Mrs Pelosi, a Catholic herself, quipped to the normally undemonstrative and austere Mr Paulson, a Christian Scientist.
An agitated Mr Bush said, as the meeting finally unravelled: “If money isn’t loosened up, this sucker could go down.”
It is amazing to me and embarrassing to the profession that some big name economists don’t grasp something as simple as affordability. I suggest that Chris Mayer should go back and open his copy of Bernanke’s undergraduate micro text and look at a supply and demand illustration of what happens when prices are artificially propped up above market clearing levels by government intervention. In a nut shell, liquidity freezes up, as there is insufficient demand for the level of supply which results.
Op-Ed Contributor
Help Housing
Article Tools Sponsored By
By CHRIS MAYER
Published: September 26, 2008
A T the heart of the financial crisis is an unprecedented decline in house prices. Yet the government response so far has been to try to prop up insolvent financial institutions while doing nothing about the underlying housing problem. The proposed Wall Street bailout would not stop the next wave of defaults, which are coming from the rapidly rising delinquencies in near-prime mortgages.
Couldn’t agree more. Pulling up my handy dandy ARM reset chart it looks like we’re in for some huge defaults, bank failures and BK’s on up to 2011. This mess is not even close to peaking…
http://img151.imageshack.us/img151/4240/armresetsrk4.jpg
I’ve been a lurker at TOD since 2005 and it looks like oil supplies will indeed reach peak in 2010 and begin falling. Mexican Cantarell production recently plummeted and once-mighty Ghawar appears to have peaked. What happens when this event coincides with the mortgage defaults?
oh well I tried
Ben
Tried to comment before.. Just gonna cap the post I left.
Ben you’ve saved me at least 200k dude. I’m currently in Bali just enjoying life. Thanks to you’re blog and the most informative public service ever since the Great Depression I’ve put off buying a home. Worked as a loan officer in 2003 and saw this nightmare future and I couldn’t do the work due to “you mean you get a 500k loan and you only have to tell me your income???????” Thanks man best public service ever!
Cheers
Bret
Ben, I don’t agree with a lot of your views, but you have created a great site and community. Thanks for your hard work.
Ben:
I sold my condo in Surrey Bc about two years ago, on a decision that was heavily influenced by what I read on your blog and Patrick’s.
After I had sold (at a decent profit), the property values kept going up, and I started feeling pangs of seller’s remorse… perhaps only if I had waited a little longer…
Then my realtor called and told me recently that her business is stone dead… received only one call in the last two months, and that I was lucky to have sold when I did, even though it was a bit early.
Thank you, Ben, for being a beacon of reasoning and sanity.
I specifically recall back around 2005, right at the peak of the bubble - discussions in here about why for example Karl
Case, the Wellesley college expert on national housing valuations was (inexplicably) still in denial in about any national bubble (he was in essence using the usual industry propaganda nonsense about some obscure areas or regions still not being in bubble - therefore the entire issue was purportedlhy not alarming.)
The experts were in effect bought off by their clients. If they told the truth they would lose their lucrative consulting contracts. So they remained silent or repeated the standard boilerplate.
A massive credit bubble created a massive real estate bubble -yet few blogs except this one, had it right from the beginning.