Weekend Bits Bucket And Craigslist Finds
Please post off-topic ideas, links and Craigslist finds here. This thread will be forwarded through the weekend.
The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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Clarendon FOW (flopper of the week) 1bd condo bought in Apr-06 for 306k, now asking 407k a whole two months later. “Owner has been reassigned overseas and must sell Unit promptly”. okay, i realize that’s horsesh*t but why would you show your hand? doesn’t that invite attempts to redefine the term “lowball”?
http://washingtondc.craigslist.org/nva/rfs/177075082.html
Do a search at craigslist using the phone number in the add:
202 538 1982
The owner of this one has been “assigned overseas as well”:
http://washingtondc.craigslist.org/nva/rfs/176323726.html
It is my partriotic duty as an American to buy this overpriced P.O.S. from this valiant flopper!
Since he’s been “assigned overseas”, I can only assume this means he is being sent to Iraq by our Armed Forces in order to drive up RE prices on Iraqi insurgents. Once the insurgents are “priced out forever” –thanks to the efforts of our brave flopper– they will be forced to leave Iraq and the daily attacks on our troops will cease. The terrorists will go back to being jealous bitter renters in their home countries and we can declare victory!
The terrorists will go back to being jealous bitter renters…
LOL
“The terrorists will go back to being jealous bitter *CAVE* renters…”
How about this one?
Owner has been reassigned overseas and must sell Unit promptly - what if this really means that he buys and wants to make $100,000 in two months and live in (insert favorite country here) for about 3-5 years before he has to work again? That he’s taking advantage of the war sentiment to get people to his house off so that “he can go protect the country against very dangerous Insurgents?” I would not be surprised.
Stephanie
anyone who can potentially be “assigned overseas” should NOT buy. Lesson learned.
Making up false reasons for flopping is “hot” right now. I guess the floppers realize they look like greedy pigs about to get spanked and they are afraid people won’t buy from them as a result.
Reassignment, relocating, job transfer, got sick - I’m seeing all types of reasons given.
China cannot reduce trade surplus
(Chinanews.cn)
Updated: 2006-06-30 09:13
“China’s trade surplus hit 13 billion US dollars this May, setting a monthly record for this year. Trade surplus has accumulated to 46.773 billion US dollars in the first five months of 2006.
Zhang indicated that when the Customs General Administration of China released these figures on June 12, overseas concern about China’s huge overall trade surplus this year heightened. The early 2006 forecast of “controlling the trade surplus to under 80 billion USD this year” seems to be beyond reach in view of the current situation.
Zhang said that the trade surplus issue is mainly due to many international factors. China has gotten to its position of having a trade surplus through its advantage in its industrial structure in the last decade, and this advantage may continue for another ten years. ”
http://tinyurl.com/zfhqt
I do not believe any comment is necessary. The numbers speak for themselves. Inflation will be endemic and the US will have to keep paying higher and higher rates to induce foreign purchase of government bonds.
And long-term treasuries rallied on this bullish news (US will have to keep paying higher and higher rates…)
Meanwhile, correlation really bites on the way down:
http://tinyurl.com/n49cp
The quarter ended on a low note for all of these bubblelicious stocks.
Next week will be an interesting one chartwise for a lot of the HB’s. Many of them are just over their 20-day SMA for the first time in a long time, and the volume for the month of June is fully twice the volume of any other month of the year for many of them.
To my possibly too-optimistic eye, the higher volume but sideways price movement in June looks like “consolidation” or “backing and filling”. We are told that stocks in a strong trend need to experience that from time to time, after which the trend resumes. (They say this for stocks in an uptrend at least. They never specifically say that it works the same way for stocks in a downtrend though — those stocks always seem to be “forming a bottom” instead.)
If we have another week of goofing around, a lot of the HB’s will be only a pont or so below their falling 50-day SMA’s. I wonder if Merrill will take advantage of the low-volatility holiday week to issue one of those gaspingly obvious pump-and-dumps for the whole sector (”attractive valuations at these lower levels”, “oversold”, etc.) like they did the first week of January. I’d be cool to see a pump-and-dump maybe Friday or a week from Monday that spikes them right up to the 50-DMA — and then to have no followthrough whatsoever the next day.
The foreclosure tsunami is coming and we are starting to see stories of shoddy construction for some of the big builders. I still say they aren’t done falling.
I follow Pulte (PHM) and have purchase PUT options in Jan 2008. Can you try to imagine what kind of income Pulte can report in the 3rd quarter of 2007. Woulkd you guess their sales and profits will be UP or DOWN. Just keep following Ben’s Blog, the hell with Merrill, and watch this stock get murdered. I am looking at the price of $12 a share that it was selling at just 2 short years ago before the run up began.
It is a question of when (they resume falling), not if…
China is not the only country stuffed with USD. Russia has added another $1. 2 billion in the past week with total hard currency reserves now standing at $247 billion. Hard currency and ruble currency controls are to be eliminated July 1, 2006. Full convertability is to be in place.
http://www.moscowtimes.ru/stories/2006/06/30/061.html
Well, this was certainly a diplomatic way of saying, “Gee, thanks, America!”
The U.S. is like one giant Pac-Man. We go about gobbling up everything in sight, especially those yummy energy pills. Woka-Woka-Woka-Woka….
I came across a segment on foreclosures on the NBC nightly new. The main point is that ARM’s are causing people problems and it may get worse. They also have a cut to David L., who claims that foreclosures may soon decline if the job market hold up. The video is near the top of the link.
http://www.realtytrac.com/?gateway_co.asp?accnt=14769&password=
This is very sad! Many people were taken advantage of by loan predators because of their lack of education in understanding finances. The loan predators just wanted their commissions and could care less what happens to the home buyer. They knew full good and well what would happen to these people in the future. It seems like a crime.
I get so sick of reading this rant. Most of these people who are going to lose their behinds walked into the door asking for the very product that is going to slay them. Loan predators taking advantage my a$$.
I’ve had 5 calls about financing a house this morning and not one of the callers inquired about a 30 yr fixed the first thing out of the mouth was either pick-a-payment or interest-only and do I qualify to get one.
I have a stupid question. We’ve never had a mortgage, paid cash for houses.
