Waiting Through The Softpatch For A Turnaround
A Freudian look at investing psychology. “Last Sunday was Sigmund Freud’s 150th birthday, a good time to take note of his contributions to investing. It was Freud who got people thinking about the unconscious. In most cases, it seems, the subconscious is working against some of us.”
“This is obvious with market bubbles, when people throw money into Dutch tulips, Internet stocks or overpriced investment properties. Most of these investors know they’re paying too much, but they figure a greater fool will come along to pay more.”
“Investors, the scientists say, hate to acknowledge mistakes. This makes us hesitant to shift money from losing investments to others with better prospects. We’d rather wait for a turnaround.”
A columnist at the Denver Post. “The former abandoned railyard continues to be transformed into an urban dweller’s dream. Developers race to add hundreds of new condos to the market here. Last week, as I marveled at cranes hoisting support beams, a woman walking past stopped and asked, ‘Who is going to buy all these condos?’”
“Good question. Do we really have that many people in Denver who can afford $500,000 for a 1,300-square-foot condo with a sliver of a patio? The answer is yes.”
“I often hear people grumble that these condo owners are buying more than they can afford. They peer into the windows of the townhomes, see no furniture and assume every cent of the owner’s money is going toward the mortgage.”
“In a reality the working class may be unfamiliar with, those townhome owners are just waiting until the interior decorator finishes coordinating with contractors to put in custom fixtures. The hot-mod furniture, imported from Scandinavia, will come afterward.”
And from the News Press. “With the recent slump in home sales, Donovan Owens of Benchmark Home Mortgage in Fort Myers recently rolled out a special loan program tailored for real estate agents going through a soft patch.”
“‘Many of them have been living off credit cards for four to six months,’ Owens said. ‘They bought pre-construction and they need more money.’ Others, he said, found themselves unexpectedly on the hook this year for a big income tax payment.”
“Benchmark’s program is designed to let agents borrow money against their houses or other assets even though they may not show much income in recent months. ‘We’re going off the fact that many of these people have done very well in the past and are going to do well in the future. They need something to get them through the next few months.’”
“Statistics from the Florida Association of Realtors show that 955 houses were sold in Lee County in March, compared to 1,309 in May 2005 in the heyday of the home sales boom.”
“Don Heisler, who’s president of the Cape Coral Association of Realtors, said the real estate business has always been cyclical. ‘Realtors customarily are paid strictly on commission, so when the deals slow down, so goes the income.”
“That does sometimes create problems in borrowing money, he said, because ‘you sometimes have five paychecks in a month and then no paycheck for five weeks, and sometimes that looks inconsistent to a lender.’”
Thanks to the readers who sent in or posted these links. From the Denver piece:
‘The development is changing more than just the skyline; the cultural landscape of downtown is shifting. The wealthy are moving in, but in this case there is no gentrification, no low-income people or starving artists being displaced. It’s an odd neighborhood in some ways: There are few children, and you rarely see senior citizens. For some of these condo owners, it’s their third or fourth home.’
I wrote this woman, Ms. Rodriguez and told her in no uncertain terms of her IGNORANCE in identifying a shift in investing trends.
Throwing in that cultural nonsense also makes me sick.
I am a “DINK” myself (dual-income, no kids), the term the columnist uses to describe those who can afford these 500k condos as a 3rd or 4th home. But just not DINK-y enough, alas, as I can not afford such things
I can’t even afford one of them, and my income is 50% higher than the household median for San Francisco.
That Denver column is ridiculous.
He says in the next 30 years baby boomers will get $30 trillion in inheritance from their parents. All that money is allowing boomers to buy these second and third homes.
OK, first of all - they haven’t gotten the inheritance yet; Second, boomers (unlike their parents) have saved almost nothing, so many will need every dime they get to buy food; third, boomers and their parents face skyrocketing medical care costs that will take a huge chunk out of that inheritance; fourth, if boomers are so hot on retirement condos, why is the condo market tanking in the number-one retirement destination, Florida?
Her premise that there are hoardes of DINKs floating around out there that can afford 3 or 4 mortgages in the $500K-$1m range is laughable. That would be, oh, fifteen-to-twenty thousand or so a month in PITI payments.
In a former abandoned railyard, no less. Come on Denver Post…
Cindy Rodríguez couldn’t deduce her way out of a seashell!
I’ve written her to point out her flawed her logic on other issues. She looks up at the sky(always while walking her doggies) pulls what is “right” out of thin air, then poorly argues it in her column. She uses dubious and tangential facts whilst ignoring elephants left and right. Oftentimes the column will contradict itself.
More likely what happens is she has someone at the newspaper say to her: “Hey Cindy… we need a column which sounds good to someone who barely follows current events and is pro-” housing or anti-smoking, or pro-church, or whatever ala mode Denver Post rumination’s gestalt.
She serves mainstream platitudes to the uninformed and keeps them feeling comfortable in their be happy don’t worry lives.
Boomers’ parents are living a lot longer than expected and, usually, those later years, in assisted living, are more expensive than before. And the value of the real estate that the boomers will inherit is just about to fall off a cliff.
Milton Friedman won the Nobel Prize for the Permanent Income Hypothesis. Inheritence means nothing. Children spend money as if they are going to receive it anyway. They’ve already charged it to their credit cards. All of this from that wonderful google video.
