An Attempt To Reestablish An Unsustainable Charade
Readers suggested a topic on the changing housing market. “How long from now will the MSM openly acknowledge U.S. housing price declines?”
A reply, “I do not expect ‘rebubble pricing’ to continue. My expectations of the market are that housing prices will bounce along with the seasons, some increases, some decreases, but generally a moderately upward trend of 0-5% annually. I believe the Fed will continue to taper, the economy will continue to percolate and recover and the two will offset each other.”
“I do know that 85% of the residents in my properties are seriously saving to buy their own home. That seems like a telling statistic. All the young members of my family are in the market to buy homes for themselves in the next few years. Household formation is a powerful factor in the markets.”
One said, “I’m not trying to live a single life and I would give in to actually owning a house but not if I’m going to be ripped off by the hucksters in the REIC colluding to prevent a drop back to where things would be if not for the fraud and crookedness. My stridency this time comes from the blatant shills and pimps who deny recent and obvious history. Prior to the last fall at least there wasn’t this obvious data point staring you in the face.”
And finally, “A moth goes to the light. A mariner keeps it to one side. It is not negative to avoid obvious hazards. I boat through water with rocks and shoals. I am optimistic that I will arrive safely at my destination because I do all possible to identify the rocks and go around them.”
The Wall Street Selector. “The contraction that follows on the heels of a major real estate bubble is often just as sticky as the previous expansion was. The reason (as e.g. Japan demonstrated) is that someone has to bear large losses once the phantom wealth disappears – whether the losses are admitted to or not. The illusory accounting profits of the boom were very large, and the subsequent losses are essentially their mirror image.”
“One therefore ends up with a banking system unwilling and incapable of restarting the inflationary lending cycle (mind, it would be capable in theory, but in practice it would maneuver itself into an even more vulnerable position) and scarred would-be borrowers who are no longer interested in burdening themselves with debt that might come back and haunt them in the future.”
“We subsequently watched with awe as Bernanke’s ‘QE’-driven echo bubble grew ever larger, eventually beginning to take house prices back up as well, in spite of still widespread mortgage delinquencies.”
“However, as our resident real estate expert Ramsey Su (who has been active in the RE business for decades) never tires to point out, there is no reason to believe that the echo bubble is any more stable than its predecessor, as it largely depends on all sorts of government interventions, with the Fed’s money printing and interest rate manipulation the most important. While fewer and fewer people voiced skepticism over time, Ramsey has kept at it, inter alia warning that Wall Street firms buying up homes in REO-to-rental schemes don’t represent organic demand, and in fact only serve to price out potential first time buyers.”
“Moreover, the ever higher pile of new rules and regulations bedeviling the mortgage industry has slowly but surely created housing finance socialism, with government-subsidized entities such as the carcasses of the GSEs completely dominating the market.”
“Who is served by rising house prices? In the end they are the outgrowth of an attempt to resurrect the illusory wealth of the expired bubble. They may help ‘repair’ credit that the bust has revealed to be unsound. However, this ultimately means that unsound investments are not liquidated. Instead there is an attempt to reestablish what is essentially an unsustainable charade.”
Business Insider Australia. “Below is an interview with Jed Kolko, chief economist at Trulia. BI: What is the most under-reported story in housing?”
“JK: There are actually still a lot of vacant homes out there. Even though the inventory of homes actually listed for sale is below long-term norms, the share of vacant homes is still higher than pre-bubble levels, including in many markets that have traditionally been fast-growing. The elevated vacancy rate holds back construction activity because builders don’t want to build where there are already a lot of vacant homes. The main sources of housing data don’t tell us for sure why there are a lot of vacant homes being held off the market (i.e. neither for sale nor for rent).”
The Market Oracle. “The Cameron/Osborne Help-to-Buy bubble is already well past its best-before date. Even if thousands more foreign buyers high on cheap credit and shady deals may flock in before this city-of-cards comes tumbling down. What Downing Street 10 will have done is to dislocate huge numbers of Londoners unable to keep up with rising prices, and fool many many gullible thousands more into signing up for the property ladder only to to be unceremoniously kicked off with huge debts tied around their necks.”
“There are those who would argue that in financial systems and ‘free’ markets, those who don’t pay attention get fleeced, and that this has a function. But for a government and central bank to push and advocate this sort of development, just to look better for a short time, is a whole different story.”
“Not a day goes by that I don’t hear and read yet more about the miraculous recovery Britain has accomplished for itself. Obviously, there are very similar ‘miraculous recovery’ stories doing the rounds about the US. And for very similar reasons. Nevertheless, both existing and new home sales numbers that came out this week spell it out as clear as you can wish it to be: the US housing recovery is dead. Falling sales, construction dead in the water, the works.”
“I read something toady to the extent that ‘100% of experts polled agreed that US interest rates would start rising significantly this year.’ I’ve said it many times before, and I’ll say it again: GET OUT! You’re not all going to be among the 1% of people who beat the markets. Go find something more useful to do with your time and your money and your life than to spend it all in this cheap credit casino that was constructed specifically to take it all away from you.”
I really am watching the market to eventually buy a house. Not invest, just buy. Today is not the time. Not yet. Not where I live. When prices in my area were lower, I wasn’t here yet. Also there were supply shenanigans to screw individual buyers. That’s all I’m saying.
I don’t really care too much about losing value to depreciation or to the money pit of maintenance. I know it’s going to happen. What I don’t want is to lose at least 20 percent plus right out of the gate like those who are buying now will do.
