Weekend Topic Suggestions
Please post ideas for topics here!
The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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Name:Ben Jones
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I think that many investors with properties way underwater have considered strategic default. Many would like to escape. Especially where laws are very pro tenant and rents too low to cover carrying costs. Has anyone done this? How long did it take for the foreclosure and were they sued for a deficiency judgment.
I’d be very interested in that thread too. The whole mix affects us not just SFHs.
I can’t speak to residential properties, but my experience watching some train wrecks in terms of commercial properties, is that the banks ARE going after guarantors. In some cases, they are negotiating a pound of flesh to avoid the litigation, in other cases, they are bringing suit.
The only case that I’ve seen on the commercial side where a suit was NOT brought was when the guarantor had already been sued on a different loan, lost, and had a judgement entered that exceeded her net worth. In such a case, the second lender decided that the suit wasn’t worth it.
I have not yet seen a guarantor on a commercial loan simply walk away unscathed.
This is especially the case if the FDIC had gotten involved. In such cases, the banks are required (supposedly) under loss sharing agreements to pursue all avenues for recovery.
I don’t know what is going on with residential investors, but I would be surprised if it is completely the opposite. I’m sure there is some political pressure to not go after guarantors, but if the borrower has resources, and guaranteed the loan, the banks would be breaching their fiduciary duties to their shareholders to let them walk away without trying to get something.
Headed to the Delaware beaches for a week. It will be interesting to see the on-the-street inventory. We’re going to see one shanty and will likely have to deal with a Hummer driving lying realtor to get inside.(Yes she really drives a Hummer). And yes, she’s a backpedalling liar. I caught her lying once already and you guys should have seen and heard the rapid retreat she made. It’s pathetic these Lying Realtors have no honor, no foundation, nothing.
She will hate the RAL family when we’re done.
~Realtors Are Liars®
“Let them hate, so long as they fear.” –Lucius Accius
“Let them hate, so long as they fear.” –
Lucius Acciuslil’ OpieWay way back, when asked what was in store, this was my prediction:
Things wouldn’t stop getting worse until the end of 2009.
Would be muddled in 2010 and 2011 with some good news offset by bad news elsewhere, particularly a fiscal crisis in government (which is always put off by short term actions).
And would finally start to slowly get better in 2012.
I think the prediction has been pretty good so far, but now I’m not so sure about the 2012 part. The deleveraging hasn’t gone nearly far enough, in some places (like NY) housing prices are still to high, and they have extended and pretended the housing retrenchment forward.
So what will happen next year?
And would finally start to slowly get better in 2012.”
2018 I think we will double dip I also think these economic cycles have longer waves each about 20 years
there are 4 of them a Spring Summer Fall and Winter we Entered Winter in 2008 I think
Remember 1980 to 2000 a 20 year run in the fall of the 4 cycles
it then chopped around from 2000 to 2008, kind of a things are different now signal. And they are and I don’t beleive we are headed back to repeat 1980 - 2000 next but have to go through a 1929 -1949 cycle first.
“but have to go through a 1929 -1949 cycle first.”
bummer
I’m getting confused by the various cycles/seasons/turnings. Maybe that could be a weekend topic.
I think you’ll begin to see some development recovery in certain markets that have a combination of OK job growth and low vacancy rates (both rental and owner-occupied). Things won’t get really interesting though for a couple of years.
I read an article online today where there was reference to “shadow households”. Interesting concept. The idea is that the official household formation numbers are skewed farther down than new births, graduations and marriages would indicate because of the poor job market. People are delaying getting divorced, doubling up, getting married and living with in-laws, having kids, but hunkering down in apartments for a while longer, etc.
As rents rise (especially in markets with lower vacancies), and job growth continues, there will be increased demand as these “shadow households” start eeking their way out. These will be the first kind of markets that will begin to recover in earnest.
Just a further thought on my weekend topic suggestion from a few weeks ago. I was wondering why in the face of static real incomes, people borrowed more and more instead of keeping their spending static. The obvious factor is that people were willing to lend them the money to do so. You can only go into debt to the degree that others are willing to lend you the money to do so. But it’s also true that just becasue the median or average household income is static does NOT imply that the individual incomes that make up that median or average are static. Some people have had static incomes, some people have had their incomes increase, and some have had their incomes drasticly cut back. And some have had their incomes go up and then fall back. So static average household expenditures would require not just spending about the same ammount every month, but more quickly adjusting to declines of income, a more difficult and wrenching prospect, even if it is a good idea. Of course the willingness of the debt pushers to lend right up to the edge of people’s ability to make the payments makes it much more difficult for those who have suffered income declines to adjust expenditures downward. If your take home income suddenly decreases by 30%, it’s very hard to make adjustments when you existing debt payments are already 40% of your take home. That would imply that all other expenditures have to be cut by half (that 30% represents half of the 60% left after existing debt payments of 40% are paid) to avoid default.
And on that note whose bills (accounts payable) have remained static? Certainly not ours.
So why aren’t we seeing people cutting back? Or are we seeing some people making money off of the changes? (consolidation of hospital services to our area as they shut down more rural hospitals, lawyers as divorces, BKs increase, the hydrofracking crews that have moved in for our local Marcellus shale as peak oil reality moves to the fore).
It had occured to me the ones cutting back would be sitting home where you can’t observe their choices and the ones you see out are the ones doing ok or maybe even experiencing a little bump in their most recent situation.
That would imply that all other expenditures have to be cut by half (that 30% represents half of the 60% left after existing debt payments of 40% are paid) to avoid default.
