A Belief That Values Were Always Going To Rise
It’s Friday desk clearing time for this blogger. “The Birmingham-Hoover area suffered a greater level of job losses than all but five of the nation’s 100 biggest metros in last three months of 2009, according to a Brookings Institution report. Jobs have disappeared in the Birmingham metro area for eight consecutive quarters dating back to the beginning of the recession in December 2007, worse than the downturn in 1981, which is remembered as brutal. Howard Wial, a fellow with the public policy think tank, said Birmingham’s deep misery is not easy to understand.”
“‘Birmingham is one of the hardest hit metro areas in the South that didn’t experience a housing bubble,’ said Wial, a co-author of the report. ‘Quite frankly, it is a bit puzzling to me why Birmingham is faring so bad.’”
“Things in Hartford and its suburbs aren’t so bad compared to metro areas around the country. That’s what The Brookings Institution think-tank analysts say after weighing Hartford’s job losses, unemployment, salary trends and housing prices. Hartford — and Connecticut — are hurting, of course. Unemployment, at 9 percent in January, hasn’t been this high since 1976.”
“According to data compiled by Moody’s Economy.com, the Hartford region has never recovered from the recession of the early ’90s. ‘We’ve been here a long time, and we compare to what we once were,’ said Ron Van Winkle, an economist who is now West Hartford’s city manager. “The Connecticut economy has been in awful shape for some time.’”
“That the state didn’t have a housing bubble like Las Vegas, Stockton, Calif., and Orlando is nothing to be proud of, he said. Van Winkle said he believes the problem is the shift to low-paying jobs. ‘They flew closer to the sun than we did. We didn’t fly so high because we were already in trouble,’ Van Winkle said.”
“According to Alan Greenspan, Alan Greenspan did not create the housing bubble and could not have prevented the economic calamity that followed the bubble’s collapse.He suggests there’s no good way for a central bank to prick a bubble while it’s inflating without creating major economic problems. ‘At some rate, monetary policy can crush any bubble. If not 6 1/2%, try 20%, or 50% for that matter. Any bubble can be crushed, but the state of prosperity will be an inevitable victim. … Unless there is a societal choice to abandon dynamic markets and leverage for some form of central planning, I fear that preventing bubbles will in the end turn out to be infeasible.’”
“Canada’s real estate market showed no sign of losing steam in February, with housing starts rising faster than expected and a new survey showing 10% of Canadians expect to buy a home in the next two years. According to the RBC poll, younger Canadians between the ages of 18 to 24 are likely to lead the market. About 15% said they were likely to buy, almost double the number in 2009.”
“About 60% also believe housing prices will continue to rise this year, up from just 25% this time a year ago.”
“Water-cooler gatherings and locker-room chatter has been alive with irresistible real-estate deals beckoning from warmer climes south of the border. And it is not difficult to see why as we are inundated with regular news stories revealing that entire housing developments and condo towers now sit virtually empty and are begging for buyers. It has most certainly become a buyers’ market with prices seemingly at bottom-fishing levels.”
“There is one neat tax angle you can implement when buying this property in the U.S. (or anywhere else for that matter). Even though it’s located outside of Canada, it could still qualify as your principle residence for the purpose of using the principle residence exemption as long as the usual criteria are met. This means that if you do end up selling it at a profit down the line, the resulting capital gain tax might be reduced or eliminated in Canada. Cool. Where do I sign?”
“The real estate industry, in general, is encouraged by some new rules being introduced with regards to mortgage qualification, reports Kevin Grimes, the president of the Rideau-St. Lawrence Real Estate Board. The one that will likely have the strongest effect is the requirement for mortgage applicants to be able to meet the five-year fixed rate, even if they ultimately choose a variable rate mortgage with a shorter term. This is designed to ensure that those looking to purchase have the means of covering their payments if or when interest rates climb.”
“Other federal rule changes include: - anyone looking to purchase an investment property will have to put 20 per cent down rather than the previous five per cent, and anyone looking to refinance their homes can only pull out 90 per cent of the equity, down from 95 per cent.”
“‘From a real estate point of view, it’s a subtle change that won’t affect our market,’ Grimes explained. ‘It just means people will have to buy a less expensive house than in the past.’”
“Marianne Gentry, 66, lives with her disabled husband and desperately ill son. And they’re about to get kicked out of their home. Gentry, a customer-service representative for Home Depot, faces foreclosure on the four-bedroom house in Fountain Valley, Calif., that her family has occupied since 1996. Between her Home Depot salary and husband’s benefits, they pull in roughly $4,000 a month before taxes. Cutting their mortgage to $1,800 a month, the level it was at before they refinanced in 2007, would stabilize their financial situation enough to resume making house payments, Gentry said. ‘It would be tight, but we could make it.’”
“Wynn Bloch has always dutifully paid her bills and socked away money for retirement. But in December she defaulted on the mortgage on her California home, even though she could afford the payments. Bloch paid $385,000 for the two-bedroom in 2006, when prices were surging. Comparable homes are now selling in the low-$200,000s. The retired psychologist doubted she’d see her investment rebound in her lifetime. Plus, she claims she was duped into an expensive loan.”
“‘There was not a chance that house was ever going to be worth anywhere near what my mortgage was,’ said Bloch, who is renting a few miles away after defaulting on the $310,000 loan. ‘I haven’t cheated or stolen.’”
“This week RealtyTrac said more than 300,000 mortgage holders received a foreclosure notice last month. Even more mortgages holders aren’t waiting around for a notice. They’re seeing their property value scrape bottom. And they’re calculating that maybe it’s time to just walk away. Paul Buck in Las Vegas ‘By some calculations, the house may be worth $175,000 instead of what we owe on it, which is $295,000. It will cost us $140,000 or $150,000 more over the next 10 years to keep paying our mortgage on the house than if we made a strategic default and just walked away.’”
“Just look at the investors that recently walked away from their $6 billion obligation at the Stuyvesant Town apartment complex in New York City, he says. Buck: ‘And they just said, ‘Well, it’s only worth $1.8 billion, so now we’re bailing out,’ and left the lender holding the bag. So you know, nobody cried about that and said, ‘Oh, you’re bad people, what an immoral decision.’ They just said, ‘Well, that’s business. Right? That’s business.’ So that’s kind of the attitude we have to take, too, I think.’”
