The Housing Bubble

Might be some above average returns out there with acceptable risk. But you need to know the markets better than most experts to ferret them out. Government bonds of all these countries are denomintated in euro, and the euro should recover along with the dollar, at least for a time. But over the longer run, the dollar is really undervalued. You would have to buy euro bonds issued by PIGS governments. Some, like Greece will certainly not pay face value, but whether the market discounts today are sufficient to cover the risk is very uncertain. So far it has not been. If I were doing this, and had a cousin in the respective finance ministries, I would bet on Portugal or Ireland, not Spain or Italy, hedge my euro/dollar exposure, and be ready to bail whenever a government fails a confidence vote. US residential REITS are probably a better investment right now.

Greece got bailed out and then weeks later was back in crisis. The parties writing the loans are only kicking the can down the road while relying on the hope governments can extract spending cuts and tax increases in an environment where revenues and incomes are dropping. That doesn’t appear to be going as quickly as needed.

I wish you good luck, but offer a warning: In the wake of the debt ceiling negotiation outcome, whatever federal spending cuts are enacted
compared to what had been previously anticipated are likely to disproportionately impact housing prices in places like DC and San Diego which are relatively more dependent on federal spending than other U.S. cities. Housing prices will most likely suffer collateral damage.

I wouldn’t get overly eager at this point if I were trying to buy in DC.

Treat them like used car salesmen. They are not your friend. I recently talked with a Realt-Liar and I was floored when he asked “what is your price range”. WTF?!! I simply said I’m not going to disclose that and to proceed with his work. Silence. Parse their words and analyze them.

Im with you on “Do I really need a Realtor”. When you talk to a realtor, they act like they run the show when in fact they are just a coordinator and another piece of the puzzle.

Most will bring up interest rates, but they are not my mortgage broker.
They will bring up how well the house is built, but they are not my builder.
They will say “You can fix that for $100″, but they are not my contractor.
If the house is over my budget they will say “Well, you can afford another xxx a month”, but they are not my accountant or financial advisor.

It reminds me of my wedding: The limo guy gave us advice on the Tuxedos, the cake lady gave us advice on the flowers, the lady at the court house gave us advice on our honeymoon….. We figured they were just being nice, but realized they wanted to have their opinion heard. Since they were in the “Wedding Industry” they felt like they could give advice on anything and everything dealing with weddings, but their job title said otherwise.

Thats basically my thoughts on Realtors. You could find one with your best interests in mind, but they are few and far between. By disregarding their advice on interest rates, builds, tax advantages, and anything else not in their realm you’ll have a better experience.

My realtor here is a nice guy. My age, young kids, good person. He knows I am searching for REO houses and Im not gonna get suckered into a dump because it has granite counter tops. Im working with him because I am an easy client and I know what I want. He knows I am planning on low balling REO properties and wont talk me out of it. If I went with some old lady who did this part time she would give me the same old lines of “Well, REO really isnt that good of a deal” BS.

Times are slow in RE, and realtors will take any client they can. If you were one, do you want to waste your Saturday driving all over the place with some dingbat clueless buyer or do you want someone who is very clear on what area/price they want.

Like the Syms Department store slogan: “An educated consumer is our best customer”

“Do you really need a re-al-TOR to buy a house?”

Realturds are keyholders, nothing more, nothing less. They’re the people who can let you in the door, literally, of the property you want to see.

You’ll want to get your own realturd, because otherwise you have to schedule every property viewing with a different realturd, which is logistically difficult, and all of them will try like hell to become your realturd when they find out you don’t have one already. It’s far easier to deal with just one jerk, as opposed to a bunch. Ask around, and you can probably find a somewhat tolerable one.

Other than letting you in the door, treat them like you would a used car salesman. Tell them your price range overall, but act like every offer you make is final. Never tell them you’ll go higher if need be. Never tell them you’re head-over-heels in love with a property. Always act like you’ll walk if your current offer isn’t met.

Remember- they’re all salesmen, and they want you to pay the highest price possible. But they have one good use: they can let you in the door. Act accordingly.

Slipping into a decade long depression is not the time to sign up for a long term obligation, IMHO. Wait until you can buy a house for back taxes from the steps of the county courthouse.

”I want to pay as low a price as possible, but they want me to buy at as high a price as possible for high commission. How do I get around that?”

In your business transaction you have to take ownership of the deal. Dictate the terms upfront, spell out the conditions, negotiate the commission and then don’t be afraid to lowball. Please remember don’t ask don’t get. Have fun doing the deal.

Do you really think that the Fed will let the Banksters die on the vine?

I don’t think QE3 should be considered a done deal. I think the reason it is, by some, is the idea that something needs to be done and that nothing useful is going to come from this Congress. Hence, it’s up to the Fed to do something, even if it is from a shrinking set of options that would be of limited help. But as you note, even those measures might prove more harmful than helpful and thus might not occur.

