Double Jeopardy For The ‘Devout Culture Of Fed Bankers’
One Fed president is talking about housing this afternoon. “Dallas Federal Reserve Bank President Richard Fisher on Monday said U.S. inflation was running too high for comfort, but that the central bank had until the end of June to decide how that might impact interest rates. Fisher said that while the U.S. housing market appeared to be moderating, there was still a lot of strength in the economy.”
“‘(Housing) is clearly cooling..there are other offsets; the real issue is what will be the impact on consumption,’ he said.”
“Fisher also stressed that central bankers were earnest in their pursuit of price stability. ‘Were I trendy, I suppose I could remind you that in the devout culture of central bankers, every numerary wears the cilice of inflation on his or her intellectual thigh as we pursue our avowed goal of providing the monetary conditions for sustainable non-inflationary economic growth,’ he said.”
From Freddie Mac. “The recent decline in U.S. housing prices will likely pinch consumer spending but will not dent growth dramatically, Freddie Mac Chief Executive Richard Syron said on Monday. ‘We may see enough of a softening to have an economic impact,’said Syron, a trained economist who worked at the U.S. Central Bank before moving to the second-biggest U.S. housing finance company.”
“During the real estate boom, many people bought second homes as investment properties but now those homeowners may want to look elsewhere to earn better returns, Syron said. The slowdown in housing prices might continue for a little while longer, Syron said, adding, ‘having housing become more affordable is not a bad thing.’”
The New York Post. “So now he tells us. Alan Greenspan finally said what he thinks about the housing boom he almost single-handedly created. ‘The boom is over. I think we can safely say that with a strong degree of confidence,’ Greenspan told a Bond Market Association Dinner at Cipriani in Midtown on Thursday.”
“Greenspan then added, unconvincingly: ‘It’s too early to determine what impact a slowing housing market would have on consumer spending.’”
“Fortunately for ol’ Al, the bellinis were flowing freely. After one of the worst weeks for the financial markets in more than 3 years, Greenspan’s comments left many with an eerie feeling about the bad hand the Maestro’s successor may have been dealt. Amid fresh signs that inflation is percolating at an unacceptable rate, what’s a central banker to do? Raise rates of course. For Bernanke it’s double jeopardy.”
“Were we still a nation of savers, further rate hikes would actually put money into Americans’ wallets. But this is 2006. Americans, on average, have little savings and whatever wealth they do have is mainly tied up in real estate. As USA Today reported Friday, baby boomers are counting on that real estate to fund their retirement.Millions of boomers see their homes as a ‘bank’ from which to extract equity to pay for retirement.”
“Now that housing is likely headed for a soft landing, at best, Greenspan, the architect of the virtuous upward cycle, says he can’t tell if it will affect the consumer? And for this, he gets paid $250,000 a speech?”
“No doubt Bernanke is in a real pickle. The recent performance of the big housing stocks, all at or near 52-week lows, suggests that we’ll be lucky to get away with the painless easing in home prices Greenspan hopes for. But as investors sensed this week, Bernanke doesn’t have the luxury to wait and see.”
“As the folks at Bridgewater Associates note, the Fed already looks to be badly behind the curve: ‘One of the real questions facing the markets concerns the inflation picture. The classic warning signs have been flashing red, recent action in commodity prices, art prices, home prices would have made virtually everyone hit the panic button in the 1980s.’”
From the first Reuters link.
‘ A cilice, a spiked strap worn to inflict pain, is featured in the blockbuster Hollywood film, ‘The Da Vinci Code.’
Yeah, those FED guys are really hip and cool. So ‘up’ on modern culture.
This is the same clown who spiked the markets a few back with his “8th inning” analogy and now we have him making idiotic references to a future throw-away DVD. Thes guys are nuts.
This is the same clown who spiked the markets a few back with his “8th inning” analogy and now we have him making idiotic references to a future throw-away DVD. Thes guys are nuts.
I’m glad you cleared that up about the cilice. At first I thought it was something like a codpiece, and then I got really confused.
‘Syron and other economists who spoke at the conference argued that high housing prices would harm the greater Boston region’s economy if more and more people are forced to leave and find less expensive places to live.’
‘Between 2000 and 2004 more people moved out of Massachusetts than came to the state, recently released data show.’
Nice for these guys to wake up to the fact that ridiculous home prices are a full on negative for the economy. Not to mention that the boom had to end, so this correction was inevitable. The last year and a half has made it more dangerous to deflate.
