‘Foundations For Housing Boom Beginning To Crack’
Some housing bubble reports from Wall Street and Washington. “Construction spending fell in May by the largest amount in nearly two years as the once booming housing sector suffered another big decline. The Commerce Department reported that building activity dropped by 0.4 percent in May, following a 0.2 percent fall in April. It marked the first time in more than three years that construction spending had fallen for two consecutive months. May represented the biggest one-month decline since a 0.7 percent fall in September 2004.”
“‘(Economist) Ken Mayland said the drop shows ‘the foundations for the housing boom are beginning to crack.’”
From Reuters. “Fannie Mae on Friday announced the second member of its board of directors to resign in the last seven weeks, saying that Donald Marron would leave the board on July 31. His resignation comes just over a month after a scathing report from Fannie Mae’s regulator blamed the company’s management, its board and an ‘arrogant and unethical’ culture for massive profit manipulation and an $11 billion accounting scandal.”
From Paul Muolo at National Mortage News. “The House has passed a flood insurance reform bill by a 416-4 vote that eliminates subsidized premiums on vacation and second homes and commercial buildings, affecting an estimated 450,000 properties. Federal flood insurance premiums on those properties would increase 15% a year until they reach the ‘applicable risk premium rate.’”
“Mortgage originations could take off again in 2008, according to Jeff Speakes, chief economist for Countrywide Home Loans. Speaking before a mortgage broker convention, Mr. Speakes pointed out that residential loan production has shot higher every five years since the mid-1990s. Mr. Speakes advised brokers that if they can hold on through next year, brighter days are on the horizon.”
“Meanwhile, brokers and mortgage bankers fear the Federal Reserve won’t stop ratcheting up short-term interest rates. Some fear that the Fed has now gone too far.”
From Bloomberg. “Barclays Capital Inc. forecast the Fed’s target rate will reach 6 percent by the end of the year. JPMorgan Chase & Co. and Credit Suisse Group made similar calls for next year.”
““Mortgage originations could take off again in 2008, according to Jeff Speakes, chief economist for Countrywide Home Loans.”
Interesting how industry insiders are increasingly writing off 2007.
“Mr. Speakes advised brokers that if they can hold on through next year, brighter days are on the horizon.”
Even if this were true, which it’s not, 90% of those who rely upon originating loans can barely last another three months, let alone make it to 2008. The bulk of realtors and originators came into this market in the “boom years” and never witnessed a down market. These guys spent like the party was never going to end. Now, they’re in a world of hurt. They’ve got a 750K+ home, a couple of SUV’s, a rental property or two that pencils in the red every month, and no cash flow to support it. Two of my LO’s are living on credit cards right now, and another one is living off a generous mother-in-law. We’re only into this thing about 8 months where I’m at and already these guys are sinking fast. By the end of the year my guess is we’ll lose about 25% of the industry, with another 25% to go in 2007.
mort brokers are the first in the tank
man ,07 is going to sck for everyone exc bk lawyers & gov workers
I love being a government worker
nnvmtgbkr-
Come on Dude, say it’s not so. Falling off already it’s still early.
It’s pretty damn slow, but here’s the thing. None of these guys can live off of a few deals a month. Their lifestyles won’t take it. And now that they’re leveraged to their eyeballs, they’re hosed. Me, I’ve been through a down cycle or two. I kept it real by living according to what I would have made in my slowest months and stickin’ the surplus away. Any idiot should’ve seen this coming and acted accordingly. Hey, I still drive the same car I bought in ‘98….with cash. I’m solvent and I plan on staying that way. A couple of deals a month pays the bills and then some for me, so I’m not sweatin’ this one out like all the others that need 15K a month just to stay swimming.
You have that increasingly rare attribute…common sense.
When I talk to RE agents or Mortgage people who have gotten into the business in the last few years, I tell them that they will make a living doing what they did in the early to mid 90s (meaning they will go back to what ever they did before.) I get blank looks. They do not understand how bad it can get (and probably will.) many more people got into the business than can be reasonably sustained in normal years ( and especially down years.) And, after several down years, probably most will leave. RE licenses expire in 4 years and we saw many of them never renew the last cycle. (RE licenses here in Calif can also be used for mortgage brokers.)
Can these people claim unemployment if they left their job for RE and worked there for a while?
Can these people claim unemployment if they left their job for RE and worked there for a while?
—————————-
I’m looking at this question VERY carefully here… Do you mean unemployment if they’re laid off from their RE jobs? Maybe, if they were hired and worked with W2’s in place, and I think for at least 3 months (I think that’s the case in Texas). If you mean unemployment based on the previous job, before the RE job, sorry Charlie, it doesn’t work that way. If you leave one company voluntarily, you CANNOT draw unemployment from that company you left. If you’re self-employed, you basically gave yourself “customer service” according to George Carlin’s definition, though I don’t see how that’s possible physically… But there you go… Batten down your hatches and hold your money in silver and gold.
Stephanie Ellison
Thanks Stephanie. That is what I thought. These realtors are going to be in a world of hurt if they didn’t save those commission checks.
Did SEC audits (NASDAQ listed) of a few large mortgage guys in the early to late 90’s. It was so ugly. The run up back then was much smaller than this time. This industry will lose 75-80% of the empolyees. They have no idea what is coming - well those who were around back then do - the Johnny come Too-Lately’s will be sent packing. There is no way this industry gains any strength by 2008.
