The Year The Dead Cat Stopped Bouncing
Readers suggested the housing market turn as the weekend topic. “2014: the year the dead cat stopped bouncing and sank into the quicksand (single family home bubble burst). I can smell a 20% (at least) haircut from this side of 2014.”
A reply, “I love your bullish optimism! And I also share it. The picture is altogether too perfect, with Wall Street partying harder by the day on the Yellen appointment prospect. The bull is clearly going to drink itself to death before the Fed takes away the punch bowl.”
There’s gonna be some unhappy campers pretty soon:
‘The median price for a detached single family residence in Flagstaff slipped in October from $305,000 in 2012 to $290,000 for the same month in 2013. Stephen Brighton, Realtor with Century 21 Flagstaff Realty, said this is the first time in 11 months there has been a negative year-over-year comparison.’
‘above $400,000, there were just 13 sales out of 210 active listings, a clear indication of oversupply.’
http://azdailysun.com/news/local/october-home-prices-slide-in-flagstaff/article_1cc54bfa-4db9-11e3-a336-0019bb2963f4.html
Amazingly, with all the signals from the Fed that they didn’t really mean to suggest they would taper any time soon, housing prices appear to have peaked and resumed their declines in many markets. Will the Fed create new housing price stabilization measures to forestall the continuation of the Housing Bubble price correction which they proved either unwilling or unable to stop prevent in 2007-2009? And how much more QE3 stimulus dollars will all-cash foreign real estate equity locusts suck out of America’s downtrodden neighborhoods before this ends?
Did the slight rate increase cause cash investors to pull back, or did they decide prices were too high? Why the surge in inventory when we’re told foreclosures are down?
I thought the first article in yesterdays desk clearing post was illuminating. Here was a person who bought near the peak, saw it drop in half, was now break even, and betting on another $100k up. This person acknowledged it was a bubble then and now.
The public is watching all this with the events of a few years ago fresh in their minds. Now we’ll see if greed turns to fear.
“The public is watching all this with the events of a few years ago fresh in their minds.”
Never underestimate the home buying public’s capacity for collective amnesia.
“Now we’ll see if greed turns to fear.”
It seems more a matter of when than if.
the most remarkable thing to me in all of this is the Fed’s complete disregard for it’s roll in this mess and their complete failure to recognize the massive housing bubble to begin with… for the average middle class family, debt needs to be serviced … and, therefore, managed.. I know this is not the case for the Fed and Treasury, but it is the case for middle class households.. so, someone needs to explain to me why ever increasing levels of debt, that needs to be serviced, is a good thing for the middle class consumer and economy at large that is hamstrung by flat wages .. the failure of the Fed to recognize this is absolutely befuddling to me… the only plausible explanations I see are: (1) total incompetence.. (2) plausible deniability to keep the scam going as long as possible .. or (3) magic… given I don’t believe in magic and based on past comments from Greenspan, Bernanke and now Yellen, it must be a mix of (1) and (2)..
Or maybe in some circles the eventual legal enslavement of the populace seems like a good thing?
#2. They know exactly what they’re doing……I’m not suggesting they’re not incompetent but this is by design. They’re skimming and that skim goes directly to the Treasury to fund DoD.
“They’re skimming and that skim goes directly to the Treasury to fund DoD.”
The beauty of it is that they get DoD funding without raising taxes, thereby passing the Republican litmus test for sound economic policy.
And what about the institutuonal money, the all-cash buyers?
Where’d they go? Are they all tapped out or what?
Aren’t prices high because the all-cash guys bid them up?
Once double-digit residential real estate investment gains begin to dissipate, you can bet your bottom dollar the all-cash investors will scurry off like cockroaches on your kitchen floor when you turn on the lights.
Great visual and reminds me of an apartment we rented one time.
When you came home and turned on the lights, the cockroaches would indeed scurry for cover. We always knew which ones were “our cockroaches” as they made a bee-line for a crack in the base boards. The “visiting cockroaches” from the neighboring apartments would run around in circles looking for an escape route and as a result often got stomped…..they did not belong in our apartment and were overstepping their boundaries by being there. At least that is what we used to tell ourselves.
One bad thing we found about renting in a multi-family building is no matter how clean you keep your apartment, the neighbors may be breeding a new migration of pests.
In one of my apartments in NYC I caulked every crack, every corner of the apartment. No more roaches, except the one I caught strolling in under the apt door.
Here in Vegas there are big brown waterbugs. They’re slow and stupid compared to the ones in NYC. They come at you like it’s personal.
They ran out of renters and their assets are draining their bank accounts (to pay for property taxes, maintenance, and insurance).
Not possible; the spreadsheet doesn’t lie and neither does Suzanne.
We negotiated a rent increase this year to help the ll’s pay a massive bill for tearing out leaky underground pipes for the 30-year-old sprinkler system and replacing the lawn in the backyard with wood chips. They tried to raise our rent $150/mo but we ended up meeting halfway at $75.
