Weekend Topic Suggestions
Please post weekend topic suggestions here!
The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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Name:Ben Jones
Location:Northern Arizona, United States
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How about a thread on the Long Island NY housing bubble. Prices are up 100% since 1998 and the realtors have thesame excuses,no more land, great quality of life etc.
A troubling question. There are many would-be homeowners on this blog, like me, licking their chops as housing prices dip. They are eager to buy when the market bottoms out.
But here’s my 64 million dollar question — how does one make a good buying decision in a down market? Calculated Risk blog touched on this a couple days ago and it has haunted me — if we are going to be dealing with massive foreclosures, landlords desperate to rent to anyone and everyone (16 to a house??) willing to cough up a check, and a possible recession — how is it we think our dream home purchase won’t end up in a nightmare neighborhood?
OK I’ll make the question positive: what characteristics of stable neighborhoods should we be looking for as we seek our dream home (or dream investment) in this rather unstable time? Thanks Ben!
Maybe I’m overly optimistic, but I think it may be a less frightening undertaking than it first seems.
Let’s suppose that things totally crash and burn — you’ll be able to see that things are still going down when it’s happening, and afterward people will be really reluctant to buy back in. So, there would be a prolonged period when everything had bottomed out and you could then take your time sorting through your options to find the right situation.
Or let’s suppose that things turn out not to be as bad as some “hope”, and we see a relatively soft landing. In that case, the period when things have bottomed out will be shorter, and it also won’t sink to the same depths, so your chances of a nice neighborhood totally going to pot are slimmer too.
I’d say that if you’re a generally prudent individual (as most folks visiting this blog seem to be) then you’ll probably be in a generally good position to find yourself a nice, stable (and affordable) home with not too much to worry about.
It’s a good topic. How will the less established areas fair. Especially those with high vacancy. We all know the consequence of sprawl. We must now ask, what is the consequence of super sprawl?
Here’s a simplistic answer (in that it probably will not find you the absolute bottom, but you can know that you are getting a good deal):
buy when you could rent the home and withdraw 10% (or 10 year treas +3%) of the home’s value per year after all your costs are covered as if you had financed the home using 100% fixed rate mortgage (to account for your opportunity cost of downpayment money).
Every housing run up and run down (SOcal in 1990s…Japan, etc) has happened VERY gradually. The San Diego market was at a bottom for about 3 years. Interest rates and the stock market also play into the equation. The best advice is to buy a house as a home with a loan you can stomach for 10 years…Maybe 5 years if you think we are near a bottom!!
Pay attention to all the details the bubble pushers ignored. As soon as the cost of ownership obtains parity with renting you will be pretty safe. You may not catch the bottom, but you will be no worse off and the much touted bennefits of ownership are real.
If you are disciplined enough to save enough to pay cash, go to the courthouse auctions observe and learn. In the mid 90’s auctioned property went for between 1/2 and 2/3 of retail value (ie. 60k homes sold for 30-40k). You must be very careful and assure that the auctioning party has the sole interest in said RE. Contact the auctioning party to determine the terms.
Just go and check them out, very interesting in the least. Don’t bid on anything till you have done your homework and talked with anyone at several auctions that will give you some time.
Best advice of all, Look at as many housed as you can and make YOURSELF the best judge of VALUE. A good agent is vital at the bottom of the market, GOOD AGENT. If you become the best judge of value out of all your peers you will not hesitate on the real great buys, and believe me there will be no hurry, there will be more really great buys than you could possible purchase. You must keep your powder dry for the optimal purchases.
Nothing sucks more than to be making a GOOD purchase (that precludes you from anothet) when a FANTASTIC purchase surfaces. Like I said above, there will be more FANTASTIC buys than you could possible entertain.
When the housing bubble pops will the price of gold go higher as a result?
Or could someone introduce us neophytes to the relationships/nonrelationships between commodities, currency markets, and the inverted yield curve. And if most lenders follow 2-5 year treasury notes, what is the significance of yields on 10 and 30 year bonds?