I think the Big Dig helped inflate the Boston bubble. I remember in 1998 before we bought, everyone in my neighborhood felt the sheer number of workers, engineers, planners, etc were driving up prices. Even then, we were concerned how the local economy would fare when the project was finished and all workers moved on to their next project in a different locale. We “little housewives” feared it wouldn’t be good….but 9/11 and the credit bubble were still a long way off. Too bad for Boston that bubble was in sync w/the credit bubble.
same situation in the Netherlands: it was the only EEC country in 2005 to have (far) more emigration than immigration; one of the two major reasons mentioned for leaving is high home prices (and the other one is bad economic prospects which is strongly related to that in my opinion).
The people who are still entering the country have generally very low education and come mostly to get free welfare without working. The people who are leaving have usually high incomes, lots of cash and a high education; I don’t think they will come back when the Dutch housing bubble comes crashing down (it is still growing, although just 0.1% for every of the last three months).
Pickle. I like that. Greenspan had a “conundrum”, and Bernanke gets a “pickle”.
Well, Greenspan coined his own “conundrum”. Bernake not talk so pretty.
”Syron said, adding, ‘having housing become more affordable is not a bad thing.’”
Aw, come on now, admit it…it’s actually quite a good thing.
(the bullish mentality still latently lingers, hovering just below the surface, doesn’t it?)
Some interesting inflation quotes…
“Government is the only institution that can take a perfectly good piece of paper, print some noble words on it, and make it perfectly worthless.”
Ludwig von Mises
“Inflation is like sin; every government denounces it and every government practices it”
Frederick Leith-Ross
“Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hit man.”
Ronald Reagan
“Inflation is when you pay fifteen dollars for the ten-dollar haircut you used to get for five dollars when you had hair.”
Sam Ewing
“Inflation: Everyone’s illusion of wealth”
“During the real estate boom, many people bought second homes as investment properties but now those homeowners may want to look elsewhere to earn better returns, Syron said.”
By “better,” I assume he means the nonnegative kind?
Speaking of better returns and considering the market is tanking, where are you putting your money? I’m thinking short term inflation followed by deflation so gold (now that’s it’s down from its highs) and long term bonds. Thoughts?
“During the real estate boom, many people bought second homes as investment properties but now those homeowners may want to look elsewhere to earn better returns, Syron said.
Cashing out may not be that easy anymore - Idiot. WTF
Cashing out may not be that easy anymore - My thoughts exactly, Foose!
Anyone who bought before 2004, around here anyway, can still cash out and make a bundle.
All they’ve got to do is let go of the “Super Duper Lottery” mentality and they’re in home free with a tidy profit.
Oh yeah, as long as they didn’t HELOC themselves to death.
If u cn rd ths… IS ALRDY 2 LAT!
I barely got the last lifeboat off this liner onlly closing on my last investment property last month. I was worried even though the whole transaction was on autopilot and couldn’t derail short of a meteor. Still I was worried. Of course now I worry about reallocation so maybe it’s me but look at the listings.
Don’t get me wrong, 2nd homes are fine, retirement homes are fine, vacation homes are fine. Fine as long as they are for living, retiring and vacationing. I get the sense that many are “investment” and that is not fine. Worse are all the investment properties that people delude themselves into calling 2nd, retirement and vacation homes.
It’s worse than that. “But… Robert, how can it be worse than that?” Good question. Many of those, probably most are not even investments. When you extract primary residence equity and dump it into another property you aren’t investing. The money was already in real estate and now is in real estate. You are just doubling down on worse odds.
Good way of putting it .Its funny how you end up not using that vacation home as much as you thought you would also .
You mean like HB stocks?
The Fed can’t go on with quarter-point raises forever. They need to appear to be leading, not following the market. Make a decision and go with it, Fed.
Wouldn’t a .50 or .75 raise rock the market and put RE in it’s place. BB could then pacify the market by saying he may pause…
Thanks for everything. I have been reading this blog for a year or longer and just started posting. I have been learning from all of you over the past year. This is better than any public school educasion. Yes I did that on purpose.
I just moved my family to D.C. via corporate transfer. I had soooo many RBs hitting me up and showing me all kind of properties. They all said the DC market is different or they priced this too low and it’s a great steal or this is a buyers market now. It was sad to see people sink this low to get a buck. The rental market was so tight we were out bid on 3 rentals. I almost caved. But I kept reading this blog and rented a place starting June 1st. You probably saved me 200-300k. No exaggeration there either. My wife believes me about the bubble and the coming crisis we all will have to face thanks to multiple reasons mentioned on this blog. So thanks again.
I am really going to enjoy watching this unfold. I just hope it doesn’t take the entire economy down the drain as well. But my bet is it will.
If this market ends badly, it is likely that those who are rooting loudest for its demise will suffer the most. If one was ‘priced out’ of a home, chances are you are in no position to weather a recession, or dare I say, a return of stagflation. Those priced out of a home will be in no position to take advantage of a serious downturn in real estate.
