A Bottomless Pit If They Cut Prices
It’s Friday desk clearing time for this blogger. “The housing bubble brought bidding wars. This manic bidding was, in effect, a sign of the bubble, as well as a factor that helped inflate it. But a curious thing has happened since the housing market has returned to something more rational: The bidding wars haven’t gone away. A practice that was rare in the 1980s and 1990s now seems here to stay in markets like Washington, D.C., a permanent gift of the housing bubble. Lu Han and William Strange, economists at the University of Toronto’s Rotman School of Management, have concluded as much after looking at data from the National Association of Realtors dating back to the 1980s.”
“‘People are making these million-dollar trades,’ Strange says of homebuyers. ‘But we really don’t know that much about the housing market, where it’s going, what demand and supply are. It’s an amateur market where people are making these huge, huge decisions.’”
“Declining oil prices eroded Houston home sales last month, the Houston Association of Realtors reported. The upper-end of the home market — homes priced at $500,000 and up — faltered in February, after being one of the strongest selling brackets for months, the association noted. ‘I think you have some slowdown in the marketplace just because of oil prices going down,’ says Shad Bogany of Better Homes and Gardens Gary Greene. ‘I’ve lost at least two buyers (employed at energy companies) lately who had signed contracts and backed out of them a week later.’”
“Although the overall Houston statistics showed some softness in the upper-end of the market, there is still a lot of strength in affluent neighborhoods close to the city’s center, says Cheri Fama, president of John Daugherty Realtors, which specializes in the upscale homes. ‘Houston has had such as accelerated market over the last few years. If we go down a little bit we are just getting closer to normal,’ she says.”
“Home prices fell in eight of 11 major Canadian real estate markets in February as more weakness crept into the real estate market, according to the Teranet-National Bank national composite house price index. ‘The effects of significantly lower oil prices had already turned up in resale activity, with sales in Calgary and Edmonton down more than 40 per cent and 30 per cent respectively, from October to January,’ notes TD economic analyst Admir Kolaj in a commentary. ‘Calgary had been on a decelerating streak since November. Today’s data release indicates that cracks are also beginning to appear in Edmonton.’”
“Price corrections were even larger in some other cities. Prices in Ottawa-Gatineau dropped for the fifth time in six months and are now down 5.2 per cent in that period. Montreal prices fell for the sixth time in seven months — down 5.0 per cent overall. And in Halifax, prices have dropped 5.5 per cent in the last five months.”
“Singapore’s home prices and rentals fell last year, marking a general downtrend in the sector. The decline in housing prices was the first in six years. Bungalows were sold in Sentosa for an average price of S$1,676 psf, 20 percent lower from 2013, according to CBRE data. ‘The dismal sales were primarily due to the absence of foreign buyers, deterred by the hefty 15 percent Additional Buyer’s Stamp Duty payable,’ said Desmond Sim, CBRE research head for Singapore and Southeast Asia.”
“He noted, though, that price cuts may not be a sound strategy to boost transactions. ‘It will be a bottomless pit if they cut prices. If they lower prices by 10 percent, buyers might wait for even further cuts,’ he said.”
“Home sales by members of the Greater Wilkes-Barre Association of Realtors rose modestly in 2014 after recovering from a slow first quarter depressed by harsh weather. ‘There’s just a lot of pent-up demand on the selling side,’ said Ted Poggi, broker/owner of Berkshire Hathaway Home Services, Poggi Realtors. Active listings among member agencies are hovering around 1,900, very near the total sales last year. ‘Whatever sells it’s replenishing,’ Poggi said.”
“Poggi thinks sellers have come to accept that prices were unsustainably inflated in the early and mid 2000s, and have become willing to list at more realistic values. Since most sellers plan to buy another home at today’s lower prices, ‘what they’re losing on selling a house they’re gaining on buying a new one,’ he said.”
“Home equity lines of credit with balances run up in Southwest Florida’s real estate boom will be coming back to haunt a lot of homeowners still underwater at today’s prices, according to RealtyTrac. The Fort Myers-Cape Coral area ranks 22nd nationally for the percent of HELOCs resetting from 2015-18 for houses worth less than the debt for which they’re the collateral. Fort Myers-Cape Coral also has the 24th largest amount, $763 million, for underwater HELOCs that will be resetting from 2015-18.”
