From the New York Times:
How Tales of ‘Flippers’ Led to a Housing Bubble
There is still no consensus on why the last housing boom and bust happened. That is troubling, because that violent housing cycle helped to produce the Great Recession and financial crisis of 2007 to 2009. We need to understand it all if we are going to be able to avoid ordeals like that in the future.
But the explanations for what happened in housing are not, I think, to be found in the conventional data favored by economists but rather in sociologically important narratives — like tales of getting rich through “flipping” houses and shares of initial public offerings — that constitute the shifting mentality of the era.
Consider the data for a moment. It shows us that extreme changes took place but doesn’t tell us why.
Real home prices rose 75 percent from February 1997 to December 2005, according to the S&P/Case-Shiller National Home Price Index, corrected for inflation by the Consumer Price Index. And then, from 2005 to 2012, real prices reversed course, falling to just 12 percent above their 1997 level. In the years since 2012, they have climbed 29 percent, about halfway back to their 2005 peak. This is a roller coaster in national home prices — it has been even scarier in some more volatile cities — yet we have no clarity on why it happened.
…
I believe the price swings have something to do with the changing mentality of the times, changes caused by narratives that have gone viral and swept across the population. Looking for answers in such popular stories contrasts starkly with the prominent approach of modeling people as though they react logically to economic forces. But a less orthodox approach can be quite useful.One thing is clear: The prevalent narratives of 1997 to 2005 did not include the concept of a housing bubble, not at first. A computer search using ProQuest or Google Ngrams shows that the phrase “housing bubble” was hardly used until 2005, the end of the boom. What is a bubble? It typically includes the notion that, spurred by the public’s expectation of ever further price increases, demand eventually reaches levels that cannot be sustained, and so the enthusiasm wanes and the bubble collapses. But that thought was just not on many people’s minds then, the evidence suggests.
Instead, during the 1997 to 2005 boom there were multitudes of narratives about smart investors who were bold enough to take a position in the market. To single out one strand, recall the stories of flippers who would buy a house, fix it up, and resell it within months at a huge profit. These stories appear to have been broadly exciting to people who didn’t flip houses themselves but who appear to have begun to think that stretching a little and buying a house with a large mortgage would make them wise investors.
…
It can take a long time for narratives like this to grip the popular imagination. Flipping was “a thing” in the condominium conversion boom of the 1970s and ’80s. The idea then was this: Big-time converters with deep pockets would buy apartment buildings and convert the rental apartments to owner-occupied condos, selling units to diverse individuals, some of them flippers. For public relations purposes, converters would offer to sell at reduced prices to renters already living in a building, and typically to some outsiders, too.This generated buzz. When renters and speculators flipped their purchase contracts at a big profit, sometimes using borrowed money for down payments to flip multiple units without actually even closing on the condos, it was thrilling. It seemed that anyone with energy and initiative could get rich doing this.
Xanadu closed on $1.6 billion in loans?
Grand Opening – March 2019
Shiller was on to something, but the wrong angle.
While the flipper millionaire narrative was necessary, it was no sufficient in and of itself.
The real narrative that sparked the bubble was “buy now or be priced out forever.”
The flipper narrative gave credibility to buying is an “investment”, because it created a concrete scenario that illustrated short-term gains, repeated, over and over, at a frequency and pace that was significantly faster than “buy to own.”
However, it was being priced out that drove so many to stretch well beyond their means.
Grand Opening – March 2019
Opening as what? A museum for the once-called mall experience?
Back around 2000-2001 my wife told me one of her bosses at work had an Asian wife who was “flipping” million dollar houses in Brookline, MA. I had never heard of such a thing and I couldn’t figure out how you could possibly cover all of transaction, mortgage, and commission and legal fees in a market as slow moving as RE.
Grim, I was mistaken. There are 3 distilleries in Key West
Simonton St is looking like a Distillers Row. Tried the agave liquor. Not bad.
https://www.bloomberg.com/news/articles/2017-05-20/blackstone-plans-to-invest-100-billion-in-infrastructure-deals
Same thing will happen this go around, esp with the fact that there has been a huge void in the creation of single family housing starts in correlation to demand over the past 10 years. Combine that with a labor market/economy getting stronger by the day, demographic spending patterns in housing lining up, and you have a recipe for a huge coming bubble. There is nothing you can do to prevent this….it is the nature of the beast. Unless you want to put a cap on housing prices, this coming run up in housing is inevitable.