Most lenders price 30 year mtgs off the 10 year (swap or Eurodollar) rate. An inverted yield curve means that the Fed thinks that inflation is a bigger issue than growth, but those with capital don’t believe them. Most commodities rise and fall with the state of the economy typically on either a leading or lagging basis. Precious metals (especially gold) is a bit different as it holds a special position as the ultimate put on societal chaos. In addition to industrial and jewelry demand people buy gold as a source of value when they grow concerned that everything will turn to crap.
Foreigners tend to buy US dollar denominated assets and to a smaller extent Swiss franc denominated assets for the same reasons. Other currencies generally trade with expected inflation and interest rates.
Not if today’s price movement is any indication.
And also, not if the late 1970s-early 1980s transition from rampant housing & gold price inflation into a Fed-engineered return to price stability plays out once again.
Can someone confirm.. Looks like we might have a total inversion of the yield curve this morning..
grim
We are there. 3 month is now above 30 year! Dont worry its different this time?!??!?
Yield curve inverts; 2-yr yield pushes above 30-y yield
NEW YORK (MarketWatch) - Treasury prices moved higher early Friday, pushing yields lower, as the yield curve inverted fully inverted, pushing the 2-year note yield above the yields of both the 10-year note and the 30-year bond. The early price gains were linked to an unexpectedly large widening of the U.S. trade gap in December. The significance of the inverted yield curve, which destroys the incentive for making long-term loans, is a subject of debate
Who would have thought this would happen so soon? Could it have anything to do with a $100b increase in the trade deficit to a new record level?
Let’s play a memory game. Who and when was the last realtor to deny the housing bubble? (haha).
Question: Does anyone know who holds all this MBSec paper? Does anyone know of those who unknowingly hold this paper?
Team TRuth Squad. There are “other” bloggers out there. Some lurk here and I think we should pick one at a time and descend on their blog to help them with the questions they have. Example;
http://housingboom.blogspot.com/ by Dogcrap Green.
The Mauling (malling) of America. The bigger your mall the harder you’ll fall?
I want my MPG (and PV and techology). Science sometimes changes everything. Any technological ideas that will shape housings future?
Kick the cat. Any signs of pathological behavior caused by housing stress?
Bond funds, pension funds, foundations, foreign central banks (Asian banks have been big buyers in the last few years). Hedge funds (as a portion of more complex strategies). Their debt is usually under Agency, GSE, or MBS securities in reports. Because they are a large portion of the US bond market, and mortgage backed securities are included in the lehman index, it would be rare for an investor who participates in bonds to not have some exposure to the enterprises.
Robert,
To answer your question regarding who holds all the MBS paper. It’s mainly insitutional investors. Pension funds, banks, Mutual funds, etc. I would certainly think they are trimming back on these though.
I apologize for my mispelling on “institutional”, coffee hasn’t kicked in yet.
If spelin wur a prublim id uv bin “institutionalized” long ago.
I know MBSecs are held in the vehicles mentioned. But how much and who. The only acknowldegement I’ve seen was two years ago when CALPERs announced a policy of reducing exposure IIRC to less than 10% of portfolio from the high teens. To be sure that “rise” was due to those assests appreciating but their sensitivity should be and indicator that any one organization with 20% or more exposure is in deep trouble. N.B. CALPERs and maybe 4-5 California county funds are among the very best long term investors I know of. Not bad for a State so totally inept otherwise.
What happens to the fiduciaries of all these pension plans when the 401(k) accounts plummet in the wake of MBS collapse? Or is that just the participant’s problem, even though all the investment fund choices loaded up the risk with MBS?
Just file this in the “overheard on the street” category;
Lady on 3rd Avenue and 73rd street yelling into her cell phone: “I know you want 1.1, I know that’s what you think it’s worth. But do you want to pay another six months of mortgage on this thing!”
The fat lady has already left the building, and people still think they can hear the song….