“Negative equity is one of the defining features of the still-unfolding mortgage crisis. Las Vegas was ground zero for the housing market’s historic boom and bust. ‘We all knew in our hearts it was unsustainable and there had to be a correction,’ says Larry Murphy, the president of SalesTraq. ‘If you bought a home in Las Vegas since 2004 up to about 2007, whatever you bought—I don’t care if you bought a big house or a little house, in a great neighborhood or a crummy neighborhood—it’s worth about half what you paid for it,’ Murphy says.”
“‘A number of people said, ‘Hey, I have got a couple of choices: I can get a 1,000-foot condo in San Francisco, or I can move east and I can get myself a fairly significant home for the same price,’ says John Walsh, the president of DataQuick. Although this trend increased real estate demand in Merced, prices appreciated even faster as exotic mortgage products and investor interest hit the market. But after the euphoria subsided, home prices crashed more than 72 percent through the third quarter of 2009.”
“Jay Butler, an associate professor of real estate at Arizona State University, says many people who purchased property in Phoenix during the boom felt pressure to get in on the action. ‘You had [real estate] seminars all over the place, you had ‘flip this’ shows,’ Butler says. ‘You were constantly being fed a barrage that if you weren’t actively participating in this thing, you were not only denying yourself a great bit of wealth but your kids [and] your grandkids.’”
“But once the music stopped, the housing market in Phoenix was clobbered. Home prices dropped more than 52 percent from their peaks through the third quarter of 2009.”
“Like other cities in Florida, the Orlando market saw tremendous demand from investors during the first half of the previous decade. Although the market attracted interest from buyers in the Midwest and Northeast, condo developers also marketed developments specifically to foreign buyers, particularly in the United Kingdom, says Jack McCabe, CEO of McCabe Research & Consulting. ‘It’s almost like [the British] were setting up another colony in the United States,’ McCabe says.”
“Abetted by easy credit, such demand helped send home prices surging by more than 102 percent from 2002 to the market’s peak in 2006. But the subsequent crash has been painful. The nearly 48 percent drop from the peak through the third quarter of 2009 has pulled 58 percent of single-family home mortgages in Orlando underwater, according to Zillow. And McCabe isn’t optimistic about a quick rebound. ‘For the condo or condo conversion owner, literally they may carry them out feet first before they ever see that property reach 2006 values,’ he says.”
“Ten Louisville developers hoping to overcome a tough credit market and get their stalled condominium projects back on track have come up with a novel approach for getting around tight national lending rules: They’re not calling their properties condominiums.”
“The developers hope to use a zoning loophole to avoid a recent crackdown in financing for condominium mortgages issued by mortgage giants Fannie Mae and Freddie Mac. The developers defend the tactic as a way around tough scrutiny imposed in response to the housing bust that devastated real estate markets in other parts of the country. The limitations, they say, are too restrictive for more stable places such as Louisville.”
“‘There are high-rises in Florida that are sitting empty, but they (mortgage underwriters) never had a problem with what we are doing here,’ said Chuck Kavanaugh, executive vice president of the Home Builders Association of Louisville.”
“The wheels are turning, slowly, on the proposed redevelopment project at the old Cotton Mill site, the owner said. Mark Bellin, president of Fieldstone Development Group of Newark, said that while the plans are in motion, he is hesitant about moving forward with the redevelopment due to the economic conditions. ‘We came up with this site plan which, frankly, we’re about ready to file,’ said Bellin, adding that the only thing holding them back is that they aren’t sure they want to file.”
“‘There’s no economy for anything right now,’ he said.”
“Larimer County saw the largest decline in foreclosure filings in the state in February compared to February 2009, according to the Colorado Department of Local Affairs Division of Housing. ‘The critical thing for Larimer is for jobs to hold steady,’ said Billie Jo Downing, chairwoman of the Larimer County Foreclosure Prevention Task Force. ‘The economy is really the main factor for the foreclosures. We’ve worked through the bad loans, and now it is the jobs.’”
“Mesa County had the greatest leap in foreclosure filings and sales year-over-year among the state’s 12 most populous counties. Tim Powers, spokesman for the Colorado Bankers’ Association, said the state has enacted several laws in recent years designed to help homeowners deal with adjustable mortgages they couldn’t keep up with. Those new programs, however, aren’t going to do much good for homeowners in Mesa County, he said.”
“‘With the lack of income and unemployment, people are just not able to pay any mortgages,’ Powers said. ‘You guys on the Western Slope are feeling the exaggerated amount of foreclosures because of the unemployment, and the only fix to that is to get more jobs.’”
“The current economic crisis nationally has been dubbed the Great Recession, going down in history as the worst downturn Americans have endured since the Great Depression. But in Nebraska and Iowa, at least, that label rates as the Great Overstatement.”
“We’ve seen worse — arguably much worse. The downturn of the early 1980s, a double-dipping disaster with deep roots in agriculture, slammed the heartland much harder than this downturn, taking a heavier employment toll. This crisis, driven by reckless lending practices and the collapse of a speculative hot-market housing bubble, has without a doubt lived up to all the superlatives in the nation as a whole.”
“Job losses are indeed the worst since the Great Depression. The job losses nationally are almost twice as severe as the peak ’80s recession losses. Some of the other ways this recession tops any since the Great Depression: longest downturn; worst long-term unemployment; biggest housing slump; biggest loss of household wealth. Nationally, at least, all are true. But Nebraska and Iowa, with less risky banking activity and more stable housing prices, have weathered this downturn in much better shape.”
“‘Every national recession is an average, with some regions above average and some below,’ said economist Murray Weidenbaum, who during the ’80s served as chairman of President Ronald Reagan’s Council of Economic Advisers. ‘The Midwest didn’t go overboard with (housing) speculation like California, Florida and Nevada, so it’s not nearly as bad now.”’
“Conversely, during the 1980s, Nebraska, Iowa and other agricultural states found themselves right at the epicenter of the nation’s economic quake. Ironically, it was the bursting of another real estate bubble — this one based on agricultural land — that contributed mightily to the Midlands’ troubles. Agricultural producers enjoyed some boom years during the 1970s, and those led many farmers, rural banks and investors to sharply bid up the price of farmland. There was a belief that values were always going to rise.”
“‘Does this sound familiar?’ said Iowa State University economist Peter Orazem. ‘It’s exactly what happened in the housing markets in the places that have seen the worst of this recession.’”
