‘Everybody Is Trying To Get Something For Nothing’
The housing bubble news is coming out of the southeast, fast and furious. “Investors owned a whopping 58 percent of the homes sold in Myrtle Beach in 2004, putting the Grand Strand at the top of a national list in the number of investor-owned homes. National analysts are concerned that cities with significant numbers of investor-owned homes could be in trouble if investors decide the market has peaked and unload their units.”
“The study’s data is based on 2004 numbers, the most recent that is available. ‘That’s a very high percentage,’ said (analyst) Ingo Winzer. ‘In 2005, my guess is that that was even higher. My guess is there is a surge in investor buying and that makes the market very risky. It presents the possibility that there will be price declines in the next few years.’”
“‘We have to replace that investor who wants rental income with an investor who wants a second home and appreciation,’ local analyst Tom Maeser said. ‘If we can’t find them, we’ll see a glut.’”
“That’s because condo-hotel units have reached prices that do not allow investors to turn a profit by covering their mortgages with rental income, Maeser said. ‘Everyone’ agents, developers’ seems to be talking about the more permanent-use second home type of unit versus the unit built for rental. Especially since you don’t have to be a rocket scientist to realize that you can’t cash flow a $2 million condo,’ he said.”
The Herald Tribune. “Much as they generally dislike the for-sale-by-owner method of selling a home, some licensed Realtors and agents do not always work within the MLS system, and some use FSBO tactics for their personal property. Katie Gerhardt, a professional realty appraiser who is a licensed Realtor decided to sell her home as a FSBO.”
“‘The market is really tough now,’ Gerhardt said. She has owned a house in Sarasota since buying it in a 1993 foreclosure proceeding for $38,000. Gerhardt is asking $269,000 and says she is ‘forced to sell.’”
“When she bought another home in 2004, she swapped her homestead to the new property, losing the $250,000 tax exemption on the Hawthorne home. As a result, the taxes have quadrupled from $700 to $2,800 per year.”
“(Realtor) Aida Bloomquist recently decided to sell a Southgate investment property she owns in Sarasota. She bought the 1,100 square foot property two years ago for $182,900. She is asking $264,900.”
“Bloomquist posted a FSBO sign, but after getting a media call about the property, she decided to list the house on the MLS. A Realtor as a FSBO seller might send the wrong message to consumers, she said.”
The Tampa Tribune. “Three months ago, Alex and Deena Fuertes decided to try to cash in while they still could. The couple asked $295,000 for their 2,000-square-foot Valrico home, $135,000 more than they paid two years ago, and signed a contract on a smaller pre-construction town home.”
“But the offers they’d hoped for didn’t come. They lowered the price several times, then decided to stay put. Now, the Fuerteses face losing their $10,000 deposit on the town home.”
“‘I was thinking money, money, money,’ said Alex Fuertes. ‘Now, I’m looking at it like it’s just not worth it. The market is so bad right now that everybody is trying to get something for nothing.’”
“There are now about 28,000 pre-existing homes on the market in Tampa Bay, nearly four times as many as in spring 2005.”
“As far as Alex Fuertes is concerned, buying and selling is just a matter of timing. If he were only trying to buy now, he said, he’d love the market and would low-ball sellers to get a good deal.”
“As a seller, though, he plans to stay out of real estate until it changes again. ‘We can’t complain because we could still make a pretty penny,’ Fuertes said. ‘But I didn’t want to go down that much. I know things will bounce back up in about two years, and I may sell then.’”
“The study’s data is based on 2004 numbers, the most recent that is available. ‘That’s a very high percentage,’ said (analyst) Ingo Winzer. ‘In 2005, my guess is that that was even higher. My guess is there is a surge in investor buying and that makes the market very risky. It presents the possibility that there will be price declines in the next few years.’”
_________________________________
Really?? More than 40% investors?? How can that be - the NAR said it was not that high?? I believe the NAR - they have a code of ethics. They would not mislead us!!
Confidence has been shattered within the real estate market. Stable pricing is supposed to be the job of the fed but they screwed up big time as usual. A lot of people will be scared sh@tless to make a purchase because of the fear of the asset price falling. That is what a bubble does to the minds of most people. We will all pay a price for short term greed creeping into the market. Get rich quick schemes always end in shambles.
The FED is the PROBLEM! Greenspan should be put in prison.
What law did he break?
He broke the most important law.
“The Law of Common Sense.”
You Americans are as crazy as the Japaneese.
Mac Arthier: Breaking the “Law of Common Sense” isn’t always a jailable offence.
How about get rich quick schemes which involve sinking your hard-earned cash into stocks, instead of savings? It does not look as smart right now as it has for the past 19 or so years. (Is anyone still trying to figure out what Alan Greenspan meant when he said, “History has not dealt kindly with the aftermath of protracted periods of low risk premiums”?)
