Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
Friday, January 27, 2006
Post Weekend Topics Suggestions Here!
Post weekend topic suggestions here! Especially wanted are ideas about multi-family properties; duplexes, for example and arrangements like co-ops or condos.
"What will be the social / political fallout of this constrained mobility?"
Interesting question. I, too, am interested in the psychological and sociological outcomes of the housing bubble. I am particularly interested in what people can do to protect themselves from a potentially angry crowd of duped homeowners.
For example, we have seen people flee the megabubbles (e.g., California), cash out and plunk their money into housing elsewhere (e.g., Arizona). Unfortunately, Arizona is now bubblefied too.
Which scenario can lead to greater mental unhinging - to think you've escaped the bubble and sink a lot of cash equity into a new home elsewhere, only to see home values around you decline, and knowing you cannot get that cash back out? Or to put no money down in a megabubble in a place like California and end up defaulting on the loan?
In my Bubble Bits blog I reminded its readers of a disgruntled speculator who shot up his brokerage then turned his rage on his family, apparently triggered by trading losses. If this is any indication of what could happen in the future, I hope that real estate professionals reading these blogs are taking steps to protect themselves from harm!
I'd like an idiot's education about hedge funds. I think I'm fairly educated about basic economics, but I have no clue whatsoever about hedge funds. And some people have posted how enormous these are today. I understand what it means to short a stock. I'm in a fund that rises as the 10-year note falls, and I have no idea how that works either.
A lot of people post about the Great Depression, 1930's, blah blah blah. What I'd like to know: What are the chances that we experience something more like the Southeast Asian collapse of 1998, meaning a very sharp drastic collapse, not prolonged, followed by a return to normal growth?
"What are the chances that we experience something more like the Southeast Asian collapse of 1998, meaning a very sharp drastic collapse, not prolonged, followed by a return to normal growth?"
That's another interesting question. The difference between the Asian collapse and a potential US collapse is that the US economy helped generate enough demand for the Asian economies to pull themselves out of their slumps. Japan struggled on during the 1990's, in spite of bad deflation, because its export sector was helped along by US demand.
So my question is, who is going to pull the US out of its downturn? We already are the world's biggest consumers and we are hitting limits on what we can consume with all this credit.
"Topic 1. When did you first begin to suspect a housing bubble and how have your opinions of the bubble changed since reading this blog?"
I moved to my beach neighborhood in 1995 and thought things were starting to get a little wacky in 1998-99. I haven't done much traveling, but I think I have seen enough of other parts of the country to sense that what was around me just wasn't a real good value. I was way early about the stock market too, though.
How has this blog changed me? In the discovery that there is a lot of "grass roots" info out there that all is not well in real estate, which you don't see on Bubblevision TV. Glad to know Ben and others are so diligently keeping on top of things.
"Topic 2. Both housing bears and bulls rely heavily on y-o-y median/average prices for a certain area/zip code to track housing increases/decreases. Let's discuss why median/average numbers might not be telling the whole story."
In my neighborhood the name of the game has been to tear down older boxy post-war houses (< 1000 sq feet) and put up 2 on a lot bubbleminiums. The house that once existed across the street from me was actually a better house than the standard post-war box, but it sold for $620,000 to a builder who tore it down and erected two bubbleminiums on it each selling for almost $900,000. If the trend had continued and the house had been left standing, chances are its value could have eventually hit the sale price of one of the bubbleminiums anyway. By tearing it down and putting up the bubbleminium, the sale price, and arguably the median sale price for the neighborhood, got pushed up quicker.
Numbers get rigged to support the belief in the current trend. For example, I think the Conference Board took out "inverted yield curve" as one of the components of leading economic indicators because they thought it was no longer relevant, because the Federal Reserve believes so strongly it can manage an economy and prevent a recession or make it painless.
That's why Warren Buffet says, "when the tide goes out, you'll see who has been swimming naked." That's when the cockroaches come out in the light. When market peaks start crumbling, you'll see the revelation of shaky creative accounting (or shoddy construction, or questionable lending practices). The rot has been there all along but nobody was bothered by it while the bullish trend could sustain itself.
Fannie Mae and Freddie Mac are government sponsored entities whose goal is to make housing affordable. They currently hold 1.7 trillion dollars in debt.
Should U.S. taxpayers have to pay in things turn south for these to GSE's?
"I would echo the request from Happyrenter (topic suggestions from last weekend) who wanted to discuss "accelerants and value killers" in a downturn..."
I think the key will be employment. As long as people have their jobs and they are making the same or more money they may be able to struggle with their mortgage payments if adjustable rates don't move.
A recession in the early 90's plus an aerospace downturn hit Southern California hard from 1989-1995. Some properties took a few years after that to recover their prices, as they were down by as much as 2/3 from their peaks.
If the income rug gets yanked out from underneath, demand could dry up overnight and the need to sell will accelerate.
All of these are great topics for the weekend. I would like to see a discussion on how the downturn will affect major banks (BofA, WF, WM) who sell IO and adjustable mortgages.
Here's another Centex deal in the DC area. Thanks to the reader who sent it in!
ReplyDeleteThanks for all your hard work, Ben. I would like to have a discussion on how to participate in REO sales.
ReplyDelete"What will be the social / political fallout of this constrained mobility?"
ReplyDeleteInteresting question. I, too, am interested in the psychological and sociological outcomes of the housing bubble. I am particularly interested in what people can do to protect themselves from a potentially angry crowd of duped homeowners.