“Commodity prices also plummeted. Thousands of producers were left with land worth less than what they owed on their loans and reduced income to make their payments. ‘Wealth eroded pretty severely,’ said Bruce Johnson, an agricultural economist at the University of Nebraska-Lincoln. ‘We took ag land to 40 cents on the dollar from its peak.”’
“The housing markets in Nebraska and Iowa also were hit harder during the 1980s recession than now. Peak housing value declines in Nebraska were almost three times greater than they have been so far in this recession; Iowa’s were almost six times greater than now. ‘It was just one body blow after another,’ said Don Leuenberger, who at the time served as Nebraska’s top budget administrator and as state tax commissioner. ‘The slide was precipitous, and we didn’t come out of it for quite a while.”’
“Indeed, even when the job losses finally ended, Nebraska and Iowa had almost no net job growth between 1984 and 1986, even while the nation raced ahead at a healthy clip. ‘We were in a bad fix, financially and psychologically,’ said Vard Johnson, a former state legislator from Omaha. ‘People were questioning whether there was a future here.”’
“As painful as the 1980s were for the region, in those years you can find the roots of change that would help the states fare so much better during this downturn. The surviving farmers learned a lesson. Even during recent boom times in agriculture that were reminiscent of the 1970s, farmers avoided getting overleveraged and kept their books in line. In fact, farmers’ debt-to-asset ratios are the lowest on record.”
“Weidenbaum, now an economics professor at Washington University in St. Louis, said he’s happy to hear Nebraska and Iowa are faring so much better this time around. ‘You served your penance in the 1980s.”’
“I did something sort of wacky last week. Or maybe not so wacky. I paid off my mortgage. And why not? I don’t have a large income, not at all, but I only paid $78,500 for my house back in 1996. I started with a conventional 30-year mortgage at something like 7.5%, but refinanced in 1998 to a 15-year mortgage at 6.375%. (Remember when a rate like that seemed low?)”
“I paid down the principal sort of aggressively, so I shaved about 45 months off the note. I’m not going to say that was easy, but it wasn’t particularly hard. While I spend money more extravagantly than most on some things - art, food, drink, cats - I’m pretty cheap.”
“The van has 142,000 miles on it. I lived for several years without health insurance (although I would have gladly paid for it if a plan had made financial sense for me). I don’t have a working dishwasher or microwave. I haven’t paid for a haircut since 1982.”
“I know, I know, mortgage interest is deductible, which leads some to think that it’s never worth it to pay off a house. But I paid less than $700 in interest in 2009. Our tax system encourages mortgage debt, but it only adds up to real money for those who have a lot of debt and pay a lot of interest. About 30 percent of owner-occupied homes in America have no mortgage, so I’m hardly part of an elite club.”
“During the housing boom, we saw a change in the way Americans think about their homes. Too many believed real estate is always a good investment (it’s not), and that it always increases in value (it doesn’t). And now we’re all paying for the really bad bets by a relatively small number of investors and by the lenders who didn’t do their homework.”
“With more than a quarter of residential mortgages with negative equity, Georgia ranks behind only Nevada, Arizona, Florida, Michigan and California, according to data from First American CoreLogic. It’s going to take a few years to work through this problem. Part of the solution might lie in turning us frugal folks into investors in rental properties or buyers of second homes.”
“But we’re cheap. We’ll need to know our jobs and income are secure, that real estate has hit bottom and that those rental properties will actually create cash flow. And we’re not so sure about any of those things right now.”
As a born CT Yankee who keeps his eyes on his home state, I can tell you that in the posh Lower CT River Valley–the location of such town as Lyme, Old Lyme, Essex & Chester–estates are not selling, even when, in one case I am aware of, the asking price was halved. The people who have homes in the area do not only work in Hartford & New Haven but in
New York. These people also have places in town. Everyone seems to be hurting.
“‘Birmingham is one of the hardest hit metro areas in the South that didn’t experience a housing bubble,’ said Wial, a co-author of the report. ‘Quite frankly, it is a bit puzzling to me why Birmingham is faring so bad.’”
Quite frankly, it sounds like Birmingham did have a bubble and you’re just in deep denial of that fact……. or flat out LYING.
Or the demand from other places gave them a false sense of hope.
Remember all those people touting how ‘cheap’ and area was and therefore a good RE investment?
Seems my arch-nemesis Alan “Bubbles” Greenspan is at it again.
His entire focus in life is his defense of the indefensible:
“Any bubble can be crushed, but the state of prosperity will be an inevitable victim. … Unless there is a societal choice to abandon dynamic markets and leverage for some form of central planning, I fear that preventing bubbles will in the end turn out to be infeasible.’”
A blind man could see that loose credit was driving the markets. And yet, rather than slowly try to raise rates to slow down the speculation that was happening, Greenspan set rates at an ALL TIME LOW for 2 years.
He was Lauded by Time Magazine as the “Maestro” as asset prices and stocks rose and real estate INFLATED to 200% its original price.
Since that time, he is saying there was nothing he could do, without sending us into the dark ages. What crap! What has happened, extending the credit cycle to further “expand” debt is far worse. We may make it into the Dark Ages yet, but this could only be accomplished with the help of incompetent leaders at the FED.
Tell it to the a pack of imbeciles in padded room, Alan. You did it.
“Any bubble can be crushed, but the state of prosperity will be an inevitable victim.”
We are sure lucky the Fed neither saw nor crushed the bubble that exploded a couple of years ago!
Vaccines cause an “owie”, we should just wait until people contract polio before we bother to act.
From political perspective, the patient is a 2 year old with no parental supervision, who can fire you.
With Obama care you won’t be able to get vaccine !!!
Clearly he is mindset that if you try to speak in an obscure manner, rather than in plain English, people too embarrassed to say they were confused by what you said will just assume you had something intelligent to say; and if you speak clearly you will be discovered as the fraud that you are. There are only three conclusions regarding his infamous career. He was a liar, a moron, or both. I can’t believe anyone paid money for his book, or for his appearances. I wouldn’t hire him to clean my toilets.
Wasn’t his brother called ‘Chancey’ who tended the ‘garden’???
Good thing we still have the prosperity! I’d hate to have lost that!
