Will Home Owners Reap What They Sowed
A reader asked these questions. “My wife and I, along with a handful of smart economists & others, feel the coming burst of the USA gov debt bubble will wreak havoc on not only interest rates and inflation, and USA and world finances, and on the middle class thru-out the USA & world, but also on residential & commercial real estate values. We are positioning ourselves to sell our home, a home where we stand to make a $100K+ profit if we sell in the summer of 2013. What was the average % loss of value of residential real estate values in the 2008 bubble burst? And what do you anticipate the average % of loss of value of residential real estate values when the next bubble bursts?”
“I feel if we can settle out mortgage obligations, become 100% debt free and walk with $100K+ in 2013, we should, then start renting. As over the long term, we will never recoup the money spent on payments & interest should we decide to stay put in our home until the 30-year fixed (we re-fi’d at 3.9%) is free & clear when we are 79 (we are 50 now). Is it safe to assume that real estate values, post the next big crash, will never recover to allow most home owners reap what they sowed in payments & interest over the course of a 30-yr fixed mortgage?”
One said, “One fixation hasn’t died yet, quick profits. Everyone hates capitalists unless there’s a chance for personal gain. That lure of easy money keeps the suckers coming back to Wall Street despite the thorough shagging last time round. Losers!”
And another, “Resistance Level: In technical analysis, a price that a security does not, or only rarely, rise above. Technical analysts identify a resistance level by looking at past performance. When the security approaches the resistance level, it is seen as an indication to sell the security, which will increase the supply, causing the security’s price to fall back below the resistance level. If there are too many buyers, however, the security rises above the resistance level. When this occurs, the price of the security will likely continue to rise until it finds another resistance level. It is also called the overhead resistance level. See also: Price ceiling, Support (Support level).”
“When alot of people buy at a peak that sets the resistance level, Because when they get even after many years they tend to sell. After that IF the price goes up we get new peaks very fast. What will real estate do? As will approach the resistance level set in 2006 it should get interesting. This reader reminds me of this.”
And finally, “From a boater’s perspective: Relative safety is greater when reliance on assumptions is reduced.”
“It sounds like you have set out on a cruise in a tippy boat with plenty of leaks and sense a storm front is headed your way. On a boat, a low center of gravity is desired in case of weather, because it gives stability. A 30 year mortgage at age 50 has a pretty high center of gravity which is a lot of instability. Having 300% of your assets in a house during the worst weather of your life is like putting all the heavy cargo up on deck. Most people I know in their 70s have had many major assumptions about their lives altered and the long term debt is a bet against this process.”
“None of us know really what is going to happen to the housing market in the near future, the past decade has surprised us a lot. As far as safety advice goes: Get out of debt. You can’t captain the ship if you are 24/7 at the bilge pump.”
The Pocono Record. “Monroe County residents threatened with home foreclosure came armed with paperwork and stories to a state-sponsored forum at East Stroudsburg University’s Innovation Center. One of those attending was Everett Branch of A Pocono Country Place. ‘I was looking to retire here,’ said Branch, who has seen his mortgage and property tax bill steadily climb since moving here from Brooklyn, N.Y., in 2009.”
“Branch said he paid $186,900 for a newly built two-story, four-bedroom home with Classic Quality Homes, but was part of a successful class-action property tax assessment appeal in which his property was appraised at just $120,000. ‘I paid more for the home than it’s definitely worth,’ Branch said. ‘Does it violate the Truth in Lending Act? I don’t know.’”
“Branch, 56, is a New York City sanitation worker who is supporting a wife and two young children. He had a home built here after a fruitless search to buy an affordable home in New York. He hopes a counselor can help him succeed where he was unable to negotiate new loan terms with his lender.”
“Carla Carter, 63, of Stroudsburg is recently a widow, out of work and trying to survive on a veterans pension and Social Security. ‘I’m not in foreclosure, technically, now,’ Carter said while awaiting her home counseling session. ‘I’m trying to avoid that. The wolf is at the door, sort to speak.’”
Sow bad mortgage debt, reap blood-spattered drug money?
Wall Street Banks, Money Laundering and the Drug Trade
DOJ Urges Federal Court to Approve Sweetheart Deal with Drug-Tainted HSBC
By Tom Burghardt
Global Research, March 07, 2013
In Reckless Endangerment, a lively exposé of the frauds at the heart of the subprime meltdown, journalists Gretchen Morgenson and Joshua Rosner wrote that if “mortgage originators like NovaStar or Countrywide were the equivalent of drug pushers hanging around a schoolyard and the ratings agencies were the narcotics cops looking the other way, brokerage firms providing capital to the anything-goes lenders were the overseers of the cartel.”
Their observations are all the more relevant given the outrageous behavior by major banks which polluted an already terminally corrupt financial system with blood-spattered cash siphoned-off from the global drug trade.
