‘The Bursting Bubble Will Truly Create A Buyers Market’
The Friday desk clearing starts with this news. “Single-family housing starts have declined 27.2 percent for the first five months of the year compared to the first five months of 2005, according to a report by the California Building Industry Association, and starts were 22.4 percent lower in May 2006 than in May 2005.”
“‘Most other markets are holding steady in multifamily units, with the exception of San Diego County, where development has declined markedly, predominantly because of a near-total cutback in downtown high-rise development,’ CBIA Chief Economist Alan Nevin said.”
A quote of the week from the Palm Beach Post. “‘I was driving some clients around downtown West Palm Beach, and they asked, ‘What’s that crane for?’ I said, ‘It’s a condo.’ ‘And what’s that crane for?’ ‘It’s another condo.’ Finally, I said, ‘Look, every crane you see is a condo, so stop asking.’” -Neil Merin.”
The Houston Chronicle. “New home starts are on track to hit 50,000 units for the first time ever in the Houston area. ‘This year’s shaping up to be better than last,’ Mike Inselmann, president of Metrostudy. Inselmann downplayed the effect of rising interest rates, noting that consumers who believe the values of their homes will continue to rise will find a way to hold on to their homes.”
“‘I am concerned, but I’m not overly concerned,’ he said. Rising rates may also mean more foreclosures, especially for those who opted for adjustable-rate mortgages when rates were falling. Foreclosures have doubled in the Houston area in the past two to three years, he noted.”
The Weekly reports, ‘Atlanta homes for sale exceeds 90,000.’ “The billboard campaign lets everyone know how many homes are for sale in MLS and FMLS. The total number of homes for sale in MLS and FMLS has never been available to the general public before now.”
The Atlanta Journal Constitution. “Midtown’s condo construction frenzy has current residents worried about a possible market glut that would depress prices and sales among existing units. ‘You have a lot of people buying who are really interested in living in the building,’ said developer Conor McNally.”
“Real estate developers are building still more condos as American businessmen and foreigners jet in from overseas to snap up Montreal condominiums. Meanwhile, the more telling number is the number of unsold new condos, it continues to increase, from just over 500 in 2001 to a whopping 2,000 unoccupied units this year.”
A rare report from Lebanon. “Lately it seems there are more cranes than buildings rising from Beirut’s skyline, and Gulf investors continue to funnel oil revenues into mega-construction projects in the Beirut Central District.”
“Some analysts have questioned whether the real-estate boom is in fact a bubble. But Solidere general manager, Mounir Douaidy shrugs off this notion. ‘What’s happening in the Gulf is a bubble, but what’s happening in Solidere is steady growth,’ he said.”
And from the Pine Journal. “The northeastern Minnesota housing bubble is on the brink of popping. Anyone who’s bought a house, sold a house or has been involved in the real estate business in the past six years has seen house prices skyrocket.”
“If we’re going to bring the market back down to where it should be, don’t be afraid to make an offer that’s a tad below ‘too little.’ A lot of folks will say, ‘You don’t want to insult the seller, make your offer fair.’ But what about the seller insulting the buyer by asking for far more than it’s worth?”
“And if the seller is ‘insulted’ by the offer, the worst that can happen is you don’t buy the house, and move on to the next one. Any home buyer has to be realistic. But you certainly don’t deserve to pay a mint either. The bursting of the Northland’s real estate bubble will truly create a buyer’s market. Spend wisely.”
Another great week of building a housing bubble consensus. Thanks for all the help with links! Check back this holiday weekend for news, your market observations and topics.
My favorite post of the week! Desk clearing time.
The avalanche of housing bubble news is massive. Thanks for helping to sort it out.
beirut condos anyone.those people will have there heads handed to them literally.although the belly dancers sounds interesting.
Well try Bagdad condos. A lot of aeration. And the city has great night life.
PHOENIX MLS (maricopa+pinal counties) HIT 51,000 MLS LISTINGS FRIDAY NIGHT!!!! And the inventory rise continues….
2006? 2007? It’s stunning to me how fast this thing has happened. Remember 6 months ago when there were plenty of predictions that “this thing will take a long time to unfold”? When 2010 was being bandied about? Thanks Ben for taking us all along for what’s turned out to be (in real estate time) a fast ride!
I smell the dot.com crash starting Jul 4, 2006. There can not be too many anxious buyers willing to give up a beautiful summer day at the pool, the beach, the mountains to look at another overpriced house. And the investors are spending their sleepless nights figuring which BK attorney they are going to hire. And then we have the truly lazy agent, or the incompetent one, who can’t really be bothered holding an open house on a oper priced turkey, when they too could be at the pool drinking a cool one. The party is over
2007…still way too many people looking at the news and thinking short term plateau, and not drop. There are still quite a few stragglers at the party. Give it time. The longer they stay, the bigger the hang-over the next day.