Can you get a 10 year mortgage if you can qualify income wise?
Yea, but it will probably be a portfolio loan from whomever you bank with. A 10 yr is not common. You have to go into the bank and ask for it. Once the loan rep scrapes his jaw off the floor and checks your current account balances and fico score he’ll go to the special sheet and find something that suits you.
Why not just get a 15 year and pay on a 10 year schedule?
From what I learned, you can get any term you want, but they typically don’t offer you any better rate than you can get on a 15 year mortgage. So at that point you might as well just get the fifteen and pay it on a ten year schedule.
That’s essentially what I ended up doing, with five years in place of ten. I dislike owing people money.
That’s not true the three portfolio loans that I have personally participated in on property that I own were all below what was currently advertised on the street at that time. Every portfolio loan I have seen written beats street pricing rate and term. These loans are not offered to every schmuck that walks off the street. They are usually the result of a loan rep soliciting someone of txchicks demeanor and I assume fico and bank deposits and her in turn replying what can you do for me. He replies with standard rates and terms she laughs at him and ask are you kidding and states she wouldn’t pay that with his earnings. Get it.
Fannie Mae offers 10 year notes. I did a couple of those loans, but not many. Main reason is that there was not much of a difference in rate between that and a 15 year rate. 15 year gives a borrower more flexibility anyway (supposedly the reason why someone gets an option arm or interest only loan ).
I always got a 30-year when I refinanced, with no points, except the first time. “Friend of the family” cost me $4,300 in points and closing costs on a mortgage under $200,000. His mother was my mom’s bridesmaid, but I will not speak to any member of that family since that convenient, familial rape. Paid it off faster: 30 Year Adjustable to 30-Year fixed twice more as I chased rates down. Paid it off two years ago. Was close to 10% at one point in time. Last was 6.675%, fine with me and great historically.
Be careful who you trust!!
mrincomestream,
They probably ask for the exotic loans because they’ve been told (by friends, family, Realtors and lenders) that 30-year FRMs are obsolete, and that nobody uses those any more (kid you not, had LOs tell me that with a straight face).
Welcome the new loan products for savvy, smart buyers. You are a savvy, smart buyer, aren’t you???
Yea, and I also use exotic loans except for that interest only stuff. Equity is too hard to come by to delay any of it for 3 to 10 yrs. Why make a payment if your not building equity. I don’t get nor agree on the interest only argument at all. The option arm for someone like me is the best thing since corn flakes. But then again it’s been awhile since I had a w-2. If you get a W-2 at the end of the year the only thing you really should be looking at is a 30 FRM. I mean come on what does the word “adjustable” or “negative -am” mean. I’ve done a lot of transactions at some point if your getting a loan those words come up. Your going on the hook for 30 years at no point did you think to ask what exactly does that mean in regards to your loan. That loan predator and more regulation argument to protect the consumer is getting stale. Makes absolutely no sense. I know I’m a broker what do I know. Btw Ca-Renter saw your post to the tucson investor. That guy is toast. He has forclosure in his near future no type of loan is going to save him unless he has a bucket full of money to toss on that property which doesn’t sound like he does. Someone should tell him to just walk away now get the process over with. Go sit in a corner for a few years and lick your wounds and figure out how to fix your credit and pay off that tax bill.
That guy is toast.
—————
Agree with that. As much as I’m a RE bear (and I am quite a bear), I don’t like to see the individual people get financially slaughtered because of this bubble. I know, I know…that’s what bubbles do, but it sucks. I thought he might have had a 30-yr FRM, in which case he would have at least been able to buy some time. Silly me, should have known better with a flipper.
Lots of people in AZ are going to be toast. I think AZ and FL are going to go down so hard and fast, it will take even hard-core bears by surprise.
I have a 10 year mortgage, 4.75% fixed. 6 years left. I refinanced from a 15 year mortage, wanted to keep the payment roughly the same, but reduce the loan term. All I had to do was ask.
Hold on now. It wasn’t just the mortgage lenders. Greenspan himself was out there with a bullhorn yelling from the rooftops to get an adjustable rate mortgage when 30 year rates were at 5.25%
He is shameless in my opinion, and I cannot believe the mainstream press let him off the hook. Heck, the never put him on the hook. Public enemy # 1.
Of course he thought he was protecting the GSE’s so they wouldn’t get stuck with all that long term paper at 5.25%
What he did to these people was criminal.
People have themselves to blame of course too. Our parent’s generation and their parents laugh at this generation and the “I want it now” mentality. Plenty of blame to go around.
Do you really think the nice couple in the NBC video even had the remotest clue who Greenspan is or would have heeded his advice if they did?
RE brokers, salesmen, and mortgage brokers probably conspired to allow them the “American Dream”, albeit temporarily.
The co-conspirators should rot in hell, but likely the (chose-to-be-conveniently- or just plain ignorance of finances) uninformed buyers are now suffering the hell from their purchase decision.
It’s been hot as hell today in the OC, so I’m not in a particularly good mood. But eventually, who is really to blame for the greed that has inflated this BUBBLE? (Yes, we can finally agree it is one!)
” Greenspan himself was out there with a bullhorn yelling from the rooftops to get an adjustable rate mortgage when 30 year rates were at 5.25%”
no he didn’t, he said in the PAST that might have been wise. everyone knew he was raising interest rates. he raised them so slow he was practically sending up smoke signals. I believe he also said something about those betting against interest rate rises we desirous of losing money.
I get a little sick if hearing about the greatest generation. It seems like they sure screwed up on a large scale when it came to raising their kids.
Greenspan never said anything using a bullhorn on the rooftop. And public enemy #1? Puhlease!!! Get a grip on reality.
This is very sad! Many people were taken advantage of by loan predators because of their lack of education in understanding finances.
Oh please. Even stupid people are responsible for their own decisions. The only “crime” I see is that these cretins are allowed to breed and vote. Fools have always been and will always be separated from their money, by someone. That’s the only way they ever learn anything. Caveat Emptor ALWAYS applies, and if they’re too dumb to understand what they’re signing, then they need to seek out wise and ethnical advisors to help them navigate through treacherous waters.
Sammy,
“Caveat Emptor ALWAYS applies, and if they’re too dumb to understand what they’re signing, then they need to seek out wise and ethnical advisors to help them navigate through treacherous waters.”