”
yes thats why we will have Deflation not inflation
I was wondering why in the face of static real incomes, people borrowed more and more instead of keeping their spending static
Jesus / parable / human / temptation…old school
Exploitation$ beyond the middle east participant$ of yore: “currently on-going…”
There has been some discussion of the “oil city plan”:
“when we say “Oil City Plan,” — that is, save up, buy a cheap house cash, homestead for veggies, work a McJob for walking money, and generally live a low-level life ”
How about some discussion on building a checklist of how to determine a suitable location for such a “strategic withdrawal” and the other planning needed?
And how it relates to “post-materialist” “threshold earner” lifestyles?
http://www.economist.com/blogs/democracyinamerica/2011/07/unemployment-and-jobs
I was going to suggest a similar topic like this myself.
There are quite a few groups trying to putting Oil-City-like plans together.
Community Solutions is a sort-of eco community that they want to build in a post-peak-oil Yellow Springs, OH (near Dayton):
http://www.communitysolution.org/about.html
James Howard Kunstler writes about peak oil all the time. He personally chose a small town near Albany, New York.
kunstler.com
The FreeState project tried to gather 20000 people to move to New Hampshire and totally unplug from “the system,” as in living very locally on cash and not being tracked by banks or the government. They figured that New Hampshire was already very libertarian, and had such a small population that 20000 people moving there would be enough to sway the politics. In line with their beliefs, their website is gone, but here’s the google caché. Wikipedia is no help. I wonder what happened?
http://webcache.googleusercontent.com/search?q=cache:ZfYrgW1hE64J:freestateproject.org/+new+hampshire+freedom+movement&cd=1&hl=en&ct=clnk&gl=us&source=www.google.com
Survivalists abound if you google them. Your local army-navy surplus store is full of stuff, including books on how to live very low-level.
One of the more organized homesteading movements is Backwoods Home Magazine. backwoodshome dot com. Very libertarian, by the way.
Personally, I like the foothills of the Appalachian mountains, which encompasses quite a lot of the US. Anything south is too hot and buggy, anything north is too cold, anything west is too dry.
———-
I admit, if I really wanted to, I could probably go on the Oil City plan, but I’m deathly afraid to pull the trigger on it, at least now. I just obtained a good job which I like, in a decent area which I like. I don’t have enough of a back-up cash cushion, and we still don’t know what’s going on with the health care system or Peak Oil or government in general. I’ll give myself about 5-6 years to make a true reassessment.
Also, while people claim to want to unplug from the system, that system gave us good medicines and flush toilets and cars and hot showers and electricity and pesticides to help the crops, not to mention computers and internet. I am not quite willing to give that up. I am well aware that Laura Ingalls Wilder did not live an idyllic life.
I don’t think I’ll ever be ready to live like the Waltons.
Goodnight, Exeter-boy.
Gunnite Grandpa!
“I admit, if I really wanted to, I could probably go on the Oil City plan, but I’m deathly afraid to pull the trigger on it, at least now. ”
Me too. I’m old enough to remember how some of the “counterculture back to the land” stuff didn’t work out very well or very long for most people. And I don’t want to live a totally “unplugged” life and having health insurance, etc is important to me. Hunkering down in some survivalist hidey hole is certainly not for me - if society ever completely comes off the rails, I’m not sure I’d want to be one of the survivors.
But it seems to me there may be a “middle” road that is frugal/sustainable (both in the financial and ecological sense) and perhaps more humane and satisfying. I think it might be possible in a variety of settings, ,urban or rural, with the right personal priorities and a willingness to identify what is “enough” and live by it.
Yes, my concept of the Oil City was to never to unplug from the system — something more aking to leaving the rat race. If we’re all going to join the Under $500/week club, we may as well live a life where we can live on under $500 a week.
I lived a fairly low-level life a couple years ago, on about $24K a year, and that included rent, COBRA, and a car payment. (with a paid off house and car and some semblence of health insurance not connected to a job, I could live on much less. ) I didn’t hunker. I bought gas and shopped at TJ Maxx and watched PBS and used a rowing machine and enjoyed being online.
Agreed.
So how do we go about making this happen!
Looking forward to some input from the brain trust.
I’m old enough to remember how some of the “counterculture back to the land” stuff didn’t work out very well or very long for most people.
Friends of the family did the “back to the land” thing. They were very conservative Republicans and they had more than a little bit of contempt for the hippies who were also surfing this trend. And those hippies weren’t too far away from their homestead, so my friends didn’t have far to go to see them in action.
Why? Well, harking back to that conservatism for a moment, they were very offended by the hippies’ lack of a work ethic. They just wanted to hang out and party. What they didn’t want to realize is that going back to the land is a lot of hard work.
OTOH, my friends were the types who worked for a living. She was a school nurse and he worked in management for the Bell System. They did their “back to the land” work after hours. And it seemed like that work sucked up all their after-hours time, even though two of their three children lived nearby and were very willing to pitch in and help.
Fast-forward to the end of the story: My friends got on in years. I’m told that they sold the homestead and moved back into town. I heard that their reason for moving was that they needed to rest.
I have been thinking about this topic for a while - not so much for me as for my descendents, because I see myself as a casualty in a SHTF situation (too old, bad joints).
My criteria in choice of location.
1. Climate - decent rainfall, temperate.
2. Susceptibility to natural disasters - tornados, hurricanes, earthquakes, drought, wildfires.
3. Proximity to population centers - not too big.
4. Susceptibility to man made disasters - pollution, nuclear plants, riots, militias that could evolve into warlord type strongmen.
5. Traditions - democratic, self-sufficiency, community, propensity for cheating/stealing/violence.
6. Potential for sustainable power generation - wind, water, sunlight.
A few places that I consider to be poor choices.
1. Large cities like New York, LA, Chicago, DC and their suburbs. There are places within commuting distance that are rural and could be reasonable choices.
2. The western Great Plains, including eastern Montana, North Dakota and south to New Mexico and West Texas. This area is too dry for farming. Ranching is possible, but it is subject to extremes of weather - bitter cold in winter, hot in summer, with the potential for multi-year drought.