“Job losses are indeed the worst since the Great Depression. The job losses nationally are almost twice as severe as the peak ’80s recession losses. Some of the other ways this recession tops any since the Great Depression: longest downturn; worst long-term unemployment; biggest housing slump; biggest loss of household wealth. Nationally, at least, all are true. But Nebraska and Iowa, with less risky banking activity and more stable housing prices, have weathered this downturn in much better shape.”
It sounds like the places where the Fed-favored-and-protected Wall Street Megabanks made major incursions to the housing market in terms of their subprime mortgage loan securitization racket are the ones that are suffering the most during the Great Recession, while the states with less risky banking practices and stable housing prices are not suffering much at all.
They are also growing corn for the phony balony ethanol.
..Any bubble can be crushed, but the state of prosperity will be an inevitable victim.
He’s not saying anything about sending us into the “dark ages”..
—
There was a recession after the dot-com bust in mid-2000. The Fed Fund rate was reduced 10 times in 2001, once in ‘02 and ‘03, from 6.5% down to 1%.
In June 2004 the Fed began to raise the rate and did so 17 times for 2 years straight, ending up at 5.25% in June 2006.
——
If you were the Chairman, tell us how high you would have needed to raise rates from 2004 to 2006 to prevent the housing bubble’s expansion (assuming you somehow foresaw what was coming).
I’m sure you have a specific number in mind which would be effective. Target 15%? 25%?
While you would certainly prick the bubble with such sudden and drastic moves, it’s obvious you’d also crush a lot of healthy economic activity.. and that’s all he’s saying.
With one crude tool (interest rates) available, there’s is no way to isolate a bubble from the overall economy and attack it independently. There will be extensive collateral damage.
“If you were the Chairman, tell us how high you would have needed to raise rates from 2004 to 2006 to prevent the housing bubble’s expansion (assuming you somehow foresaw what was coming).”
OK.
I actually DID see it coming and sold out in 2005 (Thank you, thank you, thank you Mr. Ben Jones!).
Here’s what I would have done:
1. Raised rates to 10%. ( I borrowed money to build my house in 1989 at 12% with a credit score of 815. My next door neighbor built his home at the same time with a state subsidized loan of 8 1/2%. I’ve always thought that 10% is the ‘natural’ rate for borrowing …for someone with GOOD credit. It goes up exponentially the lower the credit rating).
2. Returned the old loan standards. 3 years of Federal and State tax returns showing the mortgage would be no more than 28% of net income.
Verifiable lists of all expenses and assets.
3. Lobbied Congress to repeal the Community Reinvestment Act which catalyzed the bubble in the first place…as well as allowing banks to ‘redline’ areas of chronic mortgage nonpayment.
4. Raised all requirements for ‘investment’ and ‘vacation’ homes. (see #2)
5. Increased the FDIC premiums of banks loaning out of their region.
6. Lobbied Congress to reinstate the Glass-Steagall Act.
7. Notified the House Banking Committee that I refuse to run a shady private corporation with a sinister background and open up the books of the Federal Reserve Co. to Congressional scrutiny.
oh please..
Community Reinvestment Act was passed in 1977… and it catalyzed the housing bubble? A bit of a delayed reaction, wouldn’t you say?
That, and the rest of your proposals are obviously dreamed up after-the-fact. Claiming you as Fed Chairman in 2004 would seriously propose much less attempt anything like them is pure baloney.
We’re just coming off a recession and you’re gonna raise rates from 1% to 10%? With no collateral damage? People are not gonna demand you be locked up in the loony bin?
‘While you would certainly prick the bubble with such sudden and drastic moves’
The Fed did raise rates and pop the bubble. It didn’t take “drastic” moves. Rates are still at historic lows.
‘it’s obvious you’d also crush a lot of healthy economic activity’
And the collapsing bubble didn’t eliminate activity? What about the overbuilding? Now the industry will have to find something else to do for years until these crap-shacks fall down.
Let’s not forget all the real economic activity that was smothered out, or couldn’t compete for capital in the face of the housing mania. That number is certainly in the trillions, and who knows what our economy might look like today had that not happened. That’s on Greenspans Fed as well.
‘If you were the Chairman, tell us how high you would have needed to raise rates from 2004 to 2006 to prevent the housing bubble’s expansion’
‘oh please…..the rest of your proposals are obviously dreamed up after-the-fact. Claiming you as Fed Chairman in 2004 would seriously propose much less attempt anything like them is pure baloney.’
You ask ‘what would you have done,’ and then attack it as after the fact baloney? IMO, you are full of something, and it ain’t baloney.
“We’re just coming off a recession and you’re gonna raise rates from 1% to 10%? With no collateral damage? People are not gonna demand you be locked up in the loony bin?”
David Learah, is that you?
And…oh, by the way: We’re not even close to “coming off the recession.”
But if you think so, feel free to purchase numerous Real Estate bargains on their way up in value.
Cheers
The Fed did raise rates and pop the bubble. It didn’t take “drastic” moves. Rates are still at historic lows.
I would argue that the bubble had grown so much that it could only be maintained by PERPETUALLY lowering rates. So it wasn’t so much that the fed raised rates and popped the bubble, but that the fed ran into the “zero bound” and couldn’t continue to lower rates below zero.*
*arguably, “qualitative easing” HAS effectively lowered rates below zero. That is to say it made credit more available at near zero rates than it would have been otherwise.
“That, and the rest of your proposals are obviously dreamed up after-the-fact. Claiming you as Fed Chairman in 2004 would seriously propose much less attempt anything like them is pure baloney.”
It seems like Volcker did something gutsy like Zeus suggests, back in the 1979-1982 period. I am not saying it was the right course of action for the mid-noughts; just that drastic steps to stamp out periods of rampant real estate speculation are part of the Fed’s modern operating history.
“Now the industry will have to find something else to do for years until these crap-shacks fall down.”
Joey and his bankster masters will accept no blame for the rampant overbuilding, much less even acknowledge the problem exists.
‘So it wasn’t so much that the fed raised rates and popped the bubble, but that the fed ran into the “zero bound” and couldn’t continue to lower rates below zero.*
*arguably, “qualitative easing” HAS effectively lowered rates below zero. That is to say it made credit more available at near zero rates than it would have been otherwise.’
As your self-contradicting post suggests, the Fed tried to circumvent the zero bound by QE and then by MBS purchases and who knows what other unannounced stealth programs in a failed attempt to reflate the bubble.
