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So much for that late-day rally for the Nikkei.
jb
From Bloomberg:
Treasuries Set for Biggest Weekly Gain Since 2005 on Subprime
U.S. two-year Treasuries are poised for the biggest weekly gain in almost two years as turmoil in credit markets sparked by losses on subprime mortgages spurred demand for the safest debt.
Two-year yields fell to the lowest in 22 months as futures traders raised bets the Federal Reserve will cut interest rates this year to ease a credit crunch and underpin economic growth. Global stocks have lost $4.2 trillion in the past month.
“The flight-to-quality bid from all this subprime turmoil is likely to be ongoing and so push Treasury yields even lower,” said Werner Fey, a fund manager at Frankfurt Trust Investment GmbH in Frankfurt. “The likelihood is we see more bad news.”
Nothin’ like a good ol’ fashioned bank run…
From the LA Times:
A rush to pull out cash
Anxious customers jammed the phone lines and website of Countrywide Bank and crowded its branch offices to pull out their savings because of concerns about the financial problems of the mortgage lender that owns the bank.
Countrywide Financial Corp., the biggest home-loan company in the nation, sought Thursday to assure depositors and the financial industry that both it and its bank were fiscally stable. And federal regulators said they weren’t alarmed by the volume of withdrawals from the bank.
The mortgage lender said it would further tighten its loan standards and make fewer large mortgages. Those moves could make it harder to get a home loan and further depress the housing market in California and other states.
The rush to withdraw money — by depositors that included a former Los Angeles Kings star hockey player and an executive of a rival home-loan company — came a day after fears arose that Countrywide Financial could file for bankruptcy protection because of a worsening credit crunch stemming from the sub-prime mortgage meltdown.
…
At Countrywide Bank offices, in a scene rare since the U.S. savings-and-loan crisis ended in the early ’90s, so many people showed up to take out some or all of their money that in some cases they had to leave their names.
In West Los Angeles, a Countrywide supervisor brought in from another office served coffee to more than 25 people waiting calmly for their turn with the one clerk who could help them.
Bill Ashmore drove his Porsche Cayenne to Countrywide’s Laguna Niguel office and waited half an hour to cash out $500,000, which he then wired to an account at Bank of America.
“It’s because of the fear of the bankruptcy,” said Ashmore, president of Irvine’s Impac Mortgage Holdings, which escaped bankruptcy itself recently by shutting down virtually all its lending and laying off hundreds of employees.
“It’s got my wife totally freaked out,” he said. “I just don’t want to deal with it. I don’t care about losing 90 days’ interest, I don’t care if it’s FDIC-insured — I just want it out.”
From the AP:
Home building hits low, and experts see no end
Home construction fell in July to the lowest level in 10 1/2 years, and analysts said there was no end in sight to the deepening housing slump.
…
David Seiders, chief economist for the organization, said it would be some time before housing would start to rebound. He is forecasting that sales will stop falling by the end of the year and construction will stabilize in the middle of 2008.
Other analysts said to expect more bad news before housing stabilizes.
“As bad as July’s numbers were, they are bound to get worse in the next one to three months because of the turmoil in financial markets today,” said Patrick Newport, chief U.S. economist for Global Insight Inc. “A mortgage is getting harder to get, especially for those who cannot qualify for prime loans.”
…
The current housing slump is the worst since a downturn during an economic recession in 1990 and 1991.
#3 Wayne Gretzky getting nervous!
This really IS turning into a spectator sport.
“Nothin’ like a good ol’ fashioned bank run…”
Why do I picture the Bailey Building and Loan Association? Truly, extraordinary times.
By the way, I pulled out a CD from there[not Bailey Loan] approx 9 months ago. They fought like hell to convince me to keep it there.
“#3 Wayne Gretzky getting nervous!”
patient,
Is that because Tim Donaghy is cooperating with the feds?
“Is that because Tim Donaghy is cooperating with the feds?”
heh. There’s got to be another shoe to drop on that front.
“Fed Funds Open at 5 3/16 Percent, Below Central Bank’s Target”
http://www.bloomberg.com/apps/news?pid=20601087&sid=aDpIRBZvPw8A&refer=home
“Why do I picture the Bailey Building and Loan Association?”
Because this mess may hit its peak at Christmas?
“Aug. 17 (Bloomberg) — The U.S. Federal Reserve will cut the overnight target interest rate to 4.5 percent from the current 5.25 percent this year, Goldman Sachs Group Inc. economists forecast in a research note today.”
“The Fed will reduce the rate by at least 0.25 point on or before policy makers meet on Sept. 18, according to the note.”
patient,
No. However, good point. I was just picturing the run, not timing.
Mrs. njpatient and I were looking at the listings on GSMLS in our neck of the woods last night, going off in fresh gales of laughter at each listing.
I begin to think the coming price plunge will be steeper and faster than I ever previously imagined.
BC – do you think old Mr. Bailey ever gave out negative amortization 0 down IO loans at 9 times stated income? If so, did he securitize them and sell them to Bear Stearns?
Fed just cut the discount rate, NOT FFR, 50 basis points.
BREAKING
NEWS Fed cuts discount rate by one-half percentage point to 5.75%, leaves fed funds rate alone. Details soon.
If there are questions about the Discount Rate;
http://www.federalreserve.gov/monetarypolicy/discountrate.htm
x (16)-
More of the surgical and stealth-type moves by the Fed.
Touching the FFR is like playing with a time bomb.
CNN not burying the lede
“Fed declares “downside risks” to economy have increased”
Dow futures just made a 260-point turn from an hour ago.
Please fasten your seatbelts.
BI:
I said I wouldn’t argue with you, but I’m still up about $600 on SRS and that’s after buying some more yesterday. You can’t say the same for your gold investment. Just wait until the arms reset and CFC goes under. They borrowed the entire 11 billion available to them under an agreement signed with these banks a year ago. Ya think those banks want to invest 11 billion more on mortgage debt? I don’t listen to Kramer much, but he stated yesterday that he thinks a Wachovia or WaMu might collapse. He says we should all pray for a BAC to make it through this or else we’re all gonna get hammered. SRS is the place to be for the massive arms reset. Only Helen Keller does not see or hear this. But carry on with your silly get rich quick strategies. BTW, I am 100% honest. Perhaps the rest of this group would give you some respect if you didn’t lie so much. And one last piece of advice…rather than just blurting out stupid statements such as, “gold will rise/oil will fall or housing will go up 10% in certain parts of NJ!” It would go along way to improve your credibility if you made even the smallest argument for why you feel this way.
BTW: Dow futures are down +100!
Looks like yesterday’s end of day rally was an excuse by many long institutional investors to get out while they still can. I heard the short covering was astronomical. I bet today sees the greatest amount of volatility than any other trading day in the last month. Day traders be wary.
Toodles.
http://us.rd.yahoo.com/finance/finhome/topstories/apf/*http://biz.yahoo.com/ap/070817/wall_street.html?.v=14
Sorry…bad link.
http://biz.yahoo.com/ap/070817/wall_street.html?.v=14
BC (17)-
PPT in full sweat now. Carribean trading desk at full tilt.
“Touching the FFR is like playing with a time bomb.”
Clot,
You got it. The discount rate is just massaging it.
“Carribean trading desk at full tilt.”
Clot,
It’s humming. The beach is empty.
OK…anyone want’s to place bets what will market do today???
JB #21 is stuck in moderation
The fix is in, will go down in history as the Bernanke Put.
jb
Interesting PPT article in the POST. Of course the Post is known to make up stories most of the time, so take it with a grain of salt.
http://www.nypost.com/seven/10262006/business/treasurys_paulson_plays_with_the_plunge_protectors_business_john_crudele.htm
Page 15 of Greenspan’s cookbook.
PPT in full sweat now. Carribean trading desk at full tilt.
I’ll be down in Naples, FL all next week on vacation. Let’s hope I don’t get blown off the map by hurricane Dean.
I leave this storm and trade it for another
“Aug. 17 (Bloomberg) — The U.S. Federal Reserve will cut the overnight target interest rate to 4.5 percent from the current 5.25 percent this year, Goldman Sachs Group Inc. economists forecast in a research note today.”
It was kind of BB to allow the banks to increase the rates on all of their loans before he cut the discount rates.
It is also good to see that Goldman Sachs is so in tune to FED policy.
“Touching the FFR is like playing with a time bomb.”
Clot,
Clinton: I smoked it but did not inhale.
BC (33)-
How do you think Doug Kass feels right about now (his cover yesterday of a huge CFC short notwithstanding)?
Clot [34],
How does he feel? Unlike Garth, I got friends in high places.
Stu #21
Bi made his oil/gold prediction on 8/3 at 11:31 am. What he said was that gold would rise (it was at $681/oz at the time) and that oil would specifically fall to $40 (it was at $76). Oil is obviously nowhere near $40, and gold is at $658.
Buh bi.
Fed Board Statement;
http://www.bloomberg.com/apps/news?pid=20601087&sid=aiHUDlIJ1Ga8&refer=home
MO (32)-
So wrong, I don’t know where to start.
From the Federal Reserve:
http://www.federalreserve.gov/boarddocs/press/monetary/2007/20070817/default.htm
Press Release
Release Date: August 17, 2007
For immediate release
Financial market conditions have deteriorated, and tighter credit conditions and increased uncertainty have the potential to restrain economic growth going forward. In these circumstances, although recent data suggest that the economy has continued to expand at a moderate pace, the Federal Open Market Committee judges that the downside risks to growth have increased appreciably. The Committee is monitoring the situation and is prepared to act as needed to mitigate the adverse effects on the economy arising from the disruptions in financial markets.
Voting in favor of the policy announcement were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Richard W. Fisher; Thomas M. Hoenig; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Michael H. Moskow; Eric Rosengren; and Kevin M. Warsh.
Anyone care to explain what the FED wishes to accomplish by cutting this discount rate? I have a general understanding but what does it means for lending, housing, the economy, etc. for the next 6 – 18 months.
Thanks NJpatient,
I’m glad someones tracking it. I put in a market sell on all of my SRS at the open today. This fix from the FED is gonna cause a momentary spike upwards in the overall month long downturn. Will buy back in either later today or when Mr. Market realizes that the FED is indicating that the economy is in real trouble. I can’t imagine that lots of people are not going to sell into this rally. It should be the most interesting market day of the year.
No surprise, the bailout continues. We, the taxpayers bail out WS.
“The Federal Reserve will continue to accept a broad range of collateral for discount window loans, including home mortgages and related assets.”
Stu Says:
August 17th, 2007 at 8:31 am
Interesting PPT article in the POST. Of course the Post is known to make up stories most of the time, so take it with a grain of salt.
Over the years, I’ve been interviewed by a wide range of media types over things I was personally involved in.
The reporters who impressed me were from the NY Post. They were sharp – asked the right questions – and they actually listened and got it right. And they honored “off the record” agreements.
By comparison, the reporters from other MSM were dumb and lazy, and did dopey things like give out my home phone number to anybody who called, making for nuisance calls when I was right in the middle of jury selection.
I wouldn’t knock the Post. They work harder.
gary (40)-
If your institution is jam-up with dicey paper that you can’t get rid of, the Fed just became your lender of last resort…at 50 bps cheaper than yesterday.
Of course, that may not be how THEY explain it.
“JPMorgan Chase & Co., the biggest lender in the leveraged buyout market, may lose about $1.4 billion on loans it can’t sell because of the credit crunch, according to an analyst at Citigroup Inc.”
“JPMorgan is stuck with $40.8 billion of LBO debt, according to Horowitz’s estimates, while Goldman is holding $31.9 billion and Deutsche Bank has $27.3 billion. JPMorgan and Goldman were among banks that last month failed to sell $20 billion of loans for the LBOS of U.K. drugstore chain Alliance Boots Plc and carmaker Chrysler LLC.”
http://www.bloomberg.com/apps/news?pid=20601087&sid=aUeRvQA5LnT4&refer=home
Gary..in my opinion FED is acknowledging that the problem with housing and mortgages financing is bigger than what was previously known.
What I don’t agree with is, or maybe lack of my understanding, why are we bailing out “over inflated housing”
and questionable business practices by many?
Anyone???
Anyone care to explain what the FED wishes to accomplish by cutting this discount rate?
Liquidity.
jb
“I’ll gladly pay you Tuesday for a hamburger today.”
-Wimpy
Is this Poole’s version of a calamity?
From MarketWatch:
Fed cuts discount rate to 5.75%
In a move wildly applauded by financial markets on both sides of the Atlantic, the Federal Reserve announced Friday that it’s cut the discount rate to 5.75%.
The discount rate is the interest rate charged to commercial banks and other depository institutions on loans they receive from regional Federal Reserve lending facilities. It differs from the key federal funds rate, which is the rate at which private institutions lend to other depository institutions overnight.
Cutting the discount rate from 6.25% previously, something that financial commentators have been agitating for in recent days, was seen as aimed at narrowing the gap between the discount and fed-funds rates.
The target for federal funds remains 5.25%.
Clot,
Check your email.
Clotpoll & jb,
Thanks.
F$%^ real estate. I’d rather trade.
Off topic: does anyone recommend Emigrant Direct as an online bank? I already have an ING account, looking to open a second. I know this has been discussed here before.
Thanks for any input.
This house has been showing up in craig’s for central Jersey day after day. Yesterday, they added “pre-forclosure” to the headline:
http://cnj.craigslist.org/rfs/399096703.html
you people just don’t get it. the game is rigged. play along and profit or get squashed under the tires. the federal reserve will not let the banking system go under. this is just another step to keep the spigots flowing. we’ve had stealth inflation for god knows how long everyone sees it when they buy stuff. fighting inflation is nothing but a slogan.
Doyle,
I have an Emigrant account. They’re very efficient at transferring money to your bricks and mortar bank.
If you put in the transfer request on Wednesday, the money will be there by Friday.
Their rate is a little less than one of my other accounts at 5.05%. But Emigrant is faster at transfers, so I use it more.
Cut the discount rate. This is bad right? Wait, no, it’s good…
“the game is rigged.”
Richard,
Certainly do get it and thank you Ben!
So, the party continues?
Gary,
Not RE.
#56 Scribe,
Thanks, that’s what I thought I’d heard about them. Appreciate the input.
36#, njpatient, forget about $40+ oil, that is one year from now. simple math will tell you if you are making or losing money.
Doyle:
You a Costco member? Capital One offers members higher rates on CDs, MM, and checking.
I’ve parked some in a MMA, and am quite pleased with the rate: 5.20%.
Rocketship time.
jb
21#, stu, my cfc/wm shorts would got killed but i got killed already and covered last week (see previous “weekend discussions”). besides i don’t have gold/oil any more.
My IRA portfolios just opened with everything up.
Notably AAPL.
bi Says:
August 17th, 2007 at 9:29 am
36#, njpatient, forget about $40+ oil, that is one year from now. simple math will tell you if you are making or losing money.
I-predict: A year from now oil will be 100$,
dollar will be about 89YEN, and GBR will be 2.50$.
I think now it si obvious that Fed is working on inlfating dollar and therefore inflating out US national Debt.
and they’re OFF — dow, s&p and nasdaq are all over 2% now.
this is like watching crackheads who haven’t had a hit in a week get their hands on some rocks.
congrat to all potential re buyers!
as you already knew fed cut discount rate by 50 bps. but what you don’t know is fed is going to cut over night rate in september and december as your holiday gift!
from today every realtors in the country except a few on this blog will start greeting to their clients by “fed cutting rates”. 90% people on the street cannot distiguish overnight rate with discount rate just 80% of people don’t know who is their vice president.
finally, I strongly urge you to deroute your weekend beech plan to open houses!
Here he goes again ;)
bi #69,
what you don’t know is fed is going to cut over night rate in september and december as your holiday gift!
Are you BB’s b***h? How do YOU know?
TO post 69… As it was mentioned before – be carefull of wha you are wishing for – lowering rates might have opposite effect on motgage rates – they miht go up a lot of inflation expectations.
Wow! I can actually borrow money at a lower rate to buy an obnoxiously over priced house OH BOY where do I sign!
Jamey,
I am a Costco member. That’s an interesting connection (Cap One & Costco), I’ll check it out.
Thanks
BC, CF,
Is there a correlation between mortgage rates and the discount rate and what is it?
Thanks.
MM
70#, i assume you flattened you srs before 3:00 pm yesterday and went short.. where is your real-time p/l report?
from today every realtors in the country except a few on this blog will start greeting to their clients by “fed cutting rates”.
I guess you don’t sell things for a living.
A salesperson isn’t going to give a buyer an excuse to wait, especially such a compelling one as lower mortgage rates. Telling a buyer that the Fed is cutting rates at the end of the year might just convince that buyer to wait until the end of the year.
A salesperson wants to create a sense of urgency for the buyer. An easier way to do this is to tell them that rates are going up, or that mortgages are getting harder to find.
jb
“finally, I strongly urge you to deroute your weekend beech plan to open houses!”
I strongly urge you to stop smoking that whacky stuff.
50 cut…what does this do to the dollar?
Is this a good time to by some companies whose major revenue is exports?
Any thoughts?
Bi,
I wouldn’t buy these overpriced POS houses if the mortgage rate was 1%.
Moreover, the cut in the discount rate does nothing for all the people who bought more house than they could afford. I fail to see how RE is affected by this at all. Remember, they could not afford those homes when the mortgage rates were 5%. This is all still just starting to shake out.
James,,,,,agents have NO CLUE!!!!Brainwashed>?
i said yesterday it was getting near time to buy the diamonds and qqq’s. oops missed it.
Good thing that the popular media doesn’t know that discount window lending really doesn’t represent a major source of liquidity for the market. Borrowing at the discount window used to be looked upon negatively by the industry, typically because it was a lender of last resort. While that isn’t entirely the case today, that stigma seems to have stuck. Not to mention that discount window lending typically costs 100bp more than the Fed Funds target rate.
jb
BI: See post 21.
By 9:45, my SRS planned sales never executed so I canceled them. I am currently down $3,600 in SRS, but it is a hedge play so far. Of course my other stuff is up significantly for a total day loss so far of
84, i appreciate your honesty!
you know what suffers the most in periods of severe economic downturns??
Diamonds and gold.
The Fed’s move is just helping the in$iders, mom and pop, Jane and Joe Sixpack will be destitute.
Bankers are in the business of making a profit. The monetary unit does not matter as long as is in their power to re-price the assets.
Cheers,
-Sapiens
Doyle,
I use HSBC for my savings account – been very pleased with them.
Szymon
the problem of most people on this blog is they stick with their bearish doctrines! remember fed is always with bull’s side otherwise they lost their job already. btw, where is robert?
From MarketWatch:
UMich Aug. consumer sentiment 83.3 vs. 90.4 previously
from today every realtors in the country except a few on this blog will start greeting to their clients by “fed cutting rates”. 90% people on the street cannot distiguish overnight rate with discount rate
True. Most people have no idea how the Fed works. Many people think that the Fed cutting rates means they cut the interest rates on montages.
So what. This obviously isn’t true though, so at the end of the day, what does this really do for people? When buyers run the numbers, they will realize that mortgage rates haven’t been cut and housing is just as unaffordable as before the Fed cut rates.
In fact if you look at treasuries today, yields are up (with the exception of the 2 year), which will force mortgage rates higher. If the Fed is seen as soft on inflation, bond yields will rise and mortgages will become more expensive.
Thanks SMK. I think others had some negative things to say about HSBC service, but I’m glad it’s working well for you.
From MarketWatch:
UMich Aug. consumer sentiment 83.3 vs. 90.4 previously
Consumer sentiment weakened in mid-August, the University of Michigan and Reuters reported Friday. The UMich consumer sentiment index fell to 83.3 versus 90.4 in July, well below the reading of 88.0 forecast by analysts surveyed by MarketWatch.
#83
From the MW link above:
The discount window is rarely used; only an average of $87 million is borrowed on an average day, said Tony Crescenzi, chief bond market strategist for Miller Tabak & Co.
“It is imperative that the Fed validate this largely symbolic but important action with a cut in the fed funds rate,” Crescenzi said.
From today’s “FierceFinance,” an email service that aggregates news in the financial sector:
The big Wall Street banks have put a lot of mortgage sellers on the ropes by cutting way back on their warehouse lines of credit. The most vulnerable were those that are suspected of being subprime chops shops. Many are going belly-up. But Countrywide is a different animal. It has been forced to fall back on an $11.5 billion line of credit from dozens of banks to keep its loan machinery working. The terms will not be all that great, which means they’ll get passed on somehow. Other high-end mortgage suppliers will likely be pushed in this direction if they want to survive. The days of high-quality loans are suddenly back. Stated income-type deals are all of a sudden no-nos. So the market is imposing discipline on an industry that had gotten a bit out of control. You could easily argue this kind of froth shake-out is good for the real estate industry longterm, though the pain at Countrywide is lamentable.
It links to this article:
http://money.cnn.com/2007/08/16/news/companies/countrywide/index.htm
how is lowering the discount rate 50 bps going to correct the fact that hundreds of billions of dollars in loans were made based on overvalued collateral?
This collateral continues to lose value by the day and yet bondholders are enjoying interest rates as if this crap was fully secured and AAA.
Everyone has collectively woken up to the fact that the hot lady they thought they were messing with is actually a dude and now they don’t want to go near him/her anymore regardless of what the fed says or does.
From the FT:
Banks in dark over cost of credit turmoil
By David Wighton in New York
Published: August 16 2007 18:53 | Last updated: August 17 2007 00:10
http://www.ft.com/cms/s/d11391a0-4c1e-11dc-b67f-0000779fd2ac.html
Everyone has collectively woken up to the fact that the hot lady they thought they were messing with is actually a dude and now they don’t want to go near him/her anymore regardless of what the fed says or does.
Priceless!
re 89: (did anyone hear of a 4.0 richter earthquake-like collapse/landslide in Bergen Cty?)
sl
From Reuters:
Merrill Lynch’s painful lesson in subprime
Thu Aug 16, 2007 4:54PM EDT
By Tim McLaughlin
NEW YORK (Reuters) – On the same December day Merrill Lynch & Co. Inc. (MER.N: Quote, Profile, Research) paid $1.3 billion for a subprime lender, the world’s largest brokerage got a rude introduction to risky mortgages.
Merrill Lynch’s newly minted First Franklin Financial Corp suffered a loss of nearly $300,000 on a soured home loan to a lab assistant from a gritty, blue-collar town north of Boston.
Problems with subprime mortgages have buckled Wall Street-run hedge funds, roiled global credit markets and pushed several of First Franklin’s rivals into bankruptcy, leaving thousands of U.S. workers jobless.
http://www.reuters.com/article/bankingfinancial-SP-A/idUSN1645134420070816
bi (70)-
Mortgage rates are about to break loose from the 10 yr. and chart their own course…higher.
The ranks of the lenders out there willing to underwrite housing risk are a teensy bit thinner, don’t you think?
The ones who are left are certainly not piling into a crowded trade with collapsing yields. Quite the opposite.
IMO, those higher rates will eventually hit conforming product, too.
JB is so smart to let all RE bears here have fun by skipping the latest WSJ article “Is Housing Undervalued?” in today’s main page. here are some whacky stuff:
“Far from a bull-market bubble that has begun to collapse, housing when viewed in real terms has been in a bear market since the beginning of the decade.”
“On the contrary, housing prices are weak only in the sense that, after outperforming commodity prices in the late 1990s, they have fallen behind since 2001. History suggests that housing is significantly undervalued, and nominal housing prices have a lot of catching up to do over the next few years.”
Flight of the Merger ‘Arbs’:
Risk-Takers Fear Dead Deals
By ROBIN SIDEL and DANA CIMILLUCA
August 17, 2007; Page C1 [WSJ]
Some of Wall Street’s most hardened risk-takers are yanking their money off the table… The average annualized difference between the offer price and the current stock price in nine pending leveraged-buyout deals has widened to 68%, according to a Goldman Sachs analysis. That compares with a spread of 11% just five weeks ago.
You call this a rally?
jb
JB is so smart to let all RE bears here have fun by skipping the latest WSJ article “Is Housing Undervalued?” in today’s main page. here are some whacky stuff
bi,
Scroll down the main page, it’s been there since 6:30. I thought it was pretty interesting, I enjoy when folks price things in gold.
jb
James Bednar Says:
August 17th, 2007 at 8:31 am
The fix is in, will go down in history as the Bernanke Put. jb
grim: NO
The Fed is taking a warning shot at speculators. The difficulties going on are that in the midst of people trying to organize their portfolios, you have speculators jumping into the fray purposely trying to muck up the works. The Fed just smacked their hands REALLY HARD. They are standing there with a club saying back off.
I am not sure most of your are appreciating the fact that the body is working (for arguments’ sake) normally, but someone is cutting off the oxygen. We are holding our breath, but after awhile you start to have damage to the body.
There is a difference between liquidity and solvency. Do not try and draw conclusions about the broader market or real estate conditions based on this soap opera.
