HBB Rates The Media: Mid-West
The HBB looks at the media and the housing bubble, in the mid-west.
The good:
The Kansas City Star, May 2005: “The benefits to U.S. exporters from a modest rise in the Chinese currency would most likely be small, while the effect of higher interest rates could be larger.”
“If that were to happen, the effect could be acute in the housing market. Investors in housing stocks have been nervous for some time, happy to see ever-higher profits but worried that the good times must end someday and fearful that they could be left holding the bag when that happens.”
“When things were at their worst in Las Vegas, Pulte was seeing cancellations of home purchases that amounted to 75 percent of new sales. ‘The risk of similar, and perhaps more prolonged, regional downturns should not be ignored,’ (bond analyst) Kathleen Shanley wrote in a note to clients.”
“Shanley points out that Pulte’s inventory of land is concentrated in areas where home prices have been rising rapidly and that the company’s cash flow is negative, even as profits soar, because of all the land it is buying. Pulte has been borrowing money even as it buys back stock at high prices.”
The Pioneer Press, May 2005: “Last year set a recent record for home foreclosure sales in all seven metro-area counties, and so far this year Ramsey, Hennepin, Dakota and Scott counties are ahead of last year’s pace. ‘For all the news that the economy is getting better, it’s not showing up in our office,’ said Hennepin County sheriff’s deputy John Villerius. ‘It doesn’t matter how good the economy is. These borrowers run into inevitable problems and discover they can’t afford the homes.’”
“Several sheriff’s departments in the seven-county metro area report that many of their sales are relatively new mortgages, originated within the past few years. ‘I expected it. I think it will get worse,’ said Sgt. Lori Kratzke of the Ramsey County Sheriff’s Department, who handles the county’s foreclosure sales.”
“Barb Carr, one of two full-time foreclosure-prevention specialists working for the city of St. Paul, is more explicit. ‘God forbid what’s going to happen when those interest rates go up.’”
Pioneer Press, May 2005: “Greenspan has abandoned what seemed to be his long-held belief in monetarism and limited government. He drank the Kool-Aid of Keynesian gas-and-brake-pedal stomping. We are returning to the 1970s.”
“Greenspan was expected to follow his predecessor’s aversion to jockeying the money supply in response to economic twitches. Perhaps he did for a while. But cautious monetarism did not last long. By the 1990s, his foot alternated between the monetary gas and brake pedals like any Keynesian. Economy growing after 1991 recession? Double the Fed Funds target to 6 percent. A little slowing in late 1995? Back to 4.75 percent. Stock market bubble still bubbling? Back up to 6.5. Too much? Down all the way to 1 percent.”
“Try to bind up all economic wounds with the money supply and one will not only fail, but will also infect the patient with the septicemia of inflation and cause inflationary flare-ups at the worst possible times. The long-run outcome will be worse than if one had exercised realistic caution from the outset.”
The Des Moines Register, May 2005: “‘I don’t mind paying an inflationary increase, but mine is like 17 percent. That’s out of line. I haven’t done anything to the house to lift it up that much,’ Ben Veach said. ‘This is just a way to raise taxes without saying you’re raising taxes. And it’s so blatant. But there are still some of us out here who’ll fight it.’”
“Ralph Fetters and his wife recently paid off the mortgage on their home and retired. Fetters worries now, on a fixed income, he can’t continue to absorb the mounting tax burden.”
“‘You keep getting those raises year after year, and you can have a problem,’ Fetters said. ‘I’m 65, and I’ve lived here all my life. And I’ve never seen a property tax (bill) go down. It’d be nice to see that once in my life.’”
The Plain Dealer, May 2005: “The annual number of foreclosure cases filed in Cuyahoga County has almost doubled since 1998. At the end of April, the court had nearly 12,000 foreclosure cases pending, the highest volume in the state. No firm figures exist, but the suburbs say that they have dozens, even hundreds, of empty homes. They worry that the homes will attract arson and other crime, reducing property values. ‘The neighbors are just beside themselves,’ South Euclid Mayor Georgine Welo said. ‘Who wants to live in a neighborhood where you have these popping up all over?’”
“County Commissioner Tim Hagan wonders whether speeding foreclosures and putting a flood of homes up for sale would simply overload a weak housing market. ‘We’ve got a serious crisis in that regard in Cuyahoga County,’ Hagan said.”
The Ann Arbor News, April 2005: “Hess falsely entered information during the processing of mortgage applications. (She) called the scheme “bankruptcy for profit” and told the anonymous tipster that she was receiving money from mortgage brokers to approve loans.”