————————————————————————-
Global equity sell-off accelerates across Europe
By Chris Flood
Published: June 13 2006 07:52 | Last updated: June 13 2006 12:11
The sell-off in global equity markets gathered pace on Tuesday as European bourses suffered sharp losses following overnight falls on Wall Street and declines across Asia amid fears about the effect of tighter monetary policy on global growth.
http://news.ft.com/cms/s/1066d952-faa9-11da-b4d0-0000779e2340.html
One man’s view of the housing market and the effect of its fall on the economy and the dollar comes from today’s The Daily Reckoning:
“It is our view that the ‘irrational exuberance’ has transferred from
stocks to housing, setting up conditions for a ‘housing deflation,’ writes
John Rubino at 321 Gold. “We expect a serious fall-off of home
construction, sales and values, starting in 2006, and becoming very
pronounced by 2007. A glut of new houses will accumulate in the next 12-24
months, causing a drop in price and construction of new units, and setting
up a serious risk of price decline (similar to the ‘tech wreck’ in the
stock market).”
++
*** More from John Rubino:
“The housing boom will almost certainly be followed by a long and painful
housing bust. We expect that a continued rise in interest rate spreads and
decline in housing sales and prices will push the U.S. in recession by
late 2006, and this recession will deepen in 2007, as the housing ‘wealth
effect’ turns into a ‘poverty effect.’ As defaults accelerate, lenders’
underwriting will tighten significantly, leading to a precipitous drop in
new home sales.
“On the heels of the housing downturn will come a downturn in consumer
spending, particularly in housing-related retail sectors (home improvement
items, furniture and appliances, etc.). This will happen because variable
mortgage rates are rising, fuel costs stay high, and the ‘wealth effect’
of the last 10 years quickly turns into a ‘poverty effect,’ forcing the
personal savings rate quickly back up to at least the U.S. long term trend
of 7.1%. With stocks and housing giving back the ‘asset bubble’
appreciation, the consumer has no choice but to resort to savings (as they
have in the past and as they do in all other countries once the ‘asset
bubble’ turns into an ‘asset bust’).
“The rising federal deficit, economic recession, lower interest rates, and
declines in real estate will all lead to substantial downward pressure on
the U.S. dollar. Falling U.S. interest rates will chase out investors,
weakening relative demand for the dollar. If the economy experiences an
asset deflation recession, the dollar could sink for a period of 3 -5
years, reaching new lows year after year.”
[Ed. Note: The housing market is five times bigger than the stock
market... and could wipe out as much as 10 times more wealth than a
complete stock market collapse....]
I think Asian investors may have read this post, as their stock markets are selling off yet again while Wall Street sleeps
http://tinyurl.com/qt7gg
I think Asian investors are jut monkeys when it comes to the USA. Big monkey Bernanké sneezees and the little monkeys from Asia get a cold. Asiatic monkey see asiatic monkey do.
Asia is specialized in the art of reverse ingeenering and cheap copy imitations of luxury trade marks. Apparently they behave in the same way when it comes to investment. You in the US with the big monkey, the grandpa of all apes, Alan Greenspan started a hot thing with the real estate bubbles. Now the little chimps in Asia followed sheepishly their big american baboon with his big banana. Why should economic science and central banking be serious anyways?
Banana republic central banking will be the next hot thing at the FED and naturally in Chimpanze Asia.
Don’t ignore the role of hedge funds which have grown up all over the USA in the unraveling of the Asian stock market bubble.
And who did absolutely nothing to regulate a little bit these monsters called hedge funds. Who? This freaking Alan Greenspan.
I’m not sure all the sell off can be “blamed” on the US fed policy. Much of it can be explained by the BOJ. As they adjust their interest rates, it negatively affects the so-called “carry trade”. Thus, a lot of investors must liquidate their investments in other markets and pay off their Japanese based debt as the new carry trade is no longer profitable. Of course much of that BOJ easy money came to the States as well, but an awful lot of it went to SE asian countries and India.
The Asian countries are more affected by the change in the Carry trade because their markets are smaller, and thus more easily manipulated by the amounts of Japanese easy money compared to our much larger market. Hence, we barely wobble (but wobble we do), whereas they go down up to 3% a day!
Just MO
Clouseau
Yes the BOJ is one sick puppy too.
“The rising federal deficit, economic recession, lower interest rates, and
declines in real estate will all lead to substantial downward pressure on
the U.S. dollar. ”
But just the opposite could happen. A flight to quality could put UPWARD pressure on the dollar. The dollar would go UP for several years. Only trouble being not many folks willl have them.
In a housing downturn/ credit crunch, billions of borrowed dollars simply disappear, making them scarce.
