The Weekend Bits Bucket & Craigslist Finds Thread
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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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I had the need to get up at 4am (too much tea at 10pm) and happened to turn on the TV. And there on a good percentage of the channels…was the answer. I had wondered what “fuel” drove hordes of ordinary folks to become shark-like “flippers”. And there in energetic Tony-Robbin-like zeal was “the pitch”.
“You too can follow my simple formula for building wealth without having to invest a penny of your own money….” The RE seminars were everywhere! With plenty of “aw shucks” folks showing how THEY had made their millions by following ’s formula.
I could easily imagine the older person who didn’t save enough for retirement, the devil-may-care 20-something year old, and the bored housewife,….diving in.
Sadly for the vast majority, they will soon be taking $25 flights to Vegas (the nominal/historical “get rich quick” path) to recoup their lost fortunes in the great RE bust.
A lot of people who invested nothing will end up losing a lot more than that.
Funny how the bankruptcy laws changed in late 2005 to become much more strict and unforgiving. If one were a conspiracy nut the timing seems well…almost prophetically perfect.
A talk with a friend this past weekend got me thinking about how the bubble has warped the views of even rational people and may be causing missallocations that we don’t even realize yet.
Friend is a doctor with military contract. Wherever he goes they pay a housing allowance. Last location he just bought a house and used the housing money as mortgage payment. Along with the rest of real estate his house has doubled in “value” the last few years.
He is not greedy. He’s not a flipper. And he’s a pretty logical guy. But in conversations with him about selling the place it is apparent that even he has come to accept this appreciation rate as normal. And I can’t help but think that it has to have changed other monetary decisions he has made.
I know of lots of otherwise rational people that now believe that houses actually pay people to live in them! It’s a new paradigm! Your house is now a source of income rather than an expense. Soon food and gasoline will pay you to consume them as well.
All of my friends I consider to be basically rational and thoughtful– but when I tell them about housing fundamentals, interest rates, being able to get mortgages off the Internet, growing inventory, and the preponderance of ARMs… they don’t dismiss it outright, but also have difficulty accepting it. They think I have an interesting point, but also have a lot of doubt about basic economic realities, and think this latest housing trend will slow down but basically go on forever. It’s amazing how deep it all goes.
LOL! This is why this needs to come down. It will knock some sense back into blindsided fools.
Well, they have credit cards that pay me $$$ everytime I use them….LOL
It will end badly.
These people/investors are brainwashed and now I see them as part of a big real estate cult . They walk around like zombies buying real estate at a peak waiting for greater fools to fund retirement or get them out of the rat race .I have never seen anything like this .
I don’t know about brainwashed, but there’s definately a mass delusion. If you think about it, mortgage money has been essentially “helicopter money” from 2001-2005. Going deep into debt was the prudent thing to do with rates being so low and with the “appreciation.”
“there’s definately a mass delusion”
This is what manias are: mass delusions. The amazing thing is that they are normal and appear regularly in free countries because they are a part of human psychology.
And they subside simultaneously across a wide geographic area very quickly.
You become brainwashed when you only get positive data about real estate for over 5 years . Everybody was saying the classic rah rah lines like , ” your wasting your money if you rent “,real estate never goes down”,buy a house and don’t worry about retirement ,”"get in now on the limited supply “,”Interest rates are at a all time low “.
From 2003 onward it just became a mindless mania .
You forgot, “better buy now or you will be priced out…FOREVER!”
I love that one.
You also forgot, “Liberate your equity!” The bank that holds my mortgage phoned me recently and used that line in their pitch to have me refi my 30-yr fixed into an ARM. I explained I was no fool and saw the direction the RE market was headed, then hung up on the woman as she continued to argue.
I’ve annoyed the heck out of some people when they’ve mentioned how their house has appreciated, and then turn and ask me “how about your house? Surely you’re doing pretty well…”.
When faced with that, all I respond with is 1) How much I still own on the house (I seem to always have the exact current balance), 2) How long until it’s paid off (~10 years 2mo if curtailments stay steady), and 3) How much of pain the T&I is here in Texas. (~3.31% of appraised value annually).
Then I have the nerve to throw those questions back at them. For some reason, they haven’t known the answers to those like they’ve known how much.
Doesn’t matter much; nobody’s asked that queston around here since last summer.
We all know by now that both easy and cheap money created this boom.
I just do not understand why the banks still continue to loan with very little or absolutely no money down ($800,000 gets you about a 1500 sq. ft. fixer upper in my area).
I wonder who are the idiots that are buying these mortgage backed securities?
The interest rate on these loans are not that much higher than government bonds or liquid bank accounts (I currently have a liquid bank accound that pays 4.49%.)
The rise on these MSB’s is not worth it.
Correction-The rates on these MSB’s is not worth the risk.