And as to your industry insiders these LO’s living on credit cards; I’d bet they re-fi’d and re-fi’d again and again to whatever instrument had the lowest monthly no matter what the true terms. It’s gonna get real wierd when lenders can’t take your SUV because they don’t have any more places to store it. Then there’s gonna be some angry CD depositors when they get a fender instead of an interest payment. Sometimes you scare me nnvmtgbrkr.
don’t be scared, he speaks the truth. from 200,000 in the industry in 2001 to 600,000 by the end of 2005, i think we will revert to pre-2001 levels, especially given the change in technology. remove the housing atm refis and start requiring real down payments or real pmi and maybe he and i are being a little too optimistic. imho.
I’ve been saying the same thing since I first posted here, but it is still scary to hear pros such as yourself state it.
I’m not scared in the cold fear kind of way. I’m such an incredible cynic on the subject I thought I had every bit of bad news covered. I had assumed the people closest to the problems could see the trouble coming sooner and done at least a little to protect themselves. nnvmtgbrkr certainly speaks the truth. Until now I just thought loan officers and the like had used the historically low rates to fix in at 4.9% for their own mortgages. I knew their jobs were in danger but how could someone process so many toxic loans and not cover their own exposure?
Robert, you seem to be very wise. I sold my home in Dec. and walked away with 450k. I put it all in cds and I’m waiting for prices to come down. Any other suggestions - I was not a flipper.
Thanks
must mean he’s already sold or is selling today
same as TOL
Hey! Mr. Over Paid PHD Economist. “The Trend is Your Friend”
Your predictions are as worthless as my predictions. The only thing that is real is the trend today. Everything else is plain BS.
look at the charts of the S&P Housing Sector, Homebuilders like KB Homes and Pulte, and think “a picture is worth a thousand words” I can’t be guess what will happen in 2008, but I sure can see the trend in HomeBuilding stocks are going thru the dot.com meltdown. I guess if we don’t learn from history, history will just repeat itself. It looks to me that some of these homebuilders won’t make it to the end of the this year before filing BK, but this fool is out to 2008. The Panic of 2006 is right around the corner
Does anyone know how Richard, Kevin, Ginger and her dog are doing there in Charleston, South Carolina at Trademark?
http://www.aetv.com/flip_this_house/
You meant THIS one that they are trying to sell for $1,800,000 after buying it for $1,200,000? I don’t know how much they claim to have into it but the peak selling season is 1/2 over.
Looks like it is still on the market…
http://www.trademark-properties.com/charleston_real_estate_listings.asp
Folly Beach - $1,800,000 MLS# 2621484
One Of 3 Bedrooms All Similar
Type Sngl Fam Det
Address 1216 TABBY DRIVE
Folly Beach, SC 29439
Area Folly Beach And Outer James Is. Status Active
County Charleston
Subdivision Folly Beach Subsection
Sq. Ft 3,500
Bedrooms 3 Full Baths 4
Half Baths 0 Acreage 0.00
Year Built 1973 Rm Ovr Gar
FROG Sq. Ft. Style Traditional
Kind Sngl Fam Det Exterior Cement Plank
Gar/Park 2 Car Garage
Remarks
Incredible waterfront home with dock in place on the beautiful deepwater Folly River.
Other InformationLot Description Level, Beach Access, W/frnt-deep, Marshfront, Riverfront
Rooms Family, Lr/dr Combo, Great Room, Pantry, Laundry, M-in-law Ste, Game
Misc. Exterior Deck, Patio, Dock Existng
Amenities Cable Avail, Trash Pickup
Please Contact Courtesy of Agent
Courtesy of Office
Lyla Jacobs
Office Direct: 843-762-0110
Mobile: 843-478-5459
E-Mail Me
Trademark Properties,inc
Phone: (843) 762-0110
E-Mail Us
View Page
1 2
The episode focusing on the Folly Island house aired last year sometime. They’ve been trying to sell that house for over a year.
all HivTV shows are from early 05
always waiting toi get their list +offer accepted
for 07 the show will be “hang em high”
OUCH. I wasn’t aware they have been sitting on this that long.
Hmmmm. simple math
$1,200,000 purchase
$150,000 upgrades( estimate)
$25000 taxes ( estimate)
$40000 insurance( estimate)
$ 50000 mortgage ( estimate)
$ 25000 ( ukpeep, utitlites, etc.)
total about $1500000 ( I know I am loballing and missing out things)
So IF they get the full amount they may clear $300,000. I bet they will be lucky to break even.
My wife watched a rerun of that episode last night–I believe they spent $250k (not 150) on renovations.
That episode was also interesting because it featured one of Trademark’s contractors/employees (Kevin, I believe) making the plunge as a 50/50 investing partner with Trademark on the Folly Beach property. He had had enough of “sitting on the sidelines” and wanted to make some “real money.”
Ya, saw it again this weekend. When he wrote the check for $100k down, it was dated May 05.
you got to love it.
Right there on Folly Beach and hurricane center is predicting east action this summer.
-
“Folly”. How appropriate.
Folly beach… Need we say more?
They have been replaced with two new ‘teams’. One from San Antonio and one from Georgia:
http://www.houstonrealnews.com/news/contentview.asp?c=180867
No more Ginger!