It’s the ol’ inflation/deflation debate.
And NOTHING is what they will get. Yes they will get a lot of negative worth. That’s the problem with easy credit. It gives you the illusion of ownership. In reality you own a big fat NOTHING. Thank you, Alan Greenspan, you big pervert.
And what is shitty wih the USA, is that it can never keep it’s germs for itself. It just loves to spread it’s veneral diseases to it’s neighbors. This bubble is a lot like a nasty virus. Call it the financial AIDS virus spread by the FED and the Japan Central Bank.
Myrtle Beach is in South Carolina, near the North Carolina border. The place has been a traditional vacation spot for the working class folks of NC for more than 50 years. Sad to see it has been caught up in the bubble insanity……
Thanks for reminding me. I changed the changed the lead in.
Myrtle beach is sweet!!!!!!! Can’t beat southern hospitality and hotties from the south.
MB has been overbuilt for awhile now, mostly with retail junk properties and timeshares, so I’m not the least bit surprised that it tops such a list. (My last ‘tourist moment’ there: going to see the Medieval Times show in MB, then hurrying back to Sunset Beach for sanity’s sake) FWIW, better, quieter vacation areas can be found to the north and south of it.
“‘I was thinking money, money, money,’ said Alex Fuertes. ‘Now, I’m looking at it like it’s just not worth it. The market is so bad right now that everybody is trying to get something for nothing.’”
He isn’t talking about himself, is he?
Methinks he doth protest too much.
to paraphrase:
The market is so bad right now that nobody is willing to give me something for nothing.
“Something for nothing” has become the catchphrase of this nation (along with “I deserve it”). Why waste time learning or producing anything when you can just jump on the inflation vehicle du jour and join in the plundering from our grandkids?
Gone with Roberto. (the for sale sign and Tuesday hurricane)
“‘We have to replace that investor who wants rental income with an investor who wants a second home and appreciation,’ local analyst Tom Maeser said. ‘If we can’t find them, we’ll see a glut.’”
Wow, how about another option. A real homebuyer who wants to live in it full time at a reasonable price. Nah ! That would never prop up the Realtor Cabal.
“‘We have to replace that investor who wants rental income with an investor who wants a second home and appreciation,’ ’”
so do phoenix, naples, denver, dtsd, timbuktu…
spain, portugal, australia, oz, narnia……..
harlam, watts, detroit, compton……….
middle earth . . . . . . .
Mos Eisley, Endor, Tatooine, Alderaan
And of course, Zoid.
“Mos Eisley, Endor, Tatooine, Alderaan”
Just be very careful if some shady character offers you cheap land in Alderaan.
How does this work: Prices go down if you buy as an investor who wants rental income, and they go up if you are an investor who wants a second home? How does the house know whether its value is supposed to go down or up? Or does the owner have to inform the sellers whether he bought the home as a rental, and hence will have to lose money on the sale, or that he bought it as a second home, in which case the buyer will have to pay his appreciation? This Realtornomics is just too confusing…
If I buy a home and rent it out, the renter gets a place to live (demand decreses), and one less house remains on the market (supply decreases).
However, if I buy a home and and use it as a second or vacation home, that would be renter still needs a place to stay (demand stays the same), and there is one less home on the market (but there is once less home on the market (supply decreases).
For an extreme example, imagine if every homeowner was required by law to own 5 additional homes and keep them vacant (or use them only as vacation homes, not rentals). Or imagine if people were required to buy 5 quarts of milk at a time, but immediately pour four quarts of it down the drain uppon exiting the store. What would that do to prices?
“investor who wants a second home and appreciation”
He’s means the realtors and the flippers appreciation and not an increase in equity as there is no chance of that.
Second homes don’t make any sense to me, unless you can rent them out. How much time do people get for vacation? Two weeks? A month? You’re going to buy a house to let it sit empty 11 months out of the year? We’re talking about a second home in a vacation spot, not in a business area. It’s not like you can be bicoastal and spend half your time in Myrtle Beach.
or unless you’re retired, can come and go as you please.
That’s what I’ve thought too. Most people in this country work too hard to take a real vacation. My local paper just ran a story about how many annual vacation days the typical American leaves on the table. I think most “vacation homes” bought in the last few years are just another ATM.
Unless it’s witin easy driving distance, then you can use it every weekend. In MI the northern and Western lake areas are dotted with weekend cottages on lakes. In CO it’s the same in the mountains. Typically these buildings are way too small to live in, though. They used to be cabins, now they are mostly condos.
Words he’ll live to regret.
Exactly. Unless he has rich AND sympathetic relatives, his attitude and mis-call earned this kid a financial death sentence.