It wouldn’t be much of a stretch to insist that drug money laundered by financial giants like HSBC and Wachovia were in fact, little more than “hedges” designed to offset losses in residential mortgage backed securities (RMBS), sliced and diced into toxic collateralized debt obligations, as the 2007-2008 global economic crisis cratered the capitalist “free market.”
And like Wachovia’s ill-fated $25.5 billion (£16.96bn) buy-out of Golden West Financial/World Savings Bank at the top of the market in 2006, HSBC’s 2002 purchase of Household International and its mortgage unit, Household Finance Corporation for the then princely sum of $15.2 billion (£10.02bn) also proved to be a proverbial deal too far.
Evidence suggests that HSBC stepped up money laundering for their cartel clients as the hyperinflated real estate bubble collapsed. Along with other self-styled masters of the universe who were bleeding cash faster than you can say credit default swaps, HSBC posted 2008 projected first quarter losses of “$17.2 billion (£8.7bn) after the decline in the US housing market hit the value of its loans,” BBC News reported.
…
“None of us know really what is going to happen to the housing market in the near future, the past decade has surprised us a lot. As far as safety advice goes: Get out of debt. You can’t captain the ship if you are 24/7 at the bilge pump.”
I love the boating analogy, which makes me reluctant to throw a wrench into it:
What if housing price reflation is so wildly successful that home prices double in the coming years, leaving those 55-year-olds who ‘prudently’ used 30-year mortgages at record low interest rates to lock in low monthly payments for the rest of their lives with massive future home equity gains against which to borrow and spend in the future? And meanwhile, those who ‘foolishly’ kept renting and stayed out of debt face spiraling rents and living expenses with low-wage jobs, no jobs or paltry retirements to pay for them?
Isn’t it this worst-case reflation scenario which makes it ‘prudent’ to go into debt in order to buy a home, even if the price seems way to high and the duration of the mortgage exceeds your expected future life span?
Are you second guessing your rental decision?
Not really. Our rent has gone up by 15% over a seven year period, or about 1.76 percent a year on average. And we didn’t lose over $100,000 in negative home equity wealth effects over the period since we moved here the way our landlord did.
Meant to say nine year period…(been renting so long I’m starting to lose track of the time spell)
P.S. I am into creating scenarios. Never mind if the one above has a probability near zero of occurring: It seems costly enough to worry about even though it is highly unlikely.
It depends a lot on what hour expectations of inflation will be for the next 20 years.
My father purchased a house + empty lot in Long Island for $29k back in 1969. He sold it 2 years later for a small profit. We returned to the area in the early 80’s and it was for sale at $99k.
That’s about 10% a year price increase.
I don’t think it was an increase in real terms.
1969:
Cost of a new home: $27,900.00
Median Household Income: $8,389.00
Cost of a first-class stamp: $0.06
Cost of a gallon of regular gas: $0.35
Cost of a dozen eggs: $0.62
Cost of a gallon of Milk: $1.10
1981:
Cost of a new home: $83,000.00
Median Household Income: $19,074.00
Cost of a first-class stamp: $0.20 as of 11/1/81)
Cost of a gallon of regular gas: $1.38
Cost of a dozen eggs: $0.90
Cost of a gallon of Milk: $2.22
“I don’t think it was an increase in real terms.”
It was a loss in real terms as inflation(wages) was greater from 1969-1980 than any other time in history.
1969:
Cost of a new home: $27,900.00
Median Household Income: $8,389.00
Hmm, so in 1969, a new home cost about 3.3x median household income.
Yes, I agree the 10% a year increase was nominal, not inflation adjusted. According to an inflation calculator, $29,000 1969 dollars would have been equivalent to about $76,500 in 1982. So still about $23,000 ahead of inflation.
And a used house cost 2x annual income.
See how that works?
And a used house cost 2x annual income.
Used houses were that much cheaper than new houses then? I find that very hard to believe.
Link?
census bureau.
Furthermore, new housing is less costly than resale at these massively inflated asking prices.
census bureau.
I’m not good with the google. Could you provide a link or be more specific?
I wasn’t even aware the census kept such a statistic. Do they now?
Exert some effort and try.
Exert some effort and try.
I tried and can’t find it. Could you please link us to your source of information?
Don’t lie. You didn’t try.
alpha, you should know by now: PW loves to make statements as IF he had data, but refuses to ever link to the actual data.
My working theory is that he doesn’t know how to cut/paste a URL, and typing in a long one is too much work.
You’ve been provided the links. I even told you where to find all the data.
As for you my drama queen, it appears you wrote a post to yourself.
As for you my drama queen, it appears you wrote a post to yourself.
exe, you’re wrong on that point; I’m PiC, and I’ve been here almost as long as you have (early 2005-ish). I’m definitely not alpha.