Remember, each day any business or entity finds a way to satisify its net cash needs. Guess what? Tommorrow you have to do the same thing, and the day after etcetera etcetera. The reason that this situation is a crisis is that EVERY DAY you are facing down a scramble to fund your daily cash.
Now you have guys out there purposely acting in a manner to make a bigger mess? F- ’em says the Fed. Good work.
This situation is not about saving fat cats some money. It’s about avoiding a needlessly massive amount of FUBAR to our economy, because people underpriced risk.
105#, i know jb. just kidding. just wondering why you so quickly jump to weekend discussions
Clotpoll Says:
August 17th, 2007 at 10:36 am
bi (70)-Mortgage rates are about to break loose from the 10 yr. and chart their own course…higher.
clot: non-prime credit spreads are blowing out that’s all. Price action is still dominated by the Ten.
just wondering why you so quickly jump to weekend discussions
The larger the weekend threads are, the more active they tend to be over the weekend. I’ve found if I open a weekend discussion on a Saturday morning, I’ll have less traffic and fewer comments over the weekend because of it.
jb
today’s market so far seems say cutting discount rate is not good enough. ben you need to cut o/n rate ASAP.
“Comments beget comments.”
jb
Stu post #21
Forgive my ignorance, but what is an SRS. Overall I have to credit this blog with teaching me more in the last 2 weeks that i have known about it then anyone has ever shown me about a lot of the intricacies between real estate and the overall market, Thanks. Oh and fortunatly i have been financially conservative and while all of MR and MRS’s Unobtaniums friends said we were stupid for not buying, sometimes the turtle wins the race!
#112
http://finance.google.com/finance?client=ob&q=SRS
SRS: http://www.proshares.com/funds/srs/5391681.html
Disclaimer:
The information on this site is provided for discussion purposes only. Under no circumstances does this information constitute a recommendation to buy or sell securities, assets, or otherwise.
Here is why people may be smart to pull deposits from Countrywide [from WSJ]:
Countrywide is a savings and loan holding company that includes a thrift unit, Countrywide Bank FSB, and mortgage bank unit, Countrywide Home Loans. That gives it more ways to borrow money than would be available to a mortgage bank alone. The thrift takes deposits, can borrow from the Federal Reserve and Federal Home Loan Bank and has short-term financing agreements with private banks.
Countrywide said it would shift nearly all of its home-mortgage lending from its mortgage bank into its thrift unit.
James Bednar Says:
August 17th, 2007 at 10:37 am
You call this a rally? jb
grim: to be consistent, you can say that the end of yesterday’s market and the open today was a big short cover
Another thought for those more experienced then myself… one of my inlaws is CFO of a corporate real estate investment group in the tristate area and for the last 2.5 years all i hear is that me and the MRS’s should buy now, max out our financial capacity and count on our future inceasing incomes to put us back into sound speding practices. This individual is obviously a very inteligent individual who knows what he is doing, but my question for all the Pros on the board is; when I ( in pharma not realestate or investment) can see that the general banking an loan practices are unsound and unsustainable as of 2 years ago, than how can someone with this experience in thier field be telling that me it will all be ok?????
BTW – I’ve never seen the Bloomberg website so slow
I thought the WSJ piece was pointless. That economist talked himself in circles while failing to mention the elephant in the living room which is that money supply has exploded over the period of the housing boom. How does that factor into his calculation of “real” housing prices I wonder?
>>i said yesterday it was getting near time to buy the diamonds and qqq’s. oops missed it.
well maybe not ;)
I bailed out of Countrywide at the beginning of the week using ACH transfer to my ETrade bank account. Of course, now there are questions about ETrade and the $28 billion in mortgage bonds they hold.
Just read three different takes on the Fed cut and i still have no clue how it pertains to housing. Here are my unanswered questions:
1) Does this impact jumbo mortgages at all?
2) Are all those idiots who signed up for shady I/O loans and 2/28 loans going to get bailed out?
3) Will this impact all the idiots who want to refinance, but couldn’t because they have no equity?
#118
I have a friend in RE development who bought an expensive place in the fall of 2005 using the same logic. He is a smart guy, and obviously I have my own biases, but I think that some people in that industry have done so well for so long that they got tunnel vision.
Bloodbath in Winter 2007 Says:
August 17th, 2007 at 11:04 am
Just read three different takes on the Fed cut and i still have no clue how it pertains to housing. Here are my unanswered questions:
1) Does this impact jumbo mortgages at all?
You want the markets to settle down so spreads tighten again [normal = 25-50 bps extra for a jumbo]. Since Fannie/Freddie are ready buyers for all conforming loans, there is a real bifurcation [black and white] nature to mortgage rates.
2) Are all those idiots who signed up for shady I/O loans and 2/28 loans going to get bailed out? Likely no. It’s more a case of how screwed are they. If they have an ARM reset now and they need a jumbo – ouch
3) Will this impact all the idiots who want to refinance, but couldn’t because they have no equity? no
RE the WSJ piece: Not only has the money supply skyrocketed the consumption of commodities has skyrocketed in a manner that historical comparisons can be thrown out the window.
Borrowers With Good Credit
Are Paying Higher Rates
By Ruth Simon
From The Wall Street Journal Online
http://www.realestatejournal.com/buysell/mortgages/20070817-simon.html
Lots of chatter about the discount rate cut being a bailout for Countrywide and the lenders associated with the $11b unsecured credit line.
jb
MLS # 2435016 in Bridgewater. I think the they may have priced this appropriately, although it is still overpriced by about 10%-15% due to the age. At this price point the wife and I would have been all over this home last December. We are currently firmly entrenched on the sidelines. Now they may have a hard time finding some one that can get the mortgage. Thoughts?
Yeah, I have to agree with an earlier post, I’ve learned a tremendous amount of stuff related to markets, housing, etc. just by reading this blog. By reading the posts and the attached links, it’s lead me to find other sources of information and other links and so on and so on. I used to concentrate my reading solely on investments but this has pointed me to other directions.
I’ve learned so much about tranches and segments, MBS, CDO, LBO and a host of other terms. A hat tip to JB, ChiFi, BC Bob, Clotpoll and so many more of you that I missed for the education and for leading me to a million other sources.
To: Those with MLS access.
Could anyone please let me know the current status of the following Ridgewood property?
mls 2725481, 4bd/2.5bth colonial, listing price:
> $850,000 -on McGuire Court.
This is the “price drop” house that bounced in and out of attorney review.
Thanks,
Eagle
JB [128],
See my post earlier, #42.
A little small time arbitrage:
(1) I just opened up a couple of Discover cards with about 20k worth 0% credit/0% balance transfer for 12 months. Some other rewards/incentives as well. If they continue to throw free money at me I will take it. I wanted more than 20k and was somewhat offended not to be given more without asking. I’ll wait until after I get the cards then hit them up for higher credit limits. (Don’t worry I’ve got the cash banked so I’ll arbitrage with an MM.)
I love liquidity, don’t you? I would’ve waited till the end of the year for a better deal, but I thought there might be a credit crunch bleeding into the CC markets, so I jumped on this offer.
I know a lot of you big players may think this is small time stuff but I wanted to have as much credit lined up for the coming year (recession?) as possible. I also have a HELOC that WAMU basically forced upon me two years ago. Haven’t used it yet, never plan to, but it’s nice to have a spare $100k of liquidity, isn’t it.
(2) If you have any remodeling needs on your home the next year or two might be a good time to do it–HD, contractors feeling the housing squeeze. Just saw an Empire carpet ad on TV offering 50% discounts. Might be a come-on, but I’ve never seen that little Empire cartoon guy with the mustache and glasses offering 50% off before.
I need some new carpet/flooring, maybe now is the time to go shopping.
Pink slips hit Wall St.; Bear Stearns pares 240
http://money.cnn.com/2007/08/16/markets/wall_street_bonuses_jobs/index.htm
Here is the list of primary dealers who can borrow at the discount window (Hat tip JMF):
BNP Paribas Securities Corp.
Banc of America Securities LLC
Barclays Capital Inc.
Bear, Stearns & Co., Inc.
Cantor Fitzgerald & Co.
Citigroup Global Markets Inc.
Countrywide Securities Corporation
Credit Suisse Securities (USA) LLC
Daiwa Securities America Inc.
Deutsche Bank Securities Inc.
Dresdner Kleinwort Wasserstein Securities LLC.
Goldman, Sachs & Co.
Greenwich Capital Markets, Inc.
HSBC Securities (USA) Inc.
J. P. Morgan Securities Inc.
Lehman Brothers Inc.
Merrill Lynch Government Securities Inc.
Mizuho Securities USA Inc.
Morgan Stanley & Co. Incorporated
Nomura Securities International, Inc.
UBS Securities LLC.
Thanks, Chi-Fi.
pain (129)-
Quality house, disgusting street.
Can someone give an explanation of all of the %’s and how they’re related. Everytime I think I understand it, I find out something else that makes me release I don’t. I’m assuming I’m not the only one, if I am, well call me stupid.
I’d like to understand the following:
Fed Funds Rate- the target is 5.25%, but recently based on this link from BC Bob #9, it’s been lower recently, what does that mean?
http://www.bloomberg.com/apps/news?pid=20601087&sid=aDpIRBZvPw8A&refer=home
Fed Discount Rate- Just lowered from 6.25 to 5.75, who is eligible to borrow at this rate. And, if you can borrow from another bank at 5.25 percent or you could borrow from the fund at 5.75, why would you ever borrow from the Fed? If banks were reluctant to lend recently, why would the rate between banks be lower than 5.25, wouldn’t it be higher? Wouldn’t it go as high as the Fed Discount Rate?
Mortgage Rates- what are they tied to? 30yr mortgage is tied to 10 yr treasury, correct? What about 15yr, what about ARM’s, etc.
I appreciate your comments.
If anyone touches the fed window that institution is DOA. I hate to sound decadent, but $11B just ain’t that much money.
skep-tic Says:
“Everyone has collectively woken up to the fact that the hot lady they thought they were messing with is actually a dude”
LOLA!! :-)
Dollar Falls Versus Euro After Unexpected Fed Discount Rate Cut
The dollar declined against 14 of 16 major currencies as a reduction in borrowing costs dims the allure of U.S. assets
“The dollar is getting a double-whammy. A reduction in interest rates makes it less attractive. And the safe-haven flow into the dollar also flooded out.”
Novastar announces layoffs – 500 ppl about 50% of its workforce.
CF,
I agree. I have a funny feeling CFC ain’t gonna survive this. I heard an interview on the way home from work yesterday where not only did they call yesterdays rally a short covering rally, but they also discussed the 11 billion covenant CFC just decimated. He said, if the banks who offered CFC the money could have legally rescinded the credit, they surely would have.
Those in the know are going to sell off every potential rally for a while. The international markets who were once supposedly insulated from the damage are apparently not. To bargain hunt this market is just plain crazy. I’m just going to protect my downpayment for my 2nd home until the arm resets play out with my hedges.
that is what I thought Clot, I was hoping you would comment. Bridgewater is so big that you can have these great house in awful neighborhoods.
Thanks for the SRS tip. Just bought 500 shares. I’m selling into the strength today.
I’m guarding over 1 mil in 401k/IRA assets, don’t want to f* up! LOL
Johnny B – Union, NJ ( we met at the TARA ! )
From the Gloucester County Times:
Gloucester man is first sued under fraud act
State officials have sued a Gloucester County businessman who allegedly collected tens of thousands of dollars that homeowners otherwise would have received after their homes were sold in foreclosure.
The two-count complaint filed by the State Attorney General’s Office and the Division of Consumer Affairs against Samuel E. Goodwin, III is the first action filed under the state’s Consumer Fraud Act to address deceptive practices in the area of surplus funds recovery.
Goodwin allegedly charged homeowners 15% to 65% of the total surplus funds to which they were legally entitled by misleading the homeowners into believing that the process to recover the funds was complicated and could not be filed by the homeowners on their own.
Surplus funds are the monies remaining after the foreclosure sale takes place and mortgage, tax and other legal obligations have been paid. Homeowners in foreclosure can claim surplus funds by filing a simple form available from the Superior Court Trust Fund Unit and after paying nominal fees totaling less than $100.
The state alleges that in one instance, Goodwin received approximately $79,000 in surplus funds for making the application for release of such funds.
“Because of the ongoing subprime mortgage crisis, an increasing number of homeowners are facing foreclosure. These individuals can be a ripe target for those who would exploit their misfortune for profit,” Attorney General Anne Milgram said. “Consumers who have lost their homes in foreclosure need and deserve all of the surplus funds to which they are entitled.”
Yeah, this pitiful short covering “rally” is underwhelming.
We’ll be lucky to close barely positive at this rate.
I’m looking at noon Monday to pick up more short ETFs.
If anyone touches the fed window that institution is DOA.
Why open the window of no one will touch it?
Be careful Johnny B.
That 200 percent leverage is a real doozy if you play it the wrong way.
The way I see it, RE is 2 times more likely to drop than to recover. It is because of this that I am comfortable with my 2% loss so far in it.
>>I’m guarding over 1 mil in 401k/IRA assets, don’t want to f* up! LOL
that’s chump change. what are you worried about? just let it ride these things work themselves out over time.
Take a look at the action on CFC stock over the past 2 days.
Is it outside the realm of possibility that have someone had inside information about the Fed action and bought ahead of it?
Also, If it’s true that there is a run on the bank is the Fed giving large depositors a chance to bail out before stepping in?
This of course would never happen in Maplewood (especially in the Wyoming area), except that well, it is…
http://newjersey.craigslist.org/rfs/398931585.html
“$669000 Maplewood Beauty in foreclosure
Incredible tudor going to Sheriff’s sale in a month. Need offers now. Will accept the best one next week.
This house in in the Upper Wyoming section, and is 1/2 block from the reservation. Over 100K in renovations in the last 5 years, including marble master bath, new wood floors, cerry mantle etc.
Appraised for upper $800’s in 2005. Easily in mid-upper $700’s now!
Bring your best offer now. All will be considered!!! ”
The taxes are no doubt in excess of 20K, btw.
Quite a deal! /sarc
I agree Richard,
But I would much rather start the recovery with 1 million than $750,000.
And what is the impetus for this recovery? If the economy only grew post 9/11 due to the equity in peoples homes, what is going to supply the growth in consumerism going forward?
Certainly a new IPOD is no match for the 15-30% loss in your home worth.
Richard Says:
August 17th, 2007 at 12:12 pm
>>I’m guarding over 1 mil in 401k/IRA assets, don’t want to f* up! LOL
“that’s chump change. what are you worried about? just let it ride these things work themselves out over time.”
It takes a real a-hole to make a comment like this.
RentinginNJ Says:
August 17th, 2007 at 12:10 pm
If anyone touches the fed window that institution is DOA.
Why open the window of no one will touch it?
========================
We can only speculate about this, but the decision to move the primary discount rate rather than the Fed funds rate may indicate that the Fed anticipates some institutional failure as soon as today, probably not a bank, but rather an institution that has substantial bank liabilities that may not be able to clear. Markets should not be calmed by this tactic. Unlike the Fed funds rate — which affects all banks’ cost of funds — a discount rate cut only lowers the cost of emergency borrowing by institutions in distress. This move is not going to provide any relief to the overall economy. However, we believe that the Fed’s action and statement today raise the odds of a reduction in the Fed funds rate at the September FOMC meeting, or perhaps even before.. –High Frequency Economics
#128
the fact that Countrywide is also a S&L makes me wonder whether the fed has banking crisis on its mind. A front page Countrywide collapse in which deposits could not get their money out would be very, very bad news.
you took the bait bc lol.
OK I’m now set for hibernation….
75% US TREASURYS / 25% “HEDGE BETS” including BAYER, SRS, PFE, OPPENHIMER GOLD/METAL FUND.
Just finished paying my 20 year commercial note, payed off in 7 years, thanks to my wonderful tennants.
I’m ready, SO bring it on !
>>This of course would never happen in Maplewood (especially in the Wyoming area), except that well, it is…
um, maplewood isn’t all that. that section of town is ok but it’s by no means a gotta have it.
Richard (#159),
That is the heart of the prime part of Maplewood, and always has been. It IS Maplewood, the rest is overflow of SO, Newark, Irvington, and Union. That’s one of the lesser homes in the neighborhood, and a great example of the bubble insanity. And yeah, the taxes really are that high and have been since the reval in the late ’90’s
Eagle,
Could anyone please let me know the current status of the following Ridgewood property?
mls 2725481, 4bd/2.5bth colonial, listing price:
> $850,000 -on McGuire Court.
This is the “price drop” house that bounced in and out of attorney review.
It’s still under attorney review as of Aug. 8.
Hmmmm, could/would an agent put a house under Attorney Review in the MLS to create urgency for any buyers that may be sitting on the fence watching this property? I don’t think that’s the case here, just a thought. I think they’re is something else about the property that might be holding it up.
SLD 10 MCGUIRE CT $670,000 7/10/2000
ACT 10 MCGUIRE CT $1,249,000 2/2/2006
PCH 10 MCGUIRE CT $1,195,000 3/5/2006
PCH 10 MCGUIRE CT $1,170,000 4/12/2006
ACT 10 MCGUIRE CT $1,170,000 5/3/2006 (relist w/same agent)
PCH 10 MCGUIRE CT $1,150,000 5/25/2006
PCH 10 MCGUIRE CT $1,050,000 7/28/2006
PCH 10 MCGUIRE CT $999,999 9/30/2006
ACT 10 MCGUIRE CT $999,999 11/11/2006 (New agent)
ACT 10 MCGUIRE CT $999,999 2/16/2007 (Back with 1st agent)
ACT 10 MCGUIRE CT $850,000 6/21/2007 (Relist w/same agent)
ACT* 10 MCGUIRE CT $850,000 6/26/2007
U/C 10 MCGUIRE CT $850,000 7/10/2007
BOM 10 MCGUIRE CT $850,000 8/3/2007
ACT* 10 MCGUIRE CT $850,000 8/8/2007
I call troll on Johnny B
Subprime lender NovaStar cuts work force
http://www.reuters.com/article/ousiv/idUSWNAS232920070817
“The Federal Reserve can and has been accepting home mortgages and what may appear to be mortgage backed bonds and CDO’s (they use the term similar instruments) as collateral for borrowing at the discount window. That is no surprise as they have been doing this for years and is a part of their guidelines. But, they are not changing their existing collateral margins. So as the value of the mortgages and securities used as collateral drops the banks are required to place additional securities to make up for the deficit. This is where we had the liquidity drain the past week. As levered hedge funds watch the prices for their mortgage backed bonds and CDO’s drop, they received margin calls and this spilled over into the banking arena.”
http://www.financialsense.com/fsu/editorials/2007/0817.html
Check out Countrywides latest subprime rate sheet:
https://www.cwbc.com/pdffiles/wldbc%20nj.pdf
In the last few weeks they have gone from offering 2/28 ARMs to 3/27 and now they only offer 5/25 ARMs.
If you go stated income, you now need 20% down.
Rich,
Thanks! As for whether this is some sort of “trick”, I would actually assume the opposite (unless our sales broker was not being honest), unless sellers have the “guts” of a professional high-stakes poker player.
We are a first time buyer (i.e., no sales contingency on our end), but still “full-doc” mortgage type with high credit (i.e., still able to qualify, even for jumbo), with 20 percent down, etc., but when a broker took us on a tour last weekend of Ridgewood and Glen Rock, she told us that sellers are refusing to allow others to view the property while in attorney review.
RentinginNJ Says:
In the last few weeks they have gone from offering 2/28 ARMs to 3/27 and now they only offer 5/25 ARMs.
Chase just did the same thing.
I’m wondering if they can get around qualifying the borrower at the fully indexed rate if it’s fixed for the first 5 years. It’s essentially no longer an ARM at that point because its fixed up front for so long.
From today’s “Hotsheet”
Midland Park
SLD VREELAND AVE $875,000 1/6/2005
ACT VREELAND AVE $995,000 4/23/2007
PCH VREELAND AVE $959,000 5/21/2007
ACT VREELAND AVE $919,000 6/9/2007
PCH VREELAND AVE $899,500 7/6/2007
ACT* VREELAND AVE $899,500 7/17/2007
U/C VREELAND AVE $899,500 7/20/2007
SLD VREELAND AVE $875,000 8/16/2007
Can anyone help with an address on the following: MLS ID# 2732344?
Thanks in advance for any help…
My response to people predicting a massive decline in home prices around here using the same, tired explanations as the mainstream media (affordability, return to the mean, inflation):
It is completely reasonable for home prices, over the long term, to appreciate faster than inflation in certain areas.
Picture identical houses on 1/4 acre lots in upper-middle-class suburbs of the following cities: New York, San Francisco, Detroit, and Cleveland.
Obviously, the New York and San Francisco houses cost more. Their values have risen faster during the past twenty years compared to similar houses in Detroit and Cleveland, and despite being dramatically less affordable using the median-income-to-home-price metric favored by many, their values will rise faster during the next twenty years.
Land is a natural resource like gold and oil. The value of land, and therefore the price of a house located on it, is based primarily on the proximity it provides to economic activity. Home prices rise faster in places where economic growth is stronger because land commands an economic rental payment. This payment rises faster than inflation in areas of strong economic growth like New York and San Francisco, as a growing number of people wielding rising incomes and net worths bid it up. Meanwhile, the economic rental payment remains flat or even declines in areas with weak economic growth.
In other words, a POS cape in suburban New York or San Francisco costs three or four times more than the identical house in suburban Detroit or Cleveland because the value of the land differentiates the prices. Twenty years from now, the same POS will be worth four or five times more.
for you dollar enjoyment:
http://quotes.ino.com/chart/?s=NYBOT_DX
Eagle,
As for whether this is some sort of “trick”, I would actually assume the opposite (unless our sales broker was not being honest), unless sellers have the “guts” of a professional high-stakes poker player.
I agree in this case. But it got me thinking of the listings I see that go into AR and then fall out. Probably due to lack of financing. None the less, it got me thinking…
…she told us that sellers are refusing to allow others to view the property while in attorney review.
Odd. As I understand it sellers can still show while under attorney review. And since this house fell out of contract in the past and has been under AR for such a long time, I would think the seller would still show the property as a contingency.
Rich,
What does “PCH” stand for?
Price Change
Doyle,
Flip in Rutherford
SLD 161 RIDGE RD $485,000 2/27/2007
ACT 161 RIDGE RD $849,000 8/8/2007
“The value of land, and therefore the price of a house located on it, is based primarily on the proximity it provides to economic activity. Home prices rise faster in places where economic growth is stronger because land commands an economic rental payment.”
pre [170]
Then rents would have risen in correlation with RE prices. Why the disconnect/large spread?
you can learn a lot of stuff from this blog. but you have to take position against majority view of blog to make money. for example, most people on this blog are re bears. but your home value only goes up before you sell it.
Rich,
Thanks. I hope the seller’s of Vreeland Ave didn’t put much money into it over the past two years other than necessary repair/maintenance.
Rents and home prices don’t move exactly in tandem over the short term due to a combination of financial factors, such availability of mortgage financing, and psychological factors, including workers’ attitudes toward homeownership. During the past several years, home prices grew faster. Today, rents are rising faster.
Over the long term though, both home prices and rents will rise faster in New York and San Francisco compared to Detroit and Cleveland.
RE: We are a first time buyer (i.e., no sales contingency on our end), but still “full-doc” mortgage type with high credit
Big deal on the no sales contingency, are you willing to do a no mortgage contingency? The stop foreclosure, short sale, REO bargins I saw recently want the sale non contingent on you getting a mortgage and you giving a check for 10% with the offer and it is not contigent upon an inspection, unless foundation is cracked you bought it. Plus the one bank I was dealing with was even willing to finance if you had some real cash, like 50% down. Otherwise the non sales contingency might get you 3-% per cent cheaper, but it ain’t getting you 10-15% off.
bi (177)-
“…but your home value only goes up before you sell it.”
Thanks for weighing in and clearing that up for us. It has been a point of contention around these parts for a while.
Happy, happy, joy, joy, happy, happy, joy, joy!
http://www.bdt.com/david/images/rs001.jpg
bi (177)-
I guess that means I can stop working on the desk full of short sales in front of me.
Must be some kind of mistake.
“Over the long term though, both home prices and rents will rise faster in New York and San Francisco compared to Detroit and Cleveland.”
pre,
Not arguing that. My point, if the run up, in this area, was based on strictly economic factors, rent would have risen in tandem.
JOHNNY B-
you signed your last post “Union, NJ”
You live there? Any advice for a prospective buyer? Don’t know much about the town. It’s no westfield, but seems pretty nice, and affordable compared to other train towns.
There are a lot of for sales signs here. I work in Union. Also the train line (RVL) does not go directly into the city. You must transfer at Newark Penn.
BC Bob,
The trough-to-peak (1997-2006) increase in New Jersey real estate prices was caused primarily economic factors, although psychological factors certain played a role, as homeownership became in fashion.