“However, it was being priced out that drove so many to stretch well beyond their means.”
First segment of the market that will get the returns is the lower end. This will lift all boats (housing prices in all tiers) as the impact travels through the rest of the housing market and economy.
States Wage Battles Over High Drug Prices – The Wall Street Journal
https://apple.news/A0fgGIVCmQJ2whkQ0U0prqA
What a surprise, another elitist lib whose also a closet r@cist(also hardly surprising that NYT failed to mention he’s a democrat). https://www.nytimes.com/2017/05/19/business/media/fox-news-fires-bib-beckel-prime-time-regular-for-racially-insensitive-remark.html?_r=0
Beckel’s type thinks they know what’s best for minorities as long as they follow the program unquestionlingly. Challenge that premise and it gets ugly quick, looks like that’s what happened here.
Do you understand how incredibly conflicted this seemingly innocuous little post is? It sounds coherent, but it is pure jibberish…..
BTW…..redistribution already exists, and you are prima facie evidence……you provide nothing of value at your job, yet manage to draw a salary…..it is the height of redistribution……..
The Great Pumpkin says:
May 20, 2017 at 10:28 am
Fix income inequality by tweaking our capitalist system to redustribute more capital to the majority of workers. Give them a carrot to work harder and do great things. Open up markets in which small businesses can be born and thrive (a healthy competition, not one in which two or three giant corporations own the entire market share and block all entrants). Watch the creativity and ambition of small business owners and workers go to work. Provide the conditions for the majority of participants to improve their lot if they work hard and everything will be fixed in time.
So the question is; do the players at the top give back some money to the rest of the participants so that this game continue, or do they want to claim victory, not give anything back, and end this game (think of the game of monopoly).
We did this during the New Deal and created a middle class for the first time in human history. The same middle class the dolts who troll this page take for granted as a natural outgrowth of capitalism when in fact it was an outgrowth of the protections against capitalism. But income inequality is unfixable under capitalism as those who hold the most power will always be able to chip away at protections until they’re gone. Which is what we have today. As long as profits are more important than people it will always be this way.
“Fix income inequality by tweaking our capitalist system to redustribute more capital to the majority of workers.”
Mark Fields out (Ford CEO)
https://theconservativetreehouse.com/2017/05/22/report-ford-board-of-directors-will-fire-mark-fields-as-ceo/
“The entire reason Mark Fields was doomed to certain failure was outlined in that 2016 interview and the expressed ideological presentation he espoused.
There will be many more who fail because they simply do not understand the nature of the new dimension in American economics, vis-a-vis “economic patriotism”. They simply don’t have a reference point for how to lead a successful corporation within the new economic model.”
Seattle Climbs but Austin Sprawls: The Myth of the Return to Cities
https://www.nytimes.com/2017/05/22/upshot/seattle-climbs-but-austin-sprawls-the-myth-of-the-return-to-cities.html?smid=tw-share&_r=0
Be skeptical when you hear about the return to glory of the American city — that idealized vision of rising skyscrapers and bustling, dense downtowns. Contrary to perception, the nation is continuing to become more suburban, and at an accelerating pace. The prevailing pattern is growing out, not up, although with notable exceptions.
Rural areas are lagging metropolitan areas in numerous measures, but within metro areas the suburbs are growing faster in both population and job growth.
On the other hand, as anyone who has tried to rent an apartment or buy a condo in a big city knows, housing prices are climbing faster in urban neighborhoods than in the suburbs. And urban neighborhoods are younger and richer than they used to be, with more educated residents and fewer school-age children. Higher-wage jobs are increasingly in city centers, with urban retail catering to these well-paid workers and residents.
This combination of faster population growth in outlying areas and bigger price increases in cities points to limited housing supply as a curb on urban growth, pushing people out to the suburbs. It’s a reminder that where people live reflects not only what they want — but also what’s available and what it costs.
Well said!