From Peak Risk
“The most toxic financial market innovations today that have polluted the financial system with risk, and helped keep the housing bubble alive, are:
- Credit derivatives
- Asset-backed securities
- Secondary-market syndicated loans
- Home-equity lines of credit
- Interest-only mortgages
- Negative-amortization mortgages
- Sub-prime mortgages and consumer loans
We are experiencing a replay of an out-of-control credit expansion and a classic battle between the public good and corporate gain play out in the market for unregulated financial innovations. Hedge funds, banks, mortgage companies and other financial institutions are busy cranking out and selling new financial innovations faster than central banks and governments can control or monitor them. Many of these products help society, for example by giving households access to credit that did not have access before and deserved it. But let’s not lose sight of the reason financial institutions are creating and selling these products: not to help society, but to make money. Due to lack of regulation, much of the potential future costs of financial toxins to society have been externalized. They are making a lot of money and in the process polluting the financial system with risk.”…
“This is not a great time to be a lender, because when credit is tight… first, the borrower goes broke, and. then, when the lender goes to collect, he finds that he is broke, too.”
http://tinyurl.com/qolsj
While I agree that many people don’t understand the risk they are taking on with exotic mortgages, I don’t think that more regulation is going to help much. This market will correct itself in time. The ability for banks, etc. to sell debt is self regulating. If their debt portfolio is full of risky loans, then the value of that debt will be lower. Financial institutions get real time feedback on their lending practices when they try and sell it. If they’re good businesses then they’ll make adjustments. Information technology allows firms to better judge the quality of debt, which translates into more efficient allocation of resources (loans).
I personally have a 5 year no-interest ARM that allows me to manage my personal cash flow much better. My company has a discounted employee stock purchase plan that allows me to buy stock @ a minimum of $.85 on the dollar every six months. My no interest ARM enables me to invest the max into that plan. I’ve used the proceeds to pay off other debt that had a higher rate than my mortgage. I did put down 20% on my house to avoid PMI and to get a better rate. I’m glad these financing options are available at a low cost for people like me. More regulation would just increase the cost of borrowing.
Here’s the secret. When you put $100k in the bank, the bankcan loan out $500k. You get an APR of 5% on your $100k. The bank gets an APR of 25% on, get this, YOUR $500k. And what if something happens to the loan? For a small number of defaults the bank can paper over the shortfall, etc. Too many and your account is fully Federally insured for the principal.
Where do they get he extra 400K? Most banks lending spread is less than 1% on assets. You’d have them earning 20% on assets.
Brian:
Look up fractional reserve lending.
Robert is factually correct. We have a system of fractional reserve lending.
Exactly. And isn’t that where cascading cross-defaults come in?
Right, fractional reserve lending means the bank can loan out 90+% of the amount deposited. Then that loan is deposited and the process goes on.
But they can’t loan out 500K on a 100K loan. Doesn’t work that way. They’d need another 400K.
I know all about “fractional reserve banking”.
brianb is right, a bank cannot just increase their assets out of nothing.
BTW, if any of you are good at math, it’s easy to show that if a bank could loan $500K on a $100K, then the money multiplicator for the economy would be 1/r^2 (r - reserve requirement), which is incorrect. The correct answer is 1/r, consistent with Brian’s answer.
Haven’t you seen the ads clogging your mailbox for deposits?
There needs to be a fractional reserve banking primer thread. Just quick and dirty: Assume one bank. You put $100k on deposit. Bank writes a mortgage for $500k. Bank then has a $500k note asset and $100k on deposit. $600k assets, $600k liabilities, revenue of 5% on $500k and expenses of 4% on $100k. It is good to be a bank.
Same deal for credit unions?
Yep, the whole system.
The only bank I trust at this point is Farmers and Merchants in Long Beach, Ca.
there may be others, but it is local to me and the strongest bank in CA.
Yep, the whole system.
The only bank I trust at this point is Farmers and Merchants in Long Beach, Ca.
there may be others, but it is local to me and the strongest bank in CA.
“I wonder who are the idiots that are buying these mortgage backed securities?”
I have often wondered how puffed-up the retirement system is with these MBS instruments; their quality rating is only good because FNM is a GSE, not because the underlying fundamentals are solid. When the music stops Leona Helmsley’s “little people” won’t have any seats, and they’ll be eating dog food in their silver years. Never forget, a Wall-Streeter would pimp his mother’s a$$ given the opportunity. I can’t wait to see more of them leap to their deaths…willingly.
House down the street from me, Queens NY. Sold in 1999 for $220,000.
On the market now, $850,000!
What could possible justify this appreciation?
The homeowner had damn well better be appreciative.
C’mon Edhopper, use your imagination. That’s about 23% YOY appreciation. That’s peanuts compared to some of the dot com stocks in the late 1990s.
And you had better buy that place now. In six more years it will be worth X = $850,000*((1.23)^6). X = $2,900,000. Now stop reading this blog and go out and buy this joint!