Next few days in Florida are optimum times to obtain really good prices in negotiating for a home especially if you are looking near Clearwater and what better time to check for roof leaks and drainage.
This storm is a cat 1 at the most, give it a month or two when the big storms start. negotiating for a home will be easy, insuring it will be the hard part,
To properly value homes in the Florida hurricane zone, you have to subtract the increase in the present value of future hurricane premiums due to last year’s record number of storms plus the deductible in case of loss. Or if you cannot get insurance, you have to subtract off the expected present value of future storm damage, which will come out of your own net worth…
“…insuring it will be the hard part…”
That is almost an understatement. In Florida, you cannot get homeowners coverage when a named storm is in the area. That plays havoc with closing dates and coverage start-dates.
But — all-cash buyers don’t care about that. All they care about is a really lowball price. “How much did you say you want for this place? Say, if we could close next week?” (rearranges hair as wind is picking up)
just curious, are people required to get hurricane insurance by law in FL, or can they just risk it (not that I’d recommend that)?
Cash buyers can just risk it. We’re not quite that socialist yet. However, if you’re referring to borrowers, you bet your bippie insurance will be required by the lender — and that is logical.
omg - it has been a long time since I heard “you bet your bippee”.
thanks for that!
“As a seller, though, he plans to stay out of real estate until it changes again. ‘We can’t complain because we could still make a pretty penny,’ Fuertes said. ‘But I didn’t want to go down that much. I know things will bounce back up in about two years, and I may sell then.’”
Ah, he’s not only greedy but clairvoyant.
Not just greedy and clairvoyant, but telekinetic.
Greedy, stupid, and delusional. He’s got a lot of company. It’s going to be exhilerating watching greed turn to fear.
Yep, I know its “wrong” - but I can’t help being thilled at the prospect of being able to pull out the popcorn and chuckle at the ensuing entertainment ahead!
Not really.
Because it’s the taxpayers in the end, that will be footing the bills. Like in the Savings and loans fiasco in the 80’s. But it’s going to be 100 times bigger. Everybody will pay eventually except Fannie Mae or Freddie Mac. Uncle Sam wil as usual, be holding the bag. Banking is a real great business. Almost no risk and no losss. If it is bid enough, you pass the buck to the taxpayer.
The house’s current price is $135,000 more than he paid for it 2 years ago. He can’t rap his head around the fact that it could easily, and most likely will, go down in value by that much in the next two years. If you’ve seen rediculous appreciation in the past 5 years your going to see rediculous depreciation in the next few years.
Did any one mention depriciation? Would it look something like the home builders and lenders stocks? hehehe… http://tinyurl.com/ovpm8
Especially since you don’t have to be a rocket scientist to realize that you can’t cash flow a $2 million condo,’ he said.”
Yes. Yes you can.
Just not the ones you’re trying to.
Other than paying cash how do you make a 2 mil condo cash flow. Other than Beverly Hills or Manhattan which I don’t see much of that if any there. How do you rent out a condo at the off off the hand estimate of 20 grand per mo. Then the next question becomes is it worth it to own something like that. Not being flip just curious about the theory.
What I’m saying is that the price is irrelevant if the asset is truly worth it. For example, Southwest makes $50 million 737s cashflow, for example.
Ie… you just better get what you’re paying for.
LMAO !! Gotcha now, excellent point.
To be more specific to your content, yeah, you better be able to furnish it and rent it for $4K/week if you are going to pay $2mil for a condo. Otheriwse it’s a condo whose value is indetermined for which you overpaid.
“Prices of homes in competitive neighborhoods used to go up by as much as $75,000 in one day, Smith said. But today, she noted, a $350,000 home will still cost $350,000 tomorrow. Florida homes have consistently increased by double digits for the past couple of years, according to data from the Florida Association of Realtors.”
—————————————————————
OK, it will cost $350K tomorrow. But what about next week?
Econ 101 should be a required course for a RE license.
Hello Everyone,
I’m curious about what you all think about the impact of the bubble, and it’s effect on LAND prices, VS HOUSING prices.
I’m sure there is a correlation - but I’m not sure how they might relate. I would assume that the primary value of the house is held in the land - and not what is necessarily built on it…Can anyone give some insight?
Thanks
Rdub
True but land has no price, 1.00 or 1000,000 its what you will pay for it, In some areas land will never be worth what is being paid now, Look at Florida in 1926 to 1929. Japan 1988, its all due to easy money, but easy come easy go.
Landedeal2,
Well maybe never is a bit strong, perhaps, not in any reasonable timeframe, unless you are making perhaps a multigenerational purchase.