From the Bloomberg link:
‘ Dean Maki, Barclays’ chief U.S. economist, made his estimate on June 22 during nine consecutive days of higher yields on the benchmark 10-year Treasury note. The streak was the longest since 1974. Maki said June 30 that he was sticking with the rate prediction. Barclays is one of the 22 government- securities dealers trading directly with the Fed’s New York branch.’
‘ A 6 percent rate ‘would be disastrous for stocks,’ said Barry James, who helps manage $1.7 billion as the chief equity strategist at James Investment Research in Alpha, Ohio. Rising to that level would ‘definitely have a very crippling effect on the economy and stocks.’
‘History backs that sentiment. Three days after the rate reached 6 percent in March 2000, the S&P 500 set its all-time high. The index slipped 5.7 percent through January 2001 as the ‘Internet bubble’ of the 1990s started bursting.’
Interesting that if one expects home prices to decline, the position is characterized as ‘doom and gloom’, but calling a 6% interest rate ‘disastrous’ is regular fare.
“Interesting that if one expects home prices to decline, the position is characterized as ‘doom and gloom’, but calling a 6% interest rate ‘disastrous’ is regular fare.”
- A belief that real estate prices “always go up” is good for selling it.
- Calling 6% interest rates “disastrous” is a handy prelude for sticking the blame for the collapsing bubble on the Bernanke Fed.
Wasn’t it Hitler who stated that if you repeat a lie over and over people will evenutally believe it?
“Real estate prices always go up”….
Sounds like the NAR took a page right out of the 3rd Reich…
6 % may be disastrous, but when the inflationary wind really starts to blow, 6 will look like a picnic. Don’t worry about the Fed’s target rate, worry about reality. I doubt the Turks had an 18% overnight rate in mind, but that is their current rate.
I had a 13% first mortgage once. Ate, once in a while.
Mr. Speakes advised brokers that if they can hold on through next year, brighter days are on the horizon.”
And if they wait a really long time they can be in heaven where homes and all you can drink beer is on tap and free.
How about 77 virgins! Can’t remeber the exact number, but Ben Ladin could be a talking head on CNBC with his selling point
I’m watching the Fed, trying to get a sense of their strategy. We know that if they keep increasing rates they are going to crush housing. In reality, it is going to implode all by itself. But the Fed doesn’t know that. So they are going to probably do one more increase and then shift to a nuetral stance. Of course, if inflation doesn’t stop they are going to be forced to keep tightening. They’ve cooked the numbers as much as they can. What happens if you strip everything that is going up out of the CPI - and what remains still keeps going up?
Bottom line: if the Fed tries to talk the market into thinking inflation is over when it really isn’t, and then they have to reverse course quickly, all hell is going to break loose.
Greenie timed his exit perfectly.
I may be naive, but I think the fed is truly serious about price stability, and that they’ll continue to raise rates if inflation metrics continue to show an increase. I think they’ll do it even if it risks a recession.
For professional economists and bankers–basically the folks who compose the fed hierarchy–the runaway inflation from the ’70’s and the subsequent wrenching, but necessary, tightening by Volcker remain a very, very bad memory, a “never again” sort of memory. They lost control of inflation then, and they’ll try to avoid a repeat of that at almost all costs, imho.
I may be naive…
I think you’ve well established that!
Seriously now, if they’re so determined then why don’t they engage in bigger hikes, or at least stop pumping so damn much credit into the system? They talk the talk, but they just don’t walk the walk.
well said !
The Fed works for the banks and big business. Their policy is going to be geared around them. So figure out what they want and you can predict the Fed policy. I belive the Fed wants badly to lower rates to try and prop housing. But every time a bad inflation number comes out, they get put between a rock and hard place. This is why they keep stripping out components of the CPI. Anything to make inflation look stable.
Maybe they will try and recalculate the CPI to change the formula. I wouldn’t doubt it. They need to keep the illusion of low inflation at all cost.
The Fed should be abolished.
I think that the fed has less power than people think. They must keep rates competitive so foriegn money continues to fund the government. The dollar will be defended because the very existense of the government is at stake. Remember, foriegners buy over 50% of treasuries now. IMO, the FRB will cater to their customers.
Broken Record:
This housing bubble will result in a national, if not international, depression. It’s everywhere and has permeate markets which would never have had any housing appreciation on their own. There’s no connection between housing and its respective regional job market in any manner. I think Bakersfield CA is one of the best cases for this point.
My advice to fellow renters, with enough of a savings to put in a 20% down payment after a 40+% correction, is to not bother. You’ll need that money to survive periods of joblessness in the decade to follow. Cash is king during a deflationary cycle.
“This housing bubble will result in a national, if not international, depression.”
Wow, so we’re all going to lose our jobs because the bubble bursts ? Gimme a break.
No, not all but enough ~10%, which really means 20% underemployment given today’s lack of tracking of people after 6 months w/o a job.
What that means is that the steady paycheck, which the average middle classer has gotten used to, could go to contract-to-contract work cycles, depending upon the employers’ need. That’s generally what a recessionary deflation looks like and the people who’ll be ok with it are the renters who’d saved that downpayment money during the ‘02-’05 housing bubble era.