This reminds me of a conversation I had last week with a successful real estate investor friend of mine in Manhattan Beach, CA. She tried to explain to me that a 20% YOY appreciation is totally explainable in terms of… (better swallow your coffee before you finish reading this sentence)
…Price-to-earnings ratios. My eyes bugged out of my skull when she said this, but she was completely serious. She went on to explain to me that a house appreciating at 20% YOY has a P/E ratio of about 5.4, and that a stock with a P/E ratio this low on the NYSE would be considered grossly undervalued.
I was stunned, and I told her so. I explained that a house has no “earnings” the way a publicly traded company has earnings, but she wasn’t buying it.
How do you reason with people like this? She’s made a lot of money during the past few years, but most of that is tied up in the investment properties she is currently holding - including a $2MM 7 bedroom SFH in Riverside County that she bought sight unseen. Using her screwy math, when the market goes flat and appreciation goes to 0% YOY, the “P/E” ratio is….wait for it….. INFINITY!
Now we’re talking. In 1998-99 I had money in stocks with infinite P/E ratios. And for a while I did really well. It was only later that I started throwing away statements from my broker without opening them.
I see what she’s saying. At first I thought it was madness.
She saying the “earnings” is increase in price.
OK, now that prices are static, it has an infinite PE ratio and should thus fall. Right?
It’s a positive feedback loop. The more it goes up, the more it should go up (lower PE ratio). If it goes up 50% in one year, that’s a PE of 2. So that is very undervalued. So it should be bought.
What does she say the PE ratio is now that prices aren’t rising?
At least a stock broker has to pass an NASD series 7 exam, where he would learn that price appreciation /= earnings as far as a P/E analysis is concerned. E for a P/E would be rents after PIT + maintainence…
if that figure is in positive territory, then consider the return on investment after you factor in a reasonable risk premium and opportunity cost for tying up the down payment.
If the return is still positive, compare it to buying something very liquid, like treasury bonds. Since 1998 you could have made more money on treasury bonds.
How to factor in price increases? Damn if I know, its all speculation anyway. Past performance not being a prediction of future performance, and all. I would chalk it all up to luck. Nice if you have it, but not to be mistaken for a plan.
Your friend has just enough information to sound really stupid. She has incorrectly taken the fact that the average ROI on S&P 500 stocks with a P/E of 20 is around 5%, including dividends and retained earnings. The apples to oranges comparison between real estate and stocks are income properties with a 5% cap rate. She is just plain ignorant comparing 20% appreciation in real estate to a stock P/E of 20.
MC. Have her recalculate the P/E using the maximum amount of rent she could possibly get from each property as the E.
tryin to teach her is like teaching a pig to sing. Except you’ll have more luck with the pig.
Or teaching a mule to play the violin.
It is not going to sound good and the mule is not going to like it.
But remember mules are sterile, just let em die.
Her logic is the definition of bubble mentality: The value of something is a function of how much it is going to increase in value rather than any fundamental attribute or economic purpose. Her logic is like saying pets.com at one point had a really low P/E because it was increasing in value so quickly. Nevermind that it never had any ‘E’.
I believe the market capitalization rate, which is the real estate comparable rate for P/E, is at about 2.8% in california, which is historically low, and represents a P/E of about 36x. The S&P 500 is I think around 16-18x right now, trading at a slight historical premiun. I personally think 8% is a reasonable cap rate at which to buy.
Do you all think that the Fed/Govt knew and actively planned for the excess liquidity made available after the 2000 crash to flow into residential real estate? Besides the obvious political reasons, why would they do this? For example, how has the increased “paper value” of housing effected the countries “balance sheet” and thus its ability to attract foreign investment?? Since we all know that RE depreciates slowly, the flow of funds into housing, at a govt level, may have been a good way to retain “value” at home?? Not an economist - does any of this make sense?
I don’t think they actively planned ahead of time for it to go into real estate, but they must have seen that it was happening. The laws affecting it such as the law making it possible to live in it for 2 years and sell without paying taxes on the increase were already in place before the stock market began to crash.
“Since we all know that RE depreciates slowly,…”
Maybe in a few years we will all know that RE can depreciate quickly in some circumstances.
I think the Fed was just trying to “stimulate” the economy, not aiming at any particular area.
There are so many things going on right now that can not stand close scrutiny. What better distraction than to have 70% of Americans preoccupied with grand delusions of millionardom. With everything being global the powers that really benefit from this are not worrying about Americans going down because we no longer have a base everything that is done here can be done elsewhere cheaper. There are only few kinks on the way that have to be ironed out,while those kinks get straightened out lets all look the other way.
yeah, in the past RE has depreciated slowly. After the run-up of prices that we have had over recent years, the slowly will now become a fastly (is that a word?) depreciating market. Goes up fast, goes down fast - maybe faster! http://www.realestatedecline.com
Yes. it was all planned. just like the bombs were planted by the government in 9-11 and planes were allowed to fly inti the tein towers as a cover-up. The government is behind all of this craziness. Really! http://www.infowars.com http://www.realestatedecline.com
Put on your tinfoil hats:
Yeah from a public policy point of view if credit destruction has to happen (it does), it is probably best spread across the widest swath of population in an illiquid asset that has irrational emotions attached to it.
