The Housing Bubble

These two statements are not as contradictory as they may appear upon first glance.

I think the key is “at current massively inflated housing prices”.

IF you buy a house for well above its true fundamental value (as based on things like price/rent) then you’re screwing yourself.

IF you buy at a good price, at or below fundamental value, then you’re much better off than if you over pay.

“…a keystone of wealth - both financial affluence and emotional security…”

I wonder whether underwater homeowners in the city of Richmond, CA would agree with that saccharine sentiment?

California Eminent Domain Isn’t Government Run Amok
By Stephen Mihm Aug 16, 2013 8:24 AM PT

To judge from the disparaging reaction to its plan to use eminent domain to cope with underwater homes, you’d think the city leaders of Richmond, California, had proposed an outrageous and unprecedented distortion of state power.

Filing suit against Richmond, BlackRock Inc., Pacific Investment Management Co. and other plaintiffs alleged that the city’s proposal amounts to an “unconstitutional application of eminent domain” and a “brazen scheme.” The Federal Housing Finance Agency announced that it was considering ceasing to do business in municipalities that pursue this course. Media coverage generally echoed the plaintiffs’ take. USA Today’s headline summed up the conventional wisdom, declaring that Richmond “runs amok with eminent domain.”

In fact, the city’s plan relies not on a novel use of eminent domain but on one endorsed by the conservative Supreme Court of 1935. And although there is a long history of excessive use of eminent domain, Richmond’s plan has no place in it. Richmond’s plan is to seize 624 mortgages valued at more than the homes for which they were written. Relying on a private intermediary, the city would compensate the investor holding a mortgage at a price reflecting the home’s current value rather than an inflated bubble value. The city would then sell a more modest loan to the homeowner. Richmond hopes this will induce residents to remain in their homes and pay their mortgages and property taxes. Proponents of the plan also point out that this probably will lower the risk of default, protecting investors holding the mortgages.

Nonetheless, the big players in the bond markets are angry that they’re being forced to accede to the demands of a small city in California. Before they fight city hall, the plaintiffs should appreciate that use of eminent domain to seize intangible assets like mortgages has a solid history. Federal courts have long sanctioned the taking of everything from shares of stock to contract rights, insurance policies and even hunting rights.
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Speaking of Suze, I was drunk-watching her show on CNBC late night on vacation in the middle of the night. She is so inconsistent at times. She hammers people over their daily coffee (OMG you can save $20/week making your coffee at home, thanks genius!) but she rubber stamped some woman’s opinion that her husband should relent and get them a 450k house because they’re doing well financially. Never mind the fact that the husband’s fiscal conservatism is the REASON they’re doing so well with retirement accounts and no debt plus their current low housing payment. It’s like “well you’re doing so well following what I usually preach, so now it’s totally OK to buy another house and add more yrs of mortgage payments at a higher amount”.

Also, the husband’s rationale for staying in the house is that he’d already bent over backwards making the current house nice and their mortgage would be paid off when their kids are ~10 yrs old, plenty of time to save for kids’ college and to help them have good enriching life experiences.

I was MAF when I saw that part bc the husband’s rationale was nearly the same as mine and my wife was watching with me. My trump card is still that my wife hates driving & our house is <10 blocks to her work and our house is basically the nicest in the surrounding area.

Owning a mortgage does not equal owning a home. You are not a homeowner until you pay it off. It grinds my gears when people say they own a home when all they have is a giant loan.

“since 1975″

The USA has been in permanent stagflation since 1975.

Some get sucked in, some don’t.

The PTB set up THEIR Game and entice people to play. Some people play, some don’t. If enough people play then their Game goes on - even expands.

In enough people decided not to play the Game then running the Game would become unprofitable and it would eventually go away and the people running the Game would have to go out and maybe get a real job. But as it is now enough people have been convinced - have been conditioned - that playing the Game is the way one should live their lives.

Sometimes - mostly - freedom means not getting sucked into playing the Game and this is done by learning to just say “no”.

Haters gonna hate.

It is a “quite happy” feeling knowing you could cover your single largest liability (a six month lease) by writing a check today.

The myth that people need the extra incentive of inflation to get them to spend money is a nice strawman justification for the inflation tax.

And a big fat bank account to show for it.

Funny. Since 1996 as a renter, I never took on a loan to put a roof over my head.

Maybe you haven’t, Mr. Government Contractor. But you aren’t a lucky ducky. Sure, for you monthly rent on an apartment is a pittance, but for about half the workforce that is not the case. Have you ever wondered why there are so many payday loan stores these days?