Yes, seems about right. Definitely another leg down for housing. A doozy this time.

Sorry, not finished. Doozy because the widespread acceptance of even a little drop will cause the banks who have been holding massive inventory waiting for prices to go up to throw in the towel and try to sell before the other one does. A REAL race to the bottom…

I’ve reported all along the only period where our local “lower than median Northeast housing price” prices seemed to substantially drop was when there was a loss of confidence in job stability.

If the market volatility does not provide a bounce from this correction but instead turns into the 20% off previous heights bear market indicator, the layoffs will accelerate again. However, the government backed meds/eds/feds infrastructure is the base of the economy here so it will be gov budget cuts that break the dam.

When that happens, I expect to finally revisit the home prices we were seeing in 2008/early ‘09. I think we’ll still see the price stickiness for a bit* and then if the layoffs are real bad, a big drop down.

*We’ve got a financial shill (Rick Reagan) on the local news channel that keeps saying the sunshine is just around the corner and I think a lot of people have bought into it. Yesterday he hedged his bet a bit and brought up the clouds gathering in Europe. Still no capituation that things are not so rosey on these shores.

No small part of future housing price declines will stem from U.S. federal government policy moving on to larger concerns than propping up home prices, such as ensuring that Uncle Sam can continue to pay his bills over the coming decades.

I like your style, Professor Bear.

How about providing economic stimulus by allowing housing prices to correct to their fundamental equilibrium levels? Not only would Uncle Sam be able to save spending on home owner subsidies (mortgage interest deduction, federal mortgage guarantees, low-downpayment FHA loans with high default rates, etc), but the improvement in affordability would set off a wave of home purchases that would revitalize the housing and labor markets. Positive spillover effects would result in a pick up in related industries, such as home furnishings and appliances. Soon the housing market would be in recovery, which according to many leading economic pundits, is a necessary first step for the rest of the economy to recover.

Where is the downside?

Older 3/2 townhome in DC suburb $280K, PITI = $1400/month
Older 3/2 townhome in DC suburb rent = $1900/month

That will change with interest rates.

Man, that’s a tough one.

It’s very likely that Greece, Ireland, etc will default first but then again I do not see how the US gets out of this mess without severly devaluing dollar……

Define default, payment with freshly conjured bills or non-payment.

Darrell, your plan sounds just fine to me.

We can get some revenue increases without rate increases, in particular if we:

Explain the “law of diminishing returns” to the EPA and require them to recognize it.

Cut corporate taxes to 20% and remove all fedgov tax credits and subsidies of any kind.

But major cuts of the kind you envision are clearly going to be needed.

Okay all you “balance the budget without revenue increases” Tea Praty candidates. What are your plans?

Cut taxes on the rich and corporations.

Push for an amendment to mandate prayer in school.

Abolish the death panels

And cut all foreign aid because that will then balance the budget.

And pray to God in our fight for freedom for Real Americans to have liberty to support the Constitution in our Christian nation.

I think we need to “have a real conversation.” Hey, it works on TV.

Darrell, are you putting in for any changes in trade policy?
What about kicking out illegas and busing out the welfare rolls to the pick the peaches like in The Grapes of Wrath?

I agree with everything except cutting unemployment. I AM currently employed. However, instead of just cutting a check and requiring looking for a job, I mandate 10 hrs per week civil service, and 5 hours more per week of employment center activity with training, resume writing, basic english. And since Rio seems gung ho about putting religion back in gov’t, just for him I say we have all this overseen by Catholic nuns who are authorized to rap you on the knuckles with a big ass ruler if you get out of line.

Per my post of yesterday, I would suggest 10% cuts on any and ALL checks drawn worldwide on the UST– effective immediately, then additional 1% cuts each year until solvency. Your 45% is unnecessary and would create far more problems than it solves. Civil war is not pretty.

Additionally, why bother with COLA’s? They only came on the scene in the mid-1970’s and have functioned as an excuse to perpetuate price inflation ever since.

I would add restricting federal (and perhaps ANY government-paid,) pensions to one. As in you get SS OR a military pension. You get ONE civil service pension, not three. And they can’t exceed 50% of your base salary.

And lest the middle and lower classes bear the brunt of this austerity, nationalize the banking and investment systems and institute confiscatory inheritance taxes on all US-held assets– with special scrutiny of foundations and privately-held trusts.

The alternative is the aforementioned bloodshed.

Man, I sure hope people realize this was intended as pure hyperbole. The thought that laying off 3 million just from the DoD cuts, and probably atleast that many more in other cuts, causing an immediate 6% jump in unemployment would cause 3% GDP growth is nuts. Cutting $1.7T from peoples’ income would not only drop GPD an immediate 12%, it would echo through the economy as lower consumer spending, more lay offs, bankruptcies, defaults, involvancies… rinse and repeat the echos of true greater depression.

