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Friday, June 5, 2009
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84 comments:
Jeff,
Regarding your observations yesterday about drastically decreased inventory in Manassas, I'd like to concur and report that in the area where I have been especially interested (the Blooms Crossing neighborhood where we are closing on a house next week) the listings have all but disappeared. I have been following this area since Feb. There are about 1,000 houses (SFH and TH's) in the neighborhood. At any given time there were about ten houses for sale. Currently, there is only one townhouse for sale, according to Franklymls.com.
For the South Riding watchers (sorry I didn't get this up yesterday)
www.southridingblogspot.com
He has some good "Sold" info with Seller Concessions too!
Manassas homes under $200k:
Sept 2007: 106
Dec 2007: 253
March 2008: 568
May 2008: 744
Aug 2008: 623
Nov 2008: 435
March 2009: 285
April 2009: 220
June 2009: 54
That last one isn't a typo.
Kristin,
This is what Calculated Risk predicted would happen, once affordability is reached, REO listings will get soaked up, and inventory will dry up. However, with the $8k kick in the pants spurring more buyers than normal into action, the current inventory was soaked up way faster than it would have been otherwise. And with the combination of backlog, foreclosure moratoria, and wanting to avoid flooding the market, keeping banks from putting their inventory on the market, we may see a long slow trickle of REO inventory keeping prices down for a long time to come.
But I would also say banks will hold off on releasing more inventory until more of the under contracts have actually closed. If too many REOs pop up, it'll be harder to get funding for the under contract ones. So, it's in their best interest to "manage" the inventory.
OC Mortgage Insider a must read report on who exactly in CA is going into foreclosure. Bottom-line, it's not predominantly who bought at peak, it's the cash-out refinance people.
IMO, no one who already took a cash-out refinance should ever be considered for a principal reduction. And they're terrible risks for any mortgage restructuring plan since obviously the home-ATM was part of their "income".
We have the HELOC percentages in the ACS data for 2007. I haven't perused it yet though.
Cara,
It's quite a balancing act for the banks. They got real wise about pulling back on their offerings. Beyond that, I'm not going to offer an opinion on a topic I know little about :-)
Good luck with your search. I am interested to hear all about how it continues. I am sure that your waiting until the hot selling season is over to buy, is a wise choice. We'll just hope mortgage rates will remain low also. But then I think you said by then you may be in a position to pay cash...Wouldn't that be awesome!
Opinion
I don't believe prices will suddenly jump up. They did not after the 1991/92 drop.
My guess is that there will be a few years of flat prices.
Just down the street, they replaced a knock-down with a new house. The new asking price is $2.9M.
The previous asking price of $1.9M was the pre-build price for this house, a lot, a foundation, drawings, and a promise to build.
The previous sale $575K was the knockdown, a weird green stone house.
Kristin,
No, it would take a contrarion like scenario and 3 more years of savings for us to buy in cash. (My husband's even more debt-phobic than I am). But since we do have such a large downpayment, small changes in rates aren't a big deal for us, because we're not financing that large of an amount of money. As long as rates stay under 7.5%? We're good to go.
Blooms Crossing is pretty, at least from the pictures. Enough to make me think about buying out there, until I said, no, can't do the commute. (Which for me is saying a lot). Enjoy your new home!!!! Best of luck on a smooth sailing closing!!
I have been asked to provide insight and analysis to a couple living in Falls Church on the purchase of a first home.
I assume they would have to be looking at TH because I highly doubt they have both the capital and the cash flow to purchase a SFH.
Based on my experiences, with buying a SFH in Feb, putting my TH up end of Mar, having it "active" for 1 month before going under contract and closing earlier this week:
1. Do not rush into anything right now.
2. Determine how much you can afford.
3. Determine exactly where you want to live (zip and if possible, NH or locale within zip) after studying listings and visiting homes in your price range in different areas.
4. After finding the area you want to live, study it for a month or two to determine how quickly things are being put under contract and what sellers are responding to buyers with in terms of net price vs. list price.