As if the alternative, being chained to a property declining in value, would be more adventageous during a recession.
So you’re saying if I don’t have a large mortgage payment, high property taxes, insurance and a large HOA to pay I can’t possibly have any savings ? What nonsense.
If the market ends badly (and by definition, isn’t an end “badly” or else it wouldn’t be an end, right?), those who saved their cash by not buying at the top will be in a position to buy at a bargain price.
Do you realize that you just reminded me that I am seeing lots of evidence that we have now passed the first stage of the unwinding, “denial.” Now we are into “anger.”
Best of luck to you.
good point about the second stage appearing to begin, lol!
Denial - “There is no housing bubble”
Anger - “The media is causing housing prices to go down with all of this talk of a housing bubble!”
Bargaining - “Damn, If I can get out of my real estate investment(s) NOW without a huge loss, I promise to NEVER speculate in/invest in/buy real estate again!
Depression - “I can’t beleive I fell for all of that “real estate never goes down” talk. I should have learned from the dot-com crash.”
Acceptance - “I guess I’ll have to postpone retirement until age 85. At least I’ll never get suckered into real estate again.”
rofl !!
In the Texas bust, mobility ended up being a big factor. There were jobs, but often this required a move. Only 1.7% of the population left the state, but every S&L and major bank failed or was bought out.
I remember clearly that it was leverage, of all stripes, that did in individual and company finances. I also recall that those who kept their head and realized it wasn’t the end of the world were the ones that cleaned up.
Unbelievable that you would think that. Our net worth is in the order of $1M, but we rent by choice. Why? Because rent is cheap and I believe housing is overpriced and overdue for wrenching correction. Not all renters are ‘priced out’. You would be surprised.
i’m in the same boat, san mateo! love being a millionaire renter w/ no cares in the world
Sounds like somebody is upsidedown in some real estate.
LA-Landlord …How many shares of pets.com, webvan, cisco at $80 a share were you stuck with? I would think most people in this blog either avoided that tech bubble or learned from their losses.
Just because we don’t own investment property or have not recently bought in bubble land does not mean we can’t afford it. I can afford to have a wave tattooed on my balls but I choose to to. That tattoo, like buying real estate today in bubble land, would be painful and leave me feeling foolish for the rest of my life.
LOL
I dunno man. A wave is pretty cool. You’d be the talk of the town when you went out ball-walkin. I doubt you’d ever have one day of regret. I know I haven’t.
Soooooo Funny.
Yes, LV Landlord is finally starting to sweat. Priced out? Does that mean they couldn’t afford to buy, or refused to buy at outrageous prices. I suspect many of the people here have excellent credit, wads of cash (or PM’s if they’re cautious), no debts and are best suited to weathering any recession or God forbid, a currency collapse and depression.
I got a crackhouse tatooed on my thigh and never regretted it. In fact, I should send a photo of it to Ben’s gallery.
I also suppose those people who are taking out interest only, option ARMs and 50 year mortgages are “priced in” the market right? Who are you kidding? This is illusory affordability at best. As you are well aware, these people make up a majority of the recent buyers in California. When are real estate yahoos going to learn there’s a distinction between the Wal-Mart greeter who are priced out and will always be priced out, and those who haven’t bought into a real estate death spiral who easily have the means to sign onto the aforementioned suicide loans but choose to exercise a little bit of caution and judgment by staying away from something that will damage them in so many way for so many years.
Buy now or be priced out forever! Priced out by who? The majority of recent buyers who are taking out interest only and neg. am loans? Ask yourself the question, can these people really afford the debt they’re taking on. How can the fundamentals of affordability and ownership to renting price ratios be cast off so easily?
I guess we need another depression so we can learn the lessons are grandparents learned so painfully.
Uh, right, LA landlord. So we’re supposed to root for it’s continuance, right?
You take care of yourself, I’ll take care of myself. I’ve got a feeling I’ll be just fine.
That is one of the dumbest things I have ever heard on this blog. I want to write you a 10 page letter on why your statement is so off base, but I don’t want to waste my time.
Also, most here are not hoping for a demise. Most of us have some financial or investment knowledge and come to this blog to help us understand the sheer insanity of what has taken place in real estate.
True, true - but I’m rooting all the same.
I’m rooting for a correction in housing prices…I want prices back in line with wages and rents, for the simple fact that I don’t want my daughters to have to commute from Trona or Amboy in order to buy a house with a 30 year fixed rate mortgage.
OK, I also want to bottom feed with the $$$ I’m saving, but that’s secondary…8)
I have more than 620K saved up, all in gold and foreign bonds, none in US stocks or bonds. I am going to buy with a dime on dollar when US dollar tanks, and the realty market tanks.