Be careful with the ‘Fed has cooked the books’ theories. In the early 80’s people tried everything possible to get a job, any job, and still couldn’t even after 6 months. Today - If you can breathe you can get a job. It might not be glamorous but it would be a job. Anyone who is unemployed for 6+ months right now doesn’t want a job. I could get a $15/hr job tommorow if I went and applied. It’d pay a whole lot less than I make now but it would be a job. This ‘I won’t take a job that’s beneath me’ (i.e. - if it doesn’t pay at least 50K a year I won’t even return their calls) is another sign of this greed driven idiocy we currently call our economy.
:I could get a $15/hr job tommorow if I went and applied.
That’s today’s economy where temp jobs are a plenty. Part of it is due to the fact that the RE market has supported much economy and that a lot of outsourcing projects have hit the skids as a result of overzealous management.
During a deflation, those $15/hr positions become competitive and people will drop their pride for food and gas money. Those of us who’d saved the downpayment money during the bubble times will be ok with seasonal work but others with RE will be in bankruptcy.
True,
But the future is not here yet. Until then, counting the chronically unemployed as part of the unemployment statistic is misleading.
“Anyone who is unemployed for 6+ months right now doesn’t want a job. I could get a $15/hr job tommorow if I went and applied.”
Should post this on the NAR site. Quite a few realtors will be looking for jobs soon.
And tell this to Bush, this should lower the unemployment rate to 0%.
Of course, we are just exaggerating here. Lots of people here are unemployed in the Bay Area.
:Should post this on the NAR site. Quite a few realtors will be looking for jobs soon.
Bingo, I think you’ve got it. The current underemployment issue effects the so-called professional class of IT workers, people layed off in their 50s, those with specialized training, etc but when realtors, hvac equipment mechanics, mortgage loan personnel, etc, are lining up for those support tasks at delis, restaurants, gas stations, etc along with the underemployed engineers, it’ll be really bad.
The Mexicans waiting for work at Home Depot make $12/hr. I agree that there is plenty of work to be had. Maybe not what you want to be doing though.
I agree with everything you said, except the deflation part, though we probably will get deflation after the hyper-inflation.
We may not get hyper-inflation this time around. The USD will probably fall in a similar manner to the British Pound during the fall of the British Empire from 1945 to 1975 where the pound lost two thirds of its value against the dollar. Part of the reason for it is that the govts have chosen the stability of world markets. Right now, the dollar forms the foundation of much of the world’s exchanges, holdings, etc. It won’t go the Argentine Peso w/o a global meltdown of historic proportions. Instead, the USD will be in cascades of some sort of straddling ranges betweens currencies where one year, it’ll be 1.2 to 1.3 EUR/USD, five years later 1.4 to 1.6 EUR/USD, etc until it finds a zone where all the major global players have divested enough of their USD denominated bonds, bills, and holdings.
When home prices go from $300k to $1 million and that doesn’t qualify as hyper-inflation, I really don’t want to see it.
Very good point. I would like to find web site explaining how they calculate inflation. Apparently, “volatile” food and energy are excluded. So, what is left?
Ahh… that’s the big secret of the 90s and 00s, asset inflation is not considered an effect of monetary inflation, which as you and I know, is simply not the case. This is a form of a hidden hyperinflation made to look like an asset bull run.
But for us renter/savers, here’s the silver lining, since we don’t have a leveraged piece of the hyperinflated asset, it doesn’t really affect our ability to make a living during the inflation to hyperinflation period (’96-’00 for low leverage stocks/’01-’05 for high leverage housing). Once the compartmentalized hyper inflation completes, widespread deflation follows and that’s what we’re looking at starting next year or the year after.
Randy — thanks for your interesting insights and hypotheses. That’s the kind of stuff most of us look for.
CPI doesn’t include housing costs outright but only “owners’ equivalent rent”, but who knows what that means. to me, it’s number that can be massaged pretty much into anything one’s heart desires.
I think the owner’s equivalent rent calculation is fair. Afterall, that represents the fair value of housing and just shows how out of whack prices are right now.
” Speaking before a mortgage broker convention, Mr. Speakes pointed out that residential loan production has shot higher every five years since the mid-1990s.”
Why look at just the current bubble run-up (5 yrs “normal”, another 5 yrs 9/11-related rate-cutting induced)? Why ignore the other 90% + of relevant data?
Pretty damn disgusting; but what’s new, and what d’ya expect?
“Meanwhile, brokers and mortgage bankers fear the Federal Reserve won’t stop ratcheting up short-term interest rates. Some fear that the Fed has now gone too far.”
Of course the Fed has “gone to far” for these guys. The only way to keep this game going would be to lower the Fed Funds rate to 0%, pump even more liquidity into the economy, and loosen already lax lending “standards” so that even your pet golden retriever qualifies for a loan. Anything more than would be considered “going to far” by the mortgage industry and the NAR.
New homes for all golden retrievers!
The Feds got another problem on their hands, if they lowered rates back to the
The Feds got another problem on their hands, if they lowered rates back to the less than 2.5% easy money zone, then there’d be a run on the dollar. Right now, the USD’s survived a retest of its two year low against the Euro, Swissie, etc and is stable, relatively speaking. This is why Buffett is not a great currency speculator though he’s a fine buy-and-hold investor during US bull markets for stocks and commodities. The currency game has a lot to do with arbitrage and the ability for fudiciary banks, intl traders, and govts to make money on incremental differences in interest rates between bonds, currencies, and metals. Since all the govts are working in unison to raise their respective rates, it’s helped the USD in maintaining a relative weighing of the hedging risks between major players.