Works both ways.
According to Zillow™, my parents’ house was worth $118K in April 2007. Now it is “worth” $69K, down by $49K, 42% off peak and more than the pretax median household income in their area, and still dropping steadily.
Easy come, easy go.
And Lil Sis’s house was supposedly worth $390K at the April 2007 peak; now worth $271K ($119K drop, or 30.5%) and still sliding.
My parents and sister both live in the greater St. Louis, MO area. Despite the Fed’s best efforts to prop up prices there, it ain’t working — in fact, it’s failing miserably.
So much for the failed theory that the Fed is all powerful.
All told, I’d say the folks who assumed buying houses was always a good plan because “real estate always goes up” are the loosers, including my sister, whose husband parked his inherited wealth into the purchase of three houses (so far!) near the peak of the largest real estate bubble on record.
Despite all the king’s horses and all the king’s men trying their hardest to put the housing market Humpty-Dumpty together again, fundamentals are swamping the Fed’s housing market relation efforts in most parts of America where real estate is built, owned and occupied and prices are still dropping, despite the REIC propagandists’ best efforts to hide the facts.
Pick ANY geography and look at the 10 year price chart and then plot demand over it. The last 18 months should leap off the page.
“What was the average % loss of value of residential real estate values in the 2008 bubble burst?”
I would guess 30% to 40% are fairly typical, and you can see my anecdotal evidence from my nuclear family of my sister and parents experiencing their home values drop on this range, despite the Fed’s failed efforts to pump up the market with all manner of extraordinary housing market stimuli.
Of course, there are places (like Detroit) where the losses were far more devastating. Here is an example, which I randomly picked. You can see that at $33K, the Zestimate™ is crazy wrong on this one, as they can’t even sell it for $4.5K. Also on Zillow’s authority, the home was “worth” $62K in June 2005. How would you like to take a 93% haircut on your home equity wealth?
Inflation always goes up.*
*except for 2008-20??
“*except for 2008-20??”
Check out
U.S.: 1929-1941
Japan: 1990-201?
Of course, there are places (like Detroit) where the losses were far more devastating
And of course places there are places where it was far less devastating, too. Including some that barely saw a dip.
And of course places there are places where it was far less devastating, too.
Which simply means those areas have much further to fall.
Buyer beware.
No. This is why I advise renters toi buy gold. That if you are going to be renting the next ten years or more, your asset allocation in physical precious metals should be ten to twenty percent. If you own or have substantial equity, ten percent. if your RE reflation occurs again, gold will do better.
Bill, though I am unlikely to buy gold, I agree with your point (I think) that a renter needs to some how be hedged against housing price inflation. I’ve personally done it with stocks, cars and violins. To each his own.
Violins! Interesting. I would not know how to evaluate them. Wines…my office roommate invests in them and has just started selling them after twenty years. I think unique expertise in those areas makes for interesting discussion. Gold is boring. I would not want to talk to anyone in person who knows where I live…about my gold. Or guns. And I have just started getting into collector mode, partly for political reasons. But a Saint Gaudens gold is as Americana as a rifle.
“I would not know how to evaluate them.”
I’m not an expert appraiser, either, but I know some and I know a lot of violinists who can give second opinions. But as a freelance violinist, I have a fourfold motivation to buy:
1) personal enjoyment;
2) professional opportunity;
3) tax breaks;
4) inflation hedge.
I appreciate your point, but how to you get to the spiraling rent part? Are you saying there is no relation between rents and income? How about rent and rental stock?
“I appreciate your point, but how to you get to the spiraling rent part?”
If the purchase price of housing goes up, economic theory predicts rents will go up as well, as houses for purchase and houses for rent are substitute goods.
Other than homeless people, everyone needs a housing unit to live in.
So wages would increase as well?
Unfortunately for people who need a place to live in, an artificially-engineered housing inventory squeeze does not lead to higher wages. Rather it leads to higher real housing costs (rents or purchase prices).
And meanwhile, those who ‘foolishly’ kept renting and stayed out of debt face spiraling rents and living expenses with low-wage jobs, no jobs or paltry retirements to pay for them?
This sounds like herd-theory. In other words, you’re better off running with the herd, because the predator can’t kill the _whole_ herd.
And I’m not sure that you’re wrong, PB.
Here’s to avoiding being the slowest wildebeast…
“This sounds like herd-theory.”
Fed = predator
Herd = army of greater fools the Fed tries to manipulate into irrationally exuberant asset purchases through its psychological economic War on Savers
Of course, it’s always pretty easy to stampede a herd ruled by fear and greed.
One political problem I see ahead for the Fed is that so many stampedes tend to collectively kill off many herd animals — not necessarily conducive to the economic growth the Fed claims it wants to foster.