I am determined to pay the lowest price to get into Malibu in 5 years. Btw, don’t come looking for me, I won’t buy anything until this whole ARM/Neg-am reset is over by 2010. See ya in 2011.
This bubble came about because NO borrower, however unworthy, was priced out. The only thing pricing anyone out was their own common sense.
Wow, a lot of vitriol in the responses to my post. I think you all missed the point, among other things. Cheering for a collapse is a fairly good indicator of a lack of understanding of the consequences of said collapse. This lack of understanding is a fairly good indicator of one’s inability to survive and propser during the collapse. I wrote about those priced out and cheering, and most of the replies were something like, “I am not priced out blah blah blah…” Re-read the post if you didn’t understand it wasn’t directed at you. With that said, chances are if you didn’t buy before the market overheated, you haven’t had a chance to build enough savings to really take advantage of a downturn either.
Sorry to disappoint those of you who seem to think I recently purchased a home at the top. Anyone catch the articles in the LA Times last week about rising rents?
you haven’t had a chance to build enough savings to really take advantage of a downturn either
Wow. Your assumptions are impressive. You seem to know everyone else’s return?
“Anyone catch the articles in the LA Times last week about rising rents?”
And your point is?? When I started to read your reply, I though “gee, maybe I misunderstood” Then I got to the end. Are you happy rents are going up? Do you *need* to raise your rents? Or will you just be gouging folks? Perhaps the real reason you’d prefer housings implosion not to occur, is that if the economy takes a hit, you won’t be able to keep your rents so high. I dunno…
Jibberish brings that out in people I guess.
“chances are if you didn’t buy before the market overheated, you haven’t had a chance to build enough savings to really take advantage of a downturn either.”
Not sure what you are trying to say with that sentence. Do you mean to say that someone who bought 6 years ago is somehow going to be better prepared to profit when then market reverts than someone who has rented during that same time?
As for rising rents that is a tempory function of the empty-flipper inventory pile up. (Like the average sale price hitting it’s highs just as inventory starts heading higher.) Once those homes are out of the dreamers hands - by forclousure or otherwise - there will be some articles about falling rents.
Jibberish brings that out in people I guess.
“chances are if you didn’t buy before the market overheated, you haven’t had a chance to build enough savings to really take advantage of a downturn either.”
Not sure what you are trying to say with that sentence. Do you mean to say that someone who bought 6 years ago is somehow going to be better prepared to profit when then market reverts than someone who has rented during that same time?
As for rising rents that is a tempory function of the empty-flipper inventory pile up. (Like the average sale price hitting it’s highs just as inventory starts heading higher.) Once those homes are out of the dreamers hands - by forclousure or otherwise - there will be some articles about falling rents.
Yeah, I was surprised by how vicious the repsonses were too, and I one of those hoping for complete economic collapse. That’s because I’m a nihilistic anarchist (no kidding) with a decent chunk of money. But I think we’ll can’t help but have deflation, not inflation when the bubble pops. The dollar will strenghthen when all the foreign investments come home to the US. I think now is a good time to buy treasuries (but I could be totally wrong).
‘a lot of vitriol in the responses to my post.’
Yeah, my definition of a troll is one whose posts trigger a long series of acrimonious replies that are completely off topic. Makes me wonder…
LV Landlord just wants to take our minds off the fact that LV land prices recently tanked by 47% or so…
I remember reading about paper millionaires during the dot-com boom who were bankrupt and people greeting at WalMart by 2003.
Just had lunch with a friend who sounds a lot like LA_Landlord. He’s spent the last three years bemoaning me and my refusal to purchase a property. He made out pretty well on his last house but dumped that equity into a cookie-cutter subdivision that is 40 miles from work. He’s slowly seeing his equity (SAVINGS) evaporate as unsold houses on the block are priced less than what he paid last year. He’s pretty nervous about the market even though he doesnt’ want or need to move.
Oh well, what does my opinion matter? I’m just a bitter renter who couldn’t afford to buy. Never mind that I just bought a new vehicle for cash with the savings alone from the last years difference between renting and buying here. I WILL be ready to pounce when the market hits the lows in the next 5 years, and I hope and plan to pay cash for a property. So take it and stuff it with your elitist comments.
“if” this market ends badly? check your data landlord….it’s starting to unravel in l.a. also, i have bad news for you…the vast majority of those that purchased in 2004 and 2005 were “priced out” but purchased anyway.
You and I may have a different definition of “badly.”