Since the strength of the dollar ultimately supports the govt’s ability to borrow, the Fed has chosen Uncle Sam over RE speculators, landlords, and homeowners.
“The Feds got another problem on their hands, if they lowered rates back to the less than 2.5% easy money zone, then there’d be a run on the dollar.”
The Fed may (or may not) have that problem even if they continue to inch rates up. The dollar’s issues are structural and transcend what the Fed alone may do.
:The dollar’s issues are structural
From a pure, long term market pov, that’s absolutely on the mark.
The problem is that on the short term, meaning next 5 to 10 years, big players including other govts, banks, etc need the dollar to be proped up temporary so that they can effectively run their businesses. The USD making an Argentine Peso or Turkish lire move would collapse the world economies completely.
The Fed, ECB, BOE, BOJ, etc are in a careful dance to make sure that the system doesn’t fold and raising interest rates is a part of it because it’s the softer hard place to the rock, at least from the govts’ pov.
The point I would like to make is that what use is the USD to other gov’ts if it doesn’t represent a store of value? Other gov’ts would like to receive “value” for their trade. If that isn’t happening then they MAY be inclined to go along with a bullshit deal until they line up one that makes sense. However, that implies an endgame to this that eventually craters the USD. Now certainly that leaves the timing up to the gov’ts involved on the other side and as such, I don’t think you can just throw around timelines like 5-10 years,etc. just because you feel that it would be disruptive otherwise. These countries involved have been kicked in the balls by the U.S. for years and probably wouldn’t feel all that bad about returning the favor at some time of their choosing. Also, that still leaves the USD as a piece of crap at some point. How does that work into a deflation argument where the USD currency gains strength? This is the first time in modern history that for 30+ years the predominant currency was not linked to something like gold. Since we are in unchartered territory I suspect that the future will be outside our frame of reference with regard to the inflation/deflation debate. My personal opinion is that the U.S. gov’t has a plan for the eventual demise of the USD, how could they not? I don’t happen to believe that it would be viewed favorably with regard to our constitution but that is my paranoia/tin foil hat stuff coming out.
I’d agree, the USD’s role as the world’s reserve currency is in some sort of end game pattern but that pattern’s not clear to anyone.
Here’s why I don’t think it’ll happen as quickly as the dollar bears/gold bugs tend to prognosticate. For one, the Bretton Woods deal of the gold exchange window with the USD ended in ‘71 but it wasn’t replaced by any other fiat currency like the Pound, Euro, Yen, or Swissie. All currencies float w/o a metal backing and in a way, the instrinsic money supply of any of the aforementioned currencies is low compared to the USD for exchange/swap purposes. Now, in order for someone, a Soros-level trader, bank, govt want to buy gold, silver, or petrol, he has to convert his country’s currency into USD and buy precious metals or oil on one of the major dealing exchanges. Iran’s attempt at creating a Euro-based oil bourse isn’t taking off in the manner that the gold bugs have predicted this year. In fact, I believe less than a percent of oil deals are done through that exchange and listening to my ex-pat friends, working in the industry in the near east, the mainstream sales are still mandated through the dollar exchanges.
Since most of the world’s corporate and govt entitites need the above to continue smoothly, a full run on the dollar won’t happen overnight. It really has the look of the British Empire, which was completely bankrupt via 1945 and lost all of its colonies starting with India in ‘47 and finishing with Bahrain in the early 70s. (I don’t really think the Hong Kong hand off in ‘97 was as significant as the earlier ones.) During that period, the pound lost 2/3 of its value but in gradual steps as the world moved towards the dollar as the reserve currency. I think something like that will happen today with the world gravitating towards the Euro or Renminbi or an index containing the two along with a few other strong pairs.
So, in this case, the dollar’s strengthening in the short run, allows all of us to create our own ‘basket of currencies’, since more and more banks, forex dealers, etc are offering multicurrency accounts w/interest so that we can move our savings into them as major news events, like BoJ/BoC selling $1 billion T-bills, start coming out during the deflation.
So it seems to me, as a layman observer, that the whole house of cards that is the current housing bubble is based on the lax lending standards coupled with the “suicide loans”. For things to really come down, these have to stop it seems to me. I don’t see any tightening of the lending standards, but I’m thinking the coming Great ARM Reset will have enough defaults to show the lenders the risk isn’t worth it — basically they’ll get burned enough to tighten their standards. But what would cause a decrease in suicide loans? Are these explicitly tied to lending standards? It seems to me (again, as a layman) that the only want for these to decrease is for the public to wise up. We all know that never happens. Anyone have thoughts?
Lending standards are slowly, very slowly tightening in response to some of the regulatory nudges ,which in my opinion came too little and too late.
However, much of the problem prices is also due to low-rate ARMS, whihc help push housing prices higher, but theat part is also slowly resolving itself: Short term interest rates have taken a huge jump in the last two years, and you can already see the legitimate low-rate ARMs disappearing.
Consider the ING Bank deal of two/three years ago, 3.99% on a 5/1. No longer. It’s up at 5.875%, I think. Ouch. Not much benefit for the risk, I would say, but most importantly, it greatly reduces how hig a potential buyer can bid for a house. Which will work wonders for pricking this price bubble.