In Japan, I read a story about how some people who bought at the peak are still reeling from that bad decision, stuck in condos in far flung exurbs that are worth far less than what they owe on them. Very sad indeed, almost like indentured servanthood
I just dont see it, years ago land was needed for farming, thats where most of the land used today for 0 lot line homes came from, But the US is cant hold the value, most jobs are changing to out of country workers and lower paid immigrants, Blue and white collar workers are finding that a worker with a PHD will do the same job for less then half the pay, This was a good run but it will take years to fix the mess where in, History is the best way to learn, and this is history,
I found it funny that both bubbles were built on fundamentally unsound principles. The dot com bubble was overvaluing companies that were preaching how they were going to flatten the value of physical networks (replacing them with virtual networks) yet all of them were located within 50 minutes of the most expensive real estate in the US. Since the whole point of the internet is that it doesn’t matter where you are located, why weren’t more operated from say Salt Lake City or Fargo than the Sillicon Valley?
Then the housing bubble, which got its start from people pulling money out of the stock market (due to America’s potential uncompetitiveness on the global scale) to buy homes in the same country whose value is solely based on the incomes of the workers in those same companies investors were selling.
“Since the whole point of the internet is that it doesn’t matter where you are located, why weren’t more operated from say Salt Lake City or Fargo than the Sillicon Valley?”
I know that you were referring to the location of the companies, but this post got me thinking. I believe it’s a myth that in the Internet age, it does not matter where you are located. We can create new technology that changes the way we interact with the world, but we cannot change basic human nature.
When times turn tough, who is going to get canned? The guy in the office next to his boss or the guy who’s telecommuting from who-knows-where? Of course it’s going to be the telecommuter…the lack of a personal connection makes it harder to fire the local guy and so easy to fire the telecommuter.
I think that in the coming economic downturn we’ll see a lot of fallout from this. The self-employed telecommuters may well survive because it takes a lot of hustle to sell yourself from afar. They are probably the “best of the breed” anyway. But anyone who’s managed to bring their big city bucks to the boonies and drive up housing prices there solely because they had a benevolent employer who allowed telecommuting? Well, let’s just say I think that they are going to feel some pain.
A simple way to explain it is the equilibrium value of raw land equals the profit which could be realized by incurring the cost of converting it to its highest-valued use, then selling it. So, for instance, if a developer could take a vacant lot in McMansionville and build a McMansion there for a cost of $200K and sell it for $800K, then the equilibrium value of the land would be $600K — the potential profit. Now if the price of McMansions fell by 40% and the cost of building them stays the same, then the value of the land would fall to
60% X $800K - $200K = $280K, a 53% loss.
This illustrates why land in home construction land has a beta greater than 1 with respect to housing prices, and also why the homebuilder stocks will fall by a larger percentage than the underlying asset they sell — it’s the (land) inventory which will sink them.
This is somewhat correct, but more true would be the value of the land as an input is an amount that enables the developer to achieve a required rate of return, like 20%. A more typical example would that a house that costs $300k to build, might have land that would trade for $100k (for the lot) and the developer would hope to sell for say $500k to make a profit and cover some soft costs (carry cost on construction loan, closing costs, etc.). Land is thus a smaller input and its value is EVEN MORE volatile than you suggest, Getstucco. In a declining market, the lot values could drop dramatically, and you’d see a pull back in activity, which would also lower construction costs a bit.
Thanks for the more realistic version of my make-believe example (as Chip suspects, I teach econ, so make-believe is the best I can do…).
Typically, but in some desirable locations, the land is worth much more. For example, someone just bought a $3.3 million house in a pricey Vancouver suburb and the house is estimated to be worth $300k, the land worth $3 million. The new owners intend to tear down the house as it’s not up to snuff for them. Sounds crazy but true.
Getstucco — nice example — I suspect you either teach econ or majored/minored in it.
I agree with your analysis 100%.
The conclusion that I don’t agree with 100% is that the inventory will sink the homebuilders. I think those homebuilders who were foolish enough to buy all their land at today’s prices . . . yes, they will be sunk. However, I have seen a lot of this risk passed off in the past couple of years to other investors. The publics have been very reluctant to buy lots until they are ready to build on them (keeping inventory as low as possible). The investors have been making a killing as the market goes up, and the homebuilders buy the marked up land. However, as the market slides, many of these investors who are mapping lots will get left holding the bag as homebuilders (like HOV) simply walk away from option payments.
There are some builders that have a lot of land on their books, but generally at a pre-bubble cost basis.
I think generally homebuilders will be sunk because they are building to only a 10% (give or take) profit margin on their initial business plan–if on their last purchases, home values drop by 10% they make $0 or lose money.
The profits will shrivel up and losses will be incurred, but I give that 6 months to a year. The reason is that subdivisions started last year may have a profit margin of 40%, not 10%. That 40% will be eroded, sure. However, the subdivisions started in December 2005 have a profit margin today of maybe (on PROJECTED sales) of 10%. As prices slide, those more recent projects will be in the red, but losses won’t be realized until the homes sell–6 months or more into the future.