I can’t think of a better candidate that housing.
It also serves the purpose of locking down the population in one geographic area shutting out job opportunities that would require a move.
The credit can get destroyed and people can’t go to where the wages might be increasing.
Sounds like a brilliant plan to me.
Without the tinfoil hat on, government isn’t that smart.
I’m not an expert but… it seems that the Federal Reserve does not include rising home costs to part of their formulas for measuring inflation. This has something to do with the fact that while it may cost more to buy a house, sellers make more and wealth is created when new homes are built. If other commodities were to skyrocket in price, the Fed would raise rates.
Alan Greenspan was not too worried about the housing prices because he felt that Americans can afford to lose equity in their houses should the bubble burst. For example, I sold my house five months ago and did lose some equity but I still made money (although we are P.O.ed that we did not sell last summer).
So the Fed did not raise interest rates when they probably should have. Keep in mind that much of the Fed money printed over the past years has gone into buying and upgrading homes. These homes are real-wealth for America and no matter what happens to the value of the dollar, we will still have these homes and the Chinese (who have billions of dollars) will not – they will just have worthless paper. So in a way, we can think of inflation as a tax on the Chinese and every other country that holds dollars. Unfortunately, it is also like a tax on the baby boomer in that they tend to have dollars saved.
Was there a conspiracy buy the government and the Fed? No! The government is not the Fed (the Fed is a private institution created by law). The Fed is run by bankers and they will not consciously do anything that causes bankers to lose money.
It’s not that complicated. The reason rents, and not housing purchase costs, are included in cost of living calculations is because rents reflect what people can actually afford for housing (excludes the “investment” portion, so to speak). Rents don’t rise just because the cost of holding the property rises; we are seeing that now in many (not all) areas as renting becomes a better and better deal relative to owning.
Two points:
1. Inflation and/or high interest rates hurts first of all bankers. In case of inflation endogenous money is diluted with exogenous, making their portfolios lose value. In case of high interest rates, bank portfolios also love value on yield requirements.
2. Inflation hurts real estate values (and any other leveraged asset) for obvious reasons (see 1).
From 1 and 2 if follows that it is not in the interest of the banks to welcome inflation, and even it was, homeowners would still be at a disadvantage.
“Never ascribe to malice that which is adequately explained by incompetence.”
- Napoleon Bonaparte
Amen, they aren’t that smart.
AG was crying “deflation risk” to justify 1% rates. As RE started bubbling, he raised short rates but long rates failed to follow. The “conundrum” was that Japan was loaning $$$ for free so why not borrow at 0.1% from Japan and buy American MBSs at 5%? Works great unless a) Japan starts railing about raising rates and b) they stop their “Helecoptor Yen” currency devaluation and actually sell US Treasuries (currency exchange loss cuts into the carry-trade profits). Now short and long rates are climbing. The reverse of the conundrum. It is either “Helecoptor Ben” to the rescue or raise rates to the moon.
My understanding is that we have trillions in debt we need to pay off. Printing the money to pay it off creates more $s in the system. Since we can’t really pay off our debts, all we can do is keep printing and slowly let the value of the dollars we have decline into nothinghood. Since the 1970s the value of a dollar has gone to practically nothing. That’s inflation and the scary thing is it will mostl likely continue until the current value of a dollar will be what a penny is today. Years ago, you could actually buy stuff with a penny, like you can today with a dollar.
Simmsays..crazy cars
http://www.americaninventorspot.com
If you print money and raise reserve requirements, you could actually pay off govt debt without creating additional money in the system (inflation).
Then we should get more printing presses. On the double.
This is a short article on energy by James Kuntsler. The effect on commuters & RE in general will be something not planned on.
http://www.thelastoutpost.com/site/842/default.aspx
Watch out for the flame fest.
Nothing gets some of the posters fired up like the combo of peak oil (geologic reality) and mixed use development vs. exurban fantasyland.
I am conflicted about it as well.
I would love to have the kind of coin that allows me to live without a care in the world in an exurban wet dream like Hollister Ranch.
http://www.hollister-ranch.com/info.html
I also care about social equity and put simply, everyone cannot live in an exurban fantasy.
It results in ugly and unlivable leapfrogging suburbs.
When I was a kid I heard they were selling these parcels off for as little a 5k. The place is surfer heaven. No crowds and great surf.
Any thoughts on how the bubble will impact the values at the Ranch?
hey sunset, maybe we can split a place up near san awgees or L&R’s. (you gotta love those hot showers right on the beach…..)