The Chicago Tribune, April 2005: “The facts of investing life belie the entitlement mentality. ‘People think life is too short and they deserve to be part of a society that becomes richer and richer,” Werner F.M. De Bondt said.”
“Raymond James analyst Rick Murray wrote in research note last week, ‘Investment sales have been a key driver of the housing market in the past few quarters and, in fact, the past two to three years. With nearly 12 million empty housing units in the U.S., we find it implausible to conclude that there is a housing shortage of the magnitude that would drive the recent levels of price escalation.’”
“Even the National Association of Realtors, usually an industry cheerleader, is cautioning that real estate is a long-term investment.”
The bad:
CBS2 in Chicago, May 2005: “How big is the boom? In 1990, Chicago had around 50,000 downtown housing units. Today, there are 85,000, a 70 percent increase, and more on the way. ‘We know well over 10,000 units that developers are trying to get started, get marketing for this year,’ Gail Lissner said. ‘We are certainly seeing a growing segment of buyers who are using the downtown base as their second home.’”
“A surge in investors, or speculators, who buy condos hoping to re-sell quickly for a fast profit, are warning signs of an overheated market. Experts agree that speculation is rising.”
Market observers:
April 2005: “A growing number of smaller developers are building ’spec’ houses, some with price tags as high as $34 million, without any specific buyers in mind. Some economists caution that it could lead to price declines if there is even a slight economic blip. ‘These guys typically can’t carry these houses for very long, especially these small builders, and then you can get into a fire-sale type situation,’ said Thomas Lys.”
May 2005: “A mortgage insurer that NovaStar sued on charges that it failed to pay claims has filed a counter-suit alleging fraud. In the action, filed earlier this week in the U.S. District Court for the district of Kansas, PMI Mortgage Insurance alleges that it was misled by NovaStar when PMI set the terms on insurance for 6,300 loan made from 2000 to 2002. The loans in question, known as ’stated income loans.’ PMI’s suit cited testimony of Rachel Jones, NovaStar’s director of corporate credit, who said the purpose for asking the borrower to state income is ‘because our investors require the borrower’s stated income.’ By investors, she says she was referring to the likes of Fannie Mae, which buys loans when they’re packaged and sold as part of a securitization.”
“NovaStar says that last year it sold recourse loans that have an outstanding balance of $11.4 billion, up from $6.4 billion the year before. Defect-related repurchases, it adds, have been insignificant, and “as such, there is minimal liquidity risk.”
May 2005: “St. Louis Federal Reserve Bank President William Poole…said that while housing prices were rising quite rapidly in some areas, most of the movement was in a ‘narrow segment’ of the market’ suggesting he saw little risk of a national bubble.”
“Poole said home price gains appeared to be mostly explained by the low level of interest rates and rising incomes. Anecdotal reports suggested workers were still ‘in pretty plentiful supply. It looks like there’s a fair amount of room for expansion of employment without creating a lot of upward pressure on wages.’”
May 2005: “(Warren Buffett)… and Munger issued stern new warnings about the residential real estate ‘bubble,’ the destabilizing effect of hedge funds on the financial markets, and the possibility of another terrorist strike against the United States…A lot of the psychological well-being of the American public comes from how well they’ve done with their house over the years. If indeed there’s been a bubble, and it’s pricked at some point, the net effect on Berkshire might well be positive [because the company's financial strength would allow it to buy real-estate-related businesses at bargain prices].”
“We’re like an incredibly rich family that owns so much land they can’t travel to the ends of their domain. And they sit on the front porch and consume a little bit of everything that comes in, all the riches of the land, and they consume roughly 6 percent more than they produce. And they pay for it by selling off land at the edge of the landholdings that can’t see. They trade away a little piece every day or take out a mortgage on a piece.”
“Buffett to Munger: ‘What do you think the end will be?’ Munger: ‘Bad.’”
May 2005: “A year ago, in April 2004, the average sale price was $US118,000 and now it’s almost $US135,000,’ (a) broker said. ‘Everybody’s asking the same thing: how long can this train keep going?’”
“Employers in the Rockford metropolitan area cut 9400 jobs between March 2001 and March 2005, as the area lost a fifth of its manufacturing jobs. Rockford’s unemployment rate was 6.1 per cent in March. ‘In our area, we are starting to see some affordability issues,’ Mr Nalewanski said. ‘We’ve had a decline in salaries due to the exodus of manufacturing jobs and their replacement with service jobs.’”