For example, we have seen people flee the megabubbles (e.g., California), cash out and plunk their money into housing elsewhere (e.g., Arizona). Unfortunately, Arizona is now bubblefied too.
Which scenario can lead to greater mental unhinging - to think you've escaped the bubble and sink a lot of cash equity into a new home elsewhere, only to see home values around you decline, and knowing you cannot get that cash back out? Or to put no money down in a megabubble in a place like California and end up defaulting on the loan?
In my Bubble Bits blog I reminded its readers of a disgruntled speculator who shot up his brokerage then turned his rage on his family, apparently triggered by trading losses. If this is any indication of what could happen in the future, I hope that real estate professionals reading these blogs are taking steps to protect themselves from harm!
I'd like an idiot's education about hedge funds. I think I'm fairly educated about basic economics, but I have no clue whatsoever about hedge funds. And some people have posted how enormous these are today. I understand what it means to short a stock. I'm in a fund that rises as the 10-year note falls, and I have no idea how that works either.
ReplyDeleteA lot of people post about the Great Depression, 1930's, blah blah blah. What I'd like to know: What are the chances that we experience something more like the Southeast Asian collapse of 1998, meaning a very sharp drastic collapse, not prolonged, followed by a return to normal growth?
ReplyDeleteBen,
ReplyDeleteGotta get something up about the new GDP & CPI numbers and their potential effect on Fed rates.
"What are the chances that we experience something more like the Southeast Asian collapse of 1998, meaning a very sharp drastic collapse, not prolonged, followed by a return to normal growth?"
ReplyDeleteThat's another interesting question. The difference between the Asian collapse and a potential US collapse is that the US economy helped generate enough demand for the Asian economies to pull themselves out of their slumps. Japan struggled on during the 1990's, in spite of bad deflation, because its export sector was helped along by US demand.
So my question is, who is going to pull the US out of its downturn? We already are the world's biggest consumers and we are hitting limits on what we can consume with all this credit.
Beartopia
"Topic 1. When did you first begin to suspect a housing bubble and how have your opinions of the bubble changed since reading this blog?"
ReplyDeleteI moved to my beach neighborhood in 1995 and thought things were starting to get a little wacky in 1998-99. I haven't done much traveling, but I think I have seen enough of other parts of the country to sense that what was around me just wasn't a real good value. I was way early about the stock market too, though.
How has this blog changed me? In the discovery that there is a lot of "grass roots" info out there that all is not well in real estate, which you don't see on Bubblevision TV. Glad to know Ben and others are so diligently keeping on top of things.
"Topic 2. Both housing bears and bulls rely heavily on y-o-y median/average prices for a certain area/zip code to track housing increases/decreases. Let's discuss why median/average numbers might not be telling the whole story."
In my neighborhood the name of the game has been to tear down older boxy post-war houses (< 1000 sq feet) and put up 2 on a lot bubbleminiums. The house that once existed across the street from me was actually a better house than the standard post-war box, but it sold for $620,000 to a builder who tore it down and erected two bubbleminiums on it each selling for almost $900,000. If the trend had continued and the house had been left standing, chances are its value could have eventually hit the sale price of one of the bubbleminiums anyway. By tearing it down and putting up the bubbleminium, the sale price, and arguably the median sale price for the neighborhood, got pushed up quicker.
Numbers get rigged to support the belief in the current trend. For example, I think the Conference Board took out "inverted yield curve" as one of the components of leading economic indicators because they thought it was no longer relevant, because the Federal Reserve believes so strongly it can manage an economy and prevent a recession or make it painless.
That's why Warren Buffet says, "when the tide goes out, you'll see who has been swimming naked." That's when the cockroaches come out in the light. When market peaks start crumbling, you'll see the revelation of shaky creative accounting (or shoddy construction, or questionable lending practices). The rot has been there all along but nobody was bothered by it while the bullish trend could sustain itself.
Beartopia
Fannie Mae and Freddie Mac are government sponsored entities whose goal is to make housing affordable.
ReplyDeleteThey currently hold 1.7 trillion dollars in debt.
Should U.S. taxpayers have to pay in things turn south for these to GSE's?
H#$ No
when the housing bubble bursts, where do you think it'll show up too?
ReplyDeletemy guess is any biz that relies on home equity.
high-end cars
home improvement
jewelry
the travel industry
furniture stores
boats
I suspect there will be a lot of boats for sale in a few months, especially in california.
"I would echo the request from Happyrenter (topic suggestions from last weekend) who wanted to discuss "accelerants and value killers" in a downturn..."
ReplyDeleteI think the key will be employment. As long as people have their jobs and they are making the same or more money they may be able to struggle with their mortgage payments if adjustable rates don't move.
A recession in the early 90's plus an aerospace downturn hit Southern California hard from 1989-1995. Some properties took a few years after that to recover their prices, as they were down by as much as 2/3 from their peaks.
If the income rug gets yanked out from underneath, demand could dry up overnight and the need to sell will accelerate.
South Bay Beaches Housing Bubble
Beartopia
Topic suggestion: Housing Bubble Glossary
ReplyDeleteThis one is a repeat favorite at Patrick.net, and one that I am often updating and referring back to. Creative new contributions are always welcome.
All of these are great topics for the weekend. I would like to see a discussion on how the downturn will affect major banks (BofA, WF, WM) who sell IO and adjustable mortgages.
ReplyDelete