5. Study interest rates during this time period as well and be sure to adjust what you can afford as the interest rates adjust.
Contrary to my belief earlier this year, as well as NAR and Re/Max and many other ads out there, now is not the "Best" time to buy a first home, especially one that would likely be < $350 and a TH.
My opinion is the best time for that was probably Mar-Apr. As many have mentioned, inventory for these first time homes has dried up substantially, and the savvy buyers have made their purchases. What remains now are buyers who did not have their finances together or act together early enough (who may not be as savvy or as willing to wait for a decent price) and these individuals are willing to pay more than they would have paid just 1.5 months ago.
Now is a hot time of year (late May, early June) and buyers are out in droves. Inventory is DRAMATICALLY down for these properties and selection and affordability are not what they were just a short time ago.
With that said, I am inclined to share the above 5 points and mention that if they followed that process, they likely would not be ready to make a purchase until late Aug or the early Fall. Questions which would arise would include:
Will inventory remain low? Will demand still be high? What will happen w/ interest rates?
My guess is that inventory may remain low, but demand likely will not be like it is now, as seasonally as well as w/ regard to interest rates creeping up, I think the Fall should have fewer buyers. Plus the obvious fact that a majority of people who REALLY WANTED to buy due to rates/incentives likely already have or will have by the Fall.
So even if inventory is the same (low), I think there may be better opportunities due to less competition and people wanting to sell before the winter slow season.
Interest rates I know nothing about, and my guess is they may creep up but hopefully not as quickly as we saw in the last 10 days.
All of these points mentioned are my opinion based on my personal research and opinion. I am not nearly as versed in the RE market as a majority of you here, but I do have that recent, first hand experience.
Please provide insight/comments/adjustments to my potential advice for a young couple looking (starting right now) to purchase a first home in the lower tier price range in the NOVA area (and I assume due to the location of their jobs, inside the beltway but perhaps once they see prices, they may shift to areas like Burke/Springfield/Kingstowne). I think offering too much advice on location right now may be premature, because I don't know their finances or their specific desires. Primary advice would be directed towards the overall process as it relates to TH <= (approx) $350k.
I was just checking the link at Frankly, the birds-eye view shows the old, weird, green house.
3107 RUSSELL RD is over on the next block. This is not a $2.9M neighborhood... I live HERE.
It is a nice hood but it is not that nice. If I were buying, I'm not, but if I were, I'd find a place like mine or the old weird, green house, and upgrade it as I scraped together the money.
Cara,
Thanks for the well wishes. The commute will be a bear but my husband "only" has to put up with it for 3 years. He'll commute to the Pentagon via VRE or he can park there, but still a bear. After that he can retire and we are hopeful he can find work closer to home.
Kristin,
1 person doing a commute that on some days can be on the train, is not bad at all. My husband would totally have been okay doing the same, it's me driving that would have been the kicker.
T,
Sounds like absolutely excellent advice. Those 5 points are exactly what I'd tell them. They should be prepared for rates to go back up to 6%, but the lower competition is key. You can make up for lack of inventory by simply extending your search over a longer period of time. But it definitely takes a few months of looking seriously to determine what's priced well, what's not, which neighborhoods are good, which ones are going to the pits. All that stuff. I would definitely suggest to them to at least take a peak at other options than Falls Church, just for a better sense of perspective if nothing else. And to check out greatschools.net even if they don't plan on having kids soon or at all. It's a way to measure neighborhoods, and to figure out what it is that you're paying for.
Kristin..are you joking? BC to MP VRE is a short commute with ample parking. MP to CC is a 50 minute ride on the VRE. Paid for with metro checks. He does need to sign up with Commuter connections free ride home program. A taxi ride home if work or sickness means you can't take the train. Being military his VRE ticket should be fully funded thru 2011 with stimulus money. I lived in South Arlington once upon a time and worked at the Library of Congress..Yes being that close in by the time I walked to CC metro, caught a train and arrived at work it still meant a 30/40 minute commute. Around here anything less than an hour is some good stuff. Lots on officers/SES's ride the train..or lots of muckie mucks as we call them and I can being married to an retired SES.