…and don’t forget-
8. Borrowers must provide the lender with complete financial updates every 6 months to make sure that all standards were still applicable ( as I did from 1986-2004).
Speaking of increasing interest rates, India just ‘surprised’ the 6 digit economists with an ‘unexpected’ rate hike.
“India’s central bank unexpectedly raised rates for the first time since July 2008 after inflation accelerated to a 16- month high. The Reserve Bank of India increased the benchmark reverse repurchase rate to 3.5 percent from a record-low 3.25 percent and the repurchase rate to 5 percent from 4.75 percent, according to a statement in Mumbai. The surprise decision comes a month before the bank’s scheduled monetary policy meeting.”
http://www.bloomberg.com/apps/news?pid=20601087&sid=apHGS7uJom8Q
These were probably the same economists that were ‘surprised’ by the ‘unexpected’ US housing bubble collapse.
I like your list Zeus .Greenspan never talks about how he favored de-regulation in the secondary lending markets (the casino ) .To say after the fact that the Feds couldn’t control it is the very reason why it should never of been allowed to begin with . Before the repeal of Glass-Steagall bubbles were limited
and lending standards were more uniformed by regulated Lenders standards. , Wall Street Investment firms ended up defining the market.
That was a great list, Zeus.
When all of these private and business debts and losses were expected to be backed or banked by the taxpayers, the gamblers and the “house” running the game, had little averison to the high risks involved.
Greenspan was a major pit-boss in this housing/lender/bankster gambling scam.
“Unless there is a societal choice to abandon dynamic markets and leverage for some form of central planning”
Uh, yeah, using the Fed’s ability to hold rates at multi-year lows in order to prop up the Potemkin debtconomy ISN’T central planning? How do these jokers keep a straight face?
Good point.
“Any bubble can be crushed, but the state of prosperity will be an inevitable victim”
If nothing else has been learned during the fallout of the past few years, surely everyone recognizes by now that the state of prosperity during a bubble is FALSE.
Right jbunniii. And when you get a false prosperity and a whole lot of over building and mis allocation of funds and fake housing appreciation that crashes ,that prosperity turned to vacant houses with brown lawns ,destroyed neighborhoods,overbuilding in the commercial sector , lost jobs and debt not being able to be paid .
Anybody in their right mind as a Fed Chairman would of saw that
the market was unusually appreciating verses historical appreciation cycles .
the market was unusually appreciating verses historical appreciation cycles ……
but that was due to “strong economic fundamentals” according to Bernanke and Greenspan. High employment, family finances able to cope with higher debt ratios due to strong housing demand and
“appreciating” prices in real estate, low interest rates, blah, blah, blah, blahhhhhhhhhhhh.
Remember all the talk about the “new economy”. Every time some rational person tried to denounce the mania as an Imbalance in the economic world, the defenders of the Bubble came up with their rationalizations. That was the same time the Used House Salemen in various colored blazers with lapel pins with big R’s on them told us all: If you don’t buy now, you’ll (let’s hear it in unison) BE PRICED OUT F O R E V E R> !!!!!
‘We’ve been here a long time, and we compare to what we once were,’ said Ron Van Winkle, an economist who is now West Hartford’s city manager. “The Connecticut economy has been in awful shape for some time.’
Too bad for him that Ron can’t just sleep through the pain the way his ancestor, Rip, might have done.
“Like other cities in Florida, the Orlando market saw tremendous demand from investors during the first half of the previous decade.”
Correction: tremendous demand from speculators………….
“Abetted by easy credit, such demand helped send home prices surging by more than 102 percent from 2002 to the market’s peak in 2006.”
Ding! Ding! Ding!! You win the booby prize……….EASY CREDIT is the answer we were looking for. Outstanding!!! Money for nothing!!
I also don’t believe the 102% number. In the late 1990’s housing in Orlando and the surrounding area could be had for next to nothing. We looked at 3/2/2’s for $90,000. In 2005 when we looked again, these same houses were $250,000.
Orlando was the most obvious bubble territory in FLA, IMO. That and Naples. Prices went bonkers in both areas, even more so than the Miami/Ft. Lauderdale area. I was totally flabbergasted at the prices. When we sold out in 2005 and went to Sanford outside of Orlando briefly, I about laughed right in the face of this one RE agent who showed us a crack-shack asking $150,000. Seriously. You would have had to live there armed to the teeth and the house looked like it was going to come off its foundation. I was totally stunned what people were asking for properties in the Orlando area. I’ll bet the crack shack costs about $30,000 now, if even that.
And I bet that now the same percentage of investors (speculators) are on the market. This does not bode well…
Happenin’ here in Tucson too. And, here’s yet another story from the Arizona Slim File:
I’ve told you before about Mr. Doom and Mrs. Gloom. The now-former neighbors who decided that this nabe was not to their taste.
They thought that they’d find true love and happiness over in Dunbar Spring, which is one of those oh-so-trendy hippie granola nabes just north of Downtown Tucson.
Well, they listed their house for sale in September ‘06. Wishing price was $240k. I’m told that it finally sold (in May ‘07) for $220k. And, while they were waiting for the Undesirable House to sell, they’d bought another one over in Dunbar Spring. The grapevine told me that they paid $250k for it.
Well, paying $250k for a little house (1,068 square foot, to be exact) on an alley is so-o-o-o 2006. It’s on the market again. They’ve listed it for $219k.
Ouch.
To this day I have not figured out the appeal of the Four Corners area to UK residents. Nor, unless pure speculation was the motive, have I figured out why people from a developed nation would want to own a second home so far from where they live.
Four Corners area? As in Arizona/New Mexico/Utah/Colorado? I have to confess I’ve been following the US housing bubble since at least 2005 but I had no idea there was speculation going on in that region, let alone British speculation. Do you have any good links to news articles about this? I’d love to read up on it.
Oops, never mind, I just googled “four corners orlando” and I see there’s an exurb of Orlando called Four Corners, which I assume is what you guys are talking about.
Silver Spring, Maryland has a Four Corners area as well. Not sure what’s so special about four corners. Doesn’t every intersection of two streets have four corners?
LOL. Actually I did hear Farmington, NM was bubblelicious at one point. Not sure why - mining or something.