“Robbie Roepstorff, president of Fort Myers-based Edison National Bank, said it may be premature to say that HELOCs resetting over the next three years will be a serious problem. But he warned that the ones resetting over the next three years have a higher percentage of underwater homes – and home price appreciation is slowing nationwide. Roepstorff acknowledged that some local homeowners with HELOCs could get in trouble if price increases fall off. ‘If property values don’t come up, they could be in trouble.’”
“Bank of Montreal senior economist Sal Guatieri had a winner on his hands last October when he analyzed the Canadian housing market and showed that three cities alone—Toronto, Vancouver and Calgary—were driving most of the overall price and sales gains in the country, while almost everywhere else, activity was slowing. He dubbed these cities the ‘Hot 3′ and, for a short time, it became the main lens through which people talked about the Canadian housing market. That is, until one of the Hot 3 plunged into a deep freeze. And then there were two.”
“At the same time, tales of excess from the market fail to shock anymore. And so, as the average price of a detached home in Toronto passes the $1-million mark, it was noted with more amusement than alarm. In Vancouver, rundown shacks continue to list for close to $1 million. And why not? Lenders are hard at work pushing mortgages with rates as low as 2.24 per cent for two years, barely a notch above the Bank of Canada’s latest core inflation reading of 2.2 per cent.”
“Canadians should put aside what they might think about the importance of oil prices to the economy. Because, for all the talk of Canada being an energy superpower, we’ve clearly shown that our greater strength lies in buying, selling, renovating and renting houses and condominiums. Real estate now makes up close to 13 per cent of Canada’s GDP, compared to less than 10 per cent for energy. The real estate industry is also a bigger employer than the mining, oil and gas sector. Should house prices actually crash, then we’re looking at a crisis far worse than anything oil prices could inflict.”
“The constant focus on the link between inflation and unemployment, which is evident in the minutes of the Federal Reserve’s Federal Open Market Committee and in the media discussion of what the Fed should do next, does present a real danger. It reflects an outdated economic paradigm that, twice in the past twenty years, has misled policy-makers and produced bad policy decisions. When that threat failed to materialize, it kept rates at low levels for long periods. Cheap credit, in turn, encouraged the development of speculative bubbles and other financial imbalances.”
“But rather than changing its policy framework to prioritize avoiding yet another speculative bust, top Fed policy makers once again committed themselves to focusing on inflation, publishing a target rate of two per cent. The real policy dilemma isn’t the trade-off between inflation and unemployment. It’s the tradeoff between cheap money and financial instability. How long can the Fed keep interest at ultra-low levels without sparking another bubble and all that goes with it?”
“Terry Jones, a founding member of the Monty Python comedy team, targets the global financial system in a provocative new documentary and warns of more meltdowns if the system isn’t fixed soon. Jones, co-writer and co-director of ‘Boom Bust Boom,’ uses puppetry and animation to get the message across — as well as interviews with economist Paul Krugman, actor John Cusack, Bank of England Chief Economist Andy Haldane and others.”
“‘It bugs me that teachers or professors blindly teach economics without recognising the crashes, the real world,’ Jones said in a telephone interview. ‘Throughout history, crashes were constantly going on. This film is about the Achilles heel of capitalism — how human nature drives the economy to crisis after crisis time and time again,’ he declares.”
“It concludes that unless the teaching of economics is overhauled — and economic models factor in instability as a normal feature of capitalism — crises will keep happening. ‘If the professors start parroting these party lines, I think you should pelt them with vegetables and rotten fruit,’ actor and commentator Cusack recommends to students watching. ‘That’s what I would do.’”
“It concludes that unless the teaching of economics is overhauled — and economic models factor in instability as a normal feature of capitalism — crises will keep happening. ‘If the professors start parroting these party lines, I think you should pelt them with vegetables and rotten fruit,’ actor and commentator Cusack recommends to students watching. ‘That’s what I would do.’”
Where can one enroll in such a course on ‘The Comic Tragedy of False Economic Paradigms’?
“Where can one enroll in such a course on ‘The Comic Tragedy of False Economic Paradigms’?”
Come in and see me and I’ll be happy to sign you up with some ready-made OJT.
Here is the trailer for the upcoming Documentary;
https://www.youtube.com/watch?v=gEZiLh9-Eko
The idiot Krugman’s face appeared. I had to stop watching.
Krugman was one of the last interviews…So you may have stopped but you pretty much watched it all…
Terry Jones - ummmm does his movie Brazil mean anything to anyone out there?
