August 23, 2013

Higher Prices Are Bad News All The Way Around

It’s Friday desk clearing time for this blogger. “A five-bedroom house in Las Vegas sold in mid-July for $499,000, double the price it went for three months ago. In Phoenix, a similar house sold this month for $600,000, gaining $273,000 since March. Both properties were bought and resold by investors. In Las Vegas, more than half of properties with mortgages are underwater, according to Zillow, a real estate data firm. In Phoenix, the share is a third. Someone who got a $350,000 mortgage in Phoenix or Las Vegas in 2006 probably is now more than $150,000 underwater, despite the surge in prices.”

“Those stuck owners give builders the opportunity to gear up to meet demand — at a cost. The average price of an acre of land is $400,000 this month, says Dennis Smith, CEO of Home Builders Research in Las Vegas. The same parcel would have gone for $200,000 in December, he said. ‘They’re clearly in bubbles,’ said Karl Case, one of the creators of the S&P/Case-Shiller property-value index. ‘What can go up can go down — real quick.’”

“‘We’ve got declining home sales right now, which is a consequence of declining inventory,’ said Brett Ellis, head of The Ellis Team with Re/Max Realty Group in Fort Myers. One problem is that there aren’t enough homes available to fuel a faster sales pace, he said. ‘We’ve got many people who can afford to make home payments but they’re underwater on their houses. They can’t sell — they’re locked in.’”

“Major numbers of new homes aren’t under construction yet because the cost of building one is still much higher than buying an existing house, said Jeff Tumbarello, director of the Southwest Florida Real Estate Investors Association. Prices will have to rise even higher to stimulate more availability of existing homes, Tumbarello said. ‘The problem with inventory is that it’s more and more traditional sellers (as opposed to foreclosures or short sales). They’re not giving their houses away.’”

“Protesters took to a downtown Bank of America branch and Fannie Mae’s corporate offices in Chicago. Steve Babson, a volunteer organizer with the Detroit Eviction Defense, who traveled to Chicago, said that Detroit has seen at least 70,000 foreclosures since 2009, and more than half of those homes, roughly 45,000, are still vacant. According to the Woodstock Institute, as of 2012, nearly one in 10 residential buildings in Cook County were vacant, and roughly 75 percent of mortgages in the county were owned by Fannie Mae, Freddie Mac, and Federal Home Loan Banks.”

“Maria Calvillo said she was was evicted in June. The 55 year-old daycare owner said she was paying $1,855 for her mortgage payment before she sought a loan modification with Indymac Mortgage Services three years ago. Calvillo alleges the lawyers she hired to help her navigate the loan modification process took $2,000 from her, told her to stop making mortgage payments and ‘then disappeared.’ Cavillo was denied a loan modification and her house was foreclosed upon in November. Fannie Mae, said the Mexico-native who is now homeless and staying with friends and relatives. ‘I don’t understand how they can do this to me.’”

“A massive jump in property prices in Dublin has prompted fears of a new housing bubble developing in the capital. A shortage of family-type homes in Dublin means that people are being priced out of the market. Property experts report that up to 100 people are showing up for each viewing. Broker Karl Deeter said the scarcity of housing was creating a new housing bubble in the greater Dublin area. He called for investor properties that were in arrears to be repossessed by banks to free up homes for families.”

“Prices were rising in Dublin, despite fewer mortgages being issued this year, Dermot O’Leary of Goodbody Stockbrokers said. This pointed to price inflation again becoming a feature of the property market. ‘The arrival of price inflation may trigger some potential buyers into action,’ he added.”

“If you’ve been eyeing the housing market in Metro Vancouver with astonishment over the last few years, that feeling could soon change. Last month, property sales in Metro Vancouver fell to a 10-year low, and parts of the Tri-Cities were in the same basement. Andrey Pavlov, a professor of finance with Simon Fraser University, noted prices in Vancouver have rocketed past those in places like New York and San Francisco, and in the case of the Tri-Cities, are comparable to suburbs of those major cities.”

“Pavlov argued home prices rose dramatically in the Lower Mainland, not out of income or general economic growth, but rather debt accumulation. ‘I think this engine of real estate price growth is now done,’ Pavlov told The NOW in an e-mail. ‘So I don’t see where the future support for real estate can come from.’”