I once stood up (after 9-1-1) at the local Rep central committee and suggested the ‘four corners’ for a location of our Nation’s new Capitol. My reasoning was that the old one (DC) was a crummy location based on Slavery negotiations that didn’t serve the majority of citizens and that it was completely vulnerable to attack… specifically because of the Soviet “Squval” nuclear rocket torpedo.
http://archive.newsmax.com/archives/articles/2001/4/23/220813.shtml
I also suggested that there be a 100 mile barrier of ‘civilian’ housing (which means parasitic lobbyists) from congressfiends in session.
I explained how Kyoto was the Japanese Cap for 1000 years and Tokyo is still referred to as the new capitol; that New York was our first CAP, then Philadelphia and, after yielding to slave owners, Washington, DC.
I also noted that my own father wrote a book about Norton Chipman explaining the process and what a crummy location it really was. Virginia was smart enough not to complete the “diamond.”
My thinking:
1. Isolate the representatives, senators and “public servants” from influence-peddling charlatans so they can ”serve the public.”
2. Have it remote and centrally located that the nuke missiles ( which WILL come some day) give our country at least 15 minutes to prepare for ‘Jihad.’
‘The critical thing for Larimer is for jobs to hold steady,’ said Billie Jo Downing, chairwoman of the Larimer County Foreclosure Prevention Task Force. ‘The economy is really the main factor for the foreclosures. We’ve worked through the bad loans, and now it is the jobs.’
Too bad the jobs machine in Larimer County is dead, dead, dead. Lots of people are commuting 1 hour each way to jobs in Denver (including yours truly). This helps keep us in our homes, but who would want to buy a house in Ft. Collins, Loveland or nearby Windsor these days? I will say though, you get a lot more house for your buck in Larimer County theses than in Denver. A 300K house in Broomfield or Westminster (on the north side of Denver) can be purchased in Loveland in the low 200’s. Ft. Collins is somewhere in between the two (of course they’re all still overpriced).
Windsor is hurting especially as its boom time development targetted upper middle class buyers (especially in Water Valley) who just don’t exist anymore, and now the Windsor development moguls are trying to unload tens of thousands of acres of land they bought when they thought the sky was the limit. I wouldn’t be surprised if Mr. Water Valley himself (Lind) wound up filing for bankruptcy protection.
“Unless there is a societal choice to abandon dynamic markets and leverage for some form of central planning, I fear that preventing bubbles will in the end turn out to be infeasible.”
How about abolishing the Federal Reserve instead?
The so called “Federal Reserve Bank” - more accurately called Rothschild Bank International - was foisted upon the American public in 1913 under the pretext it would PREVENT “booms, bubbles, panics, and crashes”.
Instead the tail now wags the dog and the Fed runs the show lock, stock and barrel; immune from scrutiny, impervious to outside regulation.
They create bubbles, profit from them, create crashes, profit from them, help explode the deficits, and profit from them, while their smug-ass chairmen pontificate about how difficult their job is.
Imagine a tapeworm 500 miles long curled up in your gut and you have an idea of the monstrosity the “Fed” has become.
Amen, brother. End the Fed. NOW.
Dang. Well said.
Awesome post, cobalt.
“She claims she was duped into an expensive loan”, this may be semi-true. But the problem is she was dumb enough to buy an Expensive House. Blaming the bank is bs in her case, she would walk away if interest was 0%.
” Agricultural producers enjoyed some boom years during the 1970s, and those led many farmers, rural banks and investors to sharply bid up the price of farmland. There was a belief that values were always going to rise”
…and bought new combines and stuff. The Russian wheat deal really went to their heads.
Ahhh…memories of bubbles past.
“Part of the solution might lie in turning us frugal folks into investors in rental properties or buyers of second homes.”
Frugal folks realize this generally does not make sense at the moment, thanks to all the artificial real estate price support measures in place.
Maybe it will be different after the market eventually capitulates…
Turning us frugal folks into investors? In other words, they want us to buy their shadow inventory with our shadow cash.
No dice, kemosabe. We frugal folks are called frugal for a REASON. Get your grubby paws off my pocket.
From the Wash Post biweekly chats with the real estate section reporter who was assisted this week by someone from our buddies at the George Mason University real estate analysis center thingie:
Q. Arlington, Va.
I’m just throwing my own two cents out here, but I’m predicting that housing will slow down again significantly once the $8000 tax credit expires.
A. John McClain writes:
There will likely be a bump, particularly at the national level, but perhaps not in the National Capital region. The credit may have already used up most of its potential, and at some point natural market forces need to get re-established. The credit coming off in the Spring - when there is higher demand - and with the depths that the market has been through over the past two years, the market here will probably ride through that bump and get us back to normal duirng 2010.
They’re smoking some awfully good stuff in the National Capital region.
Come on out to Clownafornia. The governator is proposing a $15,000 credit for buying a house. Woop Pee Ti A.
Good thing California is so flush with money.
Oh, wait…
I think he is right about the capital region. That is where money gets passed around from the Crooks on capital hill. There’s always plenty around and it gets distributed there first. That would support higher housing prices.
Also, i have a pet theory about the FED, as a giant money bubble extending around each of its branches. Didn’t we have major bubbles near each of the 12 Fed branch banks??
Think about it: San Francisco? check. Atlanta? Check. Richmond?
Check. Boston? Check. New York? No doubt. Minneapolis? fer sure.
Chicago? No question about it? Dallas? i think so.
Kansas City, Cleveland and St. Louis, I am not so sure, but I have my suspicions.
I think the Richmond Branch will be pushing money around the Capital region wherever politicians haven’t already lavished their campaign contributions and graft.
Wasn’t there an income limit of around $150k for the tax credit? So, conservatively, it would only impact homes priced at 150×3 = $450k. Not much available near or inside the beltway for that price. He might be right, but not for the reasons he thinks.
“So, conservatively, it would only impact homes priced at 150×3 = $450k.”
It would also put upward pressure on homes priced above $450K, due to a sudden ($8K credit induced) artificial shortage of homes priced under $450K.
There are gazillions of condos priced under $450K in this area.
Who in the Sam Hill would event think of paying anything close to $450k for a condo? I mean, come on, it’s a glorified apartment!
Exactly - A condo combines the hassles of apartment living (loud neighbors above or to the sides, lack of freedom on what you can do with your “property” increases in “rent” (association dues)… with the hassles of ownership - responsible for own maintenance, lack of mobility, etc…
I cannot understand how anyone would choose to own these???