Read this:

‘they do not want to buy bonds at ridiculously low yields any longer, who will be left to buy all the debt that the U.S. government and corporate America need to sell at low rates’

So he says ‘ridiculously low yields’ and ‘the debt that the U.S. government and corporate America need to sell at low rates’.

What he is saying is: ‘who will be left to buy all the debt that the U.S. government and corporate America need to sell at ridiculously low yields.’

I think he answered his own question.

Here’s my question; has any one here ever seen long term US treasury rates rise this fast?

Once we decided that trade imbalances are good, we had no choice but to go to any lengths to keep debt/money increasing.

“I’ve been here since late 2005, watching everything unfold, and never did I have any idea that market manipulation would be so massive, so creative and defiant of the usual rules of sound finance. It has truly boggled my mind.”

You and me both, Palmy. I never believed that THIS much disinformation, contamination and corruption of the system would be tolerated- much less initiated- by either the markets or the government. The double-speak, obfuscation and enabling/rewarding of unethical and often criminal behavior at high levels have destroyed faith in the sustainability or even the viability of our system. Nobody really believes that it ‘works’ any longer, they just want to work their angle long enough to get their pile and bug out.
We no longer have ‘leaders’ anymore, because leadership requires honesty, courage and good judgement. Career financial and political hacks through through many successive administrations have perfected the practice of mixed messaging and oratory incoherence, to the point where they can talk for an hour and say nothing. Or their blather is so idealistic and non-specific that anyone can interpret it into any message they choose.
Working diligently, being smart and living within your means has been supplanted by the bubble ideology of over-borrowing and striking it rich in the casino, whether the casino is beanie babies, tech stocks, housing or the next holy grail. Every idiot wants their own reality show.
The disconnect is astounding. We live in and see a poorly performing economy, even as our government tells us daily that the unemployment outlook is steadily improving and everything is ‘recovering’. The government openly manipulates the stock market. The normal linkages between cause and effect, good decision making and good stock performance and bad behavior and punishment have all been broken or twisted. The relationships, trends and signals that people used to rely upon for decision making have become unreliable or incoherent and ripe for misinterpretation. This lends itself to erroneous decision making, which then sends out signals of its own- which may then also be misinterpreted and acted upon. In a largely automated, high-speed, high stakes, world-wide trading environment, this type of cascading failure loop is how everything can turn to shit in the time it takes most people to commute to work.

“> and never did I have any idea that market manipulation would be so massive, so creative and defiant of the usual rules of sound finance. It has truly boggled my mind.”

We said the same thing about the Savings & Loan disaster.

What boggles my mind it that it was repeated just 20 years later, only this time, to the tune of TRILLIONS. And the cause was just the same: FIRE deregulation.

This isn’t a recession. It’s a collapse

A hollowed out economy, one that the PTB have been fomenting and justifying for decades, will do that. It used to be that our unskilled and semiskilled made goods that had real value. Now the ones that can find a job at all work in retail, stocking shelves with imported goods that their parents and grandparents once made.

Consumption in and of itself, is not a problem.

In an era of mass production (lots of goods produced with relatively low labor input), there has to be massive consumption to maintain full employment.

The problem was that we embraced trade imbalances. International free trade combined with a WAY, WAY, WAY too flat (and in many ways an regressive) tax policy allowed a massive drain of money.

The economy could only function in the face of massive imbalances, if we made it possible for even more money to be borrowed into existence.

The trade imbalances, and the debt we used in an attempt to perpetuate them, ARE THE PROBLEM!

” It is that we have a bad economy despite a sub-zero rate monetary policy and a large federal budget deficit.”

I think it is because their strategy was to keep financial America solvent; caused by Lehman shock. Their hope was to duplicate a century old solution that sort of worked.

When they concentrated on making goods (shovel ready) for a short while the economy did start to turn. That ended and so did the recovery.

Now the economy is so distorted with artificial lubrication, each part whining that they are the most important, that finding the road to recovery will take a lot of imagination and a lot less rhetoric.

So long as the folks in charge don’t know it’s a slow-motion collapse, we should do just fine.

‘Contrary to popular belief’

So how could this happen? How did this popular belief come about? Don’t tell me that the media has mislead the audience. That would be contrary to popular belief.

Where is the ROI wasting capital on rapidly depreciating assets like houses?

The latter is already happening, though the Fed has done no more than suggest they will begin to taper at some point in the foreseeable future.

So what was your point again?

Current Yield | SATURDAY, AUGUST 17, 2013
Taper or Not, Treasury Yields Rise
By MICHAEL ANEIRO
As everyone fixates on the Fed’s seemingly imminent plans to taper its monthly bond purchases, other factors could send rates higher.

As everyone fixates on the Federal Reserve’s seemingly imminent (or not) plans to start tapering its $85 billion monthly bond purchases, other factors could start pushing Treasury rates higher too.