“A major cash crunch in the economy along with a drop in property sales is proving to be a double whammy for realtors who are now defaulting on bank loans, suggesting that the situation may be getting out of control for India’s real estate sector. Real estate firms are finding it difficult to meet repayment commitments due to the visible slowdown in sales and the fact that majority of banks have virtually stopped fresh loan disbursals. Add to that the fact that RBI has ruled out further restructuring of realty loans. The number of new projects too have nearly halved due to the difficulty in getting funds.”

“Pankaj Kapoor, chief executive of Liases Foras, a real estate research agency, told Firstpost that home sales have gone down in recent months as there are barely any investors interested in entering the market right now while the current home valuations, especially in Mumbai and NCR are unaffordable for end users. ‘Some of the developers are over-leveraged due to a constraint in cash flows because of slowdown in sales and difficulty in getting loans. Add to that the fact that private equity players are all looking to exit their investments now. With no money coming in, real estate is in dire straits,’ he said.”

“Home prices rose 6 percent across the country in July. But Boston-area prices outpaced even those heady gains, posting an 8.4 percent increase in July compared to the same time last year, Zillow reports. In fact, home prices in Boston, as well as in Brookline, Cambridge and Arlington, have now shattered previous price records set during the housing bubble, Zillow finds.”

“The increases may be good news for sellers, but it’s definitely bad news for buyers struggling to get a foothold in what is already one of the country’s most expensive housing markets. With building permits in Massachusetts hovering at record lows during the first half of 2013, local towns do their best to keep out any new housing except for a few McMansions that will generate lots of taxes. Think prices can’t go any higher, that the market will naturally right itself? Well think again.”

“If anything, the even nuttier prices seen out in some of the major California metros, and in the Silicon Valley, are a preview of what the Boston area and Eastern Massachusetts can expect on our current trajectory. The average home price just hit $1 million again in the heart of the Silicon Valley market, numbers not seen since the real estate crash. That gets you a modest style ranch home.”

“Now there are one or two prolific numbskulls out there who I am sure are already hitting the comment board right now to accuse me of trying to drive up prices on behalf of all the Realtors out there. OK, so I will spell it out. The ever higher home prices we are seeing in the Boston area are bad news all the way around, threatening to drive middle class homeowners and buyers out to New Hampshire or out of New England altogether. I’m one of those homeowners and I love living here, but I don’t like the trends I am seeing.”

“It’s sensless to ask how things are going to end, because things as a general rule don’t. They rumble on, they morph, and yesterday’s drama becomes tomorrow’s eyebrow-raising justification for thinking that people used to be inexplicable idiots. Nonetheless, I read these stories of house prices rising again and I cannot help but wonder. How is it going to end?”

“Presumably it’s all about inflation. Presumably the idea is that mortgages grow and grow, pound for pound, but that’s going to be OK because each of those pounds, eventually, will be worth much less. Right? What about all the people who simply have to buy houses between then and now? Because it’s not like everybody is just going to take a breather from being alive for a couple of decades while this inflation does its magic, is it? No. Inflation goes up and up, and house prices go with it. And everything just gets worse.”

“My perspective on this is skewed, obviously, with my being metropolitan London scum etc, and thus having had the enormous privilege of spending ten times my annual salary on the sort of charmingly ramshackle pile of bricks that a Yorkshireman wouldn’t keep his pigs in. Houses in London are so expensive these days that the mind somewhat boggles at the thought that there are actually enough rich people around to buy them all. And of course there aren’t. It’s all debt. That special sort of debt that is perfectly serviceable and safe just so long as nothing whatsoever changes at all.”
Pandora’s box sets

“My experience, though, is everybody’s future. House prices are soaring everywhere, aided by the low interest rates we can’t afford to change and the government’s bizarre, cynical help-to-buy scheme. Home ownership, once seen as a ladder out of poverty, has become a millstone of the middle. It’s where all our money goes, meaning that it can’t go anywhere else, meaning that we grow ever richer on paper, but with nothing left to spend. I mean, look, I know I’m an idiot. But I do not understand how this is all going to be OK. Moreover, I don’t see any reason any more to assume that anybody else does either..”




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81 Comments »

Comment by Blue Skye
2013-08-23 05:21:06

“My experience, though, is everybody’s future. House prices …It’s where all our money goes… meaning that we grow ever richer on paper, but with nothing left to spend. I mean, look, I know I’m an idiot.”