Good point Cara - I will have to come up with a secondary list which contains some criteria in actually selecting a home. Definitely high on the list is school districts. But now that I think about it, that item really helps trim down my point #3, so I think maybe I subset that point with factors including schools, nearby conveniences (be they transportation, shopping, dining) and desired pace of life, among others.
I made sure the new home was in a solid school ladder and I emphasized it when selling my old one. As a matter of fact, I was somewhat all over the map in terms of my house search prior to weighing in schools significantly. It was on the radar, but not too high up to start, so I was very broad. When I bumped it up the chain, I was able to narrow down my desired zips/neighborhoods quite quickly, which ultimately made things much easier.
Cara: the cash-out's make a lot of sense. I was looking on Frankly the other day (at Vienna?), and I noticed quite a few of the shortsales were for SFHs bought pre-bubble (or early bubble).
For example, this place was bought for $339k, but is a 'short' sale of $619k:
http://franklymls.com/FX7060749
bought at $247k, short at $579k:
http://franklymls.com/FX7060749
bought at $575k, short at $799k
http://franklymls.com/FX7040909
Kristin..Manassas line is nothing like the Freds.line in delays and such. I wouldn't, couldn't, never use the VRE Fred line. I'd take a bus or van pool. Maybe being military he has heard rough commute on VRE from Freds. riders
I don't believe prices will suddenly jump up. They did not after the 1991/92 drop.
I don't think you will see a sudden jump, but do not expect flat.
In 91/92 the runup was offset by 8 years of real price declines ~ 30%.
In this market we have already had nominal price declines of ~ 35% and real price declines of ~ 45%.
After we bottom out I would expect the pricing to rise with inflation again. You will probably see a stair step, because as you reach higher levels you will draw more sellers who want to get out at the next price point. The market will have to clear that inventory before it can move up again.
@J@ : That's a pretty sweet house. One question: why is there a brick mailbox in the middle of the front yard?
T,
Yup, pretty much exactly the same thing happened with us once we looked at the intersection of neighbborhoods with good school districts and ones with good train access. Allowing things to limit your target area (as long as you keep an eye on the rest of the market for a dose of perspective) makes the process way more pleasant. Too many choices is not a good thing. It'll just drive you nuts, and make it impossible to do as much research as you might like.
I would almost suggest finding out what's possible in their price range before deciding on criteria. Sort of a "of what's available which ones matter to us" approach. It's less frustrating that way.
Today's best of patrick is from Reuters: Medical bills underly 60% of bankruptcies
Stunning quote that was news to me:
CANCELED COVERAGE
"Nationally, a quarter of firms cancel coverage immediately when an employee suffers a disabling illness; another quarter do so within a year," the report reads.
"One question: why is there a brick mailbox in the middle of the front yard?"
Beats me. This is an old area and the post office will deliver to the door. My mail box is on my stoop.
They could have put their mailbox right at the front door, which they would not use except to get the mail since the garage is in the back.
One neighbor has their mailbox at the street on a stone post, the house next door, up on a hill, has their box on the wall.
My opinion is that house is way over built, over sized, and over priced for this area. You can get liveable 2/1 and 3/2 SFH for between $550K and $700K. Here's one. Slate roof, garage.
Don't pay too much.
I appreciate reading that advice, T, as we are looking to buy our first place this year. We're actually starting to interview agents now, even though we will probably wait until the fall to put in any offers, assuming we find someplace we even want to make an offer on.
We've been watching our local market closely for over a year, so we definitely don't feel the need to rush into anything.
Arkey,
That is a great relief to know the commute will be ok. We are a mile from the MP VRE station, but for some reason I can't get my husband too interested in taking the train. I do not get that, but it might have something to do with men and their trucks, I don't know. I would much rather he take the train because I think it is safer. I have heard a terrible crash statistic for D.C. drivers: every 13 months the average resident is due a fender bender. Oh my.