You’re thinking of Terry Gilliam. Jones has done more historical TV stuff. His show Barbarians was very interesting:
http://en.wikipedia.org/wiki/Terry_Jones%27_Barbarians
I wonder if he’ll be playing the organ naked?
https://www.google.com/search?q=terry+jones+playing+organ&hl=en&gbv=2&sa=X&oi=image_result_group&ei=OhsDVZzNNMvboASnqIDYDA&ved=0CBsQsAQ&tbm=isch
I stand corrected - thank you - my bad. This is what happens when one approaches 60 - some of the synapses start to fail!!
Yep Boots I am one of the “olds” and proud of it there my younger friend!!!!
‘Research data shows Shanghai’s housing market saw some growth during the Spring Festival, while many cities registered no sales at all.’
‘One expert says the interest rate cut will have only a limited effect on pushing up trading volume. For some potential home buyers, getting cheaper loans is still not enough for them to make the buying decision now.’
‘As we head into the spring season, real estate’s busiest time, Metro looks at what’s in store for the Toronto market for highrise and otherwise. One report has GTA condo sales down 25 per cent in January.’
‘Like many real estate agents, Batori is optimistic that Toronto is headed into a strong housing market this year. “There’s been continued negativity from different analysts and different individuals in the Economist magazine, the World Bank, all these different organizations are basically stating that Toronto is 20, 30, 40 per cent overvalued. That may be the case, but in the meantime, inventory levels remain low and there are still more buyers than there are listings, so that continues to prop up our prices and continues this ongoing strength.”
‘Harvey Kalles sales representative Jennifer Greenberg is cautiously optimistic. “I think it’ll have a similar strength as we saw last year. Every year things increase in value, so that doesn’t surprise me that we’ll see slightly higher sale prices than what we saw from last year.”
Maybe not this year Jennifer:
‘A recent research report published by the Royal Bank of Canada could well raise some red flags regarding the health of Toronto’s housing market.’
‘The report notes that following the completion of a record 10,368 apartment units (mostly condos) in December of 2014, the number of completed and unoccupied condo units in the metro area jumped from 917 in December to 1602 in January, its highest point since March of 1993.’
‘However, before we declare that Toronto’s housing market is headed over a cliff, it is useful to assess the health of the key drivers of housing demand in the city in order to determine if they are about to run out of gas.’
‘First, despite the fact that over 10,000 units were completed in January, the fact that the number of completed and unoccupied multiple units only increased by 701 in the month suggests that the majority of the newly completed units are not quite ready to be occupied.’
Every year things increase in value, so that doesn’t surprise me that we’ll see slightly higher sale prices than what we saw from last year.
That’s some sound economic analysis right there.
“This may have been the winter of discontent, but the region’s 2015 housing market has survived it just fine. Low interest rates and strong employment growth point to a sound local market,” said the Northern Virginia Association of Realtors in a statement issued yesterday.’
“The increased inventory and relatively stable prices, as well as low interest rates compared to those just last year, create a good opportunity to buy or sell properties in Northern Virginia,” Mary Bayat, the 2015 NVAR chair of the board and owner of Bayat Realty in Alexandria explained. “Another local indicator is that active listings have risen more than 25 percent,” Bayat said. “That is a sure sign of seller confidence.”
“Another local indicator is that active listings have risen more than 25 percent,” Bayat said. “That is a sure sign of seller confidence.”
More brilliant analysis from an another unbiased ‘expert’. Correlation does not imply causation. I’m sure he believes that the increase in listings during 2007-2010 was also an indicator of “seller confidence”. The reality is that your 25% upswing in active listings indicates that people want- or need- to stop owning 25% more houses. If RE is such a great investment and it will continue to go up in price, why would anyone in their right mind want to sell now? Hmmm…
You’re raining on the fantasy parade.
I can’t help it, man. I saw so many people get hosed the first time it isn’t even funny- many of them will never financially recover. So many people will believe whatever they hope/want to hear from some “expert” who is there to “help them”, despite what they could observe going on all around them if they would just open up their eyes and use a little common sense. The median family income around here is about $56k (in a make-believe economy) and these people are out getting loans for $400k houses because some “expert” has “helped” them. This is going to be worse than Bubble 1.0 as there will be NO jobs out there for these people at lower skill levels to service that kind of debt.