_____________
That’s the problem. Realtors, and many lenders, are touting themselves as wise and ethical advisors. Note their recent ad campaign. Exactly who are these ill-informed buyers supposed to turn to when buying a property? Many people never entered a transaction like this before. If the Realtor stands before them and says, “they can do it…trust me,” what are they supposed to believe?
Lenders make loans every day, but borrowers might do so only once or twice in a lifetime. Who has the obvious advantage? I believe the lending industry needs to be regulated, and those regulations need to be strictly enforced. Would help to have a lot more transparency (who’s buying all the MBSs with such high risk/low yields????) in the credit markets as well, IMHO.
Ca. Renter ,,,I agree with you . Screw the damn realtors and mortgage brokers that were rats in sheep clothing .
The lenders and realtors hold themselves up as experts ,(real estate boards have codes of ethics and rules ),so of course people thought they were in good hands .
To bad many people got betrayed by these so called “experts ” .Sadly , people will learn the hard way ,that when it comes to money ,no one is your friend .
Exactly right, Wizard. I see it all the time. Most folks should consult somebody like me, but the real estate folks give their advice for “free”.
A few years ago, I closed for a deal for a mtg. broker, and I couldn’t help myself. I saw the couple’s loan app and the rate they were being charged, and blurted out: “I think you could have gotten a better rate elsewhere”.
Needless to say, that was the last closing I did for that particular broker.
Even stupid people are responsible for their stupid decisions.
agree 100% sammy. If you trust a salesman as your advisor, then you need the lesson that’s coming. Let’s just hope that the people who are being schooled right now only need to be taught once.
That’s pretty harsh, but I basically agree with you. When you’re talking about borrowing tens or hundreds of thousands dollars and you’re completely unwilling to do your own research on it, well that’s pretty immature and stupid and you deserve what you get.
Realtors and mortgage brokers are trying to sell you something after all. If you’re willing to take what they say at face value then you’re probably going to spend most of your life being taken advantage of anyhow. Might as well get used to it.
From Sammy - “The only “crime” I see is that these cretins are allowed to breed and vote.”
Wow. So now they’ve lost their constitutional rights just because of a bad financial decision. Hmmm. Still America, right?
Bold
Does anybody else see the problem here? This NBC piece says their home is a “$129,000″ home. Their payment now is over $2,000. A 30 year fixed rate loan for $129,000 produces a $2.049 payment when the interest rate is …. 19%!
That’s one helluva expensive loan. Ok, let’s assume a monthly escrow for taxes and insurance of $300. The interest rate then is ….16% (roughly). Still sounds expensive to me.
All I can figure is that they must have HELOC’d a ton of cash.
Even stupid people are responsible for their stupid decisions.
—————–
Okay, guys… I know the popular theme here is to let everybody assume full responsibility for their decisions and actions, and that we shouldn’t protect “stupid” people from themselves. What if the behavior of the “stupid” people affects the lives and well-being of all the “smart” people (an good example might be this bubble). Can we not agree that society, AS A WHOLE, benefits if we have some basic protections in place, especially with respect to things like credit markets? We may well end up with a depression which could have been avoided, IMO, if the PTB alerted the public to what was going on. Instead, we got the MSM to pump the bubble up all the way, with nary a dissenting voice until just recently.
I’ll go out on a limb here and suggest the collective I.Q. on this blog is well above average. Even so, there are many here who only recently found out what has happened in the credit markets and how that affects housing and other asset prices. How can we expect J6, who can barely make it through one textbook, to protect him/herself in all matters — especially when all the “experts” lined up on TV and in the newspapers are feeding him/her a ration of bull?
Sorry for typos…need that edit button!
Again I agree with you Ca. renter. The correction of this market will effect everyone . I do not like the fact that because some greedy jerks wanted to get rich I might have to endure a 1929 type depression .I don’t like the fact that my tax dollars might be used for a bail out .
IMHO ,had the lending standards remained as they were in the good old days ,(in spite of lower interest rates ) ,the market would not of turned into the extreme bubble it did .At least if the buyers were qualified ,when the market turned ,they could of survived the downturn .
Lenders should not put unqualified buyers/flippers on loans they can’t afford based on the premise that “real estate always goes up “,or “wages going up” will save them . The funders were greedy to because they figured they would be getting a higher yield with all the pre=payment penalty loans ,and higher interest rate potential of ARM and IO loans .
Do people like the fact that where you park your savings /retirement funds might be at risk ?
Society has to be protected from the % of people that will bring everybody down by their stupid actions .I believe in a free market system , but lenders have to have standards that protect the savings/funds . That would of been the check and balance system that would of prevented the house price run-up going as high as it did . Rant over
By the way . Old time lenders felt that if someone had a down payment in the house they were less likely to walk, plus it protected the lender from market downturns. In the final analysis a buyer can have high credit scores but what if he has a job loss . Really the only thing a lender has is the property ,and it better have the value and it better have some equity .
…Like Wizard, I believe in free markets…. Oh that we had such a system. To function, even a “free” market requires structure - and enforceable regulation (back to that small % who game the system). The zeal for deregulation has devolved into a “baby tossed with the bathwater”. With industries “regulating themselves”, the result is apparent. I’m fascinated, watching this twisted Darwinian model play out…….as play out it will. My philosophy can be expressed in a single word: hubris.
Well said Marylee.
This week I got my first sign of builder incentives in Austin… hopefully it’s a sign of an inflection point here. You gotta love their creative financing disclaimer; read the fine print everyone!
Dear Roastbeef,
Pulte Homes of Austin wants to help you save money on your new home and get a great interest rate. Hurry in to any Pulte Homes Greater Austin Area community or visit http://www.pulte.com/austin to see all our communities, ready-to-move-in homes, pricing, floor plans, and more.
Interest rates are constantly changing so now is your opportunity to lock in at a great rate and save yourself thousands of dollars!
For a limited time, Pulte Homes is offering a 3.99% interest rate in year one of your mortgage, 4.99% interest rate for the second year, and 5.99% for the third year and a 6.53% APR for all three interest rates*.
Hurry and call one of our communities to learn more about buying a home at this great rate!