This sounds like herd-theory. In other words, you’re better off running with the herd, because the predator can’t kill the _whole_ herd.
Not right away anyway. But a smart predator can run the herd into an enclosure and then “manage”/domesticate/enslave them.
The question is really centered on inflation; what do you expect inflation to run over the course of time you’re considering. If you expect it to be > the interest rate you can borrow money for, then, it might be a good time to buy a house. If you expect it to be <, you should probably continue renting. I agree that, if you rent, you should have significant allocation in stocks/gold (inflation linked assets) to hedge the risk.
Here in Flagstaff recently, a couple were foreclosed upon. I was told they were 89 and 90 years old. Somewhere in the mix, they had IRS problems. But why in the heck does someone have a mortgage at that age?
This poster in Seattle is lucky, I guess. We don’t know when the house was purchased, but around here, very few could sell a house for a 100k gain. I’ll note that this theoretical gain is possible because someone else will take on the debt.
And the comparisons to stocks aren’t a surprise. That’s what houses have become; gambling vehicles. Except it’s debt based gambling. It all just points to a seriously screwed up situation. Not that many years ago, you didn’t need a 25 year loan to pay off a house. And where I grew up, it would have been crazy to think you could buy a house, use it for 20 years and expect a windfall when selling it.
“But why in the heck does someone have a mortgage at that age?”
If I were a betting man, I’d bet they did some home equity ATM financing along the way to tap into the magic of Alan Greenspan’s housing market wealth effects.
If I were a betting man, I’d bet they did some home equity ATM financing along the way to tap into the magic of Alan Greenspan’s housing market wealth effects.
They had to “liberate their equity.” That’s what old whats his name used to say.
“That’s what houses have become; gambling vehicles. Except it’s debt based gambling. It all just points to a seriously screwed up situation.”
It’s really much worse than that, because the Fed is assuming the role of the casino, putting $40 bn a month of newly-created “house money” on the table, and actively encouraging households to partake of this form of gambling on the assumption that what’s good for housing is good for America.
Fed’s Duke Says Stronger Housing Market to Spur Growth
By Steve Matthews - Feb 5, 2013 7:49 AM PT
Federal Reserve Governor Elizabeth Duke said she’s upbeat about the outlook for the U.S. economy in part because of a rebound in housing, even after growth stalled during the fourth quarter.
“I’m actually on the optimistic side,” Duke said today in response to audience questions during a speech in Duluth, Georgia. “If you look at the underlying thesis, the growth in consumer spending and some of the business growth, I think there is some momentum building, particularly in the area of housing.”
…
“And where I grew up, it would have been crazy to think you could buy a house, use it for 20 years and expect a windfall when selling it.”
I’m guessing there was nothing resembling QE3 MBS purchases in play back when we were kids…
It’s been going on a lot longer than QE1, 2 or 3. And in recent years, many people were able to buy a condo that hasn’t even been built and sell it before it was built, and make some serious bucks. Recall that in Florida, some non-existent condos were flipped four times before the project was cancelled.
The difference with QE3 versus previous federal government subsidy programs is that the Fed is now all-in, overtly favoring a particular sector of the economy over all others, which I believe is a violation of their charter.
If anyone reading this disagrees with me, please post a bit of evidence, as otherwise we will know you are a liar and a propagandist.
CRICKETS: CHIRP! CHIRP! CHIRP!
What leads you to believe that the Fed is “all-in”, as in at some kind of limit? Laws and charters do not seem to impose any kind of boundaries.
+1, Blue. They could definitely go “in” further, so I don’t think I would agree that they are currently “all in”.
At the risk of giving them ideas…
Imagine for the moment if the Fed started buying not just the MBS, but actual properties. Imagine if they were buying directly off the MLS, and buyers were having to bid against them. With the infinitely-productive electronic printing press, they could buy ALL the properties on the MLS if they wished to do so.
My conclusion: while definitely intervening, meddling, and manipulating, they are far from “all in” at present.
p.s. But PB, I agree with your other statement, that overtly favoring a particular sector of the economy is a violation of the Fed’s charter.
I only wish more in Congress got this.
You bring up a good point. Just because they now are openly distorting markets to the greatest degree in the history of their institution doesn’t imply they couldn’t distort them to an even greater degree.
Where I grew up too, Fresno. Fresno real estate prices typically do not keep up with inflation. The same goes for most other farm belt cities of California. Before the early 2000s very few people in the valley would ever think of valley real estate as an investment.
“…valley real estate as an investment.”
It clearly was a mania, and the mania’s greater fools who bought investment homes in Stockton, Modesto and Merced were badly burned.
Now we have a new cohort of all-cash funded greater fools coming in to get burned in the next crash.