3. Most of the mountain west. Most of Arizona, Nevada, New Mexico, Utah, and western Colorado are too dry. Northern areas are too dry with short growing seasons. These areas are prone to widlfires. Every year somewhere will be burning. There are pockets in the foothills of some mountain ranges that could be reasonable choices.
No area is without risk. Some risks are more manageable than others.
The Sierra Nevada foothills (west slope) might still be good. It’s in California, but relatively inexpensive compared to S.F. or L.A./San Diego.
The east slope around the Owens Valley may be better. I read a few years ago that some geologist thinks there is enough water in the slopes near Inyokern to sustain 100,000 people. The population of Ridgecrest/Inyokern is about 30,000. Watch out for the Owens Lake dust though. I kept getting sinus infections when I lived in the area. People in the area tend to be higher educated as they work at the navy base at China Lake. Natural disasters? Probably. Earthquakes are very likely out there. Even underground magma chambers. How likely will a natural disaster affect you in the high California desert at the base of the Sierra Nevada? not much. For fun, China Lakers would drive 150 miles to L.A.
The Oil City Plan.
Well, I pulled this one off about twenty years ago, and it was far easier than I thought it would be.
My requirements were that the entire PITA would have to be less that what I was paying in rent, (I was living in a very expensive seaside location at the time, so I had a fair amount of leeway,) that any mortgage would have to be paid off within ten years (the limit of the buyout payments I was getting on the business I’d sold,) and that I’d have to have the place self-sufficient in that time.
I looked for title to reliable water sources, plantable (though not necessarily tillable,) acreage, and a climate that would support a wide variety of food crops I could grow and harvest myself. My income would eventually have to come from my efforts on the property.
Neighborhood and community amenities were not a major concern, as I was looking for solitude rather than integration, and I was fully prepared to continue homeschooling my young child if nothing suitable turned up in the way of a K-8 education. Oh, and it had to be within a day’s drive and back of Los Angeles.
AHA! California’s central valley!
Only problem…it was in California’s central valley, a region best represented by the city of Bakersfield, which is to say, not the sort of place sentient and curious human beings were meant to inhabit. (My apologies here to anyone currently living in Bakersfield, but then, you obviously know what I’m talking about….)
So I started looking on the perimeter of the area. The western coastal boundaries were heavily populated and expensive– so I looked to the other side of the valley and found a geographic area very similar to Santa Ynez for about a tenth of the price.
There I bought forty isolated acres of fenced, raw land with an excellent well and a small, decrepit-but-serviceable double-wide already on it, got myself (my son, as it turned out,) a post-hole digger, and went to work.
And the rest, as they say, is my small-but-nonetheless-vivid history….
A few VERY important considerations if you’re buying raw land with plans to build yourself. (Eventually, I built the house I’m now in on the site, but that’s a whole other adventure.)
1. CHECK OUT THE MINERAL RIGHTS AND EASEMENTS THOROUGHLY –don’t rely solely on the title company and DEFINITELY not the realtor. Go to the county recorder’s office and research it yourself. Talk to your county commissioner AND the planning commissioner for your property.
2. BUY AS MUCH SURROUNDING LAND AS YOU POSSIBLY CAN to reduce the likelihood of someone buying on your border and putting in a barking dog-breeding operation. Or an ATV/motocross track. Or a community pot farm.
3. NEIGHBORS!
4. ACOUSTICS!
5. COUNTY GOVERNANCE (or selected enforcement of same.)
6. And if you possibly can, live (or at least periodically camp,) on the land for several years before you build on it so you get to know the wind patterns, the seasonal variables, your insect and animal tenants, site considerations, and accessibility in adverse weather.
7. Buy from the third owner. (The first fences, grades, and puts in a road– then goes broke and sells. The second puts in a water well, electricity, septic, outbuildings– then goes broke and sells. The third puts up a house– then goes broke and sells. That’s where YOU come in….)
Finally, and I can’t stress this enough: Insinuate yourself into the old-timer’s network down at the general store or the local bar and grill (often one and the same,) to learn the intricate history of the local feuds so you don’t get caught up in them or inadvertently offend someone you shouldn’t. If you’re looking for local labor to help build your place, the grapevine is an invaluable resource of who NOT to hire. And for all the question about what not to plant, how not to build, where not to drill, who not to trust, all you’ll have to do is ask, because someone has already made that mistake for you and will be glad to bend your ear.
I’ll be checking into HBB periodically all weekend if anyone has specific questions for me (though I’m still in screening-purgatory for some reason so it may take awhile for my response to show up.) I’ll do my durndest to answer you.
Everybody stay cool and hydrated out there. Currently the lower level of my little “green” house is a cool comfortable (no air con here,) 64 degrees F.
We pretty much followed your plan except that we are the second not the fourth owner. Fortunately we did well on selling our house almost at the bubble peak so we’ve been able to do everything comfortably for cash.
120 acres of mostly hilly West Virginia foothills with a 7 acre plateau up top where the 1800 square foot concrete block house is sited. Free gas (we own half the mineral rights) and a water well as backup in case the city water ever goes tits up.
The first big vegetable garden went in this spring…..
What are you harvesting, Riley? With this weather, your plantings must be going into overdrive about now.
You describe life on the east side of the Big Island perfectly. Thanks. Lots of people trying to get by on $600 soc sec + food stamps.
Yep, eastha. Same thing here. Lots of extended families, trailer encampments, pooling of transportation, taking in of neighbor’s kids, community feasting, etc.
The nearest “services” (including gas stations and grocery stores,) are between 30 and 60 miles away, so planning ahead and making do are a way of life. We call the local dump the “mall” because there is an informal goods and parts exchange section where one can leave still-useable discards and scavenge from the selection.