Ottoman says:
May 22, 2017 at 7:54 am
We did this during the New Deal and created a middle class for the first time in human history. The same middle class the dolts who troll this page take for granted as a natural outgrowth of capitalism when in fact it was an outgrowth of the protections against capitalism. But income inequality is unfixable under capitalism as those who hold the most power will always be able to chip away at protections until they’re gone. Which is what we have today. As long as profits are more important than people it will always be this way.
“Fix income inequality by tweaking our capitalist system to redustribute more capital to the majority of workers.”
Hmm? How many times was Pumpkin screaming to be skeptical of this? 3b, still think I pull stuff out of my a$$? Based on the track record, seems most of the stuff I have been saying has been exactly on point.
“Be skeptical when you hear about the return to glory of the American city — that idealized vision of rising skyscrapers and bustling, dense downtowns. Contrary to perception, the nation is continuing to become more suburban, and at an accelerating pace. The prevailing pattern is growing out, not up, although with notable exceptions.”
That’s the bottom line.
“This combination of faster population growth in outlying areas and bigger price increases in cities points to limited housing supply as a curb on urban growth, pushing people out to the suburbs. It’s a reminder that where people live reflects not only what they want — but also what’s available and what it costs.”
Pumpking is certainly a blight on intelligent conversation. He should change his handle to Gypsy Moth.
Dershowitz is likely to get the Seth Rich treatment if he keeps spouting off like this:
https://www.youtube.com/watch?v=Mu7TlE-XZiQ
I think the Democrats think that Trump should not have any presidential powers because Clinton got 6 million more votes than him if you add up just New York and California*.
Why should you even count the other states if New York and California votes a Democrat mandate?
* which means she squandered that enormous lead on the other 48 states, no?
‘the Seth Rich treatment’
It still surprises me how easily people can be led around.
Maybe Bannon goes back to the email server for the next distraction.
Shocker. Case book study on what happens when nobody pays their taxes, aka the cost of society. Do you see how ignorant these people are? They act like they are being robbed because they have to pay taxes. Meanwhile, they think the costs of society are paid by the tooth fairy. The debt just builds and builds because nobody wants to pay for it. Ignorance is bliss.
https://www.bloomberg.com/news/articles/2017-05-22/puerto-rico-s-tax-dodgers-hide-in-plain-sight-on-every-corner
case study
Code Blue
http://legalinsurrection.com/2017/05/branco-cartoon-code-blue/
I agree. It was so easy to wind you up and make you comment. Unfortunately, I wound Pumps up about 4 years ago and he’s now just a boring toy hopping across the table, buzzing and falling over, kicking his little legs around when he can no longer get up.
It still surprises me how easily people can be led around.
Pumps is my personal fidget spinner.
Hahahhahahahaha
“Lock her up!” Where are these same people when it comes to Trump? They just blow it off and make up excuses for Trump. Meanwhile, they couldn’t let go off the emails for how long? Dressed to impress in hypocrisy.
FixerUpper says:
May 22, 2017 at 11:20 am
‘the Seth Rich treatment’
It still surprises me how easily people can be led around.
Maybe Bannon goes back to the email server for the next distraction.
http://legalinsurrection.com/2017/05/branco-cartoon-presumed-guilty/
The Great Pumpkin says:
May 22, 2017 at 11:33 am
“Lock her up!” Where are these same people when it comes to Trump? They just blow it off and make up excuses for Trump. Meanwhile, they couldn’t let go off the emails for how long? Dressed to impress in hypocrisy.
DNC and George Soros offering jobs to the Turkish Security detail for future “peaceful” protests. They are inviting others to apply, but you must provide your own mustache, dark suit, sunglasses, and pointy black dress shoes.
(If you can endure the slow load time and commercial the video is much longer than what you see on the news)
http://nypost.com/2017/05/17/state-department-condemns-turkish-securitys-bloody-attack-on-protesters/
Just Sayin’
Jeff Plungis
@jplungis
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Nice piece by @johndstoll showing how changing DC politics was a factor in the fall of Ford’s Mark Fields. https://www.wsj.com/articles/fords-outgoing-ceos-spat-with-trump-highlighted-troubles-1495465162 … @WSJ
Gourd [21-may, 12:56];
Same thing will happen this go around,
For once, I hope you are right.
“As long as profits are more important than people it will always be this way.”