I remember the woman named Faith Popcorn (don’t know what her real name is) discussed the cocooning phenomena just after 9/11. A house of your own is like a castle. That is part of the rage of real estate these days.
Too many people don’t want to realize their beautiful upscale neighborhood can become a graffiti-plagued slum in a few years. The loose lending practices of banks the last dozen years greatly reduced the quality of people in SFHs. I used to be impressed with real estate when i saw financially stable neighborhoods were common in suburbs. Yeah I had the bug years ago.
Now the financially stable neighborhoods are hard to find in my price range. The shadow inventory masks the lingering problems.
Fresno? FresYES!
This couple is going to blow $100K in rent over about 5 years waiting for the craaater? To damn risky, especially at that age. Do they really think that prices are going to drop to pre-2000 prices? Do they really think that both of them will be healthy from age 50 to age 70?
They should be thinking about putting large checks toward principle. That’s the best way to pay less $$ in total interest. And if something should happen to either of them, then they’ll have a real asset.
You’re advocating that if an investment is declining in value the wise thing to do is to buy more of it.
We don’t all have the lavish lifestyle that requires $2000 a month to rent comfortable digs (assuming you mean that al rent is cash in the trash). It is entirely possible that this couple could live comfortably on what you throw away on interest, taxes and maintenance.
You’re advocating that if an investment is declining in value the wise thing to do is to buy more of it.
She’s living it too. It’s not like she’s being a hypocrite about it.
When it comes to stocks buying more during declining values is part of the selling point of dollar cost averaging. Same for precious metals. Same for my state of residence’s municipal bond fund AAZAX that I put over $1000 in monthly. Check out yahoo finance on several different mutual funds. Click the performance link and notice the number of years up and the number of years down. VFINX has been something an old timer could have been investing periodically the last 37 years. Let’s see. The Carter malaise, inflation, the Iranian hostage crisis, Lebanon bombing, contra gate, the 1987 crash, the gulf war 1, the sideways market of 1994, 9/11, the 2003 crash. The 2009 worse bottom, more wars. And it is still a great fund to dollar cost average in. Cycles always cycle.
Where are they going to stash that $100k anyhow?
A bank paying 0.2% interest with the possibility of losing some of the money to a future “tax”?
“Do they really think that prices are going to drop to pre-2000 prices? ”
You’ve convinced yourself they aren’t going to. You wagered on it. You rolled the dice and you lost.
You rolled the dice and you lost.
She hasn’t lost yet. Or are prices at pre-2000 levels?
Prices haven’t fallen in DC? Really?
According to Case Shiller, they’re up YOY.
She’s winning.
CS shows prices falling in DC.
“Winning”?
Washington DC Case Shiller Home Price Index
Dec. 31, 2012 189.60
Nov. 30, 2012 188.16
Oct. 31, 2012 187.76
Sept. 30, 2012 187.68
Aug. 31, 2012 187.64
July 31, 2012 187.62
June 30, 2012 187.31
May 31, 2012 186.87
April 30, 2012 184.19
March 31, 2012 181.72
Feb. 29, 2012 178.69
Jan. 31, 2012 179.64
Looks like they’re up to me.
Considering your long pandering and lying, of course they do.
The reality? CS-DC prices are down and ready to collapse.
https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=8&cad=rja&ved=0CG4QFjAH&url=http%3A%2F%2Fus.spindices.com%2Fidsfactsheet%2Ffile.pdf%3FindexId%3D10001898%26force_download%3Dtrue&ei=u2pOUdyTCee90AHhm4HoBQ&usg=AFQjCNHskNc-NLPkV-hw68h6rKpw3ufcSg&sig2=Hyz87dDlBiI6LoqHK73QlA&bvm=bv.44158598,d.dmQ
Enjoy
Enjoy
Your link says they’re up 5.81% YOY. Same as mine does.
Yep.
And prices are falling MoM, QoQ and down to 2004 levels……. and falling.
Enjoy your losses…. liar.
I propose we compare notes again six months after the onset of sequester furloughs. Obviously the rear-view mirror look at the data you provided doesn’t cover that…
DC housing prices appear to have reached a permanently low plateau.
“low plateau”
That right there is an Oxymoron.
“That right there is an Oxymoron.”
Not when you think about it a little. A plateau is a local feature. There are plateaus and valleys around Coastal San Diego, and the tops of these plateaus are lower than the San Diego mountains thirty miles inland — permanently low, in a manner of speaking.
I propose we compare notes again six months after the onset of sequester furloughs.
I agree. And they may well go down in that time.
I’m not making any grand predictions about DC’s or any area’s RE prices rising in the future. I’m just reporting the numbers as they are now, because I dislike disinformation.
That’s odd you claim to “dislike” information yet your misinformative posts scream mendacity.