Exactly! Many of those that bought into the bubble where the ones that didn’t have the means to buy when prices were low. They didn’t meet “normal” requirements of 20% down, etc. The bubble fed itself with lose money being handed out to normally non-qualified buyers. These people were already priced out BEFORE the bubble even started, but were “buying” homes anyway. Many of them prospered because they were able to sell to the next greater fool who was allowed to buy at even higher prices since the hosed system of realtors, lenders, appraisers all supported the inflation of the bubble. Amazing stuff!
You, sir or madam, are quite wrong. I, and I’m sure many others here, could buy a house today if I wanted to. I don’t feel like losing any of my money right now thanks. I have no problem with folks making $$ on their houses. But this market is completely irrational, and I think things are gonna get ugly. I’ll wait. Sorry about your “investments”
Nonsense.
At current market prices I have $300k equity in my condo in San Diego (not for long I hope). The market value of a decent sized house in a good area is around $850k. Even with no additional down payment, that’s a $550k loan. I make a good income and I have plenty of savings, and yet I’m priced out of the market.
If the bottom of the market is four years away with a 40% loss, that same house will go for $500k and my condo will sell for $180k for a difference of $320k. That’s a much smaller loan and four additional years of savings. I’ll be in a fine position to take advantage of the bottom.
That being said, selling the condo now and renting for four years would put me in a better position still.
I think you are very optimistic. If housing tanks, rates will rise (more than incomes) and lending standards will finally revert to normal (or even more) again. You might loose your job or part of your income because the economy tanks.
The future $320k loan might be tougher to get than the current $550k loan…
sold my overpriced slice of heaven here in so cal a year ago and thanks for your concern about all of helpless fools.i will pay cash for a home here in san fernando valley after this unfolds.thanks for your concern la landlord.
Because we all know that the FB’s all have HUGE amounts of savings( cough) from their HELOC’s (cough) which they used wisely( cough) and not for excess consumption( cough)..
Yeah, us morons that either sold out and banked the cash or have been renting and banking cash are sure in trouble. ( sigh)
I would much rather be a FB that is now $40-100 THOUSAND upside down in his home that cannot refi due to the neg am and if you happen to live here in Florida you just had your homeowner’s insurance either cancelled or doubled in premium.
But I forgot, I’m screwed because I didn’t buy a 1500 sq ft shack for $450,000. Silly me renting a 2300 sq ft place for 1/2 of the cost of owning.
I guess I should buy a brand new H2 for $40,0000 when you can buy an 05 for 1/2 the price? ( assuming one would want such a POS).
Can you give me some stocks that you like so I can go short and make a bundle?
The whole “priced out” gig is up. The harsh truth is that property prices had simply run beyond any economic support. Many people realized this and chose, wait let me repeat that, CHOSE, not to pay the exorbitant prices. Many people took advantage of their sense of rational thought coupled with some small smattering of due diligence and decided that based on the evidence that purchasing property at inflated prices had more risk than return potential. Many people willingly refrained from increasing their buying power through the use of, oh how did RE King put it, oh yes, “sophisticated loans”.
I guess the long and short of it is that when pigs were flying pigs were happy, but that was simply a dream and dawn is approaching, debt encroaching and them piggies are falling back down to earth. Some will be able to scamper back to the pen, but methinks many are headed to the slaughter.
I’ve been wondering about the whole anger thing of late, especially with regard to this bubble. I notice I have a bit of anger pent up about it. And I have also begun to notice more signs of anger from the kool aid side. I am really not “happy” that anyone is in danger of losing their home, or their nest egg, or their job as things turn south for housing. There but for the grace of God go I. Well, ok, that and a lot of reading and thinking too. But my point on the anger part is that I personally will look inside for more compassion rather than letting my inner monster run loose. Will that stop me from waiting it all out and buying when I decide prices have dropped far enough? Heck no, I’ll use my savings accumulated from renting to get a nice 30 yr loan. Will that stop me from feeling vindicated as inventory rises, foreclosures rise, prices drop and the crying becomes a wail. Not in the least. But I will try to think twice before I do the happy dance in a public forum on RE. And I’ll try to refrain from explaining to my son that the RE agent within earshot may be an endangered species. I mean, really, what’s the gain in that beyond a few cruel yuks? Ok, it’s probably a whole lot of really good endorphins worth of giggling so it may be worth it.
But, Hey, I have no crystal ball so I’ll just sit here quietly and watch as time paints this picture by the numbers.
But I will try to think twice before I do the happy dance in a public forum on RE.
Yeah-I can identify with that. I posted in a pubic forum that I owned a fair amount of Exxon/Mobil stock which I had started purchasing 20 years ago, and that it was TS for those who choose to run a 3/4ton 4×4 w/ $3.00 a gal gaz. Don’t like the situation? Then get on the other side of the fence
The profanity laced, rabid replies, has me seriously questioning the overall mental balance of the average person residing in this country at the moment
Show-off and brag all the way up-scapegoat and whine all the way down.