Kunstler the Hustler isn’t worth the effort. He’s never been right before, it would be at best random chance if he were right this time. He’s got a sharp eye and quick wit but dull pencils. He tells his audience what they want to hear. Good technique for entertainment purposes, lousy science. RE will continue to be affected by total costs of ownership just like always. Let’s commute an extra 20 miles each way: That’s an extra hour 5 days a week and an additional 10 gallons of gas. Call it $125 after tax equivalent dollars a week or $500/month plus depreciation another $150/mo. And what was this $650/mo internalized cost when gas was $1.75/gal? That’s right; $600 per month. $50 crush the exurbs? If anything people will do the math and move their JOBS closer to where they live. And what does th census say about jobs creation? In the period of gas going from $1/gal to $3/gal 80% of all new jobs were outside the uban core. Kunstler is the von Daniken of urbanity. Interesting, seemingly plausible theories delvired in a thought provoking confrontational style that feed off the belief systems of the target audience but ultimately refuted by the facts.
“Let’s commute an extra 20 miles each way: That’s an extra hour 5 days a week and an additional 10 gallons of gas. Call it $125 after tax equivalent dollars a week or $500/month plus depreciation another $150/mo. And what was this $650/mo internalized cost when gas was $1.75/gal? That’s right; $600 per month. $50 crush the exurbs?”
Good post! Apply this reasoning to those who drive 2-hrs each way, say from Tracy, CA to San Jose, CA in traffic in a $25k Honda Accord.
“Social equity” means that everybody is equally miserable. The very concept is anathema to our capitalist system. One needs to look no farther than Cuba, Venezuela, or Russia to see how this idea plays out.
Most people would jump at the opportunity to live in a nice exurban area with low crime, good schools, friendly middle class American neighbors, and of course enormous homes. As it turns out, the most productive and intelligent workers are free to do so. They generally have little trouble affording a reasonable exurban home, rising gas prices, etc.
Housing Bear you are incorrect.
Social parity matches your definition.
Some amount of social equity is part and parcel of the American culture.
By your description the serfdom/landowner future that Buck wrote at the defunct there is no housing bubble is your future. Go ahead and spend greater and greater portions of your “wealth” on security systems and people.
That is a waste.
JP Morgan no enemy of wealth thought CEOs should be paid about 20 times more that the entry level employees.
We are well beyond that phase and into desperate crony capitalism. Not bad if you are a crony, until you get lynched by the angry mob.
Really my issue isn’t with exurban development per se.
It is with people who get their exurban spread and then get government to outlaw exurban sprawl to preserve (for free to the original exurban owner) their exurban values.
Essentially, they get to assert property rights they don’t have to preserve their exurban values.
If you are Ted Turner and want to buy a couple of hundred square miles go for it, just don’t ask the local government to help you protect it.
The whole exurban development pattern is really leapfrogging suburbs, if the dishonest tactic of getting government to preserve your exurban character isn’t used.
It is patently dishonest NIMBYism to preserve one set of peoples lifestyle at everyone afterwards expense.
“It is with people who get their exurban spread and then get government to outlaw exurban sprawl to preserve (for free to the original exurban owner) their exurban values.”
I agree, this type of thinking really gets to me. It shows how selfish human nature is.
Housing Bear,
Social equity is the cornerstone of the modern society. Social equity is what freed us from the tyranny of kings and aristrocrats, and made everybody Equal. There is no Freedom without Equality, and there is no Equality without Freedom.
The idea of social equity permeates the US Constitution. Read Jean Jeaques Russo, Hume, and the works of the founding fathers. Just because some countries jumped ahead of themselves does not in any way discount the idea.
I think water is a problem there.
I went to that site and all I got was a lousy Cannes Film Festival report.
Something very strange just happened in my neighborhood. A house went up for sale. The signs in front were factory-made and offered 100% financing. It sat there a month or two, then one day I noticed a lot of trucks out front.
It’s obvious someone moved in: bikes in the garage, jet ski out front, but they also have a red and white FSBO sign. Weird, no?
Not really wierd. I think it is likely the owners bailed on wherever they were living and moved into this place to cut their losses until they sell. It’s also possible, but less likely, that they cut a deal with some tenants to rent the place out at a bargain price with the condition that it is for sale from day one.
Ben and company….
Any advice ?
He wants someone to hold his had when he is leaping over the clif.
I’d imagine he has family members/relatives who are trying to unload a bunch of speculator properties.
Folks, there are still alot of people out there that don’t educate themselves, a fact mentioned here many, many times. Most people still believe the hype that “real estate never goes down” or “real estate in my area _____ never goes down”.
I was talking with a friend last night about the south bay (LA) market which includes Manhattan, Hermosa and REdondo Bch. I live HB and my folks own a duplex in HB (important to the story). My friend has lived in the South Bay for as long as myself (off and on since 1992). He says RE prices are so high right now (he owns a small house in a community 5-6 miles inland from MB). I agreed but told him that the RE market here will be shaved at least 30% over the next 24 mos. He said he knows suff is overpriced but RE here won’t go down but “level off”. I asked him why he thinks this. He replies “cause RE in the beach areas never goes down. He then says “MB and HB RE has never had a down year”. I asked him where he heard this but all he said was “it’s true, right?”. I told him he needed to check his history. I informed him 1994 my parents bought the HB duplex for $215k from the bank (yes, foreclosures happen at the beach - he was in shock). Since I was the one doing the research on the property prior to the purchase I found out that the former F@ckd borrower of this duplex had purchased it in 1989 for $500k. Again, a look of complete shock from my friend. I told him that from 1992-1997 you could have almost any property in the South Bay for 25-50 cents on the $ compared to today but…there were no buyers. Lots of foreclosures though. Yeah, we had our share of the defense industry layoff syndrom but this are is much more dependent on RE (agents, LOs, brokers, etc.) then on the defense industry in the early 90’s IMO.