Maybe the current bubble popping won’t be quite as bad as the last one, at least in terms of job losses. Before the first bubble, there were huge numbers of new homes being built, and lots of people building them. New home construction isn’t nearly so bad this time, so if construction slows, there won’t be as many jobs lost. Of course, many of the construction workers from the last bust probably still don’t have jobs that pay the same wages.
many of the construction workers from the last bust probably still don’t have jobs that pay the same wages ??
They have gone home south of the border….
I do think Act II will be worse- and faster. Our employment stats are a joke. A lot of the higher paying jobs for lower-skilled/educated people went away in Act I and now there are more minimum wage waiters and bartenders than before. (fewer oilfield jobs, truck drivers, construction workers, manufacturing, etc) OdumboCare has pushed many businesses to hire part time instead of full time and the pigmen in DC obliged by altering the way full employment/unemployment are calculated to game the system. Another result of being threatened into OdumboCare, is that many people have even less disposable income to allocate to a house payment. I also think that familiarity breeds contempt and entitlement strengthens moral hazard. People who survived a brush with insolvency will more inclined to risk it again. Bailouts are expected now (if we squeal loudly enough) and the entitlement crowd will be at the forefront. People who are going to cut and run will do it faster and those who didn’t get a turn at the magic trough-of-plenty the first time will feel strongly that it is their turn. None of this is good and none of this will be localized.
Slim was right, little has changed in the housing market. Here’s a quote from the Tucson story posted earlier this week.
“Grant Road Lumber set to close after 66 years”
David Hauert, vice president of the company and son of founder and president Sam Hauert, said the decision to close did not come lightly.
The Hauerts attempted to find a buyer for Grant Road in an effort to save the jobs of its 30 employees. They hired a broker who conducted a nationwide search for two years with no luck.
Ultimately, “It was something that we had to do,” David Hauert said. “The housing market has not seen a lot of change since the recession. It hasn’t been good for a number of years. Tucson has a long way to go to get out of this thing.”
Hauert said the company is debt-free, but business has been sluggish.
“We weren’t going to allow ourselves to get into a financial bind,” he said. “We are closing on our terms. It has been very emotional, very difficult.”
‘Throughout history, crashes were constantly going on…..”
BCG, why would you expect it to be any different?
Precedence Jingle_Fraud precedence.
Learn it.
“Grant Road Lumber set to close after 66 years” ??
In the face of Home Depot and Lowes its hard for independents to survive…One around here that has is Pine Cone lumber…I remember asking someone who new the owners how they make it…He said, the father left the boys the land & business free of any debt including all inventory and the inventory is massive (many millions of dollars) and high quality…So, I guess you can survive against the box stores if you have the deepest of pockets…
Grant Road Lumber was also debt free, but business activity never recovered.
Strange to me that they couldn’t just trim overhead to some extent and manage to survive…
Lumber prices as a commodity have crashed.
Too bad that lumber prices remain elevated to the end consumer.
‘The overall supply of homes in Washington is less than two months, and in some price ranges it’s tighter. D.C.’s sweet spot — homes priced between $750,000 and $1 million — is 1.4 months. In Loudoun County, there is a three and half month supply overall, but an eight-month supply in the $750,000 to $1 million price range.’
‘While both of these markets are considered healthy by any historical standard, D.C. is a seller’s market while Loudoun’s is balanced. Conditions in Northern Virginia and suburban Maryland are quite different from D.C. and Loudoun. And because of that, buyers and sellers alike will need to set their expectations and determine their negotiating strategy based on very local market conditions.’
‘Buyers this spring in D.C. will have far fewer choices in a given price range than a suburban purchaser, and if they are serious about buying they had better be prepared.’
‘They should be ready to drop what they’re doing and go see that hot property that just came on the market and ready to come in with a strong offer quickly if they want it. That’s especially true for homes on Capitol Hill, in the U Street Corridor, Columbia Heights and the Southwest Waterfront. So far this year, 25 percent of all properties in the District have sold above list, so paying above the asking price or – something we hate to see, waiving appraisal or home inspection contingencies — might be what it takes to win in a multiple offer situation.’
‘Some patience may be in order as well. For those buyers who don’t want to get caught up in the frenzy of multiple offers and fewer choices, sitting on the sidelines for a while may make sense. But the biggest decision to make is to weigh the benefits of waiting until the market is a little calmer against the likelihood of higher interest rates and higher prices in the future.’
‘For sellers in D.C., there are three words of advice: Don’t get cocky! An overpriced listing will get passed by even in a seller’s market. Almost a third of the available homes in the District right now have reduced their price since coming on the market, and 40 percent have been on the market for more than three months.’