I doubt they could easily find reliable tenants to replace us, and there are no comparable places currently available at the same or less rent in any of the three neighborhoods where my wife is willing to live, so it was a win-win, especially given that our water bill was previously driven up by the need to maintain green grass in a place with less than ten inches of rain in a year.
Hopefully for you the rent will stay flat on the next lease renewal and beyond. I look for ways to make up for increases like that. Realize gains in the best performing asset in the portfolio, for example, and re balance into a higher yielding intermediate bond fund that earns the additional $75 per month income to cover the rent increase.
Generally speaking, as I explained to my wife, to have a strong negotiating position with your landlords, you have to be ready and willing to move in a heartbeat if they don’t back down on unreasonable rent demands.
We were in a tight spot, due to my wife’s severely limited locational preferences, related to boundary restrictions on where we live relative to her church congregation and schools she and the kids like. Kids definitely complicate the residential location choice equation.
The banks restricted the supply and lent their buddies cash to drive up the price of a fraction of the market. Now that prices are up, the banks want to sell the shadow inventory quick.
Doesn’t look like it’s going to work very well, if prices are already down.
The Fed can QE until the cows come home, but they cannot make bubble prices stick. They can push them up there briefly, but without wages supporting prices, they will crash. Their ivory tower vantage point precludes them from understanding the real world, and real people. Do you think Yellen has ever worried about paying the power bill, or making the mortgage? Or Bernanke? No, these people have lived a life of privilege, and they are incapable of identifying with the common man.
completely !!!! agree !!!!
United States of crooked -
I also completely agree with you.
Real leaders make honestly good decisions.
Has anybody here discussed who will get crushed when the FED does taper? I figure if they do decide to taper the stock market gets slammed, the bond market gets crushed by rising interest rates, the housing market (sic) dies from higher interest rates, business loans die due to lack of liquidity…Okay, what I meant to say was who survives after the FED tapers?
The game is so rigged that they’ll never be able to un-rig it.
that they’ll never be able to un-rig it ??
Thats exactly what they are concerned about…
Flagstaff is one of the places where I plan to spend time in the summers. NAU masters swimming, mountain biking and chin up bars and my laptop are all I need. Will pay rent via gold.
I think you have said this every day for like a decade. I’m going to throw up if I read it again.
Do yourself a favor. Get Josua Tree and stop being a Skroodle.
No. I actually enjoy reading everyone’s opinions, including yours. But, your message has become quite stale as it pertains to your swimming, personal wealth, and bachelorhood. If you could pull back the reigns a bit on that, and focus more on other things, I know I would enjoy your posts a lot more.
Just don’t read my posts.
I still remember my dad’s advice to never own a vacation home. It is way not worth it. First, you are stuck with the same boring vacation. Second, to make money you have to rent it out at high season, and it still won’t pay for itself. And if you cannot use it at high season, you might as well not buy it.
Renting in Flagstaff is a great idea. If I owned a place in Flagstaff, it would be my place all year, my only place. But. Like the large cities like Phoenix.
“… never own a vacation home…”
Better to buddy-up to somebody who already owns one. Same goes for a boat.
When I was a kid - a teenager - the most popular guy around was the guy who owned a car. It was a win-win; He supplied the car, we supplied the gas money. A similar arrangement could be made today regarding a vacation home (or a boat).
When I was young, I was the guy with the boat. I had all the maintenance, repair, hauling issues to deal with, and everybody else just partied and had a great time. I ended up paying for most of the gas, too. I remember dropping $100 bills in the tank like there was no tomorrow, and this was in the early 90’s when fuel was much cheaper. That said, there was a certain satisfaction I got from the boat. I enjoyed providing it for everyone’s fun. Lots of great memories camping at the beach during the summer, and ladies galore! The suckiest thing about getting older is the difficulty in finding neat gals to hang out with. Back then, it seemed it could never end.
“The suckiest thing about getting older is the difficulty of finding neat gals to hang out with. Back then, it seemed it could never end.”
I have a theory about this: If one is into a lifetime game of catch-and-release when it comes to romance then he is going to eventually end up with partners who are also into catch-and-release because all the ones who are not into catch-and-release will be selected out of the romance pool.
An exception will be those who left the romance pool and reentered via divorce and maybe widowhood, but in many cases (most cases?) these people carry into the romance pool lots of baggage (i.e. kids, debt, attitude, etc).
There seems to be a window to time - of one’s age - whereby he is old enough to make a rational decision about a lifetime mate but young enough to make this decision before the romance pool is depleted.
Kids tend to pee in the romance pool.