‘the coming burst of the USA gov debt bubble’
‘Investors should not own “long term debt of any kind” while the Federal Reserve continues its bond-buying program, private equity billionaire Wilbur Ross told CNBC on Friday. “Where I’d be very wary is bonds. If the 10 year Treasury reverts back just to its average yield from 2000-2010, you know how much [the price] will go down?” Ross asked and answered, “23 percent, 23 percent. That’s a huge risk.”
‘He added: “We’ve been advising friends that it’s not worth getting a few extra basis points to take that kind of downside risk for a year or two while [Fed Chairman] Bernanke keeps this quantitative easing going.”
http://finance.yahoo.com/news/wilbur-ross-long-term-bonds-144336656.html
The same goes for any asset whose price is determined by interest rates, like houses.
I’m surprised the Fed is completely clueless about the dependence of asset prices on interest rates. How can Princeton professors be completely ignorant of modern finance?
Bernanke: There’s No Housing Bubble to Go Bust
By Nell Henderson
Washington Post Staff Writer
Thursday, October 27, 2005
Ben S. Bernanke does not think the national housing boom is a bubble that is about to burst, he indicated to Congress last week, just a few days before President Bush nominated him to become the next chairman of the Federal Reserve.
U.S. house prices have risen by nearly 25 percent over the past two years, noted Bernanke, currently chairman of the president’s Council of Economic Advisers, in testimony to Congress’s Joint Economic Committee. But these increases, he said, “largely reflect strong economic fundamentals,” such as strong growth in jobs, incomes and the number of new households.
Bernanke’s thinking on the housing market did not attract much attention before Bush tapped him for the Fed job Monday but will likely be among the key topics explored by members of the Senate Banking Committee during upcoming hearings on his nomination.
Many economists argue that house prices have risen too far too fast in many markets, forming a bubble that could rapidly collapse and trigger an economic downturn, as overinflated stock prices did at the turn of the century. Some analysts have warned that even a flattening of house prices might cause a slump — posing the first serious challenge to whoever succeeds Fed Chairman Alan Greenspan after he steps down Jan. 31.
Bernanke’s testimony suggests that he does not share such concerns, and that he believes the economy could weather a housing slowdown.
“House prices are unlikely to continue rising at current rates,” said Bernanke, who served on the Fed board from 2002 until June. However, he added, “a moderate cooling in the housing market, should one occur, would not be inconsistent with the economy continuing to grow at or near its potential next year.”
…
How can anyone who misses a call this badly maintain any credibility whatsoever?
Hats off to BB for staying the course and defying the odds!
Stock Downgrades: Oracle Has a Profit Problem
By Justin Sharon Mar 21, 2013 9:22 am
Wall Street ratings agencies set the tone for today’s stock market.
Yesterday was all about the Fed and FedEx (FDX). The central bank, issuing its latest interest rate verdict in DC, assured investors that the check remains in the mail but Mr. Smith went to Washington much less successfully, and the packaging powerhouse subsequently slumped 6.89%. Ben Bernanke is now making employment projections extending into 2015 yet since he predicted “at worst, an orderly decline in the housing market” in 2006, soothsaying may be best left to others.
…
Thursday, October 27, 2005
I may have to go back and re-read the posts from that day…
I vaguely recall that we ripped him pretty strongly for that statement.
You won’t want to miss this!
Dudley takes the mic while Bernanke talks about crisis lessons
March 22, 2013, 4:47 PM
The two top officials on the Federal Open Market Committee, Federal Reserve Chairman Ben Bernanke and New York Fed President William Dudley, highlight Monday’s economic calendar.
Dudley, a supporter of the Fed’s efforts to buy Treasurys and mortgage-backed securities, will speak to the Economic Club of New York at 12:30 p.m. Dudley hasn’t spoken much in recent months, and his last update on the economic outlook was in November. Dudley worked as an economist at Goldman Sachs before he joined the Fed in 2007 and his views on economic trends have always been influential.
Meanwhile Bernanke will appear Monday on what promises to be a seminal panel: “What should economists and policymakers learn from the financial crisis? ” held at the London School of Economics.
…
Hm, I went back and tried to find that day, but there seemed to be a large gap in the HBB historical record: the latter half of 2005 I was unable to find.
The last post on the older thehousingbubble.blogspot.com was dated “Wednesday, June 01, 2005″, and the first post I could find on the newer thehousingbubbleblog.com (?p=3) was dated “January 29, 2006″
Ben, any tips on where to find the missing gap?