Which video is that. I haven’t heard of the Permanent Income Hypothesis.
OK, first of all - they haven’t gotten the inheritance yet; Second, boomers (unlike their parents) have saved almost nothing, so many will need every dime they get to buy food; third, boomers and their parents face skyrocketing medical care costs that will take a huge chunk out of that inheritance; fourth, if boomers are so hot on retirement condos, why is the condo market tanking in the number-one retirement destination, Florida?
Fifth, won’t all those boomers be leaving them homes? In fact, isn’t all those trillions of dollars locked up there?
You mean: won’t all those boomers’ parents be leaving them homes?
Exactly, and therein lies the fallacy. If the boomers’ inheritances consist almost entirely of real estate (and I think this will be the case), it’s market neutral for RE at best.
Yup, that’s what I meant… and while some of them are paid off, many aren’t — especially with these reverse mortgages that have been starting to popup.
Wow. What an amazing coicidence! I crack open today’s Houston Chronicle and what do I read?
http://www.chron.com/disp/story.mpl/business/3861028.html
Are there any city’s that aren’t building condo/apartment/ restaurant/hotel/retail towers?
This is really a stupid trend. If these towers are completed expect them to be inhabited with people that walk around with those dumbass bluetooth things in their ears.
I hate those stupid things. You’re at the store and you see a person who appears to be insane, having imaginary conversations. It makes them feel important I guess.
a non-user once told me they love the new technology, as it makes them appear normal when they are out in public talking to themself.
Ditto on the bluetooths. In the fraction of the second it takes to see that crap in someone’s ear, you know exactly what type of complete idiot just walked by. I’ve never seen so many people dressed up and ready for a Star Trek convention in my life. Very prevalent among the 40 somethings that want to think there 20.
they’re
No one cares about grammer hear.
I’m going to make a helmet with a built in Blue Tooth. If your dumb enough to walk around and look like your talking to yourself you should be wearing a helmet.
How much to buy your shiny bluetooth helmets, sir?
Blueteeth. Except in the real South: blueteef.
ohmygod thanks for those laughs guys! I had a shitty mother’s day…
they’re building more of them towers for bluetooth helmet-heads here in ann arbor mi as well lol!
and there are a lot of those 40-somethings itching to look 20, especially given all the hot college students wandering about looking for lattes and lagers. staggering to think of the downtown getting even more of them! I’m now okay with the insane head-nodding and conversing with nobody…it’s just that they sometimes are silent for a long while, then yell a response or an exclamation once they’ve gotten right behind me and scare me silly! star trek conventions, helmets…
Why are you hating on blue tooths…Walk in my shoes when the phone does not stop ringing…. I could not do without it and I know it looks ridiculous, have some pity.
I’d rather have people look like muppets from a startrek convention and have both hands on the wheel when they need to take emergency avoidence, then have one hand on the wheel and a cell phone jammed to their ear with the other.
That said I’d rather they just banned the use of cellphones in cars all together - every study done has shown that driving performance while on a cell phone is worse than someone who is legally drunk driving.
???
You think apartment towers are a “trend?” Every city around the world has apartment towers, and they’ve had them for almost one hundred years. I suppose that in the contex of the entire history of humanity, then they could be considered a “trend.”
Would you be happy if all people were forced to live in single family residences against their will?
You sure don’t sound like a “happy” renter to me…..”bitter” renter is more suitable.
As far as “this downtown condo) trend is really stupid”…why? Do you have any particular reason? or is it just “stupid” because you do not agree or would never live in the downtown core of a city? Why do you care if they build overpriced condos downtown for the affluent? How does it affect you?
You sound like a really frustrated person whose life really sucks. Either that or you are so upset that you missed out on the greatest propery boom in history and are so bitter that you resort to slamming any and every thing that is housing related.
“As far as “this downtown condo) trend is really stupid”…why? Do you have any particular reason? or is it just “stupid” because you do not agree or would never live in the downtown core of a city? Why do you care if they build overpriced condos downtown for the affluent? How does it affect you?
You sound like a really frustrated person whose life really sucks. Either that or you are so upset that you missed out on the greatest propery boom in history and are so bitter that you resort to slamming any and every thing that is housing related. ”
au contraire, for me anyway. I really like the idea of city living…but this is how it affects me. My little town used to be a place where everyone could live and work and play, and now to feed the desires of people who aspire to urban living but are actually scared shitless of real cities there is a move to create a sort of pretend place, utterly non-organic. It feels sorta like those made-up truman-show towns, ‘cept the idea is wealthy people who’ve tired of the lawns in the ‘burbs can come and soak up the culture here, thereby destroying it. The feeling of a town with a community, or even a city with a community, disappears. It becomes a place where folks come to do business on bluetooth with their associates far away, barely interacting with the locals except to buy stuff from them. It makes the pharmacies and the hardware stores and the small booksellers and the little grocery shops go away, replaced by restaurants and boutiques and chainstores that can afford the new high rents. I love the sociology of cities, but there is a demo that really just comes for the shopping and steaks, sucking the life out of a place, making it lose its diversity and soul. That’s how it affects me! So, the draw for people to buy condos here is that now they can see the shows and eat the food and not have to drive in from elsewhere, but actually just walk out their door. There is at least a decent chunk of the proposed condos here that are being sought after by people who plan on using them as ’second homes’ away from home an hour or so away, nearer to the entertainment venues they treasure. Maybe once they get too old to drive they’ll move in permanently, but for now they’ll use it for weekend junkets to the restaurants and such.