You are a volunteer, and that is not everybody’s future. Wake up and get off the debt donkey treadmill.

Comment by Combotechie
2013-08-23 05:56:55

This makes sense in a sort of twisted way: Cut back consumption and save money and then invest the money that is saved.

And if they are buying houses with this saved money then they are investing the stuff. The problem, as I see it, is not with the concept, the problem is with the choice of investment.

Comment by Combotechie
2013-08-23 06:06:07

If you are going to invest money in a house during a period of economic expansion then the investment just might make sense if the purchase price is right. But if you are going to buy during an economic contraction they you just might find yourself trapped, especially if the price you paid is way too high.

Comment by Bad Andy
2013-08-23 06:35:07

The equation always been the same. If PITI plus maintenance costs are substantially below rental rates AND you’re not going to move for at least 10 years, buying is better than renting. If you’ve got the cash and it’s earning 1% in the bank, buying is usually better than renting.

Here’s the trap. Someone buys a house on credit without stability in their income or without the desire to stay put or both. That same someone sees values plummeting around them. Then there’s often a decision to be made.

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Comment by Combotechie
2013-08-23 06:46:35

Another trap: If prices are puffed up due to the availabilty of cheap and easy money then the cheap and easy money has to forever be forthcoming else the puffed up prices will go into decline.

An if you look around a bit you will discover that money is not cheap or easy in most places in our economy EXCEPT when it comes to housing. And this is because the idea has been sold to (and bought into by) the American people that it is in the National Interest that RE prices are to be supported, thus money is targeted to supporting the “values” of RE (and the values of the mortgages that back the RE, which, IMHO, is at the core of what all this is about).

 
Comment by Blue Skye
2013-08-23 07:23:30

“The equation always been the same…”

Not in a world where renting is cheaper than owning, and borrowing twice as much as that. Building enough “equity” to pay closing costs is not the same as spending less.

 
Comment by Bad Andy
2013-08-23 07:36:27

In many markets that world doesn’t exist. In S. Florida we’re starting to get back to that world.

Example Market, Redford Township, MI:
3BR single family is $60,000.
PITI with $12K down is $394 monthly.

Monthly rent on the same house is $800.

Cost to rent for 10 years: $96,000
Cost of owing: $59,280 Including the down payment.

Do you think you’ll have almost $40K in maintenance savings over this time renting? Probably not.

 
Comment by Housing Analyst
2013-08-23 07:41:30

So Michigan is just starting to get realistic yet prices are massively inflated in the other 49 states.

 
Comment by Blue Skye
2013-08-23 08:29:05

Maybe it is a good example Andy, except the only listing I see there like that is this:

http://www.realtor.com/realestateandhomes-detail/15552-Macarthur_Redford_MI_48239_M35299-53410?row=61&source=web

Short sale, and down from 120K asking in a year. It is dubious the house will sell for $60K.

You forgot to factor in the 10% transaction cost to “own” off the top.

Is this part of the country full of what you call “economic stability”?

I do wonder how you came up with the rent number…. Seems a bit much for a $60K house, and is the whole basis of your conclusion.

 
Comment by tresho
2013-08-23 10:46:01

I do wonder how you came up with the rent number…. Seems a bit much for a $60K house, and is the whole basis of your conclusion.
My sister told me a very similar story & asking rent for a similar kind of house on the east side of Cleveland. She told the owner the rent he wanted was ridiculous.

 
Comment by Bad Andy
2013-08-23 11:03:36

Pull up rentals on that same system that Blue Skye found the $120K listing and homes that are 3 bedrooms in a single family cost $800+ to rent. What the owner paid is not relevant is it?

 
Comment by Bad Andy
2013-08-23 11:19:54

Also, there are 114 listings for 3 bedrooms under $60K…Try again folks…

 
Comment by Housing Analyst
2013-08-23 11:24:07

“Do you think you’ll have almost $40K in maintenance savings over this time renting? Probably not.

Care to wager on that? Probably not.

 
Comment by Blue Skye
2013-08-23 11:31:06

What the owner paid is relevant in that it suggests that expectations of rising or stable house prices can be crushed.