“Dean Baker. ‘People are betting on the value of their homes rising, and they’re not saving. This is a classic bubble. We may be seeing the bubble spreading’ from the east and west coasts to inland areas. ‘People are buying homes every day and paying much more than they’ll be able to sell them for. A lot of people are going to find themselves a lot poorer than they expected,’ he said.”
The NovaStar info reminds me that subprime and similar lending corps actually started in places like Minnesota and then moved out to southern California.
Anyone seen this “eye of the housing hurricane” graph…?
very graphic
http://4.bp.blogspot.com/_eB31NsfANe8/SvG0uNoAn4I/AAAAAAAABBQ/U_FsTKXJdPE/s1600-h/091104+recast+timeline.jpg
Will that be affected with the New improved extension of Cash for Cauk ers?
Heating bills will presumably decrease, as will the price of natural gas.
Various versions of the mortgage-reset chart have been posted on HBB since early 2007. The one pointed out here by JDinCT suggests that our current little housing stabilization could go on a while, since I think we agree foreclosures lag resets. We also have various posters who argue that the whole biz is now being driven more by unemployment than by resets. I have faith, though, that the upcoming wave of option-ARM resets will bring with it another major leg down in house prices, lagging or not. Particularly as the Administration’s efforts to cram down principal amounts have been lame. For myself, I take heed; I should really be glad that my new business has been very slow, as the old business consists of people whose equity grows via amortization.
By my squint it looks as if the chart is saying option ARM money will increase by over a trillion dollars from now until September, 2012.
If you add this amount to the amount of un-official ARMs (people merely stopping making payments but getting to live in the house anyway) and you’ll see there will be a lot of money available to fuel future consumer spending.
Party on!
Awesome! I am now planning to rent through 2012. We will see how the market is shaping up after that last ARM reset tsunami has crested…
Hope you can get “out & about” Mr. Ben!
May 2005 “Buffett to Munger: ‘What do you think the end will be?’ Munger: ‘Bad.’”
3 years 3 months, ago…Geez, Mr. Cole was only 4 years old!
Comment by amisharesuffering
2006-09-08 10:25:38
Ben,
I’m a newcomer to your site, and I just want to say thanks for taking the time and making the effort to create this forum to share thoughts and ideas about what’s going on in regards to people, homes and how they are effected by the events of the real estate Industry. I will be making a PayPal deposit to you, a much deserved token of appreciation. I’ve learned many new things. I’ve always been amazed at the complexity involved in securing a shelter for one’s self or family. More so today, then at any point since I purchased my first home (at age 24) back in 1981 in Nebraska (assumed a VA loan for $26,000 @ 15.5% interest for 30 years, I clearly remember the pat’s I got on my back for getting such a great interest rate! My, how times have changed! But that is another time, place and story. What I read in a lot of the blogs is how dumb people can be when agreeing to these “toxic” loan arrangements. I think that much of that stems from what is not mention much in the blogs and that is how desperate individuals and family’s become when they are at the mercy of profiteering landlords or they have “High Hopes”. Hope shines brighter than despair, and that is what is really being sold to these folks, deceptive as it may be. They may be eager, a little self delusional, and not entirely educated to the ways and means of real estate finances, but they are not innocent and blameless either. Unfortunately, because of these types of “toxic” loans, packaged, presented and promoted by ALL the agents who profit by them, these folks will soon be going from one form of desperation to another, way more damaging desperation, as the bloggers on this site accurately and with much keen prediction, have foretold. I’m with those bloggers that have always believed that it’s not a matter of IF, more like: how many and over what length of time will the destruction unfold and touch. The great mystery! These” new” homeowners will soon become big time financial losers. ( I fear my little brother and some dear friends will be included in the “up & coming attraction”). As regards to ALL the agents involved in this grand charade, I’m on the side of the bloggers who have no sympathy for your lost glory days of profit, let your greed be smashed and the pain of it be well felt and remembered. I also, fear what the near future holds for all of us. Millions of people and family’s in financial trouble with their homes is not something that bodes well for our Nation. However. when out of this gloom and despair, if in the end, the result is that Homes are priced more realistically in regards to affordability and ambitions become aligned with actual incomes, then such is life. If greed by all is remembered and diminished, great! But maybe, I’m being to HOPEFUL!
Hwy50
my favorites:
1. courage born of despair = Boy have we got a loan deal for you!