Although the main road is paved, (facilitating UPS and USPS deliveries,) most in the 500 square mile basin are not. For many, communal living is an absolute necessity. That $623 a month goes a lot further when there is nothing discretionary available to spend it on….
3. NEIGHBORS!
x3 Cheers! to you & yours…
Ohhhh!
Hugs, Hwy. It’s so lovely up here right now, and the river is still running wild. Have you and Mister Cole done the upper Kern yet?
ahansen, I still say you should write a book. IIRC, this will be my fourth plea for a book authored by you. No matter. I am patient.
Good heavens, imagine the PR! Imagine the book tour!
OK, I do pride myself on not nagging.
But I would love to read your memoirs. They are memorable.
“…Good heavens, imagine the PR! Imagine the book tour!…”
I have.
Now you understand why I’ve not published it?
See also the books and website of Cody Lundin:
codylundin DOT com/codys_house.html
Topic: The Great Turning
I think all this “bad” news about the economy we are now hearing in the MSM is really good news in that we are now hearing about it.
Five years ago JoeStrawberryPicker was able to commit to buying a six-hundred thousand dollar McMansion because six years ago this was considered to be normal. The MSM didn’t go nuts about Joe doing this because the MSM was in itself nuts.
The herd went nuts and the MSM reflected this nuttyness.
Now the MSM is becoming less nuts. And so is the thinking of JoeStrawberryPicker and Joe6Pack.
I view this as progress.
+1
I agree its progress worth noting but I still mourn the fact that there is no leadership through a process that is going to be hard for most of the population.
I also would love to be a fly on the wall in those formerly hallowed halls to grasp an understanding of what specifics initiated this change. I can only assume the S is going to soon HTF.
I definitely see abundant signs that we are in the bargaining phase of the housing bubble stages of grief. Now if the owners of homes that have no use value in the hands of their current owners could only get a clue…
Topic: The Great Turning”
yes we are in a middle of a crisis and we are adapting.
Crisis will end eventually something will change during the crisis
somthing big, “a sea change” probably having to do with debt and high standard of living in the USA compared to the rest of the world.
Maybe no international Dollar standard which will equal a decressed demand for dollars worldwide. That would be pretty big IMO.
Maybe the US will emerge from the other side of this crisis poorer but wiser?
I dunno cactus poorer yes wiser no way unless we demand our people speak English…as a dj i have seen first hand how the music had severely dumbed down our kids…and its going to take some tough love to tell everyone P Diddy Jay Z ghetto crap is not cool any longer….
I think we should demand from anyone who wants public assistance the same deal first you learn English then we will put you to work.
I think 1/2 of the people would starve rather then give up their ghetto Ebonics…and yes that southern redneck trailer trash talk too.
I think we should eliminate parole unless you can speak English, and read the NYTimes in front of a parole board, and converse without swearing or using the N word….that’s being tough on criminals!
We should crack down on companies violating labor laws who claim you are an “intern” …lets triple the size of the EEOC make being an intern subject to all the (age) discrimination laws. I want to make “overqualified” a dirty word.
And lastly i want all the people in HR to be at least 30 or 40. I don’t want to be interview by some 20 something who I know is bangin da bozz behind the wife’s back….heck I was 20 and i had to convince a 64 year old chief engineer that i would be responsible enough and to give me the keys to the TV station so I can sign it on at 530 am everyday….
Lowest cost producer should always be used
Shareholder value is most important
Global trade is a benefit to America
Lower taxes on rich and corporations so they “create jobs”
We did it. It’s done. 30 years. It’s not unproven economic theory to be explored. We did it.
Was worshiping at the altar of the above mantras good for America and the American middle-class?
Rio describes a modern era “Financial Innovation$” conundrum.
“Deficit$,… like America’s middle-class…doesn’t matter$!”
anonymous “True-Believer”
Would a failure to raise the debt ceiling offer an opportunity for dips to buy?
And (more serious question here): If various potential outcomes of the debt ceiling negotiations offer the prospect of higher bond yields, why don’t yields currently increase in anticipation?
Buying opportunity if Washington blows the debt talks?
July 22, 2011, 11:10 AM
Analysts are assessing the likely scenarios if Washington fails to raise the debt ceiling without meaningful spending cuts.
Researchers at Nomura say raising the debt ceiling without cutting expenditures is likely to spark sharp steepening of the yield curve of as much as 30 basis points, if rating agencies act immediately when the deal is done.
…
Well the federal government is projected to run out of money 8/2. Social Security checks are scheduled to go out 8/3. The ammount of projected receipts will be enough to pay about half of the recepients. The administration’s contention is that so long as there is money to hand out they are legally obligated to pay everybody the money that the government owes them.
The market estimation is that politicians realize that Tea Party or not, a politician who stiffs a few million AARP members of their SS checks will NOT be reelected. No way, no how. In fact, many are preparing for a downgrade by building up a reserve of cash to buy bonds in case there is panic selling.
I would wager a large sum of money that keeping the flow of SS checks going is on the agenda for current discussions between the Fed Chairman, the Treasury Secretary and the NY Fed President.
I buy on the dips every time I rebalance my portfolio, which is once a year. No emotion investing is the name of my game.
I remember hearing of some rich gut (billionaire, I think) who was buying treasuries because of the prospect of default.
His view: A default would force the US to get their financial house in order more than if there was no default.
The near term turmoil would be significant, but the long-term outcome would be safer US debt.
Has the War on Terror entered Norwegian territory? (I used to joke with Norwegian friends about U.S. govt suspicions that they might be terrorist, but this story gives pause…).