“…a rational decision about a lifetime mate…” The phrase “lifetime mate” is going to be looked upon with puzzled expressions in a generation or two. The youthful part of ones life can be extended for years through proper diet, exercise, mental exercise (to keep the mind sharp), rest, and regular physicals to check blood chemistry and blood pressure.
There are more and more 50-somethings in better shape than 30-somethings. It’s a good idea to want to stick around 20 or 30 years because the studies on substances like resveratrol are getting close to breakthroughs. It would be sad to see someone carelessly obese in his 40s, a smoker and heavy drinker not making it to the medical discovery that can reverse much of the damage.
“…. a lifetime game of catch-and-release when it comes to romance then he is going to eventually end up with partners who are also into catch-and-release because all the ones who are not into catch-and-release will be selected out…”
Genius!!! ….and here i was thinking along the lines of bowerbirds.
“I have a theory about this: If one is into a lifetime game of catch-and-release when it comes to romance then he is going to eventually end up with partners who are also into catch-and-release because all the ones who are not into catch-and-release will be selected out of the romance pool.”
With a divorce rate of over 50% and rising, I don’t think this holds much weight.
With a divorce rate of over 50% and rising, I don’t think this holds much weight.
You’re talking about divorce-and-release. That’s a different subject.
“I still remember my dad’s advice to never own a vacation home.”
Your father was a shrewd man.
Here’s the deal. The “vacation ‘home’” charade is the crux of the biscuit all this. They account for a full third of the 25 MILLION excess empty houses. 10 million old and greying boomer couples are getting bled dry by these millstones as they sit and depreciate, day after day, year after year. Not to mention their normal residence and all these combined 60 MILLION units is in fact the tsunami of housing inventory coming down the tracks like a freight train going off the rails.
This is the canary in the coalmine.
*Disregard the Housing Whore nattering that these will magically be absorbed. The current fraudulent valuations gaurantee it will never happen. EVER.
” these millstones as they sit and depreciate, day after day, year after year”
Trudat all day long. My ‘hood is ground zero for abandoned vacation homes. In the 90’s it was gays moving into dangerous downtown areas. In Florida, these days, it’s young families moving in to some dead guy’s vacation home.
Ahhhh…..but you are leaving out the “value” of telling your friends that you are planning to go up to/just came back from your vacation home in Idaho at every cocktail party!!! It’s a status symbol, if your into that.
We often rent someone elses status symbol at a fraction of the cost of owning and it is not in the same place year after year.
Finally the maths catches up! There is always this lag that takes a while to show up in YOY numbers. If prices rise from November to June, then drop from June to the next November, what time does the train get to Chicago?
By the time the casual follower of RE notices, it’s too late.
I’ve noted this a few times recently, but in case you missed my earlier posts, the last time short-term rates stayed this close to zero in the U.S. lasted for about fifteen years (1933-1948). So unless this time is different, we have another decade of ZIRP ahead.
The Fed
Janet Yellen’s Testimony Didn’t Intend to Reveal This Profit Opportunity
By Charles Rice, Associate Editor - November 16, 2013
Janet Yellen’s debut performance yesterday before the Senate Committee on Banking, Housing, and Urban Development may have inadvertently pointed investors toward the best profit opportunities in the continuing financial asset bubble.
The key is a single phrase, one with two meanings that signals where the real money will be made before the bubble goes “pop.”
And we know from Yellen’s testimony the bubble will keep growing…
Asked repeatedly when she saw quantitative easing (QE) - the monthly purchase of $85 billion in government treasuries and mortgage-backed securities - ending, Yellen stuck to the approved script. As outgoing Chairman Bernanke said many times before her, Yellen said that the Fed will consider winding down the buys “when [it] sees growth that’s strong enough for progress to continue.” Although the Fed “sees strength in the private sector,” the overall recovery is too “fragile” to consider taking away the stimulus.
“The bottom line is that Janet Yellen is even more dovish than Ben Bernanke,” says Keith Fitz-Gerald, Money Morning’s chief investment strategist. “We’re looking at zero level interest rates to continue well into 2014, possibly even into 2016.”
“In fact,” he says, “given what we now know about [Yellen], I can even envision her increasing stimulus from $85 billion a month to $90 billion or even $100 billion a year or two from now if the economy has a major misfire. Given the lack of recovery, it’s not beyond the realm of possibility anymore.”
This means that stock markets are likely to continue rising, even as revenue and earnings slow, Fitz-Gerald says.
And Yellen’s testimony pointed investors toward the best profit opportunities in the continuing bubble.
…
and in 1837 or 38 the fed balance sheet got to this % of gdp
Did you mean 1937 or 38? (Fed was created in 1913.)
The demographic trends in favor of renting and not owning are getting stronger by the year. More people out of college focusing on paying student loans and not able to afford to build a nest. More boomers joining the retirement ranks with empty nests and either downsizing or renting. The numbers in these two camps continue to grow.