I was sent a listing from Las Vegas this morning. It’s a 3/2 built in 1944. Needs work and it’s a short sale. Here’s the property history:
04/14/2014 Listed $25,000 sq/ft $20
12/15/2005 Sold $225,000 sq/ft $182
01/07/2003 Sold $118,000 sq/ft $96
It’s workable. Young enough to be cast in place concrete foundation walls(or slab) and platform framed. The worst of it might be fused electric versus CB’s. $10k for an elec-package, 100 sheets of gypboard at $36/ installed( plus $4k for demo, disposal and trim removal and reinstall), taped and ready for paint, $4k paint package and you’re right about $50k which is what a used house is worth.
video
http://news.yahoo.com/video/real-estate-rallies-bidding-wars-233002951.html
“How long from now will the MSM openly acknowledge U.S. housing price declines?”
It appears that simple take offs and the resulting dollar amounts gives UnderwaterQueenie a meltdown.
Did I read correctly that the place sold for $225K in 2005 and is now listed less than a decade later for $25K?
This must be some kind of typo, as everyone knows that Las Vegas real estate always goes up.
Just as remarkable is the fact that it sold for $107,000 more than the price from 2 years earlier. Central to these price discussions is when did the bubble start?
“…it sold for $107,000 more than the price from 2 years earlier.”
Probably no coincidence that 2005 was roughly the peak of the subprime lending mania.
“Central to these price discussions is when did the bubble start?”
The nineties at the latest.
That’s right.
At what point in the past was that house priced what it is today? That’s when you’ll find the end of a sane housing market and the genesis of the global housing disaster.
That’s what I paid for my first house in 1978.
“Central to these price discussions is when did the bubble start?”
How about 1987, when Alan Greenspan responded to the Black Monday stock market crash by ’supplying liquidity’?
Try 1982.
http://cdn-2.stocks-for-beginners.com/image-files/dow-jones-index-1900-2010.jpg
That 1900-2010 stock price graph would work a lot better on a logarithmic scale.
Oh wait…
04/14/2014 Listed $25,000 sq/ft $20
Instead of affordable housing which this set of prices shows is easily possible we spend trillions trying to sustain the illusion that there aren’t enough houses.
LolaLOL, I don’t like the idea of renting a SFH. Primarily because of my past experience with unreliable and slow maintenance.
That said, I can understand some reasons for wanting a house, not as an investment.
But I am leery of buying in a neighborhood any noisier than my Phoenix apartment. I am so lucky to have a mostly quiet place in Phoenix. Far away from a street so that I hear no traffic. All it takes is one rude neighbor to move in next door and I would be stressed for months. Does not happen often, thank goodness. They eventually move on. Then I get quiet neighbors.
Suppose I buy a five acre place in Cave Creek. $600k. One third my net worth. Then i find. Neighbor has dogs barking 24/7 and the barks echo in the canyon. I would feel as if I was up shlt creek without a paddle. Yes I am aware in Colorado says nuisance barking is dealt with in Colorado. But I don’t want to move there. That does not help me.
I know also that someone somewhere last year shot a neighbor due to endless dog barking. I don’t ever want to be in a situation where I would be so upset my emotions would take over. I would not want to have to do something drastic like that.
Prefer the freedom of renting. No one at either my Phoenix place or my Orange County place assumes I have an unusual net worth. And no one bothers me. My guns, ammo, and metals are elsewhere.
In reality, my house purchase search will take at least a couple of years. When I find a neighborhood I like I would be proactive. I would drive in the neighborhood and listen. Knock on a few doors and boldly ask if there are annoying barking dogs, as I am interested in buy. Look them in the eyes and see their body language as they respond. Drive there in a late evening, past eleven and listen.
I haven’t heard of HBBers who bought, ever doing this investigation of any neighborhood before they buy. And I know of a young couple who naively bought a $200k place in North Phoenix without knowing the teenager next door loved to go out on his motorized razor at 11pm every night. It is your money. You don’t invest in a house. You invest in your neighbors.
“Primarily because of my past experience with unreliable and slow maintenance.”
Too bad you don’t have landlords like ours! The minute something breaks, they send someone our way to fix it.
It is sweet to compare this free maintenance service to my memories of the honerous burden of having to pay for maintenance back when we were Ownership Society members.
Rentership Society membership ain’t half bad…
I drive around like that before renting a house. If you buy a house and a loud person moves in, then you can actually sue them for ruining your peace and quiet.
Can you sue your children for disturbing your peace?
No need to buy if that ain’t your bag. And I agree with your point about investigating the neighborhood. I think it’s real hard to do. I think about where I rent now and i lucked into a pretty good deal neighbor wise in a good neighborhood. But it is 20 mins too far out for my taste, so I’ll end up moving closer. This means a different neighborhood and people I don’t know.
What do you do, walk up and down the street knocking on doors? Maybe I’ll send out a stealth Girl Scout cookie patrol.
There are several stealthy ways to investigate a neighborhood. Apartmentratings.com for apartments is good, but be sure the apartments reviewed are up to date.
Also you can drive around the hood. Listen for barking, parties, drums, cRAP. What do the cars look like? Newish or beaters?
Corner stores: what do the customers look like? Talk with the clerk.
MCSO has a link about warrants. Is your new neighborhood on the list?
Good signals:
1) Women and kids out and about on the street.
2) Well-tended yards.
3) Houses look like they have been painted within the past decade.
4) Limited traffic besides local residents.
Bad signals:
1) Bars on the windows.
2) Bus stops or other public transportation conduits in close proximity to residences.
3) Nearby liquor store.
4) Shady looking characters loitering in plain view.