What’s the link to that, I’d love to read those comments. I drive a 4×4 but not for show and I totally agree with you. Pay to play.
la_landlord-
looks like you’re going to be a bitter landlord in the coming months. you’ll be asking yourself questions like “what was i thinking buying cashflow negative properties anticipating capital appreciation?”
I would never buy negative cashflow property, and I have never taken appreciation into consideration when buying real estate.
“chances are if you didn’t buy before the market overheated, you haven’t had a chance to build enough savings to really take advantage of a downturn either.”
LA Landlord is one of those people who, if he/she says one thing, it’s axiomatic the opposite must be true.
Good for you, I called the RE correction two years too early. Still renting and waiting and watching. You did the right thing. Your education was worth every penny you will save!
I don’t think anybody wants to see a 1929 type of crash .
Especially Ben Bernanke. I honestly have good faith that he will steer a path to avoid this worst case scenario, as he has studied at great length the mistakes which led to the 1929 collapse, but his tenure at the Fed will be challenged by the hand he has been dealt.
the trouble is that Bernanke made exactly the wrong conclusion from his studies (in my opinion, but I’m certainly not alone in this).
He thinks the FED made the depression worse because they didn’t inflate (fast) enough, I think the FED inflated WAY too much and caused the Great Depression. And being an academic, Bernanke is probably not prepared for what will follow.
It will!
bubbleonthebeach,
Smart move on not buying. I sold out and left in February and am so glad I got out before the crash. (Corporate relo also). Me neighbors hated me, one set of very good friends will not even talk with us. They are furious that I listed just under the market, price reduced after two weeks to about 3% under and sold. They expected us to list around $990K(totally unreasonable) so they could keep believing that they lived in $1M homes. Still made a profit but I’m out of there! A lot of the neighbors I feel have HELOCed themselves into a corner and my sale started to pop the bubble. I expect some to BK in the next few years. Just wait for the deals - my house was bought by a FB wth a 100% 3/1 I/O loan. Nice couple and doomed…
More important than Greenspan pronouncing the Bubble over was this Sunday’s Parade Magazine article. While I don’t have a link (anyone?) I do recall that it pronounced the Bubble over.
It was still wishy-washy on home price declines, but I bet this article was read by more people who are considering jumping in to catch the falling knife than the number of people who know about Greenspan’s comment. People who are watching BB, the fed or Greenspan should know better already!
Alan Greenspan: “Were we still a nation of savers, further rate hikes would actually put money into Americans’ wallets. ”
Someone should tell this guy whoever he is or was about this organization called the Federal Reserve who report NEGATIVE savings rates.
It seems he confuses residual ’savings’ with being a ’saver’.
Spending more than we earn, we are clearly not savers, but we are net holders of savings accumulated in previous periods. If this were not the case our country would be for all intents and purposes broke - like our government.
Hm -
So say real estate declines in value but somehow the economy chugs along. Boomers will be able/have to keep their jobs and not retire, thus solving the Social Security/Medicare problem. Heh.
Existing home sales number comes out on the 25th. Does anyone have a good guess whether they will miss it or make it? and by how much?
volume up a few % from march 06, down a few % from april ‘05.
may - wash, rinse, repeat
Sales “unexpectedly” much more down! Price is down ofcourse….let me see If I have learnt anything here
OT, but this otta ve a hoot.
Statement from Fannie Mae Regarding Review and Release of OFHEO Report
Fannie Mae (FNM/NYSE) has been advised by OFHEO that the agency intends to release the final report of its special examination at 10:00 a.m. on Tuesday, May 23rd. OFHEO has requested that representatives of Fannie Mae review the draft report and we will comply with our regulator’s request. Fannie Mae will be prohibited by law from disclosing the contents of the report until its public release by OFHEO. As a result, we have temporarily suspended our public offering of Benchmark and medium-term debt securities until May 23rd.
What would it take to make any members of this blog with property paid off, no credit card debt or car payments or student loans buy in this market? There are a lot of people comfortably positioned on the sidelines. Will they be the Greater Fools? I doubt it. What will it take for them to get back into the game? A certain percentage of haircut? Reversion to the mean?
Will they lose their taste for RE as “too messy and illiquid?” If so, will another class of assets take the place of RE? (Have already) If rents equal equivalent price for a mortgage payment with 30% down? 20% down? 10% down? No down? In a falling market? 125% mortgage for rental properties?
Where do we go from here? Is it just a waiting game?
For me it will take for the $1M homes in my area to sell for $700k or less. If that doesn’t happen within 3 years I’m leaving. Simple.
OK. 30% drop.
Wimp.
1995 prices
1999 prices.