It is a slingshot waiting to let go folks. 2011 was a false low in Real Estate, including places like Phoenix when investors mainly bought cheap SFHs to rent.
Here in my OC apartment my dishwasher motor got stuck. This morning after my workout I came back, called the management, and within ten minutes the maintenance guy showed up. Renting is carefree. I dont have to say, but I want to say this repair is priced in with my rent and I dont have to worry about $75 per hour handyman calls.
It sux owning, don’t it?
Stocks do far better than real estate. The last 56 months were a great opportunity to get ahead by being mostly in stocks. Great idea to rebalance into cash to finance another year or two worth of rent. Carefree living is stress free!
My first cousin, a finance professor, claims that among the folks in his circle, some of those who came out the wealthiest towards the end of their earning years were those who avoided home ownership entirely in favor of a diversified investing strategy.
Makes sense to me. For some reason the last decade, despite the partial bubble burst with hundreds of thousands of people still underwater, the meme is that home ownership is the easy way to retirement! Before the year 2000 most people scoffed at such nonsense.
Thanks Robert Kiyosaki.
I betcha those folks in his circle, retiring without home ownership could tell you all the times others looked down on them for not being a slave to maintenance and not wanting to “be part of the community.” I think that bugs a lot of homeowners about renters, particularly when they found a renter who is financially free.
…until the stock market drops 40% in a matter of weeks.
You’re just whistling past a different graveyard.
It sux owning, don’t it ??
No it doesn’t…
Donkey…
“Owning” is a loss…. every. single. time.
And the shadow inventory looms… LOOMS LARGE.
No worries for Megabank, Inc, so long as they are able to hide elephants under the living room rug forever.
What if the rug starts rotting, too?
I think we’re well into that stage. We keep finding new rugs to throw over the whole mess including the old rug.
With a turd inbetween resulting in a sh*t sandwich.
Well…yeah. It’s not like we ever cleaned the old rug. And there seem to be a lot of pigs in this house…
The rug starts to smell pretty rotten once the elephant poop piles up. Once their dead carcasses start to rot, you’d best attach a clothes pin to your proboscis.
Where are all the chinese cash buyers? Not bidding!
‘A multiyear run-up in the value of farmland in the U.S. Midwest may be running out of steam.’
http://online.wsj.com/news/articles/SB10001424052702303559504579200132088867724?mod=WSJ_hp_LEFTWhatsNewsCollection
Yeah…I have been reading about that also Ben…Talk about a bubble…
U.S. corn prices have fallen nearly 40% this year ??
Just wait until Farm subsidies go bye-bye through TAX reform which will happen at some point…IMO, they are going to chuck the whole thing…Picking winners & losers is not going to work…Start over with simplification, some progressiveness and broadening the base will be the game…
Not a bubble…or so Janet sez…
“…someone needs to explain to me why ever increasing levels of debt, that needs to be serviced, is a good thing for the middle class consumer and economy at large that is hamstrung by flat wages…”
I think it’s this…..access to cheap, easy credit masks the reality that flat wages do not keep up with rising costs, and haven’t for some time now. Folks feel better because they still can “afford” a 3-bedroom house, stainless steel appliances, flat screen TV, etc. Debt = Wealth.
that flat wages do not keep up with rising costs ??
= Stagflation
“Debt = Wealth”
For some of us this happens to be a very accurate statement.
My thanks goes to the nation’s educational system for making my life such a joy to live. IOW, thanks for dumbin’ ‘em down.
Mr. Banker Sir….
How many bootlickers have you made here on the HBB?
Not enough as of yet. But I am patient.
Time favors us bankers, you see. Not so for the debtors.
The October DataQuick numbers for San Diego appeared in yesterday’s dead-tree edition of UT-San Diego. Apparently San Diego County homes are approximately 20% more valuable this year than they were in October 2012…go figure!
There’s no bubble here, folks. Take my word for it.
Nov. 17, 2013, 8:01 a.m. EST
Tech exuberance feeds stock-market bubble talk
Week ahead: 500.com IPO, Microsoft and Cisco shareholder meetings, Salesforce
By Ben Eisen, MarketWatch
NEW YORK (MarketWatch) —Exuberance in the tech sector is easy to come by these days. The question for investors is whether it’s irrational —and another reason to get out of record-high stocks.
Alongside multiple all-time highs for the S&P 500 (SPX +0.42%) and Dow Jones Industrial Average (DJIA +0.54%), the dollars attached to Internet startups Zulily Inc. (ZU +88.50%) and Snapchat fed talk of “froth”, “bubbles” and a redux of the stock-market battering that followed stock peaks in the mid-2000s and late 1990s.
…
What would a investor have, a house in a excellent location that you could steal because the owner is underwater or $300 dollar a share tech stocks?
Answer this correctly and I will send you your GED.
If it’s in excess of $40/sq ft, you’re getting ripped off.