“The trough-to-peak (1997-2006) increase in New Jersey real estate prices was caused primarily economic factors.”
pre,
Here we go again. 100% prices gains supported by 3-4%, yoy, increase in wages, real wages 0 or negative. Explain how this economic model works?
#175 Thanks Rich!
The trough-to-peak (1997-2006) increase in New Jersey real estate prices was caused primarily economic factors
What drove housing price increases during the post dot com bubble burst and the loss of employment in NYC?
NJ moved closer to NYC
http://keywestchronicle.blogspot.com/2007/08/flippers-in-key-west-losing-their.html?ref=patrick.net
Check out the flipper crashes in Florida – OUCH
>>That is the heart of the prime part of Maplewood, and always has been.
yeah it’s a nice area but it’s one house and definitely the first i’ve seen over there who knows the particulars. now if you showed me a couple of the bigger houses on wyoming in a similar situation then i’ll start to believe we’re heading down a bad road. also don’t discount the areas east of wyoming and west to northwest of the town. these houses far outclass this particular one.
according to bears’ theory here. dow should go back to 8k+, oil to $20+, gold to $300 an ounce, RE to pre-2000 level. but it won’t happen. brutal truth is your green bucks in the bank worth less day by day.
It is completely reasonable for home prices, over the long term, to appreciate faster than inflation in certain areas.
I think it’s perfectly reasonable to say that houses appreciate in-line with local economic growth. This could be more or less than inflation depending on location.
If Toyota opens a new factory in Muskogee Oklahoma, local housing prices could rise as a result of stimulus to the local economy. Manhattan NY real estate costs more than Manhattan Kansas real estates due to the local economy.
The key here is that housing price growth is commensurate with growth and activity in the local economy. Housing prices have outstripped economic growth over the last few years in the “superstar” cities.
193#, why? we are living in global economy. RE in tri-state area is extremely undervalued compared to london, tokyo, seoul, hongkong, new delhi, shanghai,sigapore and even our neighbor canada. why so many asians are buying condos in golden coast? they think it is cheap here. no mention culture diversity, opporutnity, clean air and security.
according to bears’ theory here. dow should go back to 8k+, oil to $20+, gold to $300 an ounce, RE to pre-2000 level. but it won’t happen. brutal truth is your green bucks in the bank worth less day by day.
Okay, lets assume that gold oil and houses have all risen due to inflation and therefore appropriately priced in light of seriously devalued US$.
What’s really important is the growing gap between incomes and housing prices.
Sure, relative to gold, housing prices have been stable. 1,000 ounces of gold will buy roughly the same house today as it did in 2000.
The problem is that income, in terms of gold, have dropped. Median household income has dropped from about 225 ounces of gold per year in 2000 to about 125 ounces of gold per year today.
Today’s incomes are simply not sufficient to support today’s housing prices, it doesn’t matter if we are taking dollars (housing price inflation with stable incomes) or in terms of gold (stable home prices with massive wage deflation).
Union TWP / UNION COUNTY:
PROS:
1)property tax/twp services is reasonable, compared to surrounding towns. Tough PD!
2) very commutable location N/S GSP E/W i78, NYC in 45 min bus or train.
3) I actually like/trust the elected officials (so far).LOL
4) Afforadble “blue collar” developments.
5) State University KEAN
6) Some large corps have operations/jobs here like Shearing Pl.
CONS:
1) Schools getting rough.
2) Borders near some of the worst twps in NJ.
I’m very happy living, and owning 7 rental units in Union.
Johnny B
196#, rentinginNJ,
you really need to go over the article in today’s main page and find some reference books trying to understand “permanent income” concept, proposed by the greatest economist Milton Friedman after Keynes. you guys only look at wages and housing price from 2001 to 2005 and then draw your bubble theory.
Does anyone know a good website/resource to find a 3br rental in Caldwell? Any to avoid?
“Today’s incomes are simply not sufficient to support today’s housing prices, it doesn’t matter if we are taking dollars (housing price inflation with stable incomes) or in terms of gold (stable home prices with massive wage deflation).”
This is a mouthful here. Historically – the ratio of price to annual income has been 2.1 to 2.5 to 1. Over the last five years, in some areas this ratio has risen to 10 to 13 to 1! So either incomes must rise 500%, or housing prices must come down. You think which might me more likely?? :)
BC Bob,
The past real estate cycle began in late 1989 and ended last year.
Over the entire cycle, New Jersey residential real estate prices increased at a compound annunal growth rate of 5.2%, according to OFHEO figures. The consumer price index increased 2.9% during that time.
The first half of the cycle (1989 to 1996) was characterized by weak local economic conditions – and flat real estate prices. The second half of the cycle (1997-2006) happened during a time of very strong local economic growth, causing real estate prices to rise rapidly.
When economic growth is strong in a very rich area like New Jersey, the people in the highest socioeconomic segment benefit disproportionately. Bonuses, which make up a bigger share of their compensation, skyrocket, and net worths surge as the values of financial assets rise quickly.
This economic reality enabled the people looking to buy homes in New Jersey – a majority of which are in the top 10% of the country on income and net worth – to afford higher and higher prices as we moved towards the end of the cycle.
bi (198)-
You need to understand the simple concept that real wages barely grow, but housing was on a 20%/year moonshot until the recent unpleasantness.
You don’t need Keynes or Friedman to figure this stuff out.
“Over the long term though, both home prices and rents will rise faster in New York and San Francisco compared to Detroit and Cleveland.”
Are you sure, over the long term, this will hold true?
Run this model out into the future. Let’s just say that homes in NY and SF appreciate at 3% more a year, than homes in Detroit and Cleveland.
What happens to the differential in 50 years?
Homes would be roughly, 440% more expensive in NY/SF versus C/D than they are today.
To put it in perspective, it would be equivalent to a $500,000 home in this area selling for $2.2 million, while the same home in Cleveland stayed stagnant at $130k.
Project it off 100 years, or 200. At what point does real estate in this area become so prohibitively expensive that economic activity can no longer take place here?
jb
“pigpen Says:
August 17th, 2007 at 1:35 pm
JOHNNY B-
you signed your last post “Union, NJ”
You live there? Any advice for a prospective buyer? Don’t know much about the town. It’s no westfield, but seems pretty nice, and affordable compared to other train towns.”
I grew up in neighboring Hillside and currently own property there, and can say that Union has definitely gotten worse over the past few years. A good friend of mine is a teacher in Union High and says it’s getting worse and worse.
I looked at some properties in the Vaux Hall section and didn’t even bother to stop the car. That area is as bad or worse than parts of Hillside.
Now, compared to Hillside, Union is a way nicer town, by the way. I just personally wouldn’t move there with a family to raise.
Land is a natural resource, is that RE bullshit or what. “Land they ain’t making it any more” so buy now, or my other favorite “it is a great time to buy and sell” HA. True they aren’t making land but they are making houses. In my town there were 250 MLS houses for sale, now a builder took a run down commercial property with and make it condos, grand opening this weekend. Ta Da, there are now 340 homes for sale in my town. Builder offered a price reduction prior to the grand opening, hoping I guess to snare a few buyers right away to stop some of the bleeding. Even on Wall Street, most condos were created from empty or half empty buildings. They are creating housing stock even in downtown NYC.
Permanent Income = Fantasy Income = Bankruptcy
A little lesson learned about pulling all of your money out of an online “savings” account.
I got nervous about my Amboy Direct account and decided to move it to another bank. I watched daily interest accruing and had over $400 for the month. I pulled out the money on the 31st, the same day the interest was to be paid. I received NONE of the monthly interest because you have to have an active account as of the last day of the month–even through the 1st day of the next month to be safe.
If you are moving money out from an online savings, leave in the minimum balance (often $1 or $50 at Countrywide) until the 1st of the next month so you receive the interest.
Of course I explained this exact concept to my parents just 15 days ago. They called yesterday to tell me they pulled everything out from their Countrywide account. ugh!
Rachel
grim (203)-
Factor in an all-out bust every ten years into that model (LOL!).
pretorius
What you seem to miss is that the insane building in places like phoenix, las vegas, florida, etc. all lead back to the financial establishment in metro NY. Fortunes there will reverse drastically and many of those people in ‘magnet’ jobs are going to get pinched.
If you think these people have been sacking away cash for hard times you are seriously delusional.
(207)-
A run on the banks by the League of Dorks!
JB –
“Are you sure, over the long term, this will hold true?”
Yes. On a per square foot basis, New York City real estate is worth 20 times more than comparable space in Detroit. I am sure the price differntial widened dramatically during the past 50 years, and I am positive that it will continue to widen if current economic trends persist.
you really need to go over the article in today’s main page and find some reference books trying to understand “permanent income” concept
I understand the permanent income concept.
The author of the article attempts to recent housing price increases with the permanent income theory. I believe the author’s hypothesis is flawed. Essentially he is perverting this concept to justify a housing Ponzi scheme.
The biggest difference in the economy between today and 10 years ago is the value of real estate. The article sets up an argument where high housing prices (the average American’s largest asset) increase ones net worth, allowing one to pay more for a house, begetting even higher housing prices.
This doesn’t work because the market needs first time buyers to function. First time buyers don’t have asset price inflation to rely on to increase their purchasing power. They rely on their income.
Off the WSJ Message Board:
Need a mortgage, looking for that dreamhouse? Big Benny has got credit for YOU !!
No credit, bad credit? Easy terms, no money down, now payments for 2 years, up to $600,000, decision in 5 minutes.
Call 1-800-B-E-R-N-A-K-E and get your dream home today!
All mortgages are FOMC 100% US Gov’t Insured from default, so hurry down to Bennies!
Comment by Angry Taxpayer – August 17, 2007 at 2:45 pm
i agree that the market needs first time buyers. but don’t you notice the trend that more first time buyers got their support from their parents? also most first time buyers are younger people and they may be more flexable on longer commute for more affordable homes. the life is getting harder but you are not drawn to vietnam, korea or europe.
>This doesn’t work because the market needs first time buyers to function. First time buyers don’t have asset price inflation to rely on to increase their purchasing power. They rely on their income.
Renting (212)-
If the “permanent income” concept is so sound, what’s the explanation for the deluge of “affordability products” that hit the market in the early ’00s?
Seems like it was financing created for people who actually COULDN’T pay more for a house.
“net worths surge as the values of financial assets rise quickly.”
pre [201],
Gotta love this one. Why don’t you provide the link. I would love to read the whole article. Does it matter if net assets rise as a result of real economic value or as a result of an expanding money supply/credit bubble? Doesn’t one become concerned when money supply is growing at approx 13% while GDP plods at 2-3%. And when assets prices deflate, how does the left side of the ledger look?
1989-2001. Why is this part of the discussion. I was a RE bull at that time. 2001-2006 is the time frame which I question, approx 100% gains. If everybody receives a 80% pay raise on Monday, my argument is squashed.
bi’s comment about the gold coast having clean air and security was pretty funny.
If you consider the Mafia security, it has lots of security.
am running out to buy 1.5 mill home. Why not fed will pay for IT :)
pretorius #211
I am positive that it will continue to widen if current economic trends persist.
“If current economic trends persist” ….
Do you think the widening price differential may be a catalyst in causing the “current economic” trends you speak of, to no longer persist?
but don’t you notice the trend that more first time buyers got their support from their parents?
I don’t think so. 43% of first time buyers put no money down and the median down payment of first time buyers was 2%. This seems to indicate that most first time buyers are not getting much help.
http://www.usatoday.com/money/perfi/housing/2006-01-17-real-estate-usat_x.htm
also most first time buyers are younger people and they may be more flexable on longer commute for more affordable homes.
The youngness of first time buyers had more to do with easy money and the fear of being priced out forever. They may be more flexible on commutes because they have no other choice. In their mind it’s “be flexible or never own”.
Syncmaster,
Nope. High real estate costs in New York and San Francisco have caused some turnover in the types of jobs and people located in these cities.
But people and jobs moving out are being replaced by higher quality people and higher paying jobs moving in.
Detroit, despite cheap real estate prices, is experiencing a decline that will take decades or centuries to reverse.
“My response to people predicting a massive decline in home prices around here using the same, tired explanations as the mainstream media”
Pretorius, the reason for the existence of this site is the fact that the mainstream media have NEVER predicted a massive decline.
Sorry.
I always enjoyed tailgating at PNC Arts Center. As usual a few individuals screw it up for the rest of us.
http://www.nj.com/news/index.ssf/2007/08/drinking_drugs_kill_two_at_pnc.html
Drinking, drugs kill two at PNC Arts concert
“Two men died and 83 people were arrested during a heavy metal concert at the PNC Arts Center in Holmdel Thursday.
The mayhem prompted officials at the New Jersey Turnpike Authority, which owns the 17,500-seat concert venue, to announce this morning that alcohol would no longer be permitted in the parking lot.”
njpatient,
You didn’t comprehend what I wrote. Let me clarify – njrereport people have been predicting a massive decline using mainstream media analysis of the housing market.
pretorius,
But people and jobs moving out are being replaced by higher quality people and higher paying jobs moving in.
Can you back that claim up with any actual data? Specifically the “higher paying jobs” part.
Thanks, pretorius – so you meant that the MSM is NOT predicting a massive decline, and commenters here are using the same analysis as the MSM to come to the opposite conclusion?
You’re right, I did not comprehend that that was your meaning.
“Can you back that claim up with any actual data? Specifically the “higher paying jobs” part.”
As to the second sentence, I’m going to go out on a limb and predict “NO”
nice day on the street. too bad everything is still way off from when the carnage began. all it’ll take is one big negative announcement to send the market back into a tailspin.
Sync,
Yes. Can you contradict it using actual data?
“Yes. Can you contradict it using actual data?”
http://www.epinet.org/content.cfm/webfeatures_snapshots_06282004
Employment is growing again, but real wages fall to a two-year low
http://www.commondreams.org/headlines05/0511-08.htm
Real Wages Fall at Fastest Rate in 14 Years
http://www.forbes.com/business/2005/05/06/cx_da_0506topnews.html
Jobs Up, Real Wages Down
Project it off 100 years, or 200. At what point does real estate in this area become so prohibitively expensive that economic activity can no longer take place here?
This is fun, let’s project a 4% differential off for 100 years.
4%/yr for 100yr would yield a 5050% differential.
The New York house would sell for $25 million dollars, versus the Cleveland house selling for $130k.
You would be able to buy 200 homes in Cleveland for the price of 1 house in NYC.
In 150 years, the price of the NYC house would have jumped to $179 million dollars, versus $130,000 for the house in Cleveland.
So, you’d be able to trade 1 NYC house for almost 1,400 homes in Cleveland!
By year 200, that New York City house would be selling for $1.27 billion dollars, while that Cleveland house is still selling for $130,000.
You would be able to sell that New York City house and buy almost 10,000 houses in Cleveland.
I bet that in 50 years, you’d be able to buy the entire city, cash.
These types of differentials are short-term phenomenon, they can’t be extended out to the long term.
So kids, moral of the story. Buy your great grandkids a house, by the time they inherit it, they’ll be able to sell it and buy their own cities!
jb
Well, it’s about damn time the Fed woke the hell up and did its duty. They should have done this two weeks ago. They need to cut by a full 100 bp as far as I’m concerned after all this delaying.
We can’t have the Fed ignoring financial and real estate markets and making people lose money. These markets are just too important to the innner workings of our economy. Now people will be confident that real estate will continue its upward trend unabated.
Pretorius, see 229, 230, 231 and 232.
So….what have YOU got?
(By year 300, you’d be able to buy 28,000 homes in Cleveland for the price of 1 house in NYC).
jb
Njpatient,
Hahaha. Lots of posts but none mentions a fall in New York employment and wages. Hilariously, one of the links highlights Ford and GM job cuts, supporting my point that Detroit sux.
Here are some figures that support my point.
http://www.osc.state.ny.us/press/releases/jan06/011106a.htm
http://www.osc.state.ny.us/press/releases/dec06/121906b.htm
Seems like every year thousands of Ivy League MBA grads moving to New York and collecting huge bonuses after they arrive.
This is fun, by year 500, you would be able to buy 10,084,143 Cleveland houses for the price of one house in NYC. You read that right, more than 10 million houses!
jb
And as far as jobs and economic growth go, who doesn’t think the NYC metro area is boned? How many thousands of bond trader and support staff jobs are due to vaporize in the next couple years? What happens when ad sales go south because companies have to cut back, what happens to NYC media jobs? Pharma relocates to lower-cost states, backoffice IT relocates to lower-cost states (or countries!), construction and related trades start laying off cuz there’s no more condos to build…
And yet, magically, NYC is supposed to come thru it with property values unscathed? Because the Chinese are so stupid as to throw dollars at overpriced RE (like teh Japanese did with Rockefeller Center) just because there’s nothing else to spend dollars on (except for oil, raw materials and agricultural products)?
I’m just glad I already got out. Best wishes and luck to those who don’t (or can’t)..
Jb, please unmoderate my last post. It is a good one.
Wow. I could probably even buy Jacobs Field and the Rock and Roll Hall of Fame!!!
And have enough left over to buy Cincinatti!
“njrereport people have been predicting a massive decline using mainstream media”
pre,
We have been discussing this for the past 1.5 years. There was absolutely nothing mainstream about a bubble back then. When I sold, [9/05] friends and family wanted to know if everything was fine? Did I lose my job? Look how far we have come in a short period of time. From RE never loses value, to there is no bubble, to dancing along the botton, to there is no contagion, to over $300 billion of overnight reserves, to the fed actually accepting MBS and “RELATED ASSETS” as collateral. Some system we have, paper money backed by full faith and credit. BARF.
I would bet that the GM building in New York is worth more than every office building in Detroit.
‘including capital gains, physical assets and factors like education that would affect a consumer’s earning potential …
households base their spending decisions on permanent income ‘
So people make spending decisions based partly on assupmtions about the value of intangible assets. These assumptions are liable to change, making ‘permanent’ a misnomer. I think ‘anticipated’ better describes it.
“Two men died and 83 people were arrested during a heavy metal concert at the PNC Arts Center in Holmdel Thursday.
The mayhem prompted officials at the New Jersey Turnpike Authority, which owns the 17,500-seat concert venue, to announce this morning that alcohol would no longer be permitted in the parking lot.”
ChiFi, I’m going to watch Yanni next Friday at PNC, and I now got to be sober?? What a bummer….
#214 BI
>i agree that the market needs first time buyers. but don’t you notice the trend that more first time buyers got their support from their parents?
How did you come up with that one? I’m a 1st timer, I have many friends who are 1st timers, in-laws who are first timers, and not one received a parent’s penny.
It sucks being a 1st timer in this market. My wife and I combined make $150K/year and can’t even think of making a purchase (and thanks to this blog we didn’t). This market has to equalize… it’s not sustainable.
“Hahaha. Lots of posts but none mentions a fall in New York employment and wages.”
#238
Your links don’t address wages at all – whereas mine directly address a nationwide reduction in real wages during the heart of the RE bubble.
Do you have ANY real wage data?
My desk calculator refuses to tell me how many Cleveland homes I’ll be able to buy for the price of a single NY house in year 1000.
Just keeps sayin’ E..
Gut tells me it is somewhere around 20 trillion homes. One NYC house would be able to buy all the houses in the world! Well, except for SF, and maybe Westfield.
jb
From MarketWatch:
Fed urged to protect future mortgage borrowers
Individuals and groups including the U.S. Conference of Mayors and the National Community Reinvestment Coalition are urging the Federal Reserve to protect borrowers against abusive mortgage lending, telling regulators to take steps including banning or limiting so-called “no-doc” loans and prepayment penalties.
Actions like those were recommended to the Fed in 37 comment letters following a hearing earlier this summer about the Home Ownership and Equity Protection Act. The deadline for comments came this week and the Fed is expected to issue new lending rules by the end of the year.
The Fed and other agencies, as well as U.S. lawmakers, are mulling ways to stem the fallout from the crisis in the subprime mortgage market, which serves borrowers with poor credit.
Since the housing and credit bubbles began to deflate, dozens of lenders have gone out of business, several hedge funds have failed, and thousands of homes have gone into foreclosure.
Several groups urged the Fed to ban prepayment penalties, which are the fees charged when a borrower pays off a mortgage early.
“A ban on prepayment penalties would be consumer friendly,” said a letter from the U.S. Conference of Mayors and other groups including the National Association of Counties. “Prepayment penalties can unfavorably affect a consumer from refinancing the loan on more favorable terms, particularly before an adjustable rate mortgage interest rate adjustment,” said the groups’ letter, which added the penalties are unfair to subprime borrowers.
Other letters urged the Fed to put a stop to loans that don’t require any or much documentation of a borrower’s income — so-called “no doc” or “low doc” loans. Such loans have been resold to investment banks that have packaged them into securities, creating ripples in financial markets.
The National Community Reinvestment Coalition urged the Fed to ban stated-income or low doc loans on subprime and ARM loans.
Pretorius,
I don’t need to present data to contradict your claim as I’ve made no claim of my own.
As for the data you’ve presented, you do realize that Wall Street is a small part of the tristate economy, don’t you?
Here’s what you need to show us to prove your point: wage levels broken down by percentile of population from 2000 to today. If the 10th percentile wage , 25th, median (50th), 75th, 90th etc are all higher today than what they were in 2000 (adjusted for inflation, of course), your point will be a valid one.
I’d like to believe you. Make it easy, will ya?
“We can’t have the Fed ignoring financial and real estate markets and making people lose money.”
50.5,
That’s exactly the feds charter. Listen to Cramer’s rant about opening the discount window. How dare they sit by and let investors in subprime garbage get what’s coming to them. After all this is America.
Their actions today, zero effect on the lumpkens holding the bag.
what a market today. Gs was the buy of
the decade yesterday. so was ice.
pay attention
http://biz.yahoo.com/hftn/070817/081707_sloan_enablers_fortune.html
20.25,
You’re a funny person.
“ChiFi, I’m going to watch Yanni next Friday at PNC, and I now got to be sober?? What a bummer….”
dream,
Go to Red Bank first. That will solve your dilemma. By the way, stop by and pick up Ara, buy him a drink. He is going to the Count Basie Theatre the same night, to catch a new band, Bust.
From Reuters:
U.S. senator urges examination of ratings agencies
U.S. Senate Banking Committee Chairman Christopher Dodd on Friday called for an examination of the credit rating agencies’ role in valuing the subprime mortgage securities market.
…
During a conference call with reporters, Dodd expressed “great concern” about how credit rating agencies assessed and rated packages of mortgage-related assets, which include collateralized debt obligations.
“Clearly there was other information that should have warranted something else,” he said. “We need to have a thorough examination of that.”
…
Barney Frank, chairman of the House of Representatives Financial Services Committee, has said he would hold a hearing this autumn to examine how credit ratings agencies contributed to a collapse of the subprime mortgage market.
NOTHING, absolutely nothing the Fed does is going to to prevent the million of homeowners from losing their homes when their ARMs reset. The sheer amount of money involved in this resetting is mind-boggling. This $hit didn’t happen overnight, and it’s going to be stuck to the ceiling for a while.
Opening the discount window is only to give the banks some room for fresh air, before the room starts smoking up again.
dreamtheaterr Says:
August 17th, 2007 at 3:40 pm
ChiFi, I’m going to watch Yanni next Friday at PNC, and I now got to be sober?? What a bummer….
yan: am I nuts? I always stay sober at all concerts…dating back to the Cars at Forest Hills Tennis center in 1982. I always want to make sure I soak in the full effect of the show. I still remember being lectured by the guy sitting next to my brother and me at the Cars chastising us for not smoking a bowl. I was thinking “…you stupd f— I’m 14..”
Best sober experience…..Run-DMC in Elizabeth in 1985. The 4 of us [my brother, a South Asian, and a Korean] were …ahem… a little out of place.
JB [257],
Pretty soon they will be asking for a thorough investigation of Tulip Bulbs.
“We can’t have the Fed ignoring financial and real estate markets and making people lose money.”
Great, I can’t wait until both milk and gas are $10 a gallon.
jb
“Great, I can’t wait until both milk and gas are both $10 a gallon.”
Fortunately, that won’t affect the CPI.
Nothing to see here – move along.
Wage growth stats NYC/NNJ:
http://data.bls.gov/PDQ/servlet/NCSOutputServlet;jsessionid=f030c124cb96$3F$3F$4
White Collar Wages NYC/NNJ:
http://data.bls.gov/PDQ/servlet/NCSOutputServlet;jsessionid=f0309ba052ea$3F$3F$5
“Hehehe Says:
August 17th, 2007 at 4:02 pm
White Collar Wages NYC/NNJ:
http://data.bls.gov/PDQ/servlet/NCSOutputServlet;jsessionid=f0309ba052ea$3F$3F$5”
My calcs put this as a 30% increase from 1998 – 2005. How much did RE go up in that same period?
Whoever said the posters on this blog have been ‘following the mainstream media’ is completely wrong.