2. a furious struggle against adverse circumstances, with utter disregard of consequences = I can buy a $399,000 house for only $999.00 a month? Wow, where do I sign!
de?spair?er, noun
—Synonyms 1. gloom, disheartenment. DESPAIR, DESPERATION, DESPONDENCY, DISCOURAGEMENT, HOPELESSNESS refer to a state of mind caused by circumstances that seem too much to cope with. DESPAIR suggests total loss of hope, which may be passive or may drive one to furious efforts, even if at random: in the depths of despair; courage born of despair. DESPERATION is usually an active state, the abandonment of hope impelling to a furious struggle against adverse circumstances, with utter disregard of consequences: an act of desperation when everything else had failed. DESPONDENCY is a state of deep gloom and disheartenment: a spell of despondency. DISCOURAGEMENT is a loss of courage, hope, and ambition because of obstacles, frustrations, etc.: His optimism yielded to discouragement. HOPELESSNESS is a loss of hope so complete as to result in a more or less permanent state of passive despair: a state of hopelessness and apathy.
Antonyms 1. hope.
“Employers in the Rockford metropolitan area cut 9400 jobs between March 2001 and March 2005, as the area lost a fifth of its manufacturing jobs. Rockford’s unemployment rate was 6.1 per cent in March. ‘In our area, we are starting to see some affordability issues,’ Mr Nalewanski said. ‘We’ve had a decline in salaries due to the exodus of manufacturing jobs and their replacement with service jobs.’”
Obviously some sort of “Pre-Obama” effect.
“Buffett to Munger: ‘What do you think the end will be?’ Munger: ‘Bad.’”
These guys are the comedians of the financial world.
A common routine the team often performed was a “tit-for-tat” fight with an adversary:
http://www.youtube.com/watch?v=0yoPb-amgbs&feature=related
Talk about knowing when to “take away” the punch bowl!
Unlike virtual paper, barrels of wine actually cost something in time, effort and resources to make.
I wonder if their conversations sound a bit like,
” who’s on first, whats on second, wheres on third”?
Is this a recent quote?
Finally, The Cleveland Plain Fishwrap tells it like it is. With the city losing over 5000 residents a year and the rest of the county a similar number, the agony in store for us is unmeasurable by bureaucratic methods. Note that the county comish (Hagan) was worried that prices would drop if foreclosures were carried out. He had no concern about affordability; the tax rake to support the 6 figure locusts is what concerns him and his crowd. Half of Zillow numbers in the county are bogus (by >50%).
copied from silicon investor today..
============
yesterday i looked at my tax bill on a parcel i own in arizona.
the tax had more than doubled from the year before. and the year before i had also complained that the tax had risen too high. but the accessor’s office assured me back then that next year the tax would be lower. this year she told me the same thing. i asked her if she could guarantee that my tax would be lower next year. of course she said ‘no’. she said “but the valuation will be lower”.. i said ‘right, but the rate at which you tax could be higher so i might even be taxed higher next year’. she admitted that was true. i told her ever since property taxes were enacted, private citizens don’t truly own property anymore.. when they buy they just get the privilege of renting from the state at the state’s pleasure. i said that i had lived in arizona for many years and paid income and sales and property taxes for all those years. but i said i’m selling all my property in arizona and changing my residence to nevada where there is no income tax. and i told her i will never own property again in any state with property taxes. i will be content to rent.
then i called a local real estate agent and put the parcel up for sale. i told her to make it the lowest priced parcel in the area. she told me apologetically that i couldn’t get much for it right now. i told her it’s only worth what someone will pay anyway. she said she had been in the business for twenty years and had never seen anything like this. she said she was scared. that she could no longer afford to pay the taxes on her property either and had to sell. her voice cracked and i could tell she was near tears. she told me that she was going to live on the land she owned but no longer could. she simply couldn’t afford the taxes on her income. we talked for a while after that, but no need to go into that here. i told her that if my property didn’t sell in two weeks to lower the price by ten per cent and to keep lowering the price every two weeks until it sells. at the end she asked me how she could protect herself. i told her she needed to educate herself. for what it’s worth, i told her if she listened to peter schiff on youtube for an hour or so a day for two or three weeks she would get a rudimentary understanding of very basic economics just from osmosis. no math, just principles. not hard to understand. i told her if she hears the word ‘keynesian’ to run like hell.
I don’t own property, so sorry if I am asking a stoopid question. Aren’t property taxes deductable? Assuming you have some sort of income you need to offset anyway, why would property taxes be such a burden?