So as the ARM resets hit a lot of existing owners, there are a lot of potential owners who can’t even buy out the first set of FB’s because they can’t get a cheap enough rate — at least not without a builder subsidy or a FB bringing a large check to the escrow table. The current FB’s are left, trapped in their mortgage, until they can manage to lower the price or walk away.
Trapped in a mortgage? That reminds me! The ARM borrowers are not the only ones trapped. Consider a family who bought in 2004 with a decent downpayment and a cheap mortgage. They’re also “trapped”, though to a lesser degree. If you managed to snag a 5% long term fixed mortgage back then, now you can’t sell your house and move into another one and get the same mortgage rate, not even close. Your 6.75% rate now will mean a tidy jump in your payments. Hence, I imagine there are lots of people feeling trapped by that, though that’s certainly a better “trap” than the nasty one that’s got hold of IO ARM borrowers.
cnbc showing now RE survival guide….
showing price slumps of 4-8% starting in major cities…
SD to Miami
Anybody been watching the price of gold since the Fed announcement last Thursday? We’re up about $40/oz. Here’s the 5 day chart:
http://finance.yahoo.com/q/bc?s=GLD&t=5d
Note the jump 2/3 of the way through Thursday as the announcement was made. Followed by gap up openings on both Friday and today.
Obviously the market doesn’t think Ben has inflation under control at all..which probably means more rate hikes ahead. More rate hikes - higher mortgage rates - housing is a gonner.
Maybe the market thinks he won’t raise rates more, giving in to the various interests that are calling for a rate freeze. If this happens inflation won’t be under control. I would suspect that if they thought rates were going to rise a lot more the POG would fall.
The gold market may be saying they think Ben is a pretender.
Except that gold does all right in both inflationary and deflationary environments.
It stagnates during good times with moderate inflation, hence the lengthy bear market from the early 80s to 2001, along with periodically concerted govt gold sales to support the not so well hidden strong dollar agenda.
Now, if interest rates beat the so-called CPI-indexed inflation, it could set off a deflation.
Didn’t do too well in the early 1980’s did it? Care to give an example of a deflationary environment where gold did well?
If you recall, Gold went into a bubble starting ‘79/’80 so when Volker put on the brakes with high interest rates, the bubble collapsed. Nonetheless, from the start of stagflation ‘71 to ‘79 it went from $35/oz to $390/oz before breaking into bubble territory.
For deflation, the US govt made it illegal to own gold during the 30s so silver’s used as the poor man’s gold during that time period where is went from a commodities bust of $0.25 in ‘32/’33 to $0.75 as a retainer of value during a time when most regular commodities were in the toilet.
Watch out..the fed may once again sell gold to hold the price down and give the impression that inflation is under control if gold really begins to surge again. They have done this once before that I am aware of (second hand info).
:fed may once again sell gold to hold the price down and give the impression that inflation is under control
This is true.
The Fed has no choice but to continue to protect the dollar by raising rates. It is too bad that the result of this will hurt so many people but on the other hand, people have dug their own graves.
Miami now 70K units open 20K more to go up
But no traffic … no buyers
CNBC RE Survial guide
In MIami , there is currently over a DECADE of supply either on or coming to market. Something like over 100,000 condos when they sold 10,000 in the last 10 years. Incredible.
Condos for everyone!
Didn’t someone recently post that San Diego was getting ready for 10 YEARS worth of condo inventory to hit the market?
Waitress! A big round of ass-pounders for the Miami Condo Flippers at the corner table please!
Hang on renters. Revaluate 5 years from now. If the price of buying is less than the price of renting, then it may be time to buy. Prices could keep dropping though, so avoid a death-pledge (i.e., mort-gage) if you can.
What a novel concept! Buying a home with cash.
DO your part to screw the bankers.
5 years is a long time when you have a family.
Then please, go ahead and buy. Your children will thank you for the debt you pass onto them.
Teach your kids patience, by setting an example.
If your wife objects, show her the numbers. Renting is much cheaper than buying at this time.
First off, I have a sizeable down from the last home i sold, so I won’t be passing on debt to anyone. but it may not be realistic to wait 5 years for many people, including myself. I can see 2 years, maybe 3, but that’s it. This is why I was asking about the price per square foot to build my own home. There may be other options instead of waiting for a crash.
We don’t have an infinite amount of years to live on this planet.
Why don’t you just rent a house equivalent to one that you would want to buy? At current prices, it’s much cheaper to rent.
Joe — presonally, I think that building in 2-3 years is a great idea. By then the builders will be plenty hungry and the lousy ones may have been shaken out entirely. The remaining builders will be desperate to keep their crews/subcontractors fed and loyal and should cut you a deal and a half. That is one of my options. I would hunt around for the toughest retired building inspector I can find and then pay him/her big bucks to oversee the construction. From listening to the experiences of friends and their friends who have built, I’ll get a final plan done and stick to it — change orders usually cost up the wazoo. The used house I might have bought wouldn’t have been any more perfect.
Chip, that is exactly what I am thinking. I have looked in many areas and right now I can build a nice house on a good size lot for about 20-30% less than what these insane sellers are asking for existing homes.
And this gives me the house I want, in the right neighborhood. In 2-3 years land should be cheap again, hopefully materials will have come down, and crews will be hungry.