Don’t get cocky! An overpriced listing will get passed by even in a seller’s market ??
More like being greedy than being cocky….
I’ll tell you what the deal with DC is - it was an island of jobs in a sea of unemployment. Wretched traffic (which means wasted hours sitting in a car) and sky house house and rental prices were the result. It was an island of employment due to government stimulus - it is closest to the printing press. Plus salaries in DC metro are significantly higher than the national medians and averages. So that drives up prices.
However - if the economy does experience some sort of durable broad-based employment and wages recovery, I expect people will start migrating away from DC metro.
‘Prices for new homes in Canada fell for the first time in nearly five years in January, and figures for home resales in February showed a correction underway in several markets.’
‘Another report on Thursday showed Canada’s household debt-to-income ratio rose to a record high in the fourth quarter, making consumers more vulnerable just as some economists say the housing market is at a tipping point.’
“We can’t stress enough the divergence in housing market conditions at the provincial level,” said David Madani, economist at Capital Economics, who has long expected a housing market crash. “While the near-term outlook looks stable for Ontario and British Columbia, dark clouds are forming over most other provinces, especially those hit hardest by the oil price slump.”
“In some markets there have clearly been corrections in progress. The monthly retreat in Calgary was the fourth in a row, for a cumulative decline of 2.3 percent … East of Toronto the corrections have tended to be larger,” Teranet said.’
‘Another Statistics Canada report showed the household debt-to-income ratio rose to a record high 163.3 percent in the fourth quarter. It was the third quarter in a row that disposable income increased at a slower rate than household debt.’
‘The Bank of Canada watches the measure closely for signs consumers may be overextended.’
“We’ve outlined on a number of occasions that the high levels of household debt do create vulnerabilities in the Canadian economy,” central bank economist Rhys Mendes told the House of Commons finance committee Thursday.’
That’s super Rhys! Let it be noted that the situation has been outlined. Now hold on to your hat because this is the big one.
Ben
I think you are right. Employment has tightened, gross profit margins too, and selling prices reported in Toronto still do not reflect what their actual situation is.
I know of condos that are selling for $100,000 less than their peak price; I know of whole areas of single family ranch style houses that are selling for less than $400,000.
RAL is turning out to be right too.
Probably all being led by our super tight banks.
RAL is turning out to be right too ??
Right in what way ??
RAL keeps talking (hoping) about prices going down. Around here he is right, and I think they have only started to go down.
It’s not a matter of hoping. The reality remains that current asking prices of resale housing are 3x-5x construction costs(lot, labor, materials and profit).
In the case of places like Boston and San Francisco, asking prices are 7-10x construction costs. Which may have something to do with this;
Boston, MA Sale Prices Nosedive 19% YoY
http://www.zillow.com/ma/home-values/
Around here he is right ??
And around here he is wrong….
Sorry Dave…. I’m right. Ben Jones is right.
Look at how this thing has spread in Canada. The Macleans article is right on; Real estate is what will do you in. Anybody can change industries or look for a new line of work. But it’ll be that big mortgage and car payment that will kick your butt personally. I wonder if all those second homes in Florida or rent houses in Phoenix and Palm Desert look like such a great “investment” now?
‘At the same time, tales of excess from the market fail to shock anymore. And so, as the average price of a detached home in Toronto passes the $1-million mark, it was noted with more amusement than alarm. In Vancouver, rundown shacks continue to list for close to $1 million. And why not? Lenders are hard at work pushing mortgages’
‘In contrast, demand for homes in Vancouver and Toronto remains red hot amid historically low borrowing rates, particularly for detached homes – which have surged in prices well ahead of other housing types in recent years. “While demand has cooled across much of the country, buyers in these two cities continue to outbid each other for coveted detached homes,” BMO’s Guatieri said.’
‘Home prices rose 7.8 per cent in the greater Toronto area, and were 6.4 per cent higher in Vancouver last month compared to February 2014.’
“Is it a bubble? It’s hard to say given that demand reflects more strong fundamentals than rampant speculation. But something’s not right. For most goods, high prices discourage demand. But in these two cities, first-time buyers are fearful of getting shut out of the market. So they keep buying despite worsening affordability, a trend last seen in the late 1980s,” the economist said. “And that did not end well.”
http://globalnews.ca/news/1880961/home-prices-are-cooling-everywhere-but-red-hot-vancouver-toronto/
What, no ‘the Chinese are going to save us’ talk?