Guessing 50% drop?
Agree with Chip. 1999 prices, plus or minus. PITI payments are less than, or equal to, rent with 20% down.
If the economy REALLY tanks, all bets are off, and we will just concentrate on surviving and maintaining the purchasing power of our money.
On a pure price basis, we are still some 30% above the mean. Look at the charts.
Rising rates, insurance premiums, taxes, hurricanes, foreclosures, resets, tightening of lending standards… the perfect storm is hitting.
for me (Netherlands): 1998 prices or so sounds good, that would be halfway the runup and a 60-75% haircut from todays prices, so I don’t see it happening soon. Definitely not going to look at price to rent ratios in a falling market as they are a VERY bad indicator then.
If government keeps home prices artificially elevated while they tank in most other countries (I am very sure my government will use all the tax incentives and subsidies they can think of) I will probably leave the country, like many others have already done.
Currently waiting to see if the banksters are going to succeed in inflating themselves out of this mess.
You described me perfectly (cashed out in mid 04, money in CD’s, minimizing my stock market exposure, renting and waiting, absolutely no debt, & saving). It will take a minimum of 20% drop from current prices to get me back into SoCal. I think that is about right…prices need to give up at least half of the gains they made between 2002 and 2005 to get back in line. If that doesn’t happen, then like some of the other bloggers, I’ll just move somewhere else…another great point of renting right now, I’m flexible to do whatever I want! Target time for me is June 2007!
2001 prices, which are about a 50% reversion. Completely possible as well. 3/2/2 for $150k.
Closed escrow last Friday on our CA 2/1 Bungalow. We move into a 3/2 rental in a better school district at a rent equal to our 1999 era mortgage. We buy when the PITI for a 4/2 (3 young kids) in our new neigborhood equals 28% of my gross on a 20% down 30 yr fixed. We will not try to call the bottom.
We plan to invest in local rental properties when they are cash flow positive. We may have a long wait.
LA_Landlord:
A lot of us here have the net worth to buy *today* if we wanted to. We choose not to, because we don’t think the risk reward ratio is worth it. I sold my house in San Jose 2 years ago, moved to Palo Alto, to be in a better school district. I pay $3K rent on a home where property taxes alone will be $1K+ a month, if I were to buy it, and the mortgage would be another $5K+ a month. We have close to $500K in savings, no debt, and a $250K income. So you decide whether we are “priced out” or not.
I am fully prepared for rents to go up - in which case incomes would be going up too, because rent is included in CPI inflation (and if incomes are not going up, why would rents go up?). Until rents and home prices come into some balance (in 1998, they were in balance, which was when I bought my home in San Jose).
And if this thing ends so badly that I am out of a job (possible), I simply get out of the area, move to a cheap place, find something to do at a quarter of my current paycheck, and I would still be OK.
So check your foolish assumptions at the door.
That would be a 75% drop?
rents are going down in areas w big condo develpments- squatting is the in thing now
I’ve followed Ben’s blog since February or March ‘05 and have been posting since last May orJune. There are and have been many intelligent, thoughtful posters here and Ben’s blog is far less polluted with trolls/kids with too much time on their hands than any other related blog I’ve read. Simple logic, I believe, indicates that avid, continuous readers tend to be those who will be able to enter or re-enter the market when the price is right and that, generally, we are continuously ranging for that “time.” There are, too, those who follow the blog simply to reassure themselves that they made the right decision at the right or next-best-to-right time, whether it was selling, buying or standing pat. Otherwise, why in the world spend so much time following the bolg’s posts? It is asinine to conclude that any meaningful percentage of Ben’s readers and contributors do not have the means to get into, or get back into, housing. Many or most of us placed our bets and they appear to have been on a different horse than yours, landlord. I agree with the poster who said you appear to be starting to sweat.
…or else you are not really a landlord of any significance on the Saffir-Simpson scale. I suspect you are rather young, for what little that is worth.
I’ve noticed most of those who use the term landlord in their names tend to consider themselves some kind of upper class and are quite proud of it. I’m a landlord too. I realize that means fixing plumbing and screwing in wall plates. Someone pays me and I do what they request of me.
Sounds more like a land-employee…
I don’t know how anyone could read this blog, and determine that those gathered here are anything other than astute, intuitive, DISCIPLINED and overall good or great at judging when and how to best spend their hard earned dollars.
I too have available cash when I decide to buy. One of the reasons I come here every day is because for a very long time what we knew we had to keep to ourselves and sometimes still do (neighbors). We did not create nor can we correct the situation.
And yet we are condemned for not being FOOLS.
For me its simply mathematics, it really cost me 7K to rent net when all is considered. So in 2 years it cost me 14K and I will probably get exactly what I want for 50 to 75K less in those same 2 years. No brainier really.