Sincerely,
Pulte Homes of Austin
* Disclaimer: Example: $200,000 sales price, $180,000 loan amount, 10% down payment, 30 year, 5.999% fixed interest rate, APR 6.535. The $1,170.50 monthly payment includes principal, interest and mortgage insurance. The payment is bought down the first two years to $950.74 1st year and $1,057.67 2nd year, years 3-30 $1,170.50 . Terms and conditions are subject to change without notice. Pulte Mortgage LLC. 10801-2 Mopac Expy N Ste 400, Austin, TX, 512-231-7757. License #8227-9050. An Equal Opportunity Lender. Program offered only through Pulte Mortgage, LLC. Loan must be locked by September 15th, 2006 and close by September 30, 2006. Offer applies to current inventory homes only.
All available anectodal evidence now shows we are in the calm before the storm. Foreshadowing evidence: increased listings of motorcycles, firearms, and luxury items on Craigslist, jet-skis sitting by the roadside with for sale signs on them at the beginning of summer rather than the end of summer, clusters of for sale signs, many with “new price” on them. There are twelve (12) houses (which I am aware of) for sale within a five-block radius of my house. Moreover, lenders are putting up big ads for their CDs and money market accounts. Some are offering 5.25%. I take this as a sign that the lenders are suddenly trying to re-capitalize against a potential wave of defaults. There’s more, but you get the idea.
All of these things I have seen across the length and breadth of Virginia in the last week.
Observation: people seem to be trying to hold their “investment” properties until the bitter end, using every available resource, hoping that the market will turn. This is a catastrophic path, however, for they are burning the very resources they should be saving to get a fresh start. They should dump the properties now, only they feel they “can’t” because of the equity loss. They fail to properly weigh the carry costs, etc. and this will be their downfall because eventually, say, by November or so, the carry costs will eat them alive. The smart ones have already cut their list prices. The slower of foot will cut in September, after any “back to school” buyers are gone, and the slowest will still be holding the bag in October and through the holiday season. When they finally capitualte and panic or are driven into bankruptcy, the big changes will come.
I’m thinking Labor Day will be the divide. After that date, people will know their chances of selling will be drastically reduced. And then, desperation sets in.
I need a set of new (1-2 yr old) Daiwa graphite regular shafted irons, (No wedges), 2 degrees upright, 1 1/2 inches longer than standard, I will regrip myself. need to go to Golfsmith or my local pawn shop. Help me out Bloggers.
I was thinking about buying some stock in pawn shops and payday lenders. EZPW, DLLR, FCFS, etc. Touble is, it looks like I’m late to that party.
Some evidence of bubble trouble here in my neighborhood: The overgrown lawns on some of the houses only recently finished. You see the for-sale sign in the window, the keybox hanging from the door handle, and you can tell the flippers who own it are bleeding because they can’t even afford to keep the lawn tidy. South FL lawns generally need to be mowed about once a week this time of year because the grass grows so fast. Cost for even bargain basement lawn services: About $60-$80/month for a normal suburban sized house. Add in almost $200 or so for electricity to run the air conditioning even if you leave the thermostat at a barely tolerable 82 degrees or so, the taxes (no homestead exemption if you don’t live here!), insurance, the mortgage payment, blah, blah, blah and you can see why carrying costs can be a bitch.
“people seem to be trying to hold their “investment” properties until the bitter end, using every available resource, hoping that the market will turn.”
classic loss aversion. loss aversion usually ends with no aversion and more losses.
This is my contribution towards the discussion about inflation and investment ideas.
http://news.goldseek.com/ThunderCapitalManagement/1151682124.php
In the same Goldseek pages is the Mogambo Guru:
Smell The Fear
June 28, 2006
“…The majority of funds (12,678) tracked, summarized by Lipper as “All Equity Funds”, averaged 0.83% gain this year! Hahaha! Less than one percent! When inflation is running at 4.5%! Hahahaha! Chumps!
But it is not all bad news, of course. Even after all the supposed “carnage” in the gold market, so you hear, the latest Lipper averages show that gold-oriented mutual funds are actually up 13.21% since January 1. This glittering performance is beating the living snot out of almost every other category of funds, almost all of which are seriously lagging inflation.
The exception was, of course, China-oriented funds, which are up 15.48%….”
I enjoy the wicked humor of the Mogambo Guru and certainly recommend to all readers of this blog.
Forgot link sorry
http://tinyurl.com/zbmly
and out of the 12,000 funds, less than ten are probably gold funds…no gold bubble here.
The Guru is hysterical! Every week, I print out his E-letter, take it with me to lunch, then sit and laugh while I eat my pizza. The people around me would probably think I’m weird if they knew what I was actually reading.
This one I just can’t resist. It’s in Ziprealty. The house is on Capitol Hill in DC. The picture is pre-renovation of the town house, which is located, I am not exagerating, directly across the street from one of the nastiest public housing projects in the District.
The price? $989,000.
The prospect of a MUCH greater fool, getting mugged, his car getting broken into, constant sirens and flashing police lights out his front window, listening to dueling boom boxes in warm weather?
Priceless.
http://www.ziprealty.com/buy_a_home/logged_in/search/home_detail.jsp?listing_num=DC6105670&page=1&property_type=SFR&mls=mls_baltimore&cKey=lfjm3z43&source=MRIS
alas there is no shortage of GFs in DC, no shortage of corrupt, taxpayer-defrauding GFs.
Here’s one for Rudekarl and anyone else in Dallas. I’ve seen this one before. This clown tried to get 2400/mo for this place back in the early spring. People just amaze me. You don’t have to pay much more than half of this to live in the neighborhood it’s in.
http://dallas.craigslist.org/apa/177090496.html
tx, forgetting about price, that backyard/deck is the bomb.
Someone may have already posted this (I’ve been away from the blog a few days), but I’ll post it anyway in case it wasn’t.
The House That Swallowed Don and Shelly Cruz
It was in CNN Money and AOL today:
http://money.aol.com/cnnmoney/realestate/canvas3/_a/the-house-that-swallowed-don-and-shelly/20060627161909990001
BayQT~
It would be easy to pay-off that tax bill and keep that house. His approach is all wrong. I guess it’s true that when people are given large sums of money. They always go broke because they don’t know how to handle it.
