From MarketWatch:
U.S. housing starts rise 6.7% in November
Construction on new homes rebounded in November, rising 6.7% after a whopping 14% drop in October, the Commerce Department reported Tuesday. Building permits, meanwhile, fell 3% to a fresh nine-year low, signaling that the housing market remains very weak. Starts rose 6.7% in November to a seasonally adjusted annual rate of 1.588 million. Starts are down 25.5% in the past year. Building permits, considered a leading indicator, fell 3% to a seasonally adjusted annual rate of 1.506 million. Building permits are down 31.3% in the past year. The pace of starts in November was above the expected 1.54 million, while permits fell short of the 1.55 million expected by economists polled by MarketWatch.
From Bloomberg:
U.S. Housing Starts Rose 6.7% in November to 1.588 Million Pace
Housing starts in the U.S. rebounded in November from the lowest level in more than six years, while building permits dropped to a nine-year low, suggesting weakness in home construction will persist in the new year.
Builders broke ground on new dwellings at an annual rate of 1.588 million units last month, more than expected and 6.7 percent higher than October’s 1.488 million rate, the Commerce Department said today in Washington. Building permits fell 3 percent to a 1.506 million pace, the lowest since December 1997.
Recent data suggest the most severe housing slowdown since 1990 may be nearing a bottom, as mortgage rates have fallen below last year’s levels, making homes affordable for more people. Wet weather in October may have delayed some starts until November, helping to boost last month’s figures, economists said. Still, near-record inventories of unsold homes will keep a lid on home construction well into 2007.
“We’ll continue to see weakness on the construction side,” Richard DeKaser, senior economist at National City Corp. in Cleveland, said before the report. “On the demand side, it looks like sales may be bottoming.”
From Bloomberg:
U.S. Producer Prices Jump 2% in November; Core Rate Rose 1.3%
Prices paid to U.S. producers rose in November by the most since 1974, led by rebounds in the costs of energy and light trucks. Prices excluding food and energy increased more than forecast.
The 2 percent gain in the producer price index was more than forecast and followed a 1.6 percent decrease in October, the Labor Department said today in Washington. Excluding food and energy, the so-called core rate rose 1.3 percent last month, the most since July 1980, after falling 0.9 percent.
The gain in wholesale prices partly explains why Federal Reserve policy makers maintain the view that inflation risks remain a threat to the economic expansion. A report last week on consumer prices showed that businesses are having limited success passing on higher materials costs.
“Inflation is still a little too high,” David Sloan, chief U.S. markets economist at 4Cast.com in New York, said before the report. “The market may look at this as a reminder that there’s still an inflation risk.”
Economists had expected producer prices to rise 0.5 percent, according to the median of 65 forecasts in a Bloomberg News survey. Estimates ranged from a 0.2 percent decline to a 1.7 percent rise. Core prices were expected to rise 0.2 percent.
Is the 2% a absolute value or recalculated to a whole year???
AP
Tuesday December 19, 8:33 am ET
By Martin Crutsinger, AP Economics Writer
Wholesale Prices Surge in November by Largest Amount in 32 Years
WASHINGTON (AP) — Inflation at the wholesale level surged by the largest amount in more than three decades in November, reflecting higher prices for gasoline and a host of other items.
The Producer Price Index, which measures inflation pressures before they reach the consumer, was up 2 percent last month, the biggest advance since a similar increase in November 1974, the Labor Department reported Tuesday.
However, the 2 percent jump was four times bigger than the 0.5 percent increase they had forecast. Even excluding volatile energy and food prices, core inflation posted a 1.3 percent advance, the biggest jump in 26 years.
not bad numbers. if the levels stabilize here then the hit to GDP next quarter will be muted.
From MarketWatch:
Bouncing on the bottom?
Home builder Hovnanian Enterprises Inc. said it sees a sparkle at the end of the tunnel for housing that could lead to a firming up in 2007, but many Wall Street analysts say it’s too early yet to toast a market bottom.
Hovnanian said it swung to a quarterly loss late Monday on land charges as expected, but investors focused on Chief Executive Ara Hovnanian’s prepared remarks in which he said the company has “started to see a glimmer of hopeful indicators that the markets may be stabilizing.” He cited modest waning of resale inventories, recovering buyer confidence and community traffic.
…
The company expects its cancellation rates to level off in the second quarter of 2007 and is “tweaking” prices higher in some markets, the CEO said in an interview with business-news channel CNBC Tuesday morning.
“We believe that the overall U.S. housing market may hit the bottom in the first half of 2007,” added Chief Financial Officer J. Larry Sorsby in the earnings release. “However, the housing market is likely to bounce along the bottom for several quarters before pricing and sales pace improves.”
…
Still, many analysts and economists who follow builder stocks and the housing market aren’t sold that a recovery is on hand. During Toll Brothers’s latest quarterly earnings call, one analyst skeptical of management’s rosier view even asked which flavor of Kool-Aid executives were drinking.
At Hovnanian, management “seems optimistic that the housing market is on the verge of bottoming, but we continue to believe that it is too soon for such a call, and that pricing pressures are likely to extend the pain in builder earnings through next year,” wrote Deutsche Bank analyst Nishu Sood in a research note.
The analyst thinks the housing downturn “so far has defied conventional indicators, and we think it will persist through the spring selling season in the form of continued home-price declines, especially as pricing in the existing housing market begins to give way more meaningfully.”
not bad numbers. if the levels stabilize here then the hit to GDP next quarter will be muted.
Agree, although I’d still like to see the builders pull back a bit more. The last thing we want to see is a big uptick in starts and permits, especially before we know that demand has really returned. If we see an uptick in starts and permits based on speculation of a market recovery in ’07, there is a good chance we’re going to be adding to already large inventories, ultimately causing further downward pressure on prices.
jb
Ok, but the bottom line is I still see anything halfway decent going for $600K plus w. property taxes of 10K. We’re still talking at least 20% greater than the true market value. You guys can parse all the other stuff as much as you want. When are the actual asking prices going to come down? Significantly?
“He cited modest waning of resale inventories, recovering buyer confidence and community traffic”
Last weekend I went to see a hovnanian house as I had some time to kill. Looks like they counted me in as well as part of community traffic.
We’re still talking at least 20% greater than the true market value.
True market value of a home is whatever price the house sells at. Whether you or I can afford said house is not always relevant to determining true market value.
Last weekend I went to see a hovnanian house as I had some time to kill.
Same here. My wife hated the floorplans and wondered out loud who in their right mind would buy a place like this? The HOV lady got very defensive, started stammering and telling us how there are ‘options’ we can look at that would address our needs.
James,
In another topic you posted the following:
James Bednar Says:
December 19th, 2006 at 7:37 am
Lets take a deeper look at Tami Court.
Since it’s a dense development with similar units, pulling comps is relatively easy. Just pull similar assessed values through the tax records. In this case, I split these up into two groups, those assessed at $4,500 and those assessed at $7,100.
Sales of units valued at $4,500
4/28/2006 $311,840
4/28/2006 $308,800
4/28/2006 $315,010
4/28/2006 $311,570
4/28/2006 $314,750
4/28/2006 $323,830
4/28/2006 $322,290
4/28/2006 $326,950
4/28/2006 $339,465
4/28/2006 $333,000
4/28/2006 $328,320
4/28/2006 $315,990
5/5/2006 $327,180
5/25/2006 $320,360
10/5/2006 $350,000
It’s clear that this most recent sale is either setting the new high comp or has wildly overpaid given what other units have sold for recently.
Let’s take a look at the higher priced units, those show an interesting trend..
Sales of units valued at $7,100
4/28/2006 $473,970
4/28/2006 $464,170
4/28/2006 $466,360
4/28/2006 $440,900
4/28/2006 $464,485
4/28/2006 $463,825
5/10/2006 $460,000
5/12/2006 $457,235
5/26/2006 $410,990
5/31/2006 $384,110
6/9/2006 $417,000
6/15/2006 $400,000
We clearly see a deterioration in pricing in the higher assessed units..
jb
—————-
Your assumption that the units assessed at $7100 are the same units is false. If you were to visit http://www.centexhomes.com/New-Jersey/N45557.asp you will see that there are 2 High End models. The davenport and granville priced at 432k and 444k respectively. All of the units in this complex are new construction and began construction winter of 2005. I am curious however, were do you get tax records online? As I went to the Belleville tax office to obtain the records for 611 Tami. Anyway, back to my point, the owner of 611 Tami bought in March of 2006 and sold for 27k profit recently. If the next arguement will be about closing costs etc, centex pays closing costs if you use their mortgage company.