+1 WAB
When we bought, the home was not listed…there was a brief open house, and when we walked through, a couple of neighbors came through. They were interested in what the owner did to the house (kitchen was less than 10-years old, etc.), so I was able to speak with the neighbors about the cul-de-sac.
Turned out a few of them had thought about moving to other parts of town over time, but could never pull the trigger…they liked the quiet of the cul-de-sac too much.
Of the half dozen homes on the court, only 2 have changed hands over the past 20+ years–the rest are the original owners of the homes, who raised their families on the court.
That spoke to me.
And you overpaid by how many hundreds of thousands of dollars?
You are just like me. I cannot stand noise from rude neighbors. Barking dogs drive me up the wall. And people are so cowardly these days that they will let the nuisance go on unabated for years, rather than complain. Then when you move in and start calling the authorities your neighbors hate you for being the snitch, and start vandalizing your cars and stuff. I’ve had that exact scenario happen.
In this day and age, with typical “Ameicans” being more and more insane, rude, selfish, crass, noisy, and moronic, I just don’t see myself buying anywhere and committing to a place, until I can afford a neighborhood that is so exclusive it will price out the scumbags. And even then, I will do as you mention, park there late at night with the windows down and just listen for hours.
One bad neighbor can ruin your whole life, at least if you are sensitive to noise pollution and lack of consideration, like I am.
Operation RunwayFoam ended 6 months ago. If you’re too stupid or blind to see it then your out of luck.
Yeah, they got some people to lie down in front of the bus. It was always the plan to help the banks. Jeebus, a guy in the room even wrote a book about it:
‘Warren asked Geithner repeatedly about HAMP. After several evasions, Geithner said about the banks, “We estimate that they can handle ten million foreclosures, over time… this program will help foam the runway for them.”
‘This is a revelatory moment for Barofsky in the book, and should be for everyone reading. Geithner’s concern, first of all, was with how the banks would respond to the program, not how homeowners would respond to it. In fact, homeowners are quite besides the point. Regardless of their situation, they will be one of the 10 million foreclosures, in Geithner’s construction. His goal was merely to space out the foreclosures and give the banks time to earn their way back to health, mostly through the other parts of the bailout, that enabled them to earn profits.’
“Yeah, they got some people to lie down in front of the bus.”
The beautiful part is that nobody put a gun to anybody’s head to make them lie down in front of the bus; rather people lined up and volunteered to get run over by the bus.
Too bad our government doesn’t allow the citizenry to decide what parts of government they want to participate in, and which parts they do not.
Think it through. If that were possible, what do you think it would look like?
Empty pockets who believe in magic money trees would be lined up for free $hit on the Gov side because they figured out that magic money trees are a fantasy.
The rest of us on the other side.
That’s correct.
Which side would you rather be on? Which side has the better future? Which side would ensure broader freedoms? More lawful? More respectful?
People who are forced to pick a side might think differently than if they are allowed to play both ends against the middle.
Like you, I’m tired of the bullsh*t. If people want to leech, let ‘em live in a swamp with the other scum.
‘people lined up and volunteered to get run over by the bus’
The HAMP/HARP FB’s gotta be feeling screwed about right now. Good money after bad.
But again, nobody forced them to take the offer.
Certainly anyone who even glanced at those bizarre characters that showed up in the online mortgage rescue ads should have known there was something amiss with the perceived free sh!t offer.
Strangely, people still don’t understand that the housing suiciders were mere incidental to the stated goal of salvaging the banking system.
“Strangely, people still don’t understand that the housing suiciders were mere incidental to the stated goal of salvaging the banking system.”
Sheeple: Shear ‘em and shear ‘em and shear ‘em, and when you can’t shear ‘em anymore that’s when you skin ‘em.
Dumb ‘em down and keep ‘em dumbed down and, if you are a banker, you are set for life.
They work, you reap.
“…that’s when you skin ‘em.”
And by all means, don’t forget to boil ‘em in oil and suck their brains out with a straw.
Sprinkle with salt and pepper to taste.
“Sheeple: Shear ‘em and shear ‘em and shear ‘em, and when you can’t shear ‘em anymore that’s when you skin ‘em.”
I love an honest banker.
“I love an honest banker.”
That’s how you can tell this is not a real banker speaking.
Got oxymoronica?
“…housing suiciders…”
I think of them as cannon fodder in the war to save the banks…
“foam the runway”
Bahahahahahahahahahaha.
Sounds a lot better than “lubed up”, no?
Bahahahahahahahaha.
Hey Amy, are you out there? How about bringing me a client or two so I can foam up their runway?
Bahahahahahahahahaha.
Leave her alone. She’s rubbing my feet.
That isn’t your foot she’s rubbing.
“That isn’t your foot she’s rubbing.”
And that’s no she.
Lo-la, la-la-la-la-Looolaaaa.
Have we hit 10 million yet?
Individual banks are not essential to the working of a currency based economy. The health of the currency is the essential thing.
Currency is the cornerstone of the economy. Not the companies which store and lend it. The two are not inextricably linked.
The Great Conflation is that currency is equivalent to banks and saving banks saves the currency. Combine that with trickle-down theories, and bind it all with a tape of cronyism and that is justification for the economic policies of the past several years.
Individual banks are not essential to the working of a currency based economy.
you can’t base an economy on a currency. an economy is based on one thing.. production. a good currency helps with buying and selling. that’s all. it’s a lubricant for trade and should be a store of value to be useful.