July 22, 2011, 11:33 a.m. EDT
Police cite bomb as cause of Oslo blast: report
By Val Brickates Kennedy
BOSTON (MarketWatch) — Norwegian police said Friday that a bomb was the cause of a powerful blast that rocked a key government building in central Oslo, killing at least one and injuring several others, according to a report from British news channel Sky News. The building housed the office of the prime minister and several cabinet ministers. Prime Minister Jens Stoltenberg was reportedly unharmed by the blast. Last week, prosecutors filed terror charges against an Iraqi-born cleric who had threatened to kill Norwegian politicians if he was deported.
” Last week, prosecutors filed terror charges against an Iraqi-born cleric who had threatened to kill Norwegian politicians if he was deported.”
IMHO, this threat should be grounds for immediate deportation.
This story brings to mind the 1990s Oklahoma City bombing. My coworkers initially blamed Iranians; imagine their chagrin when it turned out to have been the work of a U.S. military veteran.
Norway Terror Attacks Toll Upped to 87: Norwegian Man Arrested
PHOTO: An aerial view of Utoya Island
Oslo, Norway, Bombing and Camp Shooting
By BRIAN ROSS, MARK SCHONE, JOSH HASKELL and ROBIN RESPAUT
July 22, 2011
At least 80 people were killed in a shooting at a youth camp on the Norwegian island of Utoya the second of two attacks blamed on a Norwegian suspect authorities have not identified, police said.
Police confirmed that they had arrested a Norwegian man for the attack on a summer youth camp, and that they believed the same man was responsible for the bombing in central Oslo several hours earlier that claimed at least seven lives.
The 80 dead at the camp was a dramatic increase over an earlier police report that at least 10 had died at the youth camp. Police director Oystein Maeland told reporters many more victims were discovered between the two reports, according to The Associated Press.
With the arrest of a lone Norwegian in the twin bomb and shooting attacks today, officials have all but ruled out any connection to international terrorism.
“We have one person in custody and he will be charged in connection with what has happened,” said Justice Minister Knut Storberget during a Friday evening press conference. “We know that he is Norwegian. That is what we know. I don’t think it’s right from my position to go into details about him.”
TV2, Norway’s largest broadcaster, later identified the suspect as Anders Behring Breivik, 32, describing him as a member of “right-wing extremist groups in eastern Norway.” Norwegian police would not confirm the identity of the suspect.
…
World leaders unite against terror
Jul 23 2011
World leaders have condemned the terrorist attacks in Norway in which dozens of people are feared to have died.
UK Prime Minister David Cameron said the attacks were a “stark reminder of the threat we all face from terrorism”.
Seven people were killed when an explosion devastated government buildings in the capital Oslo, while at least nine others died when a man dressed as a police officer opened fire at a youth camp run by the ruling Labour Party on the island of Utoya.
The gunman, named in reports as Norwegian Anders Behring Breivik, is also suspected of carrying out Friday’s Oslo bombing, but a police official said the attacks did not appear to be linked to Islamist terrorism.
The official said the attacks probably had more in common with the 1995 bombing that targeted a US government building in Oklahoma City than the September 11 2001 attacks.
He said the suspect appeared to have acted alone and “it seems like that this is not linked to any international terrorist organisations at all”.
…
This article is over half a year old, but it points to a problem which likely has only subsequently worsened, given the dismal job market prospects for new college graduates: A dearth of new U.S. household formation.
My question is, how will the prospect of something like 6m U.S. homes transitioning from shadow inventory to actual inventory square with abysmally low U.S. household formation rates?
In a sense, we are seeing the opposite trend from that which sparked the post-WWII baby boom, when large numbers of returning U.S. soldiers got married and started families. It is unclear how this resolves, but we currently have a major demographic trough of U.S.-born babies in the making, which calls into serious question who will snap up the glut of McMansion tract homes that were built in the decade leading up to 2006.
Perspectives
U.S. Household Formation Is at a Record Low
Published: 10/7/2010
The latest Census numbers show that household growth hit a postwar low last year. The drop in household formation largely explains why the housing glut remains stubbornly high, despite the plunge in housing starts in recent years.
The household formation rate in the United States is at a record low. Included in the Census’ “Income, Poverty, and Health Insurance Coverage in the United States: 2009″ report, released on September 16, were new estimates of the number of households in the country. Between March 2009 and March 2010, households rose by 357,000, the smallest increase since 1947. The previous year, households increased by only 398,000, the third smallest increase on record. These are steep drops from the 2002–07 period, when household increases averaged 1.3 million a year.
The sharp drop in household formation largely explains why the housing glut remains stubbornly high, despite the plunge in housing starts in recent years. The gross vacancy rate—the proportion of housing units that are vacant—stood at 14.5% at the end of the second quarter of 2010, just below the 14.6% record high set in the first quarter of 2009. The rate has not budged, despite housing starts running under a 1.5 million rate since December 2006, and under a 1.0 million rate since June 2008.
During normal times, builders need to add about 1.5–1.7 million homes a year to meet underlying demand. Underlying demand consists of replacement demand, demand for second homes and miscellaneous factors (such as conversions from nonresidential to residential use), and increases in the number of households. Roughly, about 250,000 new homes are needed to replace homes destroyed by fires and natural disasters or that wear out from neglect or old age. Demand for second homes and miscellaneous factors account for another 50,000–100,000 new homes a year. Finally, the growing number of households normally requires another 1.3–1.4 million units.
Why is household formation down so much? One can cite several reasons, most related to the intensity of the jobs recession. The divorce rate and birth rate slipped in 2008 and 2009—as they usually do in recessions, according to the National Center for Health Statistics. Homelessness is also probably up. But the key reasons are a drop in immigration and an increase in “doubling up.”
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Cause and effect, ur doin it rong. IMHO the housing bust is WHY household formation is at a low ebb. Young ‘uns who weren’t really ready for homeownership, or at least not able to make payments on bubble-priced mortgages are moving back home. That’s an effect of the bust, not a cause of the continueing bust.