Kristin,
Have you checked the train schedule? Maybe it's just too restrictive on his movements to be useful to someone at his stage in his career. Some people prefer flexibility above all else. I, instead, loved the freedom of being able to say, "gotta go, got a train to catch".
since we do have such a large downpayment, small changes in rates aren't a big deal for us, because we're not financing that large of an amount of money.
I'm in the same boat with a potentially large downpayment--cash out from my previous house sale--if I bought in again.
I did some spreadsheet math yesterday and determined that if rates went to 8.8 or 9.8%, compared to the recent low of 4.8% (supposedly) in, say a year, then my cashflow monthly cost of buying in a year would IMPROVE by around $1000 a month (!!!!)---IF, the recently posted rule of thumb held true, about prices (affordability) taking a 1% hit for every .1% mortgage rate increase.
This would also assume I'd be willing to put that substantial an amount of my net worth into the house.
The numbers were pretty loose and sketchy, so I don't entirely trust the result, but it was interesting to see.
Also, that rule of thumb can't be completely linear, because it would mean that a jump of 10% in rates (to 14.8% from recent lows) would mean we could all go get all the houses we want for free. (And if rates were this high, it would imply that wage hikes would be going great guns, and this would support same-house (nominal, not real) price hikes.
But the REAL question I have is about "substitution": if rates went up 5% and someone without a big down payment couldn't afford a certain house I like at a certain price X, that might not mean I'd get it for a lesser price. It might only simply mean that someone richer would take it for the SAME price of X, because THEY could no longer afford the NICER house at price Y.
Maybe this has all been hashed out on here, but I wonder if this is the idea behind what we've seen so far, during the credit/employment crunch: the very low end has slumped because of lack of substitution buyers from higher up (due to desirability), and the high end has slumped because of a lack of substitution buyers higher up, but the middle prices have held up because of substitution buyers scaling back their dream.
Kristin, after he tries driving 66the train might look good. You can eat, drink, read or visit..its nice. You are new to the area..western PWC is quite a bit different than the eastern part of the county. As far as MP VRE riders..most are FBI, 3/4 star and Admirals, SES's, FAA officials,Homeland Security,VRE CEO gets on in Burke, lots of firefighters/local copasuers ride free to training sites in Alex plus play a role as security, its not like the greyhound bus by any measure on our end, most riders are not entry level workers but upper management at HUD,AG,FBI,FAA Education and Pentagon heavily. I'd estimate about a third of each train is CC/Pentagon workers. I know Tabitha thinks our house values have held up well...well, there is a reason why it costs more to live on the western side of PW.
Reposting a question I posed in the earlier post.
I have about three years continuous work at my current employer. I am looking to change jobs. Cara and Arkey provided some advice so I'll add the following notes if that helps people give advice:
(1) New job would be in the same industry/line of work
(2) I'm looking to buy Fall 2010 (so not anytime soon)
(3) I am considering taking time off in between jobs (but not leaving the current job until I have the new job offer)
So the questions are will the best rates only come once I have two years continuous employment again? Will anything beyond a couple weeks off between jobs raise eyebrows?
So I wonder if I should buy now, risk some principal loss, if changing jobs will mean waiting until 2011 instead of 2010 to buy. On the other hand, if this just means at worst a 0.1% difference as Cara noted then that's not more worrisome than potential home value losses for homes over the next year and a half.
I might be worrying too much in any event. As many of you are noting the last time we had a bubble home prices stayed flat for a while. So even if the market bottomed this fall (and it seems inside the Beltway where I'm looking is going to be later) the home prices in 2011 might only be 0-3% higher.
I drive 66 at 5:30AM and get all the way to to the opposite side of the beltway (route 50ish) on the Maryland side in just about an hour. 66 isn't so bad if you don't mind getting up at a god-awful hour of the morning. Of course, if you can work 10 hour days then your commute is only 4 days a week and if you can work from home a couple days a week then you only have to drive 2 times a week. Not so bad.