Currency is the cornerstone of the economy.
no
The Great Conflation is that currency is equivalent to banks and saving banks saves the currency.
currency doesn’t even need banks.
you have said that fiat currency is a proxy for future labor. you’re on the right track there. but more accurately, it’s a record of past labor. it represents past labor. someone else has worked for the same dollars you have now earned.
government and banks aren’t necessary to a currency. zimbabwe had the legal authority to make its fiat currency and look what happened to it. it failed because it was created without value. it wasn’t trusted so it failed.
fiat currency needs to be made by a trusted authority that doesn’t cheat people. it arises from necessity, a need. and it always represents the value of the labor within its sphere (the area it’s used in).
“currency doesn’t even need banks.”
Right. Take bitcoin, for instance.
Obviously bitcoin doesn’t need banks…
OR DOES IT?!
The natural experiment is underway as I type these lines:
China’s Largest Bitcoin Exchange Halts Merchants Bank Deposits
By Bloomberg News
Apr 27, 2014 12:29 AM PT
BTC China halted local-currency deposits to clients’ China Merchants Bank Co. accounts, as lenders close accounts with Bitcoin exchanges amid government measures to check surging trading in the virtual currency.
The suspension aims to protect security of client funds and ensure stable operations, BTC China, the nation’s largest Bitcoin exchange, said on its official microblog yesterday. Merchants Bank banned the use of its accounts for Bitcoin transactions, according to a statement dated April 25 on the lender’s website.
“We saw the bank’s statement and we took the initiative,” the exchange’s Chief Executive Officer Bobby Lee said by phone today. The suspension has “basically no impact” on BTC China’s operations so far because clients can use accounts at other lenders, he said.
The People’s Bank of China banned financial institutions in December from handling Bitcoin transactions, reflecting concerns about the risk posed to China’s financial stability after trading in the digital currency surged in the nation.
Introduced in 2008 by a programmer or group of programmers going under the name of Satoshi Nakamoto, Bitcoin prices more than tripled in the past year, according to CoinDesk, which tracks prices across key exchanges.
CoinDesk’s Bitcoin Price Index slumped about a fifth after Caixin magazine reported March 27 that the PBOC ordered lenders and payment companies to close the trading accounts of more than 10 Bitcoin exchanges. Bitcoins recently changed hands for $453.80, according to the index.
BtcTrade, a Chinese exchange, said April 10 that an Agricultural Bank of China Ltd. sub-branch in Hangzhou will close its account by April 15 if its use for Bitcoin-related settlement services is continued. Account closures were also announced by Huobi.com and Btc100.org.
…
bitcoins don’t need banks either. they need places where they can be stored, like vaults or ‘wallets’. but what they need more than that is fungibility. that’s what the exchanges are for. and bitcoin needs lots of them.
what bitcoins need more than fungibility is trust. but all they have is speculation. effort needed to make a currency is inconsequential. no one cares what someone else spent to make a currency. they only care what value the currency represents.
and finally, what they need more than trust is some type of extrinsic value that can be relied upon. but again, all they have is speculators. it’s like they are beanie-babies.
i don’t think bitcoin can survive in its present form unless its sole function is instantaneous exchange. and it need governments that aren’t trying to kill it.
again, currency doesn’t need banks.
both tally sticks and gold are different types of currency. neither needed banks to survive. tally sticks (probably one of the first fiat currencies) lasted for around 200 years, until someone figured out how to counterfeit them. counterfeiting is the bane of all currencies.
bitcoin is the most poorly designed currency i’ve ever seen. it’s like it was designed as a prank. those who use it as a store of value are playing with fire. those who understand currencies wouldn’t touch it, except for use as an instantaneous form of exchange. beanie-babies would be a better currency.
“…like vaults or ‘wallets’.”
The currency only exists in cyberspace.
The physical bitcoins are a scam.
“counterfeiting is the bane of all currencies.”
It is not necessary to counterfeit bitcoin in order to understand it. All one has to do is to create another ‘emperor’s new currency’ story to supplant the bitcoin mining fantasy, and you’ve got your own cyber gold mine.
understandundercuti wasn’t talking about physical bitcoins. the cyber kind need electronic vaults or wallets to be stored.
“the cyber kind need electronic vaults or wallets to be stored.”
Why go to the trouble?
Just convince the suckers that you are storing them somewhere in cyberspace, then later tell them you are sorry when you claim to have lost the vault or wallet, after you have put their money into your own bank account, left the country, and gone into hiding.
“I do not expect ‘rebubble pricing’ to continue. My expectations of the market are that housing prices will bounce along with the seasons, some increases, some decreases, but generally a moderately upward trend of 0-5% annually.”
In other words, housing price appreciation has reached what looks like a permanently high plateau.
Got belief manipulation?
Never let the reality of your empty wallet send you into a bout of self-delusion.
Never let an empty wallet prevent you from spending money that you have not yet earned. Visit your local banker today and unleash the spending power that awaits you.
You are but one signature away from total financial freedom.
“The contraction that follows on the heels of a major real estate bubble is often just as sticky as the previous expansion was. The reason (as e.g. Japan demonstrated) is that someone has to bear large losses once the phantom wealth disappears – whether the losses are admitted to or not. The illusory accounting profits of the boom were very large, and the subsequent losses are essentially their mirror image.”
20+ year contraction, here we come. Good thing those runways are already covered in foam!
If people were not smart then they would settle in and ride the expansions and contractions as they come and go and the economy would reflect this.
But people ARE smart and because they are smart they take advantage of the expansions as they develop by cashing out the equity that these expansions provide to them and then they take this cashed out money and spend it and this spending injects money into the economy and thus helps keep the expansion going.