$800 seems to me a ridiculous rent for that house in that town. My reaction to being asked to pay too much rent would not be to pay too much to buy the place with 30 years of debt. Everyone has their own perspective.

 
Comment by Bad Andy
2013-08-23 11:55:09

So, you would live in a cardboard box? I assume you took my advice…

 
Comment by Housing Analyst
2013-08-23 12:12:02

That didn’t take long. Fraud.

 
Comment by Blue Skye
2013-08-23 12:50:00

Gee Andy, should I buy a cardboard box or just rent one for twice as much? Right now I’m living under the bridge. Having nothing to spend my money on but a younger woman and an older scotch is really getting to me.

 
Comment by tresho
2013-08-23 13:01:48

Try betting on the fastest horses

 
Comment by Bad Andy
2013-08-23 13:19:37

Well clearly Blue if you can’t afford a reasonable down payment on your cardboard box, you’ll have to just rent one…that is unless you take out an FHA, HomePath, or HomeSteps loan with just 3.5% down and no appraisals.

 
Comment by Blue Skye
2013-08-23 18:57:20

There is the thing Andy, I am just not sure what is the most prudent approach financially for the long term. Your imaginary box example in boomtown Wisconsin didn’t help me figure this out. I get it that everybody wants to live by Detroit, but that is not on my menu.

 
Comment by localandlord
2013-08-24 03:45:00

Those numbers are about what you’d expect in Locaville. The 60K house would be an estate sale or possibly foreclosure. It would need 2-10K worth of work and 2-6 weeks of the buyers time for fix-up. A dump with major fix-up costs would be cheaper.

Mid-size city in the mid south. Functioning but not booming economy. Good quality of life.

I’m not sure it is relevant that Blue Skye wouldn’t pay $800 rent. I don’t think the typical family would want to live on a boat.

 
 
 
Comment by "Uncle Fed, why won't you love ME?"
2013-08-23 12:38:01

We need our government to tell us which investments to choose. Nanny knows best.

 
 
Comment by Housing Analyst
 
 
Comment by 2banana
2013-08-23 05:21:31

Even in Mexico they know…

Stop paying your mortgage (or other debts) and someone is going to come and take back their property.

“Maria Calvillo said she was was evicted in June. The 55 year-old daycare owner said she was paying $1,855 for her mortgage payment before she sought a loan modification with Indymac Mortgage Services three years ago. Calvillo alleges the lawyers she hired to help her navigate the loan modification process took $2,000 from her, told her to stop making mortgage payments and ‘then disappeared.’ Cavillo was denied a loan modification and her house was foreclosed upon in November. Fannie Mae, said the Mexico-native who is now homeless and staying with friends and relatives. ‘I don’t understand how they can do this to me.’”

Comment by Bad Andy
2013-08-23 06:30:03

“I don’t understand how they can do this to me.”

Actually it seems like in Mexico THEY DON’T KNOW. When the bank came looking for my house you didn’t see me putting up much of a fight. The “modification” process was a joke.

 
 
Comment by Strawberrypicker
2013-08-23 06:46:21

FRAUD FRAUD FRAUD FRAUD FRAUD. No one is saying anything about this, but it is certainly rampant now. You can’t reinflate without it. Appraisal fraud. Loan fraud. Flip sales to fake straw buyers jacking the prices up. Fraud being used to procure the cash for all these cash buyers. Probably much much worse in the banks at the top of the pyramid.

It is all happening but as long as its helping prices to rise who cares!

Comment by Bad Andy
2013-08-23 06:59:58

When 50% of transactions are cash it’s no longer fraud. Cash doesn’t demand an appraisal. When those deals close they become comps. Comps become market value.

Comment by Housing Analyst
2013-08-23 07:01:08

It’s a bifurcated market my friend. There’s cash and then there is dumb.borrowed.money.

Comment by Bad Andy
2013-08-23 07:07:56

The cash buyers in my market are overpaying just like the borrowers. As the cash buyers push up the comps, the people taking a mortgage can get their new inflated offer to appraise.

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Comment by Beer and Cigar Guy
2013-08-23 16:49:42

Then the cash buyers in you market are just as stupid as all the others and they will be just as equally hosed. Next question?

 
 
 
Comment by Strawberrypicker
2013-08-23 07:07:47

Looking back you will see that much of that cash was procured by fraud.