“Cause and effect, ur doin it rong.”
I did not mean to suggest one-way causality in my post. I’d argue that the housing bust and the labor market recession are endogenously linked — each is a cause of the other. New college grads unable to find employment are obviously not in a position to buy homes at bubble prices. But the abysmally low rate of household formation in turn feeds back into a dearth of housing demand. The feedback effects add up to a housing market death spiral.
I don’t think those McMansions will last long enough for the new babies to buy.
True, dat.
Case in point: A family friend worked for Toll Brothers. While in their employ, he coined the following slogan, which my mother is very fond of repeating:
Toll Brothers Homes: Guaranteed for five years. Then they fall apart.
And on that note, it’s now 2011. Didn’t Toll perfect the art of McMansioning in 2004-2006? Those houses should be five years old now. Any stories of them falling apart yet?
Last time I was in eastern PA was during the Christmas holidays. I was visiting family, and we drove by quite a few Toll developments. Let’s just say that some of those houses are not aging well.
which calls into serious question who will snap up the glut of McMansion tract homes that were built in the decade leading up to 2006.”
Section 8 Islamic radicals
Nobody they were a wasted use of money which is why we had a bubble and bust. Time to re-tool build something useful
I think we could re-engineer many cities Many are falling apart anyway.
Careers and stable, ever- growing salaries lasting as long as a mortgage are as dead as a dinosaur. The young people sense that. Thus lack of commitment to the m’s: mortgage and marriage.
Will private home ownership gradually decline and go extinct?
What if the banks holding distressed properties ultimately sell to
mega-investor groups rather than to disperse to individuals?
Will the age of the corporate land baron and serf come to the USA?
Procure a foreign passport if you can.
“Will private home ownership gradually decline and go extinct?
What if the banks holding distressed properties ultimately sell to
mega-investor groups rather than to disperse to individuals?
Will the age of the corporate land baron and serf come to the USA?”
It’s already happening. The super-wealthy are busy amassing unholy amounts of assets, while the middle class is getting wiped out. “Serf city, here we come.”
We should have a topic with what’s going on and will happen with retail. Borders, the bookstore chain, is being liquidated. It’s clear to me that there is more retail out there than is needed. We may not see that many liquidations like with Borders (Borders was competing with e-books in addition to their other problems), but we have more Targets, Home Depots, etc. than we really need. And that’s before even talking about the effects of the current economy on retail. I’m certain one way or another we are going to see a lot of retail close down along with the associated job losses.
It’s clear to me that there is more retail out there than is needed.
I seem to recall reading that there’s something like 200 square feet of retail space for every man, woman, and child in the United States. Mind you, that’s just a 10×20-foot rectangle, but multiply that by 300 million people, and it’s quite a bit of space.
What are the housing market implications of a debt default? My guess would be that uncertainty over the way forward would tend to kill housing demand, but my crystal ball is very murky on what this implies for interest rates and the value of housing.
At any rate, it appears from the look of things that the Fed and Treasury leadership are making contingency plans in case no agreement is reached.
US debt talks teeter on edge of collapse
Updated 27 minutes ago
WASHINGTON: White House talks to avert a disastrous early August debt default teetered on the edge of collapse late Friday as Republican House Speaker John Boehner abruptly quit the negotiations.
US President Barack Obama condemned Boehner’s decision and angrily called top lawmakers to the White House for emergency negotiations at 11:00 am (1500 GMT) Saturday, warning “we have run out of time” with an August 2 deadline looming.
“I expect them to have an answer in terms of how they intend to get this thing done over the course of the next week. The American people expect action,” the president said at a hastily called public appearance.
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Boehner said at a press conference later that “no one wants to default on the full faith and credit of the United States government. And I’m convinced that we will not.”
US Treasury Secretary Timothy Geithner, Federal Reserve Bank Chairman Ben Bernanke, and New York Federal Reserve Bank President William Dudley met at the US Treasury Department earlier to discuss the effects of a default.
“While we remain confident that Congress will raise the debt ceiling soon,” the department said in a terse statement, the officials “met today to discuss the implications for the US economy if Congress fails to act.” (AFP)
The Republicans are not bargaining in good faith. In what way does passing a plan along party lines which everyone knows the other party will reject out of hand constitute “doing their job”?
Posted: 10:05 PM
Updated: 4:46 PM
Debt dispute boils: Capitol’s hot, inside and out
DAVID ESPO, AP Special Correspondent
WASHINGTON (AP) — Gridlock stubbornly held the high ground in the steamy capital Friday despite the threat of a government default in 11 days’ time. Talks between President Barack Obama and House Speaker John Boehner seemed stuck in limbo, and the Democratic-controlled Senate scuttled legislation drawn to conservatives’ specifications.
As most lawmakers left the sweltering city for the weekend — temperatures soared past 100 degrees and some tempers seemed close behind — there was vague talk but few details of backup plans in both houses of Congress to raise the nation’s 14.3 trillion debt limit before the critical Aug. 2 deadline.
Boehner said he was “frankly not close to an agreement” with Obama in talks to cut deficits by up to $4 trillion and ease the government’s ability to keep borrowing.
He spoke shortly before the Senate voted 51-46 along party lines to kill House-passed legislation. That bill would have cut spending by as much as $6 trillion over a decade and required Congress to send a constitutional amendment to balance the budget to the states for ratification — conservatives’ price for raising the debt limit.
Sen. Mitch McConnell of Kentucky, the Republican leader, accused Obama of “a total abdication of leadership” on the nation’s debt, and said the legislation was a step toward “getting our house in order.”
But Senate Majority Leader Harry Reid, D-Nev., attacked the bill as a “radical plan to kill Medicare and Social Security,” and said House Republicans needed to know it was dead.