The his wife walked in and he told her my thoughts. She commented,”Oh yeah, I had several friends in Santa Monica who could not get rid of their condos in the early 90’s.” Humm…I guess they don’t talk much about what this runup in prices might do to their home equity???
Time to liberate the equity instead LOL
Yea right. I bought a condo in Pacific Ranch (HB…a mile from the HB Pier) in 1987 and paid 125K. In 1989 it was worth 200K. In 1994 it was worth 140K. That is about a 30% haircut from peak prices and this was a guard-gated top end property in HB. The higher end units were closer to 40% dropn (foreclosure sales mostly).
I was ecstatic on the way up and in denial on the way down. Lucky for me I got out in 1992 for $172K so I did ok. But some folks (like our local RE Pacific Ranch “specialist”) rode to the bottom and had to sell for a loss when her RE company folded.
Does CA beach RE go down? It is a historical fact.
A friend of mine bought a house in Costa Mesa for about 180K in 1994. It had 3 or 4 br, and a pool. I saw the home in 2000, since that is when we became friends. Any how, he said at that he almost did not buy the home in 1994 because everyone was leaving the LA area (1994).
Flip of the week
http://tinyurl.com/llagz
MLS #: 22072952
Sold twice last year and is now back on the market for $699,000
Sale History
11/02/2005: $620,000
03/07/2005: $521,000
Did I mention that I rent a nicer house across the street for $1800 a month.
There must be a strong built in psychological tendency for humans to think that an investment will keep going up after it has already gone up for a number of years. This is what causes asset bubbles to form again and again. People project past gains into future performance with expectations of more gains. This combined with the long time period for a full cycle up and down for an asset bubble makes people forget or ignore the cyclicality of asset markets. They don’t remember down cycles or say it is different this time because of ______.
If RE has been rising for 9 to 10 years, it is hard for most people to believe it will go down especially in their area. The same thing happened with stocks from 1982 to 1999.
You know the coin has two sides. Every month for the last 100 months you’ve flipped heads. This month you flip tails. The math says, duh but the person says fluke. Lereah is trying a sophisticated bit of legerdemain buy claiming the coin has returned to amore normal 50/50 split and the math supports him in that simplistic prediction. The coin is not influenced by preceding events and the conditions under which the coin is flipped is variable and the bets are not winner take all.
Ah, that old dilemma of a-priori vs a-posteriori knowledge! How many bright people lost relying too much on either of those.
Yeah was talking to a young realtor who commented that most realtors he knows are too young to ever have experienced a down year in real estate.
Anybody hear about that report on the Senate immigration bill allowing up to 100 million new legal immigrants over the next 20 years? Perhaps this is the proverbial (albeit stealthy) bailout.
Here’s a plan only a politiciain could possibly dream up: 100 million new immigrants to soak up all that excess housing and hold up prices, especially since they’re ready & willing to pool their resources to share bigger homes. Furthermore, most of the immigrants will be younger, thereby tipping the demographics back in a manner favorable to Social Security & Medicare solvency. The overall tax base expands while simultaneously lowering wages across the board, thereby making the US more competitive with third-world labor and keeping inflation in check.
p.s.: IMHO the Senate bill is downright scary.
You are correct. The borders are wide open. The government is breaking this nation down by allowing all of these illegal immigrants into our country. I know rents would be much cheaper if it were not for the illegals. I am the only white person in my apartment complex and none of my neighbors speak english! Meanwhile I rent a STUDIO FOR $775 A MONTH in North Hollywood, CA. Now illegals can get government help to buy homes. It’s all part of the plan to destroy the middle class. There are some articles about it at http://www.realestatedecline and http://www.infowars.com
Tj-
What’s scarier is that the American people are going to sit back and let it happen instead of marching in the streets and sending lynch mobs to the offices of the senators who voted yes.
Have the american people become that complacent?
They should be sending out the lynch mobs soon for the legislators who voted for that new bankruptcy legislation. A year from now, that’s all you’ll be hearing about. IMO
Guns & Butter mrstream;…Keep the Indians happy and quiet with the butter ($$) and we can do what eever we want with the guns..
I would say that it isn’t guns and butter.
It is more bread and circuses.
http://en.wikipedia.org/wiki/Bread_and_circuses
Visit http://www.spp.gov
More from the tinfoil hat club:
After 911 no one was spending money. The malls were empty, the theme parks were empty, no one was buying anything and people were barely leaving their houses to go to the grocery store.