It’s a modern miracle!
“We subsequently watched with awe as Bernanke’s ‘QE’-driven echo bubble grew ever larger, eventually beginning to take house prices back up as well, in spite of still widespread mortgage delinquencies.”
Great to see the ‘echo bubble’ term that was coined here on the HBB gaining traction. Maybe someday, somebody will figure out how many terms in the Housing Bubble lexicon originated through our discussions here.
“Wall Street firms buying up homes in REO-to-rental schemes don’t represent organic demand, and in fact only serve to price out potential first time buyers.”
There it is.
What can the real estate liars come up with to fool the masses into ignoring the basic reality that echo bubble prices will prove unsustainable, once the fly-by-night investors who drove up prices try to cash out in droves?
They’re resorting to the old worn out lie “every market is different” teevee commercials. The corrupt basturds have nothing else.
Best real estate deal ever? At $0.01 for a hardcover copy, this is a steal!
All Real Estate Is Local: What You Need to Know to Profit in Real Estate - in a Buyer’s and a Seller’s Market Hardcover
by David Lereah (Author)
Kindle
$9.78
Hardcover
from $0.01
theres LOTS of scams and manipulation going on regarding days on market and price drops. A house thats been sitting for four months at a wishing price tells you that price is nonsense. So just “fix the glitch.”
Unless they seriously drop their list price, I expect this one to still be sitting on the market next Christmas.
Can’t wait to report on the new tenants, once the owner decides to continue his existence as an accidental landlord.
Said by Isaac Newton after losing a fortune in the South Sea echo bubble:
Hari Seldon seemed to think it was possible to predict the behaviors of the masses. Of course he was a fictional character invented by Asimov.
Comment by Jingle Male
2014-04-26 06:33:22
Blue, we have been thru this before.
I have about $350,000 invested and after all my expenses and payment of the loan interest, I receive almost $30,000/year in income. That is an 8.5% return annually on my invested dollars. Curiously, I have not raised rents because I don’t believe in raising rents on residents in place, but when they turnover, the income will increase about 25% with a 5% increase in the rent.
That does not include the $510,000 in appreciation, BTW, over a 5 year average life of the investments.
Buying housing at the bottom in 2008-2010 has been the best investment of my lifetime.
– Yes, but the loop never closes neatly. What was the purchase price? We assume that the money you borrowed was “invested” in the houses, so what’s your cost basis, not your cash outlay. Your claim of 20% ROI is nowhere to be seen. Or is it 10%? Or is it 7%?
Rent increases are headed toward zero in DC, the center of the universe. California is immune to this why?
If you go back and compare Dingle’s comments over the past few years, the numbers are always changing. It’s all tripe.
Paid about $260,000/house. 25% down. Balance at average of 4%. Houses now at 400,000 value. (before selling costs). Rent for average of $2200/Mon.
Tripe.
OK. If you calculated your net income based on the $1.4 million at play you would have an ROI of like 3 to 4% on a sunny day, a number that would make more sense to most.
It is all about a bet on the future of prices IMO.
You need to include the $20,000 a year that goes to paying loan principal (more with each passing year). That is an important value to me. I will likely be debt free in less than 20 more years and have over $15,000/month cash flow. The loans started at 75% LTV and are now under 50% LTV (combination of debt retirement and appreciation).
It is just like LolaLOL said above: Owning real estate is not for everyone.
Did I take a substantial risk? Yes. But I have several years of reserves in liquid assets, so I was willing to take the risk. I lived the 1990 downturn and was upside down in my own house (which is almost free and clear today as a rental). I have seen real estate markets recover and I believe they will always recover, just like there will always be another bubble and another bust.
I post here today simply as an example showing how real estate can be a good investment. I think it is just as important as the messages I posted here in 2006 about the bubble & fraud.
‘the bubble & fraud’
Does fraud get any bigger or more egregious than what Elisabeth Warren describes in my comment below?
“You need to include the $20,000 a year that goes to paying loan principal…”
You can use your “return” to pay down principle. That doesn’t change the ROI snapshot. If your gross rent receipts are around $10K per month, it is hard to imagine a free and clear income of $15K per month from that, unless you are projecting yearly increases from here to the moon. You must pay taxes, suffer depreciation and the occasional difficulty.
If, as you say, there will always be a bubble then you should be fine. The whole thing about bubbles is unsustainability. It is all a bet on the price of houses.
I do still wonder how you got commercial loans at 4%. Are these GSE guaranteed loans for principle residences?
“I post here today simply as an example showing how real estate can be a good investment.”
And has anyone here ever stated the contrary? Of course not.
The problem is, it’s a horrible investment at the massively inflated prices you paid. You paid far too much and it’s going to be a very painful lesson for you.
The question is; Why did you pay too much and why are you seeking vindication here?
“housing at the bottom in 2008-2010″
He thinks that was the bottom.
Why? Because that’s when he bought?
So funny.
Does anyone besides me recall the false assurances the top U.S. economic experts offered circa 2007 on how housing problems would be ‘contained’?
Similar assurances are currently being offered by Chinese economic officials.
No worries among Chinese economic geniuses that the collapse of their housing bubble will wreck their economy. I guess it is different over there than in the U.S. during the first wave of housing bubble collapse in the 2007-08 period that triggered a global financial panic.
In-depth
Xinhua Insight: Property bubble will not wreck China’s economy
English.news.cn 2014-04-26 15:59:53 [More]
BEIJING, April 26 (Xinhua) — Economists from China’s leading think tanks have dismissed predictions that a possible property meltdown would trigger a crisis or even a crash in the world’s second largest economy.