Wasn’t it in either Toronto or Vancouver about 3 years ago where the ‘energetic and enthusiastic’ rich, Chinese buyers were discovered to be employees of the same RE website or developer marketing some condos?
IIRC it was Vancouver.
“Real estate is what will do you in.”
At these massively inflated prices over the last 15 years, it most certainly has and will.
Another problem: Nobody wants to admit they’ve been had, got taken for a ride, bamboozled. Understandable but that doesn’t change the fact that SFR’s are built profitably for $55/sq ft anywhere in the country.
I have a home in Rancho Mirage and follow the market closely. It has peaked and has gone down since the summer. Homes that would have been $425,000 in the summer are now $350,000 or less. The decline of the exchange rate and the oil glut has certainly cooled the Canadian buyers that were flush with cash and snapping up the bargains from the bust.
“RAL is turning out to be right too.”
RAL is right…. has a nice ring to it.
“Poggi thinks sellers have come to accept that prices were unsustainably inflated in the early and mid 2000s, and have become willing to list at more realistic values. Since most sellers plan to buy another home at today’s lower prices, ‘what they’re losing on selling a house they’re gaining on buying a new one,’ he said.”
Unless you are $100,000 underwater. In that case you’ll be lucky to living in a trailer…
‘A record surplus in U.S. crude inventories may soon strain the nation’s storage capacity, renewing a slump in prices and curbing its output, according to the International Energy Agency.’
‘The IEA boosted estimates for U.S. oil production this year as cutbacks in drilling rigs have so far failed slow its output. U.S. oil supply will expand this year by about 750,000 barrels a day to 12.56 million a day, up from a projection of 12.41 million in last month’s report. The agency boosted estimates for North American output in the fourth quarter of 2014 by a “steep” 300,000 barrels a day.’
Fewer wells being drilled doesn’t stop oil from coming out of the previously drilled wells.
“Fewer wells being drilled doesn’t stop oil from coming out of the previously drilled wells.”
And if you’re stuck with some hefty bills to pay for drilling those previously drilled wells then you aren’t given the option of cutting back on production.
If prices drop then the incentive is to pump more oil, not less.
A bit a twist on the schoolbook effects of Supply and Demand but … there it is.
Supply/demand is just a model to help explain the real world. There are all sorts of other things.
http://commons.wikimedia.org/wiki/File:Negative_externality.svg
And those negative externalities are not automatically priced in. (Maybe they are reflected in the CA gas tax, though you’d never realize it sitting in LA traffic…)
Bills to pay = the result of an extensive borrowed money economy.
And in this case (and in many other cases) the extensive borrowing not only distorted the boom, it also distorts the resultant bust.
And there are the leases. If you’ve paid for the time, why not use it? Equipment sitting there, might as well use it. They say, the rig count is down. But there are still rigs operating. I remember when the rig count in Texas got down to single digits in the 80’s.
If you’ve paid for the time, why not use it? Equipment sitting there, might as well use it ??
Exactly Ben….Those are “sunk cost”….Even if your ROI falls below expectations or more likely Return “of” investment…1/2 a loaf is better than no loaf…
Driving prices down to dramatically lower and more affordable levels is the point.
Remember…. Falling prices is positively bullish and good for the economy.
Having worked for companies that went under, I’ve seen another angle. ‘Let’s keep the doors open and maybe things will turn around.’ Heck, you can read this sentiment everyday in the oil biz.
“And there are the leases. If you’ve paid for the time, why not use it?”
My understanding of how the leases are structured is that if you DON’T drill within a certain timeframe, you lose the lease.
However, a lot of leases were signed at a time when prices were much higher, and so the “break-even” point for drilling is likely much higher than current prices.
I’m sure there is lots of interesting decision analysis going on right now…
That’s the problem when you price your existence on $100 or more oil. Greed always kills in the end.
“My understanding of how the leases are structured is that if you DON’T drill within a certain timeframe, you lose the lease.”
That term as well as some similar ones are in the standard leases published by the American Association of Petroleum Landmen. These are the standard templates for oil and gas leases just like the American Institute of Architects are the standard for construction contracts.
You’re right, there’s a lot of interesting decision making going on. A lot of those decisions will result in litigation…
AIA contract language is going the way of the dodo bird. It’s all EJCDC front end now now.