If you have no income, you have no means to pay the property taxes, and the deduction is worthless.
Now, if it were a tax credit, that would help the lower income earners, but wouldn’t solve the “no cash to pay the tax” problem.
I recall driving from Iowa to Chicago along I-80 in 2006. I was with friends, and as we approached the far western exurbs I began to remark caustically on some of the subdivisions visible from the road — basically McMansion developments with nothing but miles of cornfields in every direction. As usual, it wasn’t too long before my commentary became tiresome: one friend countered “[snake charmer], this is just how people want to live.”
In the city it was worse, especially in the South Loop area. I have no idea why people would want to pay $500,000 to live in condo towers that overlook one of the most brutally congested freeways in the United States.
Has the Chicago Spire been scratched?
They have to build where they get permits….for H2O, sewers, usually adjacent to sprawl of some kind. Otherwise, custom built with well and septic, next to some hog operation or other such…..rural living at its finest.
In the city it was worse, especially in the South Loop area. I have no idea why people would want to pay $500,000 to live in condo towers that overlook one of the most brutally congested freeways in the United States.
The South Loop / near South Side has been completely overbuilt. It’s almost completely unrecognizable for those who remember it from 10-15 years ago (or longer). The University of Illinois Chicago (UIC) was a large player in this movement, rapaciously land-grabbing and/or encouraging “safe” development wherever it could.
Has the Chicago Spire been scratched?
Last I checked, the Spire is in limbo. Most or all of the foundation has been built out, but the developer has more than $10 million in outstanding liens against it.
“St. Louis Federal Reserve Bank President William Poole…said that while housing prices were rising quite rapidly in some areas, most of the movement was in a ‘narrow segment’ of the market’ suggesting he saw little risk of a national bubble.”
It is pretty well known by now that Fed governors are generally not very adept at spotting bubbles.
Government-sponsored housing inflation is locking the next generation out of homeownership
http://reason.com/archives/2009/12/10/artificial-housing-respiration
Yes. It is also locking out the next generation’s work force from finding affordable housing near their workplaces. A seldom-discussed unintended consequence is to force longer commutes, resulting in the unnecessary discharge of more dangerous greenhouse gases into the atmosphere.
Terrific article. (But are you serious about the longer commutes? Are you saying people can’t find rental housing near their work?)
Government-sponsored housing inflation is locking the next generation out of homeownership
http://reason.com/archives/2009/12/10/artificial-housing-respiration
(2nd post, in case the 1st didn’t work.)
I doubt efforts to prop up housing prices will work in the long term. Our governments efforts to fuddle with things at the macro level seem to work at first, then get blunted by the law of unintended consequences, which would indicate things are more complex than that which a simple fix or band aid can resolve.
It’s also worth bearing in mind that government-sponsored band-aids are all about making headlines, and not about actual results.
I basically agree with that, but also believe the agenda of Frank, Dodd et al. could have something to do with maintaining the solvency of state & local govts that got addicted to the higher property taxes they were collecting.
CBS2 in Chicago, May 2005: “How big is the boom? In 1990, Chicago had around 50,000 downtown housing units. Today, there are 85,000, a 70 percent increase, and more on the way. ‘We know well over 10,000 units that developers are trying to get started, get marketing for this year,’ Gail Lissner said.
The downtown Chicago condo market is now drowning in quicksand (best case) or in complete implosion (worst case).
In Q3 2009, downtown developers sold just 56 condos and townhomes, vs. 313 in the second quarter and 160 in third-quarter 2008, according to Appraisal Research Counselors, a Chicago-based consulting firm. The existing inventory is dropping in price, but still has a way to go, IMO. And — amazingly — there are still some projects in the pipeline.
“We’re like an incredibly rich family that owns so much land they can’t travel to the ends of their domain. And they sit on the front porch and consume a little bit of everything that comes in, all the riches of the land, and they consume roughly 6 percent more than they produce. And they pay for it by selling off land at the edge of the landholdings that can’t see. They trade away a little piece every day or take out a mortgage on a piece.”
I’ve met a few of these types. During the bubble, they were busy selling off the family land. The younger ones produce basically nothing. They drive brand new $50k trucks, live in huge houses, and just spend money partying amidst a life of boating, motorcycle riding, traveling, etc. In due time, there’s nothing left of the family money, though it takes a few generations to blow through the obscene amount of cash.
I would say it was all spent many years ago. What followed was the borrowing phase, and now we are entering the bankruptcy phase.