And how would you do that? Remember the income earning potential of this couple isn’t that great, and Texas property taxes are high to begin with.
I suspect that ever if the IRS debt vanished, that they still wouldn’t be able to have the income stream to maintain the house on an ongoing basis:
-Withholding to renew lease on land under the house when it comes due
-Property Taxes
-Upkeep (The story mentions the light bulbs, but what about maintaining that dock house that’s floating on the water… that’s got rot written all over it)
-Utilities
I think this is just another example of people jumping in with both feet before thinking the situation through…like all of the option ARMs, interest only loans, and other exotic mortgages. Folks didn’t do their due diligence.
Sure, I would also like to live high like that, but once I crunch the numbers (and I ALWAYS crunch the numbers), I would pass and sell like (as the article said) others have done before them. They are seeing the light now..a bit too late…but I guess they will work their way through the mess ok.
Roastbeef did pose a good question though. How *do* you think they could pay off that tax bill AND keep that house? Remember, they also have another house that they have expenses for. And *how* many vehicles did the article say they have? Way too many IMO? I’d say they need to sell them down to 2 as well.
BayQT~
There are things that are just too big. No way an average wage earner can keep a 6000 sq/ft house.
…thousands a month for electricity, household help and other outsize bills for their outsize home
On top of that, they still owe the IRS $672,000 on their winnings.
That dream home is not in my dreams for sure. And it seems it’s not just me.
In the 10 years that HGTV has run the contest, the Cruzes are the only winners who’ve chosen to live in the Dream Home.
Great post, BayQT. Judging by the accompanying photo (not to mention their actions), Don and Shelly Cruz look a few IQ points short of “moron.”
arlingtonva-
That flipper paid 391k in 2004. I think that building was just completed.
Bacon-are you in Clarendon? We rented there during law school. I liked it so much better when it was a little shabby and not all Cheesecake-Factoried…
at least we now know where the lame people congregate (Cheese, Harry’s), and we still have open mic at Iota and $15 marg pitchers at Mexicali.
Carl Haefling is a portfolio manager in Bainbridge Island. He is a deep value player in small and micro cap stocks, biotech and medical devices; he and often takes a very long term view. Carl is often a contrarian — recently, he has been accumulating shares of Jet Blue (JBLU).
He also has a sharp eye for the Macro-environment, and I often find his take on events intriguing. Following the recent data releases on Housing, he recently observed:
I believe the stock market is predictive — not reactive — except for relatively short periods of time.
Housing stocks topped out in Dec and are now down up to 50% in numerous cases from those highs. It will take a couple of years at least for this scenario to complete itself. A significant decline in the housing market over the next 2 to 6 years is being predicted by housing stocks.
It takes time for the housing market to fully unravel, we are in the early stages of stage 1. Stage 1 is where the market begins to recognize that prices have reached levels that reduce affordability and thus the number of possible buyers. Sellers, who have been holding back selling for fear of not selling at the top, begin posting signs advertising their home, usually at prices that reflect the highest paid for a similar home, and suddenly the inventory of homes foresale explodes. This has already happened in many parts of the country. This stage may take one to three years to fully unfold.
Stage 2 is price cuts by those who are becoming convinced that the market has softened if they want to sell their home they better cut prices. Once those “reduced” signs start appearing, buyers start reducing offers, even on properties that have been already reduced. Prices will drop far lower then anyone thinks possible in stage 2.
Stage 3 is the exhaustive phase. Buyers are afraid to buy, investors have no liquidity, mortgage requirements demand a high down payment and supporting cash flow, and the press is filled with articles claiming real estate is a terrible investment. (which happens to be true in the previous 5 years).
There are serious other problems that will contribute to this cycle, including a decline in the buying power of the middle class, tilting demographics which will reduce the number of possible buyers beginning about 2010 for real estate and possible shifts in values of owning vs. renting. There remain other problems that are related to real estate but not thought of as being directly connected. A decline in the value of the dollar may force foreign owners of commercial and residential real estate to try and liquefy. Higher interest rates because of inflation or stagflation also impact real estate prices.
And one of the unseen values will be the desire to downsize as the cost of insurance (in some high risk hurricane states you cannot get homeowners insurance except through the state at 3 times previous cost) explodes, the cost to heat and air-condition accelerates, and the cost of maintenance become detriments to ownership.
A house may go from being something that we take pride in, to becoming a burden.
Good one - thanks for posting Mr. Haefling’s perspective, Russ!
The Pinocchio Theory:
http://www.xanga.com/russwinter
Doug Noland wrote a piece two weeks ago (the Credit Bulletin on Prudentbear.com), where he supports the notion that the Fed’s baby step .25 hikes have done absolutely zero to slow credit growth. The hedge funds and other credit issuers have become so adept at risk modeling, that it’s become a snap to hedge (and lend profitably), when you KNOW what the Fed will do.
Alas, though, most probably figured the Fed would have stopped at 5%. If they keep going to 6% or beyond, quite a few credit plays may unwind.
Har! Naaaaaaahhhhh …. BB is a wimp. They’re done.
I agree. Rates need to go way up and stay way up but BB will fold like a cheap suit. Oh well, guess I’m gonna hafta buy gold after all.
Haha. ‘art decco’
http://newyork.craigslist.org/mnh/rfs/177160427.html
art decco?
not
From Barron’s (subscription req’d):
“THIS MONTH, THE NATIONAL HOUSING FIGURES once again painted a rosy, but misleading, picture of the national housing market.
. . .
Our early indications of existing-home sales for the month of June based on pending listings indicate the sales trends continue to deteriorate sequentially while inventories continue to surge to record levels.”
http://tinyurl.com/jhj5d
Ben this definitely deserves its own post I believe, can be disected/debated.
http://www.inman.com/hstory.aspx?ID=53914
A couple of interesting anecdotes:
My boss’s son is a realtor at Coldwell Banker in Gilroy, CA (south of San Jose). All of the realtors in the office take turns answering the phone (call it “phone duty”). Apparently, the phone hasn’t been ringing at all, so they don’t even put anyone on phone duty anymore because it is so boring.
Also, according to his son, many of the realtors in the office have undertaken lavish lifestyles and are now in trouble. Many realtors have left and some are searching for second jobs.