I’ll do the analysis then, comparing existing home cost to building new. If existing homes have deflated below replacement cost I’ll get an existing home. But in either case 2-3 years is my max waiting time.
I’ll also have the benefit is seeing how the economic slowdown is playing out. Heck, I may be so scared I won’t buy either. Or the banks might tell me to drop dead.
It is a tough call.
I dont think its 5 years….
Last cycle bottomed in 1991 from peak of 1988. thats only 3 years….Then stayed flat….Hard landing followed by soft landing…LOL
2005-6 top 2007-8 bottm
I sure hope you are right!
Nope, least not in the LA/OC area. Bottom was 95/96.
:If the price of buying is less than the price of renting, then it may be time to buy.
Still, be certain that your source of income is stable because it might still be rough, even at the bottom.
Rough is good. It builds character. If you bought cash, you can always eat and sell fruits and veggies from your garden. The best time to buy is when rent is MORE than mortgage payments. It will happen 5-10 years from today.
And yes, I agree with you, prices could keep dropping even that, ala Japan, or ala 1929-33. You’re going to have to see were things stand before pulling the trigger. Time is on the renter’s side now. The worm has turned.
Here’s my contrary idea… when RE reaches the bottom, stocks would have already bottomed out (S&P ~20-30% correction from today’s 200 MA) and entered a bearish sideways trading channel which would then cause major companies to offer 3% to 9% dividends just to hold on to their equity. Now, if you have cash during this time, wouldn’t it be better to own stocks and get a nice residual income (quarterly dividends) to manage those seasons of joblessness between contracts instead of plunking it down on a piece of property when there’ll be tons of empty condos from Boston to San Diego to be rented at no additional maintainence fees?
Randy,
Good idea. Why not do both!
The real estate bottom could bounce just as stocks rebound too. There may be lag though, so your idea, if timed properly could yield a higher return.
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i think housing will continue to correct and hit bottom in 2008-2009 in most areas. 3 year bust cycle. i don’t think recession, 10% unemployment, or a stock market crash will all happen as a result.
Gekko, for the sake of our economy, I hope you’re right.
Unfortunately, bear markets have to match the intensity of the bulls that have preceded it and this housing bubble was the largest of its kind in American (and perhaps even intl) history. I don’t think a few years is enough to ring this one out.
Some of these are pretty nice. Notice the high end kitchen appliances (Wolf stoves, etc.). I thought things were hunky dory in Big Dump? Whazzup?
http://dallas.craigslist.org/rfs/177790611.html
http://dallas.craigslist.org/rfs/177791248.html
http://dallas.craigslist.org/rfs/177792388.html
http://dallas.craigslist.org/rfs/177785212.html
http://dallas.craigslist.org/rfs/177793595.html
http://dallas.craigslist.org/rfs/177793109.html
http://dallas.craigslist.org/rfs/177783649.html
They sure do build them big in Texas! The listing agent claims I will fall in love with that last one, but it fills me with virtigo and fear and … what is that stuff poking out of the roof? The bigger they build them, the harder they fall? Fetch me my fainting couch!
Fainting couch. LOL!
3 stories, nice looking home. Bet it costs a pretty penny to air condition that 3rd floor though.
These are foreclosures? Who is selling them? Nice homes Holmes. What would property taxes be on one of these $420k homes in Dallas? Not that there are any tech jobs down there.
Are you kidding? There are TONS of tech jobs in Dallas. Do a search for “Java” on Dice or Monster. When I got fed up with my last job here, the search for a new gig took all of 1 week. And there’s so many H1B’s that can barely speak English that there’s a decent premium for programmers who are also native speakers…
ex-Californian,
How’s the weather there in Dallas this time of the year? Those homes are relatively cheap compared to the coastal region.
This time of year, it’s typically lovely. But only between 9pm and 5am.
here is a good description of the climate.
And there are much more affordable places then those. Especially if you buy something thats 4+ years old–there’s so much new construction that it seems common for a home to depreciate for a while (even during the last few years) or at least stay flat. And man, those places were big. 3800+ sq. ft. in Dallas? I can’t imagine what the utility bills are gonna be. Plus, property tax is roughly 3% per year. And did you notice how close together some of those places were? Ick. Also, some of those places seemed really overpriced. Over $150 sq/ft? You could lower that drastically by driving to a ‘burb, of which there are many in all directions. There is absolutely no shortage of land in Texas.
thanks for the info.
“Summer daytime temperatures frequently exceed 100°F. Air conditioners are recommended for maximum comfort indoors and while traveling via automobile.”
Ouch! Sounds like Palm Spring over here, except with more humidity.
I grew up in north Texas and lived in Dallas for three years. The last summer (2000) I was there was the worst. We had something like 90+ days without rain, and 40+ days of over 100 degrees, topping out at 116. I hate hot weather, so I got out of there ASAP.
You see the house…..you don’t see its location, its surroundings. What is going on AROUND these houses? Could be a major roadway backing them up a noisy quarry up the road…..all kinds of distressful things. but, hey, could be`paradise……but some folks have obviously not experienced it in these houses.
Just read the following about Homer, Alaska. I’ve been there and thought it was an amazing town:
“The increased reliability in the Internet has also allowed people with a variety of occupations - many lucrative - to settle in Homer, she noted.
“They bring their work with them on their backs like a turtle,” she said. “It used to be that people asked about work opportunities. Now, no one asks that, but they do ask if they can get high speed Internet.”
