The Housing Bubble

“My suspicions are that some who’ve bought in the 2010 to early 2012 timeframe are slinking back to the banks looking for a little spending money.”

Many folks have gotten into credit card debt to help through the hard times. Perhaps some are helocing to pay that off, which would be a wise choice.

More likely scenario: A gradual release of air from the soufflé that plays out over decades to come like Japan’s has since 1989.

Note that since the article posted below was published on March 9, 2012, the Nikkei average has risen to a current level of 14,516.27 — much higher than 9,900, but also far lower than the 39,915.87 level reached way back in 1989.

Japan’s lost decades — and ours?
By Robert J. Samuelson,

Since the financial crisis, a shadow has hovered over the U.S. economy: Japan. Could what happened there happen to us? The issue transcends last year’s earthquake. The bursting of Japan’s real estate and stock bubble in the early 1990s has had lasting consequences: a “lost decade” (actually, two) of meager growth and weak job markets. Though hardly a depression, Japan’s prosperity has been partial and unsatisfying, enjoyed by some and missed by others.

Let it be said that some economists now think Japan could break from this dismal pattern. Here is John Makin of the American Enterprise Institute in a recent commentary: “After many years of false starts, the Japanese economy may finally be set to boom — or at least to enter a period of sustained growth with a sharply rising stock market.” At about 9,900, Japan’s Nikkei stock index is about a quarter of its historical high of 39,915.87 in 1989.
…

Ben, the article said they were going to close factories and move them. I do not think that a controlled economy is the most efficient. However, we are still talking about a country where very intelligent people are earning a couple bucks per hour. China is going to grow despite government not because of it. But when we evaluate China and things like housing bubbles we do need to consider that China can do things like move five million people to where the houses are even, if people do not exist in those areas now.

When I evaluate the prospects of a country I look at three factors:

1. Economic system, free enterprise or socialistic with my preference being that they lean toward free enterprise.

2. Average IQ of the nation.

3. Natural resources of the nation.

If a country is really rich in natural resources, they can have a low IQ and be socialistic and still have bright prospects. Also, while East Germany was left behind economically by West Germany, it has the highest standard of living in the communist world because of high IQ. All three factors are important but IQ becomes more and more important as we move into the informational age. China is being held back by its government backed industries. However, it has less of a safety net than we do, so socialistic income transfers are less in that country than in this country. So deciding which country right now is the most socialistic is more difficult than most people imagine.

China at some point will have to deal with the fact that it is just a blatant dictatorship.

Revolution is coming.

‘many of those ghost cities will soon have a factory’

China has a glut of factories.

I guess that won’t necessarily stop them from adding to the glut, in a desperation attempt to populate those ghost cities, even as more empty apartments are built at an ever-increasing rate in order to maintain the appearance of 7%+ growth forever?

Slow motion economic train wrecks are normally about as exciting to watch as drying paint. But this one has recently become quite a bit more interesting than the norm.

“1. Economic system, free enterprise or socialistic with my preference being that they lean toward free enterprise.

2. Average IQ of the nation.

3. Natural resources of the nation.”

Doctrinaire approaches don’t always work out very well when other factors are in play, such as massive overcapacity due to central planners who misallocated capital to money-loosing sectors like residential real estate.

Watch and wait to see how badly this plays of for central planners in both the U.S. and in China over the coming decades.

http://www.forbes.com/sites/jackperkowski/2014/01/21/chinas-debt-how-serious-is-it/

“You have an odd contradiction”

Dan’s constant defense of and praise for dictatorships like communist China and Czar Putin reveals his paymasters’ true goal, and it ain’t free market libertarian capitalism.

Hi Lola. I am not defending China’s government. I just refuse to engage in group think. A few years ago, when the MSM made it seem like China was going to grow at 10% per year for decades. I pointed out they would hit a resource wall that would force them to slow growth. However, slowing growth does not mean collapse and that is the group think of today. Saying a country is growing economically is not approval of its government but that is too nuanced for you. Putin is protecting his country’s interests, while I may not approve of all it methods, he is still better than a President that consistently does things against its national interest. Latest example another delay in the XL decision, it only makes it more likely that Canadian oil will go to China, so if you are against China, you should be denouncing Obama’s decision.

I think we lost a post so I will try this one. Pointing out that the MSM is trying to slant our opinions of China and Russia to advance globalization is not a defense of dictatorship. However, I am more worried about Obama/Reid’s BLM than I am of Putin since I am far more likely to have to interact with it.