Just for kicks, my boss filled out one of those online mortgage questionnaires. In less than 24 hours, he received calls from 8 mortgage brokers. All of them were offering option ARMs and neg am loans. They must be desperate.
Ben,
you have a lot of very good minds contributing to this blog and I would like to suggest a topic that encompasses all of what is written here.
You see I believe housing is but one part of a much larger bubble.
“The Debt Bubble”
For example……I find it incomprehensible that the US has and is continuing to amass a debt the like the world has never seen, and probably never will again.
I am not an American but have always respected the ability of the American people to work and achieve and through those endevours their country prospered.
Could it possibly turn out that the most powerful (super power) in the world will find itself unable to buy whats needed to remain great.
Sad if it happens, but hopefully humanity will benefit from the experience.
Lets talk about “The Debt Bubble” and housings part in it.
Thank you
It’s hard to quantify financial measures between different centuries, but I’m not so sure that the US debt is unlike one the world has ever seen.
Kevin Phillips spends a decent chunk of “American Theocracy” on the topic (Part III is titled “Borrowed Prosperity”, chapter 9 is “Debt: History’s Unlearned Lesson”). He discusses similar (but not identical) debt cycles in Hapsburg Spain, 17th century Holland, and early 19th century England.
If your interested in the topic, it’s a must-read.
greenspan’s comments on ARMs. remember, this man never says anything outright. there are always qualifiers. he did not recommend ARMs, he said “might.” he was talking about an earlier period.
“Recent research within the Federal Reserve suggests that many homeowners might have saved tens of thousands of dollars had they held adjustable-rate mortgages rather than fixed-rate mortgages during the past decade, though this would not have been the case, of course, had interest rates trended sharply upward.”
a few months later in 2004 he said this:
“Treasuries sold off further after Greenspan essentially confirmed the Fed’s intention to continue raising short-term interest rates, as it has been doing steadily since June.
“Rising interest rates have been advertised for so long and in so many places that anyone who has not appropriately hedged his position by now, obviously, is desirous of losing money,” Greenspan said in response to a question after his speech.”
I’ve said it before and I’ll say it again: No, Greenspan did not EXPLICITLY say “Go out and get an ARM. You’ll thank me later!” But in his roundabout way, he was indeed pushing home buyers to get ARMs. I have no doubt in my mind, and it’s yet another example of how much of a true forecasting moron/scam artist Greenspan was (just look back to his early 2000 speech citing how great technology is, how it would create an everlasting productivity boom, etc.)
His goal at the time? The economy and job market were still relatively weak even though the stock market spent most of 2003 rallying hard. Corporate spending and investing was not yet picking up, so he needed to keep juicing housing to keep consumer spending strong. How better to do it than encourage a “second round” of housing speculation. At the time, buyers/flippers had done just about all they could with fixed rate mortgages, but with the Fed’s endorsement, banks then plowed headlong into the ARM craze, rolling out all kinds of new products and pushing those ridiculous option ARMs out to the masses (previously, they were only sold to high net worth, high commission types and were less than 1% of the mortgage market). Only my opinion of course, but I’ve been following the markets, the Fed, and the mortgage world closely since 1998 and I believe this is an accruate portrayal of the chain of events.
Those more cynical would say Greenspan was doing his part to protect his bankin’ buddies. He made the remark when rates had about bottomed out. Banks would lose out on any fixed rate mortgages taken out at that time, but ARMS would allow them to be more profitable when rates inevitably rose.
His goal at the time? The economy and job market were still relatively weak even though the stock market spent most of 2003 rallying hard. Corporate spending and investing was not yet picking up, so he needed to keep juicing housing to keep consumer spending strong. How better to do it than encourage a “second round” of housing speculation.
—————————
Mike,
Couldn’t have said it better myself. I truly believe the creation of this housing/credit bubble was entirely intentional — done to save banks and corporations at the expense of J6.
Greenspan didn’t recommend that people go out and get ARMS, he only made a comment with the hindsight. When the rates had been dropping, those with ARM loans did indeed benefit as their interest costs were shrinking. Compared with fixed loans, they were indeed benefiting. The reverse is obviously true, in the current evironment, the interest cost is balooning.
Brokers obviously picked up on the comment and twisted it to fit their objectives, or selling loans with highest commission payouts.
“Recent research within the Federal Reserve suggests that many homeowners might have saved tens of thousands of dollars had they held adjustable-rate mortgages rather than fixed-rate mortgages during the past decade, though this would not have been the case, of course, had interest rates trended sharply upward.”
This was true in my case. I got a 1 year ARM on a home I bought in 1997. The start rate was 7.50%. If I had a fixed loan, my rate would’ve been 8.50%. My respective reset rates until I sold my property in 2004. 1998 - 6.625% 1999 - 7.625% 2000 - 8.125% 2001 - 7.125% 2002 - 6.125% 2003 - 5.125%. If I wouldn’t have sold my property, my rate was on it’s way down to 4.50%. It would be 5.50% right now. There is a time when it does make sense to get an ARM. However, that time isn’t when 30 year paper is 5.25%. If you see 30 year fixed rates get to the high 7’s and above, an ARM would be the saavy choice IMO.
(No, Greenspan did not EXPLICITLY say “Go out and get an ARM. You’ll thank me later!” But in his roundabout way, he was indeed pushing home buyers to get ARMs.)
but 6 months late he was talking about rates going up, so his supposed plea to get an ARM was over by late 2004. anyways, one of the reasons to get an ARM is because you think interest rates will go down. meanwhile, everyone was saying to buy before interest rates go up.
I just don’t accept the fact that he said to get an ARM. he specifically says he’s talking about the past and that if rates go up it wouldn’t have been true. with rates where they were, nobody should have expected them to go down further.
No sure if I agree that getting an ARM is stupid when fixed rates are 5.25. Three years ago I got a 3/1 arm at 3.5%, thinking I would be out of the house within 3-4 years anyway. That saved me about 200 bucks/month over the last 3 years. No my rate is adjusting to 5.5 which is where is would have been anyway fixed. Assuming it goes to 7.5 next year and stays there for awhile, my breakeven point for getting the ARM vs the fixed 3 years ago won’t be until about the 6th or 7th year, by then I’m sure to be out of the house. My only mistake was not getting the 5/1 three years ago. Anyway right now I’m refi’ing into the penfed 5/1 at 5.25%, so all is good.