Comment by Young Deezy
2013-08-23 08:24:49

…or other illicit means, real estate being a means to launder it.

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Comment by Puggs
2013-08-23 08:32:45

All that cash is really Wall Street margin loans.

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Comment by In Colorado
2013-08-23 10:48:12

Hmmm … I smell bailouts baking in the oven. Get ‘em while they’re hot.

 
 
 
 
Comment by snake charmer
2013-08-23 07:31:44

That is accurate. As long as housing prices rise, that is perceived as a benefit that outweights the harm caused by whatever irresponsible or criminal acts precipitated it. Look at my paper wealth!

What we’re seeing is an unprecedented failure of democratic governments around the world. It seems like no matter who is elected or given power, economic policies aren’t changing.

We are going to have problems a lot bigger than the loss of home equity.

Comment by Ben Jones
2013-08-23 07:56:51

‘As long as housing prices rise, that is perceived as a benefit that outweights the harm’

Check out the good versus evil mind games here:

‘Americans cut back sharply in July on their purchases of new homes, a sign that higher mortgage rates may weigh on the housing recovery. ‘The spike in mortgage rates is slowing the pace of improvement,’ Dan Greenhaus, chief global strategist for BTIG, an institutional brokerage, said in an email. ‘Given the speed at which housing was improving, and the growing talk of a renewed bubble, some moderation, assuming it doesn’t materially worsen, is not a terrible outcome.’

http://finance.yahoo.com/news/us-home-sales-plunge-mortgage-140858412.html

I’m confused Dan. Slowing the pace of improvement is not a terrible outcome?

 
 
Comment by United States of Moral Hazard
2013-08-23 11:05:27

“Flip sales to fake straw buyers jacking the prices up.”

That’s exactly what this looks like. There is no way a house appreciates nearly $300k in a few months, in Vegas of all places. This is as bad as 2005.

Comment by In Colorado
2013-08-23 14:45:16

Correct. If there was that kind of appreciation, no one in Vegas would be underwater.

 
 
Comment by Whac-A-Bubble™
2013-08-23 18:05:28

“…banks at the top…”

TBTP (Too big to prosecute)

 
 
Comment by Housing Analyst
2013-08-23 06:55:01

^
TRUTH

Now do you really want to be on the short end of this fraud? You volunteer to be the patsy when you buy a house in the current environment.

 
Comment by Strawberrypicker
2013-08-23 07:11:20

And while 1/2 may be cash buys, the other half isn’t and that is all backwards looking. Where there are examples like above of a price doubling from three months ago, there is definitely fraud involved. While the person who bought low and sold high may have been a cash buyer, my bet is the next sucker was not all cash.

Going forward the market depends on greater fools and they aren’t cash buyers.

Comment by Housing Analyst
2013-08-23 07:17:33

If NAR is involved, there is fraud.

 
 
Comment by snake charmer
2013-08-23 07:36:10

Ben, I want another poetry slam!

“Nonetheless, I read these stories of house prices rising again and I cannot help but wonder. How is it going to end?”
___________________________/

This is the way the world ends/
Not with a bang but a whimper.

–T.S. Eliot, “The Hollow Men”

Comment by "Uncle Fed, why won't you love ME?"
2013-08-23 12:31:02

Today I went to the internet,
Looking for inventory.
I found a realtoR who up and bet,
That there would be no RE.

To his surpise,I found a link;
But not to his liking at all.
I showed it to Whack and I showed it to Bink;
But the realtoR took the fall.

The chart, it seems, to Whack and Bink;
Was satisfactory;
But realtoR could not begin to think;
Of the upward trajectory.

The realtoR cried and the realtoR whined;
Up to the end of the thread.
For realtoRs know that all is enshrined;
On the buttered side of the bread.

The buttered side, it flips and flops;
And turns its cold gaze on thee.
Oh realtoR, when will you get popped;
With tomorrow’s reality?

Comment by Big B
2013-08-23 16:10:25

Great poem. Love it!

Comment by Big V
2013-08-23 16:12:52

Ewps.

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Comment by Whac-A-Bubble™
2013-08-23 18:07:10

This is how the bubble ends/
Not with a leak but a collapse.