Ronald Reagan: The Soviet Union is an evil empire, and will end up on the ash heap of history.

Our Danny: That Putin, he’s our kinda guy! And you’ve gotta admire communist China, they get ‘er done!

Excess. Capacity. Falling. Demand.

Get it through your big empty skulls.

I’m going to have to disagree with some posters here; this is the fourth dimension of political reality, media and the unspoken forces of globalism.

‘the MSM is trying to slant our opinions of China and Russia to advance globalization is not a defense of dictatorship’

The MSM; China good, Russia bad. China is pro-globalism, Russia not so much. What is the MSM portrayal of Chinese leaders? Really, really smart. Nice suits, and after all they will be the global leader eventually. (The old fall-back; it’s inevitable, may as well wake up and smell the coffee. Just like globalism itself, even though nothing it has promised has come to pass in 30 years). The Chinese are a bunch of dumbells IMO; just look at this joke of a housing bubble they encouraged.

‘That Putin, he’s our kinda guy!’

I don’t know that much about the guy. Don’t really care and why should we? But I do know that our non-governmental organizations (NGO’s) have spent hundreds of millions running political opposition in Russia. As they have in Arab states, etc. What would we do if Russia was spending these amounts on political groups in the US? Probably freak out and ban them (or kill them). Look at it for what it is; a NATO power grab into former Soviet client states. And NATO is the one-worlder military body. I don’t support this stuff. It’s not their right to take my money and build a one-world government so they can sit around in 5 star hotels and make deals with multi-national corporations. To heck with that. Just fill the pot-holes senator, and stop trying to police the world and knock it off with this new world order mumbo jumbo. It’s not going to happen any more than China is going to be the lone world superpower.

‘Arthur Jensen: You have meddled with the primal forces of nature, Mr. Beale, and I won’t have it! Is that clear? You think you’ve merely stopped a business deal. That is not the case! The Arabs have taken billions of dollars out of this country, and now they must put it back! It is ebb and flow, tidal gravity! It is ecological balance! You are an old man who thinks in terms of nations and peoples. There are no nations. There are no peoples. There are no Russians. There are no Arabs. There are no third worlds. There is no West. There is only one holistic system of systems, one vast and immane, interwoven, interacting, multivariate, multinational dominion of dollars. Petro-dollars, electro-dollars, multi-dollars, reichmarks, rins, rubles, pounds, and shekels. It is the international system of currency which determines the totality of life on this planet. That is the natural order of things today. That is the atomic and subatomic and galactic structure of things today! And YOU have meddled with the primal forces of nature, and YOU… WILL… ATONE! Am I getting through to you, Mr. Beale? You get up on your little twenty-one inch screen and howl about America and democracy. There is no America. There is no democracy. There is only IBM, and ITT, and AT&T, and DuPont, Dow, Union Carbide, and Exxon. Those are the nations of the world today. What do you think the Russians talk about in their councils of state, Karl Marx? They get out their linear programming charts, statistical decision theories, minimax solutions, and compute the price-cost probabilities of their transactions and investments, just like we do. We no longer live in a world of nations and ideologies, Mr. Beale. The world is a college of corporations, inexorably determined by the immutable bylaws of business. The world is a business, Mr. Beale. It has been since man crawled out of the slime. And our children will live, Mr. Beale, to see that… perfect world… in which there’s no war or famine, oppression or brutality. One vast and ecumenical holding company, for whom all men will work to serve a common profit, in which all men will hold a share of stock. All necessities provided, all anxieties tranquilized, all boredom amused. And I have chosen you, Mr. Beale, to preach this evangel.

Howard Beale: Why me?

Arthur Jensen: Because you’re on television, dummy. Sixty million people watch you every night of the week, Monday through Friday.

Howard Beale: I have seen the face of God.

Arthur Jensen: You just might be right, Mr. Beale.”

Totally agree, Ben. Nice quote, too!

But I have posted several times that if you consider all the debt in China both private and government it is much less than the U.S. They do not have issues with massive pension debt for instance.

A massive capacity glut can sink them nonetheless, particularly when their best customers have far more debt than they do, from which they are currently deleveraging.

I hope you are not including the U.S. because that is not true in Obama’s America we are not deleveraging.

http://www.brillig.com/debt_clock/

http://justfacts.com/nationaldebt.asp

Imagine the stunning losses these suckers face in TX.

That’s where the permanent Democrat majority has been for decades.