“…won’t be until about the 6th or 7th year, by then I’m sure to be out of the house.”
Guess you’re hoping selling prices will have recovered by then. Good luck on that one. Why not sell now and rent?
Good luck with your plan, Willy. I sincerely wish you all the best.
If my assumption is correct, you are planning on selling in 3 years of so (or sooner)? By all that is being said here, at that time we could be in the biggest slump this bubble has seen. The climate of the market will have a new face on, and there is no telling what your house will sell for….the bearish prediction is that values will have gone down considerably and you may have to come to the selling table with cash in hand. And what if you can’t sell then? What if life (job change, illness, etc) makes some changes for you so that plan has to change? The ARM won’t look so good then, and the fixed may at that time be outside of your reach.
Your first ARM schedule saved you $200/month. When it reset to 5.5, your payment increased by (?) per month? Also, if the adjustment frequency is every 6 months, or once a year (or whatever), wouldn’t it have been better to just lock in a fixed and today’s rate if the fixed rate payment was going to be close to your ARM payment?
I’m just guessing here. I’ll leave it up to someone else on the blog to work the numbers….I was just curious about your reasoning.
BayQT~
I agree with you BayQt. Just lock in a fixed rate . if the market is bad in three years and you can’t sell ,at least your payments will be set. Try to get a assumable fixed if you can get it .
“Try to get a assumable fixed if you can get it.”
————
Good advice, Wiz. I think assumable FRMs with recent rates will be very valuable in the future.
a whole bunch of currency ETFs and a commodity ETF has been launched. there is also a mining ETF in there.
this one is very interesting.
“Recently, iShares has also introduced its iPath Dow Jones-AIG Commodity Index Total Return Exchange-Traded Notes (nyse: DJP). It’s a mouthful, but essentially this ETF consists of unsecured debt securities issued by Barclays Bank that are linked to the total returns of the index. It has an expense ratio of 0.75% and provides exposure to the following commodity groups: energy 30%, livestock 9%, precious metals 9%, industrial metals 21% and agriculture 31%. Based on monthly returns from March 1991 through March of this year, the index has had a correlation of only 9% to the S&P 500 index and 23% to the MSCI EAFE index. The index is made up of the prices of 19 exchange-traded futures contracts.”
Tapping Into The ETF Gusher
Rydex launches more currency ETFs
Thanks JL.
Yes, thanks much John.
From craiglist….. WHAT A DEAL!! (lol)
From the Desk of Maria Gudelis
President of Fat Cat Real Estate
The power of real estate – you will get $100,000 Cash Back to You.
Up to 100% financing is available no matter what they tell you!
Lakefront 5K Sq Ft Las Vegas Estate Luxury Home .
http://jackson.craigslist.org/rfs/175187302.html
I found a video game for flippers. Cute but I lost patience with it.
http://3form.net/mansion_impossible/
17 years… gets easier once you can buy and hold two of the big “snout” houses.
Ha! 15 yrs 2 mos on my 3rd try.. OK, back to blogging :o)
It took me 40 years on my first try. Guess I am too conservative.
That’s a good one.
What I want to know is how does a house go from around 1 million assessed in 2003 to about 2 million 2 years later. Sheesh!!
Property Information
Assessor’s Id. Number 7256-013-036
Site Address 4228 E 2ND ST
LONG BEACH CA 90803
Property Type Single Family Residence
2005 Roll Values
Recording Date 04/22/2003
Land $677,144
Improvements $302,058
Personal Property $0
Fixtures $0
Homeowners’ Exemption $7,000
Real Estate Exemption $0
Personal Property Exemption $0
Fixture Exemption $0
Link to listing:
http://tinyurl.com/fvdsz
Link to LA county assessor if you want to look at it directly. Just put the address in according to directions & it will pop up.
http://tinyurl.com/fsmjl
Have been meaning to throw out this topic:
Does anyone else live where rents have remained high in comparison to home values (or home values have remained low in comparison to rents)? It’s continued that way here throught the ’00s, with no sign of change coming.
Memphis area just doesn’t have an awful lot of rentals outside of the less desirable neighborhoods. We have a lot of newer “distressed neighborhoods”, too - where everyone is selling, or trying to make a “rent to own” deal - I guess that the going rents just won’t cover the paper, but again, leaves a smaller rental market. Wonder if this is the same in other areas that are rated as “undervalued”.
Dallas is like that too. Rents vs. buy is almost a standoff in the inner city and better neighborhoods. In my mind, that was never the issue. The issue was can you sell when and if you have to or want to without it taking 6 months and losing your shirt. In Dallas the answer was always “no,” at least from what I could see, which is why I stayed out and never bought.
If the Housing Bubble was a Movie… (Note: I posted one of these earlier)
A bit of a comic relief. Lets come up with some potential housing bubble movies.
Raiders of the Lost Equity. Starring Joe Sixpack and Sally Boobjob. A group of teenage mortgage brokers put a neighborhood under siege armed with Helocs and Neg ARMs. By the time people start realizing what is happening, the neighborhood is littered with Hummers, Escalades, flat screen TVs and exotic vacations. Homeowners are left upside down, chained with debt, but with inflated egos and mammary glands. The raider brokers escape unnoticed. Rated: Low IQ (warning, viewing this may alter your perception of economic reality and make you feel richer than you really are).
Honey I shrunk the Equity. Starring: Suzanne “researched this”. A gullible couple follows the advice of their realtwhore (Suzanne) and buys a condo in San Diego in July 2005 with the anticipation of becoming multi-millionaires in 3 years. Meanwhile, we follow the struggle of Suzanne to complete her high school diploma as she fails arithmetic because she can only add, but not subtract and can only multiply, but not divide. In this historical drama the producer skillfully explores all possible ranges of human emotions from hope, euphoria, greed and “keeping up with the Joneses” to denial, delusion, anger and despair. The mob lynching scene of Suzanne is a classic and thankfully her poodle escape unharmed. Rated: GP (Guaranteed Disappointment).