“It’s interfering with the negotiations between the White House and the House of Representatives, and it is without merit,” he added.
Across the Capitol, Boehner rebutted.
“The House has acted. We’ve done our job,” he said. “The Democrats who run Washington have done nothing. … Where is their plan?”
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Scenarios: Dwindling options left for debt limit talks
By Tim Reid
WASHINGTON | Fri Jul 22, 2011 9:27pm EDT
(Reuters) - Talks between President Barack Obama and Republicans to raise the U.S. debt limit collapsed on Friday after John Boehner, the top Republican in Congress, walked out of negotiations.
With just 11 days before an August 2 deadline, when the Treasury Department says the United States will run out of ways to service government debt without an increase in the borrowing cap, options to avert a devastating default are narrowing.
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Fed starts planning for US debt default
Lori Montgomery, Paul Kane, Richard Blackden, London
July 23, 2011
WASHINGTON: The Federal Reserve has started making contingency plans should the US government default on its debt as talks over raising the debt ceiling continue to drag on.
The United States will not be able to pay all its bills unless the $US14.3 trillion ($13.2 trillion) ceiling is raised by August 2. Financial regulators are working through the possible consequences, a Federal Reserve official said.
”We are in contingency planning mode,” Charles Plosser, president of the Philadelphia Federal Reserve Bank, told Reuters. ”We are all engaged … It’s a very active process.”
Despite repeated warnings of the financial disruption that is likely to follow a default, the White House, and both parties in Congress, appeared no closer to striking a deal as the week drew to an end.
On Thursday the President, Barack Obama, and the House Speaker, John Boehner, rushed to strike agreement on a far-reaching plan to reduce the national debt but faced a revolt from Democrats furious that the accord appeared to include no provision to raise taxes.
With 12 days left until the Treasury begins to run short of cash, Mr Obama and Mr Boehner were closing in on the most ambitious plan to restrain the national debt in at least 20 years. Talks focused on cuts in agency spending and politically painful changes to cherished health and retirement programs aimed at saving roughly $3 trillion over the next decade.
More savings would be generated through an overhaul of the tax code that would lower personal and corporate income tax rates while eliminating or reducing popular tax breaks, such as the deduction for home mortgage interest. But the talks envisioned no specific tax increases as part of legislation to lift the debt limit, and the tax rewrite would be postponed until next year.
Democrats reacted with outrage as word filtered to Capitol Hill, saying the emerging agreement appeared to violate their pledge not to cut social security and Medicare benefits as well as Mr Obama’s promise not to make deep cuts in programs for the poor without extracting some tax concessions from the rich.
When ”we heard these reports of these megatrillion-dollar cuts with no revenues, it was like Mount Vesuvius … Many of us were volcanic,” said Senator Barbara Mikulski.
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If they are thinking about it so much, I guess it is not unthinkable.
July 21, 2011
US Government, Companies Prepare for Unthinkable Default
VOA News
Philadelphia Fed Chairman Charles Plosser (File Photo)
Top U.S. officials have repeatedly said the consequences of a possible default are so severe there is no alternative to raising the debt ceiling. But with less than two weeks to go until the August 2 deadline, key U.S. agencies and private financial firms are also planning for a worst-case scenario.
The chief of the Philadelphia branch of the U.S. central bank tells Reuters that the Federal Reserve is working with the Treasury Department on what to do if and when the government runs out of money.
Philadelphia Fed chief Charles Plosser says policy makers are in “contingency planning mode,” trying to determine which debts would be paid. He says the Fed is trying to determine what to do with U.S. Treasuries, like bonds. Many private banks use bonds as collateral in order to get cash loans from the central bank.
The New York Times said Thursday several prominent financial firms are working on their own “doomsday plans” (plans to deal with a worst-case scenario).
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July 21, 2011
Debt a Struggle for Average Americans
Laurel Bowman | Washington
As the debate intensifies in Washington over raising the debt ceiling, some Americans admit that they too have trouble balancing their budgets. One self-described “debtor” says he fought hard to bring his habit under control.
Landscaper Kraig Leatherman says many Americans have no idea how close they are to financial collapse. He didn’t, but this former insurance salesman learned from hard experience. When the recession hit, his sales commissions dried up, and his money ran out.
“I have actually been through bankruptcy once and I have lost a house,” said Leatherman. “[Those were] very, very painful events; very stressful events. And as I looked back, I could have pointed the finger, but as I look back I really looked at my lack of personal financial prudence as a reason for that really.”
Now, having traded an office job for work boots, he prunes pear trees, weeds flower beds and clears poison ivy with the help of a small crew he has hired for his fledgling business.
On a hot summer day in Glyndon, Maryland, the debt ceiling debate in Washington seems far away. But it’s very much on Leatherman’s mind.
“The federal government serves as a horrible role model for the average family.” That, says Leatherman, is because the government finances itself through debt and spends money it does not have …kind of like he did.
“Each week I write down all my business expenditures and all my income coming in, and I do a cumulative total so I know where I am, because a business that does not know where it’s been isn’t going to really know how to get where it wants to go.”
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HEARD ON THE STREET
JULY 23, 2011
Risks of Dancing on the Debt Ceiling
By DAVID REILLY
There will be blood. The trouble for investors is that it isn’t clear how much banks will shed if the U.S. government can’t resolve the debt crisis.
Part of that depends on whether the result of political failure is a downgrade of U.S. debt, or if the government defaults. The latter could wallop banks, especially if it caused a calamity akin to the run on money-market funds following Lehman Brothers’ collapse.
A ratings downgrade should have more limited impact. But investors will still focus on the too-big-to-fail banks: Bank of America, Citigroup, J.P. Morgan Chase, Wells Fargo, Goldman Sachs and Morgan Stanley. This is because, together, these six institutions at the end of the first quarter held $1 trillion in U.S. debt, agency securities and government-backed mortgage bonds.