I believe this example cannot be disproven as a NEW CONSTRUCTION condo that was purchased early 2006 and sold in the last months for a gain.
Thanks, cheers.
I also meant to add that the Montclair unit has been assessed at $7,100 and that units base price starts at $376,990. This would explain why you see lower then 432k under the $7100 range of units.
Idiot builders. Let’s add more inventory to what isn’t selling. Now I can’t trade up.
Ok, the “reality” market value.
I still think people are nuts. Let the sellers rot. What economic event has occurred to justify the 85% increase in the last 5 – 6 years? None. Even if I could “afford” the insane price of a house, why would I want to? The realtors, specualtors, lenders and appraisers f*cked everything up and the sheep all fell in line. My cousin is a lawyer who specializes in closings; you should hear the horror stories she tells me.
So does this mean the Fed raises rates at the next meeting?
File this under: stuff to monitor over time
Steven Wieting, managing director of economic and market analysis at Citigroup Global Markets stated on Bloomberg Radio yesterday that he was impressed with how quickly housing starts had ratched down. Normally, homebuilders would destroy themselves by digging a huge inventory hole, in this case, they were really careful to react quickly. He is of the opinion that inventory can be cleared and it won’t sink the economy into a recession in the process.
We’ll see.
From my perspective, I want to see how many other talking heads are spouting the same. If I hear this type of opinion a few more times, I may begin to believe it.
Remember – draw a distinction between publicly traded homebuilders and the broad market. They are similar, but not the same.
chicago
I know this is a real estate forum but anyone who’s been out shopping ( I’m not saying you guys have’nt been) Would be realizing just how bad inflation has gotten.
http://apnews.myway.com/article/20061219/D8M3V3FO0.html
I have been saying it from the trenches for a while now. It’s bad out there guys … real bad
KL
>> still think people are nuts. Let the sellers rot. What economic event has occurred to justify the 85% increase in the last 5 – 6 years?
we can debate reasons but even as early as 2000 somewhere around 70% of people were homeowners meaning they participated in the run-up hence equity to bring to the table. the ones being squeezed are first time homeowners who are in the minority and when you’re in the minority you’re secondary.
with a fractional reserve fiat money scheme in place inflation will continue to devalue money. think that 5% in a money market account is protecting you? think again. the things we all need are going up faster plus you have to pay interest income on that money. in the end the game is rigged to reward homeownership.
Not Convinced,
It’s difficult to tell specific units based on the tax records. If the assessed value is the same, frankly, I have no reason to believe there is much difference between units. If there were greater material improvements in one unit versus the other, I’d expect the assessed value to reflect that.
I do see units assessed at higher values on other streets in that development. For example, there are a handful of units on Valerie, Grace and Alexandra assessed at $8,300. Are you sure both higher end units were available on Tami?
jb
I can put together a spreadsheet on the development based on both the MLS and Tax data if you would like to see that.
jb
Clotpoll – I offer you delayed thanks for your comment in a post from yesterday. Its nice to know there is at least one realtor out there trying to get his clients some value before prices hit the steep part of the slide.
I find that some days I leave this blog with the feeling that prices will never come down and other days I am slightly more optimistic.
A few observations:
MLS 2351671
619.9 ask, this house had been on the market for motnhs and months and it finally disappeared a few weeks ago at a list of 625. I assumed someone finally bit the bullet and bought in. The house is at “the Top” section of Springfield, near Baltusrol. Very nice area, 5-10 min drive to Summit train station. Interior needs major major updating. Hard to believe that no one has offered high 500’s yet and that the owners, who have been there forever, wouldn’t have accepted. For a home at this price point in that area to still be on MLS, its a good sign.
MLS 2354669
This is one of my personal favorites because the seller happens to be one of two major knock-em-down developers in town.
I am fairly certain the original ask was 820 or thereabouts, then reduced to 809, then to 789. Went off MLS for at least a month, back on now with a 739 ask. I am really hoping it sells for high 600s because everyone in town would have to reset their prices. This home is all remodeled inside, granite counters, steel appliances etc. Heated pool. If THAT is the new 699 house, then people on similar size lots with 1972 bathrooms and 1981 kitchens will have to drop their prices if they want to sell.
Yeah raise them I need more return on my CD’s.
Seneca,
I get the feeling that some of these morons would rather die than substantially lower the price of their dump.
with a fractional reserve fiat money scheme in place inflation will continue to devalue money.
So, does that mean the dollar becomes worthless in ten years?
jb,
I agree that it is difficult to judge by the tax assessment records. That is why I went to the Belleville tax assessors office and looked at the actual deeds for each unit that has closed. I’ve gathered that data and put it into an excel spreadsheet. Trust me when I tell you that the value of each unit has increased since construction began. All units that were purchased at the pre-construction prices have sold for higher.
I guess what I am saying is that you can still buy at these levels without having to worry about being a “BAG HOLDER” or “Losing your pants” etc
Can anyone point me to a guide on how property tax assessors in NJ determine assesed values for land and improvements? Do these guys/gals come up with their assessed values based on formulas or gut instinct?
Do two homes on the exact same size lot with exact same number of rooms/dimensions get the same assessed value and therefore property tax charge even if one has the original interior circa 1970 and the other had a complete renovation in 2000? No extensions, no additional living space, just granite counters and the like?
jb,
Yes I would like to see your data and I will show you mine. Perhaps we can merge the data and see the results.
gary Says:
December 19th, 2006 at 10:14 am
Ok, but the bottom line is I still see anything halfway decent going for $600K plus w. property taxes of 10K. We’re still talking at least 20% greater than the true market value. You guys can parse all the other stuff as much as you want. When are the actual asking prices going to come down? Significantly?
————————
You think these greedy grubbers are just going to roll over and hand you over their house at a 25% discount to what their lucky neighbor received 2 years ago.
Boy it is going to take a little effort to drive into these grubbers NO MAAS to ripoff prices!Why is grubbing sellers any different than 1991 or 1992 or 1993 or 1994?
The grubbers caved in in due time. I Bled’em DRY!
Starving realtors were spewing the same BS back then BUT you have blogs today to help you with the facts.
Stop the crying and wait or go ahead and buy like the first-time bagholder did yesterday. Need a few bagholders to knock prices down anyway. So go ahead and buy.
BOOOOOOOOOOOOOYAAAAAAAAAAAAA
Bob
The “morons” think they are well deserving of 200 percent profit simply because they turned the heat on (and bought Home depot flowers for the front yard)
What really happend in the past several years…
The house just got older.
SAME SHEET ROCK WALLS,
SAME PARTICAL BOARD DOORS,
SAME ROOF,
SAME DRIVEWAY
SAME …
Mass Hysteria directed by the industry pimps!
with a fractional reserve fiat money scheme in place inflation will continue to devalue money. think that 5% in a money market account is protecting you? think again. the things we all need are going up faster plus you have to pay interest income on that money.
Richard,
I thought you were bearish on commodities and precious metals.
jb
not convinced,
My email is nnjbubble@gmail.com. If you need a file hosted, I can put it online.
jb
Chicago makes a good point— the HBs’ reaction to the slowdown has been swift.
BC Bob cites their clearing of land options as a bearish signal– that’s one interpretation, but another is that they are reacting appropriately to the slowdown at hand.
Right now, the negative fundamentals for housing are inventory and price, with psychology playing a major role.
Ratcheting down new home construction in a big way mitigates the inventory issue. Discounts, incentives and lower interest rates mitigate the price issue.
People justifiably still have a psychological aversion to buying, but if inventory starts to shrink in 2007, this could reverse as well.
The Concerns of Comptroller of the Currency About the Excesses in the Mortgage Market
Nouriel Roubini | Dec 18, 2006
A colleague in the financial sector pointed to my attention a speech that the Comptroller of the Currency – John Duggan – has recently given where he expressed some serious concerns about the growth of exotic mortgages in the last few years (David Rosenberg of Merrill has made similar points in a recent research note).
Here are some of the alarming statistics that Mr. Duggan has pointed out:
5% of mortgage originations in 1994 were sub-prime; that is now up to 20%.
Interest-only and payment-option ARMS were 2% of loan originations in 2000, they now account for 40%.