And the Clinton’s didn’t feel this way Otto?
@paulkrugman
In a pervers way,
we should count ourselves lucky that Trump is as terrible as he is.
“The real narrative that sparked the bubble was “buy now or be priced out forever.””
This is why we bought the multi back in October of 2004. We paid 480K. I remember about a year later, checking Zillow and seeing it estimated to be worth $625K. I turned to Gator and said another two years at this pace and we made 500K! She turned to me and said, “There is no possible this way this house will ever be worth $1,000,000. Twelve years later and Zillow has us at $616,000 which I am highly dubious of. Gator was right, which provoked my purchase of SRS (the 2x short RE ETF). The moral of the story, we should have been happy paying $1,200 month rent. That friggin’ multi is the bane of my existence.
And before Blumpy starts telling me how great of an investment that house in Montclair was, I must add…I put 171K into the house between the downpayment and upgrade (put 20% down). Had I put it in VFINX (S&P500 Index Fund), I would have $376,000 today without lifting a finger or a 205K effortless profit. At this point, I still owe 251K on the multi. So even if I sold it today for 575K (realistic worth). I would have made $153K on it after all of those mortgage, tax, insurance and maintenance costs. Even with the tax breaks I obtained, I would have been much better off just putting the money to work in the market.
@paulkrugman
The point now is
that the vast majority of Rs in DC know perfectly well that Trump is
unstable and cognitively inadequate if not impaired
Moana,
You would think a Nobel Laureate would know how to spell perverse? Or does he need his staff of proofreaders to write his tweets for him?
“cognitively inadequate”
So completely unfunny Moana.
Yes, unlucky timing. You bought in a bubble and still came out ahead. Try doing that with most investments (buying at the wrong time) and see what happens. Still ahead with this investment….the beauty of real estate as an investment tool. It’s pretty damn safe. It’s really hard to lose it all, have to be a f’en moron to lose it all in real estate.
“And before Blumpy starts telling me how great of an investment that house in Montclair was, I must add…I put 171K into the house between the downpayment and upgrade (put 20% down). Had I put it in VFINX (S&P500 Index Fund), I would have $376,000 today without lifting a finger or a 205K effortless profit. At this point, I still owe 251K on the multi. So even if I sold it today for 575K (realistic worth). I would have made $153K on it after all of those mortgage, tax, insurance and maintenance costs. Even with the tax breaks I obtained, I would have been much better off just putting the money to work in the market.”
In a perverse way
says the guy who married his student
“says the guy who married his student”
In liberal circles, schtooping the intern/adjunct is perfectly acceptable.
I remember when “Old enough to pee, old enough for me.” and “Old enough to bleed, old enough to breed.” were perfectly acceptable schoolyard jokes.
https://www.youtube.com/watch?v=Uip5OtXyH-M
and
https://www.vevo.com/watch/ringo-starr/youre-sixteen-youre-beautiful-(and-youre-mine)/USNPD0713957
SCF 12:53. Clinton’s feel that way also.
1:29 You did what you thought was right at the time. You have to be really high on the ladder to to get the inside on the real thing.
I wish I found this blog prior to the purchase!!! I truly did feel that the possibility of owning was rapidly slipping away.
In 1996 I felt like I was talking to zombies when they were buying houses for the quaint sum of a quarter of a million dollars. I was sure it was going to come crashing down in 2002 but we now had not only a cat, but an infant in tow. It was getting hard enough to rent with a cat so we bought a place in 2002 I was completely convinced that we would *lose* money buying it. I pre-qualified for $645,000 mortgage which just shocked the hell out of me; no way was I going to go down a rabbit hole that deep. Instead we bought a place for $260K with $90K down. Believe me, the irony wasn’t lost on me that I thought it was crazy for my siblings to be spending a quarter million dollars on a house in the mid 90’s (and then buy million dollar houses 5 years later!) and here I was spending a quarter million dollars on a small 2BR apartment, more than 20% smaller than the place I owned in Wayne in 1987 for less than half the price and that one had two bathrooms! The bottom line is that I never bought our place as an investment, I bought it so we would have a place we didn’t have to move out of unless we wanted to and to that end I put a lot down so that I would never get locked in to staying by having negative equity.