This site, for the most part, hard chided the media for not getting this story months ago. I even went as far as to email a media writer in the state to try and get them to write about it.
maybe that way, some of these people who will be foreclosing, wouldn’t have these problems.
Why the focus on white collar wages?
Blue collar people buy homes too.
>>This is fun, by year 500, you would be able to buy 10,084,143 Cleveland houses for the price of one house in NYC. You read that right, more than 10 million houses!
to bi’s point, NY could be going the way of other higher priced cities. i don’t know if that would be attributed to just manhattan or certain surrounding towns. what’s the house price to income ratios in london versus ny right now?
“But people and jobs moving out are being replaced by higher quality people and higher paying jobs moving in.”
You mean service industry jobs? Depends on the jobs I guess… Presumably more healthcare jobs to care for aging hippies who are calling the cops because the kids loitering out front are impacting their RE values.. Tech? Maybe, but then again in tech you can live anywhere there’s a broadband connection, and the smarter companies will start using that to reduce their office costs and such..
There may very well be islands of folks, with more money than sense, who won’t mind paying exorbitant taxes, fees, utilities, etc. because they just gotta have the mythical neighborhood. I don’t buy it. If it costs more than 1/3 of _net_ salary to rent or own, it’s wayy too expensive. 1/4 is a more comfortable number.
Besides, there’ll always be rich suckers getting soaked for the zip code, I’ll be happy to visit…
pretorious–
take a look at this chart:
http://graphics8.nytimes.com/images/2006/08/26/weekinreview/27leon_graph2.large.gif
Keep in mind that, as you say, Detroit and Cleveland have been keeping the boom towns in the U.S. down.
I would love to see you produce a chart that shows real wage growth exploding in the last ten years in the same manner. Unfortunately, I think all most of us need to do is look at our paychecks to know this is not the case.
If you take into account those hourly wages the typical white collar worker saw their wages increase in NYC/NNJ 27% in total from 2000-2005.
I bought a condo in Hoboken in 2000 for 280K. I sold it for 610K in 2006. That is roughly 120% increase compared to a 30% increase in roughly the same time period.
So basically a 20% annual run-up in housing prices vs a 4-6% rise in wages.
Somewhere you have to say the housing prices would have to slow down or nobody can afford, right?
Anyone have info on the following two MLS listings, both in Tenafly (address, prior sales and listing history, etc.):
Tenafly:
2730240 (3 bed, 3.5 bath), list for 1,099,000.
2712147 (5 bed, 3.5 bath), list for 1,095,000.
Thanks,
Eagle
Somewhere you have to say the housing prices would have to slow down or nobody can afford, right?
The second part of his argument is that lower-quality people are moving out of this area and being replaced by higher-quality people. Clearly, these higher-quality can afford RE at these new, higher, better prices. It’s only us low-quality losers who can not.
looks like i got in near bottom on RSF at 6.40. it’s up to 7.80 for a near 9% gain in 2 days. on the flip still down on my BGY. volatility, it can be fun.
Does anyone have statistics on RE Price/income ratios for Europe? UK, Germany, France, Italy, Spain, etc? I’d be curious to look at it from that perspective.
>>Tech? Maybe, but then again in tech you can live anywhere there’s a broadband connection, and the smarter companies will start using that to reduce their office costs and such..
true. tech offshoring will continue to gain momentum. the cost savings are just too attractive to the CEO and CFO’s of the world. i hear JP Morgan Chase is on a relentless drive to move many operations to India.
That’s exactly the feds charter. Listen to Cramer’s rant about opening the discount window.
At least we agree on one thing. This is the Fed charter as it should be. Greenspan understood this and Bernake has now come around and gotten off his little academic perch. The old days of intermediation being limited to banks is no longer here. Intermediation now occurs in the securities markets and the fed had better damn well continue to recognize this. We can’t have a situation where these markets go under.
Richard – so you didn’t buy RSF at $11.35 as advised three weeks ago?
spoke to a RE friend who works the upper towns of bergen county today. she said in the last 2 weeks the sales activity has near completely dried up and inventory has spiked. she’s had a couple of well salaried couples get denied for loans (they were all non-conforming). indications that things are tightening up. we’ll see where this goes. see i’m not a RE cheerleader like y’all think i just tell it like i hear it and what i think.
This was odd during this credit crunch.
My local branch of Bank of America called me yesterday (Thursday). I have never gotten a call from them since I opened my account there in 1982. I currently have a HELOC with them. They were offering to up the credit limit or convert the line to a fixed 7.14% rate fully amortizing.
I’m not sure why they were offering the higher credit limit, but I could see that by fixing the rate and making the loan fully amortizing, they figure that they are getting some principle back from me every month in addition to the interest.
I can’t believe this blog has 277 entries already. Hell it aint even 5:00 pm yet. You guys are sloughing off on the job and no doubt expect to get paid for it.
>>Richard – so you didn’t buy RSF at $11.35 as advised three weeks ago?
no i was going to and decided to wait. even if i did i expect it to get back there. the yield will probably come down from today though.
“reinvestor101 Says:
August 17th, 2007 at 4:27 pm
I can’t believe this blog has 277 entries already. Hell it aint even 5:00 pm yet. You guys are sloughing off on the job and no doubt expect to get paid for it.”
You have no idea how my productivity has dropped since finding this site.
JP Morgan Chase is on a relentless drive to move many operations to India.
As are many other American companies. There is no good reason for any routine work that can be reduced into a defined procedure to be done in the US.
Run-DMC in Elizabeth in 1985. The 4 of us [my brother, a South Asian, and a Korean] were …ahem… a little out of place
best thing I read here all week. thanks.
njpatient Says:
August 17th, 2007 at 4:25 pm
Richard – so you didn’t buy RSF at $11.35 as advised three weeks ago?
His broker confirmed that he did dollar-cost average into RSF and LSD.
>>Run-DMC in Elizabeth in 1985. The 4 of us [my brother, a South Asian, and a Korean] were …ahem… a little out of place.
get ready to laugh, but i actually grew up with and knew Run-DMC.
This is fun, by year 500, you would be able to buy 10,084,143 Cleveland houses for the price of one house in NYC. You read that right, more than 10 million houses!
JB,
If you took 1 penny and invested it at 4% interest starting in the year 1 A.D., today you would have enough money to buy 1,091 solid gold earths.
Compound interest existed in those days, however no one has even 1 solid gold earth. Compounded growth is not indefinitely sustainable.
#214 but don’t you notice the trend that more first time buyers got their support from their parents?
So, assuming you are right, how could this trend be sustained? The next generation will still be saddled with their huge house payments and won’t be able to give their kids down payment money. Boomers wouldn’t have a lot of extra dp dough lying around if they had the housing expenses that generations X and Y are experiencing (even if they had help with the dp).
“This is the Fed charter as it should be.”
50.5,
Weimar?
“At what point does real estate in this area become so prohibitively expensive that economic activity can no longer take place here?”
Answer: never possibly. It just becomes a city, then a denser city, then a city w/more and more highrises. See Jersey City. Imagine 40 Million people in NJ.
Heh- Jim Cramer was on CNBC this morning saying that the point increase in the DOW today would be at “record” levels.
233- I’m awed.
I’ve been unsuccessfully trying to google european real estate affordability data.
Anybody have this kind of data?
Eagle,
2730240 (3 bed, 3.5 bath)
Taxes: $15,867
SLD 159 WESTERVELT AVE $465,000 11/13/1995
ACT 159 WESTERVELT AVE $1,099,000 7/25/2007
2712147 (5 bed, 3.5 bath)
Taxes: $14,421
SLD 40 JOYCE RD $610,000 1/11/2003
ACT 40 JOYCE RD $1,375,000 5/1/2006
PCH 40 JOYCE RD $1,275,000 6/2/2006
PCH 40 JOYCE RD $1,199,000 9/28/2006
EXT 40 JOYCE RD $1,199,000 10/29/2006 (Listing Extended)
EXP 40 JOYCE RD $1,199,000 12/2/2006 (Listing Expired)
ACT 40 JOYCE RD $1,095,000 3/29/2007
ACT* 40 JOYCE RD $1,095,000 4/13/2007 (Attorney review)
ARR 40 JOYCE RD $1,095,000 4/18/2007 (Attorney review removed)
pretorius
Where is Ford and GM’s pension invested? Where does GMAC sell it’s loans? My god you are blind!
Richard Says:
August 17th, 2007 at 4:31 pm
get ready to laugh, but i actually grew up with and knew Run-DMC.
Reech – ya’ trumped me-and killed me- simultaneously
My claim to old school fame is I knew this guy, but he was a year older than me in high school…this performance is practically flawless which is impressive given the crap that is often chucked in this genre. Not bad for a USC Econ major, eh?
http://www.youtube.com/watch?v=9wJCmtZMc1g
This is fun, by year 500, you would be able to buy 10,084,143 Cleveland houses for the price of one house in NYC. You read that right, more than 10 million houses!
This reminds me of the film idiocracy!
Idiocracy Doctor scene
Weimar?
We don’t need wheelbarrows, we all have plastic. Stop fighting and get with the program!
Reech – THIS is how to KEEP IT REAL:
You should have gone to school, you could’ve learned a trade
But you laid in the bed where the bums have laid
Now all the time you’re crying that you’re underpaid
It’s like that (what?) and that’s the way it is
One thing I know is that life is short
So listen up homeboy, give this a thought
The next time someone’s teaching why don’t you get taught?
It’s like that (what?) and that’s the way it is
Rich in NNJ:
Thanks as always!
Eagle
I attended an Open House last Sunday in Westfield, south side, nice street. 3/2 1925 Colonial in darn-near perfect move-in condition: gleaming hardwood floors, new thermal windows, fresh paint, and vacant.
Clean as a whistle basement, gorgeous electric service panel with every breaker labeled, oil tank, no central AC. Nice lot and yard. As-is garage.
Asking $499. Last year there were several 2/1 Capes on the market at this asking price and slightly higher.
I think this one was a “drama price” ploy. Two offers coming in the next day. Will see how soon it goes U/C, which might be interesting, given this week’s dislocations in mortgage financing, and what the closed sale price is.
“We don’t need wheelbarrows, we all have plastic. Stop fighting and get with the program!”
Love it. Have been with the program since 2003. It’s called hard asets.
What happens when foreigners don’t buy our bonds backed by RE, autos, receivables and your plactic?
assets.
302#, BC bob,
here i see why you worry sky is falling. they must buy something with their extra money, if not bond, it will be RE, equity and something else. but for now i would assume they will boast their cash reserve by holding bonds.
>What happens when foreigners don’t buy our bonds backed by RE, autos, receivables and your plactic?
bi,
You’re a pisser.
From The Onion: How are we paying off our Subprime Loan
http://www.theonion.com/content/statshot/how_are_we_paying_off_our
From CNN/Money:
The escape of the enablers
When Wall Street fails, it inevitably asks for a handout. Fortune’s Allan Sloan says there must be a better way.
http://money.cnn.com/2007/08/17/commentary/sloan_enablers.fortune/index.htm?postversion=2007081709
#304 bi
“here i see why you worry sky is falling. they must buy something with their extra money, if not bond, it will be RE, equity and something else.”
You assume foreigners will continue to buy American. They could do as you suggest above but other than in the US.
We’re not the only country with bonds, RE, equity or appliances.
Love it. Have been with the program since 2003. It’s called hard asets. What happens when foreigners don’t buy our bonds backed by RE, autos, receivables and your plactic?
Well, this is what I was trying to explain the other week. Foreign policy deals with this. Support for the USD is the key and since it’s not backed by gold, we have to have it backed by the next best thing-oil. It is imperative that oil remains priced in USD and this is why those dirtbags in Iran, Iraq and Venezula have to be brought to heel! This is why Russia and China are next on the list and have to be hemmed in. They’re terrorists and they want to take over the world!! They’re threatening our allies in the region and hate everything we stand for. You must understand that!
308#, 305#, i assume you agree that the biggest buyers right now is japanese and chinese. if they don’t buy US they would buy pound/euro denominated bonds backed by more inflated RE asset.
European gov’t bonds are backed by real estate?
We don’t produce oil, our currency is backed by good faith. Now that good faith includes mbs that was worthless earlier this week. Canada’s dollar is backed by metals, minerals and oil. Australia’s dollar is backed by metals and minerals. Warner says let’s go to the charts. Now convert your assets into their currencies. Ouch. And that Hoboken site calls me Loonie.
311#, did they inject more money in last few days than US?
If you want a little exposure to australia with a nice yield 7.25 Aberdeen Asia-Pacific Income Fund Inc. (FAX)it’s a low cost place to park your mm funds if your worried about the u.s buck
We don’t produce oil, our currency is backed by good faith. Now that good faith includes mbs that was worthless earlier this week. Canada’s dollar is backed by metals, minerals and oil. Australia’s dollar is backed by metals and minerals. Warner says let’s go to the charts. Now convert your assets into their currencies. Ouch. And that Hoboken site calls me Loonie.
We’ve been in the age of the investor for quite sometime now. The borders for investors are now quite porous. We can go anywhere to make money and things are great it we can tap the public treasury and compell the fed to do it’s duty when things turn sour.
I’m sorry, the public treasury can and must be used to support our foreign policy which ultimately supports our economy, but there are some disturbing long term trends for the US. Good faith in the dollar and the economy don’t appear to be sustainable. We knew it would get to this point and it has become time to make a mad dash for the exits. If a group of us could control a good portion of the world’s oil supply, it wouldn’t make much difference to us if the USD wasn’t the world’s reserve currency. The best part is that the public treasury would have been used to finance our “acquisition” of these resources and we don’t have to worry about inflation or yawning budget and trade deficits.
What? Did I write that? I need to slap myself!!
Everyone here is a communist or a terrorist and you need to be supporting the real estate markets and stop with this unamerican activity evidenced by all of these posts!!
“We don’t produce oil, our currency is backed by good faith. Now that good faith includes mbs that was worthless earlier this week. Canada’s dollar is backed by metals, minerals and oil. Australia’s dollar is backed by metals and minerals. Warner says let’s go to the charts. Now convert your assets into their currencies. Ouch. And that Hoboken site calls me Loonie”
Oops. This portion of my lastest post was not authored by me, but should be attributed to BC Bob
Next stop Iran
ChiFi (259)-
I think I can one-up you: People United to Save Humanity Concert (that’s right, Jesse Jackson et al), Liberty Bowl, Memphis, 1974. Earth, Wind and Fire followed by Stevie Wonder.
At least 80,000 people & me & three pals were the only white faces I saw all day.
Quite a revelation for a punk-ass Southern suburban white boy.
50.5 (309)-
Are you Dick Cheney?
Cheney? how about a John Birch-er?
clot (318)
man, wish I was there too. Must have been a blast. Kind of reminds me of the no ‘nukes concerts of the ’70’s.
I was within spittin’ distance of J.J. when he gave his famous speech at the 1988 convention in Atlanta, now that was a revelation. Still have the press release copy. Even a S.W.B. like myself got it.
Cheney is my hero! Now this is someone who knows how to handle himself! Halliburton is a true reflection of how we investors can go anywhere with its recent move to Dubai. Who the hell cares if they’re responsible for $ 2.7 billion of contract waste and overcharging. Who the hell cares if they escape US taxes by being headquartered in Dubai?
You know what Clod, you’re a communist and a terrorist for making me even bring this up. You’re full of it.
Clotpoll Says:
August 17th, 2007 at 6:54 pm
50.5 (309)-
Are you Dick Cheney?
Cheney is my hero! Now this is someone who knows how to handle himself! Halliburton is a true reflection of how we investors can go anywhere with its recent move to Dubai. Who the hell cares if they’re responsible for $ 2.7 billion of contract waste and overcharging. Who the hell cares if they escape US taxes by being headquartered in Dubai?
You know what Clod, you’re a communist and a terrorist for making me even bring this up. You’re full of it.
Clotpoll Says:
August 17th, 2007 at 6:54 pm
50.5 (309)-
Are you Dick Cheney?
323 RE101,
Don’t mix McCarthyism and Neocon-speak in the same breath, you’ll expire from flatulence.
does this mean:
screw america & the dollar
cut the rate & bubble the carry trade
?
http://www.reuters.com/article/bondsNews/idUSN1721955920070817
prof (324)-
Especially since he’s got a cork jammed in the other end of his alimentary canal.
I guess it could be sort of a flatulent implosion.
Regurgitator (322)-
I’ve never, ever been called a commie before. Huh?
After that, I could be back to shaving with a cheese grater.
Right after I dye my chest hair.
(324)-
still_looking:
Can we get a ruling on the cork placement at the business end of the digestive tract?
would that be a wax cork or a wood cork?
>>I attended an Open House last Sunday in Westfield
twice shy, which street is it on?
either way, my guess is that when so much bile is consumed, the pressure is unmanageable
Since we’re back to the communist/terrorist stuff …
kommisar clot,
Are the short sales on your desk going for more of a discount … or are they still short by a relatively small amount?
Comrade (322)-
Still short by not much. But that’s what you’d expect from owners who have only occupied for 2-3 years.
Remember also that many of the foreclosure vics now are basically responsible people who got in over their heads or have had a bad reversal in some part of their lives. The hardcore deadbeats either trash-and-abandon their properties…or they’re in the process of doing it now. The mortgage deficiencies will grow as we get deeper into this morass.
Richard,
Scotch Plains Ave., down toward Dorian.
There is no good reason for any routine work that can be reduced into a defined procedure to be done in the US.
Why stop at routine work? Are non-Americans too stupid to do things that are not ‘defined procedure’?
#299 & 335.
Now we the American working population
Hate the fact that eight hours a day
Is wasted on chasing the dream of someone that isn’t us
And we may not hate our jobs
But we hate jobs in general
That don’t have to do with fighting our own causes
We the American working population
Hate the nine-to-five day-in day-out
When we’d rather be supporting ourselves
By being paid to perfect the pasttimes
That we have harbored based solely on the fact
That it makes us smile if it sounds dope
The Roubinator was all over this…..
WSJ
In Time of Tumult, Obscure Economist Gains Currency Mr. Minsky Long Argued Markets Were Crisis Prone; His ‘Moment’ Has Arrived
By JUSTIN LAHART
August 18, 2007
The recent market turmoil is rocking investors around the globe. But it is raising the stock of one person: a little-known economist whose views have suddenly become very popular.
Hyman Minsky, who died more than a decade ago, spent much of his career advancing the idea that financial systems are inherently susceptible to bouts of speculation that, if they last long enough, end in crises. At a time when many economists were coming to believe in the efficiency of markets, Mr. Minsky was considered somewhat of a radical for his stress on their tendency toward excess and upheaval.
Today, his views are reverberating from New York to Hong Kong as economists and traders try to understand what’s happening in the markets. The Levy Economics Institute of Bard College, where Mr. Minsky worked for the last six years of his life, is planning to reprint two books by the economist — one on John Maynard Keynes, the other on unstable economies. The latter book was being offered on the Internet for thousands of dollars.
Christopher Wood, a widely read Hong Kong-based analyst for CLSA Group, told his clients that recent cash injections by central banks designed “to prevent, or at least delay, a ‘Minsky moment,’ is evidence of market failure.”
Indeed, the Minsky moment has become a fashionable catch phrase on Wall Street. It refers to the time when over-indebted investors are forced to sell even their solid investments to make good on their loans, sparking sharp declines in financial markets and demand for cash that can force central bankers to lend a hand.
cont’d
Mr. Minsky, who died in 1996 at the age of 77, was a tall man with unruly hair who wore unpressed suits. He approached the world as “one big research tank,” says Diana Minsky, his daughter, an art history professor at Bard. “Economics was an integrated part of his life. It wasn’t isolated. There wasn’t a sense that work was something he did at the office.”
She recalls how, on a trip to a village in Italy to meet friends, Mr. Minsky ended up interviewing workers at a glove maker to understand how small-scale capitalism worked in the local economy.
Although he was born in Chicago, Mr. Minsky didn’t have many fans in the “Chicago School” of economists, who believed that markets were efficient. A follower of the economist John Maynard Keynes, he died just before a decade of financial crises in Asia, Russia, tech stocks, corporate credit and now mortgage debt, began to lend credence to his ideas.
Following those periods of tumult, more investors turned to the investment classic “Manias, Panics, and Crashes: A History of Financial Crises,” by Charles Kindleberger, a professor at the Massachusetts Institute of Technology who leaned heavily on Mr. Minsky’s work.
Mr. Kindleberger showed that financial crises unfolded the way that Mr. Minsky said they would. Though a loyal follower, Mr. Kindleberger described Mr. Minsky as “a man with a reputation among monetary theorists for being particularly pessimistic, even lugubrious, in his emphasis on the fragility of the monetary system and its propensity to disaster.”
At its core, the Minsky view was straightforward: When times are good, investors take on risk; the longer times stay good, the more risk they take on, until they’ve taken on too much. Eventually, they reach a point where the cash generated by their assets no longer is sufficient to pay off the mountains of debt they took on to acquire them. Losses on such speculative assets prompt lenders to call in their loans. “This is likely to lead to a collapse of asset values,” Mr. Minsky wrote.
When investors are forced to sell even their less-speculative positions to make good on their loans, markets spiral lower and create a severe demand for cash. At that point, the Minsky moment has arrived.
“We are in the midst of a Minsky moment, bordering on a Minsky meltdown,” says Paul McCulley, an economist and fund manager at Pacific Investment Management Co., the world’s largest bond-fund manager, in an email exchange.
The housing market is a case in point, says Investment Technology Group Inc. economist Robert Barbera, who first met Mr. Minsky in the late 1980s. When home buyers were expected to have a down payment of 10% or 20% to qualify for a mortgage, and to provide income documentation that showed they’d be able to make payments, there was minimal risk. But as home prices rose, and speculators entered the market, lenders relaxed their guard and began offering loans with no money down and little or no documentation.
Once home prices stalled and, in many of the more-speculative markets, fell, there was a big problem.
“If you’re lending to home buyers with 20% down and house prices fall by 2%, so what?” Mr. Barbera says. If most of a lender’s portfolio is tied up in loans to buyers who “don’t put anything down and house prices fall by 2%, you’re bankrupt,” he says.
Several money managers are laying claim to spotting the Minsky moment first. “I featured him about 18 months ago,” says Jeremy Grantham, chairman of GMO LLC, which manages $150 billion in assets. He pointed to a note in early 2006 when he wrote that investors had become too comfortable that financial markets were safe, and consequently were taking on too much risk, just as Mr. Minsky predicted. “Guinea pigs of the world unite. We have nothing to lose but our shirts,” he concluded.
It was Mr. McCulley at Pacific Investment, though, who coined the phrase “Minsky moment” during the Russian debt crisis in 1998.
cont’d
Laurence Meyer, who served on the faculty with Mr. Minsky at Washington University in St. Louis, was a Federal Reserve Governor during those turbulent times. Mr. Meyer says that when he was an academic, Mr. Minsky’s work didn’t interest him very much, but that changed when he went into the real world. He says he grew to appreciate it even more when he was at the Fed watching financial crises unfold.
“Had Minsky been there, he probably would have been calling me and alerting me along the ride. And that would have been a good thing,” Mr. Meyer says. “Every year that goes by, I appreciate him more. I hear myself sometimes and I think, oh my gosh, I sound like Hy Minsky.”
Steven Fazzari, an economics professor at Washington University, says that Mr. Minsky would have supported the Federal Reserve’s recent move to provide cash and cut the rate it charges banks on loans from its discount window to try to avert a financial crisis that could spill over to the economy. But he would probably be worried, too, that the moves might be bailing out investors who would all too soon be speculating again.
Having seen recent events unfold in the way his friend and former colleague predicted, Mr. Fazzari says, “I hope he’s someplace saying, ‘Aha, I told you so!'”
Interesting letter from Oxford Club
“Delusional Sellers”
Friday, August 17, 2007 Issue #702
The Home Seller “Delusion”
by Alexander Green, Chairman, Investment U
Investment Director, The Oxford Club
Dear Investment U Reader,
I’ve spilled plenty of ink over the past few weeks on the stock market. Let’s change our focus today and look where the recent financial problems originated: the housing market.
It’s tough to talk about real estate in a general way, of course. (As though a person selling a condo in Miami and another buying a farm house in Iowa are dealing with the same set of circumstances.)
Real estate conditions always vary from one locale to another. While home prices are cooling off almost everywhere, some places are holding up better than others. And prime properties in any area will hold their value better (and sell quicker) than inferior properties.
But something very strange is going on in many housing markets right now…
Hanging On Too Long To “Yesterday’s” Prices
Oxford biologist Richard Dawkins had a runaway bestseller last year with his book “The God Delusion,” in which he argues that many people’s religious beliefs are irrational.
Much more delusional, in my view, are the thoughts of current home sellers who’ve convinced themselves that if they just shut their eyes and believe strongly enough, a buyer will suddenly materialize and pay them what they could have gotten for their home two years ago.