20% of payment-option ARMs originated in the past two years have loan value greater than home value, a figure that would double to 40% if home prices were to decline another 10%. Thus many mortgage holders have significant negative equity in their homes.
50% of the sub-prime market is now made up of ‘stated income’ mortgages where “the borrower pays the lender not to verify the borrower’s stated income on the loan application, making it possible for the borrower to artificially inflate the size of his or her income in order to qualify for a bigger mortgage.”
A study by the Mortgage Asset Research Institute found that 60% of applications for these ‘stated income’ loans exaggerated income by at least 50%.
The increase in debt-servicing (“payment shock”) coming from negative ammortization mortgages can be severe: if rates are reset even only by 2 percentage points the payment increase will amount to a near doubling of the amount of the initial monthly payments.
Given the recent rise in default, foreclosures, financial distress in the subprime segment of the mortgage market, these basic facts about the growth of exotic or “monster” mortgages give something to ponder and worry about. And the fact that such concerns are expressed by one of the leading regulators of the US banks suggests that even regulators – who had been effectively “asleep at the wheel” for the last few years while the housing and mortgage bubble was festering – are now getting worried abou the state of mortgage finance.
Fair enough Bob, but money talks and you know the rest. It’s been 15 months since the peak, let the slide begin.
boyaaa
While starts and permits are indeed down significantly, completions are residential construction employment are still at record highs, as is inventory.
While it appears that builders are planning on “ratcheting down” in the future (lower starts and lower permits), they are still building at a feverish pace (completions and employment).
Is this an indication that builders attempting to finish projects that already in the pipeline? Also, given the level of completions and inventory we are seeing, is the drop in permits/starts deep enough to allow inventory to decline given no change in current demand?
jb
“Hovnanian said it was surprised by the pace and depth of price declines in 2006. The company was hurt by a sharp drop in price margins as it cut prices and offered incentives to an ever-decreasing pool of potential buyers in a bid to move houses that are staying on the market longer.”
Baby Hovnanian you have seen nothing yet….Much more fun ahead…Get some counseling from BOYA Bob today.
>>I thought you were bearish on commodities and precious metals.
not at all, but at the same time i’m not bullish. i am bullish on international plays in any form along with big caps which have finally lived up to the multi-year hype.
JB,
I’m sure you’ve seen it, but Calculated Risk has charts up analyzing completions vs. starts.
Yes, completions remain close to all time highs. But starts have dropped off a cliff, thus it appears that builders are just trying to finish projects in the pipeline.
In trying to determine whether HBs’ ratcheting down of construction will reflect change in demand, let’s look at new home sales. According to the most recent Census report, sales of new SFHs were down 25.4% YoY. This corresponds nicely with the 25% decline in starts.
Of course, the new home sales figure doesn’t take into account cancellations, which remain very high. If you add up these and the new inventory in the pipeline in the form of completions, it does appear that inventory will remain high for some time.
But you must admit that it is interesting that the starts and permits declines are roughly in line with the decline in demand.
Bob, you’re right – Dugan expresses concern, but then goes on National radio last week and butt-covers by saying it isn’t Uncle Sammy-boy’s job to limit mortgage products. http://www.npr.org/templates/story/story.php?storyId=6615458
Paulson wants Americans to save.
This is all sounding like end of Administration backpeddling. They know the jig is up and need to sail away to nice private offices with leather chairs and old books.
Hey Seneca,
Thanks. I’m not saying my counsel for ’07 is right…I only advocate the “preserve equity/get out now” play as the conservative thing for my sellers to do. Somehow, it has seeped into the general consciousness that sitting on a listing that won’t sell- or worse, exiting the market and waiting for a “better day” to re-enter- is somehow the conservative play. It is not. That, to me, is the very definition of speculation. It is also a strategy based on hope…and hope has no place in strategy.
i’ve toured montclair with barbara lewis. elitist snob if i ever met one. don’t use her.
Real Estate Expected to Flounder in 2007
http://biz.yahoo.com/special/pf121906_article2.html
James Bednar Says:
December 19th, 2006 at 11:22 am
Is this an indication that builders attempting to finish projects that already in the pipeline? Also, given the level of completions and inventory we are seeing, is the drop in permits/starts deep enough to allow inventory to decline given no change in current demand?
jb
grim: cancellations aside, most of the builders had 12+ months backlog as late as early 2006
based on the Toll conference calls that I have listened to over the last 2 years, the bulk of the analysts were always trying to discern where [timing] to place the drop-off in demand
In December 2005, Toll had enough of a pipeling [not withstanding the cancellations] to make 2006 a record year. Analysts were evaluating them [on the margin ] based on how 2007, 2008 etc. modeled.
chicago
montclair is a desirable town, why i don’t know with it’s close proximity to some nasty towns, high taxes and sub-par schools, but i guess barbara and others have been successful keeping it together. in westfield the only incentives i’ve seen or heard of are having the sellers fix things that are wrong with the property.
I’m customarily just a lurker on this site as I believe the issues being discussed are not housing specific but rather a reflection of soon to be realized global liquidity crisis. Granted, federal policy will greatly influence the outcome but I’m curious how readers intend to protect their assets in such an event.
I personally have been raising cash, moving into defensive stocks such as health care, and taking positions in domestically based multi-nationals. I’m curious what is the opinion of others readers on this strategy and what other action may be taken.
Strong suspicion the pickup in builder activity is: a) weather-related, and b) the usual year-end rush to complete homes and book closings. TOL is especially aggressive in forcing end-of-calendar-year closings on pending deals. If you have a TOL contract with a January closing date, rest assured you’ll close in Dec.
“with a fractional reserve fiat money scheme in place inflation will continue to devalue money. think that 5% in a money market account is protecting you?”
So are you’re saying the dollar continues to slide??? Who thinks a 5% mm is protecting them??? On the flip side, you have done better in a 5% mm than buying RE in 2005.
>>Who thinks a 5% mm is protecting them???
typically people put cash in a MMA so there’s no risk to principal. the savvier folks know that’s not the case.
……and if inflation continues to devalue money, as you state????
http://paper-money.blogspot.com/2006/12/todays-new-construction-report.html
Here are the statistics outlined in today’s report:
Housing Permits
Nationally
Single family housing permits down 3.1% from October, down 33.3% as compared to November 2005
Regionally
For the Northeast, single family housing permits down 11.0% from October, down 28.8% as compared to November 2005.
For the West, single family housing permits down 2.3% from October, down 40.5% as compared to November 2005.
For the Midwest, single family housing permits down 5.7% from October, down 36.4% as compared to November 2005.
For the South, single family housing permits down 1.4% from October, down 29.4% compared to November 2005.
Housing Starts
Nationally
Single family housing starts up 8.1% from October, down 28.6% as compared to November 2005.
Regionally
For the Northeast, single family housing starts up 5.6% from October, down 13.6% as compared to November 2005.
For the West, single family housing starts up 1.4% from October, down 38.5% as compared to November 2005.
For the Midwest, single family housing starts up 1.5% from October, down 37.6% as compared to November 2005.
For the South, single family housing starts up 14.1% from October, down 22.1% as compared to November 2005.
Housing Completions
Nationally
Single family housing completions down 1.0% from October, down 5.5% as compared to November 2005.
Regionally
For the Northeast, single family housing completions down 12.8% from October, down 23.8% as compared to November 2005.
For the West, single family housing completions down 3.7% from October, down 9.5% as compared to November 2005.
For the Midwest, single family housing completions down 4.0% from October, down 9.3% as compared to November 2005.
For the South, single family housing completions up 3.5% from October, up 1.6% as compared to November 2005.
Keep in mind that this particular report does NOT factor in the cancellations that have been widely reported to be occurring in new construction.
As further reports are released, cancellations should show an even greater effect on permitting, starts and completions.
Do not let the real estate pimps fool you. Seen a few houses with asking prices under 2004 selling price IN TOP TOWNS. DO YOUR OWN HOMEWORK
THE BLOODBATH IS IN ITS INFANCY.
BOOOOOOOOOOOOYAAAAAAAAAA
Bob
From CNN/Money:
Housing starts rebound, but …
The market in general is heading downward,” said Dean Baker, co-director for the Center for Economic and Policy Research, who has long maintained that the run-up in prices and building in recent years has caused a market bubble. “There is a very big supply of new homes. Vacancy rates for owner-occupied units are at a record high. You have tremendous oversupply.”