 
Comment by AmazingRuss
2013-08-23 19:17:46

There once was a man from Las Vegas
Who promised his future wages
for a big stucco house
from a realtor louse
and now he’ll be stuck there for ages

Comment by Carl Morris
2013-08-23 19:21:53

Very good.

 
 
 
Comment by Sean
2013-08-23 08:11:56

“I’m not gonna give it away!”

Every time I hear a boomer use this phrase I feel like smashing them with a Louisville Slugger.

We went to a garage sale a few years ago, with boomers selling their junk and selling their house, which was also junk. Gutter falling down, roof installed during the Watergate scandal, overall just a sad place. When I asked what the house was going for she told me the price and said “We firm on it, we’re not gonna GIVE it away!”

Then enter some new Gen X family happy to overpay for a sad house.

Comment by Bad Andy
2013-08-23 08:13:22

I’ve got this f-ing thing and it’s f-ing golden and I’m not going to just give it away.

 
Comment by United States of Moral Hazard
2013-08-23 11:19:21

“I’m not gonna give it away!”

I had an old-timer use this phrase on me when I was negotiating for his RV. I responded with a fake laugh and said “Oh, of course not, I wasn’t asking for it for free, I was offering you $xxxxx for it!” (reiterating the price he was balking at which was quite fair). He seemed like an angry person but it’s no wonder since he owed tens of thousands to the tax man. I ended up walking away and buying another one from somebody else who was much more appreciative of my cash. I checked Craigslist 4 months later, and the guy had cut the price all the way down to what I had offered in the first place, but he missed the selling season and will have to wait until next year, or cut it even more. He will never get what I offered since time has a way with the value of RV’s. He lost.

 
Comment by "Uncle Fed, why won't you love ME?"
2013-08-23 12:21:34

Now now, you could at least have mercy and use a Nerf bat.

 
 
Comment by (Neo-) Jetfixr
2013-08-23 08:48:40

Meanwhile, on the Main Street front, anecdotal evidence suggests that the societal wheels continue to fall off,and S will be HTF sooner rather than later……

-One daughter was confronted at work by a member of the “Greatest Generation” who threatened to “beat the $hit out of her” if she didn’t bathe and groom his dog.

(Dog is diabetic, gets shots every day……PetSmart’s policy is not to groom animals within 24-48 hours of getting shots. Guy scheduled an appointment, didn’t bother mentioning this until he tried to drop the dog.

As she quickly discovered, a significant percentage of the population, of all political and ethnic varieties, are just bald-faced liars……..look no further, if you want to know why we have “over-regulation”)

-Daughter #1’s In-Law bought house a couple of years ago, with her “go away and leave us alone” settlement to her disability suit. Probably the first time they had over $10K in cash in their lives. Money is now pizzed away, MIL is essentially unemployable, house foreclosure finalized, and they have to be out in a couple of weeks.

-As daughter #1 suspected, MILs fallback plan was to move her and her worthless brood in with them. Daughter is pizzed. So is SIL, but he will cave, because they don’t have anywhere else to go, other than the homeless shelter.

(The -fixr’s recommendation……have SIL subsidize MIL’s rent at in an apartment, because subsidized rent is a lot cheaper than divorce lawyers).

-This morning, someone shot up a car in the heart of high end suburbia, while sitting in a three mile long line during rush hour, waiting for an accident to clear. Nobody appears to be wounded, so it’s all okay.

-A locally owned men’s clothing store just announced their “going out of business sale”.

-Another local 8-15 year old girl was (allegedly)kidnapped and murdered, by a “family friend”.

(The -fixr’s view is that this is going to become commonplace, as formerly middle class people are economically forced into the “scumbag circle”……..their former lifestyle did not give them the tools to identify and steer clear of the multitude of scumbags we seem to be generating.)

Comment by Carl Morris
2013-08-23 09:58:36

That’s true…the bubble allowed a lot of scumbags to stay on the right side of the law with all those sweet real estate and mortgage and construction jobs.

 
Comment by In Colorado
2013-08-23 10:45:04

One daughter was confronted at work by a member of the “Greatest Generation” who threatened to “beat the $hit out of her” if she didn’t bathe and groom his dog.

What was the outcome? Did he back off? Did the store manager call the cops? Did your daughter kick his geriatric azz? Just curious.

Comment by AmazingRuss
2013-08-23 19:20:56

She should have pushed him over and broke his hip.

