September 28, 2014

HBB PodCast 1

Here’s the link to the podcast with Jack McCabe. This was recorded on September 17, 2014.

And check out this HBB guest editorial, posted on September 15, 2013.

The Next Real Estate Bubble Is Already Underway


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Comment by Ben Jones
2014-09-25 04:06:42

This didn’t come out exactly as I would have liked. There were problems making the phone patch from the studio to Florida, so I was sitting in the sound booth for a long time before we even got started. The microphone I was using was supper sensitive. When I would open my mouth, I could hear my lips part in the headphones. This made me unsure of how loud I should talk, and I was a little subdued I think. The studio cut off the end of the show and I wasn’t able to coordinate the fix before I left.

I had planned on doing some blogging on the road this trip. Yesterday, I got on the plane and my new laptop died on me. I’m using a borrowed desktop to type this now, and I don’t know if I’ll be able to replace my computer on the fly. So basically, I’m handicapped internet wise until I get home Sunday. Thanks to Jack for recording this with me.

Comment by Housing Analyst
2014-09-25 07:21:13

You sounded good Jonesy. I was disappointed the last part got cut though.

Nothing like getting more truth out there about housing.

Comment by scdave
2014-09-25 07:50:57

Very interesting…Jack seems to echo many of the things we discuss here on the blog…Specifically…Investor impact on inventory and prices….Thanks Ben…

Comment by oxide
2014-09-25 10:14:37

Well that settles the question “will you podding in person.” Answer: No.

Comment by Bluto
2014-09-25 11:45:59

Thanks! very much enjoyed the podcast, flowed well and a really interesting discussion….hope it becomes a regular thing.

Comment by "Auntie Fed, why won't you love ME?"
2014-09-25 13:24:22

I will have to listen to this tonight. Sux about all your technical problems. Glad to see you got it together anyway.

Comment by "Auntie Fed, why won't you love ME?"
2014-09-25 17:46:58

Now it won’t load :(

Comment by Ben Jones
2014-09-25 18:33:07

I think the host site is having problems. Please check back.

BTW, I saw the bubble today and it is alive and well in north Texas. I drove along 380 from Denton to McKinney, and I’ve never seen so much development. Absolutely unbelievable.

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Comment by "Auntie Fed, why won't you love ME?"
2014-09-25 19:16:31

It’s working now.

Comment by scdave
2014-09-26 07:45:00

I drove along 380 from Denton to McKinney, and I’ve never seen so much development ??

I guess thats what happens when you are rated as the best small town…You happen to know the price point on some of those houses along the 380 Ben ??

Comment by Ben Jones
2014-09-26 18:00:49

160k to the 400’s, the signs say. 100% financing on some of them.

Comment by Ben Jones
2014-09-26 19:55:41

I was researching some properties I drove by today here in N Dallas, and I came up with these:

Price cut: -$10,000 (8/31)

Price cut: -$5,000 (9/18)

Price cut: -$15,100 (9/26)

Here’s a foreclosure the lender is trying to flip for more than it was owed just over a month ago in the same neighborhood:

Here’s an interesting one. Photos from foreclosure, apparently sold last December:

Now it’s for sale or lease. Good luck on this late flip, Tex.

Comment by "Auntie Fed, why won't you love ME?"
2014-09-25 19:26:40

Totally nuts that McCabe sees Florida going up for a couple more years. I think Arizona is starting to go down now. Is Florida somehow more insane than AZ?

Comment by Whac-A-Bubble™
2014-09-25 20:35:21

Sounds like a flood of foreign buyers absconding with fleeing capital are driving FL home prices skyward.

Comment by sabrina
2014-09-27 12:47:19

I live in South Florida and it seems to me that the changing demographics are contributing a lot to home sales. I’ve met an awful lot of new retirees, and they are surprisingly young. Good pension plans up north, I guess. Throw in the South Americans and Canadians, and it gets more crowded every year. And we are getting job transfers, too. I’ve been renting the same place for 4.5 years and I’d love to move but I can’t find anything nicer. Summertime used to be peaceful, but more and more of the snowbird types seem to be here all year now.

Comment by "Auntie Fed, why won't you love ME?"
2014-09-27 14:05:00

Northern migrants, Canadians, and South Americans have always existed. I wonder why so many of them are going to (and staying in) Florida now. What changed?

The South Americans probably result from our new globalist leaders, who ignore and actively attack the laws against excessive, uncontrolled immigration. That does not explain the Canadians and young retirees, though. It’s not as if young people and Canadians are better off than before. It’s not as if Florida is suddenly more attractive to them. Also, South American illegal immigrants usually don’t have any dough. So what gives? Maybe it’s just the mania.