Paul Kasriel, chief economist at Northern Trust, said that housing starts were off 27.8 percent in November from a year earlier, the biggest year-to-year decline since a 32 percent drop recorded in March 1991.
“There still is a lot of excess inventory, [in] both new and used homes,” he said, adding that builders are cutting prices to move homes. “They’re working through inventory and they’re not going to be eager to go out and start a lot of homes right now. I don’t think we’re at the bottom of this yet.”
The slide in permits is a clear indication of the shape of things to come, said David Seiders, chief economist for the National Association of Home Builders, who believes that housing starts won’t bottom out until the first quarter of 2007.
“The persistent downslide in permits points towards further erosion [of housing starts,]” he projected.
…
Unseasonably warm weather in the fall and winter is often a strong catalyst for home construction, but analysts said it’s unclear just how important that is in 2006. The backlog in inventory is a much bigger concern, according to analysts.
William Wheaton, research director and economics professor for the Massachusetts Institute of Technology Center for Real Estate, is even more bearish going forward and said the decline will continue for years, not months.
“I see a slowdown in this industry for at least the next two or three years, and I don’t think permits have reached the bottom,” said Wheaton, who agreed with other analysts in saying that oversupply is to blame. He said that the past two years have seen 2 million new units built per year, about 700,000 more than is needed on an annual basis.
meaning these bagholders are taking money to the table “IF” they can get asking. I think they will be taking more than a little to the table.
READ MY LIPS: IF YOU PAY ANYWHERE NEAR ASKING PRICES YOU WILL TAKE MONEY TO THE TABLE IF YOU HAVE TO SELL IN THE NEXT 8-10 YEARS IMO!
25% OFF OF PEAK 2005 PRICES AT A MINIMUM SHOULD LESSON THE PAIN SOMEWHAT, BUT STILL WILL BE UNDERWATER AT SOME POINT.
BLEED’EM DRY!
BOOOOOOOOOOOOOOOYAAAAAAAAAAAAA
Bob
Do not be anyone’s lap doggy.
Bababbababa
Woohoo, Bob, you’re coming around now.
Been waiting for you to retire the 25%.
there’s inflation and there’s devaluing of our currency. i should’ve made a distinction. the latter will depend on what you’re comparing to whereas for my example i’m talking about the former. currency is the last place anyone should be. it’s easy pickins for those who want to steal your money. heck even the government disincentivizes you to save by taxing it as income. diversify yourself into some metals, other commodities, equities, RE, whatever, just don’t stay in cash if you have a 15+ year investment timeline. history has proven you’ll win over the long haul.
BLEED’EM DRY! DON’T BE A GREEDY GRUBBERS LAP DOGGY
Take at least 25% off 2005 peak prices
Common Cent$ Says:
December 19th, 2006 at 12:22 pm
I personally have been raising cash, moving into defensive stocks such as health care, and taking positions in domestically based multi-nationals. I’m curious what is the opinion of others readers on this strategy and what other action may be taken.
CC: Great strategy. Just remember – don’t do things black and white. “Overweight” toward your strategy while maintaining diversification. If you go full borne “defensive” and there is a rally, you have outsmarted yourself. I think the big risk is more timing than anything else. The direction is correct, but you could have made this call 12 months ago, and it may not play out for another 12 months. If you went bearish, you actually did ok, but only due to a large cap value rally of massive proportions. You kind of stumbled into the correct call [that was my good fortune].
chicago
From DJ via Newsday:
Kara Homes Seeks Crt OK To Sell 4 NJ Housing Developments
Kara Homes Inc. is seeking bankruptcy court approval to sell four housing developments in New Jersey to Magyar Bank, subject to higher offers at auction.
The home builder said in court documents filed last Friday that Magyar Bank, which holds construction mortgages for the properties, has agreed to serve as the lead bidder at a Jan. 30 auction.
The bank is willing to offer $300,000 in cash, and credit bid what it’s owed for the properties.
As of the closing date of Feb. 9, 2007, Kara Homes estimates that it will owe Magyar about $8.6 million plus what ever advances it takes out to protect the properties from winter and clean them up, default interest and attorney’s fees.
…
Kara Homes told the U.S. Bankruptcy Court in Trenton, N.J., that it intended to improve the properties _ which need a combination of lot improvement, sidewalks and completed homes _ and sell them. The properties are located in Dover Township, Stafford, Monroe Township and Little Egg Harbor.
However, after analyzing what it would cost to complete construction, Kara Homes determined that there was a “limited” potential to make a profit.
(emphasis added)
It’s hard to believe how far this market has changed in the last year. A year ago, bubble talkers were called delusional by the industry. They,industry, stated the market was on firm footing, the economy was great and interest rates were low.[housing will always be in good shape if these two are favorable] We were repeatedly barraged with hype stating at worst there may be a temporary pause, a slight adjustment, etc…
Well, here we are now, starts off 27.8 from a year ago. More importantly permits are at a nine year low, permits being an indicator of builder’s confidence going forward. Hov comes out and lowers their 2007 #’s, much lower than the street’s consensus. Inventory is bloated and demand has fallen off a cliff. Now we hear, the spring will be different. Different??? How bad??? Do they think 2006 was an abberation??? What’s wrong with this quarter??? Beautiful weather, low rates and a great economy.
The spin we hear is, it’s not too negative. That’s a positive, not too negative?? Hogwash!! How do they define negative?? I guess it’s all relative. Basically, we have gone from no bubble last year to now asking how long and how severe?? What a difference a year makes!!
#57,
Metals/commodities????
Gary, who did all the research before they bought their unit, was attracted to the Tarragon building specifically be cause of the BMW.
“It was huge,” she said.
It is huge. The cost of embedding a 2 year lease on a BMW into a 30 year mortage is huge.
metals and commodities have had their run, at least for the time being. i’d look for a bit of a pullback before committing funds. i personally like international investments. all the big boys are investing heavily and i’ll be the first to admit i’m following the herd.
I wonder how many of the market ‘bears’ here are wannabe homeowners? Can’t have a home so the we’ll look at the data in a way that makes the ‘bears’ feel better.
NEW YORK (Reuters) – Wall Street bonuses are expected to rise to a record $23.9 billion in 2006 from $20.5 billion in 2005, New York State Comptroller Alan Hevesi said on Tuesday.
Hevesi said in a statement the projected 17 percent increase in bonuses reflects a strong year for the securities industry, “with some of the largest firms having their best year ever.”
The comptroller estimated that the bonuses will generate $1.6 billion in tax revenues for New York State and another $500 million for New York City.
—–
income drives spending so this is good news for the local economy.
Mark Says:
December 19th, 2006 at 1:55 pm
I wonder how many of the market ‘bears’ here are wannabe homeowners? Can’t have a home so the we’ll look at the data in a way that makes the ‘bears’ feel better
—————-
Taken applications for shoe shine boys? Interested
babababbababa
What is your interpretation of the data Mark?
I hate to break the news to you Reechard, but Goldman employees will vacuum up about 45% of that amount. Kind of hard to spread that around when it is so micro-focused.
Also, supposedly, two Goldman energy traders are said to be receiving $100M+ payouts each.
Mark,
I’m a homeowner.
I wonder how many of the market ‘bears’ here are wannabe homeowners?
Mark,
Would it dramatically change your impression of me if I told you that I own?
jb
mark: How exactly are we looking at the data, and in what way would it make us feel better?
Could I say that you are a hoemowner, perhpas one who has exhausted his equity, or one who bought recently who is now under water, and perhaps wants to make himself feel better.
Am I a wannabee homepwner? I was a homewner, who is not now,but who would like to be one again, but who will wait until the time is right.
The data is the data, and the data says the real estate market is falling , use that as you will, just like us bears here plan to.
Mark Says:
December 19th, 2006 at 1:55 pm
I wonder how many of the market ‘bears’ here are wannabe homeowners? Can’t have a home so the we’ll look at the data in a way that makes the ‘bears’ feel better.
What you are suggesting is that we engage in “confirmation bias” and I’m sorry, but “homey don’t play that…”
http://en.wikipedia.org/wiki/Confirmation_bias
From Bloomberg:
Fisher Says Rate Rise May Be Needed to Slow Inflation
Inflation is a greater risk to the economy than slower growth, and the Federal Reserve may need to raise interest rates if price increases don’t subside, Federal Reserve Bank of Dallas President Richard Fisher said.