There is also a serious problem with overestimating demand for these units getting built, and I think some here are responding to that. I fear that it will feel ghostly as the units are bought by investors instead of actual residents and many will sit totally empty etc.
On the bluetooth deal, I agree that it’s better than having your hands full while driving, but people really need to just get off the fucking phone while driving anyway…studies have indicated that just the talking itself distracts people from the road, hands free or not.
on the street it just contributes to the alienation from your fellow citizen that is so common now..how can we hope to have communities when people who are walking on the same streets at the same time aren’t even tuned into the same reality as each other…too busy engaged elsewhere, missing the opportunity to just be in the moment.
Shel, thanks for writing all that. I agree with you completely.
Along with the alienation from each other that cell phones help along comes increased rudeness as well! It is getting so exasperating! When people aren’t running into you with their cars they are doing it with their bodies! Oh, I miss the old days sometimes (8 years ago!).
finger co’s - can we short it ?
The spin is becoming frantic. The pain must be intense.
Denver’s a really interesting market in that downtown— the actual, geographical downtown— has no schools. Literally no schools. Now, in terms of modern living, it’s not too far out to the original suburbs, the ones that have been there for five or seven decades, and there are no schools there.
But I remember the alternative weekly’s article on the subject a few years back. There were a few people who were pushing for schools in the new developments, and the builders and city council were wondering why anyone would bother, since they’re clearly aiming downtown at DINKs and empty-nesters.
It just seems weird to me. Block upon block of condos, but no schools. It makes me wonder if there’s going to be a destroyed downtown in thirty years, an urban wasteland…
End of first paragraph, “there ARE schools there.”
Preview is my friend…
OT. Did anyone see Buffet’s comments on the bubble?
Buffett: “What we see in our residential brokerage business [HomeServices of America, the nation's second-largest realtor] is a slowdown everyplace, most dramatically in the formerly hottest markets. [Buffett singled out Dade and Broward counties in Florida as an area that has experienced a rise in unsold inventory and a stagnation in price.] The day traders of the Internet moved into trading condos, and that kind a speculation can produce a market that can move in a big way. You can get real discontinuities. We’ve had a real bubble to some degree. I would be surprised if there aren’t some significant downward adjustments, especially in the higher end of the housing market.”
On mortgage financing
Buffett: “Dumb lending always has its consequences. It’s like a disease that doesn’t manifest itself for a few weeks, like an epidemic that doesn’t show up until it’s too late to stop it Any developer will build anything he can borrow against. If you look at the 10Ks that are getting filed [by banks] and compare them just against last year’s 10Ks, and look at their balances of ‘interest accrued but not paid,’ you’ll see some very interesting statistics [implying that many homeowners are no longer able to service their current debt].”
from here: http://money.cnn.com/2006/05/05/news/newsmakers/buffett_050606/index.htm
The Definition of Ironic:
Realtors taking out personal loans from Lenders to cover losses on Loaned Property.
What’s next?
Will the Government begin giving Lenders personal loans to get them through their ’soft patch’?
Unreal.
This is about as idiotic as that moronic mayor of Boston proposing a bailout for phucked flipper- I mean- homeowners facing foreclosure.
Good luck with that.
The end must be near with these postings.
I hope someone buying MBS’s reads this blog, put some risk premium onto these dogs!
Benchmark’s program is designed to let agents borrow money against their houses or other assets even though they may not show much income in recent months.
Great craziness. The mortgage market is suffering due to the real estate slowdown, so they’ve come up with a new product to take advantage of this slowdown.
Speaking of expensive townhomes with no furniture inside:
“In a reality the working class may be unfamiliar with, the townhouse owner is just waiting for the interior decorator….etc etc”
Gotta love these clueless Americans who still believe this country is chock full of people with money coming out of their ears.
There are going to be a lot of shocked people out there when they finally get the truth of how over leveraged Americans have become.
“Investors, the scientists say, hate to acknowledge mistakes. This makes us hesitant to shift money from losing investments to others with better prospects. We’d rather wait for a turnaround.”
Like you said the “investors” are way two overleveraged to wait for any turn around. They’ll sell at a loss or recieve a monthly reminder of their mistake for the next 5-10 years.
Hey, no worries. The baby boomers who have worked so hard to screw up America will inherit their way to riches. That’s why they don’t have any money saved up. Mom and Dad have been coming to their rescue for 60 years now.
You are a prik
Hey, I now know what a DINK is, but what is this PRIK you speak of? Parents Rescuing Irresponsible Kids
Chuckle… priceless.
People Relying on Intergenerational Kickbacks
And she writes this on Mother’s Day!! Cindy should be ashamed of herself!
Hey Bro, hey Sis, let’s send Mom to the cheapo nursing home so we can all get a condo when she kicks the bucket.
Yeah, We’re going to see a huge surge in children “managing” their parents finances. This is yet another way in which lawyers will make a killing in the next few years, Sibling lawsuits.
I’m already starting to see this with some of our friends. As the kids fight over how to make mom or dad “disappear” in a (cheap) nursing home, they are going to court to fight over their inheritance. Even as the parents rot away all alone (kids are too busy, they say) in a nursing home. Very, very sad.