Scott,
My quick calculation was comparing rent versus buy for our target price, keeping the price the same. If you calculate in any price declines due to rising rates then, obviously we fare even better either by getting a better house or having the purchase price go down.
The low-end plummeted first because (a) there are more low-end houses then any other segment, (2) the low end is what inflated most during the bubble (3) therefore they are also what had the most speculators and risky borrowers and hence the most REOs.
But yes, the fact that the only pool of buyers for the low end, are its native pool and investors is what brought it to its knees. The high end will likewise suffer because the only way to reach more buyers is to come down in price.
The middle tier and middle distance has the most substitution, people choosing to compromise on either size, charm, character (name favorite house attribute here) or on commute. How that will play out will be interesting to see, but what it does "guarantee" is transactions, which translates into price discovery.
@j@,
that house is priced at least twice as high as it should be. but at least the owner reduced the price from $2,998,000 to $2,995,000. That is some serious price slashing (one-tenth of one percent!!).
For those discussing lower inventory in the further out areas. Might another factor be gas prices?
When gas was $4 people probably said "no way am I moving 10-20+ miles from work." Then they looked closer in and realized they could not afford those homes. Plus there were people on TV scaring everyone with notions that gas was going to $6.
Fast forward to a period of time where gas was in the $1.50 range and is now in the $2s and few are predicting $4 gas any time soon. A home in Ashburn, Manassas, etc does not look too bad now.
Cara -
Disabled can use COBRA for 36 months, then Medicare kicks in -- if Social Security deems them disabled.
Sensational article though.
TBW,
Gas has to be a factor, but I would think most buyers would have the $4/gal in the back of their head.
Am I the only one that thinks it is mostly investors buying the sub-$200k stuff?
TBW,
Since this crash in real estate values '06-'08 with nothing like the dip in 1990-1991, why would you think the following period would be exactly like 1990-1991? It'll be different. I'm sure of that. My guess is a sharp bounce off the bottom -- like what is already happening, followed by a steady increase in line with employment and incomes. And lots of resistance around the old bubble peak - sometime pretty far off in the future.
Robert,
Agreed, I think it's gotta be over 60% investors on the below $200k inventory. Hmmm we could use the MRIS, find a zip code that's almost entirely sub-200 and then see what its mortgage properties were....
Any zip-code suggestions, all?
http://www.mris.com/reports/stats/route.cfm
Spotcheck on Woodbridge 22193:
Heavily dominated by under $200k sales but Type of Financing
of Units Sold
(No. of Units)
Conventional 32
FHA 65
VA 19
Assumption 11
Cash 41
Just FHA + VA beats out cash. And conventional is going to be split between owner-occupants and investors. So, IF you assume that the people getting FHA and VA loans are not lying on their applications and do intend to live there, than at least in springtime (April) it's the owner-occupants buying the sub-200k market.
Just a spot-check, I know.
Robert,
Every time I have seen charts of recoveries from home crashes it takes forever and there are periods of no growth. It's not just the 1990s DC crash. I've seen it in charts of earlier boom-busts in Dallas (oil bubble of 80s), LA, Boston, and other earlier boom-busts.
You are right that this boom-bust cycle is different: it was a much larger and longer boom than any we had seen before. That would seem to point to a longer recovery period and not a shorter recovery period than the 1990 bust.
Anyways, I'm not saying home prices will remain flat until 2014. I'm just pondering if home prices will change much between 2010 and 2011 OR if I even need to worry about that. I might be able to get a prime rate in late 2010 even with the job change.
Interesting/amusing article:
http://www.latimes.com/news/local/
la-me-funemployment4-2009jun
04,0,7581684.story?page=1
Will this lower the number of first time homebuyers coming down the pike? How many late 20s/early 30s will be funemployed? ;)
[Just wanted to share the article, not really making a home price argument out of it.]
contrarian,
Yup, isn't Patrick great?