“The risk of unacceptably high inflation still outweighs the risk of substandard economic growth,” Fisher said today in the text of a speech to the Rotary Club of Longview, Texas. With inflation “too high,” Fisher said he would “have no choice but to advocate tightening monetary policy further if inflation does not ratchet downward.”
…
“While we at the Dallas Fed are hopeful that the measures taken to raise the federal funds rate from 1 percent to 5.25 percent will quell inflation and, very important, expectations about future inflation, we cannot yet say with conviction that we have turned the corner and have this problem fully contained,” Fisher said in the text of his speech.
The people that talk about Wall St bonus money that I know, are not involved in Wall St, it is really rather comical to listen to these experts pontificate as to how this money will pump up the housing market.
Those of us on the street for any length of time, know the real story, and there have been super record years before.
The bonus money money will not do any thing for the 500K crap box in any town north Jersey;I gurantee it.
Fischer is just jawboning and guess what? No one’s buying it yet again. The Fed has been trying this tactic with little impact. They should try a new strategy.
“Christopher and Christine Wal dron bought a three-bedroom ranch in Toms River for $105,000 in November 1998.The goal was to sell the house for a hefty profit ….
But when the Waldrons put the house up for sale in September, they had trouble finding a buyer at $335,000. Ultimately they had to settle for $299,000, Christine said.
We actually feel we didn’t get what we deserved.”
200% return in 8 years and complaining. Pretty much says it all.
Richard Says:
December 19th, 2006 at 12:13 pm
i’ve toured montclair with barbara lewis. elitist snob if i ever met one. don’t use her.
Are you kidding? All your yakking about Westfield and “top towns” and you are calling someone else an elitist snob?
Or didn’t she recognize your quality?
bergenbubbleburst,
I agree. Maybe trophy properties in NY, the Hampton’s, Westchester, Westport, etc.. I know some energy/metals traders who are buying condos in the Caribbean and/or in Vail, even castles in Europe. The 500k cape in NNJ, fuuuuugeeeeeiiiittttt.
Also, if there are buyers from here sprinkled about other communities, do you think they are paying 2005 prices?? These are some of the best traders in the world, experts in inefficiencies.
Sharks!! Do you think a home seller/realtor has an advantage/the upper hand???
Eastern-EU real estate is prime! :)
jb
#65,
Did you mean to say how many bears are former homeowners??
From the Concord Monitor:
Foreclosures up 60% across county
T
he number of people in Merrimack County losing their homes to foreclosure has gone up nearly 60 percent in the past year.
According to credit and mortgage counselors, homeowners who signed up in recent years for adjustable-rate and interest-only mortgages, hoping to refinance when their rates increased, are having a hard time making their payments.
The sluggish real estate market had made it harder for homeowners to draw equity from their property or sell to recover debt. Higher credit card rates, rising property taxes and increased energy costs compound the problem.
“Some people are apparently experiencing, for lack of a better word, payment shock,” said Dean Christon, executive director of the New Hampshire Housing Finance Authority.
…
Forty of this year’s foreclosures were on homes financed with adjustable rate mortgages that started in 2002 or later, Guay said.
“Those people that got a great interest rate to begin with, now that the interest rates have changed, have run into a problem,” she said.
Adjustable-rate mortgages typically offer a low fixed rate for the first year or several years. When that time is up, the interest rates change according to whatever index the lender uses. Rates can go up several percentage points at once.
With interest-only mortgages, the homeowner pays just the interest on his or her loan for the first few years and then must start paying down the principal.
Christon said those mortgages would have remained good deals for many people if the real estate market hadn’t slowed.
“If the values had continued to rise at a very strong pace, the effect of this would have been mitigated,” he said. “People would have had equity. They would have had the ability to sell a little more easily.”
I’ve been reading business page reports on earnings for years but I can’t ever recall seeing something like this:
From Bloomberg’s story on Khov’s earnings:
The company also offered guidance for 2007 earnings of $1.50 to $2 per share, and first-quarter earnings of 5 cents to 10 cents per share. Analysts predict income of $2.71 per share for 2007 and 46 cents for the first quarter.
Since when do analysts see earnings for a quarter at 4 times a company’s high-end estimate?
Obviously an annual earnings call of 35-60% over the company’s prediction is equally bizarre, what would cause such a prediction?
I also posted this at CR, but I would really like an answer.
Chifi? BCBob?
lisoosh Says:
December 19th, 2006 at 2:54 pm
“Christopher and Christine Wal dron bought a three-bedroom ranch in Toms River for $105,000 in November 1998.The goal was to sell the house for a hefty profit ….
But when the Waldrons put the house up for sale in September, they had trouble finding a buyer at $335,000. Ultimately they had to settle for $299,000, Christine said.
We actually feel we didn’t get what we deserved.”
200% return in 8 years and complaining. Pretty much says it all.
Congrats Christine you bagged a big one!
BOOOOOOOOOOOOYAAAAAAAAA
Bob
“It’s hard to believe how far this market has changed in the last year. A year ago, bubble talkers were called delusional by the industry.”
Yes, and the fact that 2006 has been the biggest meltdown in RE since 1991 is a mixed message.
If you look at the Schiller chart, most of the unraveling of the last RE run up happened in 1991. RE plateaued fairly soon afterward. If you bought in 1992, you would have done OK.
“If the values had continued to rise at a very strong pace, the effect of this would have been mitigated,” he said. “People would have had equity. They would have had the ability to sell a little more easily.”
Just bear with me for a moment – Prices continue to raise at very strong pace??? to were?? 1 million for a 2bedroom/1bathroo mcolonial starter home in central NJ??? Without inflation and salary growth?? What did he smoke?? I want some of it..
And if it is inflation wouldn’t their ARM RATE skyrocket??? I mean those people are Economists, and educated professionals …..
Dean Christon, executive director of the New Hampshire Housing Finance Authority.
mark,
Besides this site, I retrieve my data from Barron’s, Bloomberg, CBS Marketwatch, The Economist,RealtyTrac,CNN Money, Reuter’s and Wall Street Brokerage reports. Nothing I see, at this time, supports buying RE at this stage. By the way,there are many homeowners and former homeowners who post here.
If you look at the Schiller chart, most of the unraveling of the last RE run up happened in 1991. RE plateaued fairly soon afterward. If you bought in 1992, you would have done OK.
——————
As a participant, RE did not plateau in NJ by 1992…it was grinding lower…GRIND!
Breakeven, by maybe 1998-2000…This Mess is worse BABY!
BLEED”EM Dry…
Make’em Pay for trashing buyers.
BOOOOOOOOOOOYAAAAAAAAAAA
Bob
“If you look at the Schiller chart, most of the unraveling of the last RE run up happened in 1991.”
Skeptic,
The top in that market was in 1988, so you are talking 3 years before the majority of the unraveling. We are only in the 1st year of this cycle. “If” this bust is similar, then we will looking for the worst in late 2008. By the way, if you bought in 1988, you broke even 9 years later!!
Lindsey Says:
December 19th, 2006 at 3:21 pm
Since when do analysts see earnings for a quarter at 4 times a company’s high-end estimate?
earnings = [1]operational earnings +/- [2]one-time charges +/- [3]earnings from discontinued operations
in this case, the analysts general provide estimates of [1] and model [2] and [3] as the are given information
with the asset write-offs/-downs [types of 2] – KHOV probably gave the analysts their first information about the writedowns upon the earnings release – these one time charges are so subjective, that they really cannot model for them without firm guidance
chicago
Mark, I retrieve my sales data from county sales published weekly where I live, and I’ve been doing it for a long time.
I track inventory weekly, since 2002/2003.
I don’t trust anybody else’s data. No reason to. Go on, make my day and give me three reasons not to get my own data. And no, duh, I don’t have steel bunkers under the house.
skeptic; That was 1991, this is now, much more recklessness in the market than last time around. As far as 2006, the down turn did not really get started until the summer, so I belive that we will not see the larger drops until Spring/Summer 2007.
As well the economic fundamentals in our state (NJ). continue to rapidly decline.
I see nothing on the horizon that would warrant a huge turn around in the market, which would see people clamoring to buy houses again.
I am starting to see asking prices back to 2004 and in some cases 2003 levels, which is a promising sign.
The only problem in my town is the taxes are out of control,and there is so much uncertainity surrounding the town going forward, that I am not all that anxious to buy next year, even though I may have to.
Lindsey,
I think there was a typo, maybe should have read analysts had predicted. I believe the analyst forecasts were previous #’s, before the 4th quarter release from HOV.