Oh yeah…the parents are being sent away **against their wishes** and the kids are selling all their homes, antiques and other assets. IMO, the parents (the ones I know) are perfectly capable of living in their homes with some hired help, but are tired of fighting with the kids about it.
You may see things differently the day you have to walk in our shoes. Wait until the day you have to deal with an elderly parent. Most of them are demented, childish and sometimes downright mean and nasty. Some parents might be able to still live in their homes with some assistance, problem is NONE of them want to pay for it. That what they are fighting with the kids about, paying for the hired help! I’m not counting on a dime from my Mom when she passes. I fully expect whatever estate she might leave is going to be spent her nursing home. BTW there are no “cheap” nursing homes.
I’m already there. My father is barely able to take care of himself, but wants to be independent until he dies. I respect that. He’s very mean and nasty at this stage, but I expect that’s because elderly people are often in a lot of pain, and it’s hard knowing the end is coming. Not fun waiting helplessly as your body steadily deteriorates, and you’re not able to do simple tasks which we take for granted all our lives.
That being said, I wouldn’t force my beliefs on someone else, no matter what. The examples I’m talking about are where there is enough money, and the parents wish to remain in their houses and die there. I don’t see why the kids can’t respect their wishes. Is it too much to let these people have a little dignity and control over their lives when they are losing control over so much, physically and mentally?
Pretty much agree with everything you just said. The only part I disagree with is the money. In my experience the old folks even when they can well afford it don’t like paying for hired help. And hired help is usually totally necessary for their health and safety.
When I read the article I thought it was a satire. It is now registering that someone wrote it to describe reality as they perceive it. WHO IS THAT PERSON?
dollar whacking resumes anew..(meaning your earnings are going down..)
USD to JPY (YHO:USDJPY=X) Delayed quote data
Last Trade: 109.63
I mean COME the F#W@CK ON! New lending standards and products for down on their luck realtors!
You have GOT TO BE KIDDING ME!
When is this nonsense going to end, prices are “sticky”, now we know why, every damn lender in the universe is lining up to throw more and more money at people, that is prolonging this thing.
Relax man! Short term loans will make investors and realtors even more desperate in a few months. Paying bills with borrowed money is just digging their hole deeper. Whether it slowly goes down or hovers and crashes it’ll end up in the same place in the same amount of time.
No credit infusion is going to save this.
every damn lender in the universe is lining up to throw more and more money at people
The banks are only interested in getting paid interest. They don’t care if the loan is ever paid back, in fact, it’s better if it’s not. Then the revenue stream can continue indefinitely. Also, if the loan is paid off, then it disappears from the “asset” column, a negative for the bank’s balance sheet, and a negative for shareholders.
Correction; the banks are concerned with “reporting current quarter revenues” which is a far cry from “getting paid interest.”
Even better!
Robert is correct, as usual. If his views weren’t so darned helpful, I might find them boring in thier consistency. Pay attention to what he says.
[blushes] Thanks. I usually only get nasty comments so the occassional praise is most welcome. Banks are lying. They are allowed to lie in this case but still. Neg Am loans are recorded as if the interest and growing principal were being repaid on a traditional schedule. Thus the accrued debt of their borrowers are called increased assets. Hell to pay.
It will suck when those loans come home to roost along with their losses. Oh, but the bank executives will have already retired to spend more time with his / her family.
Depressions, we are told, are cyclical in the nature of economics. In this era, we have successfully evaded depressions with the aid of computers, government regulation, and because we actually learned from history. Yeah Right
Evaded or delayed? Time will tell…
I think they are suggesting we throw more money at the problem.
You can laugh all you want at these poor souls. Mercedes leases just don’t pay for themselves.
Realtors offered lift over soft patch
I guess the realtors got priced out of the market Too!
The dollar is going to get whacked and whacked until somebody does something. I’m buying another 20k of silver today and hedging it with the 20 i bought at 8.60 an ounce. The housing market will fall under its own weight, and thats when ill sell the silver.
ex- that ain’t hedging. More like double down.
More applications of psychology to investing:
From cognitive psychology: the human brain tends to have a confirmatory bias (i.e. humans tend to look for data that support our hypotheses, when it is more effective to search for refuting data).
From social psychology: when we make a decision, we experience cognitive dissonance when later information suggests we should have decided otherwise, so to dispel this dissonance, we come to believe even more strongly than before that we did the right thing.
Thus, as a renter, I read mostly pro-housing bubble blogs, and am more and more convinced that renting is right for me
Me, too, renting-wise. Now, help me out. I’m starting to invest in agricultural commodities- GF’s dad is a well-educated farmer, 75 year-old man, grew up on a farm and has all those years in the business. Agricultural commodites, adjusted for inflation, are currently trading at near-Great Depression levels. The old man keeps telling me stories about farmlands turned over to developers for strip malls, McMansions, etc. Kids, including his own, have left farming because no one can possibly make a living any more.
Now, this is a bit off topic, but, there are supposedly like, a billion people in Asia with an extra thirty bucks in their collective pocket that grew up eating eggs once a year, like on New Years Day. They like eggs, just like us, but can’t really afford ‘em.