Do you think they have the same in mind for the rest of us?

If not, what would they change?

“There is no society” — Prime Minister Margaret Thatcher

Here’s the rest of the quote:

“They’re casting their problem on society. And, you know, there is no such thing as society. There are individual men and women, and there are families. And no government can do anything except through people, and people must look to themselves first. It’s our duty to look after ourselves and then, also to look after our neighbour. People have got the entitlements too much in mind, without the obligations, because there is no such thing as an entitlement unless someone has first met an obligation” - Margaret Thatcher

There’s a village. It takes a village. Hilarious will replace Obama as the next village idiot.

“My life is the American Nightmare. Sometimes I wake up feeling like I’m suffocating, then I realize I’m just buried under a large pile of money, all the money that I have left over after “throwing money away on rent” every month.”

LOL - now stop that. You will upset IE Landlord and Amy the Hoax.

I thought I heard some resonance between his message and what you post here. I frankly am about 100% in agreement, as regards the anti-diversification folly of home ownership versus the financial freedom that comes with renting.

In his blog on the “Why I Am Never Going to Own a Home Again” page of his blog, he does end it with this below. I don’t agree with it, but I thought it was interesting, given everything else he wrote. There’s no date on the blog, but the responses are from 2011.

“By the way, this is going to sound like a contradiction: but I think housing is a great investment right now. I think housing prices have gone down far enough and I can list the reasons why housing as an abstract investment concept is going to go higher from here. But I don’t like to write about investing on this blog.”

I guess he’s allowed to contradict himself in the very bottom “by the way” tidbits every once in awhile. Those “by the way” deals are where his heart is. Where is mind is, well those are the main posts. Those are him thinking clearly. The Fannie Mae meme affected him in that little disclaimer. All of us have the hypocritical what if’s

Sometimes I think of myself buying a house in Scottsdale and just working in Phoenix, not traveling back and forth. But I have to read blogs like his.

And my point is you can never be mobile enough. There is no such thing as being too mobile. Mobile is “mobile-able” and does not mean you have to always move. It means you have a great flexibility (short lease, no kids, no marriage, few furnishings) so that you can move to another location that has a far better opportunity.

I am now going to browse Dice. I had a dream last night that I was negotiating (hourly rate) for a consulting gig with my former shop. It was a great feeling. I miss the lack of job security.

And I do not have a secure job now. It is a salaried job but it is a no-growth thing. I am only trying to get a foothold in commercial work so I can have more consulting opportunities in the future. Sometimes you have to do a strategy contrary to your big strategy in order to gain more opportunity in the future.

“My taxes DO NOT go up faster than inflation…”

I don’t suppose Prop 13 has anything to do with that?

“The house is totally illiquid ??

So what…Its not a investment its your home…The only time liquidity should be relevant is when you want to sell…At that time, liquidity is just a function of price point…”

Tell that to the poor slobs who bought at the peak bubble price in 2007 and will most likely never again see their mortgage above water for as long as they wear their massively-leveraged, illiquid, devalued financial albatross around their necks.

I don’t suppose Prop 13 has anything to do with that ??

It has everything to do with it…Take the leverage away from the tax man through initiative or get bent…We don’t have a revenue problem…We have a spending problem…

Tell that to the poor slobs who bought at the peak bubble price in 2007 and will most likely never again see their mortgage above water ??

What does that have to do with liquidity ?? Even if they are upside down the property is still liquid in the market place…Its all about price point which makes this guys statement that a house is not liquid bogus…

“What does that have to do with liquidity ??”

The foolish anti-diversification strategy of leveraging up their household financial balance sheets to purchase a massively overpriced, illiquid asset is what explains how they entered the pot of stew in which they currently simmer.

I would love to post that of Altucher on my facebook page, but I already p.o.’d my boss. He is gung ho on California real estate. 95% of his employees are under age 40, got married and bought houses in OC and are raising kids.

I already p.o.’d my boss with my posts on the Bundy Ranch standoff last weekend. My boss is a liberal.

No one at work in Irvine asked me why I don’t have a house. Some assume I own a house in Arizona. One or two people asked if I own a house in Arizona and I tell them no. I have an apartment there. That is the end of the convo and they go there own way. I don’t finish off with Altucher’s line “I prefer to have cash in the bank and the freedom to not fear changing communities for a job in case I get fired.