It actually would be a good indicator, whether people are doing Open Houses this weekend and/or July 4 itself. I dimly recall an article here that people were having Open Houses on Christmas in some areas (CA?) where they knew the jig was up already.
We rented our condo (through a real estate agent) on the Friday before Christmas. She mentioned she was holding an open house on Christmas eve. We saw plenty of others on the way to my folks.
http://www.BuyMoreHouses.com
For what its worth, inventory additions (day over day) stalled out this past week in San Diego… lazy realtors or asumming no open houses/reason to list (only add to DOM)?
The house accross the street from us had an open house on Christmas day. They had a few come in too. This was in So. California.
Shameless plug here. . . .
Disgraceful :lol:.
I am actually seening quite a few houses in North Count San Diego go under contract (Sold signs up but they have not moved in / closed the deal yet). Maybe a mini rally / dead cat bounce here?
Yes, a mini-rally. That’s what’s kept the market flat since fall 2004. We go down a bit, then the “dip buyers” swoop in. IMHO, we won’t see the bubble burst until we have massive credit contraction. I am waiting patiently…
Let’s hear it for Mat Gilderman from the Pine Journal. He is actually telling his readers that prices are too high, and that they should make lowball offers, without any worry about “offending” the seller. He’s just one man writing in a small paper, but I hope others will follow his lead.
Amen, we should encourage writers like Mr. Gilderman.
I’ve done exactly as you’ve done only to be considered a wacko! US ain’t Canada I’am told. After all, we want our children to be without a home because at this rate of appreciation, our children will not be able to buy, let alone rent.
People are brainless in Vancouver. I show them that stats, charts, and news articles from the US showing the major cracks forming. Blank strares followed by… “it wont happen here”.
There is an old saying that when the US catches a cold, Canada gets the flu. Or maybe its different this time?
People are every bit as brainless/clueless in the U.S. Easily half the people I’ve bothered to ask STILL haven’t even heard of the housing bubble “concept”, much less believe that one exists. And the few that are convinced still think “my city/neighborhood/house is ‘unique’ & immune from drastic price drops”.
actually yes CAN has oil = wealth
we have debt
True, but Canadians also have a social welfare state that punishes producers. I know many Canadians who have gotten green cards so they can actually keep a fair amount of what they earn.
taxes aren’t much higher than the US’ and you get universal health.
They are much higher, especially for higher income earners. I would take the USA healthcare system over Canada anyday. Besides, the best Canadian doctors are practicing in the states. You get what you pay for!
-
i’m not Canadian (thank God) but -
http://www.taxtips.ca/fedtax.htm
but we have that 2-week sporting event in 4 years time…foreigners will flock to live in Vancouver after they see our rainy winter weather on TV.
canadians actually have some pretty nice debt too.
The savings rate in BC is about -7%. If we were just to spend our income, we would lose 7% of consumption. That’s a recession. That’s HELOC.
Brainless in Vancouver? Too much heroin on the streets.
“Brainless in Vancouver? Too much heroin on the streets. ”
Are Jeb Bush and his ‘Cuban Mafia’ responsible for that too?
True story. My in-laws living in SoCal. They are scraping by on Social Security. Bought 3-bed condo in 1997 for 115k (good move). They re-financed “n” times. They owe now 210k, have an option ARM with $800 minimum payment and an interest only of $1300. They blew 100k equity in the last 8 years or so. The last re-finace was a year ago. How on earth you lend $200k + for 30 years to people that are in their mid sixties and have $2000 (give or take) Social Security? Did I mention the stupid gas-guzzler SUV they took on last year with $500+ monthly payments?
Better start clearing out the spare bedroom.
I dodged that bullet, figuratively beat some sense into my mom to avoid having a family member be an FB.
My in-her-late-70’s mum went to an open house today (July 1 Oz time). $449K for a 4/2 SFH, next door to a friend of hers. One of my brothers went with her, he tells me it looks OK.
She’s thinking of offering $425K, even after I told her prices might have a bit further to fall here (we’ve been flat or slowly declining for 2 years now).
But then again, she can write a cheque . . .
Nevermind who lent it how are they paying it. 800 for the house 500 for the car, 150 for taxes, 150 for car insurance, 150 for HOA. Nevermind the other incidentals and keep in mind I’m ballparking because I have no clue. But in my mind I’d have to wonder what dietary supplements are in the cupboards.
Clearly these are the kind of “sophisticated” buyers (see D. Lereah) who understand how to “liberate” equity. This is the kind of “can-do” spirit that’s been driving
consumptionthe economy full-steam ahead, even in the face of falling real wages, rising inflation and weak employment –they should be congratulated!Yeah… this is going to end well, for sure…
That is so sad. I thought you got wiser when you aged. Damn, I would hate to be in their shoes.
