Bits Bucket for December 10, 2011
Post off-topic ideas, links, and Craigslist finds 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
Location:Northern Arizona, United States
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Clayton Christensen: How pursuit of profit kills innovation and the economy
http://tinyurl.com/boy2mqq
[excerpts]
Christensen retells the story of how Dell progressively lopped off low-value segments of its PC operation to the Taiwan-based firm ASUSTek —the motherboard, the assembly of the computer, the management of the supply chain and finally the design of the computer. In each case Dell accepted the proposal because in each case its profitability improved: its costs declined and its revenues stayed the same. At the end of the process, however, Dell was little more than a brand, while ASUSTeK can—and does—now offer a cheaper, better computer to Best Buy at lower cost.
…impact of foreign outsourcing: these firms are steadily becoming primarily marketing agencies and brands…
•There is a pernicious methodology for calculating the internal rate of return (IRR) on an investment. It causes you to focus on smaller and smaller wins. Because if you ever use your money for something that doesn’t pay off for years, the IRR is so crummy that people who focus on IRR focus their capital on shorter and shorter term wins.
•There’s another one called RONA—rate of return on net assets. It causes you to reduce the denominator—assets—as Dell did, because the fewer the assets, the higher the RONA.
…Christensen notes that when he visits these these factories, they have nothing to do with cheap labor. It’s very sophisticated manufacturing…
Thus when a firm calculates the rate of return on a proposal to outsource manufacturing overseas, it typically does not include:
•The cost of the knowledge that is being lost, possibly forever.
•The cost of being unable to innovate in future, because critical knowledge has been lost.
•The consequent cost of its current business being destroyed by competitors emerging who can make a better product at lower cost.
•The missed opportunity of profits that could be made from innovations based on that knowledge that is being lost.”
—————
That line about “focusing on smaller and smaller wins” is striking. That’s what this entire country has been doing for 40 years! Everything from smaller and smaller wins in elections, to thinner safety margins, to micro gains from microsecond trading, to just-in-time everythings, to finer and finer formulas for rejecting health insurance claims, to relaxing maintenance on the Washington Metro system just to stay afloat, to lobbying for tax breaks because you can’t make money by goods and services, to depending on an unstable variable like productivity GROWTH, of all things, to maintain profit.
Failure is so expensive that we would rather have the surety of a smaller win, even if we know that at the end of the game, the wins dwindle to nothing. We’re close to that point now.
“Failure is so expensive that we would rather have the surety of a smaller win, even if we know that at the end of the game, the wins dwindle to nothing.”
But “the end of the game” is something that happens much later, on somebody else’s watch.
The incentives are correct in a short-term micro sense but are highly skewed in a long-term macro sense.
In Dell’s case it’s Michael Dell’s name on the side of the building and he’s hardly gone. Of course the “Big boyz” (Dell, HP, IBM, etc.) either got out of the PC biz, are thinking of getting out or have simply switched their focus to other lines of business. Others, like Oracle, have zero interest in the now commoditized PC biz. Oracle is switching its focus to high end Sparc servers that run Solaris (even the LInux based small server biz is commoditized).
Dell is a PERFECT example of why bean counters and MBAs should never run a company.
Dell was THE number one PC company in the world until about 6 years ago. The MBAs had forced Michael out control of the company so they could run it as they fit. “Fit” being cut costs at all costs.
Naturally, QC went through the floor, customers left in droves and the mighty Dell fell to number 3. And not just 3rd place, but a distant 3rd place behind IBM and HP… and they still are.
It was the old saying at work: “It’s good to save money in business but you can save yourself right out of business.”
“…forced Michael out OF control…”
“..as they SAW fit.”
cut costs at all costs
Funny phrase.
Big fi$h eat$ little fi$h = Daily parking-lot/Industrial warehouse workout walk-about whilst looking for laundry detergent & toothpaste.
All kneel before the retail god$: MegaInc.’$ (foster-children of Mr. Transistor)
You get ‘em Olympia!
(Is it true that Ely, Nev. is the city the farthest away from a MegaMartInc.?)
“Amazon’s promotion — paying consumers to visit small businesses and leave empty-handed — is an attack on Main Street businesses that employ workers in our communities,” Snowe, a Maine Republican, said in a statement yesterday. “Small businesses are fighting everyday to compete with giant retailers, such as Amazon, and incentivizing consumers to spy on local shops is a bridge too far.”
Amazon is aiming to draw more online purchases from the more than 95 percent of U.S. consumers who still shop in stores, ratcheting up rivalry with traditional retailers. The Seattle- based company estimates revenue to rise to $16.5 billion to $18.7 billion in the fourth quarter — growth of 27 percent to 44 percent, respectively, compared with a year earlier.
Mary Osako, a spokeswoman for Amazon, didn’t have an immediate comment.
Here’s my vote for Amazon…..
Unless you live in a big city, your typical local store has crappy service, poor inventory, or (usually) both. Hence, the tradition in Flyover of driving 3-6 hours to the nearest large metro for a weekend of Christmas shopping.
I’d never even know that a lot of stuff I see on Amazon even exists, if I had to depend on any of my local retailers.
Speaking Metro. THe T parking garage here in Arlington, MA - suburban Boston takes only cash. Is that some they can skim off the top?
I pursue profit all the time while maintaining great professionalism. Nothing wrong with pursuing profit unless you aspire to live in North Korea.
Unless pursuing profit to excess makes you not very well liked. But if that doesn’t matter to you, hey, knock yourself out.
The title of the article is a bit misleading. My guess is that you would agree with what they are really saying. You know…the whole management practice of doing whatever it takes to hit the numbers this quarter at the expense of long term competitiveness. Until eventually the whole company is a hollow shell…
I agree. The “hit the numbers” objective, supported by officially-sanctioned accounting fraud, tends to lead to “take the money and run” pursuit of profits. Cases in point: Enron, Countrywide, Washington Mutual, Bear Stearns, Lehman Brothers, Fannie Mae, Freddie Mac, Lehman Brothers, etc etc etc
This is the basis of all capitalistic “competition”. When I was a foolish young man, fresh out of college, my part-time engineering employer commented that under a capitalistic system, ALL profits degenerate to Zero. It took me a lot or reflection to understand what he was saying.