I think psychologically people come pre-wired not to accept a loss, when the sometimes the best thing you can ever do is accept a loss. I’m sure the majority of pumpkin-types, if they are ever lucky enough to own stocks valued at more than fractions of cents per share, sell their winners too early and keep their losers too long when the profitable way forward is doing exactly the opposite. Not being immune to such wrong-minded thinking, I have completely restored 1972 El Camino in the garage that I spent $32,000 in ’97-’99 to restore. I think we bought it for $800 in Nutley in ’95.
https://www.insidernj.com/ciattarelli-murphy-matchup-main-street-versus-wall-street/
Kim Guadagno carries the mammoth Chris Christie albatross of gubernatorial misfeasance and malfeasance on her shoulders and thus cannot win in November. Jack Ciattarelli, who has been perhaps the leading GOP critic of Chris Christie in the New Jersey legislature, does have a path to victory over Phil Murphy, in a campaign when GOP voters thought at the beginning of the year that a Democratic gubernatorial victory was axiomatic.
I am not at this point predicting a primary victory for either Jack or Kim. This race, quite frankly, is too close to call, although there is a trend in Jack’s favor. One thing is clear, however. Democrats will react with an audible sigh of relief to a Guadagno victory, while a Ciattarelli primary win will cause them concern and even anxiety.
Both Jack and Phil are successful businessmen. Jack, however, is clearly a Main Street personality, while Phil Murphy is undeniably Wall Street, in a year when a Wall Street identification bears a major political stigma. Jack is Jimmy Stewart in Mr. Smith Goes to Washington, without the Stewart naivete and without the Babbitry of the Sinclair Lewis character.
Phil Murphy is the stereotypical Wall Street plutocrat, who lived the lifestyle of the rich and famous as former U.S. Ambassador to Germany, as portrayed by Agustin Torres in his series of articles in the Jersey Journal. The Murphy campaign has two of the finest Democratic political consultants in the nation in Brad Lawrence and Steve Demicco, and their commercials thus far are admirable efforts to transform Phil Murphy into a “just plain folks” small town America personage.
WASHINGTON — President Donald Trump’s former national security adviser, Michael Flynn, invoked his constitutional right against self-incrimination on Monday and declined to hand over documents sought under subpoena by a Senate panel investigating Russia’s meddling in the 2016 election.
In a letter to the Senate intelligence committee , Flynn’s attorneys justified the decision by citing an “escalating public frenzy against him” and saying the Justice Department’s recent appointment of a special counsel has created a legally dangerous environment for him to cooperate with the panel’s investigation.
“The context in which the committee has called for General Flynn’s testimonial production of documents makes clear that he has more than a reasonable apprehension that any testimony he provides could be used against him,” the attorneys wrote in the letter, which was obtained by the AP.
Flynn’s decision not to cooperate with the Senate committee represents a new legal complication for the expanding government and congressional inquiries into Russian interference in the presidential campaign and contacts between Trump advisers and Russian officials and representatives. Flynn is a key figure in both the FBI investigation headed by special counsel Robert Mueller and in separate Senate and House inquiries.
so get rid of it……..is it really going to get substantially better than now for a C-class Montclair rental? Ask a stupid number for it……there is money burning holes in people’s pocket……they are totally obsessed…..
Steamy Cankles Foundation says:
May 22, 2017 at 1:29 pm
That friggin’ multi is the bane of my existence.
ChiFi: I’m close. At this point though, I’m finally paying so little interest (due to the way the amortization table works) on my mortgage that it just feels like I’m finally paying it off. Have 9 years left on the now 15-year mortgage. It’s also my college savings vehicle for the boys and at this point, would feel better having the money locked up in RE than the market since it is less likely to tank (IMO). Older boy is 6 years out from school, not that I couldn’t take a loan out or raid the 401k temporarily.
Lib – Pumkpin says HOLD! That should be your first clue.
Ha ha.
I figure you for a cut-and-paste level intellect, not a ‘read and retype’ kind of guy. To spare myself the brain cells that reading his Twitter page would kill, I’m going to presume that the Nobel Lauriate can’t spell. He’d probably blame the CUNY kids he hired to manage his Twitter account for him — top notch scholars he’s been hanging out with since getting unceremoniously decamped from Princeton.