Bubblefucius say:
Fish who bite worm on hook once, become more wise.
Fish who bite worm on hook twice, he come with fries.
LOL - another Rainman instant classic!
Beautiful Rainman!
NO, you didn’t mention the land yacht!! LMFAO!
The public thought that the banks wouldn’t lend the money to them if it wasn’t a “good thing ” . The masses turned off their brains and decided to let the lenders decide what they could afford . To bad people will be putting so much of their net pay toward the housing expense that they won’t have anything left over to feed other industries .Gee , might that effect jobs in other industries ?
At their age, what does it matter? Might as well enjoy life a little.
Enjoying life can’t be at the expense of ending up eating dog food in order to survive .Someone in their 60’s could live another 25 years .
The trouble with getting equity out of your house is that a very select few people can do it. It might be OK if you anticipate a sustainable increase an income, because at the end of the day, no matter how much your asset goes up, you still need to pay that money back. My in-laws had 2 clear options. Option 1, bought at $115k, 9 years ago, and have a manageable mortgage payment of $700-800 and pay some principal (albeit very little with a 25-year mortgage). Option 2, after 9-years of paying mortgage, your debt doubled to $200k++, pay still the manageable $800, but adding $5-6k to your debt, every year, as it is well below the interest only payment. They are living with a “time-bomb” because their manageable mortgage payment is going to be $1800-2000 a month, when the principal and interest go up at the same time. At least, somebody younger if faced with the same situation might sell it or hand the house keys to the lender and live rough for a while, but there is a chance that they can bounce back by getting better qualifications, job and learning from their stupid financial mistake. “Using your house as an ATM” is probably worse than the FTB’s that buy their $800k starter homes with $60-80k yearly income. At least when you buy the $800k home, the reality sets in very quickly how bad things are and from then on it is “swim or sink”. Your lifestyle gets an instantenous hit as everything is focused on paying the mortgage. But with the “house ATM” is more subtle, you “still” have some equity, your payments have gone down somehow and adjust your lifestyle accordingly.
The only way to truly get the equity out is to sell - and put the money in the bank. Any other way is dangerous/foolish, except at the beginning of a rising bubble when you plan to sell into the rise.
Well, sorry to be blunt, but if you die before your loan is paid, then bank gets the house and the loan disappears. If there is no equity (or zero equity) in the house, then the bank loses.
What I’m saying is, for people who are near death, putting yourself in a position of negative equity is not a bad idea, financially.
Of course, this works best for people who have a very short horizon.
“If we’re going to bring the market back down to where it should be, don’t be afraid to make an offer that’s a tad below ‘too little.’ A lot of folks will say, ‘You don’t want to insult the seller, make your offer fair.’ But what about the seller insulting the buyer by asking for far more than it’s worth?”
This reminds me of the best piece of real estate advice I ever heard: “If you don’t feel embarrassed to present your offer you’re offering too much.”
That is excellent advice, and something that I will remember when I decide to buy. Hopefully, prices will fall rapidly, and I can buy sooner (optimistically, middle to end of 2007) rather than later (2008 or 2009).
I’ve heard that before, and I got a good chuckle out of it the first time. The reason I chucled is because that’s exactly what I’ve always believed.
The best real estate transaction is when both parties (buyer and seller) think they got screwed.
Couldn’t agree more. But, as I’ve mentioned previously, I find realtors hesitant to make lowball offers on my behalf. Not to say they wouldn’t do it if I forced the issue, but they try to talk me out of it. And then I get too sheepish to pursue.
Hate having to go thru realtors.
I hope someone from Atlanta can post about the billboards.
http://www.metrobrokers.com/news.asp?id=80
Top of page.
Salim looks scared, like he knows what’s coming.
What happens to their fancy little board when the number hits 99,999?
LOL.
That is too funny. Wish they had that everywhere.
I love it!
:) 
Although, a huge LCD with the trend graph would be even better.
It doesn’t seem to be designed to go past 99,999. Hmmm…
I can remember when the McDonald’s sign maxed out at 999 million hamburgers served.
I remember those signs BEFORE they said 1 billion served (only in the millions).
That reminds me of an old insult…”you’re so fat that when you go to McDonald’s, people line up to watch the sign change.”
Hmmm I think the issue there is that it only a 5 digit billboard. its at 79,075. When they add another 20k inventory what are the going to do. Maybe at that point it will just show 100k +
Maybe the display moves, too?
The one in the upper right corner is already 92K, from the original post. Looks like that’s current, per a dated counter on their main site http://www.metrobrokers.com
LOL, maybe they go to engineering notation, 104E3 to represent 104000 or something like that.