Without a whole lot of actual news on the tapering front last week, the 10-year Treasury yield still climbed sharply to a two-year high of 2.825% Friday, per Tradeweb data, up from 2.582% a week earlier.

Bank of America Merrill Lynch last week looked into the Treasury market’s future and warned of waning demand from three dominant investor groups in addition to the Fed: bond funds, banks, and foreign investors. BofA says the five-year through 10-year part of the Treasury yield curve stands to get hurt the most, because that’s where these investors are most active.

On the funds front, BofA called recent flows into equity funds and out of bond funds a cause for concern, and said further inflows into risky assets likely herald the start of a longer-term change in trend. And in terms of banks, BofA said both regulatory changes and a potentially improving economy might make banks less willing to lock up investments in longer dated, low-yielding fixed-income assets.

Foreign investors are the largest holders of Treasuries, accounting for nearly half the market. While China and Japan still lead that group, BofA said the combined Treasury portfolio of Brazil, India, Russia, and Switzerland has tripled since 2008. The Fed’s quantitative easing program helped spur tremendous inflows into emerging markets, but BofA rate strategists say rising U.S. interest rates “have triggered large outflows from emerging-market countries, which has in turn led to substantial currency depreciations in these countries,” which means lower reserve growth and fewer dollars to be channeled into Treasuries.
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Phil Leboue(??) is an auto propogandist. Never trust a word from him about auto industries and cars in genera…same goes for CNBC and the Yahoo News. Everything is a propoganda.

It seems like hardly anyone is “snapping up” a Tesla. Heck, I’ve seen far more Porsche Panameras (what an ugly car!) in Boulder.

Really? I see them quite a bit. I think one day a couple of months ago I saw 3 on one commute. To me that’s a lot for such a niche vehicle.

Speaking of Panameras, I drove one a week ago during a BMW promotional event where they tried to get customers to drive one of their new cars back to back with the competition. It was interesting, but not suitable for long distance driving IMO. Plenty of space and great handling, but everything was too stiff from the tires and springs to the upholstery to be comfortable for long periods of time.

Oracle or Tesla? Have a friend that interviewed at Tesla Motors and didn’t get it. He used a project that him and I built as an example during the interview tho.

I know someone that owns a Tesla S. Not around here, west coast. There are a few in this area but mostly old retirees not young people. Young people all have bicycles and older cars.

With that attitube, no one will hire you.

Wrapping yourself in Canadian flag is always an option.

They will be there long after the currents trouble are done.

True … but will we still be around to see them?

Some years ago the wife and I were at Teotihuacan, near Mexico City, to see the pyramids. We almost got mugged, even though we visited the pyramids with a group of Mexican friends, who noticed we were being followed. We found some security guards and told them. Their response was that since the stalkers hadn’t committed a crime yet there wasn’t much they could do, but they offered to
“chat” with the would be muggers while we made our getaway. We headed straight back to the parking lot and got the heck out of Dodge.

You may have passed two semesters of organic chemistry but you’ll never get into Onwentsia.

I was imagining that in the voice of the movie preview “In A World…” announcer…

It might’ve been a good deal back then, just because of timing. Random basic houses sell for a lot of money now, even just to tear down and use the lot. If you look just at the home *price* it’s a no-brainer, people have “made alot of money” (sic).

I’m thinking about all the other costs, though. If you include the interest paid (although in the 60s people probably paid cash or had a very short mortgage) that’s a big hit. Then taxes and maintenance. I just wonder. I doubt it really works out for many people who hold long term. If you just buy a house, modernize it, and then flip it very fast so you’re never paying taxes or maintenance, I could see it working but it depends on timing and on getting the realtor to drive down the price to get you a good deal. Many realtors are scum as RAL says, so they might do this for a reliable developer/renovator who will use them again on the sale. For the average person, the whole RE market there seems like a scam. I have crossed it off my list as even a possibility, even for a cheap 2 BR ranch house with no bay or beach access. Once you run the numbers, it opens your eyes.

profit = fiction - reality

That’s very nicely describes the entire history of real estate.

RE is the land equivalent of horse trading. If you don’t know what you’re dealing with, you will get screwed.

All the rig-amoral surrounding the buying a selling thereof is to disguise this fact.

“This would make it Ponzi?”

Probably just the more plain vanilla ‘pump and dump’. I’m not inclined to take short positions, but companies like this are a definite temptation.

Madoff.

Ponzi is so last century and an amateur compared to Madoff.

Send the drawings like I told you and for crissakes stop whining.

Paul Hellyer is ninety, long retired, and nuts. Leave the old fella to his delusions. He did, at one time, serve his country well.