No brainier still doesn’t compute for me. If you are in Florida, and I assume a purchase price of $500,000, I think you are hoping to buy in 2 years at less than $400,000? Close? Up to 20% reduction?
Robin,
For me its simple.
If you do the rent vs. buy calculator for the next 5 years you come out a winner renting using almost any logical assumption.
That is assuming prices do not DECREASE in value. (lol)
When the $1 million dollar homes in my area of town come back down to pre-2002 levels, that’s when I might jump in again to buy - (assuming that we’re not in some type of economic freefall!….which I wouldn’t completely dismiss at this point).
Many on this blog (including myself) put our money where our mouth was and either sold out near the top or have amassed enough liquidity to afford a 20-30% down payment in the future. If or when the RE bubble totally implodes, I suspect more of us are in a better position to weather the economic downturn than the “average” indebted homeowner.
“(assuming that we’re not in some type of economic freefall!….which I wouldn’t completely dismiss at this point)”
There’s the rub! The best buying opportunities typically are associatied with the bottom end of an economic freefall, when blood is running in the streets, fear is driving the herd away from risky assets (like real estate), and most folks are too dazed and confused to recognize that a bottom has been reached.
Besides the circumspect quantitative signals often discussed here (purchase prices in line with rents and incomes, foreclosure rates near the high end of the historic range, etc.), it is important to recognize in advance that the time to buy identified by J P Morgan (buy when everyone is selling) is also a point when your emotions will be silently screaming that it would be crazy to do so…
When would I buy again? Well, the last time we bought a house was in 1997. I remember feeling extremely anxious about buying at the time. This is in MA where the economy was just about coming back from the doldrums, real estate appeared illiquid, rates were relatively high, and recent price action in property was frightening. By a stroke of luck, it appears that we bought near the last bottom. By another stroke of luck, we did well enough to pay off the mortgage.
I remember that same sinking feeling in my stomach when I went out and bought a boatload (by my standards) of precious metals after gold sank below $280, and silver was in the 5’s. At the time Robert Prechter was confidently predicting the Great Deflation, with gold headed for the double digits. As it turned out, $252 was the recent bottom.
So.. when would I buy property again? Not until the very idea of buying makes me very afraid. In any market, a huge percentage drop from market peak tempts me - but only after a prolonged bear market, with prices grinding along the bottom for several years. Perhaps I’ll start checking US property prices around 2013.
One thing I’ve learned along the way: “buying low” sounds great in theory. In practice, it has always been a formidable challenge for me and for several of my close friends. I suspect humans are not naturally wired to play contrarian.
Millions of boomers see their homes as a ‘bank’ from which to extract equity to pay for retirement.”
——————–
Pardon my french but they are a bunch of stupid asses waiting for riches from nothing.
(What would it take to make any members of this blog with property paid off, no credit card debt or car payments or student loans buy in this market?)
Well, we don’t need a house because we already have a rowhouse in Brooklyn. So your question is really about an investment.
Housing would have to be better than the alternative investments. That means I would have to be able to buy an condo for far less than the rent I could get, because being a landlord is work, vacancy, vandalism, and failure to pay are risks, and we are time-poor.
And the return, including the return on my time and compensation for the risk, would have to be better than bonds and the stock market — currently over-valued, but the least over-valued asset.
That would take one hell of a crash. It could happen, and we might be tempted to buy a place for our kids when they move out, or us when they move out and we require less space. But I think before we reach that point those who want a place to live, and who have been priced out by the insanity, will buy, at least here in Brooklyn. Sane homeownership prices are somewhat higher than sane investment prices.
FYI I have a friend who has a much bigger house with a floor unused. When he was younger and didn’t have kids he rented out two floors for apartments, but then woman moved out and stopped paying rent yet kept her stuff there for a year (while he was dying trying to cover the mortgage) before a judge finally allowed him to evict. And the judge didn’t let him keep the deposit, since it was for damage and there was none, and said he’d have to sue to get back rent from the woman who took her stuff and moved out of state. So he’s decided being a landlord isn’t a great deal in pro-tenant New York — even if the space is just sitting there.
http://biz.yahoo.com/ap/060523/fannie_mae.html?.v=7
Report: Fannie Mae Manipulated Accounting
Tuesday May 23, 11:48 am ET
By Marcy Gordon, AP Business Writer
Federal Report: Fannie Mae Manipulated Accounting, Deceived Investors
WASHINGTON (AP) — Employees at mortgage giant Fannie Mae manipulated accounting so that executives could collect millions in bonuses as senior management deceived investors and stonewalled regulators at a company whose prestigious image was phony, a federal agency charged Tuesday.