Tue 28 Feb 2006
I came across this article on my nightly news-check. Seems that a collapse is already under way on the other side of the world. Why should we be concerned? China has had a pretty strong economy over the past few years… a sign of things to come?
Once one of the hottest markets in the world, sales of homes have virtually halted in some areas of Shanghai, prompting developers to slash prices and real estate brokerages to close thousands of offices.
For the first time, homeowners here are learning what it means to have an upside-down mortgage — when the value of a home falls below the amount of debt on the property. Recent home buyers are suing to get their money back. Banks are fretting about a wave of default loans.
See more from this brief at:
-Richie
Article on foreclosures in NJ doubling from 2004 to 2005.
http://blogs.phillyburbs.com/blog.php?p=4395&cat=8
It’s like 1989 all over again. Are the banks going to get hit next? The banks in China are already worrying.
I’d be worried too. Banks have sprouted up all over in NJ the past couple years.
Here we go again……Blow off the dust on the “RTC” folder!
Hey Grim,
I mapped NNJ counties migrations in the aggregate to see where they moved. I have a pdf and jpg version. Would you like to display them? Interesting thing about the dispersion. People mostly stayed in the megalopolis. Most of the others went south and west.
Send them to Grim; he’s out of the Country right now; but will be back this weekend.. He’s much better at writing then I am.. :)
Prices can go down?
According to leary and the one way crowd it only goes up. Guaranteed.
How about Japan?
Japanese real estate went down 60% top to bottom. Top 1992 bottom about 2004. Oh but this is the US. it’s different? why is that?
Japan is the second largest economy in the world, have very limited space to build, have a cash rich citizen with little debt.
In the US, we have many want a be home owners sitting in their McMansions upside down with little or no NET WORTH. Property taxes are soaring, health insurance in NJ is out of control and energy prices driving up commuting and utility bills. Reality will be sinking in soon. Living dangerously can be rewarding in the short-term but when the musci stops it’s kaboom.
Not to mention China, with the largest population of any country in the world.
Seems to be no shortage of housing there!
FYI: China has 4 times the amount of people the US has.
Most Populous Countries
Article reminiscing about the last bubble burst in the 80’s and low prices in the slump period. Worth a read, not the usual RE booster stuff you see in the news.
http://www.nytimes.com/2006/03/01/business/01leonhardt.html?_r=1&oref=slogin
From Today’s Wall Street Journal:
With spending continuing to outstrip gains in income, the savings rate remained underwater. Personal saving as a percentage of disposable income was negative 0.7% in January. The savings rate has been negative eight times in the last 10 months, and for all of 2005 the rate of saving was negative 0.4%, the first time savings has been negative for an entire year since the Depression years of 1932 and 1933.
Rising home prices have led many Americans to feel more wealthy in recent years, and equity extracted from homes has been used to underwrite spending. However, the Federal Reserve reported last week that even with the rise in home values, Americans’ net worth rose over the past three years at the slowest pace in more than a decade. With interest rates climbing, refinancing has become less attractive and consumer debts more expensive to service.
“The combination of higher interest rates and declining housing prices will encourage consumers to rebuild their balance sheets and begin saving again,” said Peter Morici, a business professor at the University of Maryland. “That will slow the economy.”
Negative again.. Anyone surprised? As far as I can tell, the American consumer is not yet ready to curb their spending..
My internet access is spotty here, I’m travelling around a bit so I can really only get on when I find someone with high speed access.
Let me just tell you, the American dollar still goes very, very far here in terms of real estate.
grim
do people have thoughts on where to park your money over the next year as this unravels? I’m not really interested in buying gold or shorting stocks, so is the best place cash/CDs? thanks
do people have thoughts on where to park your money over the next year as this unravels?
The Yield on a 6 month treasury bill is 4.75%. You can get them through treasurydirect.gov. I have a CD maturing in two weeks and this is where I plan to park my short-term money.
Two homes which I am looking at just came on the market within several blocks of each other. Both were purchased in ‘04. One of the owners, no kids, moving back to the city. I have no way to tell but sounds like some folks had a bit of a ride and want to get out of the market before…
RentinginNJ:
Stay away from consumer cyclicals, especially those that only have exposure to U.S. markets.
The people with the cash right now are the Corporations. Look for businesses that would benefit from increases in BUSINESS SPENDING. Also, overweight [meaning higher than the normal amount of 0%-20%] outside of the USD denominated securities.
Chi-Fi,
If you had six figures saved sitting in an account getting 4.6 %. What would you do?
Move it to ING Direct where you can get 4.75%. :)
OT, but rentinginnj, can you explain treasury bills? Sounds like a great deal to me…
“Move it to ING Direct where you can get 4.75%. :)”
Are those accounts secure? It seems like opening yourself up to hackers to steal your nest egg, because they rely on web access, right?
My bank had web account access, and the password was a 4-digit PIN! Duh. Canceled that online access. want absolutely zero external access to my savings account.
Anonymous, like any bank, ING is FDIC insured…you will get your money if someone steals it. But their system is tight. It’s like Fort Knox to get into your account.
That 4.75% though is only for a short time. ING is usually 3.80.
Metro:
Actually, due my professional work, I am somewhat limited in how I can answer your question. Suffice it to say that the risk profile of your investing should match the intended use of your investment.
In plain English - if your money is for a down payment, then you need to keep it in liquid form. In 2004, you were punished for doing so, but thanks to the Fed, short-term rates are very palatable in 2006. Further, you are not rewarded for extending out in maturity of fixed income instruments, so why not stay short. I wouldn’t use CD’s of more than 1 year at this point, and wait until mid-May if you can. The Fed fund rate may be at 5% by then.
Note, FDIC-insurance is only for $100,000 per person, per institution. If you are really concerned about security, hold your balances at more than one bank. I agree that multiple banks could be a logistical nightmare, but if you are comfortable with web-commerce, some combination of ING and the other obvious ones, is not a bad idea.
In terms of general investing, I can’t give specifics, because I approach someone’s situation from a holistic standpoint, and stock-tips [while fun], generally just run up your expenses, and don’t help you outperform over time.
I will say that I think the stock market has a shot for a good run as money pours out of real estate and has to go somewhere.
I hope this was half-way helpful.
Sorry for being a wet blanket.
chicago
Chi-Fi,
Your reply was exactly what I expected And thank you. I am doing a combo of the things you suggested and just wanted to know if I should be getting pro advice at this point. Again thanks.
Metro:
As we’ve all seen from our little bubble hobby here, the most useful advice is objective advice.
If it is biased, it good to know why and how as you analyze it.
Same is true for investments and invesmtent sales.
chicago
chicagofinance said…
RentinginNJ:
Stay away from consumer cyclicals, especially those that only have exposure to U.S. markets.
I agree with your advice on moving out of USD denominated securities. I have overweighed my longer-term portfolio into non-USD denominated investments. However, I’m assuming that skep-tic is looking for a conservative investment with a 1 year time horizon. I am in a very similar position with my “down payment on a house fund”. For a short-term investment with little risk, I still think the 6-month T-Bill at 4.76% in a decent option
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