Pat,
The data is important. Question, is ALL the data reviewed in making an assessement or only those pieces and/our outliers that support certain biases about the R/E marketplace?
Mark = fooling himself
If you look at the Schiller chart, you’ll see that in every prior RE bust, there has been a sharp move down initially followed by a flat period, followed by RE moving sharply up.
We may debate where we are on that trajectory, but I think most here would agree that we are somewhere on the sharp downslope.
As far as this time being different, I have two comments. First, this was the response of RE bulls 1-2 yrs ago, which was ridiculed here at the time.
Second, the extent to which this time actually is different is not necessarily all bearish (or all bullish). For example, the new financing schemes seem to present a negative picture in the short term due to rising defaults, but over the long term they probably have increased purchasing power.
Above all, I think it’s important not to move the target farther back as our initial predictions become confirmed. The people who did they best in RE bought when no one else was interested during the last bust. We may not be there year, but we are a good deal closer than we were 12 months ago
If I overlooked anything, please let me know, but I don’t believe I’ve missed any data points.
jb
mark: not to insult you, but you appear to be dancing around the issue. I have talked to people like you before, you appear to be reasonable, and counsel us to look at all sides etc.
Well that is one fo the beauties of this site, Mr BEdnar does nto spin the data, he presents it without any filters.
Perhaps you can provide some data that would prove any of us wrong. Such data should include a justification and rationalization as to why house prices rose so quickly and in such a short period of time,and why this crash, slow down or pause, we are in is only temporary.
Otherwise your statements remind me of a friend of mine who says housing will nto go down, becasue it won’t.
Mark:
Anyone who is desperate to buy will buy regardless of what is said in this blog.
For many people who are spending their hard earned money, this is a significant investment in their life which will affect their financial well-being for the forseable future. It is important for them to do their homework and this blog is one of the places where they can see facts/opinions on the RE outlook.
If you think that this blog and the whole media is biased against buying now, then you should do your research only on the NAR website and that kannekt site.
I can’t imagine any intelligent person would put away their check book just by reading anyone’s posts here, including mine.
Also has BC Bob pointed out, many of us owned before we sold and we would get back in if the valuations made sense. I sold in Jan 2005, probably a couple of months before what is considered the peak of the bubble. I did consider buying a bigger place immidiately, but I am glad I didn’t as I see much nicer places for the same or less money that I saw last year. In the towns and price range that I am looking at, 20% off 2005 prices is the norm.
skeptic: Good points,and I agree to an extent. I just eblive we need a couple of more ingredients in the bowl before we get the real price declines.
One fo those last ingredients, is seller acceptance to the reality of a changed market, we got just a dash of that this year, but I belive we will get some cup fuls nect year if you will.
Instead of sellers holding fast united, against so called low balling buyers, they wille at each other, in other word drop prices.
Anti,
20% off 2005, in your towns, the norm??
I think it will take a few years for prices to come down substanially to where many of us can afford. The problem is with such a big percent of people who over paid a good amount, all a realtor or economist has to say is the market will come back next year. People who want the most money or dont want to lose a large percent will hold off and wait. They will find ways to make the mortage. And then when spring comes they will have some new excuse of why no one is buying. I think most of these seller dont have much common sence when it comes to selling there house. To me all this spring recover nonsence is just like the exotic mortage. Buy that 500k house with no money down, 1% apr blah blah blah. People are just going to be putting themselves further into debt by holding off and not reducing there price. I know everyone has the right to do what they want but I guess people cannot really think for themselves these days and the longer they hold off the worse the bottom will be.
The one thing I constanly hear is the job growth = deseriable areas to live. NJ has had 20,000 jobs added last year which is next to nothing. Maybe I dont see the full report, but they say 300,000 jobs added well gee we better move to that state, but I dont get is most jobs are the crap jobs that pay next to nothing, or pay decent but not enough to afford cost of living. Why would anyone from outta state want to move here? I mean the job market here is crap, the government is notorious for misappropriating money hence 8 Billion dollars of new tax we get stuck paying. Than we get stuck paying for it. At this point I would see NY state as a more desirable area to live. I mean I have lived here since I was 8 so thats why its hard for me to leave, its home. In so many jobs here in NJ, I have looked and you can make the exact same amount in other states where the cost of living is a heck of a lot cheaper. Plus we have so many wonderful overpriced homes here that I cant for the life of me understand why you’d want to move to NJ if you didnt grow up here.
Just a little weekend story: went looking at SFH houses. Of the 10 I saw, 60% were unoccupied. Lots of obvious flips–the usual Home Depot kitchen and baths (in period homes) and no furniture. Pricing was all over the place. However, the most overpriced houses appeared to be owner-occupied with little or no updating including one absolute wreck where the disclosure statement seemed to indicate COuntryside held the mortgage (note to self: worry about “illegible” handwritng on a disclosure statement). Unfortunately, my favorite by far has an “upside-down” owner who “can’t” be flexible on price. I’m also looking a rentals, and seeing the same “all over the place” pricing. It’s a very disorganized market out there.
Anybody think that the increase in starts is partially due to the unusually warm weather? Starts usually would be declining this time of year anyways, but this warm weather spell makes breaking ground easier for these developers. This way they can get some planned developments out of the pipeline faster than waiting until the spring rolls along. Just a thought…
Off-topic: is anyone focused on college planning for kids? if so, what are you doing?
Antitrump– just a guess, but are you looking at high end homes ($1M+)? 20% off across the board seems huge, but it wouldn’t surprise me in that segment of the market given the ridiculous inventory.
I also wouldn’t be surprised if you said you were looking at condos.
Realtors all seem to be saying the same thing: fairly priced, entry level SFHs are holding up relatively well, but everything else is toast.
Seller’s must be getting desperate. I got a call from my broker about a house I saw 3-4 weeks ago in Millburn. The seller dropped the price about 7%. I told the broker no after the first viewing. Than no after the first call back. Now I just told him no again. He said the seller was willing to work w/ us considering they heard we were the perfect couple for the place considering we have an 11 month old kid. The house next door sold for 15% more than what they are now asking and it’s slightly smaller. I’d almost consider a lowball, but I’m willing to hold out to see the bottom drop out next year.
“is anyone focused on college planning for kids? if so, what are you doing? ”
Giving them golf clubs!!
Chi-fi,
I once remember talking to the CIO of the Intl American Development Bank who said that he bought Treasuries for his kids when they were yielding around 18% in the early ’80s. Said it was a great investment for his kids college education since rates rallied into the ’90s when his kids went to school. I guess you could apply the inverse of that strategy, given where rates are now.
Christopher and Christine Wal dron bought a three-bedroom ranch in Toms River for $105,000 in November 1998
And I was looking at 3 bedroom ranches in Toms River in 1989 for $105,000 & higher !
No chart needed.
KL
KL, you might need a map though. As a native of TR, I can tell you that there is a huge difference in neighborhoods and it’s a big town. Add in the fact that the continuing revelations of contamination problems from the old Toms River Chemical plant (later CIBA-GEIGY)affected values in some, but not all parts of town, and that’s exactly the kind of information that needs to be taken as anecdote, not evidence.
I haven’t done the due diligence necessary, simply because we don’t have kids yet, but can my wife and I open a 529 savings account for the child we don’t yet have?
Anyone?
jb
JB,
In regards to 529, my accountant said that it’s actually a tax disadvantage for me to do so for my kid. Just had my first one. I haven’t looked into it yet, so I can’t confirm if that’s true.
Chicago-Finance, Buy your kids some silver and gold bullion. The “Chicago Boys” (of which I am one too) have unduly “wrecked” our currency plenty. What remains to be felt is the reaction to this ongoing fraud once “the people” figure it out. Time to protect your purchasing power.
http://biz.yahoo.com/prnews/061219/dctu021.html
Chicago-
Luckily, I have a well off relative who is consistently putting money into 529’s for my kids. Other than that, I have some DRIPs I put money into for them. The 529s are a bit of a question mark to me based on the recent law changes and legislation. My wife also signed up for Upromise since she shops at a lot of the places that participate – not that it’s going to have a big impact.
BTW, I hadn’t seen this link posted by JB today with predictions on housing price declines…
http://money.cnn.com/popups/2006/fortune/invguide_realestate/index.html
JM
CF:
College is a tough long-term 20-year plan with costs increasing as rapidly as they are. Who knows which prepaids will still be around? We first came up with an idea of what percentage of college we’d like to cover, and at what cost level. Above that, she would be on her own.