What to do? What to do? Who spends money?
I know lottery winners do! Everyone knows that people who win money via the lottery as opposed to earning it will spend, spend. They will spend it at the mall and at the car lots, vacations, RV’s etc. We have all heard the stories of million dollar lottery winners who are ill equiped to handle a wind fall and are broke in a few years.
Great idea!! Lets tell everyone that their houses are worth $100,000+ dollars more than they are and lets allow them to easily tap into that fake wealth and spend it. And we want EVERYBODY to be a winner here. Lets get everyone into a home ASAP, we will have the President tell people the virtues of an “ownership society”.
And so everyone was suddenly rich and the people were happy. Did they spend money? Boy howdy, did they ever. A lot of people have spent all of that money already.
But now, some people are saying that they never really had all that money in the first place. And that their house is not worth $100,000 more than they paid, but $90,000 instead. But since they already spent the $100,000 they need to come up with $10,000 by working hard to cover the difference. And for most, esp. the ones who never had that much money saved up before in their whole entire lives this is very upsetting.
The reality is folks is that the money has been spent. That is the only explanation for the all zany quotes from realtors, the unhappiness of sellers who only made $90,000 from a sale of their home, the discounting of the facts, the blaming of bloggers and the media etc. etc.
The cash infusion into the car lots and the malls bailed out a lot of people. The smart ones said “whew that was close”, and have
cashed out and left.
Which is a good part of why this bust will affect the entire country. Didn’t have to be a bubble area for people to cash-out refi and use HELOCs for fun stuff.
Here’s a real eye opener. Talk about systemic risk. These things are the ebola virus of the financial markets.
Dr. Evil would be proud
$1.5 bln and $1.4 bln (that’s beeelion). Those are the paychecks believed to be brought home by hedge fund managers James Simons and T. Boone Pickens last year, according to Institutional Investor’s Alpha magazine.
Hedge fund returns in ’05 were about 9.2%, double the S&P 500 and about the same as ’04.
Average pay for the top 26 hedge fund earners climbed 45% in ’05 to $363 mln.
Goldman Sachs’ Henry Paulson was the highest paid Wall St exec, earning $38.3 mln in salary, stock and options, a 28% increase from ’04.
Ladies and gentlemen, this morning’s Top 10 List…
1. James Simons $1.5 bln Renaissance Technologies
2. Boone Pickens $1.4 bln BP Capital Management
3. George Soros $840 mln Soros Fund Management
4. Steven Cohen $550 mln SAC Capital Advisors
5. Paul Tudor Jones $500 mln Tudor Investment
6. Edward Lampert $425 mln ESL Investments
7. Bruce Kovner $400 mln Caxton Associates
David Tepper $400 mln Appaloosa Management
9. David Shaw $340 mln D.E. Shaw
10. Stephen Mandel $275 mln Lone Pine Capital
Hmmm, damn…
Disclaimer - My name is Stephanie Ellison, and I drive a blue car. Do not shoot at me or attempt to lynch me. Please note that I am not wearing $1,500 clothes, nor is the car I’m driving any more recent than 1993, and a Toyota at that. I am only giving common sense advice to those who are wealthy, if they remain so in Mad Max’s time.
You do not wear expensive clothes or jewelry in public, and you do not drive expensive cars. Flout your wealth, and that could get you killed. If you want to survive with your wealth intact, (i.e., MUCH more than “with one foot 6 inches above the grave”), you must hide it, for you must protect it.
Stephanie
Today’s Washington Post as an article about the brazen car-jacking of three SUVs and trucks at gunpoint by a gang of six men, who then proceeded to injure at least a dozen people as they caused highway mayhem fleeing the police. Stories like these are going to become even more commonplace as urban areas are forced to slash law-enforcement and prosecution budgets and the criminal element is allowed to caper virtually unchecked, as it did during the LA riots and in the aftermath of Hurricane Katrina.
http://www.washingtonpost.com/wp-dyn/content/article/2006/05/28/AR2006052800867.html
Gunmen Steal 3 Vehicles, Crash 2
Dozen Hurt as Chase Ends in Md. Pileup
By David S. Fallis
Washington Post Staff Writer
Monday, May 29, 2006; B01
At least a dozen motorists were injured yesterday, some seriously, after a band of men armed with semiautomatic weapons carjacked three vehicles in Prince George’s County and then crashed two of them into other vehicles as they fled in different directions.
The six gunmen, police said, appeared to be targeting people who had taken advantage of the nice weather and holiday weekend to ride off-road vehicles in an area of Prince George’s known as the “gravel pits,” a stretch of land and trails southwest of Laurel. They all remained at large last night.
Late yesterday, police were still trying to piece together the chaotic sequence of events. They were especially concerned because of the brazenness of the crimes and the fact that all of the men were heavily armed.
“We are dealing with very, very violent people . . . doing this in broad daylight, during a very busy holiday weekend,” said Cpl. Diane Richardson, a Prince George’s police spokeswoman. “We want to get them identified and apprehended quickly.”