I figure (and so do official, nut-job investment gurus) that, given the absolute depression in farm prices, the desertion of farming as a viable business and removal of productive farmland capapacity (turning farms in to drive-in movies, whatever) farm products, like grains, which we all need, no matter what, are due for a little pick-me-up, price-wise.
I am basing this thinking on potential supply and demand, but also the thinking of those-in-the-know, through lifetimes of experience, who say that anyone who invests a plug nickel in farm products is a complete idiot, because no one can possibly make any money at it.
I am asking the housing bears, if, just if, this industry is so hated, so impoverished, so overlooked, is it possible this might be the next big play? Is it remotely possible that corn, wheat, barley and soy are headed for the price trajectory of the one-bedroom (no vu) in Phoenix, San Diego, DC?
Any input would be greatly appreciated. Please disclose any personal experience with farming, i.e., my-cousin-went-broke-after-50-years. That sort of thing is helpful. Thanks tons you guys are the best.
Well, one minor problem with that. Supply is so high that the government has to subsidize the hell out of farmers so they can stay in business. The governments buys huge amounts of excess food every year. Hopefully for you I am dead wrong…..and I very well could be.
Agreed, but I think it may be a bit more complicated. Governments in North America and Europe protect farmers by blocking the import of more cheaply-produced products through taxation. Should that behaviour change, prices of U.S. and European-produced commodites will fall, but they will rise overall on world markets. Geeze I’m starting to sound like I’m falling for a lot of claptrap….
Maybe a little pick-me-up, but go read up on historical farm productivity statistics before you invest any money. Also check out the required scale of operations to turn a profit.
Then if you still think grain is going up, buy some stock in ADM.
sm_landlord - Thanks - I’m leary of ADM simply because it is already trading at all-time highs. I’m searching for overlooked grain handlers - and they are out there - that are in respectable financial shape and have the economies of scale to do well should prices rise.
My $.02 is that you won’t likely see a bubble in farm futures. Mainly because they have a limited life and generally speaking are subject to all kinds of storage problems. The things that cause prices to rise are generally disease, drought, and transportation costs (which is essentially zero-sum for everyone except the oil company). New uses for agricultural products such as biodiesel might provide some lift, but not likely too high because it’s barely economical at current prices. In addition, newer strains have all but eliminated the disease and drought problems unless we discover some new strain that destroys entire crops. My blog covered a news article about farming land prices that we have more land than we know what to do with, but prices are going up because of a general liquidity bubble. I’d say it’s not a great chance for prices to do a great deal.
However, I did some research about a year ago and concluded that sugar was one of the best commodities to be in in a recession because it almost always took off near the beginning and did favorably throughout. Not surprisingly, have you seen the price of sugar on the forward market lately? I definitely should have listened to that inner voice. Unfortunately, that’s the same voice that keeps telling me to skin Gary Watts alive. Any connection?
Food is the one thing the US has in abundance that we export. Therefore, should the dollar fall this will increase agricultural profits. I would be looking at agribusinesses rather than the raw commodities. A certain cigarette manufacturer comes to mind.
You could take a look at the book “Hot Commodities” by Jim Rogers (not sure I’ve got the author right).
Also take a look at itulip.com
Jim Rogers has a commodity trackers stock. Take a look at that. Always spread your risk.
beware of the coming chicken bubble…
Too funny - but, the more outlandish an idea the more I am interested. I’ve read Jim Rogers thinking on all this stuff - he made a strong case for a shift, upwards, in demand and has been proved right, in spades, with respect to industrial commodites. Why shouldn’t ag products follow, for the same reasons?
Will continue to try and find the right angle - thanks to all for input.
they got more rich people in oakland ca than they do in denver,based on the # and price of condos coming on the market…and not in any railyard either,but next to the greyhound station so you can ride in an elegant coach to reno for a sporting weekend…beat that,denver!!!
Oakland is an abandoned railroad station.
Freud had a theory on “displaced energy ” being the result of “trauma ‘. I believe this Nation was in trauma over the 911 Twin Towers going down . It created a displaced energy trauma need to build , build tall condo projects etc. Build more real estate because our real estate is under attack . Anyway, weird theory , but we are going to look back and see this housing boom as being “nuts “.
I actually like this theory. Don’t have a clue if it’s true, but it FEEL true. It has a nice truthiness to it. LOL.
I think the seeds of this go well prior to 9/11.
Great post, Housing Wizard. I thought of all the RE obsession as a turning inward, a need for safety, a rejection of the outside world. But your theory (over-replacing what was lost?) has merit.
I share this theory, in a way.
I think that the general public is suffering from a kind of post shock. and in that post shock their behaviour is abnormal. And one of those behaviours may be kind of like someone who makes decisions as if there will be no tomarrow, so live life for today.
I have read reports about people who live in Isreal having a similar attitude as a result of living in an environment with repeated suicide bombings.
The people of Isreal are reported to have the largest level of debt per capita than any other group around the world. They tend to have the highest levels of credit card debt per capita. they spend like there is no tomarrow, is what the report suggested.
This may be in part why people have got sucked into the irrational frenzy of over paying for housing.
any thoughts?
Los Angeles Friends In Deed
Well said , I agree LA Friends in Deed .
Similar things occurred after the Iran fiasco, in the 80’s - turning inward, taking on more debt, concentrating on “me first” and “now or never”.