I paid for my own college, and looking back now, I’m glad. Squeezed every penny out of my education. Sometimes, I’m tempted to tell her throughout her life that she’s paying for it herself, and then on graduation day, hand her the money. I truly think her choices would reflect herself more.
We’re dumping extra into our 401(k)s for the first seven years, and then assessing the 529s in 2007, including the ratings on the prepaids.
http://www.rank529plans.com/compare/index.cfm
Oops, wrong link:
http://www.aicpa.org/PUBS/JOFA/sep2006/eighme.htm
Are there any benefits in tax-deferred programs with future tax rates are set to increase in order to service debt?
NPR reported that 100s of thousands of housing related jobs might be lost in the next 4 months.
http://www.responsiblelending.org/issues/mortgage/reports/page.jsp?itemID=31214551
Center for Reponsible lending-
• 2.2 million subprime home loans made in recent years have already failed or will end
in foreclosure.
• These foreclosures will cost homeowners as much as $164 billion.
• One out of five subprime mortgages originated during the past two years will end
in foreclosure
• 25% of total mortgage market is subprime.
• 16-20% of subprime loans in New Jersey will face foreclosure.
Top 15 MSA Projected Foreclosure Rates for Subprime Loans Originated in 2006
Rank MSA Foreclosure Rate (%)
1 Merced, CA 25.0
2 Bakersfield, CA 24.2
3 Vallejo-Fairfield, CA 23.8
5 Ocean City, NJ 23.5
13 Atlantic City, NJ 22.2
15 Nassau-Suffolk, NY 22.0
“What remains to be felt is the reaction to this ongoing fraud once “the people” figure it out. Time to protect your purchasing power.
JohnSS,
With you on the fraud. Question is can “the people” actually figure it out??? Nobody even questions why M3 is no longer reported. In conjunction with this, there wasn’t one peep when the fed stated/defended the reason ff’s were lowered to 1% was because of a glich in the CPI calculations, that the CPI was understated by 1/2% during the rate declines. Imagine that??? Not a big deal, just a software glich!!! Does anybody really believe the current #’s coming out of Washington??? Does your everyday shopping reflect their #’s???
The worst of the housing slump might be over, although some pain is likely to linger, an adviser to President Bush suggested Tuesday.
http://news.yahoo.com/s/ap/20061219/ap_on_go_pr_wh/bush_economy
syncmaster,
“worst of the housing slump might be over”
how do you know? IMO, we ain’t seen anything yet.
Sorry, should have been more clear. That’s a quote from the article.
From http://www.breitbart.com/news/2006/12/19/D8M47ATG0.html
Wall Street Bonuses Flood NYC’s Economy
Dec 19 6:27 PM US/Eastern
Real estate is a big beneficiary of bonuses, as plenty of bankers look to upgrade their digs or buy their first pad.
“A lot of my Wall Streeters have been pounding the pavement anticipating the bonuses,” said Louise Phillips Forbes, of Halstead Property. “They’re prepared to pay a tremendous amount of money.”
Earlier this month, Forbes said she sold 11 apartments. More than half of those buyers worked on Wall Street. Forbes says she has about 200 apartments for sale ranging from $500,000 to $6 million. Many of those, she said, will go to bankers.
Forbes said the bonuses heat up the market in another way. Those who do not work on the Street try to close on new homes before those beefy bonuses arrive.
“People started buying before bonuses were even announced so they wouldn’t compete with Wall Streeters,” Forbes said.
Gregory J. Heym, chief economist for Brown Harris Stevens, said it’s difficult to say whether bonuses cause real eastate prices to spike in certain neighborhoods.
“I think a lot of it is going to get masked in the fact that the sales won’t close for a long time because they’re in new developments,” he said. “That sort of makes it hard to attribute any increase to bonuses.”
“Halstead Property”
These guys are so full of crap.
propaganda man… thats all that it is…propaganda.
These guys remind me of De Beers and their propaganda campaign of a “A Diamond is Forever” slogan.
SAS
Thanks Chicago for the input
I have to date moved about a third of my portfolio into such defensive assets and am awaiting more compelling economic data but I try to live by the words of Nathan Rothschild “Never buy at the bottom and always sell to soon”
I second Pats comments on college savings. My daughter is still almost dozen years away but you can’t lose with the educational IRA as they may be used for almost anything.
Hey Grim,
Skip the 529. They’re full of ticking time bombs that can blow up in your face. Lots of ways to lose, few to win. And, in the grand American tradition, the better your account performs, the less aid will be available for your kid.
Even Suze Orman will tell you…your kids will have lots of ways available to pay for school. You only get one shot at saving for retirement.
I’ve opened straight, taxable brokerage accounts for my kids (8 & 13), with me as the custodian. They help make picks and have really gotten into it. When they’re 18, I’m giving them the loot. If they’ve learned well and understand investment (which they do now), they will continue to grow the pile. It’s also really funny watching kids burst into the house after school and dive for the computer to see how GOOG and AAPL are doing.
Most American kids will never be introduced to the concepts of compounding interest or value/growth stocks. Schools are too busy teaching “diversity” and math concepts that turn simple concepts into brain surgery.
Speaking of De Beers, that movie “blood diamond” wasn’t too bad. Typical hollywood cheese, but it did have a very real to life story. Except in real life, they don’t chop off limbs, they x-ray diamond workers, so over time they die of cancer.
So, remember that next time you want a rock for your lady friend. Think, hey alot of poor black Africans in slavery and whom were x-rayed, picked that diamond, and also, its not worth anything because of the monopoly controls the diamond supply. They keep the market in a false low supply.
Yup, if Americans are so against slavery, why do we buy women diamond rings? oh thats right…. I remember now.
Propaganda…..propaganda…
How much is that house again?
SAS
BC Bob Says:
December 19th, 2006 at 5:13 pm
“is anyone focused on college planning for kids? if so, what are you doing? ”
Giving them golf clubs!!
Bost: is this the Wie-Woods Corollary?
Hard Place Says:
December 19th, 2006 at 5:16 pm
Chi-fi,
I guess you could apply the inverse of that strategy, given where rates are now.
Hard: short Treasuries?
James Bednar Says:
December 19th, 2006 at 5:49 pm
I haven’t done the due diligence necessary, simply because we don’t have kids yet, but can my wife and I open a 529 savings account for the child we don’t yet have?
grim: yes – designated yourself or your wife as the bene [then change it after birth] – you can also use a 529 for your own education – don’t do it for an unborn kid though – too much uncertainty
“college savings”
You kids can always get scholarships, student loans, or grants.
Worry about your own hide. Your kids are not idiots. They don’t need your handouts. And if they piss it away there college education of booze and parties, you won’t feel so bad.
Don’t give me that “not my child” syndrome.
They kids whom always partyed the most in college and failed out are “usually” the ones whom parents paid for it all.
I am all for assisting, but not paying 100%, you are asking for alot of headache.
SAS
Hard Place Says:
December 19th, 2006 at 6:02 pm
Hard: In regards to 529, my accountant said that it’s actually a tax disadvantage for me to do so for my kid.
Hard: really? is it because he is suggesting a Coverdell [note: you qualify under the AGI profile]?
BklynHawk Says:
December 19th, 2006 at 6:19 pm
Chicago-
Luckily, I have a well off relative who is consistently putting money into 529’s for my kids. Other than that, I have some DRIPs I put money into for them. The 529s are a bit of a question mark to me based on the recent law changes and legislation.
Hawk: good for you! no more Q’s about 529’s, then provsions have been made permanent
Pat Says:
December 19th, 2006 at 6:35 pm
CF: We first came up with an idea of what percentage of college we’d like to cover, and at what cost level. Above that, she would be on her own.
Pat: wise – kids need to appreciate their opportunities
Be careful with the PA plan, it is garbage, but you should participate on at least one state’s because PA is unique in that they give you the benfit no matter where you go
JMHO – the Vanguard plans are a ruse, they don’t give you access to their best funds and just stuff your pockets with index crap
njrebear Says:
December 19th, 2006 at 6:48 pm
Are there any benefits in tax-deferred programs with future tax rates are set to increase in order to service debt?
Bear: deferred or exempt? hate to sound like a lawyer, but with the deferred plans, it depends
Common Cent$ Says:
December 19th, 2006 at 8:56 pm
I second Pats comments on college savings. My daughter is still almost dozen years away but you can’t lose with the educational IRA as they may be used for almost anything.