It ain’t gonna happen. Yet so many keep believing it will. As a result, the home inventory just keeps stacking up.
There are always motivated sellers, of course. Some people can’t wait for a better price because they’re relocating – or they can no longer afford their mortgage. But a lot of sellers, especially those who can afford to be picky, just can’t get out of their heads what they could have gotten for their home at the peak of the market. And so they keep waiting for the “right” buyer to come along.
They may have quite a wait…
For example, I have a home in Orlando. Two years ago there were approximately 4,000 homes for sale here. Today there are over 26,000 – a record.
Yet housing prices here are down just 2%. How can that be when there is so much supply relative to demand? There are a number of factors, but one of them is that sellers simply won’t accept what reasonable buyers – who are now in the driver’s seat – are willing to pay. So deals aren’t getting done, and the inventory piles higher. According to the Orlando Regional Realtor Association, existing-home sales plunged 42.6% last month from the same month a year ago.
Sellers: Accept Any Reasonable Offer
I spent much of the summer at another home I own in the Shenandoah Valley in Virginia. The same thing is happening there.
In one community, Spring Lakes, the developer is sitting on several million dollars in unsold spec homes. He’s not getting any offers. But he refuses to lower his list prices a dime.
One homeowner in this development recently ran into financial trouble. He listed a home, similar to ones that the developer is trying to sell for $440,000, for $395,000.
He received no offers. He lowered the price to $369,000. He still got no offers. Eventually the house went back to the bank.
The bank held an auction, but no one was willing to bid even $300,000. So the bank, which had a reserve, refused to let it go.
Who is more delusional? The local developer who steadfastly refuses to cut his $430,000 list price for homes that no one will pay even 30% less for at auction? Or the bank, which couldn’t get $300,000 at auction, but now is going to list it and presumably get a higher price plus cover carrying costs and a 6% brokerage commission?
Delusional, I say.
I’ve said it before, but my advice to anyone who needs to sell a home in a tough local market is to price it below appraisal and accept any reasonable offer. What you could have gotten at the peak of the housing bubble is just as irrelevant as the price of Yahoo! in March 2000.
Bargain hunters, on the other hand, may benefit from waiting a few more months. The pain and suffering has clearly not hit its peak. When sellers finally realize that holding out is only likely to result in a lower sale price – plus property taxes, utilities and other carrying costs – that’s when the real bargains will materialize.
And given how much unsold inventory is on the market, there should be plenty to go around.
Good Investing,
Alex
CF, #337
Great read, thanks for posting.
Everyone here is a communist or a terrorist and you need to be supporting the real estate markets and stop with this unamerican activity evidenced by all of these posts!!
Dear Reinvestor,
The Central Committee of the Congress of People’s Deputies would like to bestow upon you the Order of Lenin for being the biggest communist on this blog.
Instead supporting renters’ prerogative to operate within a capitalist free market system, making decisions based on their own situation and self interest, you want renters to step in and socialize the losses of people who overpaid for houses for the common good. That’s the definition of Communism, comrade.
“James Bednar Says:
August 17th, 2007 at 3:35 pm
This is fun, by year 500, you would be able to buy 10,084,143 Cleveland houses for the price of one house in NYC. You read that right, more than 10 million houses!”
By year 500, NYC would have already spent 300 years as New Shanghai and would currently serve as a port for the products of cheap American labor going to super wealth Namibia ( they found a new metal there in 2350 which serves as a clean energy source much desired around the world).
Cleveland is now home to a large herd of buffalo.
I don’t pretend to understand what is happening in the market…I know that I bought in 2002 and have put money into the home every year, I hope to stay here for a while, but know ‘what i have in the thing’–and really could not, even if I had to — give it away….So, in fact, why would anyone give away their investment to a stranger? If your home is desirable, people should be willing to pay for that….and they do. Homes are selling in my neighborhood. Go figure.
#344:
I had friends describe their recent home selling process to me. They had bought their “move up” home already and had to sell their starter home. But the inventory was huge…and growing. For several months they stuck firm with their price. “We are NOT going to GIVE it away!” they said to themselves. Not a single offer. So after a few months they reduced 20K. Still not a single offer. They reduced another 10K. Still not a single offer. Panic crept in. “What if no one ever buys our house? What if we are stuck holding this bag forever?” It was all a matter of redefinition of what their investment was to them. First: a prized thing, an asset. After 8 months with no offers: a hulking monster, sucking their money away with every month. It went from something they loved to something they despised. They finally lowered the price enough to nab an offer and they took it without negotiation, and even spent a good deal of money on repairs that the sellers had requested. They were thrilled to be rid of it. And you know, they really were lucky to sell at all, because in their area inventory is even higher than here and there are very few buyers.
On NBC right now is the creator of the documentary “Maxed Out”. He says we should have seen this coming. We rely too much on credit. Well, duh.
From the Washington Post (Hat tip CR):
Fannie Mae Predicts Price Decline Will Accelerate in ’08
Fannie Mae, the mortgage finance giant, yesterday predicted that housing prices will decline by 2 percent on average this year and by 4 percent next year as mortgage delinquencies rise, lenders tighten borrowing standards and the volume of unsold homes approaches record levels.
“This is clearly a market poised for more severe overall credit losses,” Enrico Dallavecchia, Fannie Mae’s chief risk officer, said in a conference call with investment analysts.
Adding to the trouble, Dallavecchia said, is that many borrowers with adjustable-rate mortgages are facing rising monthly payments, which could drive them into foreclosure. “This could have a cascading effect in the market,” he said.
Inventory in NJ are up by 1% since last week, those expired listings are coming back to the market fast.
From the Baltimore Sun:
Army is to move 32 jobs from N.J.
The Army reversed course yesterday and said it would move forward with an early transfer of 32 jobs from Fort Monmouth to Aberdeen Proving Ground.
The announcement, released late yesterday by Democratic Sen. Barbara A. Mikulski, would clear the way for the first contingent of employees to move to Maryland as part of a nationwide shuffle of military bases. The Army statement by did not say when the workers would move, and military spokesmen could not be reached for comment.
Last month, Army officials said plans were on hold to transfer the first contingent of workers from the communications and electronics research center at Monmouth, near the New Jersey coast.
…
The move of about 5,000 civilian defense workers from Monmouth to Aberdeen was ordered in 2005 as part of a national military base realignment and closure process, called BRAC.
New Jersey officials have complained bitterly about the decision to close Monmouth, and they said many workers likely would retire or quit before moving. The state’s congressional delegation introduced bills aimed at delaying the Monmouth closure, pointing to a more than doubling in the estimated costs of relocating the work performed there.
The shift of jobs from Monmouth is to be completed by 2011. The base-realignment process is expected to bring Maryland as many as 60,000 jobs.
Essex (344)-
“I hope to stay here for a while, but know ‘what i have in the thing’–and really could not, even if I had to — give it away….So, in fact, why would anyone give away their investment to a stranger?”
What a ready, willing and able buyer- not under duress- is willing to pay for a home is the key part of the definition of market value for real estate.
Were you, a potential seller, to be under some duress of your own and needed to sell right now, you’d be much less occupied with the concept of “not giving your house away”.
If not, you would indeed not give your house away. It’d be taken away by your lender.
I completely understand the scenarios you have outlined and I believe that renting the property would be far more advisable in the current climate than selling at a loss.
We are in a terrific location for renting, I believe….in fact if logic holds that fewer people will get credit and be able to make a home purchase, there will be more renters. Cash flow is king, I would think.
комисса́р (Renting in Stalingrad)[342],
Well put. Put[no pun].
Investment, leverage, borrowing and the pricing thereof are designed to be determined by a market economy. Greed is good, greed works. Profits are cherished. These belong to the IB, shareholders and individual investors. However, when the tide turns and the losses turn toxic they should subsequently be shared collectively? Marxism at its best.
What’s this crap about giving your house away? It’s only worth what ready, willing and able buyers are prepared to pay. If you need to sell; job loss, relocation, marriage/divorce, schools, etc…, you better be prepared to sell at the market. Limit orders are fantasy. Don’t be a d#ck for a tick.
Essex,
You also have to consider the normal market for rentals and the difference between that and what it would cost to cover your mortgage, taxes, etc. Many people can’t rent out their homes because, for example, they may be asking 3k when other comperable homes in the area rent for 1800. Keep that in mind.
Yeah I would say that a dramatic interruption in cashflow and the need to sell “yesterday” is going to be very painful. I have seen two properties sell over the last month here. They were priced appropriately. Not given away. No fire sales. It is encouraging. I’m bullish on property in this area. Especially the nice parcels. And there are nice ones and really crappy ones. The difference is that this market should weed out the people who can’t afford to be here in the first place.
Essex,
Please email me:
jamesbednar at gmail dot com
Thanks,
jb
From the AP:
Mortgage Lender Lays Off Nearly 6,000
First Magnus Financial Corp., a national mortgage lender that is suspending operations, says it has laid off 99 percent of its nearly 6,000 employees nationwide and closed all of its more than 300 offices.
According to a notice filed with the state Friday, the Tucson-based company that originated home loans and then sold bundled loans into the secondary loan market expects to retain only about 60 of its employees.
First Magnus officials said a bankruptcy filing was possible.
On Thursday, First Magnus announced that it had stopped originating new loans and was suspending operations.
Company officials said the lender was caught in the credit liquidity crunch now causing a meltdown in the mortgage industry, even though First Mangus was not engaged in selling “sub-prime” mortgages that sparked the crisis in recent months.
First Magnus, which calls itself one of the largest privately held mortgage banking operations in the country, funded more than $30 billion in loans in 2006.
The company’s retail outlets include Great Southwest Mortgage and Charter Funding, recently renamed First Magnus Home Loans.
First Magnus/Charter Funding had at least 5 locations in New Jersey.
jb
*done
As long as people are buying homes to “live in” and can afford them, they have nothing to worry about.
If either of those claims aren’t met, then chances are they will be in a difficult situation.
Essex (351)-
Except for the fact that landlording is a business that few people have the skill or temperament to undertake.
Ask anyone in NYC who had to rent out a condo or co-op from about 1990-2000 how that worked out. Renting at a nominal “break even”- or a small net monthly loss- then selling years later and not having to bring a check to the closing IS NOT a gain. It is a massive loss, once inflation and opportunity cost are factored in. Finally, expect that you will not be able to charge prime rents for another 2-3 years, as the rental market in NJ is currently saturated with inventory (of course, it’s inventory that’s also for sale).
Keep in mind that your recoup on depreciation (26 years, no acceleration) is pitiful and that you’ll have to maintain rigorously to offset the wear-and-tear caused by even the most conscientious tenant. Plan now for your capital gains taxes, as your 2-out-of-5 capital gains exemption will expire. Hope also that the Dems don’t completely control the White House and Congress in 2010, when all the cap gains statutes sundown. I think Hillary would be comfortable with about a 40% cap gains rate; what do you think?
And…lest you forget, be sure to pick up at least a 1 MIL umbrella liability insurance policy at your local insurance store. You should also probably change the ownership of the property to LLC form while you’re at it, so some litigious and clever tenant doesn’t sue you into oblivion.
Don’t get me wrong; I am a landlord and own investment property. However, I got into it with the intention of operating as a business and making a profit. I didn’t fall into by accident, because I already owned a property that couldn’t sell and looked to renting as an alternative to allow me to continue to live in denial.
This “ready, willing and able buyer- not under duress-” just entered a contract yesterday.
A special thanks to Clotpoll, whose sagacity exceeds his sharp tongue.
Folks, feel free to fire away–our last home depreciated the first few years as well.
Essex (355)-
Two words: uniqueness bias.
Yeah………….
other white meat (362)-
Congratulations! Hope you & yours enjoy it for a long, long time.
Now would be a great time to buy…..I think….and no I am not a realtor. I like where I am and hope to do as many years as I can here.
fyi, it was Bill Clinton who signed the revised capital gains rules for housing.
peace (367)-
Yeah, but that’s for primary residences. That law doesn’t sundown in 2010 with the rest of the cap gains statutes.
Think the stock market is rough now? Imagine the quarter before the favorable cap gains treatment of dividends expires!
I bet tons of companies would declare enormous, one-time “extraordinary dividends”…amidst a market sell-off of enormous proportions.
Maybe that’s when RE will become a “hot ticket” investment again.
The results of this monte carlo simulation will be dramatically different when we run it with a sample size of one, versus a sample size of 35,000. If you thought prisoner’s dilemma was interesting with 2 players, try it with a number of players a few orders of magnitude higher.
jb
email sent james.
From today’s WSJ:
REVIEW & OUTLOOK
The Fed at a Discount
August 18, 2007; Page A6
One rule of sound central banking is that if you fire your best weapon, you’d better hit the target. So we can all hope that yesterday’s Federal Reserve decision to cut its discount lending rate will restore some liquidity and confidence to shattered credit markets. Stocks rallied yesterday, but the financial surprises aren’t over yet.
Give Chairman Ben Bernanke credit for creativity in threading the needle between doing nothing and throwing dollars at the problem. The discount move is not the general easing of monetary policy that so many on Wall Street are still demanding; it is also not a “bailout.” The move is consistent with the Fed’s appropriate role as lender of last resort, and lending liberally in a crisis is sound central banking. The reduction of 50 basis points, to 5.75% from 6.25%, means the Fed is cutting the “penalty rate” for such borrowing. The Fed also eased the terms for repayment to 30 days, though we are told that it will if anything tighten its collateral demands.
The goal is to coax financial institutions to borrow, and thus begin to reliquify some of the capital markets that have seized up in the general panic over subprime mortgages and commercial paper. Using the Fed’s borrowing window is usually a sign of financial weakness, but the Fed made a show yesterday of a conference call with banks that encouraged them to use the window as a sign of “strength.”
All of this suggests that the Fed believes the credit turmoil is still not seeping into the larger economy. The problem is a lack of liquidity, especially in areas such as corporate and high-yield markets that are otherwise untainted by the subprime meltdown. If the Fed’s move works, it will ease the extreme risk aversion that has unhinged all financial markets of late, with everyone afraid of anything except cash and Treasuries.
One danger for the Fed is that this is the kind of weapon that always looks better if you don’t have to use it. If you use it and it fails, your credibility has taken a hit. Already, too, some on Wall Street and in highly leveraged positions are demanding the Fed go further and cut the fed funds rate of 5.25%. They want to flood the entire economy with more dollars — in effect to reflate the bubble. But as we’ve been saying, this carries its own risks of “moral hazard” and a loss of global confidence in the dollar. By blinking on the discount rate, the Fed will encourage the easy money crowd to push even harder.
The discount move is also no substitute for the more difficult job of financial crisis management. To hear some of the financial pundits tell it, the Fed is a magician that can wave its liquidity wand and all will be well again. But the real-estate bubble can’t be revived. The subprime assets are now worth much less than originally claimed. Someone has to absorb the losses, and that means some hedge funds and companies are going to fail.
The most important job now for the Fed, the U.S. Treasury and their global counterparts isn’t to flood the zone with money. It is to seek out and identify the specific financial problems, handle them with care, and then merge or liquidate them as needed — in short, to show the world that America’s regulators are skillful and tough enough to let Adam Smith punish bad decisions without creating more systemic risk.
A hopeful backdrop is that before this credit market mayhem the global economy was strong. The Fed’s statement yesterday said that the credit woes “have the potential to restrain economic growth going forward.” But this week’s economic statistics were nonetheless good for retail sales and industrial production. U.S. exports also have been especially strong, which will help offset the slump in housing that is likely to continue for some time. Let’s hope yesterday’s market rally was a show of faith in that underlying strength.
3 weeks to go. That’s when the summer market is over, and the real fun begins.
I thought tons of sellers who didn’t actually NEED to sell would have pulled their house off the market buy now … looks to me like maybe more people NEED to see than previously thought.
Good news for buyers …. bad news for bagholders.
i hope the buyers arent greedy and continue to wait till prices fall further and further? if the sellers put up a 10 – 20% price reduction, that may be enough to at least get out of this downward spiral?
the only ones that can spark this market is buyers! and we need more of them…if the banks and RE Agents were smart – they would try and convince these sellers to lower their prices to get the home sold and get this past us….that may be easier said than done…
then again, most RE Agents that i have seen over the past few years (remember i said most) are not that bright! just got into it for the money…must just have a RE license with no formal degree or anything…i am sure that they arent that smart to figure this mess out!
CAIBC
Shorting Cramer
http://online.barrons.com/article/SB118681265755995100.html?mod=mktw
Then there’s the day-after-pop phenomenon. Our analysis of Cramer’s picks over the past two years, from YourMoneyWatch.com, showed that, on average, the stocks jumped 2% the day after he mentioned them. From there, they usually moved sideways or down for the following 30 trading days (see chart). This offered an opportunity to make money — 5% to 30% a year — by selling Cramer’s selections short.
>>
Buy – Ultra short Cramer index :)
CAIBC (373)-
Sadly, you are correct. I have as good a gang as you can possibly find; I innundate them with information and advice; I give them unsparing feedback on their marketing and pricing approaches…and I often hold their hands through various personal and professional setbacks.
Alas, even my own business is not immune to the expanding cloud of stupid enveloping the RE industry. Last week, I had to fire an agent (my first firing in years), as his personal and professional situation is too far gone to redeem.
As has been noted ad nauseum, sellers have to get a reality check. From personal experience I know one who went into foreclosure rather than price the house better (Wayne). Another was selling the house and then pulled from the market after a lowering a few times and not selling. Originally purchased at 202k 4 years ago and final price before pulling was $325k mind you and reason for pulling from market was “I am not going to give it away”. Literally almost the same exact words used in another post in this thread. Incredible but true. I recall about 20 years ago the market taking a dive like 15% in a matter of months…not sure the hold up this time.
Capirro
And even if the sellers get the hint and drop prices dramatically, who’s to say that there will be enough qualified buyers to thin out the inventory?
They might be willing but they may not be able. Yes?
bear [374],
I know many that trade the after markets and short his picks after the buying splurge. A ton of geniuses on WS? Try an amusement park.
The guy behind me dropped his price dramatically (not 100% sure how much), his place had a ‘strange’ layout apparently…nice guy, OB Gyn Doc, anyway….he was on the market for almost a year….other places have turned over much faster….it ‘is’ a buyer’s market….
James……have lunch on me today…..
there are qualified buyers out there…i know we hear stories right now about the credit squeeze but that will end probably by the end of this year.. then banks will start to lend – with some discretion of course…things they should have been doing in the beginning like checking credit status, income, downpayment of 20%…
i am a first time buyer..have been for at least three years now…i am more than qualified..combined income of 180K per year..credit spotless, and with more than enough money down, employment is as garuanteed as they come….i just didtn buy during these past three years cause the lowest price cape on the market was all I could afford (2.5 times salary calculations) RE is not the only thing i need to save for..did everyone forget about retirement, kids college fund, rainy day fund…
most will learn the hard way over the next few years…
I rented for 10 plus years with my girlfriend now wife….5 in Chicago….watch the boom there from the sidelines….was very creative when it came time to buy….combined income is top 3% combined debt (ugh)….but we forge on. Love being an owner. Highly recommend it.
P.S. the most challenging part is putting up with restoration if you buy an older place….my god what I have learned…the hard way.
#371,
The Fed can cut their rates to 0% and it will not matter. The subprime and ALT-A markets are gone for at least 7 years, the rest of non-agency market is gone with the wind. Most of the $500B of ARM borrowers will not be able to refi and 20% of them will foreclose. When, (no if), Countrywide files for bankruptcy, 50% of the ARM deadbeats will foreclose.
Say goodbye to the real-estate market and admit that it was one of the largest bubbles know to this country.
Further to my post of yesterday. The red menance is out and about with threats. Now China and the damn Ruskies are conducting joint war games and flying long range bombers. This is making my blood boil.
We will have to deal with these guys. The commies and the islamic extremists are trying to form a united front. Yes, they need to be mentioned in the same breath. We need to take down Iran like yesterday.
http://www.topix.net/content/ap/2007/08/russia-sends-long-bombers-back-on-patrol
Russia Sends Long Bombers Back on Patrol
By IVAN SEKRETAREV
The Associated Press
August 17, 2007
President Vladimir Putin placed strategic bombers back on long-range patrol for the first time since the Soviet breakup, sending a tough message to the United States on Friday hours after a major Russian military exercise with China.
Putin reviewed the first Russian-Chinese joint exercise on Russian soil before announcing that 20 strategic bombers had been sent far over the Atlantic, Pacific and Arctic oceans _ showing off Moscow’s muscular new posture and its growing military ties with Beijing.
‘Starting today, such tours of duty will be conducted regularly and on the strategic scale,’ Putin said. ‘Our pilots have been grounded for too long. They are happy to start a new life.’
Putin said halting long-range bombers after the Soviet collapse had hurt Russia’s security because other nations _ an oblique reference to the United States _ had continued such missions.
‘I have made a decision to resume regular flights of Russian strategic aviation,’ Putin said in nationally televised remarks. ‘We proceed from the assumption that our partners will view the resumption of flights of Russia’s strategic aviation with understanding.’
U.S.-Russian relations have been strained over Washington’s criticism of Russia’s democracy record, Moscow’s objections to U.S. missile defense plans and differences over crises such as the Iraq war. But the Bush administration downplayed the significance of the renewed patrols.
‘We certainly are not in the kind of posture we were with what used to be the Soviet Union. It’s a different era,’ State Department spokesman Sean McCormack said. ‘If Russia feels as though they want to take some of these old aircraft out of mothballs and get them flying again, that’s their decision.’
Soviet bombers routinely flew missions to areas where nuclear-tipped cruise missiles could be launched at the United States. They stopped in the post-Soviet economic meltdown. Booming oil prices have allowed Russia to sharply increase its military spending.
Russian Air Force spokesman Col. Alexander Drobyshevsky said that Friday’s exercise involved Tu-160, Tu-95 and Tu-22M bombers, tanker aircraft and air radars. NATO jets were scrambled to escort the Russian aircraft over the oceans, he said, according to the ITAR-Tass news agency.
Eleven Russian military planes _ including strategic bombers and fighter jets _ carried out maneuvers west of NATO member Norway on Friday, a military official said.
Norway sent F-16 fighter jets to observe and photograph the Russian planes, which rounded the northern tip of Norway and flew south over the Norwegian Sea toward the Faeroe Islands before turning back, said Brig. Gen. Ole Asak, chief of the Norwegian Joint Air Operations Center.
A pair of Russian Tu-95 strategic bombers approached the Pacific Island of Guam _ home to a major U.S. military base _ this month for the first time since the Cold War.
Last month, two similar bombers briefly entered British air space but turned back after British fighter jets intercepted them. Norwegian F-16s were also scrambled when the Tu-95s headed south along the Norwegian coast in international air space.
‘This is a significant change of posture of Russian strategic forces,’ Alexander Pikayev, a senior military analyst with the Moscow-based Institute for World Economy and International Relations, told The Associated Press. ‘It’s a response to the relocation of NATO forces closer to Russia’s western border.’
NATO has expanded in recent years to include the former Soviet republics of Latvia, Lithuania and Estonia as well as the Czech Republic, Hungary and Poland.
As of the beginning of the year, Russia had 79 strategic bombers, according to data exchanged with the United States under the START I arms control treaty. At the peak of the Cold War, the Soviet long-range bomber fleet numbered several hundred.
Friday’s war games with China near the Urals Mountain city of Chelyabinsk involved some 6,000 troops from both countries, along with soldiers from four ex-Soviet Central Asian nations that are part of the Shanghai Cooperation Organization, a regional group dominated by Moscow and Beijing.
The former Cold War rivals share a heightening distrust of what they see as the United States’ outsized role in global politics, and they have forged a ‘strategic partnership’ aimed at counterbalancing Washington’s policies.
The United States, Russia and China are locked in a tense rivalry for influence in Central Asia, the site of vast hydrocarbon resources. Washington supports plans for pipelines that would carry oil and gas to the West and bypass Russia, while Moscow has maneuvered to control exports. China also has shown a growing appetite for energy to power its booming economy.
Putin, Chinese leader Hu Jintao and other leaders of the SCO nations attended the joint exercise, which followed their summit Thursday in Kyrgyzstan’s capital Bishkek.
The summit concluded with a communique that sounded like a thinly veiled warning to the United States to stay away from the region: ‘Stability and security in Central Asia are best ensured primarily through efforts taken by the nations of the region on the basis of the existing regional associations.’
Putin hailed the exercise _ which involved dozens of aircraft and hundreds of armored vehicles countering a mock attack by terrorists and insurgents striving to take control of energy resources _ ‘as another step to strengthen relations between our countries.’ Hu said the maneuvers ‘underlined the SCO’s readiness to confront terror.’
The exercises underlined that ‘the SCO wants to show that Central Asia is its exclusive sphere of responsibility,’ said Ivan Safranchuk, an analyst at World Security Institute
Russian Deputy Foreign Minister Alexander Losyukov said the exercise was not aimed at the United States.