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Comment by aragonzo
2014-09-27 23:29:32

Actually, the Canadians are better off, relatively speaking. The Canuck peso was 65 cents a decade ago and now is 90 cents. The economy did not get hit to nearly the same degree during the meltdown and there is still cheap money flowing into the system.

Comment by "Auntie Fed, why wont' you love ME?"
2014-09-28 20:57:26

You’re right, Canadians are better off, but they are not better off in Florida than they would be in Canada. For the record, Canadians LOVE Arizona, but they stopped flooding this market at least a year ago.

Comment by Housing Analyst
2014-09-25 04:07:18

McCabe says “It’s a negative cash flow situation”.

As we’ve maintained all along, cash flow is negative at current asking prices of resale housing and has been since 1998.

Comment by azdude
2014-09-25 07:55:37

i have positive cash flow thank you very much cha ching!

Comment by Housing Analyst
2014-09-25 10:15:04


Comment by Blue Skye
2014-09-26 16:48:11

Silly dude. Borrowing your paper bubble equity is not “positive cash flow” in a good sense.

Comment by frankie
2014-09-25 04:25:44

Very interesting. We truly live in interesting times.

Comment by Whac-A-Bubble™
2014-09-25 06:03:01

From McCabe’s 2013 editorial:

Before the boom began in 2002, residential real estate ownership was primarily the domain of the general public and individual investors. Families borrowed from banks and invested savings to own their own shelter, or small investors seeking steady rental cash flow income and the potential for increased profits through escalating market values operated small portfolios.

But since the last decade’s boom and bust, homeownership has radically changed.

As I’ve written in previous columns, hedge funds, private-equity groups, institutional investors and high-net-worth foreign investors have become the dominant buyers of residential real estate in America — significantly in Florida and other so-called sand states. Since the start of 2012, corporations have acquired a staggering 40 percent to more than 50 percent of available inventory in many key marketplaces.

A big question from here on out is whether the “radical change in homeownership” he noted will prove to be a permanent feature of the U.S. housing market from now on, or merely a transient artifact of the Housing Bubble era.

If I were a gambler, I know where I would place my money.

Comment by "Auntie Fed, why won't you love ME?"
2014-09-25 13:29:10

transient artifact

Comment by Whac-A-Bubble™
2014-09-25 18:57:06


Comment by Blue Skye
2014-09-26 16:50:35

That owning housing is not a gold mine that digs itself just has to be learned the hard way for another generation.

Comment by BetterRenter
2014-09-27 00:18:24

It can’t be a permanent feature since like all desired investment outlets, it was increasing at a rate far faster than the natural rate of inflation.

The long-term inflation rate is about 3%, but investors expect 8%. This is ALWAYS unstable. You can’t keep drawing high returns from a low-return economy. Eventually your primary asset class crashes and burns.

Comment by Whac-A-Bubble™
2014-09-27 13:48:59

The long-term inflation rate is about 3%, but investors expect 8%. This is ALWAYS unstable. You can’t keep drawing high returns from a low-return economy. Eventually your primary asset class crashes and burns.

Watch for savvy hedge fund housing investors to securitize their assets and offload them on greater fools as a sign the crash and burn stage is imminent.

Comment by Whac-A-Bubble™
2014-09-25 06:04:31

There’s money to be made in the next few years. But timing, and knowing when to exit, will be key to developers, lenders and these corporate homeowners. In real estate, when the music stops and you’re left without a chair, you lose … big time.

Is the music still playing today? If so, how long from now will the Fat Lady sing?

Comment by Whac-A-Bubble™
2014-09-25 06:08:13

The podcast gives Jack’s answer for how much longer FL will continue to see outsized investment gains: 1-2 years, thanks to “flight capital” from other countries. After a couple more good years, the outlook is cloudy…

Comment by scdave
2014-09-25 07:56:13

thanks to “flight capital” from other countries ??

Yep…I believe its a much bigger driver than we have speculated…There are a lot of countries in the world and a lot of wealthy people through gotten & Ill-gotten means…They are looking for preservation…Even if (like Jack suggested) they get back 70% of what they paid…

Comment by Whac-A-Bubble™
2014-09-25 06:11:24

It sounds like once Blackstone and others manage to securitize and offload the value of the homes they overpaid for, it is someone else’s problem when prices revert to fundamental value.

Comment by cactus
2014-09-25 09:39:27

It sounds like once Blackstone and others manage to securitize and offload the value of the homes they overpaid for, it is someone else’s problem when prices revert to fundamental value.’

yea that’s what I’m thinking .

Comment by oxide
2014-09-25 10:16:23

Socialize the risk and privatize the profits. Were you expecting something else?