In Engineering, we typically bid projects. The bidding becomes so competitive that you end up doing it for “cost” just to stay in business. When someone else comes in even lower, your only alternative is to try and shave your costs………..streamline, cut materials, cut hours, work the “temps” overtime, etc. etc, until everyone reaches the point where they simply cannot stay in business without a “new” focus where competition is not forcing continual cuts.
The government solves that problem by not allowing companies to loose money. So, in a “free enterprise” economy, the most successful firms are the one’s lining up for the biggest government contracts, with “overages” allowed when you exceed the budget.
Greed is what is killing society. I see it everyday, from one of my own family members, to friends, to large multinational corporations. Everybody wants as much of the pie as they can possibly amass, even if they are so full they’re about to throw up. It’s what’s responsible for the massive chasm which has developed between the haves and have nots. It’s absolutely despicable.
I grew up in a nice neighborhood, and I have many friends who own small businesses, most through much help from their parents and immediate family (think lucky sperm club), and they seem to be very different from the good folks who raised them. They are as cheap as can be with their employees (one takes it to a new level, and says things like “If they don’t like it, they can go find something else. Good luck in this economy.”), yet they spend like drunken sailors on toys, houses, clothing, cars, etc., without so much as giving a cent back to society due to their good fortune. None are even the least bit philanthropic.
The entitlement mentality they all share is nauseating. And, worst of all, they seem to almost have contempt for their employees, as if the people who are working for them are a subhuman but necessary nuisance. It’s no surprise I don’t consider these people close friends anymore, though we spent much time together growing up, but I still see them on occasion. It’s all very disheartening. I look back to when we were all kids, and I wonder if they were always this way and I just didn’t realize it.
Once every few months I hunt for a current article on shadow inventory, just to see how the U.S. is progressing through the housing bubble collapse. Here is the most recent article I found in a quick search. If you know of anything more current, please post.
One comment seems in order: The size of the shadow inventory apparently varies on a range from 1m to 10m, depending on how you count. This article comes up with 1.6m, but I doubt that includes mortgages currently in foreclosure or in arrears, as within the past couple of days, a saw somewhere a range estimate of 7m to 10m homes in the “eventual foreclosure” category.
Shadow inventory keeps home prices depressedBy Adam Belz, USA TODAY
Updated 9/30/2011 2:34 PM
…
Stagnant home prices have become part of the new normal nationwide, and one of the big reasons is the nation’s giant shadow inventory — the hundreds of thousands of homes like those on McGregor’s route that are either in foreclosure or repossessed by banks, but not yet on the market.
Already, more houses are for sale in America than people want to buy, and the roughly 1.6 million homes in the nation’s shadow inventory promise to drag down home prices for years, experts say. States like California, Florida, Illinois, Georgia, and Ohio have the largest shadow inventories, according to RealtyTrac, a firm that tracks foreclosures and delinquent properties nationwide.
“Sale prices are down across the state with none of the area being able to maintain more than a one month growth in sales prices, ,” said Bob Niemi, director of the Ohio Mortgage Bankers Association.
Even in Iowa, a state that had been largely immune from the bubble and bust of the housing market, these off-the-market homes are a gathering cloud on the horizon, state mortgage bankers and realtors say.
Jayne Seelhammer lives in a working-class part Des Moines along McGregor’s route. She watched the family next door leave their home as HSBC Bank foreclosed on their home in May 2010. It was more than a year before a “for sale” sign went up in the yard.
“It took them a long time to get it on the market,” Seelhammer said.
One reason for that: HSBC didn’t get a title to the home until April 2011, according to court records.
The odds are, when the house does sell, it will be for a greatly reduced price. Foreclosures have sold for a fraction of their assessed value on Seelhammer’s block in the past two years. . According to the Polk County Assessor’s office, one house assessed at $134,900 sold for $45,250 in February and another assessed at $75,600 sold for $40,000 in September 2009.
Ohio has almost 70,000 homes in its shadow inventory, according to RealtyTrac. California has nearly 270,000 homes.
“It’s absolutely an impediment,” Dustin Hobbs, a spokesman for the California Mortgage Bankers Association. “It’s hanging over the market.”
He said there are two factors slowing the movement of foreclosed homes into the market. First, legislators imposed a moratorium on foreclosures in 2009, and imposed other delays. Lenders have also imposed delays as they try to find ways to keep homeowners in their homes.
But eventually the market will have to deal with all these homes, he said. “The market will have to cycle these homes through.”
Standard & Poor’s estimates the national shadow inventory of homes is worth $405 billion. That’s down from $433 billion in June, but S&P still estimates the inventory will take four years to clear.
“We believe prices are likely to fall further as servicers clear the shadow inventory backlog and the properties under the distressed loans crowd the already weak housing market,” wrote Diane Westerback, a managing director for S&P.
It’s a paradox for banks. If they clear the shadow inventory slowly, home prices will be depressed for an extended period. If it happens quickly, the glut will overwhelm the market and quickly drive down prices, the S&P report showed.
Many foreclosed homes must be repaired and cleaned before they can go to market, said Jason Menke, a representative for West Des Moines-based Wells Fargo Home Mortgage, the number one home lender in America. “It’s in everybody’s best interests to move the inventory of foreclosed homes as quickly as possible,” Menke SAID. “We want to make sure that we are doing what we can to turn those houses into homes as quickly as possible.”
But foreclosed properties are taking longer to sell in all states, according to RealtyTrac, up from a national average of 164 days in June 2010 to 178 days a year later.
…
Cantankerous
The Ca Redevelopment and Affordable Housing types at a conference (I watched the webinar) think we’re 1/2 way through the forecloures, and IIRC, they said something like 5M behind us, and 5-6M to go. Shadow Inventory is huge, but they are banking on the bulk sales of REO’s for cheap rents to save the day. Gotta have empathy for homeowners. Once nice neighborhoods will have multi-generational/ other than English speaking living in them.
My gf is seeing her (14 yrs been there) neighborhood turn into a ghetto. Not all afordable housing folks are low-lives. That’s not my point. Bikes stolen, meth lab blew up…she’s blown away, so to speak. Affluent area.
“…and 5-6M to go. Shadow Inventory is huge…”
By my reckoning, the predictable addition of 5-6m homes to inventory over the next couple of years should be included in shadow inventory; i.e., the reported 1.6m number is an extreme lowball estimate.
Figures don’t lie, but liars do figure, especially when it comes to real estate figures.