‘where to find the missing gap’
You can’t because it’s under an automatic re-direct to this blog. What happened was blogspot blogs became unstable after so many posts. (Which I didn’t know or I would have done it differently). I started thehousingbubble2 using blogspot and eventually it became unstable as well. So I decided to use wordpress and lease a server. When I was ready to launch this blog, it was supposed to easily import the blogspot posts into wordpress. But when we attempted it, the blogspot text compressed. No punctuation or gaps were left, just one line of text after another. Because it was unreadable, I put the redirect on that blog and had to abandon it. It’s still there, just not viewable. I did have a backup made first, so someday I hope to dig that up and reconstruct the missing months.
Oh, that’s a bummer.
Thanks for the info, though.
That timeframe was pretty interesting stuff as the bubble was peaking here in the US.
I’d be glad to volunteer some time to trying to unblend if it you’d be interested…
This same principle can be applied to housing, especially with the 30 year ultra low interest rate (say 3%).
A reasonable person would expect interest rates to go up in the future. That will probably hurt house and stock prices.
If interest rates double, say 6%, then if the house price goes down a comparable amount - holding the house and paying it down with a sinking fund - would make sense.
The interest spread of the fund over the mortgage rate would actually be a profit.
Say a $500,000 house lost 50% of it’s price. If you have a $400,000 mortgage a 3% interest spread would take about 20 years to recover the $250,000 loss - and the interest earned would compound, less taxes, making the recovery period about 15 years.
But I am not so certain that I would want to place such a bet as current age, health, rate of inflation, income stream(s) will all change over that 15 year period.
One thing I feel sure of, the Americans will get it right way before us Canadians because of their much larger market forces. I think we will muddle along with a handful of gamblers inordinately affecting our prices. Good or bad.
I can’t wait for the opportunity cost of capital (deflationary) board folks to make my thoughts look foolish.
Inflate it away or default it away, in a massive explosion or slowly over time. Those are the options.
The FED seems to want to inflate and default it away slowly over time. Savers slowly lose, and borrowers slowly gain, due to low inflation. Banks foreclose and write off gradually as they have other income to offset the loss. We endure stagnation, but not collapse.
That doesn’t mean they can pull it off. But the debate between a big increase in inflation, to late 1970s levels or more, and a return of deflation, as in the 1930s, continues.
“I paid more for the home than it’s definitely worth,” Branch said. “Does it violate the Truth in Lending Act? I don’t know.”
BAHAHAHAHAHAHAHAHAHA!
Branch, 56, is a New York City sanitation worker who is supporting a wife and two young children. He had a home built here after a fruitless search to buy an affordable home in New York.
Very confusing.
Is he still working in NYC and is going to make the 1.5-2 hour ONE WAY commute every day?
Or is he a retired public union goon on spiked pension?
In either case.
BAHAHAHAHAHAHAHAHA!
hmmm…perhaps a later day Ed Norton??
Yes, there are people who do that commute. People who don’t factor in the value of their time, and the cost of gasoline and replacing their motor vehicles more frequently, just the size of their house.
Then again the person in question is 56. NYC sanitation workers can retire at 55 after 25 years of work. So he may no longer be making the commute.
A woman I work with recently purchased a house. Listening to her talk about it, I could have been transported back to 2005 or so - multiple offers, low inventory, it’s already gone up 10,000 in one week. (She lives in Issaquah, by the way.) She noted that the reason that inventory was so low was that many homeowners, ahem, were underwater and could not afford to sell. I asked her if that sounded like a stable market, and she just shrugged. This is a woman who had to sell a home in North Carolina at a loss a few years back, having purchased that one in 2006 or so. I’m done arguing with these people.
The same people responsible for running prices up in the first place, are the ones purchasing houses again. You couldn’t beat any sense into these people’s heads with a hammer.
This is junkie behavior. Regardless of how self destructive the outcome is, they’ll continue to make poor decisions.
She’s buying low. Sounds pretty smart to me.
Buying low doesn’t mean paying 2004 peak bubble prices.
600K for a standard house doesn’t seem low to me, but time will tell.
How many of the all-cash real estate foreign investor purchases we so often read about in the MSM amount to nothing more than criminals laundering money into the U.S. housing market?
SUSPICIOUS HOME PURCHASE WENT UNNOTICED SUSPICIOUS REAL ESTATE SALES TOUGH TO TRACK
Jailed Mexican labor leader linked to properties in San Diego County Mexican labor leader charged with embezzlement linked to properties in S.D. County
By Sandra Dibble & Lily Leung • U-T
12:01 a.m. March 24, 2013
Updated 8:40 p.m.March 23, 2013
Elba Esther Gordillo’s upscale Coronado getaway was hardly a secret. The location of the Mexican labor leader’s Southern California residence for years was known to friends and foes alike.
But now the six-bedroom house in Coronado Cays sits unoccupied, key evidence in a Mexican government investigation centered on the 68-year-old Gordillo, longtime head of the 1.4 million-member National Union of Education Workers. Since Gordillo’s Feb. 26 arrest by Mexican federal agents, she has remained behind bars in Mexico City, charged with embezzling close to $160 million in union funds to underwrite a lavish lifestyle.