“It can be said that China’s property bubbles are now the biggest risk in its economy, but bearish talk of a collapse of the whole economy smells of ulterior motives,” Wang Xiaoguang, a researcher at the Chinese Academy of Governance, told Xinhua.
…
Supposing we have a year or two of a “sideways” stock market. One in which the S&P 500 gains 5% or less?
Then, JMO, I would say that is a good substitute for a much needed correction in the stock market.
This “sideways” action might happen due to interest rate hikes. Or the Crimean ordeal. I would not do any panic selling of stocks now just on the predictions of a major correction. But I would look at my asset classes and my own finances. Debt free? Check. Two years worth of cash for living expenses? Check. If not, it is worthwhile to be debt free now more than ever. Realize enough gains for emergency cash and to be zero debt.
Op-Ed
A new housing bubble?
Analysis finds home prices are rising at an unsustainable rate and that many mortgages would not perform well under economic stress.
Home prices are rising at an unsustainable pace. For the nation as a whole, prices increased 11% last year, according to the S&P Case-Shiller index. The jump was even larger in the major California markets: 21% in Los Angeles, 23% in San Francisco and 19% in San Diego. (Los Angeles Times / April 23, 2014)
By Edward J. Pinto and Stephen D. Oliner
April 23, 2014, 6:47 p.m.
Even though the recent financial crisis is barely in the rearview mirror, risk is starting to build once again in both the U.S. mortgage and housing markets.
Contrary to the prevailing view that only borrowers with pristine credit records can get a mortgage these days, many risky loans are still being made. A new index published by the International Center on Housing Risk at the American Enterprise Institute measures this risk month by month, based on about three-quarters of all home-purchase loans extended across the country. And the index clearly shows that many of today’s mortgages would not perform well under stressful conditions. This conclusion holds for the nation as a whole and for nearly every state individually, California included.
Here’s why. In recent months, fully half of all the home loans covered by the risk index had a down payment of 5% or less. With so little money down, those borrowers would be underwater with only a modest decline in housing prices. In addition, for nearly half of the recent loans, borrowers’ monthly payments on their mortgage and other debt exceeded 38% of their pretax income, the traditional threshold for acceptable payment burdens. Such borrowers could find it difficult to make their monthly payments if they came under even moderate economic stress, such as a temporary layoff or a reduction in work hours.
The Federal Housing Administration is the prime source of this risk. It now guarantees more than a quarter of the newly originated home loans, and it does so with little regard for risk. Under the banner of expanding homeownership, the FHA provides risky loans to households that often lack the resources to make the payments if anything goes wrong.
Home prices are also rising at an unsustainable pace. For the nation as a whole, prices increased 11% last year, according to the S&P Case-Shiller index. The jump was even larger in the major California markets: 21% in Los Angeles, 23% in San Francisco and 19% in San Diego.
The Fed’s easy monetary policy, which has kept mortgage rates very low, has been a key factor behind the rise in house prices. Another factor has been strong investor demand for distressed properties. At the same time, the supply of available homes has been limited. Housing starts, while up from their lowest point, remain well below normal, in part because builders shed capacity during and after the recession. Reflecting these factors, house prices in the hotter markets around the country may already be above the levels warranted by household income, rents and other economic conditions.
Does this mean we are likely to see another housing bubble? That’s hard to say. Nonetheless, the risk of a price overshoot of some magnitude is especially high in California. According to Fitch Ratings homes in Los Angeles, San Francisco, Oakland and San Diego are overvalued by 20% or more. Other analysts see California markets as fully valued rather than overvalued. But even if this is correct, it is worth noting that historically, many areas of California have had extremely volatile home prices.
…
“According to Fitch Ratings homes in Los Angeles, San Francisco, Oakland and San Diego are overvalued by 20% or more.”
Why would anyone in their right mind buy an already-expensive asset at a 20% premium? We’re talking about overpaying the price of a California starter home by $100,000 freaking dollars.
In many cases, these same people will spend their Sundays clipping coupons in order to save $0.50 on tomatoes at Ralph’s grocery store.
Penny wise pound foolish but it’s more complicated than that. These people are told what a house is worth and what to pay. They don’t know any better.
“These people are told what a house is worth and what to pay.”
Why would anyone in their right mind trust a Realtor®’s opinion of what a house is worth?
‘Ms. Warren was on the scene for the aftermath of that mess, when she became the chairwoman of the Congressional Oversight Panel for the Troubled Asset Relief Program, which carried out one of the government’s major bailout deals. In her retelling, we watch as the banks that caused the crisis receive special treatment and costly rescues while troubled homeowners get little or nothing.’
‘The Congressional Oversight Panel, she writes, “couldn’t change a system that seemed hellbent on protecting the big guys and leaving everyone else by the side of the road.” About President Obama, she writes, “The president chose his team, and when there was only so much time and so much money to go around, the president’s team chose Wall Street.”
‘Ms. Warren recalls asking why the government’s response to the foreclosure crisis had been so lackluster — the equivalent of trying to put out a forest fire with an eyedropper.’
‘In her telling, Mr. Geithner responded this way: “The banks could manage only so many foreclosures at a time, and Treasury wanted to slow down the pace so the banks wouldn’t be overwhelmed. And this was where the new foreclosure program came in: It was just big enough to ‘foam the runway’ for them.”
‘To Ms. Warren, Mr. Geithner’s message was clear, if startling. “Millions of people were getting tossed out on the street, but the government’s most important job was to provide a soft landing for the tender fannies of the banks,” she writes.’