“She watched the family next door leave their home as HSBC Bank foreclosed on their home in May 2010. It was more than a year before a “for sale” sign went up in the yard. [...]
One reason for that: HSBC didn’t get a title to the home until April 2011, according to court records.”
Sounds like someone left a year of free rent on the table…
HSBC and other Megabanks are clearly in such great financial shape that they don’t have to worry about leaving a year’s worth of mortgage payments on the table here and there.
I guess the shadow inventory must be real, as even Berkeley economics professors now acknowledge its existence. This brings to mind the debate of five years back about whether there was a housing bubble. Most economists I ever talked with about it had not a clue and acted like I was crazy for merely suggesting the idea.
The Next Financial Order
Disaster Can Wait
Barry Eichengreen
2011-12-09
SHANGHAI – Nowadays there is no shortage of pundits, economic or otherwise, warning of impending disaster. If right, they are hailed as seers; if wrong, chances are that no one will remember. So here’s a forecast: there will be no shortage of predictions that 2012 is shaping up as a disastrous year.
My view is different: 2012 will not be a year of crisis, but nor will it bring an end to our current economic troubles. Rather, it will be a year of muddling through.
…
Consider next the United States. While recent data suggest that the economy is doing better – all signs are that GDP will have expanded at a 3% annual rate in the fourth quarter of 2011 – it is important not get carried away. Fiscal support for the expansion will continue to be withdrawn. And, while the housing market shows some signs of stabilizing, prices will remain weighed down by the large shadow inventory of homes in foreclosure and held by banks.
These considerations suggest that the acceleration of US growth that began in the third quarter of 2011 is unlikely to be sustained. At the same time, if growth slows significantly, the US Federal Reserve will undoubtedly respond with another round of quantitative easing – QE3 by another name. Thus, while growth next year is likely to fall well short of 3%, the US should be able to avoid a double-dip recession.
…
From Stucco’s article:
“My view is different: 2012 will not be a year of crisis, but nor will it bring an end to our current economic troubles. Rather, it will be a year of muddling through.”
And it doesn’t have to be a year of “muddling” yet this is the decision made for us all by the all-knowing wizards.
Imagine: The wizards have a moment of lucidity, remove the inflated housing bottleneck that is choking the economy. The resulting economic activity would be immediate.
There will be winners and losers irrespective of duration. Dragging this out spreads the pain wide and thin as opposed to allowing losses to be endured by those who participated in the housing frenzy. Open the paper or turn on the TV and you’ll read or hear how housing is “the problem”. The solution is increased sales and the only way to do that is dramatically more affordable prices.
“The solution is increased sales and the only way to do that is dramatically more affordable prices.”
“Affordable prices” = lower prices.
Lower prices destroys the value of mortgages .
Destroyed mortgage values destroys lender’s collateral.
Destroyed lender collateral destroys the lenders.
Somebody, somewhere, ends up getting screwed. But if the screwing can be delayed then that’s what will happen. Hence Extend and Pretend.
That’s how I see it, FWIW.
I understand the market distorting extend and pretend but…… the collateral depreciates irrespective of market fundamentals. Depreciation is borne by the owner occupant. Either he offsets depreciation through costs associated with maintenance or he lets the 4 winds blow and the place gradually comes apart.
It’s not the physical depreciation that destroys balance sheets, it the financial depreciation in the form of writing down the value of assets. If the value of the assets are written down to where they should be then many, if not most, of the financial entities would be insolvent.
If enough financial entities are suddenly declared insolvent - if a tipping point is reached - then the entire global financial system would freeze up because financial transactions would not be able to clear.
People would no longer trust the banks, insurance companies, etc to make good on their end of transactions. If there is no trust in a transaction then there will be no transaction.
“If the value of the assets are written down to where they should be then many, if not most, of the financial entities would be insolvent.”
But wouldn’t that help serve the evolutionary process which winnows out financial managers who make foolish lending decisions, and open the door to a new generation of competent bankers?
Yes it would. But the larger problem is the freezing of the economy if the financial intergrity of all the players is in question.
“But wouldn’t that help serve the evolutionary process which winnows out financial managers who make foolish lending decisions, and open the door to a new generation of competent bankers?”
Derivatives go boom.
“Lower prices destroys the value of mortgages .”
Only the ones which are underwater, which is a fitting come-uppance for foolish lending decisions. Above-water mortgages would continue to be repaid, and the pick-up in economic activity when homes started to sell again at affordable (aka lower) prices would actually serve to stabilize the economy, by thawing currently-frozen liquidity in local housing markets. So long as prices are artificially propped up, you can expect cryonic housing market conditions to prevail.
“Only the ones which are underwater.”
But if prices are to fall to where they should then a lot of mortages that are above water now will be underwater after the fall.
“Above-water mortgages would continue to be repaid …”
True. But if prices fall then some of the above-water mortgages become below-water mortgages and then the repayment stops.
Unfortunately, this isn’t about what’s just or right or societally beneficial, it’s about who can be most effectively stuck with the bill without penalizing the lenders.
“Somebody, somewhere, ends up getting screwed.”
The longer home prices are artificially inflated, the more screwing will hit twenty-somethings, who find stratospheric ’starter home’ prices out of reach, even if they are among the lucky few who can find jobs. But since geezers tend to vote at higher rates than twenty-somethings, I guess the inter-generational discrimination in favor of artificially preserving asset values makes good political sense.
And those well-screwed twenty-somethings won’t be able to support you in your retirement either.
Probably true. But the issue isn’t about screwing young people, the issue is about trying to save the financial system from collapse.
If prices go to where they should then a lot of money is going to vanish into thin air from whence it sprung forth.
Large sections of the global economy sprung into being as the money to finance these sections was sprung into being. And when one vanishes - when the money section vanishes - then the other section also vanishes.
I must be silly. When somebody says “financial system” I used to think of checking accounts, dollar-cost averaging, maybe a $250K mortgage, someone saving pennies for retirement. But now, all I see are companies making payroll on a 30-day revolving credit line because they can’t rub two dimes together, big banks inflating a few million dollars of housing into billions of dollars in bad bets, rich folks on the balconies of glass buildings pouring champaign onto tents in the park below, guys in expensive suits bidding the stock market up and down everytime some “analyst” reports on Angela Merkel’s eyeshadow, young gun with fancy computer monitors executing microsecond trades at a job that is a stretch to describe as “work,” a financial channel reporter shouting a screed of greed from the floor where some of those microtrades are happening, and the real big boyz slapping second-rate politicians on the back and whispering “we’ll help you out.”