Comment by Whac-A-Bubble™
2014-09-25 06:15:37

The podcast comments about financing being “so tight” for mom and pop homeowners seems to overlook the connection between prices that were driven out of reach by deep-pocketed investors and the need for prime mortgage underwriting practice to keep mortgage loan proceeds in line with household incomes. Until home prices come back in line with local incomes and rents, traditional underwriting standards suggest very few households should qualify for mortgages.

Comment by azdude
2014-09-25 07:57:08

they need to ease underwriting guidelines so more people can qualify for a life of debt.

Comment by Guillotine Renovator
2014-09-27 10:50:32

It seems house prices can remain detached from local incomes indefinitely.

Comment by Housing Analyst
2014-09-27 14:24:15

…. resulting in collapsing demand.

Comment by Whac-A-Bubble™
2014-09-25 06:27:17

It was interesting to hear Jack mention the prospect of FBI investigation of foreign flight money getting parked in U.S. investment real estate.

I mentioned this possibility to an FBI agent in our circle a few years back in connection to Mexican drug cartel money landing in San Diego real estate investments. The guy seemed dismissive of the notion that this could be a major driver of SD home prices.

Comment by Housing Analyst
2014-09-25 06:37:15

And I wonder how deep Realtor involvement is.

Comment by azdude
2014-09-25 07:58:17

none get a job

Comment by oxide
2014-09-26 16:16:13

No, i suspect that realtors are in very deep. From what I’ve seen, the ethnicity of the Realtor seems to match the ethnicity of the buyer/seller, making the buyer quite likely to confide in the realtor.

Yeah yeah, I know…

Comment by aNYCdj
2014-09-27 04:28:33

actually that’s not a far fetched idea Ox…its happening on a house up the street the RE agent is Taiwanese and everyone at the open house has been asian..

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Comment by Housing Analyst
2014-09-25 10:19:51

Ventura, CA Housing Inventory Skyrockets 86% As Prices Plummet 27%

Comment by BetterRenter
2014-09-27 00:25:43

I wouldn’t count on a whole lot of effective investigation. A few big cases, sure. But largely when there’s a influx of money, the politicians bless such an event, hence law enforcement snooping around becomes suppressed. Phone calls WILL be made, and FBI investigators will simply be re-tasked by their managers.

Capital always has the upper hand these days. No exception. That’s why we slouch from bubble to bubble. A green tsunami of capital rolls into an asset class, rational regulation and investigation become more and more suppressed, the asset class balloons… and then blows up. Repeat.

Comment by clark
2014-09-25 06:50:41

The JACK McCABE thread was a great read. Thanks for posting the link.

Others wonder who the big real-estate owners will sell to when they want to get out of the market.
Why wouldn’t The Fed or the government buy those houses and rent them out or dribble them out slowly at inflated prices or with conditions requiring service to the empire?
A make work jobs program?
The TSA could collect the rent, do inspections, that sort of thing.
In the background I keep thinking about TPTB article discussing how central banks could just give cash directly to people to stimulate the economies of the world.

Is there a worse option? Don’t “they” always pick the worst possible option?

Comment by Housing Analyst
2014-09-25 06:52:02

Why would they?

Comment by azdude
2014-09-25 07:59:57

warren buffet should buy up all the houses and donate them to future democrats. He might get some more bank deals out of it.

Comment by clark
2014-09-25 16:04:07

Why would they?

Because they can. Because it would benefit them in some way.
For some of the same reasons they bought out G.M..

Loosing money on the deal is no reason to stop them, it’s the underlying reasons that motivate them.

Comment by Housing Analyst
2014-09-25 16:11:12

“They” can do alot of things…. but they don’t.

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Comment by "Auntie Fed, why won't you love ME?"
2014-09-25 13:36:51

Because the Fed or government would lose money on the deal.

Comment by rj chicago
2014-09-25 15:07:16

Ruh Roh!!!

NYC Luxury-Condo Buyers Await New Towers as Sales Slow

Jeremy S.
Vice President at AuctionAdvisors

NYC Luxury-Condo Buyers Await New Towers as Sales Slow
Sales at One57, the ultra-luxury Manhattan condominium tower that set off a high-end residential construction boom, have slowed to a trickle amid competition from newer properties reaching the market.

Comment by aNYCdj
2014-09-28 16:54:29

Very important read people……wow!

Inside the New York Fed: Secret Recordings and a Culture Clash

A confidential report and a fired examiner’s hidden recorder penetrate the cloistered world of Wall Street’s top regulator—and its history of deference to banks.

Comment by taxpayers
2014-09-28 17:45:06

Wow. Pimpco bond red fees are 5x vanguard

Comment by taxpayers
2014-09-28 18:19:21

bond etf vs vanguard

Comment by phony scandals
2014-10-05 05:50:00

phony scandals

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