‘I don’t see anything anti-American in the SCO exercise,’ he was quoted as saying by the ITAR-Tass news agency.
The SCO was created 11 years ago to address religious extremism and border security issues in Central Asia. In recent years, the group has grown into a bloc aimed at defying U.S. interests in the region.
In 2005, the SCO called for a timetable to be set for the withdrawal of U.S. troops from two member countries, Uzbekistan and Kyrgyzstan. Uzbekistan evicted U.S. forces later that year, but Kyrgyzstan still has a U.S. base, which supports operations in nearby Afghanistan. Russia also maintains a military base in Kyrgyzstan.
Iranian President Mahmoud Ahmadinejad, whose country has SCO observer status, attended the summit for the second consecutive year. On Thursday, he echoed Russia’s criticism of U.S. plans to deploy missile interceptors in Poland and a radar in the Czech Republic, saying they were a threat to the entire region.
___
many vacan homes in Monroe, NJ! anyone notice them? many flippers are really screwed. they have refused to lower their asking prices.
i honestly don’t understand why a person who list thier home $579,000 than lowers their price to say $559,000? If you are going to lowe you price in this makret try $519,000 and that may get more intersted buyers attention.
On a person note, i applied for a pre-approval from a local bank in NJ and it definitely looks like they want a minimum 20% down payment along with a good FICO score.
#386,
The reason these people don’t want to lower their prices is because the bought them for 700K+. To take a 200K hit on a house that you owned for 2 years is a rough choice, especially since the rest of the state has not taken such hit, not just yet.
Hurricane Dean could make things interesting. It’s expected to strengthen to a category 5 and could threaten the Gulf coast of Texas by the middle of next week. The economy is already on shaky ground and many homeowners are already over extended, with the safety net of additional home equity extractions to stay afloat diminishing. If oil and natural gas production takes a hit, things could get ugly.
The commies and the islamic extremists are trying to form a united front.
The Russians have even more problems with Islamic fundamentalism than we do. Look at all the problems they are having with Chechnya.
They are not forming a united front.
#388,
I love hurricanes, I am long land based gas drillers. Bring it on!!!
As a matter of fact, the recent rise of Islamic extremism (funded in part by the CIA and our allies in Saudi Arabia) was in response to the Communist occupation of an Islamic nation (Afghanistan).
CAIBC – Sorry, disagree. So let’s say i want a house in Ridgewood. And the owner takes 20% off his price. Even if we are looking to buy and live for 20/30 years, why should i still buy right now? Can you give me a good reason?
All the signs point to massive foreclosures this year and next. Nobody wants to buy and then in 1 year their house is worth 20k less because of what else happens in the area.
The best strategy, if possible, is to be patient. Prices will come down much, much more. That house you really like for 600k right now? Just a guess, but asking could be down to 500k this winter and maybe 450k next summer.
Please study that NYT chart someone linked and tell me how far we have to come down. Biggest. Real estate. Runup. In. Us. History.
Capirro (376)-
“I am not going to give it away” = “I will pound myself in the head with a ball peen hammer before I face reality.”
Red Blooded [385],
No argument on my part. It’s a major problem brewing.
That said, I won’t be carrying my flag when I look at the whites of a sellers eyes and bid 30-40% off 2005. No contingencies, fill or kill. After all, every real red blooded American marches to the tune of capitalism.
bath (392)-
If you’re going to occupy a home for any real length of time (10 years plus), accept the fact that during some stretch, you may very well be upside-down. It doesn’t matter if you’re in negative equity…as long as you don’t need to sell. Buying for the long term and finding yourself 20K upside-down one year into your occupancy is not a big deal.
Trying to catch some absolute bottom- that won’t be broached again for an entire generation- is not humanly possible. If anything, I expect the boom/bust patterns in RE to intensify in freuqency and amplitude in the coming years.
As in any market, attempting to call or catch a bottom is a shaky approach.
valid points, clot. we’re going 30 yr fixed anyway … but want to try and get as close to the bottom as possible.
it is nice, however, to be stacking the chips on the sideline as prices fall. my humble guess is that prices will steadily be falling for at least the next year.
361, Clot.
You reminded me of an interview I heard a while back with a professional landlord. He was laughing at the small time “investors” and at people who rented what they couldn’t sell.
His take was that it is a business, not to get emotional, hard work and only worthwhile with an appreciable number of rentals – he owned 60. He had full time maintenance and cleaning staff and was happy to take section 8 because as he said “I get the check on time”.
We looked at moving to a bigger rental to wait out the bubble, but I did’t want to deal with a one off emotional landlord. Too in your face, too nervous, not responsive enough, and why deal with someone who wants to sell the house you live in?
I only rent from companies – they are flexible about things like painting, don’t spend their time checking up on me and offer 24/7 maintenance. My air conditioner goes out at 2 in the morning in August, I have someone out there 10 minutes later fixing it and a replacement the next morning.
“The John Edwards presidential campaign said on Friday that Mr. Edwards would divest his portfolio at a New York hedge fund of investments in subprime mortgage companies that have foreclosed on victims of Hurricane Katrina. But the campaign said he would keep his $16 million investment in the hedge fund, the Fortress Investment Group.”
http://www.nytimes.com/2007/08/18/us/politics/18edwards.html?_r=1&ref=us&oref=slogin
Where the f*** is George Bailey?!! He knows how to save an S&L!
James……have lunch on me today…
Appreciated, but donations go towards hosting and blog-related costs only.
jb
Donations pay the 2% management fee for the NJ Vultures Fund.
OT
Anyone have any info on where to search for rentals in Somerset county, particularly Basking Ridge, Bedminister area?
Also, what would be the local newspaper with units for rent…
thanks in advance
afe
392
‘accept the fact that during some stretch, you may very well be upside-down. It doesn’t matter if you’re in negative equity…as long as you don’t need to sell’
A very foolish plan.
Any idea why wage inflation has been so uneven? My employer pays temps doing data entry (mindless work, only skill required is typing) about $20/hour. On the other hand I know teachers just starting out who are getting less than that ($20k-$30k per year).
I remember doing data entry while I was in college and getting paid $8.25/hour for it. WTF happened?
it is nice, however, to be stacking the chips on the sideline as prices fall. my humble guess is that prices will steadily be falling for at least the next year.
This is my logic as well. Hoping to buy possibly in the winter of 08/09 or spring of 09.
405
I’m with you there but we’re thinking more along the lines of 2009-2011.
Check out the front-page article in the NYT Sunday RE section — no bubble in city RE prices,and everything will be fine because NYC is unique & there’s an endless supply of foreigners who want to live here. Phew, that’s a relief (sarcasm off/)…
I’m with you there but we’re thinking more along the lines of 2009-2011.
My key word in there was “hoping”
Lets put it this way, i’m a VERY patient person :)
Think of the home as being ‘long’ on a stock….cept you live in whilst you wait for the run up.
Think of the home as being ‘long’ on a stock
Nothing worse than being married to your position.
jb
Exactly, JB.
Let’s say you buy a great house tomorrow at what you think is a great price.
Six months later, you get a better job offer in a city you’d like to move to. I’m wiling to say (with some confidence) that if you had to sell in January, you’d take a loss on your new house.
Who wants that? I know …. there are a million scenarios that could happen, but my opinion is that unless you REALLY REALLY have to buy now … you shouldn’t.
I know someone who might be in that position–albiet in NC–but you know the fact is, you ‘live’ in a home….you live with a stock….apples and oranges….yet market goes up and the market goes down. I view a home — as a potential windfall in good times — and shelter in bad….married or not.
JB…all this talk about house prices declining…any noticiable reductions in home sale prices in the BC area? ridgewood, glen rock, fair lawn…i hope this weekend will be open house galore…
is there any website that tracks open houses? when/where?
thanks
CAIBC
Prestigious Bergen County never declines. Nuclear armageddon could occur and a POS will still start at $500,000.
(Insert Forrest Gump voice here…)
In fact, I had realtors tell me that Bergen County’s population is growing at 15% per year and on top of that, real estate never goes down… ever. It didn’t go down in the late 80s/early 90’s either. That was the rest of the country. I was told that because of proximity to NYC is the reason for the forever price increase.
One realtor also told me that the so-called bubble is a bunch of b*llsh*t and I better buy soon or I’ll be priced out forever. Especially in Bergen County, because it has prestige.
This, my friends is the gospel…..”Clotpoll Says:
August 18th, 2007 at 12:13 pm
bath (392)-
If you’re going to occupy a home for any real length of time (10 years plus), accept the fact that during some stretch, you may very well be upside-down. It doesn’t matter if you’re in negative equity…as long as you don’t need to sell. Buying for the long term and finding yourself 20K upside-down one year into your occupancy is not a big deal.”
And I may add, especially if you ‘like’ where you live and find comfort there, good times, great memories…..you cannot separate the life of a home from this simple equation….IMHO
I hope they don’t alter the bankruptcy law, these a**holes priced me out of a house. It serves them right. Foreclose!!!!
http://www.nytimes.com/2007/08/19/business/yourmoney/19bankrupt.html?pagewanted=3
“For Mr. Cossette, 37, who is now a renter, homeownership no longer has much allure. “You put your life’s sweat into a piece of real estate that may or may not go up in value,” he said. “So I don’t have a house. That’s O.K. with me.”
Mr. Cossette said he may never again own a house. He would not consider buying, unless he could put 20 percent down, he said. His experience with the home lending system has left him understandably jaded, and he has a suggestion for policy makers.
“Hopefully, they will make it harder for people to buy houses in the long run,” Mr. Cossette said. “Maybe others can learn from this.” “
Hi, have a question for our “real estate agents” on the board. Is there a time period in which a seller should be responding to your offer? I made a low ball offer of $150,000 below asking for a major fixer upper and they came back with $25,000 less and we than came back with $25,000 more stating it was our final offer (still 125,000 below asking) and I have not heard from them or the agent in 2 days!!
Whats up!!!! Is there some kind of law that they need to respond within a certain time period EVEN if its NO!!! Its the not knowing that is killing me PLEASE HELP!!!!
What do I do. I do not want to be a real jerk after such a low ball and put a time frame!!
NEED SOME ADVICE and facts….what to do…what to do?
Do you think they are insulting and them not responding is gently saying kiss my %$#@!!!
Thanks anyone!!!!!!
Poole
http://www.bloomberg.com/apps/news?pid=20601109&sid=a20JTpGk5JgM&refer=home
Poole and Paulson set up a short squeeze on Friday.
Chifi,
Do you think the market has already priced in a 50 basis point fed fund cut?
417 Frank:
From your link. These people could have lived perfectly well if they had lived within their means. Their original mortgage was quite affordable, and they could have refinanced into a really low rate. It shows the damage of HGTV and relentless consumerism:
“For Sue Ellis, 47, a nurse in Northford, Conn., the road to bankruptcy began with a home improvement project six years ago. “If I had it to do over again, I never would have redone my kitchen,” she said.
The first refinancing added $40,000 to her original mortgage of $140,000 on the small ranch house she bought in 1997. She was a single parent and wanted to have a backyard for her two children. The monthly payment on the original mortgage was about $850.
Ms. Ellis has since remarried, and she and her husband, Robert, a salesman at an industrial equipment company, make about $85,000 a year. But the higher mortgage and other bills led to two more refinancings, in 2003 and 2005, each to pay off about $40,000 in credit card debt. “We were using credit cards to pay the bills and then we refinanced to pay off the credit cards,” she said. “It’s a vicious cycle.”
Today, her mortgage debt is $260,000, and her monthly payments are $2,400. The value of her house, said Mr. Crane, her lawyer, is about $200,000. Ms. Ellis is a month behind in her mortgage payment and is not in foreclosure yet. But she has also accumulated more than $20,000 in credit card debt, and she is filing for Chapter 13 bankruptcy.”
Problem as I see it is spending coupled with the unregulated credit card industry charging usery rates — and driving people into a corner…albiet voluntary.
P.S. another way to look at it–you buy a fixer upper for $250k and put another $150 into the house….In essence getting the house you want as your earnings go up–
“# Essex Says:
August 18th, 2007 at 7:41 pm
Problem as I see it is spending coupled with the unregulated credit card industry charging usery rates — and driving people into a corner…albiet voluntary.”
Mostly agree. No need to blame an unregulated CC industry, though. It is consumers’ own fault for plunging into debt.
Excluding extreme cases involving medical issues, or extended unemployment, most excessive credit card debt stems from people buying crap they don’t need. Plasma screen tv’s, sub-zero fridges, designer clothes etc.. Are those things really necessary? Buy them if you have the money.
I have a decent professional job, and i can tell you that the overwhelming majority of my peers, including people making near or over 6 figures, have barely enough money saved for closing costs of a house. I’m 28, by the way.
It’s been said that the american savings rate is the lowest since the depression. These statistics seem to hint at the idea that this is one of the main reasons of our current financial situation as a country. This has me very concerned because it seems as if the way out involves increasing our savings.
I say it’s concerning because the cornerstone of the economy is consumer spending, is it not? I am therefore concerned that this wake-up call to start saving more may actually harm us by restricting economic growth in the short- medium term.
Disclaimer: I have never studied economics or finance, so what is stated above may be totally off-base. I actually hope i’m wrong. Maybe chi-fi can chime in here.
#423 — yes — encouraged to SPEND and yet if we decide austerity is the right move, watch a couple of automakers die off…and retailers plunge into a funk. I believe that the gov. needs to regulate CC companies…universal default is patently unfair…charging anything over 12% is also a ripoff, yet it is routine….also agree on the wage thing — you tend to make what you spend — or is it the other way around?
I live in a garden apt. complex & I just closed the door & turned the computer back on to tell you all that someone was handing out flyers for their open house tomorrow.
Guy rang the frickin’ door bell at 8pm to hand out flyers for an open house… and let me tell you I’m really disappointed because I thought it was our sushi delivery.
^^LOL….can you smell the desperation? Damn. I am gonna bury my head in the sandfor 5 years and pray that we both keep our jobs…..j/k or not.
New Investor 423:
I think you nailed it on the head. I’m a saver and live below my means. We are one of the few who will take advantage of the downturn. My peers sound a lot like the people mentioned in these latest news articles. Keeping your credit clean will be the other piece of getting out of this current log jam alive.
There are many here who are buying the story that the current credit crunch and minor stock market correction are only minor bumps in the long term uptrend of our economy.
I’m clearly on the other side of this argument. In my humble opinion, it was the mass consumerism driven be easy credit and skyrocketing home equity made available by artificially inflated home prices that drove this long bull market recovery and excellent economic growth. As credit tightens further, especially credit card credit, the economic growth is going to reverse. Is it any surprise that the credit card companies lobbied to alter the bankruptcy laws last year to make it nearly impossible to get out of a personal bankruptcy.
There is a widespread rumor that the fed opened the discount window to help a few banks to avoid insolvency. It is most likely that they can’t do much more to keep our dollar from devaluing further and causing a treasury debt crisis.
I have half my next home down payment bet on the continued collapse of the real estate markets. That is how confident I am of this current market crisis being only the start of worse things to come.
Save your money, keep your credit spotless and you’ll be in a great position in two to three years. Just hope you get to keep your job ;)
“Think of the home as being ‘long’ on a stock”
We need additional information regarding your longs. Like being long the H-B’s in the summer of 2005? I’ll take the other side of that trade. Akin to being long calls? Why not sell the calls and take in premium? It’s better than receiving rent. No tenants, noise, bounced checks. It even works while you are asleep. If that doesn’t float your boat, maybe think of it as being short. Margin interest is at an all time high, similar to inventory. In addition to this, the short tick rule is buried with liar and ninja loans.
I agree in principle with the poster #427….austerity is the new way and those who cannot abide will surely suffer. The next 12 months should prove fascinating….
BC Bob…….I’m long on ideas and short on cash.
>>I’m a saver and live below my means. We are one of the few who will take advantage of the downturn
you’ll start getting gray hair and still be waiting for the bargain basement prices. Being a homeowner you are pumping money into the economy to maintain it also via property taxes. You’re a stable source of income for the town and the federal and state govt know it so you get all those juicy tax benefits. RE is rigged to succeed folks. Everytime it takes it on the chin it gets right back up and marches on. Be careful trying to time the market doing so has made fools of way smarter people than us.
bob, here is more whachy stuff:
listed at $1.1M, sold at $1.4M.
i thought it should be opposite.
http://sfarmls.rapmls.com/scripts/mgrqispi.dll?APPNAME=Sanfrancisco&PRGNAME=MLSLogin&ARGUMENT=zvKJ9efrbFlwqvsrsX5LUmV%2BT7ipp1Go%2FpPrrrfPVzk%3D&KeyRid=1&isPreview=Y
You only live once so live large or die trying….certain ones among us are risk takers and for those the fruits of life await the bold. Others will sit idly by as their time slowly arrives. They have saved, but not savored life.
Prices in Bergen? If you’ve been here long enough, you’ve seen Rich in NNJ’s posts.
Yes, asking prices in Ridgewood and Glen Rock have gone down. In some cases, significantly.
Hey Clot – your 04/01 portfolio is down 19.11% to date – now you know why I was suggesting t-bills, huh? You couldn’t see this s*it storm coming, but I could. Oh, you can go back to giving everyone your *expert* analysis now. Tell us all about the PPT – I’m in awe. If you want to understand the true definition of a “pissant”, just look at a collection of your posts. We should all be as wise as you.
#409,
Owning a home is not being long the stock market; it’s being short the bond market.
434 Essex.
1. Have you previously received funds in excess of $5,000 from a parent, grandparent or from other sources and not directly generated by your own productivity?
2. Do you EXPECT to receive such a windfall in the future?
3. As an adult, do you live in or have you ever lived in a home owned by another person, at a reduced or zero expense, effectively creating both windFall Items (1) AND (2)?
4. Have you, as an adult (over the age of 19), incurred a large expense, such as a wedding or the consumption of a college education, which was partially or totally financed by another person or institution as a result of no productive action of your own?
If you answered “Yes” to any of these questions, it is understandable that you have a “risk it or you can’t enjoy life” attitude towards wealth.
I believe risk appreciation/aversion tends to be in indirect inverse relation to level of windfalls one has received in the past.
Note that “getting burned” can also have a effect of teaching risk aversion, which could override the effects of past windfalls.
Please feel free to contradict my opinions with your own personal experiences, if you are willing to admit or deny receiving windfalls.
‘They have saved, but not savored life.’
This is BS. There is a large variation in how people experience risk. Some need to stay on the edge to be happy, others find this makes them very unhappy. Risk takers often seem to assume that those who avoid the risks they revel in are morose; it may not be so.
How often do you hear about a rich person risking everything they have on anything?
There is a big difference between the average Joan risking losing her home, credit rating, and savings by buying into a declining market and someone like Bill Gates – starting MS with a college buddy while his rich parents are available to bail him out should he fail.
Happiness is correlated with income:
http://pewresearch.org/pubs/301/are-we-happy-yet
Happy people may be more risk averse.
http://dscholarship.lib.fsu.edu/undergrad/115/
http://www.aeaweb.org/annual_mtg_papers/2007/0106_1640_0101.pdf
Here’s one for those who might have been scratching their heads at some of the terms tossed around lately…like “permanent income.” Enjoy. ;)
Oops, Uber Comrade Pat Says:
August 19th, 2007 at 8:50 am
says it all – thank you
And? Whats next folks? More bailing out??
personally Essex, I find your line of reasoning a bit perplexing
essentially -> buy a house = risk taker?
Most people buy a house. It’s not brain surgey and it doesn’t take balls of steel. However, sometimes people need to take a step back and recognize massive and obvious stupidity when it is served up as such.
on a separate note
I know expressing your thoughts in one or two sentences is limiting. I’ve come to learn over the past two years on these threads what a bad typist I am, and how desperately I rely on word processing.
lisoosh (397)-
Precisely. Being a landlord should be a business choice, not a “Plan B” in case one can’t sell property.
The accidental landlord serves neither himself nor the public.
afe (402)-
Send Grim an e-mail, and I can direct you to a good rental resource.
The Courier-News has rentals in Bedminster/Basking Ridge, but following from #443 above, you don’t want one of those “accidental landlords”…and the papers are full of them.
Tough crowd…my point is at some time in life you have to jump in and “buy” — that’s it. Nothing more. Mostly directly at all the scared first timers out there.
boken (403)-
What’s foolish about it? D’ya think that going upside-down on a property- at any point in time- is a sign you “overpaid” for it?
The only time you find out if you overpaid for RE is when you attempt to sell it.
Please elaborate on your point.
P.S. Buying a house is not rocket science and my thought is that ‘renting’ them isn’t either. IMHO
jg (418)-
Some sellers try to “sweat” the buyer by not responding and forcing the buyer to initiate all communication. It is a very effective technique in “up” markets (and one I used a lot back then).
However, the seller of an overpriced POS fixer has no real leverage in this environment. They’re playing a gambit that has no real juice (other than making you squirm).
The seller has no legal obligation to communicate with you.
Don’t let your nerves get the best of you. This POS might be a diamond in the rough, but it wasn’t enough to compel you to pay up. Chances are, if you don’t want to pay up, this one’s not going your way (at least not right now). Move on; or at least let the seller get the idea you’re moving on. Three months from now, that place might still be there…and the seller might be more open to your offers.
Essex (447)-
Simple does not mean easy.
Let’s say over the next few years real estate values in our area remain flat to down. Meanwhile, property taxes continue a relentless rise upwards around say an average 6.8%/year. How will homeowners and potential homeowners feel about the property tax part of this equation? With rising property taxes no longer cushioned by rising appreciation (according to my hypothetical), will the ability to write off property taxes if you itemize be sufficient to keep property owners from growing restive towards our elected officials in the absence of meaningful property tax reform?
Essex Says:
August 18th, 2007 at 11:43 pm
“You only live once so live large or die trying….certain ones among us are risk takers and for those the fruits of life await the bold. Others will sit idly by as their time slowly arrives. They have saved, but not savored life.”
Yikes! Here we go again! Didn’t we already have this “you can’t start/enjoy life until you are a homeowner” debate?
Remember –
Only homeowners enjoy Christmas
Only homeowners barbeque
Only homeowners love their children
Now, only homeowners savor life……..
silly
judicious1 (436)-
Welcome back, you lowlife troll. If you actually kept an eye on anything here- or had any desire to contribute anything other than venom vs. me- you’d know that as of the beginning of this summer, I went almost entirely to cash (BC Bob can confirm this for you). I’ve been on the sidelines until last week, when some compelling values became too attractive not to buy.
You may not appreciate my take on things, but it’s mine and it’s honest. Stop lying when you put up these posts about me.
Now, kindly drop dead.
Essex Says:
August 19th, 2007 at 10:06 am
P.S. Buying a house is not rocket science and my thought is that ‘renting’ them isn’t either. IMHO
Essex: if you think being a landlord is easy or notably more profitable than investing in liquid and publicly traded securities, then you are underpricing risk
Essex (447)-
Welcome to a battle I waged with several folks here about 8-9 months ago. My point then was that there’s a contingent here who will NEVER, EVER buy a home, because the sun, moon and stars will never align themselves in such a way as to allow them to pull the trigger. These people have imposed so many contingencies upon themselves- and the market- that there’s no way they can all be cleared.
You can tell just by reading the threads here who’s preparing to take advantage of this market…and, who’s not.
Looks like all those trips to China have paid off for Hank Paulson. He finally convinced China to diversify their assets and get into the game.
http://biz.yahoo.com/rb/070819/china_financial_agency.html?.v=1
#454 -“These people have imposed so many contingencies upon themselves- and the market- that there’s no way they can all be cleared.”
Clot – Which contingencies do you feel are unreasonable?
great film for prospective “yuppie” landlords:
“pacific heights”
http://www.imdb.com/title/tt0100318/
Hollywood’s take on risk
Clot:
‘What’s foolish about it? ‘
Why should a person who has no pressing reason to do so, risk losing 20k? The original post suggests a risk averse person. What is the expected value of the bet that justifies it?
To 450 -Twice shy:
You can expect a lot of restlessness in the future electorate regarding porperty taxes. But, while Corzine was not able to push thru the consolidation that he originally wanted. He has set it in motion, by creating a 2 tier political class starting next year, which will be more apt to tare everything down and start anew.
Essentially after 2/08. Elected officials can’t have more than one elected position, and will not get a public pension, they will get a 401k plan.
There is nothing like jealosy & envy to destroy something.
I myself was renting for a few years in NJ (a house on a couple of acres of land in Montville) and in chicago–3 different apartments…..and in FL….what I found was that you are beholden to a 3rd party….these people can be completely invisible (preferable) or they be a pain in your ass….for example The Montvillee rental had the owners kids accessing the property to ride 3 wheelers sometimes. Not often but annoying. In ChiTown the landlord let the property decline until it was falling apart…..I also have dogs (both now 14 years-old) and that limits ‘where’ I can live if I rent. These issues disappear once you own. Quality of life increases significantly if you can afford it. And yes, it IS expensive.