“It would be great if there were more moderately priced condos so teachers, artists, social workers and others who give so much, yet get paid so little, could move in.
“Fabby Hillyard, executive director of LoDo Inc., a business and residential organization, says that because there are enough people to snatch up expensive new lofts being built here, it “puts us at risk of becoming the Upper East Side,” referring to the tony Manhattan neighborhood.”
Fabby? FABBY? HAHAHA! The airhead author of this article (not Fabby) is completely and utterly clueless. She’s living in a “vertical city” dreamworld, pretending that Denver is Manhattan. She is pathetic beyond words.
That Denver article is so funny. Density is useful, but only if there are jobs or services that are desirable. If there were enough jobs to support the DI portion of “DINK”, then it could make sense.
There hasn’t been that big of a spike in Greatest Generation deaths. Maybe the boomers need to push things along, like Soylent Green. Turn the old people into something useful and green - money. Until then, I’ll take the added inventory. A property I’m tracking in the mountains of Colorado just dropped its price another $31K. It still has another $80K-100K before it’s priced right for the current market. When I’m ready to pull the trigger, I should see another $40K+ off of that.
interestingly,
I read in the recent Los Angeles Times that the Los Angeles County morgue has so many unclaimed, unwanted bodies, that they are having to stack them in hallways.
The report stated that the county morgue has a capacity for about 300 bodies. And that they have been averaging over 400 bodies for the last several months.
This report leads me to believe that there is an increase in poverty in Los angeles, among other things.
Los Angeles Friends In Deed
“In a reality the working class may be unfamiliar with, those townhome owners are just waiting until the interior decorator finishes coordinating with contractors to put in custom fixtures. The hot-mod furniture, imported from Scandinavia, will come afterward.”
In a reality that scribblers for the Denver Post are unfamiliar with, the interior decorator’s bill is going on the HELOC, and the flippers that buy these things will be FBs before the year is out. Ms. Rodriguez acknowledges that home foreclosures are at a high in Denver, but doesn’t connect the dots with the impact on the DINKs that she supposes are buying these overpriced apartments.
On the other story, apparantly the banks know that RE agents are a bad bet to loan money to, because they are already unemployed. So their buddies the mortgage brokers are going to bail them out for a while - but for how long and at what price? The program is available to agents “who have been licensed for at least six months”, according to the article. Quite a track record
With an employment history like that, they should have no trouble getting a job at Wally Mart….
“In a reality the working class may be unfamiliar with, those townhome owners are just waiting until the interior decorator finishes coordinating with contractors to put in custom fixtures. The hot-mod furniture, imported from Scandinavia, will come afterward.”
Yeah, you know, it takes longer than expected to get stuff from IKEA.
From 2005, and these items are now appearing in our rearview miror.
David Lereah, chief economist for the National Association of Realtors, was quoted as saying, “There is no national price bubble. Never has been; never will be.”
Yale economist Irving Fisher, who in 1929, shortly before the great stock market crash, proclaimed that “stock prices have reached what looks like a permanently high plateau”.
http://www.maxfunds.com/archives/000397.php
Now that you bring up 1929 , tell me how the new age lending is any different than the 1920″s buying stocks on margin/no money down etc. Why are these loans being made ? When I use to be in the lending business we would look to the appraisal as being the backbone of the loan . Now the lenders are willing to lend 125% of appraised value . I’m sorry but its the duty of the lenders to protect the deposits in the bank and the secondary market investors when you make a loan .
There is no difference. After the Great Depression, rules were instituted to require 20% down on the purchase of a house. That has been thrown out the window during the 5 years.
Should be, during the last 5 years.
Another troubling factor is that appraisals are now uncredable. There are many reports of appraisers being pressured to overstate appraisal values.
Additionally, there are continual reports of fraud within Fannie Mae, which provides the funds for home loans.
These factors are stacking more cards in the housing industry house of cards. And it is teetering with each new report of fraud.
Los Angeles Friends In Deed
The problem is that hedge funds, pension funds, and other institutional investors starving for a higher yield are gobbling up MBS on the open market. So banks are taking the attitude that loan quality is not their problem.
Someone will be holding the bag at the end of the debacle.
(“In a reality the working class may be unfamiliar with, those townhome owners are just waiting until the interior decorator finishes coordinating with contractors to put in custom fixtures. The hot-mod furniture, imported from Scandinavia, will come afterward.”)
does anyone really believe that?
Scandinavia=IKEA.
Decorator=catalog
Contractors=owner+screwdriver.
that’s funny…an ad for a starter-home I saw in the ann arbor news real estate section actually *advertised* that the kitchen was “ikea” lol! I guess “scandanavian” is understood at a diversity of pricepoints…
Not anyone with an IQ above 60.
“Good question. Do we really have that many people in Denver who can afford $500,000 for a 1,300-square-foot condo with a sliver of a patio? The answer is yes.
I often hear people grumble that these condo owners are buying more than they can afford. They peer into the windows of the townhomes, see no furniture and assume every cent of the owner’s money is going toward the mortgage.”
This bit of anecdotal evidence suggests the tsunami tide of high rise condo overbuilding has swept inland to a depth of one mile — Denver is literally referred to as the “Mile High City.” It will be very interesting to see what becomes of all the investors who bought five or more of these units in Denver, Des Moines, San Diego, or wherever…
“Don Heisler, who’s president of the Cape Coral Association of Realtors, said the real estate business has always been cyclical. ‘Realtors customarily are paid strictly on commission, so when the deals slow down, so goes the income.”