How much of this has to do with labor? How much of this is goods and services, or healthy growth, or productivity, or basic research and innovation? How much of this money is based on fundamentals? From what I can tell, very little. Maybe they SHOULD just the let the thing collapse.
Brava, Oxy.
Maybe they SHOULD just the let the thing collapse.
Can’t happen soon enough.
“But if the screwing can be delayed then that’s what will happen.”
It’s worth pointing out yet again that this is essentially the course Japan took back in the early 1990s. Twenty years hence, how has that worked out for them?
Agree. But what is the choice? Allow reality to set in and declare to the world that people who are owed money and promised money will never get to see the money they are owed or promised, or Extend and Pretend for as long as it can be done?
One will bring global riots immediately and the other will delay whatever it is that lies is store for everybody to endure.
I just got back from a trip to Sam’s Club.
Prices are up … again.
I guess I’ll cope by “muddling through”, which i our case means less steak and more ground beef.
Horse meat is legal again.
Out here, the local Sheriff let you haul off any freshly hit, roadkill deer. (in fact, if the animal is still alive, they will ask you if you have a firearm in the car, to euthanize badly hurt animals. If they discharge THEIR weapons, for any reason, they have to write a report)
Which brings up the issue: What vehicle do you buy for this type of “hunting”? The way I see it, you need to be able to hit the deer, with minimal damage to the vehicle, and to the edible parts of the deer.
Big rigs won’t work. True, they don’t suffer much damage, but the effect on the deer is “sub-optimal” at best. Unless you lie deerburger/sausage on the hoof.
The traditional weapon is a white ChevyFord pick-up truck with a genial drunk at the wheel.
I use my touring bike for deer.
And a Remington model 700 BDL. Bone it out in the field and they’ll fit in your panniers, except for the big boys. Which I never get!
Other things equal, don’t declining inventories imply a larger shadow inventory backlog?
Are Things Looking Up for the Housing Market?
Key national indicators for housing are improving, but regional pockets still lag
By Meg Handley
November 16, 2011
For-sale home inventories are dropping nationally while median sales prices are rising, according to new data released Wednesday, a rare but encouraging sign of renewed optimism in America’s feeble housing market.
Inventories declined 3.48 percent from September to October, according to Realtor.com, and are down 20.77 percent from one year ago. Median list prices, which have remained essentially unchanged since June, were up 2.65 percent nationally year over year.
“These developments can be viewed as a positive sign that the market has stabilized and in some parts of the country, has begun to recover,” the report said. “Lower inventories combined with generally stable list prices can be seen as a positive sign that the overall market is holding its own.”
To be sure, there’s still plenty of variation across the country. After all, real estate is nothing if not hyper-local. Markets remain fragile, particularly those with high unemployment rates and large numbers of seriously delinquent borrowers, which threatens to add to an already gigantic shadow inventory.
Although the number of seriously delinquent loans has declined steadily for the past few months, foreclosure rates have begun to rise. Further erosions in the economy, continued price declines, and increasing numbers of foreclosed properties entering the market could undermine the stability that has recently been observed.
…
according to Realtor.com
Wouldn’t it be intere$ting if there was a free public domain National Regi$try of title owner$ of every piece of real estate in America accessible by the internet?
Aren’t the listed title owners legally obligated to pay all fees & taxes on-time?
“To be sure, there’s still plenty of variation across the country.”
And this issue needs to be corrected ASAP.
I’m tired of seeing National Headlines touting a recovery in RE when the only positive results are coming from fly-over country where bubble prices peaked somewhere near 3x household income. My former California digs are still up around 6x household income thanks to the FHA programs.
I guess you can consider everything outside the DC and NYC area a “regional pocket”.
“Declining inventories” doesn’t mean squat when the banksters are allowed to sit on their inventory for years on end.
I’m thinking that the number of qualified buyers is going to fall faster than “inventory” for the forseeable future.
EUROPE NEWS
DECEMBER 10, 2011
Questions Plague EU Pact
Europe’s Leaders Agree to Repair Flaws in Currency, but Bold Strokes Missing
BY CHARLES FORELLE AND STEPHEN FIDLER
BRUSSELS—Europe’s leaders crafted a new “fiscal compact” to repair flaws in their currency union, but the deal lacked bold strokes investors have been urging and it could be insufficient to halt the region’s debt crisis.
…
We never hear this:
(It’s from Mario Monti’s speach to the Italian Parliament)
[Esplora il significato del termine: HOMES – “First homes are important for people’s lives but they also consume public resources. You need infrastructures around homes. Towns cost money. In all countries, first homes contribute to maintaining public services”, said the prime minister, justifying the re-introduction of the ICI property tax on first homes.] HOMES – “First homes are important for people’s lives but they also consume public resources. You need infrastructures around homes. Towns cost money. In all countries, first homes contribute to maintaining public services”, said the prime minister, justifying the re-introduction of the ICI property tax on first homes.
“justifying the re-introduction of the ICI property tax on first homes.”
Why the distinction of “first” homes??
Don’t second homes requires utilities, services, etc as well?
Sounds like a regressive tax to me.
“Why the distinction of “first” homes??”
I’d say because the GS crowd has multiple homes and we sheeple are lucky if we have one.
I remember back in the late 1990s when the ex and I were selling a house over on the other coast of Florida. A Swiss ex-pat couple came by for a look and chatted for a while about housing in their part of Europe. They were amazed at how inexpensive housing in the US was at the time and mentioned that actually owning a home was a mere pipe dream for most middle class Europeans in their neck of the woods. The lucky ones were those who inherited a house passed down in families for generations. We’re not talking mansions, either. Old, modest but well kept homes, many of which went back to the 1700s or even earlier.
Yeah it’s kind of strange “first homes…” I wonder if they meant “new homes?” Existing homes (previously-owned) are part of the “what’s done is done,” so it should be a great thing to “recycle” them by “reusing” them.
An development in the Blue Skye plan and an example of shadow inventory. I’m partnering with my son on the purchase of an 1890 “house” on the edge of the village. The house was bought by a fellow with some obvious mental limitations in 2006 as an intended flip. He never made a payment, but he spent the next two years gutting the building. All the plaster and lath, all the ancient plumbing, post and tube wiring, furnace & etc. removed, down to bare studs and hardwood floors. Then, nothing (except new 200 amp electrical service and a new roof on the carriage house).