We can’t deficit spend our way out of this, but we also can’t cut our way out. We need other options, like a full scale trade war to plug our deficts and bring back our manufacturing and orher middle-class industrial jobs.

We have to stop worshipping at the alter of corporate profits and supply side economics.

A lot lower.

We sold the ranch in 05 with a 200% gain in 6 years, and bought our present place in 05 at 35% under asking price.

We just happened to be in the right place at the right time.
No great mental genius was working here. It just happened.

I built in 1998-2000 as general contractor, procured all materials myself, subbed out labor on a per hour basis (never exceeding $20/ except for the plumbing, electrical, and some of the engineering,) paid cash on the barrel head every Friday afternoon to my labor, used quality one-of-a-kind or handcrafted materials, finishes, and features throughout. Approximate cost was $460/sq foot, not including the land and infrastructure. Interior under roof is <2000 sq ft.

People told me I would “never get my money out of it,” and I told them I couldn’t care less; I had no intention of ever selling it, as I could never duplicate the quality and the craftsmanship or the location. The bubble came and went. Even at its peak, I couldn’t get for the house what I put into it.

Today, zillow has it listed for <1/7 of what I spent to build it myself twelve years ago (which I estimate was at a 50%+ savings over commercial cost at the time)– approx $67/sq. foot. LMAO.

I just sent that valuation to the tax assessor for reconsideration.

Great line by Stephen Colbert, btw:
“Look. They’re STANDARD and they’re POOR. No WONDER they’re moody….”

And payback’s a Fitch.

” that was only brought about by the Fed’s intervention at that point.”

Stocks bottomed for one reason and one reason only. Easing of FASB157.

TARP in December didn’t stop the slide. Massive treasurey intervention didn’t stop the slide. Stimulus didn’t stop the slide.

Look it up. March 16, 2009, government proposed easing enforcement of FASB157 that required companies mark assets to market. “giving them more leaway in valuing assets where the market was beleived to be in distress”. In other words, don’t like the truth, just lie.

Stocks bottomed exactly 1 week earlier on March 9th when the idea was floated as a trial baloon to see how the market would react.

It was all about letting them lie to stop the margin calls and to get people to stop selling. Let them lie, restore the possibility of big gains on those lies, and get people to start buying again.

It’s the same that S&P that spun MBS shhhhhhh…

…it

into triple-A gold.

Yeah, like we should take them seriously.

Do not buy any developed property. Just rent until this settles out. This country is in a political crisis and anyone who makes a big illiquid purchase could regret that decision. I would wait till 2016 to see which side wins. Odds are we going farther right and extreme austerity.

Oh you have got to read the commentary attached to this downgrade. What a smackdown it is at Congress. There was also this:

“We still believe that the role of the U.S. dollar as the key reserve currency confers a government funding advantage, one that could change only slowly over time, and that Fed policy might lean toward continued loose monetary policy at a time of fiscal tightening. Nonetheless, it is possible that interest rates could rise if investors re-price relative risks. As a result, our alternate scenario factors in a 50 basis point (bp)-75 bp rise in 10-year bond yields relative to the base and upside cases from 2013 onwards. In this scenario, we project the net public debt burden would rise from 74% of GDP in 2011 to 90% in 2015 and to 101% by 2021″

Monday should be interesting.

How does it feel to see the “risk free” U.S. Treasury debt put in the same credit quality category as Slovenian debt? Not to mention Spain’s?

Will this development trigger a further downward spiral in asset markets come Monday?

S&P downgrades U.S. credit rating

The agency says the level of cuts in the debt ceiling compromise ‘falls short’ and that intense partisanship in Washington hurts prospects for a solution.

By Jim Puzzanghera, Los Angeles Times

August 6, 2011
Reporting from Washington—

Standard & Poor’s downgraded the U.S. government’s credit rating Friday for the first time in history, saying the recent plan worked out to raise the federal debt ceiling “falls short” of what’s needed to stabilize the nation’s longer-term finances.

The credit rating agency also said the partisan stalemate that put the U.S. on the brink of default this week did not bode well for efforts to reduce the nation’s soaring debt.

“The political brinkmanship of recent months highlights what we see as America’s governance and policymaking becoming less stable, less effective and less predictable than what we previously believed,” said S&P, one of three leading credit rating agencies.

“The statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy.”

U.S. debt now will carry a rating of AA-plus instead of the coveted AAA, dropping it into the same general category as countries such as Japan, China, Spain, Taiwan and Slovenia.
…

IF you count people in default as not owners, then we are back to 1965 RATE… as in % of people not number of people.

What could possibly force or otherwise compel lenders to unload their shadow inventory?

Sorry meant to post it in bits and buckets