If you were a HAMP FB, out there sending in your payments on a way-underwater house, how would you feel upon reading this?
If you were a taxpayer and paid ( and will pay) for this, how would you feel?
If you wanted to buy a house at a reasonable price, how would you feel?
‘To Ms. Warren, Mr. Geithner’s message was clear, if startling. “Millions of people were getting tossed out on the street, but the government’s most important job was to provide a soft landing for the tender fannies of the banks,” she writes.’
The message is only ’startling’ because of the ongoing international conspiracy to suppress all discussion of the purpose of the bailout - to support huge creditors at the expense of everyone and everything else. must. not. discuss. this. in. public.
Those who got tossed out in the street are still free to live in porta-johns.
There were at least three components to the bail-out; TARP, HARP/HAMP and years of artificially low interest rates.
‘Rates for a conventional 30-year fixed mortgage are averaging 4.48 percent, according to Bankrate. For “jumbo” mortgages — those above $417,000 in much of the country — the average is 4.47 percent. Bankers now view jumbo borrowers as safer and shrewder bets even though conventional borrowers put less capital at risk.’
‘The lower rates are geared for affluent borrowers living in “sweet spots” with strong employment and stable home prices — areas like metro New York City, Boston and sections of California, said Matt Vernon, who leads consumer mortgage lending at Bank of America. “We’re lending where we believe home ownership is sustainable,” Vernon said.’
‘Not even jumbo borrowers feel completely safe. Some are borrowing in anticipation of setbacks in an economy where bills can multiply even when incomes barely budge.’
‘One is Stephanie Kellen, who in December refinanced her home in Marin County, Calif., with a jumbo. The lower-than-usual jumbo rate helped replace a line of credit for her husband’s auto repair business.’
“The best way to have security was to have low interest rate loans for as long as possible,” Kellen said.’
On this:
‘jumbo rate helped replace a line of credit’
Sound like a cash-out refi. It’ll take a lot of new mufflers to pay that back Stephanie.
“’The best way to have security was to have low interest rate loans for as long as possible,’ Kellen said.”
The best way to have security is to be free of debt altogether. But in our borrowed-money-no-dollar-escapes-economy such thinking is considered Old School.
I think it was Neuro who posted the Freddie Mac PowerPoint…the most surprising thing to me was the historic spread between conforming and non-conforming loans.
My guess would have been 50-75bps. Reported by Freddie was 20-40bps. Puts the 1bp spread into perspective.
I was surprised by the long-term spread…I would have expected larger.
”Here are the 10 top cities for increasing the number of residential houses on the market:
‘Stockton, CA, has seen a year on year increase of 101%. This city appears to be indicative of what is driving the market. This hard hit foreclosure market is seeing another up tick in foreclosures hitting the market. It would appear the banks continue to manage their way out of the foreclosure disaster by brining properties onto the market over a period of time instead of flooding the market all at one time. There remains a shadow inventory still needing to be worked through.’
‘Fresno, CA, where the year on year residential inventory is up 53%.’
‘Bakersfield, CA, here the year on year residential inventory is up 52%. Occupying the top three spots clearly shows that California is again leading the real estate market.’
‘Orlando, FL, up 49% year on year, this represents opportunity on the other side of the country.’
‘Riverside, CA, where the year on year residential inventory is up 46%.’
‘Phoenix, AZ, herethe year on year residential inventory is up 45%.’
‘Oakland, CA, yet another California city that is seeing increased listings of 42%.’
‘Minneapolis, MN, a midwest city seeing an active market with a year on year increase of 38%.’
‘Lakeland, FL, back to the southeast with a year on year residential market increase of 38%.
‘Buffalo, NY, is the only northeast city to make the top ten with an annual increase of 38%.’
‘Interestingly, the last three cities are all at 38%. Could this be where the national average is heading?’
It’s so weird that I come from Cratersville and live in Cratersville. I keep falling into the crater.
Maybe I never left the crater?
CA, FL and AZ are prominently represented on the list. What a surprise!
With the exception of Buffalo, all had meteoric price rises the past 1.5 to 2 years.
Even though Craterville, Craterton, Craterstown, Cratersville can be places, it’s really a description that results from a conflation of your physical location and the condition of your wallet. It’s an important characteristic and should be defined and used frequently when discussing housing.
I do believe there is someone here that spreads the good news about cratering housing that goes by the moniker CRATER.
Speaking of unsustainable charades, how is China’s centrally planned financial bubble economy looking these days?
You all had better plan to hit the decks quickly when this largest financial bubble in the history of the planet implodes!
ft dot com
April 27, 2014 5:18 pm
China’s crisis is coming – the only question is how big it will be
By Prasenjit Basu
The longer the economy stays unbalanced, the worse the outcome will be, says Prasenjit Basu
A financial crisis in China has become inevitable. If it happens soon, its effects can be contained. But, if policy makers use further doses of stimulus to postpone the day of reckoning, a severe collapse will become unavoidable within a few years.
The country is in the middle of by far the largest monetary expansion in history. On one widely used measure, M2, its money supply has tripled in the past six years, an expansion four times as large as that of the US over the same period.
This unprecedented expansion is at least partly responsible for China’s extraordinary growth rate, which is now running up against a demographic constraint. Last year, for the first time, the working-age population declined, a trend set to continue for the next two decades. Unless the country can keep lifting the labour force participation rate (for example by getting more women into the workforce or persuading older people not to retire), China will struggle to expand its labour force by even 1 per cent per year. To sustain economic growth of more than 7 per cent, productivity would need to grow by 6-7 per cent a year across the entire economy. This would be a tall order in any country. In China, where the labour-intensive services and agriculture sectors make up half the economy, it is well-nigh impossible.