 
 
Comment by snake charmer
2013-08-23 11:34:27

Most real-world indicators that I see suggest that no recovery is underway. For example, my dentist’s office is so desperate for routine appointments that it has taken to cold-calling me.

The middle-class lifestyle here is based largely on consumption, which is a pretty poor substitute for any positive values of any kind. One theory I subscribe to is that economic crisis is followed by political crisis which is followed by social crisis.

Comment by Arizona Slim
2013-08-23 12:02:29

I haven’t been cold called by a dentist, but I was recently contacted by a company I did business with in 2011.

Had a one-year contract with them. Turned out to be too high for my budget, and halfway through, I asked them to pare back the services and thus lower the monthly fee.

Nope, can’t do that. The fee had to stay as is.

A few months later, they called with yet another upselling offer. I told ‘em to end the contract. Long time on hold. Then they said the contract was cancelled.

By not being willing to negotiate the fee, their income from me went to zero. Suspect that this scenario was playing out with a lot of their other clients.

 
 
 
Comment by (Neo-) Jetfixr
2013-08-23 09:01:45

It has occurred to me that we should be calling our economy the “Gold Rush”, or “Get while the gettin’s good” economy.

Look at the history. Since 1776, continuous mad dashes from one “gold rush” to the next, along with “gold rushes” for gold, land, oil…..then, when those were all claimed, manufactured “gold rushes” into various assets/bubbles. Then when it implodes, move on to something else.

The Bakken oil fields are a prime example. A boom, right up to the point where everything that can be exploited is claimed, then a bust. Like San Francisco in 1849, land and real estate prices exploded for places that were worth essentially nothing 10 years before. And will be worth nothing again, when all of the “gold” has a claim staked.

Comment by 2banana
2013-08-23 10:25:23

The big difference between then and now is that the small US Federal government pretty much stayed out of all of it (except for some notorious corruption cases). Bubbles came and went and the government shrugged along.

Today - the government ACTIVELY promotes the bubbles, refused to punish those involved with fraud in the bubble and then promises to bail out anyone hurt by the bubble (as long as they give money or vote for the current administration in power).

Comment by In Colorado
2013-08-23 10:40:08

It seems that their intervention has made no difference. Plus the housing bubble is a global phenomenon. It’s happening in countries that don’t have an FHA or a Freddie. It’s happening in countries without fixed rate 30 year mortgages, and many cases its much worse than here.

While I agree that the government shouldn’t be encouraging the bubble, I really do wonder how much control they have over it.

Comment by 2banana
2013-08-23 11:33:22

I really do wonder how much control they have over it.

The government could have ALOT of control:

Banks/Wall Street/Investors should have a huge fear of prosecution for fraud
There should be no easy and cheap money
There should be no bailouts if it turns out bad. You lose your money and/or your company goes out of business.

Amazingly, bubbles would shallow and short lived…

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Comment by Carl Morris
2013-08-23 13:10:50

The government could have ALOT of control:

Banks/Wall Street/Investors should have a huge fear of prosecution for fraud

That would require “the government” and “banks/wall street/investors” to be different groups of people, right?

 
Comment by In Colorado
2013-08-23 14:42:24

I still wonder how much control they really have. Like I said, in other countries there is no credit, and yet they have a bubble. Even in Canada, whose bubble makes ours look like nothing, there are no long term fixed loans. And yet their bubble keeps inflating. You would thing that having to refi every few years would be a bubble killer, yet Canada’s bubble soared to unbelievable heights.

Now central banks, which are run by banksters, they can kill bubbles by dramatically raising interest rates. Problem is, that kills the rest of the economy too.

 
Comment by Ben Jones
2013-08-23 14:56:00

‘they can kill bubbles by dramatically raising interest rates’

We’ve grown accustomed to so much experimentation by central banks we forget how far out they’ve gone. My entire life I heard, ‘the Federal Reserve doesn’t set long term interest rates.’ Now we fully accept that they control every length of debt. Monetizing government debt was always considered something only banana republics would do. Now Bernanke ponders out loud how much he will monetize.

But I wonder just how much control of long term rates they really have. Why, for instance do credit cards get away with double digit rates if the Fed is setting rates so low? Go ask a hard money lender for a 3% loan to buy a house; they’ll laugh in your face.