5 years later, the bank is finally offering it as a short sale, never even foreclosed. My son gets a shop for his car restoration hobby in the carriage house with concrete floor. I get a shop for my hobby on the main floor of the house. No renovations planned beyond insulation and wiring, and the heavy lifting has already been done by the failed flipper. Electricity for my lathe and space heater @ 5c/kWh in the village.
Price is about $15/ft2 based on just the house. Taxes less than what I’m paying for storage. Building is very solid, as can easily be seen with the bones exposed. This is not an “investment”, rather the last significant piece of an intentionally eccentric retirement plan. It pencils out a lot better for me ($ & time) than buying land and putting in infrastructure and a polebarn shop, which is what I’ve been looking at for the past few years. Cruising on the waterways by summer and playing the starving artist by winter!
This is the first time I’ve ever bought without a mortgage. I don’t think anybody could get a mortgage on a gutted house in these times, so I think for once I am not competing with the debt turnips.
Actually - Sounds pretty cool.
Let us know how it goes with the bank with a short sale. Many stories of them dragging their feet.
I am hopeful that there will not be any foot dragging or silliness because the bank itself is listing the property for sale. Dragging the “owner” along. This I expect to avoid the expense of foreclosure. Taxes are paid uptodate. My lawyer says though, not to underestimate the stupidity of the bank.
Good grief .05/kW????? Electric heat all day and all nite long. Fuel oil or gas doesn’t pencil out until .15/kW and even then it requires boiler or furnace of efficiencies of roughly 85% or better.
Family of four, hot showers, washing machine, dish washer, etc., and we pay about $120/month in the dead of winter to keep an all electric 1,550-sqft R36 spec house warm while it’s below freezing outside. Rates are cheap at $0.40/day + $0.037005/kWh.
Wow! Is it located on a dam?
$0.14- 0.27 per kw (depending upon time of day and total monthly usage,) here in Central CA. And no “feedback” to the grid from residential generation systems, either.
Unfortunately, pumping well water requires a 220 hookup and solar incentives presuppose that you have $25,000 for a system to begin with. Consequently, I own a lot of sweaters, fingerless mittens, and watch caps.
I think they do sell 110v submersible well pumps. At least they used to. Costs a few dollars more.
The village owns the power plant. Sure beats rural propane delivery.
That is so such a sweet set up w/the town electricity. We had that situation in one of our MA rental towns. Back in 1994 our electric bill for a 2 bedroom 1/2 Victorian was ….drumroll please…….$15/mo.
Wait, I thought government run systems were inefficient and badly manged.
Image that.
“Fuel oil or gas doesn’t pencil out until .15/kW”
Really, RAL?
I’ve always heard that electric heat is more expensive, but never heard where the cross-over point is—obviously it would only be more expensive at some cost per KHW, and cheaper at some other.
Someone want to walk me through how you compute it?
I’m really curious what the comparison would be for the oil-burner (for a relatively efficient flame-retention burner, I think) in the house I’m renting would look like.
Would I be better off running an electric space heater if I live in a low-cost electricity area? Seattle winter rates are 4.61 cents up to a limit that I already hit, then 9.56 cents. So my marginal water would be the higher one.
Think I found the answer:
“Electricity has 3,413 BTUs per kilowatt hour (kwh); 40.6 kwh equals the heat
content of a gallon of heating oil. ”
So at my marginal rate, 40.6 kwh costs me $3.88. So if a gallon of fuel oil is costing me more than that, then the electric is cheaper.
You are assuming that you will be successful in obtaining 100% of those oil BTUs for your purposes.
There is more to it than that.
You must calculated the efficiency of your boiler or furnace. 15% loss on oil is typical and go much higher. With oil it doesn’t matter what the rated efficiency is because it’s always lower and substantially lower most of the time. At the very best, you’ll get 85% with a newer burner that’s been tuned recently. With oil and a new tune, efficiency will begin to drop the very first time it cycles. And remember electric is 100% efficient. E.eng’s will tell you it is slightly less due to the minimal loss between breaker and electric strip but that loss is in the form of heat.
The most efficient fossil fuel system out there is any gas condensing boiler. They’re in the 90-94% efficiency range IIRCC.
“They’re in the 90-94% efficiency range IIRCC.”
You’re right. Depending on the airflow, upflow being the most efficient.
I gotta laugh at the jerkazoids who yammer “my new Boderus boiler gets 90% efficiency at it “only” cost me $10,000!”
You must also compute the unused space you’re heating. I’ve found it most efficient to use a convection fireplace for the main room when temps get below freezing, with small electric space heaters elsewhere as necessary. (The oscillating Dyson “hot” with remote control is a very ah, cool device.)
But I also rely on odd sources of heat as well. The pilot light on my cast iron stove keeps the kitchen warm, and the downstairs track lighting warms the upstairs bedroom in the evenings. (None of those hideous CFL bulbs in this house.) My reading lamp heats my reading chair. Even a computer screen (or TV set,) produces significant warmth– as any self-respecting house cat will tell you. Central heating is a convenience of sorts, but it’s also a waste.
ahansen….
I was going to mention losses associated with distribution. Unless each room is a) occupied all the time or; b) each zoned separately, you losses are magnified using duct or pipe as opposed to spot heating with unit heaters.
We use two 1.5kW cube heaters, one in bathroom and one in living room(3/2ranch) and haven’t had to use the boiler for heat(tankless coil only) this year. We like very cold bedrooms and aren’t in there in the day so they don’t get heated. We’re $0.09/kW and $3.60/gal fuel oil. Fuel oil makes no sense at these prices.
PS- heat output from electric is always measured in kW. NEVER be fooled by all the marketing associated with these thing. $17 cube heaters from Wally World rated at 1.5kW output the same exact amount of heat as a $200 super space aged, techno-blah blah at 1.5kW.
88% of Seattle electrical power is hydro generated.
Electric for heat?? Taking the highest quality energy and stepping it down to the lowest quality? Insanity.
Geeeeze Mr. Bubble.
Blue, that sounds like a great property for your needs, and at a remarkably good price.
Congrats on finding that last piece of the puzzle!
One question jumps to mind: you mentioned only putting in insulation and electric… But if you don’t do any plumbing work (assuming the failed-flipper tore those out as well), where will you use the facilities while working in your respective shops?