The country suffers from excess capacity in most industrial sectors. Yet investment in fixed assets continues to grow at double-digit rates. The steel sector is a case in point. China has about 1bn tonnes of annual steel-production capacity; about a third of it sits idle. Consequently, the growth statistics present a misleading figure. Output is being produced, sometimes even in the absence of any demand. A continuing burst of credit is needed to help fuel new capital spending to keep the factories busy – but that only adds to the stock of unused capital. It is a similar story with property investment. China is brimming with high-quality housing that is unaffordable. Sharp price declines are needed to clear the market. That will involve severe pain for banks that participated in the monetary expansion.
Observers often cite China’s closed capital account as a blessing that will stave off capital flight. But one consequence is a huge and persistent balance of payments surplus. Foreign money flows into the country to pay for exported goods and investment, and much less flows back out since there are few legal avenues for exit. China’s surplus over the past 10 years has been far larger than Japan’s was in the 1980s – the years when its disastrous asset price bubble was being inflated. This should have caused the currency to rise rapidly. But the renminbi has been pegged to the dollar for most of that period, accumulating a big pile of foreign reserves.
Compounding it all, Chinese investors believe that none of the country’s banks or financial products will go bust because the government stands behind them all. This is partly the legacy of the banking rescue mounted a decade ago, when about 40 per cent of loans belonging to four big government-owned banks were transferred (at face value) to asset-management companies. But the broader problem is the tendency of the party leadership to provide a policy stimulus every time growth dips.
…
Rental rates are half the cost of buying at current grossly inflated asking prices of resale housing.
Manhattan Rental Rates Fall 6 Months Straight
http://www.bloomberg.com/news/2014-03-13/manhattan-apartment-tenants-get-relief-as-rents-decline.html
We were told it could never happen! We are still told it can never happen in DC and Cali.
“…housing finance socialism, with government-subsidized entities such as the carcasses of the GSEs completely dominating the market.”
That guy totally nailed it!
‘The Q1 Housing Rollover Is Deep And Wide—And A Stinging Rebuke To Monetary Central Planning ‘
‘The Fed, through its artificial price intrusion in the MBS portion of QE, essentially handed financial institutions an arbitrage opportunity – make money buying up foreclosed properties to help “clear” them out and at the same time begin to move systemic prices through these tapered marginal transactions. The monetary aspect continued with both cheap financing and leverage opportunities embedded deep within QE operationally, thus favoring institutional investment of this kind.’
‘This is a microcosm of the Keynesian belief that policy can, “fill in troughs without shaving off peaks.” That has been the assertive doctrine behind the rise of monetarism since the 1970′s. It has become an unchallenged and unqualified assertion, particularly with its first widespread use by Greenspan’s regime. That was the whole idea, spoken throughout the 1990′s as gospel, that monetary policy could “banish the business cycle.” Where once some may have thought monetarists and Keynesians parted company in significant fashion, there is truly no real distinction between them.’
Now someone tell me the difference between the crimesters running the fed and USSR central planning and their 5 year plans. I fail to see a distinction.
Go ahead communists….. spit it out. Let those empty pockets speak.
‘Recent news, graphs and data confirm what we have long said would inevitably become clear: the entire global economy appears to have “functioned” through an orgy of refinancing, LBO and M&A lately. That is to say, zombie money has been enthusiastically slushed and re-slushed around to provide commissions, bonuses etc. to bankers and brokers, a process enabled by central bank and government policies in which large amounts of credit were thrown against the wall like so much Jello, hoping – but not demanding – that some would stick. Zero bound interest rates made this process all the more attractive, since it was crucial to lure mom and pop back in. But now, if our eyes don’t receive us, it is reaching its inherent limits.’
‘There has been such a flood of numbers in just the past week that it’s hard to choose, and to keep anything I would write on the topic from becoming an entire book.’
‘As Jeffrey Snider writes: “In the middle of last week, the Census Bureau estimated that permits to build new single-family homes declined on a year-over-year basis for the second consecutive month. That s the first time we have seen anything like that since the middle of 2011.”
“If that wasn’t enough, the Census Bureau reported on Wednesday that new home sales dropped by a rather stark 12.2% Y/Y, also in March.”
“Total MBS issuance in June 2013 was $185.5 billion, but the latest figures for March show a 53% decline to only $87.2 billion. Institutional buying of property, as you might surmise from that last sentence, has attained more than whispers of dramatic retrenchment, becoming further and actual anecdotes.”
“In California, the largest REO-to-rent firms, those with direct access to QE’s primary magnanimity , have scaled back purchase activity by as much as 70% in recent months. Blackstone, now the nation’s largest landlord, has condensed its purchase pace in California by as much as 90%; 70% overall from last year’s peak pace of more than $100 million per week.”
The speculators that post here were warned.
‘Dublin house prices are said to be rising by €5,000 per month, Bank of Ireland is offering to pay the stamp duty for first-time buyers and rents are spiralling.’
‘Minister for Finance Michael Noonan is rejecting concerns about the development of a property bubble, but with house prices in certain areas rising by double digits, mortgage lending on the increase and packed open house viewings on Saturday mornings, are we returning to scenes from the last decade?’
‘An event taking place in Dublin this Wednesday will examine the current state of the property market, and answer whether this time is different and if we have learnt lessons from the mistakes of the past.’