“That does sometimes create problems in borrowing money, he said, because ‘you sometimes have five paychecks in a month and then no paycheck for five weeks, and sometimes that looks inconsistent to a lender.’”
Sounds as though Realtors (TM) fit the customer profile of an Option ARM borrower, as some months they could really benefit from the option to pay little or nothing on their mortgage, given a dearth of income. But what happens when the income shortage becomes a long-term problem, because of too many realtors and not enough home sales?
Speaking of Option ARMs, the SD Union Tribune has a front page article today which hints of possible problems with their recent popularity as a vehicle for helping San Diegans qualify for a loan to purchase unaffordable housing. As usual, many of the most interesting conclusions to take from the article are written between the lines, including:
1) “While the spike doesn’t threaten most homeowners…”
The last spike in defaults occurred when most San Deigo-area homes were in the process of losing 30% or more of their market value (which would translate into an average loss of $150K at today’s prices), in part due to the large number of homes on the market whose owners had to sell due to the inability to continue making payments. But maybe this time is different, and home prices will steadily appreciatie along with burgeoning default rates?
2) A sidebar graph hints at another answer to the question “When would be a good time to buy?” DataQuick’s chart, which only goes back to 1992, clearly shows the spike in defaults as the last bubble imploded; they were running about 3000 per quarter for most of the early 1990s (versus a bottom this cycle below 1000 per quarter in 2004), then ultimately spiked up to over 5000 per quarter in early 1996.
In the first quarter of 2006, there were 1,533 default notices, versus 960 in the first quarter of 2005. I will not even think about looking at homes until the rate of default notices is back up above 3000 / quarter (my guess is by late next year). By that time, there will be much more inventory to chose from, and most everyone will either be agreeing with one another what a terrible investment real estate is, or else keeping their mouths shut.
————————————————————————————-
Homeowners feel pinch of adjustable-rate loans
By Emmet Pierce and David Washburn
UNION-TRIBUNE STAFF WRITERS
May 15, 2006
CHARLIE NEUMAN / Union-Tribune
A recent spike in default notices may be a sign that some homeowners are struggling to pay the adjustable-rate mortgages that now dominate lending in San Diego County’s residential real estate market, analysts warn.
While the spike doesn’t threaten most homeowners, many of whom have little or no mortgage debt, default activity has captured the attention of economists and researchers who view the San Diego region as a bellwether for national housing trends. Those at greatest risk of default are recent buyers who used adjustable-rate mortgage products to buy properties that otherwise would have been beyond their financial reach.
Notices of default – the first step toward mortgage foreclosure – jumped 60 percent in the San Diego region in the first three months of this year, compared with the first quarter of last year, DataQuick Information Systems reported.
DataQuick analyst John Karevoll characterizes the increase, the largest since 1992, as “a potential blinking yellow light on the dashboard.”
The 1,533 notices issued during the first quarter of 2006 are below the quarterly average of 2,149 over the past 14 years and account for only a fraction of the region’s homes. Typically, about 5 percent of those who receive default notices end up losing their dwellings.
http://www.signonsandiego.com/news/business/20060515-9999-1n15default.html
Sorry OT, but I sure hope the Plunge Protection Team is on Orange Alert tomorrow morning, because the stock market slide that started in the US markets last Thursday has spilled across the Pacific into Asia. Only Shanghai bucks the trend; I guess nobody has informed those who invest in China that the death of the conundrum will kill the symbiosis whereby the ongoing home-equity-fed US consumption binge fuels demand for Chinese manufactures?
ASIA MARKETS
Inflation, dollar woes depress Asian shares
Nikkei, Kospi sharply lower, but Shanghai Composite bucks downtrend
By Chris Oliver, MarketWatch
Last Update: 11:20 PM ET May 14, 2006
http://tinyurl.com/on8ob
HONG KONG (MarketWatch) –Asian share markets were lower across the board Monday, pacing sharp declines in U.S. indexes, with Japan’s Nikkei Average among leading decliners following the release of higher-than-expected inflation data and the yen fetching new eight-month highs against the dollar. In Tokyo trading Monday morning, the U.S. dollar was at 109.57 yen, after briefly touching a low of 109.46 yen early session. The Japanese currency was quoted in the 110-level late Friday in New York.
In stocks, the Nikkei 225 Average declined 218.33 points, or 1.32%, to 16,383.45, with notable declines in brokerage and manufacturing shares. The more representative Topix index was down as much as 11.59 points to 1,676.59.
“I guess nobody has informed those who invest in China that the death of the conundrum will kill the symbiosis whereby the ongoing home-equity-fed US consumption binge fuels demand for Chinese manufactures?”
This is probably the best one-line summary of the current problem with trade imbalances and money flows that I’ve read. Many investment-types have been saying for a long time that the dollar is the key and always has been. And here I was looking directly at the housing bubble waiting for it to pop and subsequently drag down the rest of the economy. Ha! That’s not what’s going to happen at all apparently.
Years from now people may look back and say that the dollar collapse caused the stock market crash which led to mass unemployement, recession/depression, RE bust, etc. and nobody will even remember that there was a horrific housing bubble mixed in there to boot.