Who is your favorite poster on this blog and why?
Did anyone read Businessweek’s newest edition? Congratulations Ben you have made it to the big time!!
That was a sad straw man characterization of this blog if ever there was one.
The Businessweek mention was pathetic.
Other than the Mr. D quote. It was a typical media move.
Mr. D is an opinonated but overall well reasoned poster.
They excerpted what amounted to a pretty mean spirited and bearish comment not at all indicative of most of Mr. D’s posts.
SBG,
It was a backhanded deal. Nothing about what I am trying to do and how. They never interviewed me.
Ben,
If it is any consolation, I would say negative attention from the mainstream media is a tacit acknowledgment that you are on their radar screen. The ultimate insult is to be ignored.
How does one optimize price in the housing bust? Do you try to guess the bottom? Do you wait until it is clear that it has bottomed and is coming back up? Do you anticipate the bottom as it is still falling?
What is the best strategy to get the lowest price?
most people will not want to wait to see the bottom. It could be 10 yrs from now. to me, the optimal price is where you are comfortable staying put for the life of the mortgage. I think that the trading up strategy is over for the foreseeable future
I would love to see more stories on people getting out while the getting is good and rationalizing their debt and their lives. That would be so motivational.
He’s right. The yield curve is completely inverted. Go to bloomberg.com –> market data –> Rates / Bonds and scroll down to the chart at the bottom. That puppy looks very sick right now.
How about a thread about the yield curve, everytime it has inverted, and the results.
Thanks Ben - you rock. We are all eternally grateful for this site.
http://www.mises.org/etexts/cwik-dissertation.pdf
put the kettle on for this one.
FYI — in today’s WSJ, p. W8 (The Home Front)
“Clouds over Condos
Survey of Five Cities Shows Inventories, Incentives Up; Throwing In Opera Tickets”
“Five cities” = Atlanta, Boston, Minneapolis, San Diego, & Sarasots
SD 5-yr average sales price appreciation = 133%
1-yr sales price appreciation = 2%
1-yr inventory gain = 82%
Increase in SD County order cancellations for new condos & town
houses (Q2.05-Q4.05) = 75%
I wonder where this is headed?
Have homebuilder stocks lost their ability to bounce back up after sharp corrections? (Background: These stocks’ prices were in a bit of a holding pattern over year-end 2005 through early January, but now are looking very “plungy” once again.)
http://tinyurl.com/c47e9
I want a thread about taking the Bubble Battle to the sellers. I’ve considered various forms of mailers that I could send out to specific listing addresses that I see (re)appear. One could be for homes languishing for months with no price reduction. One for idiots that increase the asking price after sitting for ages. Finally one for the people that are even overpriced in THIS market, which is saying a lot.
I’d include recent articles, links to sites (a-la thehousingbubbleblog.com ) etc. What other inserts should be used, what should the tone of the mailer be, any other strategery?
Why do so many of the numbers on this page show up in red since BB took over at the Fed, and what are the implications for the future of the housing bubble, not to mention other speculative industries (hedge funds, Indian casino gambling, etc.)?
http://tinyurl.com/cb79u
First post superbowel open house report
Has openhouse activity picked up noticeably in your neighborhood?
Whats current sentitment amongst sellers and agents?
Check out WCI’s earnings report this morning, and stock price action. This is the FL-concentrated condo and home developer. They have several projects in my area (Southeast FL). Buried in the report are some remarkable stats: Unit orders were down 69% year-over-year in the fourth quarter. 69%!!! They blame Hurricane Wilma, and say everything will be hunky dory down the road. And I’m sure there’s an ELEMENT of truth to that — Wilma hit in late October and did probably cause a couple slow weeks. But for the orders to be down that much, it tells me that demand just didn’t pick up at all after the storms. And as far as I’m concerned, it’s more evidence the boom is over down here.