It’s awesome that what was a deficiency for other buyers (walls torn out) if a huge benefit for you: easy to see the bones of the structure, easy to insulate well, etc. Nice!
Those “fixtures” are still in place, as is the sewer plumbing. Replacing the supply plumbing will be a crimped tubing job, pretty easy and inexpensive. I’ve learned a bit about setting up for quick winterization from boat/RV living too.
Good job Blue. Waiting for the”bottom” would drive me insane in this artificially supported world we find ourselves in.
One in the hand you know.
Yes. A handy intersection now is better for me than arriving exhausted at bottom.
Wow! I like the plan. Good for you.
Congrats, Blue! Sounds like the perfect set-up for you. You can always pitch a tent in the living room….
Thanks friend Allena. I think I can step off the back porch into the Airstream, lol. Urban camping.
Realtors Are Liars®
What makes you think that?????????????
Decent little 2 bed / 2 bath house was listed for $340K here in Arlington, MA (Boston suburb.) It sits. Priced dropped to $299K.
Disappears from Realtor.com. Appears this week. Talked with listing agent this am. Seller turned down an offer way over asking. Now does not want to sell and is being difficult about showing it. I did not ask agent why it’s in the system again. (Sorry had not had my coffee yet.) But agents offers to show me some condos. Actually have seen this agent at open houses. Seems decent. Could be just a looney seller. Sounded like it from the expression in agent’s voice.
More to the point just illustrates how inefficient RE transactions are.
Comment by rms
2011-12-09 20:19:09
+1 Carl.
The MSM never used “dangerously” when prices were on the way up.
Nope, they never used “dangerously” on the way up, when it was actually becoming more dangerous.
And the author uses it now, when the situation is working on becoming less dangerous.
Idiot.
Countless more billions of US taxpayer dollars to the banksters, via the IMF.
http://www.reuters.com/article/2011/12/10/us-eurozone-imf-idUSTRE7B822O20111210
Republican lawmakers are seeking to yank a $108 billion loan the United States approved for the IMF in 2009, a move that would undercut Washington’s ability to influence the conditions attached to IMF loans.
“If the United States wants to help Europe find a way out of its current debt crisis, we must be a strong, world economic leader, not merely the lender of last resort,” Republican Senator Jim DeMint wrote in The Wall Street Journal on Friday.
“Members of the Obama administration must focus all of their efforts on strengthening the U.S. economy and balancing our budget, rather than on continuing to borrow from China to pay for Europe’s out-of-control debts,” he added.
DeMint said he would seek to force another vote to stop U.S. Treasury Secretary Timothy Geithner from supporting more European bailouts. The Senate voted 55-44 in June against a proposal by DeMint to repeal IMF loan authority.
Domenico Lombardi, a former IMF board official now at the Brookings Institution in Washington, said even if the U.S. Congress rescinded the loan, it would not prevent the IMF from lending to Europe. He said the international community has a stake in ensuring the euro zone crisis does not spread further.
We’re spreadin’ Democracy don’t ya know.
In the global village, the US plays the role of the town pump.
That’s a typo, right? You meant, “chump” didn’t you?
Anyone else notice the reverse mortgage pimps out in full force recently?
Yep, Henry Winkler, Robert Wagner, et al. Seems to be a nice niche for Hollywood has-beens to shill to their fellow seniors. Shame to see some former class acts debase themselves. Interesting to know they’re that desperate for some of the long green. Hollywood must be murder on the finances, when the projects dry up.
Other than playing Fonzie, what did Winkler ever do? I remember him playing a bit part in a Disney movie (Holes).
I understand Winkler was recently arrested for running a Fonzie scheme….
OK, now that’s just too funny right there.
The coach in Waterboy? Night Shift? Some classic (if obscure roles)…
He produced and directed several movie.
But yes, Hollywood is a harsh mistress. The smartest thing you can do after you’ve been famous is quit the biz and make safe investments with your money.
But most actors don’t into the industry because they’re self confident and secure with themselves.
“… don’t GO into the…”
Consider this:
If a financial entity (say an insurance company) relying on an eight-percent return on its float so as to pass along some of this eight-percent to its customers finds itself earning one-percent on its float, then what is left for it to do?
Problem: It needs eight-percent but it is only getting one-percent.
Solution: Go after fresh money. Turn from an being an investment company to being a Ponzi scheme. Meet all financial commitments with new money.
Which will work … for a while, as do all Ponzi schemes.
Some guy called Fred Williamson or something, pimping reverse mortgages. Cash Back! Use it to pay off your credit cards and medical bills. We’ll suck the last of your equity from your home if it’s the last thing we do. (to you.)
These people are SHAMELESS!
(dramatic voiceover backed w/day time soap opera organist)
It’s time for another amazing story from our ongoing saga entitled “One Duck Stuck”.
We open today with the most precarious of situations at the Carrie residence. We have Mr. Carrie moping around in a most egregious fashion. The explosive retorts, the inability to engage, the low energy. “What’s going on?”, asks Mrs. Carrie.
An icy glare comes from across the room w/the slow annunciated growl, “I am so sick of not having our own house.” We once again consult the tired listings. We once again review our options. We once again drive by the few that are left on the market that we’ve rejected but think gee, maybe we were being too hard on them and didn’t see the possibilities. Nope, we saw and it’s nothing we want to tie up that type of money with.
For everyone that’s guided their spouses through these periods of self woe, any advice?
ask mr carrie if he would work 2 jobs and make you the beneficary of his brand new $5 million life insurance policy….that should work.
2 words.
Heavy Bag
Remind him of all the stuff he won’t have time to do anymore, when he has to maintain/do the upkeep on his own place.
Seriously. One of the pleasant surprises I discovered from my transition to J6P Homemoaner, to Bitter Renter.
For everyone that’s guided their spouses through these periods of self woe, any advice?
A romp in the hay will cheer up most guys .
I was gonna say that, but why beat the obvious to death?
Plan a vacation to somewhere where it is warm and sunny for a few days?
Well, we’ve tried a few of these. But the warm vacation hasn’t been done in a while. Thanks for the suggestions!