Generally speaking, builders build to a given yield on costs–for public builders, this number can be as low as 8-9%. So, if they can reasonably expect a home to sell for $200,000, and it costs them $120,000 to build and sell it, then they can afford to pay $60,000 for the lot. And frequently, they do just that–as competitive as land sales have been over the past couple of years, it has taken aggressive purchases to get the deal to have the land in inventory, and to feed the beast (a big organization needs to build to survive).
This is great for landowners on the way up. However, because of this, all else equal, a $1 decrease in home value corresponds to approximately a $0.90 decrease in land value.
Said another way, land prices can adjust downward very significantly, very quickly, IF (a big if), there is anyone willing to buy the land at all. Remember (as some flippers will find out), real estate is illiquid–what is your house worth if no one is willing to buy it? Answer - $0.
Take the example above–generally speaking the proportions are not too far off 25-30% of the cost of a home is in the land–not too unreasonable. If hypothetical $200k home drops in value by $20,000 (10%), guess what–the value of the lot just went down by about 30%. 20% decrease in prospective home prices? Land prices are cut in half (at least).
This is not far fetched–it happened in the UK during the last housing cycle–an ISLAND, mind you, where they certainly aren’t making any more land.
3 to 5 x the leverage in land
Housing prices-construction costs = land prices. People often sound as if they regard land prices as somehow more stable than housing prices but that just isn’t the case. In Detroit, where housing prices are below construction costs, the city has large amounts of land seized for back taxes that it has trouble giving away. Of course there are huge acerages of land where that equation would lead to a negative valuation of land so the land is free for, and derives its value from other uses, farming, forestry etc… Many builders have gotten rich by using options to exploit the time lag in land prices in this bubble, but I suspect that land prices respond pretty quickly to changes in housing prices.
I guess the price of slow typing is that other people can say what you were trying to say better and more thoroughly before your post is done.
Sorry if slightly OT, but here is a nice perspective on the housing market crash in progress (thanks, Patrick!):
http://www.moneyandmarkets.com/press.asp?rls_id=309&cat_id=6
I like the way they include stock charts for Toll and KBH. BTW, these two stocks continue to lead the correction in the US stock markets — both dropped by over 3% today, when the DJIA was off by less than 1%…
http://www.marketwatch.com/tools/quotes/quotes.asp?siteid=mktw&symb=tol+kbh&view=basic&vc=1
What i wouldn’t give for a Mr. Housing Bubble bumper sticker. That graphic is great.
Go to http://www.cafepress.com, and you can supply the graphic and make your own.
OT : check out the yield curve today
http://www.bloomberg.com/markets/rates/index.html
Good lord!!!
Not being the least bit sarcastic — what is it I’m looking for in this data, that is so interesting/disturbing/noteworthy?
Down the page a bit, look at the US treasuries:
2, 3, and 5 year are all at 4.875%
0 year is at 5.125%
30 year is at 4.5%
When it is more expensive to borrow money for the short-term rather than the long-term that is a lack of confidence in the economy and possible recession.
Well, if it didn’t invert that certainly would have caused the FED some angst. They are going through all the trouble of draining liquidity to drop commodities and stocks to scare the money into the bond market. They would be bummed out if the result were otherwise. The inflation boogey man is hereby declared contained! A pause is coming soon to a FOMC meeting near you!
Feepness — thanks.
Wow, the fact that you are unware helps the case.
The bond yield indicates the credit spread between short term and long term rates. The traditional business model has lenders borrowing short at low rates and lending long at higher rates making profit according to the spread.
In 2003, when overnight lending rates (short term) were near 0%, this margin was huge, today it is inverted.
It costs more to borrow short, which makes no sense.
Google “inverted yield curve”, it will make more sense.
Basically, every recession or depression has been preceded by an inverted yield curve. They do not predict economic disaster 100% of the time, but it’s damn close.
It’s our best indication of downturn. The long end compared to the short end tends to signal a direction for the economy. When the long end is higher, things are healthy, prime profit time. When it is flat, growth will be. When it is inverted, watch out, things are correcting.
I belive the curve is trying desperately to tell us something. It briefly inverted over the holidays and a bunch of people were freaking out. They thought that it turned out to be nothing. Well…here it is again!
The traditional business model has lenders borrowing short at low rates and lending long at higher rates making profit according to the spread.
There is another kind of spread - benchmark-commercial spread that is the measure of risk aversion. If commercial long-term decouples from the benchmark, lenders will still be able to create credit.