The aggregate value of new Traditional and Tower Homebuilding orders for the fourth quarter declined 50.5% versus the same period a year ago, to $321.9 million, while the number of unit orders declined 69.1% to 334
You haven’t talked about Las Vegas in a while. Come on, I need attention.
According to CNN, Las Vegas is going to go down Hot home markets to cool down
And according to these guys, they have already gone down 1%:
Home sales cool in January”
Oh, I see there is a Las Vegas thread. I’m finding this new blog hard to navigate. I’ll get used to it…
The company that I work for has an online HR site that you can use to request vacation time, get info on health benifits etc. There is also a site to post items for sale. Most employees use this site to advertise used furniture, cars, pets, concert tickets, etc. Today there was this ad for a house. Can anyone say “flipper”
I have a 2560 sq ft Fulton Home For Sale. This home is located in Queen Creek at the cross streets of Ocotillo & Ironwood in the East Valley. 3 bdrms+ Den + Bonus Room 2.5 bath.
Tile in the entry, bathrooms and kitchen. All new appliances and carpeting throughout the rest of home. This property is a new build and has never been lived in. Has a good size backyard approx. 47 ft deep by 45 ft wide. Close to park and the Links Golf Course. Front yard is now desert landscaped which is not reflected in the pictures.
Presently installing Craftsman Garage Door Opener, Epoxy of the Garage Floor, Ceiling Fans and Window Blinds. Asking $324,500.
Pictures can be viewed at http://WWW.FSBO.Com Listing# ID 79765
How about a discussion of the risks of homebuilders going bankrupt? Since lack of liquidity is usually the catalyst for a company failing, what is going to happen to the liquidity of the HBs? They keep building and the inventory of existing homes keeps going up. What will be the outcome? Will supply and demand work once again and cause a substantial fall in prices? Will it cause many fewer buyers to act? How is it all going to work?
One topic can be “Do you know anyone who has signed a contract to purchase house in last 4 weeks. If yes, do you know what have been the main reason”
Just a thought.
Ummm, because I sold them my rental property? No, seriously because they have an expiring 1031 transfer and they are agents so they saved me and them realtor fees.
Me - Refundable deposit if my house doesn’t sell! The reason I have no mortgage - (do not want a mortgage - I am a Mortgage broker) and am downsizing to take out a bucket of cash.
Let’s talk inventory, inventory, inventory. Just glancing over some numbers looks like they are growing rapidly. Please post examples from your area. It really does appear that superbowl was a kick off for everyone to put their place on the market.
As others have mentioned, the San Diego inventory is right around where it was right before the holidays (after taking a dip due to expired listings, etc.), now just shy of 16,500. In the last several weeks, it was growing by about 50-150/day; now it’s around 0-100/day. The record high was 19,000; the corresponding value for today (adjusted for population growth, as per ocrenter’s numbers) would be around 21,400. It may not be long before we hit that number.
16,515 for Greater SD as of right now on ziprealty.com, but who is counting? Expect another update to a higher number this evening; it seems like they have to revise the number upwards several times a day now to keep up with the swelling torrent of new listings.
And as promised earlier, it was updated to 16,601 this evening. What is next — hourly updates?
I mentioned this to Ben. On a lighter note, I think Ben’s new blog needs a .ico file. That’s the little website-specific graphic that appears to the left of the URL in most browsers (IE excepted).
I’d like to see a Housing Bubble Blog .ico contest. The person with the best .ico file wins, I dunno, nothing I guess.
We need to figure out how to profit in this foreclosure and bankruptcy environment. I suggest we start seminars around SoCal informing homeowners of their options and how to save their credit…
Housing and deflation. Gary Shilling has a significant comment on the subject.
Hard vs soft landing - duration and intensity of correction
Given the
(1) implosion of inventories (would love some data re inventories during last turndown);
(2) bubble of bubble blogs and info (including anecdotal info) on web on (including some fairly “real time” data - ex: low ball offers data);
(3) prevalence of toxic mortgages; and,
(4) eco and job growth largely driven by house ATMs and housing boom
I see the speed at which the bubble is bursting be much faster than many anticipated. I think things this time “are different” (some examples above) and wonder these factors will make this bubble burst (both in terms of duration and intensity) differ from previous.
forgot to include a biggie in the list:
(5) unprecedented rates of appreciation during boom!