That’s too clever, not to mention the fact they would need to add scientific notation to the broker exam!
wow an additional 13k just like that
This is new! I will not call, but if anyone on the blog follows up, please advise at this virtual meeting place. Happy 4th.
http://tinyurl.com/oh79g
A search on their site came up with 121,492 properties for sale.
Get a house cheaper than a Big Mac!!!! I love the idea.
Arizona houses for all.
I told ya they’d be giving them away one day.
Looks like more politicians want to bail out folks that bought homes in flood plains. Get out your wallets (or better yet, hide them). This is from the Trenton NJ area (flooded Delaware river).
After touring areas along the Delaware, New Jersey Gov. Jon S. Corzine said he would take another look at flood task force report, released this year, that calls for redrawing maps to include more land in flood plains, further limiting development in those areas and having government buy out homes in especially flood-prone areas.
Upriver in Easton, Pa., residents along Bushkill Drive — one of the most vulnerable blocks in the city, were similarly flood-weary.
Cliff Weasner hosed mud from his home’s second floor as he motioned to a towering maple tree in his still-submerged back yard. “That tree is probably worth more than my house,” he lamented.
way ot, but i’ve been following this blog for over a year now and i need to figure out what to do with my money while i wait. i am not very saavy, and have a modest savings (65K). i am young (25) and hoz has me freaked out with all that “dollar losing 50% of its value” talk.
any good samaritans wanna help a brother out, with some advice?
Don’t bet it all on one horse; in fact, you might want to find a horse running the other direction as well.
Keep a low profile. You can’t fight the fed.
Congrats on your savings. Invest wisely and you will be wealthy by the time you retire. The best advice I can give on investing is read “The Future for Investors” by Jeremy Siegal (Wharton Finance Professor).
Check your local credit unions for a Money Market account or a CD. Should be able to get a 10-month CD for close to 5.5%!
IMO Vanguard Prime Money Market
http://www.vanguard.com
$65K for 25 years old is pretty respectable. The average debt for college grads is $16K for public colleges and $20K for private colleges.
If you’re worried about losing purchasing power via currency, you could buy some Prudent Bear Safe Harbor which holds bonds in major foreign currencies and some gold bullion and bits of other things.
I think that Evergreen Bank has bank accounts denominated in foreign currencies but have no personal experience with them.
Wish I had $65K when I was 25, congratulations. Put it in Vanguard Treasuries MM account, 100% US treasuries (none of that Fannie Mae or Freddie Mac crap), and usually not subject to state income taxes I think - someone please correct me if I’m wrong.
You could also open a US treasuries direct account, and buy 3-6 month bills without paying the minimal (around 0.25%) Vanguard management fees.
I’d shy away from Vanguard Prime MM. Lots and lots of short term mortgage garbage repackaged by companies I’ve never heard of, and I can’t find out much about them either, even though I looked pretty hard.
But the again, I’m extremely conservative.
Posting whole article. Too much good stuff in it. As if it really should take 3 yrs in a row to know it is built in a flood area.
TRENTON, N.J. - Even as they cleaned up the muck left behind by some of the Northeast’s worst flooding in decades, some riverside residents wondered Friday how long it would be before they would be at it again.
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Life along the swollen Delaware River was frustrating — thousands evacuated, roads and bridges closed, utilities crippled and tens of millions of dollars in flood damage. It was at times bizarre — with a 4-foot alligator left behind in a Trenton apartment and foot-long carp flopping around on the streets of a nearby neighborhood.
But with storms having flooded many of the same homes and businesses in 2004 and 2005, there was a renewed call to finally do something about it.
“Our basement is destroyed — again — exactly what happened last time,” Lambertville resident Dan Jacquemin said as he shined a flashlight at muddy water that still filled half his basement.
After touring areas along the Delaware, New Jersey Gov. Jon S. Corzine said he would take another look at flood task force report, released this year, that calls for redrawing maps to include more land in flood plains, further limiting development in those areas and having government buy out homes in especially flood-prone areas.
Upriver in Easton, Pa., residents along Bushkill Drive — one of the most vulnerable blocks in the city, were similarly flood-weary.
Cliff Weasner hosed mud from his home’s second floor as he motioned to a towering maple tree in his still-submerged back yard. “That tree is probably worth more than my house,” he lamented.
Buildings along the Delaware and Susquehanna rivers were among those battered worst by the this week’s flooding, which forced tens of thousands to evacuate and left at least 20 people dead in Pennsylvania, Maryland, New York and Virginia.
“We should do what we can immediately … to get people back to some degree of normalcy,” said U.S. Sen. Frank Lautenberg (news, bio, voting record), D-N.J., who toured some flooded areas Friday. “But we’ve got to think about the longer-term picture, how we deal with these things in as quick a fashion as possible.”
The politics could be complicated, but the science of flood damage is pretty simple, said Jonathan Husch, professor of geological and environment sciences at Rider University.