I like your handle. Industrial music, right? So 1999, but even for its noise I thought industrial was kinda peaceful.
I for the life of me cannot imagine “owning” piece of a high-rise. It’s like paying for a cloud in the sky. I like to be more grounded.
Amazing to me that in terms of regulatory functions one hand of the government was not aware of the other hands . What was SEC function
verses the banking regulators on regulated banks . If the investment firms were getting their funds for lending sources from securities and not from FDIC deposited funds with the lower leverage requirements ,than why isn’t it openly stated that Investment Firms with higher leverage and lower reserves standard and lower transparency were buying all the loans made
by most of the regulated Banks ? The Investment firms were the lenders for all intent and purposes ,and they didn’t even qualify for a bail out . Investment firms and Insurance Companies didn’t even qualify to go to the
Fed Discount window and get a bunch of cheap Fed funds based on junk securities .at 100 % on the dollar . Where does the Fed get off making loans on questionable paper(especially unregulated Investment firm paper ) that would surly put them in the position of
being the bag-holder in that the junk would be wroth 50% or less on the dollar . Those creeps would of defaulted on all those Fed loans eventually anyway ,and I’m not sure how many of those are still on the books .
But this act in itself shows that the Feds /Paulson knew that the Investment Banks and Insurance Firms and regular bank where insolvent .When Paulson talked about the the Good Bank/Bad Bank principal and government should take bad assets off Banks ,the act had already been
done in terms of the short term lending from the discount window months before the TARP FIRE call .It’s like making a loan to someone
and exalting the appraisal so they can get the money ,knowing they can’t pay you back .
So ,the point is when you look at the way Investment Banks can play with accounting tricks to make it look like they are worth more as
Lehmans did ,the Feds provided the means to give the illusion of solvency ,months before the Tarp request .
When the Feds use to say they were injecting liquidity in the market ,they were really making loans to insolvent institutions based on junk
paper so they could avoid declaring BK right when it was fact. This market illusion was done for the purpose to buy time I believe . Paulson excuse that Tarp was done for the purpose of keeping credit markets open and lenders lending to Main Street was bogus and you can see it was to increase Banks reserves given their true state of insolvency .
Paulson could never explain why the government has to buy unregulated
entities assets ,and its clear that would be the only way they could get 100 % on the junk . Add to that the leverage was 30 to 40 times making
the losses even more profound .
“I did something sort of wacky last week. Or maybe not so wacky. I paid off my mortgage…I know, I know, mortgage interest is deductible, which leads some to think that it’s never worth it to pay off a house…”
Why is he so apologetic for doing something sensible like paying off his mortgage? The fools who took out mortgages they could NEVER possibly afford (and then defaulted) are the ones who should apologize.
The raising of investment speculation to 40 to 60 % of the real estate market ,verses owner occupied end user demand created a great instability in the real estate market and a faulty demand. Historically 7 to 10% was investor demand ,and they tended to hold property long term . These boom investors bought at the tops of markets and the cash flow was a neg.
figure ,something that real investors don’t do .So on top of everything else you had investor buying for short term appreciation gain rather than cash flow gains from renting .Also investors were liar loan borrowers who were allowed to
purchase property at lower down payments and rates by claiming owner occupancy intent . Historically in lending a investor loan was considered a
higher risk loan because if a person got in trouble they would let their investment property go first before their personal residence .
For some reason Wall Street lender middlemen thought that breaking up loan bundles into securities with tranches would eliminate the risk of “investor loans “. Investors loans that didn’t cash flow would be very high risk ,and combined with those loans being toxic loans that would go up ,the investor would have to sell, creating that same body of investors being unstable at the same time, raising the amount of sellers needing to sell at one given time in the market . They knew they were “investor loans” ,that were liar loans about occupancy, so in that way this was another failure to
underwrite loans that created fraud that raised demand by borrowers that were not qualified .
If you combine that with the number of owner occupied buyers that bought to churn the property after 2 years for appreciation or ATM
type equity refinances ,that was additional instability in creating
borrowers that would need to sell or refinance at the same time .
Stable markets aren’t set up that you would have this many numbers of
sellers all needing relief at the same time . Course no doubt Wall Street money middlemen
thought they could make a lot of money off this constant churning of loans by creating this loan dependency . Wall Street was making a lot of money on pre-pays ,refinance fees ,new purchase money loans by flippers etc. In fact ,the toxic adjustable loans were sold widely as
the best leverage instrument for a speculation buyer to max leverage
while keeping the payments lower . Also the toxic adjustable at teaser rates were easier to qualify for ,and the commissions were higher on those loans for the industry .
The fact that such a high percentage of borrowers went on these type of loans when low rate fixed were available is proof that the industry was successful in selling this idea of loans for leverage for appreciation.
Setting people up to serial refinance to lower the teaser rate again ,or tap equity ,and all the excess costs of this, would add to the cost of money ,and it wasn’t right . Giving assurances that you could get money in the future for refinances ,or get out of a toxic adjustable whenever you wanted to was giving just as much of a myth as the myth real estate always goes up . The NAR campaign of “This is a Good Time To Buy”, was pure BS and many a knife catcher got caught in that fake
advertising campaign . Also the incentive period to get people to buy
by cash back fraud and give-a way cars etc. was another fraudulent
period to falsely inflate real estate values and lure in knife-catchers.
All this would never be acceptable business practice in past lending
cycles .
Lending can’t be made based on projected value in the future and a appraisal and loan qualifying is suppose to be based on the market value at the time of appraisal with no projection of any future gain from that exact date .Same with income ,you just can’t assume the person will
get increases in wages that will eventually make them qualify .
For all intents and purposes loans and appraisal were made based on
the future value of real estate/wage increase ,assumption they could refinance and that would erase all underwriting sins at the time the loan was made .
So, borrowers believed all this BS ,and it played into their decision
making in taking risks in home purchasing beyond their means .
Not only where the secondary market loan investors deceived as to the quality of the AAA rated mortgaged securities ,but the borrowers were deceived into reliance on faulty assurance and myths made by the professionals in the business . Mania greed or fear of being priced out
was a great motive during the boom and it even caused borrowers
to be willing to commit fraud or professionals to help them commit fraud in the name of leverage .