CC: two drawbacks – only can deposit $2K per year and AGI limitations
Clotpoll Says:
December 19th, 2006 at 8:58 pm
I’ve opened straight, taxable brokerage accounts for my kids (8 & 13), with me as the custodian.
Clot: I like your participatory approach [really good for the kids], but I don’t agree with your statements, nor do I think you approach is tax efficient.
This is one hell of a story, if you keep up with these sort of things.
“Ebay to Shut China Unit, Form Venture With Tom Online (Update2)”
http://www.bloomberg.com/apps/news?pid=20601080&sid=a6z6vucKiqWQ&refer=asia
SAS
SAS: If my son goes to my alma mater in 18 years, based on current inflation for my school, the all-in cost for 4 years from 2024-2028 will be $378,000 in THEN nominal dollars.
DOH!
shytown,
;)
SAS
http://www.bloomberg.com/apps/news?pid=20601103&sid=a0xcL1s66LLk&refer=us
CF
The cost increase is keeping the prepaid plans valuable to us.
I hate locking in and only get back the basis if she goes somewhere else, but the projected costs are scaring the heck out of us.
So after the first seven years [seemed like a Biblical number, and we’ll have some report cards to evaluate, lol], her money in our 401(k)s gets compounding for us, and we have the flexibility of a loan with a lump sum on the 529 later. If she’s iffy in school, maybe we’ll do a prepaid. But hey, we got her first Kgtdn report card today, and it seems she is excelling, whatever that means. She flushes correctly???? So maybe we won’t do the prepaid. Hehehe..
Chifi-
Probably not tax efficient, but have been treating these brokerage accounts as extremely aggressive trading vehicles (the owners are 8 & 13 years old, so if they were to tap out, it wouldn’t be a disaster). I don’t mind paying the tax bill as long as net gains are good.
I still don’t see how Education IRAs, 529s, etc are any better…the more that gets stuffed into these accounts, and the better they perform, the more it’s held against your kid in financial aid calculations.
Re: college.
I don’t understand the dismissal of 529s by some here. In most states, you can defer tax on up to $10,000 per year. That compounded over 18 yrs is a huge boost.
Fund selection choices might be limited, but at least most are low fee index funds. You’d have to be pretty much a genius to beat a diversified portfolio of low cost index funds for 18 yrs without the advantage of tax deferral.
Re: financial aid. If anything about college is uncertain, it’s this. Given that there are only a handful of schools that are need blind and guarantee to meet 100% of demonstrated need, avoiding 529s to get more financial aid is not much of a plan at all.
Finally, re: making your kids pay. I respect this point of view, but I think it’s a little outdated. Do you know how much college costs now? My sister is a junior and it’s $45,000 per year. How can a kid possibly pay for this? The only halfway feasible way is borrowing, but do you really want your kid coming out of school with $150,000+ in debt at age 22? I think it’s cool to set up a budget and say the kid must pay a reasonable amount— something attainable. Certainly make then work for their spending money. But the days where you can pay for school while working are long gone.
“Finally, re: making your kids pay. I respect this point of view, but I think it’s a little outdated. Do you know how much college costs now? My sister is a junior and it’s $45,000 per year. How can a kid possibly pay for this? The only halfway feasible way is borrowing, but do you really want your kid coming out of school with $150,000+ in debt at age 22? I think it’s cool to set up a budget and say the kid must pay a reasonable amount— something attainable. Certainly make then work for their spending money. But the days where you can pay for school while working are long gone. ”
I disagree. Make them pay for college. They will learn the value of money. Or atleast, loan them 150K for college through an intermediary and make them pay interest and principal for atleast 10 years. Then, when the time is right, you can give them back all the interest they paid and they could use that for a downpayment on their house. Thats what my dad did to me. He set up a college loan for me, which was infact his own money. But he never told me that. I worked through college part time to pay interest and after graduating and for a period of ten years, I paid the loan just like any student loan. When the loan was paid of, my dad then lent me all the money + interest and told me I could use it for whatever necessary as he felt, I didn’t misuse his money and was serious about paying back a loan from whomever it is taken.
Money lessons should be taught at a young age and you should have a sense of ‘tough love’ with your children.
Having gone through the experience, I can say I am more responsible with money. I am an avid saver and I am happy with the end result – so is my dad!
Skep-tic:
Give yourself some credit. You could beat the performance of those “diversified index funds” blindfolded and throwing darts at a stock table.
Indexing is an impractical construct and one of the biggest shams ever perpetrated on the investing public. It goes largely unchallenged because both academics and Wall Street are complicit in shoving this garbage down the throats of the public. It generates work for the academics, and investment firms that push indexed products avoid lawsuit liability (you can’t sue a brokerage for losses incurred via automated, index-based trading activity). Forced investment in the worst performers in any given sector does not provide safety to a portfolio…it dilutes profits.
I don’t care how much tax deferral might be available in the various college savings schemes…I’d rather pay the taxes on big gains than get a deferral on the crumbs some of these funds throw off.
I understand the flaws in indexing. no strategy is perfect. the question is whether you can beat it consistently after accounting for fees and taxes. very few people can. are you really saying all of the research to this effect is made up?
What are the odds of a person picking the 1 fund manager out of 8000 to putperform the S&P500 index for 15 years? Would you have picked Bill Miller 15 years ago? Think about that before blasting indexing…… and try beating it after expenses, taxes and transaction costs.
What are the odds of a person picking the 1 fund manager out of 8000 to outperform the S&P500 index for 15 years? Would you have picked Bill Miller 15 years ago? Think about that before blasting indexing…… and try beating it after expenses, taxes and transaction costs.
skep & dream: don’t drink the indexing kool-aid – clot is right on the money. I habe done a complete 180 on this subject over the course of the last 10 years
two issues to consider – #1 the popularity of indexing is really just an extention of Fidelity and Vanguard’s marketing strategy.
#2 an strategy when it becomes to popular inherently will drive down returns – what this means is that buying the indeces, as constituted, will inherently cause you to underperform.
JMHO: the only index worth a damn is the S&P 500, and that has been tremendously manipulated and gamed to death – all the rest of the chopping and slicing is a joke
Don’t just eat the garbage that Fidelity and Vanguard are feeding you.
REMEMBER THE INDECES ARE NOT STATIC!
I would invest in an “equal-weight” index over the current popular approaches.
dreamtheaterr Says:
December 20th, 2006 at 3:09 pm
What are the odds of a person picking the 1 fund manager out of 8000 to putperform the S&P500 index for 15 years? Would you have picked Bill Miller 15 years ago? Think about that before blasting indexing…… and try beating it after expenses, taxes and transaction costs.
dream: you are using the arbitrary construct of beating the index EACH YEAR on a CALENDAR YEAR basis. There are literally dozens of funds that follow the S&P500 benchmark that have outperformed the index over the last 15 years including expenses and fees.
“There are literally dozens of funds that follow the S&P500 benchmark that have outperformed the index over the last 15 years including expenses and fees.”
chifi,
my point is that what are the odds of people picking those funds among 8000 odd mutual funds that were going to beat the S&P 500? Put another way, which are the dozen funds which will beat the S&P 500 for the next decade that you can buy today?
I’d rather own the Vanguard US Total Stock Market Index or ETF, knowing I will only underperform only to the extent of some tracking error and a marginal expense ratio. I’d appreciate your thoughts and insights on this, since I am don’t finance stuff for a living.
“#2 an strategy when it becomes to popular inherently will drive down returns”
I don’t think indexing is popular among retails investors (about 7% investors use it) so I think it’s going to be a while. I just think there are too many index closet managers out there, and I don’t fancy my chances of picking the miniscule few who might consistently generate some alpha over the long run, and beat the index after transaction costs, taxes and fees.
And I nor most other regular investors definitely cannot pick the few funds who are going to outperform their respective benchmarks in their respective asset classes for the next 10-15 year; it’s statistically highly unlikely.
My 02 cents……
US Total Stock Market Index
Just to point out – there are a heck of a lot of bad companies and overvalued companies in there.
You don’t want to be indexing in firms below the size of the S&P 500.
When you hear the academics speak – be careful – weed through their theoretical arguments and focus on application and solutions.
Be informed and don’t be penny wise-pound foolish.
That said – if you are paying fees – demand service.
jonny769