‘Quality of life increases significantly if you can afford it.’
Other people actually have different views of quality of life than you do. I know this is hard to believe.
I wouldn’t speak for other people here, in other words “the opinions expressed in this blog are the one’s from my own experience and not necessarily endorsed by the population at large”…..
I also prefer blondes, whereas some guys like brunettes….see?
Essex – what is with the buy buy buy sales pitch? It’s getting old and you sound more like you are trying to convince yourself that your sense of superiority is justified.
Renting and owning both have their place. Renting can suit those who need flexibility and fixed costs. Ownership can suit those who prefer stability and can weather variable expenses. Preferences can depend on family situation and income and most people own and rent at different stages in their lives, it is not an either/or proposition.
Give it a rest.
Thanks, (as always) Clot!
BI: whachy
Worst spelling error ever.
A couple of things:
1) I noticed in the RE section of the Sunday papers that the lenders are now stating that PMI is back from the dead and most are saying that jumbo loans require 20% down. (insert evil laugh here)
2) In regard to property taxes, most people are like little bunny rabbits. They hop around, stare and eventually follow along. Nothing will be done about property taxes. I repeat, NOTHING WILL BE DONE. Once the sheep get over the shock, like zombies, they will pay up. A POS cape on a 50 X 100 lot with property taxes of $18,000/year sounds absurd now but in 5 or 6 years from now, the bunnies will hippity hop along with the other plebian hares and will assume the position, lube or no lube.
3) I think I smelt a whiff of blood. I’m still pessimistic but nonetheless, I’m going to the dentist this week to have my fangs sharpened for the first time in many years.
#235 You are a cry baby communist. Please Fed help us wahhhhhhhhhhhhhhh!!!
ahh let ESSEX moan….i think it is DESPERATE for sales……realtor I am sure…and the old sales pitch is stuck :(
Buying a house is certainly a ‘risk.’ If you want to be a risk-taker, go to AC with $500 and have fun. That’s not a terrible loss to swallow.
But right now, we’re waiting to buy for two reasons: 1) want asking prices to go down much further (they will), 2) when we do buy, we want to have money to furnish it, but a used car, and at the same time have 6 months of living expenses sitting in the bank just in case of a loss of job.
To me, just jumping into a house without having a short and long-term game plan is extremely risky.
I’m saying that if you live in an area (or plan to) more than 5 years, buying is the right move…simple.
I’m annoyed by all the pessimism and in fact think that the media is stoking these fires a little bit.
As for a ‘me’ better than ‘you’ attitude…you are reading a little too closely between the lines imho.
Never intended to pitch anyone, but i am a strong supported of owning vs renting. My 2 cents.
My take on the last 2 weeks is that we are going through a period of credibility crunch. Nobody wants to do deals because nobody thinks the other party will hold his end of the bargain. They can’t trust credit agencies with their ratings either. So no deals means no credit/debt flowing through the system. I foresee a lot of lawsuits hitting wallstreet and no matter how how low the fed lowers the rate, until credibility is restored, the market will not move.
Mortgage misery
Asbury Park Press
http://www.app.com/apps/pbcs.dll/article?AID=/20070819/NEWS/708190315
Homeowners facing foreclosure will get no help soon from a $30 million state rescue program because officials have suspended the effort before it even started.
The decision comes as foreclosure lawsuits in New Jersey are on pace to rise to their highest level in at least 12 years.
The state’s Housing and Mortgage Finance Agency has stopped the foreclosure rescue program after meeting with activists, who said the standards were so high that few homeowners in fiscal trouble would be able to qualify.
The delay will affect people like Stephanie L. Cannizzaro and her family in Manchester, who now face foreclosure because they cannot make payments on a high interest rate loan, commonly called a subprime loan.
Cannizzaro, 34, said she was told by state workers early this month to apply for a loan under the program. But when she did, she could not meet the stringent credit requirements.
“They’re rescuing people who are rich and had one late payment,” Cannizzaro said. “They’re contradicting themselves. They say their program is for homeowners who are suffering from predatory lending and adjustable-rate loans.”
…
Homeowners, like Cannizzaro and her husband, Paul, who have missed multiple mortgage payments, have already seen their credit ratings drop precipitously, Salowe-Kaye said. Most lenders won’t touch them, she said.
Yet even if the state’s requirements were lowered, the $30 million program would provide refinancing for only about 160 homeowners, Salowe-Kaye added.
“What are they going to do with the rest of the people in danger of losing their homes?” Salowe-Kaye asked. “This should not be the only thing out there today to help people. This program doesn’t deal with the most vulnerable.”
According to state data, 16,230 foreclosure complaints were filed in county courts through the first six months of 2007.
That’s well ahead of the pace for 2006, when 24,831 foreclosure complaints were filed, and more than any year since at least 1995, according to available records.
An Asbury Park Press analysis published in March showed that homeowners locally and around the state had borrowed heavily against their houses in recent years, and thus could be vulnerable to mortgage problems.
Nearly one in five mortgage loans granted for homeowners in Monmouth and Ocean counties, and across New Jersey, were subprime loans in 2005.
…
State officials announced the foreclosure rescue program in May. They had intended to issue bonds to pay for the program, which would feature 40-year mortgages with an estimated 6.75 to 7.5 percent interest rate.
…
Several lawmakers, such as state Sen. Ronald Rice, D-Essex, have called on the state to offer millions more in aid.
…
Taxpayers should not be on the hook to finance a bailout, Salowe-Kaye said. Instead, it should be the Wall Street firms that provided easy credit to unqualified buyers to begin with, she said.
Homeowner Cannizzaro said help can’t come soon enough for her and her family.
She said she and her husband had applied late last year for a 30-year, fixed-rate refinance loan, at 8.65 percent, from New Century Mortgage, and were prepared to make the payments on the $249,000 loan based on the paperwork they had received in the mail.
But the mortgage salesperson who showed up at their home in January to execute the closing told the couple that she was late for her next appointment, and asked them to sign the papers quickly. The salesperson, Cannizzaro said, told them the loan terms were the same as they had received by mail.
Cannizzaro said because of the rushed nature of the process, she and her husband didn’t read the paperwork before they signed.
Cannizzaro said they later realized they had actually signed an adjustable-rate loan for $272,000 that started at 11.3 percent and called for $2,900-a-month payments, at least $1,000 more than they had expected.
She said they also were charged points and origination fees they had not expected.
But since they signed the loan, lawyers the couple consulted have told them, they have no legal recourse.
New Century Mortgage of Irvine, Calif., once a major lender to borrowers with weak credit ratings, is in the process of being liquidated and no longer issues loans. It is one of a score of lenders specializing in loans to riskier homeowners to become defunct this year.
Cannizzaro said the couple is trying to renegotiate with the company that now owns their mortgage loan.
Cannizzaro said she and her husband, a New Jersey Transit employee, are volunteer members of the Manchester Fire Co. They would like to stay in Manchester, but the family faces foreclosure after missing four monthly payments totaling about $11,600.
If evicted, the couple and their three teenage children worry about where they will go, she said.
“We want to be here for the long term. We’re involved in the community, we love the neighbors,” Cannizzaro said. “For seven years we never had a late (mortgage) payment. But one bad loan, we’re going down the tubes.”
They should take the money they saved not paying their mortgage and rent a nice place.
from Market Watch
How to make a 30% lowball work.
http://www.marketwatch.com/news/story/real-estate-how-make-lowball/story.aspx?guid=%7BFF011A89%2D151D%2D4A7D%2DB730%2D4508B53E7169%7D&dist=hplatest
essex – in the last two years in the greater NY area, it has made more sense to rent than buy. Wages have not matched skyrocketing home values.
As for the Asbury Park story … cry me a river. Why on earth should taxpayer’s $$$$ go to idiots who bought places they could never afford?
I’m glad NJ suspended the program. Sorry, but there’s no way that these people should be bailed out. I don’t wish ill will against anyone, but either drop the price and sell for a loss, or walk away.
And all this, ‘you didnt know what you were getting into’ crap … buyer beware.
broken (458)-
Again, unless the owner has to sell, there is no “lost” 20K.
Many posters here over the past two years have screamed and shouted that the concept of equity is largely theoretical. I happen to agree.
However, one can’t have it both ways.
I hear ya man….I don’t mean to propose people waste money…we bought a decent place, fixed it up and then values increased — etc etc — if it works for you cool.
the open houses in the bc area were minimal…everyone waiting? i was looking in glen rock, fair lawn…
I just got back from taking the baby for a walk. We walked past a house listed by Weichert. Like many “for sale” signs, it had a “price reduced” sign attached to it.
Upon a closer look, it was actually an “under contract” sign covered in masking tape with a home made “price reduced” over the tape.
I wonder; did the house fall out of contract and the realtor was too lazy to change the sign? Or, did the office actually use-up all of their price reduced signs, but has plenty of unused “under contract” signs laying around?
472:
Stories like that make my blood run cold. Read the papers. I don’t care that the broker was late for her next app’t. That’s his or her goddamn problem! Read the papers. It’s a quarter-million dollars.
If these people kept the contract that the broker mailed to them, and if the papers prove or corroborate their story–that the mortgage lender duped them–they can petition a judge for relief.
But, man, what a bunch of nitwits, signing a contract without reading it.
So, for the last approx 20 years the US economy has been driven by a consumer economy and now it looks like the party is over. National debt is sky rocketing, the dollar is being actively devalued, M3 is no longer reported, and now the general population appears to be sinking in CC debt and Mortgage debt, and in my opinion the average person has been sacrificed by the FED et al, in order to prop up the economy after the tech bubble burst.
The question now is where does the economy go and what comes after consumerism is dead? I was born in the mid seventies, so all i have ever seen is a consumer economy in the US… I dont see us going back to a production/manufacturing economy for both environmental and global competition/wage issues. What then does that leave us, i dont really know myself. I think that the next 10 – 20 years has the potential to be “earth shaking” for a large part of the population due to a fairly drastic paradigm change from a consumer culture to what i dont know. Another question is how adaptable will the average individual be. Most of the current population has happily and completely adopted the consumerist mind set, how do these people behave when suddenly “keeping up with the jones” becomes financial suicide, which in the current market we arent far from.
I see some industries as being stronger then others with regard to future challenges. Pharma and HighTech still have potential, but i dont have much hope for the vaunted service economy we keep hearing about.
Thoughts? There are people here who know quite a bit more then me about many of these topics so please share and correct me if i am wrong on some of these questions. I hope this was clean, these are fairly details concepts to squeeze into a reasonable post….
‘there is no “lost” 20K’
The probability of their being able to buy later for 20k less is high enough to make immediate purchase undesirable for risk averse buyers.
http://www.nytimes.com/2007/08/19/business/19credit.htm
All through last year, Jim Melcher saw the signs of a rapidly deteriorating American housing market — riskier mortgages, rising delinquencies and more homes falling into foreclosure. And with $100 million in assets at his hedge fund, Balestra Capital, he was in a position to do something about it.
So in October, as mortgage-backed bonds were still flying high, he bet $10 million that these bonds would plunge in value, using complex derivatives available to any institutional investor. As his gamble began to pay off in the first months of 2007, Mr. Melcher, a money manager based in New York, plowed the profits into ever bigger wagers that the mortgage crisis would worsen further, eventually risking some $60 million of the fund’s money.
“We saw the opportunity of a lifetime, and since then events have unfolded on schedule,” he said. Mr. Melcher’s flagship fund has since doubled in value, even as this summer’s market turmoil cost other investors billions, forced the closing of several major hedge funds and pushed the stock market down 7 percent since mid-July. This week, Mr. Melcher is heading to Paris for a vacation with his wife.
So, who here is this? ;)
broken (482)-
That makes a lot more sense. Catching market “bottoms” is a risky business, though.
#481
That’s kind of what I was getting at in my post 424. Makes me kind of nervous for our economic future.
But, alas, what can I do? I just go to my 9-5 day after day, and try to accumulate as many rental properties as I can safely afford.
Even if the economy tanks, I’d hope my rental properties could help keep me going. Ideally, my investments could keep me afloat regardless of the economic climate.
However, if we really enter a depression, where people can’t even afford rent, I don’t know what I’d do…
vodka (481)-
Can any of this come as a surprise to us? After all, after 9/11- and at the onset of the Iraq war- our clown-in-chief exhorted us to go out and buy stuff. I can’t imagine I was alone in thinking that our government’s urging us to self-indulge at a time of national crisis was a teensy bit surreal.
Now, we have allegedly become a nation of profligate spendthrifts, ripping through our borrowed and mortgaged future like Stanley Johnson on that TV commercial.
What are we? I guess it depends on the circumstances and what the powers that be decide we should be. However, I don’t see us becoming a nation of savers overnight…even if Dubya goes on TV and tells us to stay home and eat ramen.
Kettle1: I hope I am wrong, but I think we may revert to something like a pre-World War II society in which there is a small, well-educated, well-paid upper class, a smaller middle class than what we have now, and a larger lower class. The years following the war were an aberration. We were the only industrial power still standing and that permitted blue collar workers to demand and receive middle class wages. That was unheard of and as we have seen, ultimately unsustainable. It did however, set the standard for the generations that followed.
Unfortunately, many of those workers have failed to notice that the world changed years ago and kept on spending and piling up debt as if their nice wages would go on forever. It is too late for them. Like the steel workers of the Monongahela Valley before them, many of today’s blue collar workers will just fade away as no one notices and no one cares. As they fade away, so will the consumer society.
What will take the place of a consumer society? A society of debt-averse savers, I hope. As for the next big industry, it will be health care, at least until all the boomers shuffle off this mortal coil.
Clotpol, Investor
Where do we go from here? Is it possible for us to become a net producer again? and of what?
I believe that our best hope would be to dump the majority of our resources into technology R&D. We will never be able to compete with india/china/(in the near future africa) on price. The only advantage that we currently hold and are rapidly losing is our science. Unfortunately i dont see this really happening.
Another point that i have only ever heard addressed once or twice and not by the mainstream is the concept of econimc grow. Continuos economic growth is not sustainable. As a rough example look at the numbers James bender was plaing with with the 4% growth over 500/1000 years. I think that we have to address that a contiuing growth of an economy will continue to use an increasing amount of natural resources that are ultimately limited. I think that eventually we have to look at our society/economy from a sustainability not grow perspective ( and i dont mean just environmentally)
It drives me nuts to constantly hear how we have a issue because our population growth rate is stabilizing and no longer growing. The MSM treat this as thought it is a problem. I do not believe that we can get past a lot of our current economic/societal issue until we figure out/ accept that we need to stabilize and not continue growth.
Clotpoll Says:
August 19th, 2007 at 6:46 pm
vodka (481)-
Can any of this come as a surprise to us? After all, after 9/11- and at the onset of the Iraq war- our clown-in-chief exhorted us to go out and buy stuff. I can’t imagine I was alone in thinking that our government’s urging us to self-indulge at a time of national crisis was a teensy bit surreal.
Clotpoll,
Scarily enough the majority of people jumped right into the spending game. And if you try to have a conversation like that which is taking place on this weekend thread most people thing you are a doomsday predictor/nut. Very few people seem to even consider a future that is not happy-happy-joy-joy spending, “oh and you mean i have to read the contract before i sign it…”
To jump in here, the future is green tech/renewable energy. Unfortunately big oil has been defining the energy policy for 25+ years, or this would be a bigger initiative.
It could make or break things for the next century and beyond. Hopefully the innovation takes place here.
#487,
I’m not really sure where we go from here. You’re right that we can’t compete with overseas pricing and labor. Sometimes i feel like we should focus inwards and try to encourage internal development somehow.
However, i do realize that is unrealistic. If we were to shift mfg here, things would simply become prohibitively expensive. I really don’t know how to fix it.
Regarding science being our forte: our future in that arena is not as bright as it may seem. I’m a scientist, and i can tell you that a huge majority of the scientific community is based on immigrants. Huge. Science education in this country is woeful. Only higher ed science is decent, but again, a lot of that is due to the influence of foreigners.
Add to the mix an administration that is anti-science in many ways, and I foresee a recipe for disaster. I firmly believe stem-cell research, for example, holds the key to breakthrough advance in medical science. Since this country is so against it, however, these breakthroughs are going to happen elsewhere.
I’ve read more and more companies building R&D facilities in China. That scares the sh*t out of me. It’s bad enough that so much manufacturing is done there. What the hell are we going to do here once R&D moves there too? Keep solely marketing and legal functions here?
“# MorCoNick Says:
August 19th, 2007 at 7:50 pm
To jump in here, the future is green tech/renewable energy. Unfortunately big oil has been defining the energy policy for 25+ years, or this would be a bigger initiative.
It could make or break things for the next century and beyond. Hopefully the innovation takes place here.”
I certainly hope you’re right. I’ve thought about that too, and really hope it pans out that way. It would kill many birds with one stone. All the hawks that say we need to take over the middle east and control oil seem to be forgetting that option….
Vodka (488)-
You don’t notice leadership until leadership doesn’t exist. Squandering multiple opportunities to both unite and lead the country will be the legacy of the Bush presidency. The daily miscues and blunders (WMDs, “Mission Accomplished”) will come to be seen as the symptoms of a deeper pathology.
I’m not at all in the doom-and-gloom camp or a believer that our best days are behind us. The minute the American people are dealt with honestly and given a reason for sacrifice, it will happen. The sad fact is, we awaited our marching orders twice within a three-year period, and the leadership of our country lacked the courage and foresight to deliver it.
A potential moment of transformation was preempted by a call to go shopping.
I have no doubt, though, that more such transformational moments loom close on the horizon.
#489, #490
I agree with both of you. I am an engineer in bio-tech and with regard to Investors point its very true, a lot of the incoming talent is foreign and i have serious questions about some of the home grown “talent” that is starting to enter the market. However i do believe that if tomorrow the “clown in chief” were to make science the US’s primary goal we have enough of a history to rise to the challenge. this ability will not last long as the continuing dumbing down of America is progressing at a scary pace.
MorConik:
I also agree with you that green and renewable is the future, i am already seeing instability in the biotech and traditional pharma fields that leads me to believe that they will ultimately loose a lot of ground in the US. A lot of the big companies are already talking about how many facilities will be left in the US and Europe 10 years from now because these 2 areas cannot compete on cost to india or asia. This is a very real concern as several of the big biotech companies already have these concepts in there 10 year plans and are looking at beginning implementation in the next 2-3. I have actually been considering trying to move into the green /renewable field as i think that has the best long term potential in any of the future paths the US may take
Clotpoll #493
I am not trying to say that the world is ending and there is definatly still potential here as
MorCoNick Says:
“To jump in here, the future is green tech/renewable energy.
It could make or break things for the next century and beyond. Hopefully the innovation takes place here.”
But until the general population opens there eyes and stops waiting for Fox news to tell them how to react it is going to be a very bumpy road.
It will probably be one of the larger bumps that starts the process of getting people involved, and an actual leader who is not a figure head with background players pulling the strings.
hope i havent been to long winded here, The discussions here are interesting and mentally challenging, a nice change from most boards :)
MCN (489)-
The innovation ALWAYS takes place here.
The green tech/renewable energy thing is as good a bet for a future economic driver as anything else out there. As Thomas Friedman has also noted, the minute green becomes patriotic, it can ignite the national will (not to mention, pack quite a macroeconomic wallop).
IMO, green has already got the momentum and credibility it needs. In the past month, I’ve been to two separate talks- by local REPUBLICAN leaders- on conservation issues. I cannot help but believe that many local and state-level Reupblicans sense the next election cycle is already lost and that green (with a strong capitalistic/patriotic streak) is their wedge back into electoral viability.
Vodka (495)-
Not at all. Real estate is- at its core- a boring and slow-moving asset class. That’s why the bad days here dissolve into troll fights and sports talk (and yes, I’m one of the worst offenders).
I think many of us sense the country is flailing about, looking for a more meaningful future economic driver than mall culture. To that end, any discussion of our economic future has an implicit real estate component.
Kettle1 #493, #494, do you think the population of Japan, and other countries, are waiting to hear what comes out of Fox news before developing some new technology?
And as for the “clown in chief” you’re no doubt ignorant of the fact that in 1997 under President Clinton, the US rejected the Kyoto Treaty (along with the US Senate 95 to 0).
Maybe you should watch Fox news, as what you’re watching/reading now isn’t working out too well.
“Clotpoll Says:
August 19th, 2007 at 8:09 pm
MCN (489)-
The innovation ALWAYS takes place here.”
It’s reassurring to think that we still have the best research institutions, but other countries are ahead in this particular field.
We’ve heard about Brazil’s energy independence. Iceland has been trying to do the same with hydrogen, though I’m not sure how scalable that would be.
I think the fear is that one of the developing nations realize that fossil fuel based economies are unsustainable and figure out a way to skip right to the next big thing.
Renewable energy – only solar energy and wind energy are feasible. Real “forever” source of energy:
http://www.iter.org/
but US’ would rather spend money on war in Iraq than developing this technology.
What about geothermal?
‘Catching market “bottoms” is a risky business, though’
‘Real estate is- at its core- a boring and slow-moving asset class’
These two statements seem inconsistent given that the subject of the discussion is RE pricing.
Does anyone have the link to the NYT article that someone mentioned regarding the real estate run up?
I’m waiting for the next genius to tap the same molecular pathways that plants use to convert solar radiation into energy for a new twist on solar power. That would be really innovative.
That reminds me. Another promising field in the USA right now is in nanotech. I believe that we are still world leaders in that technology, though I am not in the field so I’m not 100% sure. Maybe our vodka friend can chime in…
MCN (499)-
My faith in the USA’s future prospects has no basis in academia. IMO, academia has been complicit in the dumbing/numbing down of most of our mezzanine tier of population. We’re unto two generations now of public education turning out gazillions of sheeple who are no more that well-informed consumers who can perform the most basic of intellectual tasks only after direct, repeated and detailed instruction. Liberal education in this country has been, for the most part, replaced by overpriced, misrepresented and ill-intentioned vocational training. Even more disturbing is the fact that many fine vocational schools provide pure vocational training with none of the frills- or expense- associated with “higher education”, yet bear the brunt of being labeled as “18-Wheeler Techs” by the parents of millions of Nintendo-addled Muffy and Treys who invest 160-200K in their kids’ college “careers” and wonder why they’re going to be living at home until they’re 42.
Then, there’s the poorer and less-educated classes. I won’t even go there.
It’s informative that Bill Gates dropped out of Harvard when his plans to launch Microsoft began to play out. The entrepreneurial spirit is at fundamental odds with what passes for academic rigor…perhaps even more so today than ever before.
http://graphics8.nytimes.com/images/2006/08/26/weekinreview/27leon_graph2.large.gif
Is that what you’re looking for? Not an article, but a graph that’s often referred to in this blog.
Kettle1 Says:
August 19th, 2007 at 8:01 pm
MorConik:
A lot of the big companies are already talking about how many facilities will be left in the US and Europe 10 years from now because these 2 areas cannot compete on cost to india or asia. This is a very real concern as several of the big biotech companies already have these concepts in there 10 year plans and are looking at beginning implementation in the next 2-3.
K1: Don’t get so nervous. We just need to reach a new equilibrium. To simply this discussion, think about Corporations moving from NY to NJ. At first is was a slam dunk. Everything in NJ was cheaper, most importantly salaries and real estate. Now look at NJ. The emerging markets will be in the same basket, just given them 10-15 years. There are already shortage of workers with the proper skill sets in India and China. As a result, costs for those unique individuals are skyrocketing. Don’t fear the market; the market is your friend. On the flip side, don’t back your career into a corner, be intellectually curious and keep your skills current.
Broken (502)-
Not at all. RE pricing is always based on- and viewed in the context of- trailing indicators which are painfully slow in becoming evident. Not to mention the fact that it’s an asset class in which the product is not marked to market.
Just because RE moves slowly doesn’t mean it’s a simple read.
“As a result, costs for those unique individuals are skyrocketing. Don’t fear the market; the market is your friend. On the flip side, don’t back your career into a corner, be intellectually curious and keep your skills current.”
ChiFi, great point. As someone from India who worked there and now in the US, I would never underestimate the hard work and sincerity of the people in this great country. That in itself will get people through hard times, when push comes to shove.
# UnRealtor Says:
August 19th, 2007 at 8:27 pm
Kettle1 #493, #494, do you think the population of Japan, and other countries, are waiting to hear what comes out of Fox news before developing some new technology?
And as for the “clown in chief” you’re no doubt ignorant of the fact that in 1997 under President Clinton, the US rejected the Kyoto Treaty (along with the US Senate 95 to 0).
Maybe you should watch Fox news, as what you’re watching/reading now isn’t working out too well.