“Streams flood,” he said. “That’s what they’re supposed to do.”
People make it worse by building on floodplains, and control measures like levees can make flooding even worse downstream, he said.
“I feel for these people, I really do,” Husch said. “But the science side of me says, ‘OK, how much of a hint do you need to get?’”
Corzine on Friday formally asked President Bush to declare a major disaster area in New Jersey. His counterparts in New York, Pennsylvania and Maryland have done the same, seeking federal aid for people hurt by flooding.
Scores of roads in the region were rendered impassable by flooding, but some had been reopened by Friday and government officials and travel experts predicted mostly minor headaches over the busy holiday weekend. One exception was Interstate 88, where two truckers died this week after floodwaters ripped out the highway over a culvert.
In the nation’s capital, a popular Independence Day destination, most museums, monuments, memorials and attractions that were closed after flooding early in the week have reopened.
In Philadelphia, however, the Independence Day regatta on the Schuylkill River was canceled for the first time in 126 years because of debris, high water and fast currents.
In Maryland, water continued to leak through the 65-foot-high earthen dam that holds back Lake Needwood in Rockville, but the water was receding and about 2,200 people who had been evacuated were allowed to return Thursday night.
The Delaware, which peaked Thursday evening in Trenton at just over 25 feet, was not expected to fall below flood stage — about 19 feet — until very early Saturday morning.
The city’s water filtration system was not expected to start running again until at least Friday night after being shut down Wednesday because of debris in the river.
Many residents along the river had no idea when their homes would be inhabitable again. Even after the water was removed, electricity and gas still needed to be restored.
Matt Skrebel helped pump water from six Lambertville homes — including his own. He removed all the furniture and appliances he could before the flood, but couldn’t stop the extensive damage to his basement and first floor.
“I just went through this last April, and it was a little over $30,000,” Skrebel said. He planned to replace his furnace, washer, dryer, carpeting and drywall yet again.
___
Associated Press writers Wayne Parry and Angela Delli Santi in Trenton, Michael Rubinkam in Easton, Pa., Mark Johnson in Albany, N.Y., and Stephen Manning in College Park, Md., contributed to this report
‘What’s happening in the Gulf is a bubble, but what’s happening in Solidere is steady growth,’
Same old slogan, different locations. Amazing.
Yeah, but Saudi Arabia isn’t in a bubble either. They’ve got Mecca, and people are always trying to get in!
They aren’t making any more Mecca!
Everyone wants to go to Mecca!
Priced out - you have saved $65K at age 25, and say you are not very savvy. I would disagree with your assessment. You deserve a big hand and are amply savvy about money. You should look at teaching others how to save like that, especiallly among those of your age that have no concept of saving and only spend. You could become a great financial person, and help many. And will continue to grow and learn. CONGRATULATIONS.
Read about Flooded home in New Orleans East. This home has be gutted and is ready for the right person to bring it back to life. All offers are looked at..
Some of the ads are hilarious.
Being from New Orleans, I can tell you that no one wanted to live in New Orleans East before Katrina hit. So I don’t know where these people get off asking $65-70k, essetially just for the land. My guess is that the insurance company paid them only for the value of the structure, and they’re looking to unload the land for a rediculous price and rebuild elsewhere.
Plus, I don’t think the city is issuing new building permits yet (still in negotiations with FEMA over how high new buildings will have to be elevated). So right now, all someone could do with a property like this is renovate it. And since these houses were under several feet of water for several days, you would be renovating a house with moldy walls that are no longer structurally sound.
Only an out of state flipper would be dumb enough to buy one of these properties. And from what I hear, they are doing just that. Another fool and his money are soon parted.
Why in the heck are people trying to reclaim New Orleans. The sea is going to take it all back within a short period of years. No levees can be built to withstand the sea taking soil away, a little at a time until all of it is underwater, and completely unihabitable.
The FRENCH designed and built it. That’s why it’s going to hell
I thought it was the French quarter that didn’t get flooded.
Has anyone seen the current sea surface temperature map ?
http://www.wunderground.com/tropical/
And it is just the start of summer. I suspect that there will be some major arse-whooping hurricanes this year.
What struck me about that map is how it shows the Gulf of Mexico temperatures. I’m glad I’m not in Florida anymore.
Why in the heck are people trying to reclaim New Orleans. The sea is going to take it all back within a short period of years. No levees can be built to withstand the sea taking soil away, a little at a time until all of it is underwater, and completely unihabitable.
One of the posts earlier here was showing a scientific report saying that would be within 50 yrs.
Here it is.
http://tinyurl.com/9wmov
Actually, it should be pretty much gone long before that. The co-writer of the article won’t go near New Orleans, because she believes it it’s going to sink suddenly fairly soon.