In any event, PPT or no PPT - it makes no difference. They won’t be able to stop a full-fledged run on the dollar, short of actually destroying the currency themselves. Then they can try to cook the CPI all they want, but since they’ve taken everything out of it anyway except Best Buy and Walmart crap, there won’t be anything left to remove.
Plunge Protection in action:
http://tinyurl.com/br84c
Don’t look now, but the Chinese Yuan / $US exchange rate just dropped below $8 for the first time ever…
“If you look at the trend, it’s in line with what we’ve seen. I don’t think it signals any major shift in exchange rate policy,” said Tai Hui, an economist at Standard Chartered in Hong Kong. “The market was disappointed that it didn’t happen sooner.”
http://tinyurl.com/frhet
getstucco, continuing your OT
- Agreed, *no* stock market is safe once everyone realizes that the US housing ATM is running out of cash. The only safe parking spots I can think of are: precious metals and maybe agricultural commodities.
Stuff like lead and copper I’m skeptical about, though Jim Rogers is bullish on those. Doesn’t demand for industrial materials depend on economic growth? Does he assume China and India will rapidly become self-sustaining economies, with little dependence on exports?
I was just looking over my coin shop purchase records since ‘94 - we bugs like doing that
Then it hit me: the last batch I bought was during Christmas week, $516 per oz and that includes $10 markup over spot. We’ve blown right through the 500’s and 600’s in under 5 months! This definitely feels like a short squeeze to me. Rumor has it a few big banks in the US are bleeding from short covering.
yeah 40% appreciation in 5 months no problem there…
Watch your gold prices carefully, and you might want to research what happened in 1869 and also in the early 1980s before you get too excited about recent price gains…
http://tinyurl.com/zramb
From a recent commentary by Marc Faber: “Between December 1974 and August 1976 the price of gold declined from $195 to $103. Then it still went up eight times.”
Holy cow! That would be the equivalent of a gold price crash to below 400 in late 2007, starting today. If I remember correctly, December 74 was a serious bear market bottom in US stocks with market P/E’s in the single digits, and double-digit dividend yields for high-quality stuff. I assume gold dropped like that as the smart money went into stocks with decent fundamentals for a couple of years.
Personally I’m holding out for several thousand bucks an ounce, and I’m willing to wait a few years. The metals market is highly volatile as evidenced above. If one is convinced the primary trend is bullish, the correct strategy is to treat big drops as buying opportunities. The latest move down doesn’t even count - yet.
Lots and lots of cars and R.V.s for sale on the streets today on my drive around town to the in-laws and parents for Mothers Day. Way, way more than I usually see. A dozen where there are usually one or two.
Odd you mentioned that. I definitely saw more cars, RVs, trucks for sale today than ever before. Even mentioned it to the kids as we were driving around, it was so unusual.
O/T: Just in case people look here before looking at investments… Looks like it might be an interesting day in the market. Gold way down, index futures way down (DJ was down over 50 pts, I believe, then back up to 27 down right now). From what I can tell right now, there’s Forex movements as well (dollar stronger?). Bonds are up (prices), but not too significantly.
Just interesting… Watch your gold and dollar/foreign currency positions.
IMO, buying oppty.
renting in FL a 2 bedroom condo on golf course = $ 1200 w all utilities !
listed for $350 k
figure the owner is losing 2k per month
soft patch will last for years
A guy in my hometown set up an oil ponzi scheme and sucked in the whole community. I mean everyone in town bought in. High school teachers lost everything. Lawyers, Drs the whole bunch. It was a frenzy cause everyone was afraid they would be left behind and they would have to face that fact at cocktail parties where the only thing discussed were the huge profits of the scheme.
The wisest man in town owned millions in citrus and was a former commodities broker in Chicago. He went to see this guy with a check made out for a million dollars in his pocket. He discussed the situation with the jerk and left with his money. I asked him, ex post facto, how did you know? He said, “I didn’t really, it just didn’t feel right.”
I think that sums it up. This is not right. This time we have oil wells, but they are dry holes.
Guess I’ll be heading down to look for foreclosures owned by former realtors in Ft. Myers in a few months. Can anybody say “blue light special on the Gulf Coast!”
If you plan on buying foreclosures in FL. in the very near future, I will be making the trip down there in a coupla years to buy those same homes out of foreclosure from YOU.
The definition of irony:
A real estate agent buying Google ads, and then having them appear on the Housing Bubble blog.
LOL
“In a reality the working class may be unfamiliar with, those townhome owners are just waiting until the interior decorator finishes coordinating with contractors to put in custom fixtures. The hot-mod furniture, imported from Scandinavia, will come afterward.”
As if a journalist at a third- or fourth-tier newspaper in Denver isn’t a member of the working class. I bet she doesn’t even clear $100k per year. In other words, she can’t afford one of the $500k condos, either.
The median household income in Denver is $43,006. For “home” “owners,” it is $51,406. The journalist makes it sound as though the city were full of rich people living Beverly HIlls lifestyles.
I think her hypothetical jealous working class peeping tom is correct: the reason that they seen no furniture is in fact that the “owners” have stretched themselves to the limit.
That line made me choke, too. This columnist is bending over backwards to avoid seeing what should be obvious.