(from http://www.adn.com/news/alaska/ap_alaska/story/7925024p-7818504c.html)
This is a story that is repeating itself all over the country in desirable places that are still relatively inexpensive. The Internet is truly changing everything and as the air leaks out of bubble areas, it simply goes somewhere else it seems. I don’t believe that America has yet truly digested the effect of the Internet on home prices. It will hurt the high priced areas and help the low priced areas.
“We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten.” — Bill Gates
It appears that the CEO of HP dislikes telecommuting. Now at HP its either come to the office or get another job.
Doesn’t surprise me. There are some who will abuse the privilege and envy is an enemy of telecommuting. So if a teleworker screws up in the slightest way, his coworkers will likely not hesitate to make it a federal case. I wonder if that was the case at HP.
I see the Internet increasing the telework trend with corporations only to a point. The real potential is for entrepreneurs. PC’s are so incredibly powerful, particularly when someone can use say the full Office Professional suite, one person can do the work once done by many. Combine this with the Internet, say 20 years of experience and perhaps a willingness to make less money to live in a less costly place, and many will have the opportunity to take customers away from the big corporations, particularly in niches too small for the leviathans.
And that will spread people out into markets where once there were no chances at good incomes.
its called India.
That Anchorage Daily News piece is rich with nuggets:
- the pop-up ad on the right when I opened the page: “Daily Obituaries in Your E-Mail” Sign up here (at ADN.com) — the ultimate vulture capitalist’s tool, and you can do it from Claifornia!
- “Whitney said those moving to the Homer area are a mix of Alaskans and people from out of state.” I’ll buy that. Migratory birds have been priced out for years.
- “While Florida and other warmer climates have been popular for years, less likely spots are being snatched up by those who can’t stomach the steep real estate prices elsewhere.” This one is telling, though I think Alaska is stealing a rather nominal percentage of those codgers. It adds credence to the forecasts here that Florida’s home prices, taxes and insurance costa are screwing it big-time relative to the numbers originally predicted to retire here (Florida).
I am a janitor by trade and am looking into telecommuting and become a “virtual janitor”. In fact my chances are pretty good if everyone else telecommutes too. Then I can clean their “virtual mess” at the office they no longer go to.
If you think about it hard enough you may discover that it is hard to think.
HP culture is an example of pampered employees. Several other examples can be found in other companies. Its expensive and the companies pick up the bill. When times are good, they would clean and wash your car. Compeition is forcing prices of goods and services down. Therefore we are seeing more displine in the workforce and cost cutting measures. …. Back to a more balanced workplace.
But, if RE prices are just going to “flatten out” (as many RE insiders say) how will the downward pressure on wages due to globalization allow wages to work their way up to support the current RE prices.
1+1=3?
I guess the new math has just passed me by
Interesting take aways from Steve Church:
http://www.prudentbear.com/archive_comm_article.asp?category=Guest+Commentary&content_idx=55928
We also demonstrated in our March, 2006 update that consumer liquidity was falling sharply. After a brief respite at the end of March, consumer liquidity has resumed its downward trend. Liquidity has fallen to 3 weeks of funds on our preferred measure.
The conclusion of our March, 2006 update has not changed: The key to the consumer’s future is now home resales. Since home resales peaked in the summer of 2005 and are in a downtrend, we expect a further slowing of home resales and a decline in M-2 growth consistent with our paper on “Money Supply and Real Estate.”
The Federal Reserve MUST continue to raise short-term interest rates in order to prolong the opportunity for U.S. households to access long-term debt at high levels. If the Federal Reserve does not raise short-term interest rates, we would expect long-term interest rates to increase and cause a significant slowdown in the accumulation of real-estate based debt. A debt slowdown would hasten a recession.
Wow. Check out the yield curve. 2 years are almost beating the 30 year. Just how large a font does RECESSION need to be printed before people ‘get it?’
Rates from Bloomberg
I guess people are using any means that they can think of to sell properties these days. A local educational mailing list that I’ve been on for over a decade has had several folks listing homes for sale. One indicated that they were one of the lowest priced homes in their town.
Meanwhile I spent an hour on the phone with Etrade today trying to get market interest rates on my brokerage account. They’re paying me 0.75% right now and I want at least 4.4%. Which is what Ameritrade and Fidelity offer. I assume that this rate will go up a quarter in about four weeks and am looking forward to a few more rate hikes by Chairman Bernanke.
What I’m fairly annoyed at is the amount of interest that I didn’t get in May and June (I went to cash a little after the 10th of May).
I assumed that brokerages paid market rates on brokerage cash. Boy was I wrong. Ameritrade pays 0.1% unless you open a TAP account (which is free). Fidelity was the only brokerage that I had that gave me market rates without me having had to do anything. I’ve heard good things about Schwab too.
I saw a few articles recently about cash being a decent position to be in these days.
Cash acct.’s at the brokerage firms typically pay very little interest if it’s in your core acct. Sweep acct.’s are a little different. Look for a good Treasury money market, or even better a T’bill at auction. Rates are higher on t-bills than money markets when rates are going up. Also, check with some local banks about 6 month cd’s. There is a local bank here in GA that is paying 5.5% for 6 month time deposits. That’s not terrible.
4.5% money market from statefarm bank.