Why in the heck are people trying to reclaim New Orleans. The sea is going to take it all back within a short period of years. No levees can be built to withstand the sea taking soil away, a little at a time until all of it is underwater, and completely unihabitable.
Scientific report from earlier post, of this happening within 50 yrs.
What’s worse, is that even the Mississippi River is trying to move out of New Orleans, and relocate 100 miles or so to the west. Read about it here — a most fascinating story if you have any inclination towards geology whatever…
http://www.newyorker.com/archive/content/?050912fr_archive01
Thanks for sharing this article.
Apologies if this has already been posted…
Reuters:
“The U.S. housing market is now tracing a clearly downward trajectory that economists say will steepen as interest rates rise, raising chances of a recession by early 2007.
“Merrill Lynch economists say there is now about a 40 percent chance of a recession in the first half of 2007 - even without a widely anticipated 25 basis-point Federal Reserve rate hike this week.
“As much as half of U.S. economic growth is now directly or indirectly related to housing sales, construction and consumer spending fueled by home equity extraction, said Sheryl King, senior economist at Merrill Lynch.
“‘If that stimulus is withdrawn, it provides a notable danger to economic growth,’ she said. ‘The higher the interest rates go, the higher the chance that the housing market cools more abruptly and you get an outright decline in home prices.’
“As much as half of US economic growth is now related to housing sales…”
Has this ever happened ANYWHERE before in history or is it the newest American invention?
-
5 out of 40 economists surveyed in June 1990 forecast that year’s recession. - Money Magazine, July 2006
—————–
Post from another forum:
“Why You Can’t Believe Predicitions” Community Watch
Taylor Larimore | 06-29-06| 04:41 PM| Total Replies: 28
The July edition of Money magazine has an interesting article about market predictions. Here are excerpts:
“Pimco’s Bill Gross, one of the world’s biggest and best bond managers, has been just plain wrong for most of the past year, arguing that the Fed was about to stop raising interest rates, even as it kept raising them.
Managers of large-cap mutual funds, for their part, are so eminently fallible when it comes to prediciting the future of the stocks they buy, that over the long run, most of them can’t beat a simple S&P index fund.
Tetlock, a psychologist and professor at the University of California, has found that experts in general, just like Wall Streeters, have a pretty dismal record of foretelling.
You have to give up the idea that expert predictions are anything more than speculative guesses.
Just before the 2000 crash, Wall Street analyst “buy” recommendations outnumbered “sells” by 37 to 1.
5 out of 40 economists surveyed in June 1990 forcast that year’s recession.
Our craving for predictions seems to me more deeply entrenched than any innate sense of skepticism.
The prediction bug is also bound up with a built-in urge to control our fate–as Vegas craps players do when they blow on their dice.
Experts who peer into the financial future face three daunting challenges: Change comes from nowhere, Competition changes the game, We’re good at fooling ourselves.
The majority is pretty well informed–just about eveyone on Wall Street (and in Tokyo and London and Frankfurt) has access to the same data.
Our brains love to detect patterns, even when they’re not there.
The Janus mutual funds, which after a few strong years in the late 1990s were taking in almost one of every three new dollars invested in funds. Then the hot hands at Janus cooled, and some of its key funds racked up double-digit negative returns three years in a row.
Just make a few decisions. A well-diversified portfolio can get you through a variety of possible futures.
If there’s one thing you can predict for sure, it’s that hedging your bets is a good idea.
We are very, very good at forgetting our mistakes.
A fox like thinker is good at weighing diverse points of view, is comfortable with ambiguity and avoids extreme positions.”
—————————————————-
Three kinds of market forecasters:
1. Those that don’t know–and know they don’t know.
2. Those who don’t know–but think they do.
3. Those that don’t know–but pretend they do.
Best wishes.
Taylor
A highly recommended read, forgive me if already posted. It’s a UK site but is all about US:
http://www.dailyreckoning.co.uk/article/300620063.html
Comments?
Can read this one too, more basic though.
http://www.dailyreckoning.co.uk/article/300620064.html
Very good article (I read the first only). Agree very much with what it said.
Thank you!
A highly recommended read.
http://www.dailyreckoning.co.uk/article/300620063.html
Hey Priced Out!
Read the above link and subscribe to the Daily Reckoning email newsletter (it’s free), and read Empire of Debt.
I’m twice your age, have owned my own business for 30 years (15 as RE Broker/Owner) now own a high tech business. You should hold cash, buy gold (physical), maybe some short term Tbills and stay out of debt. You will do just fine.
I’ve been saving gobs of money over the last 8 years, rent and have no intention of purchasing real estate until it drops 60-80% from present levels, and I may NOT buy since I like the freedom of not owning real estate and have started to believe that the “American Dream” of home ownership has turned into a fraud. I’m long on gold and cash (for short term trading), have no debt and really nice cash flow from my “auto-pilot” business. I can move anywhere at anytime.