“‘Let’s keep the doors open and maybe things will turn around.’ Heck, you can read this sentiment everyday in the oil biz.”
This denial is plentiful industry-wide. At some point there will be a come to Jesus moment when reality sets in and hopes and dreams are crushed.
“Fewer wells being drilled doesn’t stop oil from coming out of the previously drilled wells.”
I’d go so far as to suggest that fewer wells being drilled plus higher oil prices encourages more oil to come out of the previously drilled wells.
Of course that’s certain to go right over dumbazz’s head.
Oil Plummets Through $47 Floor To $46.13; Demand Craters As Production Ramps Up
http://www.marketwatch.com/investing/future/crude%20oil%20-%20electronic
Sitting at $45 with the teens in the crosshairs.
Notice how dumbazz avoids posting on articles that show oil prices resuming their crash?
Reality is like anti-matter.
So is data.
“The bidding wars haven’t gone away. A practice that was rare in the 1980s and 1990s now seems here to stay in markets like Washington, D.C., a permanent gift of the housing bubble.”
In the past, when you didn’t have these exploding mortgages, people would get the idea of what their house was worth in their heads during bubbles, and wouldn’t sell for less.
Instead of the price falling back to reality right away, you would have years where the market locked and only suckers overpaid and bought until inflation brought the real value of housing back down to reality.
Now inflation is lower, but the government desperately seeks to avoid nominal price drops, allowing banks to keep foreclosures off the market for years while hiding losses.
If this persists, the only existing home sales will be estate sales, and younger generations would be better off seeking affordable new apartments than bidding for unaffordable new homes.
“If this persists, the only existing home sales will be estate sales, and younger generations would be better off seeking affordable new apartments than bidding for unaffordable new homes.”
But if they rent they’ll miss out on the joys of lawn maintenance, home maintenance, emergency repairs, unforeseen expenses, higher utility bills, taxes, and the list goes on. If they rent, they’ll know exactly how much they have to pay each month, and they can use the rest to buy stuff. But if their apartment isn’t big enough, where will they put all their new toys? Answer me that. You can’t image the stress I’m under, having to sell an old toy to make room for a new toy. Thank you Craigslist. Young people are much better off putting themselves in a lifetime of debt servitude so they don’t have to worry about such things.
Ummm,
Renters in my area don’t have it all that good either. Annual rent increases, some of which have been in the 40% range lately.
No joke. This is near Microsoft HQ.
The mortgage on my home is less than half of what it would cost to rent it, or the same-size apartment.
And two local apartment complexes have had buildings blown up in the past year due to hash-oil extraction explosions.
So renting has its downsides as well.
Think that’s gonna stay true for the next 30 years? Us tech folk are making obscene amounts of money for doing not very much… for now.
Ummmmm… not really.
Kirkland, WA List Prices Plunge 17% YoY As Foreclosures Ramp Up
http://www.zillow.com/kirkland-wa/home-values/
Let’s think about production costs of a SFR shall we?
$55/sq ft.
What amazes me is that you seem to think that this price was unchanged—from initial bubble, through bust, and back to echo bubble.
Are your input prices really so unchanging? Materials/commodities certainly seem to have changed somewhat over this interval. From guys I know who worked construction, I certainly got the sense that labor costs had changed in the boom and in the bust.
Explain yourself.
Goof point. They’re actually lower.
cost to flip
6% commission in and out = 12%
unrecoverable closing costs 2%?
14%
vs clicking on a stock $7×2 $14
nes paw ??
Plus taxes.
However - no one is going to give you a government backed $500,000 loan with no job as a day trader
6% commission in and out = 12%
You seem to think that the buyer and the seller both pay this 6% in full—which is obviously impossible.
A flipper either pays it on one end (but not the other), or splits it with the initial seller & eventual buyer; either model is fine.
Maybe the seller “pays” it, but the buyer typically finances it for 30 years.
That’s right. All blood is sucked from the target.
Dow is whipsawing lately.
Yes, and I love the rationale, on the news of higher interest rates in the “future”. I could use the boost.
Traders trying to anticipate what other traders are going to do, and beat them to it.
Dow is whipsawing lately ??
Yep…And they are fairly significant moves in the 2% range…I sense that a lot of money managers are standing very near the exits…
Realtor Charged With Bank Fraud
http://www.wbir.com/story/news/2015/03/09/mubarak-2-others-charged-with-bank-fraud-conspiracy/24661447/
Huntington Beach, CA Sale Prices Collapse 28% YoY; Foreclosures Ramp Up As Demand Plummets
http://www.zillow.com/huntington-beach-ca-92646/home-values/
It’s an amateur market where people are making these huge, huge decisions.