The carjackings began about noon, police said, when six men in a white Jeep Liberty sport-utility vehicle pulled up to a Chevy Silverado pickup parked near Van Dusen Road and Virginia Manor Road. Police said the truck’s driver, who was standing nearby, had apparently gone to the area with his two children to ride motorbikes.
The six men brandished weapons and took the Silverado, which had three dirt bikes in the truck bed, Richardson said.
Using the two vehicles, the men then pulled around to another section of the trails, apparently targeting other off-road vehicle riders, Richardson said.
The gunmen stole two more pickups, a green Dodge Dakota and a black and grey Ford F-150. The group split up and then fled in the white SUV and the three stolen vehicles.
Shortly after police were notified of the stolen Dakota, a Prince George’s officer saw the vehicle getting onto the Capital Beltway near Route 1, Richardson said, and pursued it.
“I heard the siren, and within seconds I saw the suspect car,” said Lisa Guba, who had been driving on the outer loop of the Beltway near New Hampshire Avenue. “All the other cars were trying to get out of the way, and a motorcycle got clipped,” she said. It crossed several lanes and crashed.
The driver of the stolen Dakota left the Beltway but then lost control while going south on New Hampshire in Montgomery County. It plowed into other vehicles near Fox Street before coming to a stop, police said.
Thirteen other cars were involved in the pileup, which sent 10 motorists to hospitals, said Lucille Baur, a spokeswoman for Montgomery police. None of their injuries was life-threatening, Baur said. She asked that anyone with information about the crashes call the collision reconstruction unit at 301-840-2435.
The driver of the stolen Dakota fled on foot, eluding police, according to witnesses. Inside the car, police found a TEC-9 semiautomatic handgun. New Hampshire Avenue was closed in both directions for hours while police reconstructed the crash.
During those incidents, the stolen Ford F-150 was also in a crash, police said. The driver slammed into a vehicle at Rhode Island and Howard avenues in Prince George’s.
“According to witnesses, the driver of the F-150 went right through the intersection and plowed into a Honda,” Richardson said.
Two people in the Honda were seriously injured, she said. The person driving the stolen F-150 also fled on foot before police arrived.
Late yesterday, police were searching for the white Jeep Liberty, which possibly was stolen, and the silver Chevy Silverado, license plate number 71N712.
When the Silverado was last seen, it still had three dirt bikes in the bed, she said.
More FFT
http://money.cnn.com/magazines/fortune/fortune_archive/2006/05/29/8378002/index.htm
My wife and I have been looking at cruises during the summer or fall and I picked up on a Carnival notice that they are changing the itinerary of at least one normally-popular cruise. The reason — business has dropped noticeably and they think it is because people are feeling the pinch of less discretionary income.
Having sold out and now renting, I have plenty of discretionary income. Am thinking of writing to suggest they target more advertising at renters, because those FBs are going to be staying home for a long, long time.
Been short CCL for a long time and see no reason to cover.
I suspect that all of them, except perhaps for the Silver Sea part of the spectrum, are in for hard times in coming years. They’ve been adding ships like mad, presumably in part to host the boomers, and this bust is going to screw the model big-time.
How about this for an incentive to attend an open house:
FREE GRILLED HOTDOGS!! - while supplies last.
http://washingtondc.craigslist.org/rfs/165278715.html
now we’re talkin’ !
OC Register just had a huge PR puff piece on high earning RE agents.
3 Sunday morning articles.
The RE Industrial Complex strikes back.
I already sent an e-mail to Jeff Collins congratulating his makeup on the pig of the REIC’s press releases.
Here is just one:
http://www.ocregister.com/ocregister/money/homepage/article_1158734.php
I say good! Let more sheeple think RE is the job of the future. Muddy up the waters for these guys. I am also sure that sales are off 35%-40% for these guys!
“I couldn’t have been this successful without knowing what I’m doing,” he said.
____________________________________________
Everybody is a freaking genuis on the way up. Time will tell MR. Right Place Right TIME!
This article is one of countless reasons for the dilemma of my decision when I die - should I hit the detonation core at the center of the planet on my way out, or should I go back to the drawing board and look at the design flaws of humans and other living beings, which I seem to have overlooked in my hasty zeal to start living in a living body, and try to improve on the design flaws, epecially the genetic blueprint and brain construction?
I’m so terribly, terribly sorry for having caused so much death, pain, sorrow, hardship stretching over the millions of years. I really am.
Stephanie
Whoa?!
I don’t understand your post.
I am a little scared are you God?
Stephanie, step away from the crack pipe.
Sad, really. I’d say these folks are one payment away from a foreclosure posting:
http://dallas.craigslist.org/apa/165870513.html
Had to go food shopping today and perhaps it is me but I have never seen such a gloomy bunch as those I was in line with checking out. This is usually a kid filled, happy open discussion chatty place. Not one word but a palpable gloom was over this group. Money? gas? economy? or just end of holiday blahs? Anyone else get this feeling lately?