Economic Recession Taking Toll on Family Relationships
Saturday, December 10, 2011 :: Staff infoZine
By Jesslyn Tenhouse -
Parents’ financial strain and accompanying depression hinder parent-child bond
Columbia, MO - infoZine - A majority of Americans rate their current financial situation as poor or fair, and nearly half of Americans say they have encountered financial problems in the past year, according to the Pew Research Center. A University of Missouri researcher studied how parents’ financial problems and resulting mental distress affect their relationships with their children. He found that parents who experience financial problems and depression are less likely to feel connected to their children, and their children are less likely to engage in prosocial behaviors, such as volunteering or helping others.
“The study serves as a reminder that children’s behaviors are affected by issues beyond their immediate surroundings,” said Gustavo Carlo, Millsap Professor of Diversity in the MU Department of Human Development and Family Studies. “Families’ economic situations are affected by broader factors in our society, and those financial problems can lead to depression that hurts parent-child relationships.”
…
“Millsap Professor of Diversity”
There’s your trouble, right there.
Didn’t they used to call these guys sociology professors?
Just a comment on inflation. My last store visit, i spent about 20 to 30% more on quite a few items. Where i could still get a cheap bag of chips for $.99, the are now $1.29. Same with ready-made pizza. Fruits and veg’s all up in price. Just about everything.
My bill was about 25% higher than I normally pay, for similar amounts of food.
Then today, I opened my internet service bill. I have been using the “cheap” Brighthouse wired service. Started at 19.95, then up to $24.95.
Good enough. My new bill is $35.00. That’s a 40% increase, instantly.
Naturally, I am going to change over to Clear for the same money and get ‘on the go” service. I just wonder how long after I start a new service before the jack up the price to $50?
Hi. I keep hearing about this grocery store inflation and see little of it. But I shop the weekly specials. Pork chops $1.49 a pound down the street. Rotessier whole chicken $5 every Friday. And lots loss leaders every week. I stock up while the price is good.
One thing I see is since pomogranate juice became popular pomogranites got expensive.
<iHi. I keep hearing about this grocery store inflation and see little of it. But I shop the weekly specials.
I’m seeing inflation in the loss leaders as well. Ground beef is now $3/lb for the 80% crap when on sale.
The price of bacon is astronomical. I am a bacon addict. I like my three slices with breakfast, but I rarely touch the stuff anymore unless there’s a deal on it, otherwise way too expensive.
Come on Dio, these increases are “transitory”. Bide your time and hold those dollars close to your heart. The world will be on fire sale and you will stroll like royalty amongst the wreckage.
sarcoff
What’s have I been saying for the last 2 years?
…and patience Anon, it will come. I seemed to have been in the vanguard and slowly but surely, everywhere is catching up.
40% inflation sucks, doesn’t it?
40-damn-percent. That’s the reality.
news flash:
just heard the Fannie Mae has purchase billions of dollars of mortgage servicing rights from bank of america. these are all loses the ‘government is relieving Bank of America and passing the bill on to us.
when will this crap stop?
How long will Congress allow these backroom deals to support the banks?
“Allow” is a term that implies that the government has some way to control what these crooks do.
Politicians are to Banksters, as Expensive Whores are to Banksters. At least until the politicos fear the voters more than they do the banksters. Which won’t ever happen, as long as the banksters are allowed to hire former politicians as “advisers” and “lobbyists”.
1%er for all, and all for the 1%ers.
Deep Thoughts, by X-GSfixr…….
-Do people learn from other’s experience, or do they only learn from what they have personally experienced?
The “House prices never go down” was the classic,(supposedly) Universal Truth that made the housing bubble possible. A lot of us in our late 40s/early 50s knew this was BS, because we experienced the opposite in the 1982 recession. A even greater number of people, especially in their 20-30s, have never known anything but price appreciation at double digit rates.
Likewise, ask any 20-30 something who the greatest NFL QB of all time is, and most of them will say Tom Brady. Unfortunately, they never watched Joe Montana play. And we never saw Johnny Unitas.
Or was the problem the fact that some people can’t do basic math?
- How did we evolve into a situation where we keep score, by separating into a split between “winners” and “losers”?
“Winners” are considered morally/ethically/intellectually “superior”, compared to the “losers”. Even when their circumstances may have been influenced by events beyond their control.
“Winner take all” doesn’t work very well on the local/personal level, at least not for long. I could get away with charging $200/hour for my contract work for a while, but at some point, it’s cheaper for people to sell their airplanes. In which case, my contract work goes away, and people have fewer transportation options.
If it were a “free market”, and companies screw their customers 100% of the time, pretty soon they won’t have any customers. This doesn’t happen in our current “Free Market” system, especially when a company/person is at the top end of the food chain. Why?
Is a true, dream-world “Free Market” even possible, when “winners” can change the rules of the free market to their advantage? And are they winners, not because they are putting out a superior product or service, but because it is easier to change/manipulate the rules in your favor? Does it continue to be a free market when “winners” spend money on buying off politicians and killing competitors, than it is on better products?
Is this what “free market” economies eventually evolve to? Can a true “free market” economy even exist, in a world where oil is controlled by a cartel and/or oligarchs of various types?
Most people never learn either way, but especially in this country where being smart can be dangerous to your health.
We’ve had plenty of free markets. They didn’t turn out so well. They turn into playgrounds for psychopathic predators.
What is needed is a “fair market” but that involves stinky old rules and regulations and things.
So I just have to do a small business rant…forgive me.
I run a medium sized service business and recently I hired someone who was 50+. Why do I note the age of this individual? Because for all the harping people do to hire people with “experience” this person was hopeless. She had 20 years in a large organization. I thought great, I need someone to process paperwork and she seems smart/energetic, etc. Long story short she could not figure out email/websites/basic math. Argh. I even gave her a laptop to take home and told her to practice email, take your time, referred her to some of the “whatever for Dummies books”. Her kids were in the area as well I told her maybe they could help her as well.
After two months she still struggled with email and seemed confused when I asked her to log-in to various sights to check accounts, etc. She clearly rarely used the internet and this is after hours of me working with her. Also, I was very clear with her when I hired her that it was a 2 day a week job but if things picked up I would certainly offer her a full time job if possible. She was retired, she said that was fine, she just wanted to get out of the house. 3 weeks into it she starts complaining about how it is not full-time. Argh.
When I finally let her go since I had to do all her work for her she goes off on me that it was my fault for not training her. People in general just seem to need so much hand holding it is ridiculous. Was I supposed to show her how to attach a file to an email for the 10th time?? There seem to be many applicants but very few who are capable. It is depressing and makes me sad for this country. Rant off.