Night of the Living Debt. Starring: David Lereah. The sudden reset of ARMs wrecks havoc among the population of a small town as most see their payments double. “Mortgage zombies” are seen roaming the streets, ruthlessly attacking renters, who appear to be immune to the epidemic, while mumbling gibberish such as “real estate only goes up”, “they don’t make any more land”, “everyone wants to live here” and “buy now before you are priced out forever”. Autopsies reveal that the morbid appearance of mortgage zombies was caused by overwork, stress, lack of sleep, and selling their hair, blood and kidneys. The epidemic is finally stopped when the master mortgage zombie, David Lereah, is killed by a group of surviving renters holed up in an apartment complex. Rated: SCD (Strong Cognitive Dissonance; warning not suitable for most ARM holders).
Independence Day. Starring: Joe Homedebtor. After 40 years of struggle a lucky homedebtor finally pays back the mortgage he contracted in 2004. Unfortunately, he dies the next day from an indigestion caused by eating something other than ramen noodles for the first time in 40 years. Rated: CDA (Continuous Depreciating Asset).
Recent film “…. dick and Jane” or some thing like has some of this plot lines already. even if it lasted about 5 min in a 120 min movie.
In the theater some people did notice during the conversation when dick and jane lost their house after dick lost his job. they mentionig something like $150000 under water or something like that…
Funny.
OK, Indepedence Day
That’s funny.
OCRenter has inventory numbers for 7/1:
San Diego, 6/30 - 22,588
San Diego, 7/01 - 22,492
Even more puzzling:
Phoenix, 6/30 - 50,974
Phoenix, 7/01 - 50,347
Huh? In one day, the Phoenix inventory lost 600 listings? Guess so. Folks rushing to lock in lower rates? Disgusted sellers yanking inventory offline? Both? Neither?
Listing expirations at the end of the month. This is common in all markets.
Thanks Crispy, learned something new today.
joe - $5.00 fine
Click the link in my URL if you want to see an example of how CA equity locusts can drive up prices from 620K to 1.2M in 3 MONTHS!
The neighborhood in question is Madison Park in Seattle. CA equity locusts are buying up this neighborhood like crazy and prices have DOUBLED in just 3 months. This sort of activity in the high end market is what is keeping prices on the rise here in Seattle.
This “Summer of The Locust” is incredible.
I rent from a “flipper” who bought her home for 322K in 2001 and it is now worth (Zillow) 920K. Is it any wonder flippers are flipping out?
They are making a killing. They buy up the inventory, drive up prices, and make a mint.
Problem is she has not sold yet because she thinks this rocket ride will never end……and THAT is the achilles heel of all these flippers.
Regardless, the high end market in Seattle is more than compensating for the lower end market which is definitely showing price reductions and more inventory.
Today’s San Diego Union Tribune Business section:
Money Makeover column:
“After a Divorce, Taking on More Debt; Does it make funancial sense to keep her condo?” (she’s under water with HELOC, student loans, car loan, mortgage set to reset in 1 1/2 years.
Love & Money column:
40 year old woman recently split with boyfriend of 12 years, house up for sale. Moved back with parents.
Marketwatch column:
“When to Fix a Variable Rate Loan”
Links please. I found the first article, but not the other 2. Searches didn’t pull them up.
Thanks…BayQT~
I’m in such a pissy mood mood today — I just want to strangle somebody.
“Despite mounting evidence that the housing market is rapidly slowing, Cal State San Marcos economist Robert Brown also was skeptical of the PMI report, pointing to San Diego County’s 3.7 percent unadjusted unemployment rate for May and its high-tech industries, which, according to the electronics trade group AeA, employ 95 out of every 1,000 residents and average more than $80,000 a year.
“They’re arguing that this is a pretty risky market, but low unemployment and salary growth and those sorts of things put upward pressure on prices,” he said.”
http://www.nctimes.com/articles/2006/07/01/business/news/17_09_406_30_06.txt
And the median condo price is, what, $550,000? And Bob Brown says “Hey, no problem, 1 out 10 folks here average $80,000 in salary”. Does the average reader process the idiocy of this statement?
Unemployment at 3.7%? In which direction MUST this figure head going forward?
winjr,
Very annoying, indeed. $80,000 (which they seem to tout as the “good” wage) is enough to **maybe** stretch into a $300,000 home. Around here, that’ll get you a condo conversion in a bad area. Those high-tech “geeks” want to live with the 30+people per unit in downtown Vista, with the teenaged boys in their baggy pants, white t-shirts and shaved heads. Sounds like fun to me!
check this, the new ‘in’ for The OC–
Upwardly mobile
Priced out of the traditional housing market, some Orange County consumers are turning to more affordable manufactured homes
http://www.ocregister.com/ocregister/money/housing/article_1199670.php
We used to have usuary laws preventing credit card interest rates above 18% or 21%. When and what happened to the usuary laws? Does anyone else think we will see a return of the usuary caps? Maybe as a way to help people after this whole thing implodes?
I think it was 1978 when a court case allowed banks to operate under the laws of their home states. Since then, several states have repealed their usury laws in order to attract banks to domicile in their states. Delaware is one of these. Check your CC statements and read the mailing addresses. For example, Nevada does not have a usury law. Ever heard of “The Lakes, NV”? If you look it up, it’s actually a few special zip codes in Las Vegas that largely exist only for credit card processing operations. Citibank does their processing there, in fact there’s a Citicorp drive, and an artificial lake, but it’s part of Las Vegas.
And no, I can’t imagine the return of effective usury laws. It wouldn’t help anyway, because by the time you hit the traditional usury cap of around 25%, mortgage loans would long since be toast. In my experience, anything over 12% and the mortgage industry is road kill.
This townhouse in Bethesda, MD was recently listed at $1.6 mln. It was sold for $1,387,500.
http://tinyurl.com/qhq8s
Looks like the cheapest house in Oakland might be getting cheaper soon. Take over payments, loan not assumable?
628 N Highland, 90036
Sale History 05/01/2006: $1,245,000
It’s a fixer and the kitchen and bathroom have been gutted,
the new owner must have gotten discouraged, but still
wants $205k for his trouble. now listed at $1,450,000
http://tinyurl.com/eeeyu