I’d like to hear from Ben Jones about the increase in stream of articles. It looks like there are more published regarding the bubble, right? Are you now able to cherry pick the best articles from a bunch instead of just publishing anything you found? Or am I seeing things?
What is the outlook for Real Estate related occupations over the next couple of years, specifically in California?
“BOND REPORT
Yield curve inverts after strong auction
By Leslie Wines, MarketWatch
Last Update: 13 minutes ago. (12:34pm Friday)
NEW YORK (MarketWatch) — The Treasury yield curve turned completely upside down Friday, pushing the 2-year yield above the yields of both the 10-year and 30-year instruments, intensifying a debate over whether the inversion signals a looming recession.
The inverted yield curve effectively undermines the incentive for making long-term loans. ”
So if there is no incentive for lenders to make long-term loans (including home loans), and no incentive for buyers to buy a home (catch a falling knive), who will step up to the plate and absorb this growing mountain of inventory in the used- and new-home markets?
Posted elswhere, but more on topic here.
How about compiling quotes from articles regarding RE related job losses in the press.
I believe that over 200,000 big company job cuts will be reported, ie. large lenders, home builders, bank personal, etc..
I’ll bet a larger number of losses just go unreported, ie. realtors, inspectors, appraisers, contractors, mort. brokers, etc..
These dirrect losses will certainly have a ripple recessionary affect on non RE industries.
So, “Job loss/negative econ impact of RE implosion?”
I’d like to suggest an ongoing topic,one with a link we can clip on any time. Weekly Gems! Best quotes from articles, comments word of mouth. You wouldn’t submit your own gem but could nominate someone else.
sorry,
“click on any time”
What are the best websites, tools, etc to use for tracking the RE market, statistics, trends, news. Through comments on this blog, I have been introduced to housingtracker, domania, ziprealty, bankrate, zillow. All very good. What other useful sites are out there to educate oneself on RE conditions?
How about a topic justifying the end of the Realtor(tm) as we know it?
I have seen on other blogs the occassional Reatlor(tm) troll go on and on justifying the need for 5-6% commissions. The main crux of this argument has to do with marketing costs (and, lets face it, lobbyists aren’t cheap).
However, having lived off and on in Europe and having traveled many times to Australia/NZ, I know that most estate agents there can expect 1.5-2% total (including all costs). Companies such as Foxtons also keep a fleet of company cars (Minis) for their agents to use when going out to properties.
The main difference I do find between the US and other countries is that you don’t find the local papers stuffed with adverts for resale homes. The approach is different - go to the agency or look on their website. Hence, marketing costs are significantly lower. The only downside is the lack of an inter-agency MLS type of database.
I am in my early 30s. Shopping on the internet is normal. If I am looking for a property, am I really going to look in the Homes section of the local paper? Am I going to dig through all of that muck to try and find something in my range? No - I am going to use the internet to perform a search based on my parameters. Once I have narrowed down those that match my parameters to some interesting prospects, then, only then, contact a Realtor(tm). I am not sure if I would even bother with that anymore. Just deal direct.
With an open MLS system, I cannot see how the NAR will be able to keep their commissions as high as they are. Obviously they will fight an initiative to open the MLS tooth-and-nail. The good old American lobbyist system (democracy and law making through well-spent dollars).
Discount brokerages in the equities markets changed everything. Sure, you can still find full-service brokers that will hold your hand and charge you full whack. I don’t see a time where full-service, full commission Realtors(tm) will completely go away. However, I do see them sent to the periphery by an open MLS.
If ever there was a “profession” that deserved to be emaciated by technology, I’d say the RealtWhores(tm) are at the top of the list.