Since you mentioned UK, I am here for business. Yesterday stopped in the town of Hexham close to Newcastle. Nice old town and did some window shopping on some real estate agents as they show homes in their store windows. Absolutely shocked! And I thought US was bad. 2-3 bedroom homes going for $700k. I know somehow the area as is more blue-collar, nothing very fancy except the historical edge that they have it almost anywhere. Average wage is about $25-30k a year maximum and there are no high income pockets as in California, but prices really like California. Read in the newspaper that the median house price in UK is $330k.
Off topic, but I have a couple of questions I have been mulling over for some time.
As the housing bubble begins to exact economic damage to the economy in general, and serious economic damage to the home builder industry, what effect will it have on illegal immigration?
Investment homes owned by absentee landlords must be cared for by landscape companies, and as the investments begin to go upside down and the flipper’s economic situation worsens, many of these contracts will be cancelled. As home building slows, builders will begin laying off thousands of workers. Home improvement projects will diminish with the closing of the HELOC ATM, eliminating the revenue source for many companies which hire illegals.
Add to that the large numbers of legal US residents which will feel the pinch in the coming months. And add to that the fact our over-leveraged government will not be able to create social programs to help all of these people out.
Another possibility is that with the potential large scale reduction of net worth for many home owners, their high-school age children will need to get a job if they want to buy a car or have discretionary funds, thus adding their job pressure to the market.
Are we going to see a lot of direct competion between out of work legal US residents and illegal immigrants for even low wage jobs?
Excellent questions, and you’re on the right track. I hate to say this but I hope that Congress is unable to pass any immigration legislation until the housing crash is well underway, at which time the US will be in a recession (2007). This will make it more imperative that Congress pass legislation to seal the border and begin returning illegals to their homelands. Many will return to their homelands if they are unable to find work. Over time, we can deport those caught speeding, driving without licenses or insurance, tagging, stealing, and jail those robbing, shooting, killing etc. Congress should also clarify through legislation that the children of illegals aren’t automatically citizens of the US.
I wouldn’t get my hopes up on Congress “getting tough” on illegals anytime soon. Neither party is really serious about doing anything real, despsite all the bluster and proposed “solutions” (which, with one exception, are actually designed to INCREASE immigration not curb it). Too many vested interests depending on that steady gusher of cheap, tax-free slave labor.
I can guarantee you we will see Congress voting themselves a pay CUT before we see any substantive action on immigration control. Until then, hot air & token meaningless gestures –especially during election years.
I know that this blog is supposed to be about the impending crisis in the housing market, but I’m sure a large number of people who read this blog do so because the housing market has become indicator of the overall health of the Countries economic stablity.
With the continuing inmigration of so many low-skilled workers, it has created a situation where if a person loses his high paying professional position, the only way he can keep his head above water is to find an equivalent position. Gone are the days when a person could find temporary work in between professional jobs that would still support his family.
As this housing collapse begins to build momentum, I believe that a lot of people will start to see the illegal immigration debate from a much more personal point of view.
“Sealing the border” is for all practical purposes impossible. The tunnels under it will just get longer. Or people will start coming in by boat, going end-around the border fences.
The only practical way to cut down illegal immigration is to start prosecuting employers who hire illegals. That won’t happen until and unless popular opposition to illegal immigration becomes sufficiently intense that the political downside to not taking effective action becomes significantly greater than the downside to angering the many wealthy people who getting even richer off illegal immigrant labor. Since things will have had to have gotten very, very bad before that happens, hope and expect that the status quo will continue.
At a 4th of July picnic here in the Ozarks, I met a couple from MA. He retired from the govmn’t after 22 yrs (he looks 40 yrs old max), they have 3 young children. They researched inexpensive places to live, but good for families and ended up here. But the wife’s sister, in CT, cannot sell her house. And they already bought land and are building another house in CT! They didn’t want to sell their old house till the new one was done but now they are getting desperate as CT home sales have stalled. Anecdotal but interesting.
Priced out,
Follow the rich guys….. some in T-Bills, some in gold, and some in something outrageous that will make money in a recession. It was booze in the 30’s, pick your vice this time around. Whatever is illegal, but will be legalized within 10 years. Remember the line in “The Graduate” — “Plastics, my boy, plastics”.
In 1977 I was in a bowling league in the bay area. One of my bowling collegues was a software writer and told me about these two kids that had started putting together a small computer in their garage. He was working for them part time and said I should think about investing in their company because they had some neat stuff. They are thinking about calling it “Apple”. When it finally came public, around ‘79- it was too expensive $19/share.
Take a gamble. You are young.
-
for every 1 Apple Computer, there are a million failed start ups. just something to remember.