And it will continue until nature is allowed to extract the price of such behavior.
It happens again and again. The behavior never stops; it simply jumps from host to host.
Nature won’t be denied forever.
This dude thinks that economic policy is driven by human nature, but it’s not. It’s driven by power brokers. That’s why economic policy is skewed in their favor, not ours.
And it’s odd how he brings in Krugman, one of the proponents of the very same system that the documentary is criticizing.
Ok - Hbb’ers - step right up - WHO DO YOU THINK IS DRIVING THIS EMERGING NARATIVE?
House formation set for a rebound? Really?!
http://www.housingwire.com/articles/33228-is-household-formation-set-for-a-rebound
Severe college debt, the expense of raising kids, the ever poorer performance of public schools, why would someone want a debt trap?
Living with parents = less responsibility and more time to watch TV.
Why stop a good thing and become a slave to the banks and public school system?
Why stop a good thing and become a slave to the banks and public school system ??
Hmmmm…I would disagree generally with that statement…I don’t think that single thirty somethings think they have “A Good Thing”…I think, inherently, they would like to get married and have a family, but for reasons, some of which you point out, they have choosen not to…
“There are signs that living with the parents is so 2013″
There it is folks… professional wisdom. LOLZ!
As the old adage goes - never ever believe someone from the gubmit - when they say “hi we’re from the gubmit and we’re here to help you.” Run for the hills Granny if you hear this. And now for the link from Housing wire with a quote first.
“At a Federal Reserve and OCC hearing last month, a bank CEO remarked that foreclosing on seniors is happening in part because of HUD policy,” said Kevin Stein, associate director of the California Reinvestment Coalition. “While we don’t absolve the industry for its role in this, it’s clear this new policy is a disaster for surviving spouses. HUD can and should do better, and reverse mortgage servicers should stop all foreclosures on surviving spouses until then.”
Craig Briskin, a partner with Mehri & Skalet, PLLC in Washington, D.C., represents the plaintiffs in the Bennett and Plunkett cases, and filed a challenge to the new policy last week.
“HUD has betrayed its obligation to seniors, whom the reverse mortgage program is supposed to protect. We will continue to fight until HUD obeys federal law and protects spouses of reverse mortgage borrowers from foreclosure,” Briskin said.
Linky here:
http://www.housingwire.com/articles/33233-will-grandma-get-run-over-by-huds-reverse-mortgage-policy
Reverse mortgages are dangerous option, and should only be used as a last resort.
Reverse mortgages have pitfalls, so reserve only as a last option
November 07, 201
By Elliot Raphaelson
Tribune Media Services
As long as borrowers maintain their home, pay the property taxes and homeowner’s insurance, they maintain ownership. Loans do not have to be repaid until borrowers die, sell their property or live elsewhere for 12 months. When their home is sold, borrowers (or their estates) must pay off their loan plus interest. If there is any equity left, it is paid to borrowers or their heirs. As long as a property is sold at a fair market price, the lender cannot claim more than the sale amount received. (This is true only if a borrower lives in the home for the rest of his life.)
Unfortunately, many reverse mortgage borrowers have been unable to either maintain their home, or pay the property taxes or insurance on time. When this situation occurs, the lender may ask the borrower to repay the outstanding loan or face foreclosure. When the remaining equity is less than the outstanding loan, the lender forecloses when the borrower is unable to repay the outstanding balance.
If you are considering a reverse mortgage, reserve it only as your last option, as the high fees, uncertain interest rates (for adjustable-rate mortgages), and the loan’s inflexibility are not to your advantage. First, you should consider other options such as downsizing, selling the home and renting, or using a home equity loan.
http://articles.chicagotribune.com/2012-11-07/business/sc-cons-1101-savings-game-20121107_1_mortgage-borrowers-borrower-lives-home-equity
Reverse mortgages have pitfalls, so reserve only as a last option ??
For some its the only option short of a outright sale…
More evidence that a house is nothing more than an albatross in your later years.
when u c someone in a suit selling reverse mortgages, run the other way fast!
Renters giving up in Denver, forced to buy:
http://www.denverpost.com/business/ci_27691372/granite-properties-acquires-high-pointe-tower-greenwood-village?source=infinite