Politics and housing don’t mix well with bosses, from my experience…

“Cash is a beautiful thing. Having cash in the bank keeps you calm when everyone else is committing suicide.” ~Altucher

And the punch drinker very easily forgets that having a lot of cash and zero debt means no lost sleep. The narcotic of the N.A.R. says that is okay. You can now paint your walls the fluorescent orange you want. Go ahead, HELOC!

I cannot stand Altucher, but he was spot on in that interview.

Becoming less mobile is never ever positive. So “laying down roots in a neighborhood” is never an advantage for you.

Staying highly mobile does not mean you must always move. This is my key point: It means you can take a new opportunity easily should you decide a different location is better for you.

Bill, for those who have children, stability is a big deal. All too often, families have to move from their rentals (in which they are well established and entirely comfortable) because the LL wants to sell, or move into the rental themselves, or jack up the rent, etc. Moving a family, especially one that is established in the community, is VERY different from moving a single person with few personal possessions. Your preference is to be unencumbered, and I totally get that, but many people choose to have permanent, life-long ties to other people.

IMO, the greatest benefit of owning is having a place that is paid off by the time one is retired (either voluntarily retired, or simply unable to get a job). Knowing that your future housing costs are fairly fixed is a wonderful feeling.

I’m no Kool-Aid drinker, and have spent more of my adult years as a renter than an owner, so acknowledge the many benefits of renting; but there are many downside risks to renting, too.

“Many downside risks…” explain what the risks are from renting an apartment. Remember, I rent in areas where renting is far cheaper than owning.

“There are many well-known positives of being a homeowner, such as laying down roots in a neighborhood…”

WTF does the above even mean? What’s the difference between living somewhere one year and ten? I can get to know new neighbors in a matter of a few weeks, and you can’t pick your neighbors anyway. And some will invariably move. There’s a reason for the term “good fences make good neighbors”.

Comment by Bill, Just south of Irvine
2014-04-19 19:12:58

“Many downside risks…” explain what the risks are from renting an apartment. Remember, I rent in areas where renting is far cheaper than owning.

——————-

In our area, rents have risen dramatically over the past few years, and rentals are very difficult to come by. Apartments around here often rent for *more* than SFH’s that are about the same size, or larger! Also, apartment managers, especially the corporate ones, tend to raise rents every chance they get.

The risks of renting an apartment are:

1.) having rents go up more than your income

2.) not having an affordable place to live (near hospitals, family, etc.) when you retire and/or are unable to work

3.) protecting yourself from inflation…the Fed/govt is hell-bent on increasing prices without increasing wages. Housing is one way for “regular” people to own something that will offset their loss of purchasing power, especially as it relates to housing.

Ah! Okay. My point all along is that I said I can rent cheaper than owning in the top paying cities - for engineering work and those are in the coastal zones in blue states.

Let’s take Southern California. In the 80s it was common for engineers to leave for another big corporation in case they did not get the quick promotions. They automatically got 15% or more pay increases at their next place. So shifting jobs was their way to move up the ladder in income. The smart ones rented all along and moved to where the next job was. Southern California is big and the big engineering firms can be dozens of miles apart. So you don’t want to be a dummy and buy a house within 5 miles of one site then have to commute two hours each way to another job for 3 years or so.

Mobility is always superior to staying put.

Agree about the argument for mobility, especially since most jobs are essentially temporary these days.

Personally, we’re in a different situation (DH is tenured), so it makes sense for us to own a home. Also, we bought at a time when PITI was less than rent for a comparable home (late 2011). This is in San Diego County.

PITI has never been less than rent anytim in the last 14 years.

The veteran gold buyers - buying coins over time, do not consider gold an investment. I certainly do not. However, a house is a huge commitment of your life and you cannot dollar cost average into a house.

Gold has had its ups and downs. But generally one ounce of gold will buy a good quality man’s suit. In essence it’s a form of savings but not really an investment.

Mining stocks - now that is an investment. A mining company can expand and do more mining - or contract. A mining company has management to do the bidding of the shareholders.

Historically gold has performed better than bonds. Bonds have performed better than T-bills. T-Bills and houses have performed about the same over time. Cash was the worst performer. The best performing asset class is stocks.

With all the money I saved by renting instead of buying, I put most of my excess money in stock mutual funds and have reaped the rewards. If I put my money instead in T-bills I would be much worse off, but I would still be free and not a prisoner of a SFH neighborhood.

There is a nice advantage of stacking precious metals bullion that is seldom discussed that I cannot reveal here, even with the anonymity of this blog.