I feel there is something fishy going on with recent inversions. It doesn’t make much sense to have 30-year at 4.5%. Long rates can’t be that low, something else is going on here.
It has peaks on both ends and a dip in the middle. The front peak (near term) is quite high at the moment. This means that the market is predicting a downturn of some sort. I will let the real bond pros fill in the cartoon description I just gave.
Jeez, that’s pretty unbelieveable, 4.5% for 30 yr treasury bond, and 4.875% for a 3 month t-bill. Even Money market accounts are paying around 4.75%.
Something is seriously broken. If the bond market collapses, it will totally kill the housing market, stock market, dollar, and everything else. Then again, if the housing market collapses, it will kill the stock market, bond market, dollar and everything else.
The next few years are going to be very ugly indeed.
My thoughts exactly, and in no particular order!
Gotta love that moment of “dawning realization”.
Ben this post was great! It gets better as the month goes on. Let’s hope someone interviews this gent this time next year to get his thoughts after reality sets in. “As a seller, though, he plans to stay out of real estate until it changes again. ‘We can’t complain because we could still make a pretty penny,’ Fuertes said. ‘But I didn’t want to go down that much. I know things will bounce back up in about two years, and I may sell then.’”
OT,
Just sighted a 18% price reduction in the neighborhood I am monitoring. Hopefully the link will work.
http://www.listingssandiego.com/search/homeview.asp?id=1512715&p3=-1&ix=32
They lowered the price from 850K to 700K. The last good comp sold in March for 920K. This is going to shake some people up once this property sells. I am begining to get excited.
In this same neighborhood houses that I would be interested in purchasing were running 800K…now there are a lot listed for 700K that I like.
The link requires registration, which I went ahead and did. That’s a nice neighborhood for San Diego… pretty close to the action but still not crowded.
Still looks overpriced though for being built in 1978. Needs updating badly.
Yeah it is kind of hidden , and not many people know about it. Please do not tell any body
I think we should be able to find a nice house in that neighborhood in the 500K range in 2 years or so.
I knew someone in BK,CA that bought several houses as an investment. When the market went south he found that taxes went up, repairs cost too much, etc so he gave the houses to someone on the condition that they move them at their cost. The taxes on the property went way, way down and when things turned around he built on the lots(ajoining).
“Much as they generally dislike the for-sale-by-owner method of selling a home, some licensed Realtors and agents do not always work within the MLS system, and some use FSBO tactics for their personal property. Katie Gerhardt, a professional realty appraiser who is a licensed Realtor decided to sell her home as a FSBO.”
And just how many Realtors(tm) are using this system to unload their properties while pricing clients property higher or not working to sell clients property. Tells me people, ‘don’t take an exclusive’……
the bubble has burst. front of yahoo:
“U.S. housing prices droop as buyers wait”
Here is how you make money in real estate (and stocks):
a) when everyone is crying the blues because their stocks are beat up and worthless, that is when you buy. (we aren’t there yet in either…)
b) when everyone is yelling about how great their stocks are and how much money they are worth, that is when you sell.
so… when they are crying, you be buying. When they are yelling, you be selling. Simple. The funny thing is that the flippers had tons of time to get out of this market. Of course they always stay too late. Just like they did in the dot com bubble.
The reason they do this is because they are following the TREND rather than the FUNDAMENTALS.
Thanks,
I had to write that one down to remember
It’s amazing to me to see how many of the houses on the MLS are owned by realtors!!!! I look everyday (zip code 91915 / Eastlake, San Diego). I then go to zillow.com and put in the address which shows how much they initially purchased it for, and realize they want to sell fast and get there money out. It’s amazing!!!!! There is one that is selling for 1.3 million and the realtor purchased it for 325K. Wow!!! Anyways, love this blog!!!
The correct way to say it is “It’s amazing to me to see how many realtors there are”. Seriously - who in SD does not have an RE licence of some sort?
Hey Veronica, I track zip 91915 also. Sold my house there in July 04. Inventory is up about 500% since I sold (from 41 to around 225 now). Prices there are completely disconnected from reality. Lots of buyers who came late into the game trying to sell for too high of prices. Eastlake is nice, but unless you are Mexican, Filipino, or Hispanic, it is getting a little uncomfortable for the average caucasion. There used to be a big price difference between SouthEast county and North county, but it seems like sellers are trying to price their homes higher than many North county areas now (i.e. Carlsbad, Rancho Bernardo, etc) which isn’t realistic. I’m concerned about the transients that SR-125 will bring right through the middle of Eastlake. Any updates on Eastlake from you would be much appreciated.
Love the squeeze.
Nikeei(Japan) down again ~400 points.
Lennar down afterhrs ~10%!!!