Nearly a month after her detention, questions linger on both sides of the border: How could Gordillo and a small circle of alleged collaborators have gotten away with it for so long? With an annual reported income in recent years of less than $23,000, how did Gordillo and her multimillion-dollar expenditures manage for years to evade government scrutiny in Mexico? And how would she have been able to transfer funds to pay cash for costly homes in San Diego without calling the attention of U.S. banks and government agencies?
Mexican authorities are connecting Gordillo to two properties on Coronado Cays, both paid for with cash. A search of San Diego County property records by U-T San Diego found documents that link two Chula Vista houses to Gordillo’s grandsons, both involved in politics in Mexico, one of them currently serving as a federal legislator. Documents connect one of the addresses directly to Gordillo’s Coronado residence.
In announcing Gordillo’s arrest late last month, Mexico’s attorney general said that investigators from Mexico’s Financial Intelligence Unit found union funds were used to pay for $3 million of Neiman Marcus charges on Gordillo’s account and more than $17,000 for bills to plastic surgery clinics and hospitals in California. Another $2 million was deposited to an account in the name of Comercializadora TTS de Mexico, a Mexican company listed on county property records as the owner of Gordillo’s residence and another property across the street.
“It’s a huge win for people who are following the money trail,” said Celina Realuyo, an assistant professor of national security affairs at the National Defense University in Washington, D.C. “It is going to be really interesting to see who else is implicated.”
…
What happens to debt if the debtor dies underwater — i.e., the liquidation value of his estate is less than amounts owed? Do his lenders eat it (other than the principle on federally-guaranteed mortgages)?
ENCORE
March 24, 2013
Retirement Is No Holiday From Debt
By TOM LAURICELLA
Gone are the days when most Americans went into retirement with little credit-card debt and without a mortgage. Now, for a growing number of seniors, high levels of debt are threatening their retirement dreams.
At any age, debt troubles are a major challenge and can take a heavy emotional toll. But for retirees with limited ability to boost their income and greater likelihood of big medical bills, it’s even more of an uphill battle.
The good news is that debt problems aren’t a dead-end street. There are many free or low-cost resources designed to help ease the financial burden seniors face.
The statistics on debt among older Americans reflect a stark change in their finances. “More people are going into retirement with debt,” says Craig Copeland, a senior research associate at the Employment Benefit Research Institute.
EBRI has been tracking debt levels going back to 1992. In the group’s most recent report, released last month, which captures trends through 2010, the percentage of American families with a head of household aged 75 or older carrying debt rose to 38.5%, up from 31.2% in 2001.
Back in 1992, one quarter of Americans families ages 65 to 74 had debt tied to their home. In 2010, that stood at 41%, including homeowners who are tapping the equity in their homes via reverse mortgages. Meanwhile, for those 75 and older, the percentage with a mortgage or other housing loan was 24%, up from 7% in 1992.
Worse, those carrying high levels of debt compared with their income have also become more numerous. In 1992, 4% of families ages 65 to 74 had debt payments greater than 40% of their income. In 2010, that figure hit 8.3%.
…
What happens to debt if the debtor dies underwater — i.e., the liquidation value of his estate is less than amounts owed? Do his lenders eat it (other than the principle on federally-guaranteed mortgages)?
Correct: the lenders eat it, if the estate has less value than the claims against the estate.
At least in this country, your heirs do not inherit your debt; I believe some countries may differ on this point though.
http://www.amyharrisonline.com/wp-content/uploads/2013/03/Money-Magazine.png
Cover from this month’s issue. I laughed, because I had let the subscription lapse, and renewed it a few months later. Should have saved the eleven fiddy.
I was in a home in Naples Florida where homeowner paid $950,000 in 2005 new construction on a golf course. The house was listed for $428,000 with no takers. This section has not recovered from the bust yet, as many of the lots are individually owned, top dollar paid during the boom. I told him that demographics indicate that Baby Boomers retiring will reach its height in 7 years, so expect to get his price and more about that time. He looked at me, told me he was 83 years old and does not have 7 years. It tore my heart out. However, in most other parts of Naples, new home construction has taken off. Previously busted sections are starting back up. And new developments look as popular as Levittown during 1950’s construction. One new development in North Naples, Riverstone, an 850 home development, 300k to 600k to start, has sold over 120 homes in 6 months. A new boom has started in Naples with the bottom around 2011. Cars everywhere from Canada, New York and New Jersey in these new developments. So, it seems we have a new round of housing Casino gambling just starting. I am waiting however for the Canadian housing bubble to burst, as they are late to that party. Anyone I talk to from Canada about a housing bust is like talking to someone from Vegas or Naples 2005. Forgetaboutit