Unrealtor,
Japan is heavily involved in developing robotics and automation in response to there aging population. They have recently developed a functional exoskeleton for example. I dont know if you misunderstood some of my points or i misunderstood you, but foxnews and aging populations are not directly related in the manner in which i was discussing above. Currently a stable population where birth rate equals the replacement rate (approx 2.1 children/couple)is considered a bad thing in most public academic discussions. I believe that a stable population would be a good thing and would allow us to focus on progress instead of growth. However i am not ignoring the fact that in any of the worlds industrialized nations (i.e japan) there will initially be a negative impact in that for a short time there will be many more old people then there will be young people. Modern societies are not prepared for this especially with regard to entitlement programs and the solution is indeed an open issue….
My comment with regard to fox news was to illustrate that too many people rely on foxnews/cnn/cnbc for sound bits about the latest relevant issue. You cannot constructively and intelligently reduce a discussion of global warming/ethanol/nuclear power/ Iraq, etc to sound bits and (fair and balanced) interviews. These issues are defined in shades of gray and do not have 2 simple positions when discussing them. I feel that people need to take a proactive stance and find info for themselves. or example look at all of the people on this blog who actively ask questions and explore the issues of housing, finance, markets etc. This blog is a perfect example of how sound bits do not accurately describe the actual matter at hand. the ever popular “fair and balanced” concept says that there are 2 sides to the housing bubble. There either is or is not a bubble. But consider that everyone here should be well aware that there are indeed housing issues, but that not every place will see the same impacts in the same manner at the same time.
#504 investor
I think that we defiantly have the potential to lead the way in nano-tech but in the current political environment science has taken a back seat. I have seen some pretty impressive nano-tech demos and if we actively develop the filed we can dominate it
‘Just because RE moves slowly doesn’t mean it’s a simple read.’
Suggesting that catching the bottom of a very shallow curve is risky vitiates the meaning of the word ‘risk’.
Actually, I’ve been comtemplating this question over the last couple of years. Generally, the entire asset appreciation game is over along with the mindless consumerism. People are going to get back to basics.
The most basic thing when it comes to investing is the idea of whether that investment produces a level of cash flow and I believe this will be a major litmus test of when people look at where and what to invest in. The idea that you’re going to make money based upon the greater fool theory is now passe.
I think that owning a small business anchored to the everyday wants and needs of people will definitely come into vogue from an investment perspective, particularly if one can be a passive owner. In a way, small business represents the real economy in the sense that a substantial number of people are employed in them; employment growth is coming from the small business sector, not the large established corporations. As a matter of fact, most of the large corporations are the one’s doing all of the outsourcing. Businesses such as auto repair shops, laundermats, car washes and etc aren’t necessarily glamourous, but they represent stuff that people are buying everyday and can produce a decent amount of income depending upon how well they’re managed. They are also insulated from the ups and downs of the “asset” markets.
IMO one has to position himself to be involved in selling or producing what people really need whether you’re an investor or an employee. I’m looking at small businesses from an investor standpoint; something that has the potenital to produce income in perpetuity.
Kettle1 Says:
August 19th, 2007 at 5:19 pm
So, for the last approx 20 years the US economy has been driven by a consumer economy and now it looks like the party is over. National debt is sky rocketing, the dollar is being actively devalued, M3 is no longer reported, and now the general population appears to be sinking in CC debt and Mortgage debt, and in my opinion the average person has been sacrificed by the FED et al, in order to prop up the economy after the tech bubble burst.
The question now is where does the economy go and what comes after consumerism is dead? I was born in the mid seventies, so all i have ever seen is a consumer economy in the US… I dont see us going back to a production/manufacturing economy for both environmental and global competition/wage issues. What then does that leave us, i dont really know myself. I think that the next 10 – 20 years has the potential to be “earth shaking” for a large part of the population due to a fairly drastic paradigm change from a consumer culture to what i dont know. Another question is how adaptable will the average individual be. Most of the current population has happily and completely adopted the consumerist mind set, how do these people behave when suddenly “keeping up with the jones” becomes financial suicide, which in the current market we arent far from.
I see some industries as being stronger then others with regard to future challenges. Pharma and HighTech still have potential, but i dont have much hope for the vaunted service economy we keep hearing about.
Thoughts? There are people here who know quite a bit more then me about many of these topics so please share and correct me if i am wrong on some of these questions. I hope this was clean, these are fairly details concepts to squeeze into a reasonable post….
# 504
FYI current Photo solar power (i.e. solar electric panels) are currently approx 30% efficient, solar thermal is currently approx 40% efficient, but plants using photosynthesis are about 90% efficient. The realm of artificial photosynthesis is being actively researched and there are prototype solar cells that utilize some of the tech we have learned form the research, however there are many issue involved and it will most likely not revolutionize the world in the “very near” future. as with most tech this research will most likely give us new tech to work with slowly over time. This is a brief and greatly simplified discussion of the artificial photosynthesis matter, this is actually quite a bit on the web if you search it.
Clot 505
I’m sorry to say that I couldn’t disagree more in respect to your comments about liberal education being replaced by vocational education. Unless you can tell me at what level you’re referring to. As someone who works with kids, I can tell firsthand that vocational, art, music and even gym programs are being dumped whenever and wherever possible. High school seniors are still given economics courses. Although I’m not sure how many pay attention.
My beef is not with education, but with the hierarchy of the greedy CEO…who. by example plunders firms, lays-off workers and exhibits enormous greed and anti-worker sentiments teaching a younger generation to toss loyalty and hard out the window…
Good firms, and there are a few are often based in Europe now….Europe ‘gets it’. IMHO
Sorry Clot. I see you’re referring to post high school. It’s been a long day. Please forgive my inability to read right now.
broken (512)-
What I’m suggesting is, that no matter how “shallow” the curve appears to be, to presume the bottom is in- much less betting that you can catch it- is indeed risky. And, I’ll be the first to admit the curve may well deepen in coming months.
Look at how many people refused to see or to bail out (other than BC) at the top. Why will it be any different on the downstroke?
Thanks New Investor #506. On another note, just entered a contract on a home in Midland Park. Inspection on Friday revealed that the Furnace needs to be replaced, along with some other relatively small issues. I know that the seller already thinks she is ‘giving’ us the house for a bargain and will probably not give us a full credit. This is the 3rd home we have gone into contract on, inspected and had large issues.
There was another home in Wyckoff that we liked, but it is $600. We told our Realtor that we would like to make a bid for $510 and she said that would be obnoxious and told us not to bother. She is of the school of thought that Wyckoff, Ridgewood etc are not affected by the Subprime mess. This is someone who has been in the business for 20+ years.
That said, anyone know if a good Realtor in the Ridgewood area???
reinvestor101 #513
this is why i come here ( been lurking for a while:) )
I find you comments quite enlightening in that i have never really approached the matter from an investors angle (well i am an engineer..) But it sounds like some of your thoughts really boil the matter down to some of its baser functions.
Though i am not sure how a transition from a country dominated by big business to a country dominated by smaller business would proceed. And consider that for some fields such as Aeronautics (i.e space and aircraft) you will usually need big money behind that, so some fields may tend to stay closer to the big business model due to entry costs
Darn….”obnoxious” is pretty harsh….you gotta love an inflated sense of pride.
RE 505
Intelligence in the Classroom
Half of all children are below average, and teachers can do only so much for them.
BY CHARLES MURRAY
Tuesday, January 16, 2007 12:01 a.m. EST
Education is becoming the preferred method for diagnosing and attacking a wide range problems in American life. The No Child Left Behind Act is one prominent example. Another is the recent volley of articles that blame rising income inequality on the increasing economic premium for advanced education. Crime, drugs, extramarital births, unemployment–you name the problem, and I will show you a stack of claims that education is to blame, or at least implicated.
One word is missing from these discussions: intelligence. Hardly anyone will admit it, but education’s role in causing or solving any problem cannot be evaluated without considering the underlying intellectual ability of the people being educated. Today and over the next two days, I will put the case for three simple truths about the mediating role of intelligence that should bear on the way we think about education and the nation’s future.
Today’s simple truth: Half of all children are below average in intelligence. We do not live in Lake Wobegon.
http://www.opinionjournal.com/extra/?id=110009531
#519
Wonder how much of that is based on the reduced commission she would collect.
My parents just went under contract on a house in basking ridge that was originally listed at 600 something in 2006. Re-listed at 539k. Accepted offer of 500k. Just had home inspection, and several issues will need to be addressed.
If the seller doesn’t play ball, they won’t hesitate to walk. Lots of inventory still out there…
RE 505
What’s Wrong With Vocational School?
Too many Americans are going to college.
BY CHARLES MURRAY
Wednesday, January 17, 2007 12:01 a.m. EST
The topic yesterday was education and children in the lower half of the intelligence distribution. Today I turn to the upper half, people with IQs of 100 or higher. Today’s simple truth is that far too many of them are going to four-year colleges.
Begin with those barely into the top half, those with average intelligence. To have an IQ of 100 means that a tough high-school course pushes you about as far as your academic talents will take you. If you are average in math ability, you may struggle with algebra and probably fail a calculus course. If you are average in verbal skills, you often misinterpret complex text and make errors in logic.
These are not devastating shortcomings. You are smart enough to engage in any of hundreds of occupations. You can acquire more knowledge if it is presented in a format commensurate with your intellectual skills. But a genuine college education in the arts and sciences begins where your skills leave off.
In engineering and most of the natural sciences, the demarcation between high-school material and college-level material is brutally obvious. If you cannot handle the math, you cannot pass the courses. In the humanities and social sciences, the demarcation is fuzzier. It is possible for someone with an IQ of 100 to sit in the lectures of Economics 1, read the textbook, and write answers in an examination book. But students who cannot follow complex arguments accurately are not really learning economics. They are taking away a mishmash of half-understood information and outright misunderstandings that probably leave them under the illusion that they know something they do not. (A depressing research literature documents one’s inability to recognize one’s own incompetence.) Traditionally and properly understood, a four-year college education teaches advanced analytic skills and information at a level that exceeds the intellectual capacity of most people.
http://www.opinionjournal.com/extra/?id=110009535
Aztecs vs. Greeks
Those with superior intelligence need to learn to be wise.
BY CHARLES MURRAY
Thursday, January 18, 2007 12:01 a.m. EST
If “intellectually gifted” is defined to mean people who can become theoretical physicists, then we’re talking about no more than a few people per thousand and perhaps many fewer. They are cognitive curiosities, too rare to have that much impact on the functioning of society from day to day. But if “intellectually gifted” is defined to mean people who can stand out in almost any profession short of theoretical physics, then research about IQ and job performance indicates that an IQ of at least 120 is usually needed. That number demarcates the top 10% of the IQ distribution, or about 15 million people in today’s labor force–a lot of people.
In professions screened for IQ by educational requirements–medicine, engineering, law, the sciences and academia–the great majority of people must, by the nature of the selection process, have IQs over 120. Evidence about who enters occupations where the screening is not directly linked to IQ indicates that people with IQs of 120 or higher also occupy large proportions of positions in the upper reaches of corporate America and the senior ranks of government. People in the top 10% of intelligence produce most of the books and newspaper articles we read and the television programs and movies we watch. They are the people in the laboratories and at workstations who invent our new pharmaceuticals, computer chips, software and every other form of advanced technology.
Combine these groups, and the top 10% of the intelligence distribution has a huge influence on whether our economy is vital or stagnant, our culture healthy or sick, our institutions secure or endangered. Of the simple truths about intelligence and its relationship to education, this is the most important and least acknowledged: Our future depends crucially on how we educate the next generation of people gifted with unusually high intelligence.
http://www.opinionjournal.com/extra/?id=110009541
lost (517)-
Well, I will toss in high school, now that you mention it. Unfortunately, legitimate vocational education is viewed by many as special education, or as make-work for the less intellectually gifted. It’s ironic that some of the best-paying work out there today requires vocational training, not a liberal arts degree.
The truth of the matter is that- based on a quick survey of IQ disribution across the general population- far too many kids go to college. Simple math tells us that an enormous amount of the people who attend college are intellectually incapable of deriving any benefit from this type of education.
Here’s an excellent article from the WSJ that lays out the basic premise:
http://www.opinionjournal.com/extra/?id=110009535
the interesting thing about the “green revolution”, should we take it seriously, is that we’ll be simultaneously weening ourselves from a level of per-capita energy consumption grossly higher than the rest of the world while becoming more deeply involved in global confrontation as the wrold’s environmental cops.
this leaves the military as the key component to the green revolution – once our projection of force is no longer depedent on oil, we’ll no longer need to monopolize the market on it (the strategic reason for cars and asphalt roads) and the resulting new arrangement will, presumably, have superior means for enforcing “clean” emission regulations.
however, we will not have the credibility to back this force (both moral & physical) if we’re unwilling to cut our own consumption; seeing hummer ads on tv following the nightly iraq death toll does not give me hope; will china beat us on this score too?
522 Wicked
I’m not even getting into that debate. Everyone points a finger at everyone else. Someone must be to blame.
#523 New Investor, 500k in Basking Ridge? I would have thought most homes there are in the $1M range. Good for them. Hope it works out. I wonder what a Furnace goes for these days? My realtor suggested that we ask for a credit versus having her replace the furnace. In addition, I pushed the closing date to Oct 1 in the hopes that the Fed drops the rates. The Realtor is asking us to close earlier..
Wicked (524)-
Funny that you and I went straight to the same article.
Back to real estate…
My wife and myself are some of the people sitting on the sidelines and waiting for blood. We dont expect to be able to time the bottom, but we hope to be able to catch the beginning of the next stable period / upturn.
One of the issues that we have is that most housin gin the market wether new or old does not take advantage of available tech for maximum effect. WHat i mean by this is that energy costs are going nowhere but up from here. It is currentl possible to construct a home that is 2000 SQFT that needs the same amount of energy to run as a 1200 SQFT home. This reuqires using tech such as ICF walls, LED lighting, Ground source heat pumps (aka Geothermal) and many others. While this tech does have a higher upfront cost ( recent construction suggests a premium of approx 2 – 15% depending on market and level of tech involved) the majorit of it will pay its capital investment off in 5-8 years as seen in recent constrution. ALso consider the current quality of contruction, put bluntly it sucks.
What i am getting at is that we would like to be able to build ( or add an addition which essentially replaces the entire existing house we would buy)using modern concepts and tech. By doing this it eliminates concerns over $500 heating bill sin winter and $400 cooling bills in summer. IN short we can drastically reduce our carrying costs and improve the quality of the house/investment (depending on your personal opinion of a house)relative to a comparable house built without these techniques.
RE 528 i’m not debating just posting. I read the posted links a while back and found them interesting. nothing more
I pushed the closing date to Oct 1 in the hopes that the Fed drops the rates.
Sounds like a risky move..
jb
Heck of a morning over in Asia.
jb
526 Clot-
I couldn’t agree more. But the pressure these kids feel to “have to” go to college is unreal. And they do often feel like failures if they don’t pass the courses to get there or make a good school. The kids who don’t care, don’t care. If they go to a community college, great and if they go to vocational school, great. Then of course, there are those that don’t do anything and mom and dad enable them by paying for their every whim. I love the fact that many of the kids I used to work with barely graduated from high school, or even dropped out, but mommy and daddy still bought them a brand new Lexus or Mercedes. I wish they’d adopt me!
Just an expression Wicked.
vodka (531)-
What will you do when your local tax assessor comes in and hits you with a gargantuan new assessment, based on those new “improvements”?
Bye, bye savings and efficiency.
BTW, this happens all the time in NJ. It’s happened to several clients of mine. Not only did they achieve no savings, they ended up with bigger tax bills, to boot.
Actually, I don’t think we make a transition from small business to big business; we’ll still have both. I just think that all of the money chasing stocks and real estate (I’m thinking of the smaller investor rather than institution type investors) has got to find another home.
Our economy has largely transitioned up to now into a sort of asset based situation IMO. That has pulled in everyone who wants to make an extra buck to set up their retirement and etc. With the asset markets unwinding, the chances of one accumulating enough for retirement using these vehicles is very remote at this point. The question is where does one go?
The basic place to go IMO is where one can invest and get cash flow rather than having to rely on appreciation. That’s not to suggest that i wouldn’t invest in the stock of a large enterprise in a promising industry, but the small business is where I’d be more comfortable as these are somewhat insulated from some of the macroeconomic factors that are putting everything else in a tailspin. The types of small businesses that I mentioned (auto repair shops, laundermats, car washes and etc.) are not impacted by real estate and stock market declines and they tend to be recession proof because people buy the stuff everyday.
Bottom line is that I’m going back to the old school; if I’m going to be a shareholder or invest in anything, cash flow is going to figure prominently.
Kettle1 Says:
August 19th, 2007 at 9:39 pm
reinvestor101 #513
this is why i come here ( been lurking for a while:) )
I find you comments quite enlightening in that i have never really approached the matter from an investors angle (well i am an engineer..) But it sounds like some of your thoughts really boil the matter down to some of its baser functions.
Though i am not sure how a transition from a country dominated by big business to a country dominated by smaller business would proceed. And consider that for some fields such as Aeronautics (i.e space and aircraft) you will usually need big money behind that, so some fields may tend to stay closer to the big business model due to entry costs
From Bloomberg:
Goldman Backer Broad Says Hedge-Fund Woes Infect Art
Billionaire Eli Broad, who’ll help shore up Goldman Sachs Group Inc.’s Global Equity Opportunities Fund, said art prices will decline as a result of losses by hedge funds and other large contemporary art collectors.
“Many of the buyers of contemporary art have been hedge-fund managers and other investors who obviously are having a difficult time and have lost lots of money,” the California collector said in an Aug. 15 e-mail sent by a spokeswoman. “The art market will soften, and an adjustment in values will take place, but it may not happen for six months to a year.”
Clot # 537
I just helped my brother-inlaw essentially rebuild his house in mendham using most of the tech that i mentioned before. The entire house except for 2 walls was ripped down and replaced . The 2 walls stayed up so that the construction was considered an addition instead of new construction. I do not know the details, however so far the town has inspected the home and it is being lived in, and there tech upgrades have not had a tax impact ( i asked him directly). Me and my wife are seriously considering going to NH in the near future for the exact reasons you mention on top of the fact that NJ’s financial future is shaky at best given their current deficits and the state of their current accounts. The nice thing about NH is that both of us have health job markets in proximity to boston
#533, Yes, JB. Risky move but we are approved at the current rate. I would hate to close in a few weeks only to have the rate drop.
If anyone is buying in Bergen County I highly recommend (removed – jb) Bank. If you have solid credit and 20% down, they are currently offering 6.375 with $300 in fees (as far as I can see the lowest out there for a 30 year) and will go above the $417 Jumbo limit with that same rate. My previous 2 mortgages were with USAA (not always the least expensive but the best service), and they tried to match this deal but could not.
As far as education and wages goes, I’ll contribute this tidbit.
I went to college and graduated with a BA in biology. I’m now a scientist having landed a decent job out of college.
My brother dropped out of college after half a semester. Followed my dad’s footsteps into being a union carpenter. He’s 3 less years into the workforce, yet grosses more than me. Not to mention the benefits the union provides. Granted, he works a decent amount of overtime, but so do I. The difference is he gets paid time-and-a-half or even double-time. I’m salaried, so I’m expected to work overtime for free.
An additional bonus is that he is acquiring skills that will help in reducing his expenses once he begins investing in rental real estate…
Does no one remember this? Murray wrote The Bell Curve. Not sure I’d want to associate myself with his ideas unquestioningly.
(following is from Wikipedia, a favorite “source” for this list)
The Bell Curve
“The Bell Curve: Intelligence and Class Structure in American Life (1994) (ISBN 0-02-914673-9) is Murray’s controversial, best-selling 1994 book co-written with Harvard professor Richard J. Herrnstein. Its central point is that the affluent and their children (the “cognitive elite”) are affluent due largely to an innate genetic and intellectual superiority to the non-affluent. The book had the potential for offending the majority of the U.S. population in that it constitutes a defense of plutocracy and inequality due to race, but it became widely read and debated, especially Chapters 13 and 14, where the authors state that blacks have a lower mean intelligence than whites and Asians due to genetic factors.
The book’s title comes from the bell-shaped normal distribution of IQ scores. A generalization of the binomial probability distribution, the normal distribution is used for those phenomena resulting from the sum of several random, equally likely occurrences.
Shortly after publication, large numbers of people rallied both to criticize and defend the book. Some critics denounced the book and its authors as supporting scientific racism.”
(There’s also some controversy over whether a bell curve actually describes the distribution of intelligence in the general population anyway.)
# 543 BDM
This is one of my wife’s favorite issues ( shes a PHD Psychologist). There is apparently quite a bit of debate in her field of exactly how to measure intelligence, There are acknowledged issues with the current method and even the actual meaning of the scoring is apparently debatable.
My opinion on the matter is that intelligence should be based on problem solving skills. that is one of the primary abilities that sets humans apart from other animals. also problem solving skills are not generally culturally biased unlike the genearl knowledge questions you see on traditional IQ tests.
beyond all of that i personally feel that The Bell Curve was a very good read and informative
Re Bell Curve,
WHat people often dont mention is that the same data that showed blacks as having a lower average IQ also showed that asians have a higher avergae IQ then Caucasians. There is also the fact that there tend to be more men in both the extreme high and extreme low range of IQ then there are women. It is generally seen that womn have a less variable range fo IQ scores while men tend to have a highly variable range of IQ scores. But bluntly there are more genious men then there are women, but here are also more imbecile men then there are women… The are observed trend not my personal opinions…
Gnight
There is also the fact that there tend to be more men in both the extreme high and extreme low range of IQ then there are women. It is generally seen that womn have a less variable range fo IQ scores while men tend to have a highly variable range of IQ scores.
This was essentially Larry Summer’s argument and it got him run out of Harvard on a rail by the PC thought police.
IQ is something that academics dare not touch because if they utter the wrong words their careers go down the drain.
From MarketWatch:
Home prices boosting U.S. household debt: Kohn
Rising home prices and innovations in the financial sector are the two biggest factors in the spike in U.S. household debt and the related decline in savings, Federal Reserve Vice Chairman Donald Kohn wrote in a research paper presented Sunday.
In a paper presented to a conference held by the Reserve Bank of Australia, Kohn and a Fed economist wrote that a “wealth effect” caused by rising home prices could boost consumption, leading in turn to an increase in household debt. Expenditures for more expensive homes are another factor behind an increase in debt, wrote Kohn and co-author Karen Dynan, chief of the household and real estate finance section of the Fed’s Division of Research and Statistics.
…
“Innovation has opened up greater opportunities for households to enter the housing market and for homeowners to liquefy their housing wealth, thereby helping them smooth consumption of all goods and services,” they wrote.
Could? Has?
Both sentences should be in the past tense, not the present tense.
From MarketWatch:
Home prices boosting U.S. household debt: Kohn
Rising home prices and innovations in the financial sector are the two biggest factors in the spike in U.S. household debt and the related decline in savings, Federal Reserve Vice Chairman Donald Kohn wrote in a research paper presented Sunday.
In a paper presented to a conference held by the Reserve Bank of Australia, Kohn and a Fed economist wrote that a “wealth effect” caused by rising home prices could boost consumption, leading in turn to an increase in household debt. Expenditures for more expensive homes are another factor behind an increase in debt, wrote Kohn and co-author Karen Dynan, chief of the household and real estate finance section of the Fed’s Division of Research and Statistics.
…
“Innovation has opened up greater opportunities for households to enter the housing market and for homeowners to liquefy their housing wealth, thereby helping them smooth consumption of all goods and services,” they wrote.
Could? Has?
Both sentences should be in the past tense, not the present tense.
Rich
>>Heck of a morning over in Asia.
rock on. hope it spills over to our stock markets though probably a reaction to last friday’s action.
rock on. hope it spills over to our stock markets though probably a reaction to last friday’s action.
My fear is that once the elation over the Fed’s decision to cut the discount rate wears off, we are going to wake up in a world where housing prices are falling, loans are resetting and borrowing money isn’t as easy as it was just a few months ago. It’s only a matter of time before consumer spending, the engine of our economy, takes a hit.
jb,
I sent you an email to your gmail account.
thanks,
afe
Got it afe.
jb
reinvestor101 Says:
August 19th, 2007 at 9:29 pm
comfortable as these are somewhat insulated from some of the macroeconomic factors that are putting everything else in a tailspin. The types of small businesses that I mentioned (auto repair shops, laundermats, car washes and etc.) are not impacted by real estate and stock market declines and they tend to be recession proof because people buy the stuff everyday
Hmm If I lost my job and do nto have any money how am I going to buy stuff everyday again??
People’s logic is kind of funny – it is known that huge companies normally fare better in the economic downturn….
All gurus,
We are thinking about to move to the area near to my work (warren, watchung , Berkeley Heights, Basking Ridge..). Currently, we own a nice colonia house in Edison. We are willing to pay 100,000 — 200,000 more for the new house since it’s a more expensive area. What would you suggest I should do? Should I put my house to the market now or I should wait for next spring after market picks up a little bitter? One thing I am sure is that we definitely won’t buy the new house before we sell the current one.
Any suggestion is welcome.