My 80 year MIL does just fine w/e-mail. She has both Macs and PCs, several of each, btw, and has designed show winning art on both. She even was the head of some Windows how-to message board for 2 years, mostly because she was the type that if she didn’t know how to do something she’d dig and dig until she found out how. I’m sorry Rant but you hired a dud.
Part of the reason large companies have gone to online job apps is that it’s a pretty useful screening tool.
I’ve got a new pilot who is ten years younger than me, but I seemed to have inherited the IT Administrator hat in our office.
Part of the trick to being a repairman for complex systems/devices, is to have a good Rolodex.
Well, this cuts both ways. In the project I work on, we find that retirees are the best. Reliable, show up on time, able to talk to people, catch on quickly. But, there’s not too much technical stuff they have to learn.
OTOH, some of the retirees around here are real pistols on the computer. They have the leisure time to take some courses and they have friends for support.
“People in general just seem to need so much hand holding it is ridiculous.”
I hear ya on this one, I’ve been there. But, you really should have checked to see that she had the basic skills you required before you hired her. Would have saved you a lot of time and trouble. I’m sure you thought you were being kind-hearted, but it is rather unfair to blame someone when you didn’t do your homework on them.
^ What he said.
And don’t be afraid to try again. There are slackers in all age groups, but top experience only comes with age.
“There seem to be many applicants but very few who are capable.”
Hmm, the cognitive divide.
Off-shoring has economically strangled the dull while the bright folks with a technical edge are asking at least $30/hr, which isn’t much money in metro America these days. Little wonder that coastal companies are relocating inland where wages and expenses cost less.
Dateline Boston. Ask yourself…..what first time buyer has 100k plus closing, plus emergency fund to buy thevaverage 500k house? I’m waiting? even 10 percent down? Ps, to the guy from Arlington, I hear ya….but I truly believe prices will be 20 percent lower in two years
“I truly believe prices will be 20 percent lower in two years”
BINGO
Interesting developments, Blue. Coincidentally, wifey and I have been discussing moving her mom down and going in on a place together (in-law suite).
I find out on my fate on Thursday, right after the holiday party. Lol.
http://www.youtube.com/watch?&v=XKfuS6gfxPY#
A thought-provoking new Ron Paul campaign ad. What a contrast between him and the corporatist, statist neo-cons Grinrich, Romney, and the rest.
Very nicely stated. I thought Paul hit a couple of strong chords last night that resonated with the audience, but wonder if he will make it through the campaign physically. I am glad his voice is being heard and he’s being given a bit more credibility– but then given the current line up, that’s not all that hard….
I just love knowing that my tax dollars are going to bail out not only financial predators and fraudsters on Wall Street, but also their counterparts in Europe.
Thank you, Obama voters. Thank you, McCain voters.
http://www.guardian.co.uk/world/2011/dec/11/spain-mortgages-ecuador-battle
Aida Quinatoa is a tiny, soft-spoken Ecuadorean woman who still wears the colourful, ribbon-trimmed hats of the Quechua-speaking people of Bolívar province as she wanders the streets of Madrid, her new home city.
A dozen years after emigrating to Spain, where she works as a cleaner, Quinatoa is leading a rebellion against banks that have left hundreds of thousands facing destitution.
Her latest move is to have a bill in the Ecuadorean parliament that will declare punitive Spanish mortgages illegal and allow her countrymen to escape the debt collectors by returning home. “Most Ecuadoreans arrived here between 1998 and 2002, fleeing an economic crisis at home,” she said.
“We found work but we couldn’t find places to live. Landlords wanted six months’ payment up front and a Spaniard to guarantee payment, so we ended up packed together in tiny flats with whole families in single rooms.”
But as Spain’s immigrant population increased fivefold with the arrival of almost five million people over the first decade of the 21st century, the banks identified a new source of income. “The savings banks began inviting us to free cultural events,” she said. “They would also tell us how to get mortgages, telling us that property was a good investment. They offered loans of 120% of the value of a home.”
Getting money back from immigrants can be difficult, especially if, as many homeless Ecuadoreans and a lot of British buyers on the “costas” have done, they just run home. However, Spanish banks have other ways to recover money. British law firms are, for example, being hired to go after those owing money on holiday homes. With Ecuadoreans, though, they simply package up the loans and sell them on to others.
One eager buyer has been Banco Pichincha, an Ecuadorean bank that has set up in Spain. “The bank is asking people to put up properties in Ecuador as collateral,” Quinatoa explained. “That means if you can’t pay here, they can take your property there.”
If we were a nation of citizens, instead of sheep, there would be outrage at routine violations of the Forth Amendment by “no-knock raids” and excessive force.
http://www.startribune.com/local/135343023.html?page=all&prepage=1&c=y
The Minneapolis City Council approved a $1 million settlement Friday after a botched drug raid in 2010 in which an officer threw a “flash-bang” grenade into a south Minneapolis apartment burning the flesh off a woman’s leg.
The payout to Rickia Russell, who suffered permanent injuries, was the third largest payout for alleged Minneapolis police misconduct on record.
Flash grenades are intended to distract and intimidate, not to injure people, but during the raid the device rolled under the legs of Russell, who was seated on a sofa, and exploded. The police were looking that day for a drug dealer, narcotics and a firearm, but found nothing.
Russell, now 31, suffered third- and fourth-degree burns that caused a deep indentation on the back of one leg, requiring skin grafts from her scalp. She is still undergoing physical therapy.
“What happened in this case was an accident,” Minneapolis city attorney Susan Segal said in a statement. “It’s very unfortunate that Ms. Russell suffered serious injuries, however, accidents like this are rare.”
Yet incidents of fires, injuries and even deaths caused by the devices have led to costly settlements and policy changes in cities nationwide, including Minneapolis, where a 1989 fire started by a police grenade killed two people.
Yet incidents of fires, injuries and even deaths caused by the devices have led to costly settlements and policy changes in cities nationwide
Gotta love how the focus is on the *device*, not the policy of no-knock raids or the way the police choose to act all paramilitary.
http://www.thefiscaltimes.com/Articles/2011/11/30/The-Angriest-Democrat-in-Congress-Attacks-Obama.aspx#page1
“Angriest Democrat in Congress” claims Obama isn’t doing enough to help FBs.