That is equal to about 60% of the $1.6 trillion held by all U.S. commercial banks, according to Federal Reserve data. These firms also held nearly $80 billion in debt issued by states and local governments.
Among the banks, Citigroup was the biggest holder of U.S. Treasurys and agency securities, with about $130 billion. Bank of America had the largest amount of government-backed mortgage securities, at $227 billion. Government obligations at Goldman Sachs were equal to 12% of its total assets.
The huge sums underscore the continued concentration of risk within the U.S. financial system. The big danger of a downgrade is forced-selling by those who need to hold triple-A paper. Such an impact is hard to quantify. But if there is no big lurch down in the value of Treasurys and other government-backed debt, the threat shouldn’t be too great.
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John Boehner walks out of White House debt-ceiling talks. What now?
On an extraordinary night of political theater, President Obama railed on House Republicans for walking away from a debt-ceiling deal, only to see House Speaker John Boehner offer a rebuttal. Congress now seems eager to ignore the White House and do the job itself.
President Obama delivers a statement about the collapse of debt ceiling talks with House Speaker John Boehner in the briefing room of the White House in Washington Friday.
By Gail Russell Chaddock, Staff writer / July 22, 2011
Washington
An exasperated President Obama virtually declared war on House Republicans in an angry and hastily called press conference Friday night, excoriating them for walking away from a deal to cut the deficit and raise the debt ceiling, saying the Republicans can’t say “yes” to anything.
Shortly after, House Speaker John Boehner called his own press conference to say that negotiating with the White House was like “dealing with Jell-O,” and suggesting he intends essentially to cut the president out of negotiations going forward.
It was an extraordinary two hours in Washington, in which many of the pent-up frustrations over the failure to clinch a deal on raising the debt ceiling boiled over into public view. Lawmakers now have 11 days to come up with a deal before the government loses its authority to borrow money on Aug. 2.
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Most amazingly, although the government has apparently butted up against a hard money borrowing constraint, there seems to be unlimited funding available to save FB’s from foreclosure.
REAL ESTATE
JULY 22, 2011
Government Considers Ways to Rent Foreclosed Homes
BY NICK TIMIRAOS
The Obama administration is examining ways to pull foreclosed properties off the market and rent them to help stabilize the housing market, according to people familiar with the matter.
While the plans may not advance beyond the concept phase, they are under serious consideration by senior administration officials because rents are rising even as home prices in many hard-hit markets continue to fall due to high foreclosure levels.
Trimming the glut of unsold foreclosed homes on the market is “worth looking at,” said Federal Reserve Chairman Ben Bernanke in testimony to Congress last week.
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Why are Treasury bond investors so confident about a debt deal?
U.S. 30-Year Bonds Gain First Time in 3 Days on Debt-Deal Bets
Friday, July 22, 2011
July 22 (Bloomberg) — Treasury 30-year bonds rose for the first time in three days amid speculation President Barack Obama will reach a deal with lawmakers to cut the U.S. budget deficit, raise the borrowing limit and avert a default.
The gains came before House Speaker John Boehner withdrew from negotiations with the White House, saying “we couldn’t connect.” Benchmark 10-year yields, which fell below 3 percent, were more than 1 percentage point lower than the average for the past decade as investors bet the U.S. will maintain its debt payments and keep its top-level credit rating. Treasuries fell yesterday as European Union leaders agreed on a plan to rescue Greece and stem the spread of the debt crisis in the region.
“There’s hope that we’ll get some agreement at some point,” said Brian Edmonds, head of interest rates at Cantor Fitzgerald LP in New York, one of 20 primary dealers that trade Treasuries with the Federal Reserve. “People think the stakes are too high and something has to be done. The market is stubbornly bid again.”
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Op-Ed Contributors
Obama Should Raise the Debt Ceiling on His Own
By ERIC A. POSNER and ADRIAN VERMEULE
Published: July 22, 2011
PRESIDENT OBAMA should announce that he will raise the debt ceiling unilaterally if he cannot reach a deal with Congress. Constitutionally, he would be on solid ground. Politically, he can’t lose. The public wants a deal. The threat to act unilaterally will only strengthen his bargaining power if Republicans don’t want to be frozen out; if they defy him, the public will throw their support to the president. Either way, Republicans look like the obstructionists and will pay a price.
Where would Mr. Obama get his constitutional authority to raise the debt ceiling?
Our argument is not based on some obscure provision of the 14th amendment, but on the necessities of state, and on the president’s role as the ultimate guardian of the constitutional order, charged with taking care that the laws be faithfully executed.
When Abraham Lincoln suspended habeas corpus during the Civil War, he said that it was necessary to violate one law, lest all the laws but one fall into ruin. So too here: the president may need to violate the debt ceiling to prevent a catastrophe — whether a default on the debt or an enormous reduction in federal spending, which would throw the country back into recession.
A deadlocked Congress has become incapable of acting consistently; it commits to entitlements it will not reduce, appropriates funds it does not have, borrows money it cannot repay and then imposes a debt ceiling it will not raise. One of those things must give; in reality, that means that the conflicting laws will have to be reconciled by the only actor who combines the power to act with a willingness to shoulder responsibility — the president.
Franklin D. Roosevelt saw this problem clearly, and in his first inaugural address in 1933, addressing his plans to confront the economic crisis, he hinted darkly that “it is to be hoped that the normal balance of executive and legislative authority may be wholly equal, wholly adequate to meet the unprecedented task before us.”
“But it may be,” he continued, “that an unprecedented demand and need for undelayed action may call for temporary departure from that normal balance of public procedure.” In the event, Congress gave him the authorities he sought, and he did not follow through on this threat.
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