I don’t tell people how much physical form of precious metals I own. I don’t tell my sisters that I own any precious metals at all. My cheap living lifestyle tells people enough - that 1) either I have no interest in materialism or the display of materialism or 2) I don’t have money.

My 11 year old Toyota economy car is a big statement.

My boss certainly knows my income. The company’s 401k advisor knows my standing in net worth, so my boss probably knows as well.

It is fun to annoy those who expect you to drink from the punchbowl and buy a stucco box (should be “stuck-o” box) and do other conformist things to become a drone member of a community. They feel safer if you become docile and do not rock the boat.

Somehow a high net worth renter who is not married and has no kids is a big threat to their utopian dream - the “American Dream” farce.

It doesn’t help one bit that the Fed spiked the QE3 real estate punchbowl with Bacardi 151.

Large closets - more space to put things you buy and then forget about but your credit card does not forget about it.

“Things” - I learned this from my dad when I was a teenager to never be a slave to your possessions. While my dad certainly was no libertarian, by having fewer and fewer things, you gain more and more freedom. It so worked well with my own personal immersion into practical voluntaryism.

This “American Dream” BS is the most widely used drug by the general public, more than alchohol, and probably as hard to get sober from it as from alcohol.

“… you buy and then forget about but your credit card does not forget about it.”

A credit card: A gift that keeps on giving. This happens if you position yourself at the correct end of it.

You can’t lose with the stuff I use.

“If God had not wanted bankers to eat bacon, then he would never have created pigs.”

I could handle 2,800.00 a mo if I had a house for life. But it sounds pretty armed. What happened to the days of 20% down from parents and a real home affordable?

I better ask her if she got an ARM!

True analysis can’t be found anywhere but here. The HBB is the final outpost of real analysis.

“I don’t know”

That statement is a money loser if ever one was uttered.

The real money loser is the statement that goes something like “I don’t know but I’m going to do it anyway ’cause David Lereah said I should”.

When I hear someone tell me “I don’t know” when it in my interest for the. To know, I have more respect for them. In some work situations I sometimes work on very difficult engineering problems. Management gets frustrated but when they hear me tell them “I don’t know” and never tell them lies, it disarms them. They wish I lied. A lie by an employee empowers management. This “I don’t know” situation actually just happened to me. I kept telling the young manager I don’t know. He started by yelling at me as if I was a dummy. But I kept reporting “what is,” and what problems I ran into and he finally put me on an easier task and gave my old task to the appropriate engineer. The work involved undocumented open source code with hundreds of preprocessor ifdef statements that make the code unreadable.

“The bankers are in the process of accumulating the wealth of the world.”

Yeah? Well it’s not as if doing so is all that hard.

Put in front of a schmuck a sheet of paper filled with a lot of words (my favorite word is the word “adjustable”) that has dotted line at the bottom and most likely he will sign it.

He signs and we both smile. Later on only one of us left smiling - and if you have to ask which one is left smiling then you should run down to see you local banker asap.

“… governments from around the world will give title to their wilderness lands to the bankers.”

What a great idea! Instead of remaining government land the land will belong to the banks. And if those citizens that used to get a bit uppity about decisions that got made over the use of government land start flapping their jaws about decisions that get made over the use of land owned by the banks then they will just have to somehow learn to keep their mouths shut because the land they will be bitching about is land that they will have no say over.

Lol. You can’t lose with the stuff I use.

The truth is that every dollar (FRN) issued by the private banks is backed by the good faith and credit of “We the People”

meaning less crap that can’t be made rigorous.

It is true that the money is created for free

for free? is it ‘free’ when interest is being paid on it?

The banks use our credit which means we are backing the money.

we aren’t ‘backing’ the dollar. there’s nothing behind the dollar but trust. when that’s gone, so is the dollar.

the dollar gets its value from the efficiency of our labor, and loses some value from economy crippling things like high taxation and onerous regs. what’s left is the equilibrium.

I have often wondered what the reckoning might look like when we finally begin to default on our national debt.

that depends on the form the default takes. will it be an honest admission of inability to pay or continued denial until it gets run into the dirt?

Rosa Koire - Behind the Green Mask:Un Agenda 21 Disc 4 - YouTube

http://www.youtube.com/watch?v=TETtL-vq2bg - 136k - Cached - Similar pages
Mar 11, 2014 …

Lots of good links there, phony scandal. Thanks for sharing those.

You forgot about the movement on the cop car.