I thought the rich guys were just giving it all away.
Mr. Gates, Mr. Buffet any response?
OT…But this is so cool. If anyone here is on Pacific Time, tune into “Close To Home”. The story line is a felony case of fraud involving a powerful land developer. There are a couple of brothers who are appraisers who get caught up in the mess…the developer allegedly tried to blow these guys up in their office building….plus, the husband of the attorney on the case loses a contracting job (it is suspected that the developer has something to with it).
Wow! So network drama is beginning to show storylines about the bubble…similar to Law and Order (stories taken “straight from the headlines”).
I’ve gotta say “wow” again.
BayQT~
It’s on CBS.
BayQT~
I have a coworker that just bought a condo. It’s in Los Angeles, near the Staples Center. She was so excited that the loan went through. The condo, 932 square feet, was bought for $550,000. The HOA is $350.000 a month. They got the loan on stated income. She said she wouldn’t be approved otherwise. It’s an interest only loan
She will take the metro to Santa Ana to save on gas.
She was so excited. She said that there is so much to see and do right in the neighborhood. She currently lives in Corona and she said the crime is way up and looking forward to leaving the area.
I did not have the heart to say anything negative. You could see she was glowing. Gawd it hurts.
That is just plain sad. She apparently did not check out the crime statistics for the area near Staples Center. I drive through that area (downtown L.A.) on my commute, and although a 5 star hotel is planned in the future (Ritz-Carlton) right now it is the dregs. Hope she can hold on long enough to see it turnaround.
Melody,
Very sad. NOT a good area — can’t imagine what she’s thinking! I’m seeing signs of rising crime rates, nationwide, already. I read somewhere (sorry, no link) that home-invasion robberies were up. Very scary stuff. I expect it to get worse as the recession becomes more mainstream.
I firmly believe that the housing market is in the beginnings of an enormous collapse which will end very badly for more people than we can even fathom. The problem isn’t really with the price of housing, it has more to do with the willingness of people to take on financial servitude to banks and lending institutions to acquire possession which they cannot afford.
Here in Southern California, people are willing to commute 2+ hours in each direction to buy a poorly constructed tract home in order to have more than they had living closer to work. As the equity in their homes increased, they joyfully took out HELOCs to purchase more stuff.
Stuff purchased on credit will have to be paid for eventually, and with the addition of financing costs, it winds up being much more expensive than a cash purchase. I don’t feel sorry for the FBs and GFs who have leveraged themselves so profoundly, but I do feel sorry for me because I’m sure I will have to bear some part of the burden, be it through a government bail out or through the social consequences.
At the end of the day, everybody will be paying. Even if you are not leveraged in real estate, a house-driven recession will affect you as your job will be at risk, your income will not increase. The only silver lining I guess is that housing will come down significantly and reward people who saw it coming. Frankly, I do not think of any bailout from the government. Feds are in debt up to their eyeballs and can care less about California, anyway. The state (CA) is not better off either as any surplus will be wiped out by loss of revenue and stupid spending commitments. The only question if everything turns into an outright depression as the last 15 years in Japan. I am afraid we are heading that way with the amount of public and personal debt on our hands.
Bustah,
I have the similar thoughts. As much as I think the h bubble needs to be imploded, I too fear that it will train wreck the economy. Its not going to be a pretty picture for the vast majorty of folks out there. It won’t be like the 70s or 80s as with todays globalization, wage growth is just not going to happen to save us or inflate us out of this mess. I predict further erosion if not total elimination of the middle class.
“The problem isn’t really with the price of housing, it has more to do with the willingness of people to take on financial servitude to banks and lending institutions to acquire possession which they cannot afford.”
This is the chicken and the egg; prices would not have reached insane levels if buyers would have just said no to creative, but unsustainable, lending agreements.
Exactly. I got myself into significant credit card debt in my early twenties (more the $10K) with very little to show for it. It took me a couple of years of subsitence living to pay it off. This taught me the value of purchasing with cash and that if I need to use credit to pay for an item, I really can’t afford it.
Even if I hadn’t read anything about the housing bubble, I would know that I cannot afford a $500,000 house on my $75K annual salary. This should be obvious to the FBs as well.
OT..
Is this person, in Craigs List Los Angeles, looking for a “straw buyer? Looking For Good FICO Score (Investors)
See text of ad below:
Looking For Good FICO Score (Investors)
Reply to: hous-177362221@craigslist.org
Date: 2006-07-01, 1:11AM PDT
Do you have a FICO Score 680 or better?
You can make $15,000.00 to $20,000.00
dollars within 30 days upon the close of escrow.
No Money just good credit
Please leave contact info when responding.
* this is in or around California
* no — it’s NOT ok to contact this poster with services or other commercial interests
177362221
I’d say that looks fishy