It’s like the old saying ,”It sounded good at the time “,but this was a
Ponzi -scheme which raised the price of real estate ,which was the
cause of the off the charts crash in value . You can’t re-inflate something that was fake ,that started with deception or faulty models
of the securities being rated incorrectly to begin with ,so Wall Street middlemen could play with other peoples money . I don’t even like to call them lenders because they were just greedy Middlemen .
The real truth is that a fraudulent loan or a loan conceived in fraud (the money was obtained by mis-rating securities) ,would constitute a voidable contract . A Ponzi scheme would be grounds for a voidable contract . So there is no way that the middle men could do anything but get bail out rather than face what standing law Justice would of done to them ,IMHO .
Sorry about the long rant but this whole economy by debt that wasn’t sustainable was just criminal .
“The raising of investment speculation to 40 to 60 % of the real estate market ,verses owner occupied end user demand created a great instability in the real estate market and a faulty demand.”
Heard it on good authority from a Realtor™ just yesterday that San Diego has recently seen a huge new influx of investors thinking they are getting in at the bottom. Apparently most of the market now is these guys plus the former fence sitters encouraged by the $8K credit to jump into a home purchase.
Yep. Been saying this for awhile.
We’re seeing lots and lots of “investors” out there. This is no different from the bubble years — everyone is going to get RICH in real estate.
Buy now, or be priced out…FOREVER!!!! (been hearing this again, too)
“This week RealtyTrac said more than 300,000 mortgage holders received a foreclosure notice last month. Even more mortgages holders aren’t waiting around for a notice. They’re seeing their property value scrape bottom. And they’re calculating that maybe it’s time to just walk away.”
Tomorrow, and tomorrow, and tomorrow,
Creeps in this foreclosure rate from month to month
To the last syllable of recorded time,
And all our yesterdays have lighted fools
To catch their falling knives. Out, out, brief mortgage!
Life’s but a walking owner, a poor buyer
That struts and frets his hour within the home
And then is heard no more: it is a tale
Told by a Realtor™, full of sound and fury,
Signifying nothing.
Nice, PB.
Looking on the bright side from this story, at least California real estate values are once again going up.
Searching For Food In The Land Of Plenty
Photo, Who’s Hungry — By Dianne de Guzman, Sandy Tolan on March 18, 2010 at 5:00 am
As the number of Californians facing hunger reaches “epic proportions,” officials report major strains on the system statewide.
by Dianne de Guzman and Sandy Tolan
The number of Californians fighting to ward off hunger, already at a crisis level, is worsening in the face of the lingering recession and high unemployment. Now, the problem may grow as the state faces a new round of budget cuts.
Over a six-month period, California Watch and the Annenberg School for Communication and Journalism at USC interviewed scores of county, state and food bank officials and dozens of Californians who face food shortages. The reporting found that record numbers are overwhelming food banks and county social service offices in every corner of the state and that the crisis is accelerating.
Food banks doled out 300 million pounds of meals and surplus commodities last year – the equivalent of eight pounds for every Californian. It represents at least a 30 percent rise from 2008, according to the California Association of Food Banks.
In Los Angeles, 983,000 individuals sought food assistance from soup kitchens, shelters and food pantries in 2009 – the highest number ever, and a 46 percent increase since 2005. In some wealthier counties, such as Monterey, the numbers nearly doubled, an indication of the recession’s impact on formerly middle-income Californians.
…
California has a credibility problem when it comes to the budget. We’re reading daily about the mass layoff of teachers but no one talks about the waste in the system. For instance, I work part time in a medical rehabilitation hospital that saves one of it’s three units for inmates. Why? Because the state of California pays top dollar for their care. We’re talking approximately $3500/day. Yes, a day! The cost goes up (way up!) if they need expensive treatments such as ventilators, specialty MDs, MRI’s, surgery, wound care, etc. On top of that, each inmate has 2-3 guards, depending on the type of crime they’ve committed. Each guard makes approximately $80/hour and for many of them, this gig is an overtime shift, so their take is even higher. A murderer (yes, the management allows serial killers in this lovely facility) has at least 3 guards. They recently had a death row inmate upon whom they lavished the best, most expensive care available so they could save his life after he injured himself in a very repulsive way! To save you from having to do the math on this, one inmate in a rehab hospital costs the state approximately $7340/day (1 inmate, 2 guards @ $80/hr x 24 hours/day plus the daily rate for the hospital). For a serial killer with 3 guards, the cost goes up to $9260). There are usually about 10 inmates on the ward at any given time which means the state is spending approximately $73,400/day to rehab them. The unit also has a sergeant present 24/7 so that adds an additional cost to the overall bill. $73,400/day X 52 days in the year is $3,816,800/year. And this is only ONE hospital. There are facilities all over the state that are anxious to take these inmates for the most obvious reasons.
Don’t even start to think about how many teachers salaries could be paid with that money. You’ll just make yourself sick.
I met an elementary teacher who was just laid off at the bar last night in North County San Diego. She was 30, she told me her salary was $72,000. I nearly spit my beer out. Now she is making half that doing some admin type job. I know civil service job pay has gotten bad in California, but $72K to teach 2nd graders, anyone could do that. Her former job pays as much as my engineering gig!
Even though it’s [house owned in the US] located outside of Canada, it could still qualify as your principle residence for the purpose of using the principle residence exemption as long as the usual criteria are met. This means that if you do end up selling it at a profit down the line, the resulting capital gain tax might be reduced or eliminated in Canada. Cool.
Huh?
But it will be subject to US cap gains tax, won’t it? And if you don’t have a green card, won’t it be impossible for a Canadian to claim a US house as a “principle residence” for the purpose of the US cap gains exclusion? Hard to claim a house as a “principle residence” if you don’t have a legal right to reside in the US on a permanent basis.
On KPBS this afternoon they said California real estate is bubbling again. They said prices are up 10%. Chris Thornberg from Beacon was interviewed and he blamed the government intervention. The stats say for every home sale in California last year there were 5 offers per property. Bidding wars for the lower tier is insane, one couple said they toured 200 homes in 1 year, wrote 50 offers and were outbid on everyone. They were fed up with it, but so happy to finally a year later get an offer accepted.
I want to buy soon, have a nice downpayment and can’t live with my parents for my entire 30’s, but the 3 offers I made I was beat out everytime I just about gave up. I don’t have the desire to put in 50 offers and tour 200 homes just to buy one. Plus, there really isn’t anything worth it in San Diego for a reasonable amount of money.