 
 
 
 
Comment by snake charmer
2013-08-23 11:38:54

My prediction is that western North Dakota is going to be largely deserted by 2025 if not sooner. Any natural resource boom town tends to turn into to a hugely depressed area once the resource is depleted. This is the wrong time to be moving to Minot.

Comment by Carl Morris
2013-08-23 13:12:17

My prediction is that western North Dakota is going to be largely deserted by 2025 if not sooner.

Same as it ever was…

 
Comment by Pete
2013-08-23 13:54:13

You’re right, but I think your time frame is wrong. They’ve got an untold treasure of oil and natural gas up there, as new extraction technologies have changed the game. I’d guess more like 2055, if not later.

Comment by United States of Moral Hazard
2013-08-23 15:18:42

Then you should be betting on long term high oil prices. Personally, I think we will see a massive oil price crash well before then. We already have a glut, they’re just hiding it.

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Comment by Pete
2013-08-23 15:41:54

“Then you should be betting on long term high oil prices.”

If by ‘long term’ you mean 50 years and beyond, then yes I would. Before that is anyone’s guess, but I’d say present and lower oil and gas prices with alot of fluctuation between the two.

 
 
 
 
 
Comment by Ben Jones
2013-08-23 10:59:40

Just this past week it was reported that incomes are still down and unemployment is high and getting higher. Yet the media hasn’t asked, how are house prices up in that environment? Anyhoo, here’s something I came across:

‘The Jibaozhai Museum in Hebei Province recently became a cultural laughingstock. A famous local folk museum sprawled across 4 hectares in 12 exhibition halls was exposed as having 40,000 fake exhibits. The museum was termed by media as “China’s first fake museum,” and was an affront to the task of preserving Chinese history. Some of these artifacts were crudely falsified.’

‘The Jibaozhai Museum scandal revealed cracks which have begun to appear with the current cultural “Great Leap Forward” of sorts. Many of the institutions which have been created in recent years have been based on an invented history, supported by the use of fabricated artifacts. In 2011 alone, nearly 400 museums were opened in China but some have estimated up to 80 percent of the antique pieces in these places are fake.’

http://english.caixin.com/2013-08-07/100566598.html

Comment by Blue Skye
2013-08-23 19:01:57

Most of the stuff they sell us here is essentially fake as well.

 
Comment by United States of Moral Hazard
2013-08-23 22:16:59

Fake museums, fake zoos, completely empty cities the size of San Francisco…China is one big lie.

 
 
Comment by "Uncle Fed, why won't you love ME?"
2013-08-23 12:01:51

“‘We’ve got declining home sales right now, which is a consequence of declining inventory,’ said Brett Ellis” …

But inventory is actually increasing just about everywhere. How do these realtoRs get away with telling out-and-out lies all the time?

Comment by Arizona Slim
2013-08-23 12:03:55

Here in Tucson, there are plenty of empty houses that have never been on the resale market. I suspect that they were walked away from. We also have a ton of places for rent.

There’s also a slow but steady increase in the resale inventory.

Comment by Bad Andy
2013-08-23 12:13:53

“There’s also a slow but steady increase in the resale inventory.”

Just waiting for that here…

 
 
Comment by snake charmer
2013-08-23 12:35:41

Maybe this is fiction, and instead of Brett Ellis, it’s actually Bret Easton Ellis.

 
 
Comment by Whac-A-Bubble™
2013-08-23 18:08:51

“The average price of an acre of land is $400,000 this month, says Dennis Smith, CEO of Home Builders Research in Las Vegas. The same parcel would have gone for $200,000 in December, he said. ‘They’re clearly in bubbles,’ said Karl Case, one of the creators of the S&P/Case-Shiller property-value index. ‘What can go up can go down — real quick.’”

I cannot overstate my eager anticipation of the day a few years from now when we read about how much money investors at the peak of the Echo Bubble of 2013 have lost on their foolish real estate investments at the top.

They are going to lose alot of money — ALOT!

Comment by kmo722
2013-08-24 01:11:54

its either “they” will lose a lot, or “we” will lose a lot (again)..

 
Comment by localandlord
2013-08-24 03:51:45

I can only assume that $400K average includs commercially zoned property on or near the strip. That will skew the average. I wonder what residentially zoned land on the outskirts sells for.

 
 
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