LOLZ

What the heck is Mello-Roos?

It is a (usually) temporary exemption on California Prop 13 restrictions. It is typically associated with new neighborhoods, the rationale being that it pays for the new infrastructure required by these nabes.

I assume nobody put a gun to the head of any Poway homeowners and forced them to agree to pay Mello-Roos Taxes?

Well, if you want to buy a newer house, you might not have much choice. It does require a 2/3 voter supermajority to pass, and in some communities the “I’ve got mine” crowd tends to stick the tax only on new development.

“What the heck is Mello-Roos?”

It’s sweet karma for f’d buyers.

The free summer lunches, unlike the school year meals, are free for all children, not just the poor. I don’t get it, the school district knows who was eligible. But for some reason the USDA funds it for everyone.

Anyway, my wife used to take the kids to the lunches. They were nutritious and free, no questions asked. And yeah, she’d drive them there (they were served at a nearby middle school) in her SUV, though the only ink she had was in her ball point pen. And she wasn’t the only one there who wasn’t “poor”.

At the parochial where my kids went, they had USDA funded free lunches too. My kids briefly qualified for them when I was laid off.

Could it be that they simply ask for the right to borrow more money, and every year the taxpayers vote yes?

It does require a 2/3 majority. When I lived in SoCal, I never saw one pass, unless they were sticking it to “someone else”

“…why do they have to borrow more money every year to keep the lights on?”

That’s another rich story! PUSD’s cup runneth over with them.

I so don’t get this whole mentality. MUST SOON REREAD SHAKESPEARE’S ‘THE MERCHANT OF VENICE’!

Where Borrowing $105 Million Will Cost $1 Billion: Poway Schools
By: Will Carless
Connect | August 6, 2012
Related Links
A Creative Borrowing Boom: Poway Not Alone in High-Interest Financing

Last year the Poway Unified School District made a deal: It borrowed $105 million from investors to fund a final push in its decade-long effort to revamp aging schools.

In many ways, the deal was unspectacular. Some of the money was used to pay off previous debts from delayed and over-budget construction projects. The rest went towards finishing upgrades that Poway taxpayers had been promised as far back as 2002. To a casual observer, it was just another school bond.

But Poway Unified’s deal was far from normal.

In 2008, voters had given the district permission to borrow more money to finish its modernization, and they had received a big promise from the elected school board in return: No tax increases.

Without increasing taxes, the district couldn’t afford to borrow money in the conventional way. So, instead of borrowing from investors over 20 or 30 years and paying the debt down each year, like a mortgage, the district got creative.

With advice from an Orange County financial consultant, the district borrowed the money over 40 years in a controversial loan called a capital appreciation bond. The key point for the district: It won’t make any payments on the debt for 20 years.
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True ho-moaners do not allow their properties to fall into rental.

I will NEVER do business with a bank again as long I live if I can avoid it.

Have Chase branches popped up like mushrooms in a freshly fertilized lawn after a rainstorm in your next of the woods?

Bitcoin Virtual printing press money does not create any underlying debt, and therefore, no solid demand for it.

What’s the difference, aside from the fact that Bitcoin has no sovereign backing, and hence is at risk of getting taken down by the central banking cartel at any time?

“What provides the real demand for bitcoin?”

1. Free international money laundering

2. Look, Ma, no taxes!

3. The Winklevii have endorsed it.

Besides, I hate people with big calculators anyway. Who wants to be one of those big-foreheaded people with one of those graphing devices? You can’t even use a LOAN to buy a calculator. If you can’t use a LOAN, then what’s the point? It’s un-American and I will not stand for it in my neighborhood. I am going to bring it up with the HOA. We will add a rule to the CC&Rs about it. No boats in the driveway, and absolutely NO calculators in the vicinity.

How often does your landlord paint your house?

You either pay rent on the property, or rent on the money.

Your “landlord” is the property owner, the bank, or the opportunity cost of the money if it were working elsewhere.

Subject to achieving living conditions that you want, the goal should be to minimize the cost of shelter (both $ and time).

“say it is NEVER a good time to buy….full of dog dung.”

You have no clue that we are sidestepping the backlash of the greatest expansion of credit in human history. It is not a “good” time to buy today because we are on the cusp. Everything that can be speculated upon with credit is. The limits are tested. You harp on and on about imbalances like you actually see them, but you are a citizen to the max.

You are a debt donkey.

you forgot the $400 a mo AC bill.

Med adjustment. Just sayin.

Only if it doesn’t land you in the Laughing Academy.

I don’t jest and stop saying I am surly.

Just…break…them…up already!

Why not end the Fed while we are at it? After all, isn’t the Fed a primary supporter of this organized crime syndicate?