Indian sensex down yesterday 3% (down 25% from peak)
Mexico down (worst since 2004)
Gold down 15% from peak
And the big one: Housing (worldwide 60 trillion market) down ~10% since peak.
Ouch! And little investor me just sold his modest 200 shares of RTN at $43.41 this morning (bought at $37.50). The trend of RTN since early May is not great. I have a larger amount of cash. No hurry. Gold is getting more buyable. Something’s going to give. Correction: Gold 20% from its peak, miamirenter! Hmm…Should I keep my $8681 proceeds of today in cash or wait another week and buy water utilities, agriculture, or oil-related stocks? I’ll buy 4 ounces of metal in a couple of weeks if it stays under $600 ($598 just a couple of minutes before this post…)
I’d grab the metal while it’s cheap.
Where did you see LEN down 10%???? I looked for it and can’t find that?
Thanks! - Please let it be true. LOL
Not to mention that the shark attacks are starting.
http://www.mytelus.com/news/article.do?pageID=cp_business_home&articleID=2271747
I don’t know what Macquarie can see in the carcass, but as an Aussie let me assure you it won’t be going to the Cervus shareholders.
Does anyone know what the new Fed regulatory plan “Basel II” is about?
Bomb Iran.
It’s not a Fed plan, its a global agreement.
Essentially, Basel 2 is all about allocating capital based on risk.
If you imagine 2 banks, each with $100 of capital and a 10% capital ratio, under Basel 1 (the current regime) they are both able to lend $1,000, no matter what the risk.
Under Basel 2, if Bank A does mezzanine lending, whilst Bank B does very safe senior debt lending, Bank A may be able to lend only $400 with his $100 of capital, whilst Bank B may be able to lend $6,500 with his $100 of capital.
It is a very good idea. The only problem is that the US banking market is very fractionalised, and it costs money to analyse risk. Therefore, if the Fed brings in Basel 2, US banks will be uncompetitive as they don’t have the economies of scale.
Regards,
Loafer
Thank you!
Bernanke is a little late to the party. the fact that this is even happening says enough about our banking system.
Bernanke Says Banking Plan Aids Stability
>even though sales are slipping and price appreciation has slowed,
>2006 still will likely be the third-best year…
>…”But when you’re coming off the first-best year, it looks like
>things are going down,” Bodmer said.
Ok, I’m calling IDIOT here. When anything goes from 1st best to 3rd best, the direction of change is NEGATIVE, and, by definition, GOING DOWN. PERIOD. The reason it LOOKS like it’s going down is because IT IS going down.
Can someone confirm the LEN - 10% down on yahoo??? I don’t see that anywhere else?
I saw that too on yahoo. By the way, the sensex in India is down 4% the first 12 min of traded right now. Something tells me this is going to be a bad week.
OUCH. Nikkei down 600 points.
Am I the only one that is nervous this crash may be really really ugly? I sold my house, I’m in all cash renting, but I still get this feeling that I am not going to enjoy the next few years.
When that realization hits everyone here, it might be time to start browsing for some capital assets to buy
If you are worried, start parking your extra cash in short term CD’s while you decide what to do longer term. There are 3-6 month term CD’s available right now at greater than 5%.
I have that same feeling. I sold my India mutual funds 2 weeks ago. It appears there is not a safe place for dollars right now (except a cd).
The NIKKI is down 614 points as of right now.
http://news.bbc.co.uk/2/hi/business/5074300.stm
In fact, every world maket is down except Russia and Colombia this Tuesday morning.
http://newsvote.bbc.co.uk/2/shared/fds/hi/business/market_data/stockmarket/default.stm
I hope this didn’t double post (maybe I am getting tired)
The NIKKI is down 614 points
All the world markets except Russia and Colombia are down this Tuesday AM.
http://newsvote.bbc.co.uk/2/shared/fds/hi/business/market_data/stockmarket/default.stm
Our Monday they were down is what I was saying.
Be careful with Colombia, as they have had their drop in the last couple of days, and the dollar has gained value. Perfect for going in and scooping deals, if they are at the bottom. I doubt it as they also had a massive run on their IGDB for the last couple of years while having a fairly stable dollar (around 2300 per USD). IT is extremely volatile. That country is where I learned that RE can go down DRAMATICALLY as it tanked by around 50% nominal in 1994!!!!
BTW I think it is Colombo that is up. Colombia was closed yesterday at 12:45 for a 10% drop, first time ever that it was closed.
Way OT, but I have to rant…Why is our inept government sending 100 FEMA trucks loaded with
supplies in to an area that is receiving 1 inch of rain and 20mph wind from a tropical storm… They are the most idiotic people I have ever seen. Can we trust them to do anything right?
And I am not a Dem!…They would be just as bad
Whew…I feel better
http://www.safehaven.com/article-5345.htm