Where else would we turn for our daily dose of doom and gloom?
;)
contrarian,
I think I know your answer to this but do you really doubt the Dow will be up at 9,000 (if not more likely 9,500 or above) by the end of this summer?
Just heard this from one of my banks:
Recently, the U.S. Congress approved an extension through December 31, 2013 for the increase in FDIC deposit insurance coverage to at least $250,000 per depositor, per institution.
I'm not surprised they did this. We were looking at another disaster if banks were going to go back to $100k FDIC limits later this year.
Next up -- extension (or expansion) of the $8k first time homebuyer tax credit. ;)
Cara..you can check 20110 & 20111..thats Manassas, MP where we crashed and burned so bad in PW. I think its first time home buyers. I was talking to a new rider last week..young fellew that works for justice..anyway, he was new so I asked..He and his wife had just bought into that price range..she is a nurse..they have 3 children..a set of 3 year old twins and a 4 year old..they are estatic..a 700 house payment vs. 1500 a month rent for a 2bd apartment. I was teasing him about why the neighbors let them live...GAWD!..to say it was hard on them is an under statement..and..my joke came closer to truth. My nephew Jayson is trying to buy, too. More than a few young professionals have been coming in from DC,Md and Pa and buying like crazy. Plus we have a program in place for county employees for 300,000 and under, then there is the military.
TBW, I really think that the 8,000 was such a success with the under400,000 market that they will expand and extend the program to middle tier to 15,000 on 500,000+ without restrictions.
Arkey,
Those both have a larger clump of homes under $100k, and have FHA numbers almost exactly equal to the CASH numbers. (28,28) (23,21). They also have more sales over 200k percentage-wise.
So, my guess would be that the under $100k is >80% investor, and thus that the 100-200k market is >90% owner-occupant (there's conventional and VA loans as well). But that's not something that I can actually discern from the aggragate numbers.
The zip I picked randomly based on Harriet's biggest price drops, is actually a pretty good test case, because it has:
28 <100k
53 100-149k
39 150-199k
---
120 properties under 200k
50 over 200k
so it's a good test of who's buying the 100k-200k stuff.
"tiredbubblewatcher said...
contrarian,
I think I know your answer to this but do you really doubt the Dow will be up at 9,000 (if not more likely 9,500 or above) by the end of this summer?"
I dont think thats in the bag necessarily. I think its clear we "are" turning a corner, but the markets may be running ahead (thinking we "have" turned the corner), in which case a bit of profit taking could be in order. Seriously doubt we'll see 6500 again, but a stagnation around 8,000 is possible.
"Cara said...
contrarian,
Yup, isn't Patrick great?
Where else would we turn for our daily dose of doom and gloom?"
Its amazing - if all you read were his articles you would have no idea that there is increasing sentiment that a bottom is forming.
It must be tough for him -- weeding out the increasing number of positive articles out there to give his readers a daily dose of doom.
Arkey,
Did he really indicate the neighbors were antagonistic to him? Or just that they tend to make similar jokes to yours?
It is actually something I vaguely worry about, that my nieghbors will blame me for bringing their house comps down, rather than recognizing that (a) I'm now tied to the same boat as them, (b) that I helped provide price support for the nieghborhood by buying.
I think it really depends on the personality of the neighbors, more than anything else.
Contrarian,
What do you think is more likely?
1. Anarchy and/or a class war?
or
2. Emergency/Executive exemption of EPA protections so that massive public infrastructure/works programs can proceed?
I look at your doom and gloom scenarios and I cannot help but think, no one wants things to get that bad. The worse things get, the more people you have working to solve the problems.
My $0.02.
Arkey,
I would love a $15k tax credit with no AGI phaseout. But to avoid mini-bubbles in the middle of nowhere parts of the country, let's make sure it is limited to x% of home price. If people could get $15k tax credits for buying $100k homes that would not be good.
Cara..ooops..it was the neighbors where he rented that complained about the babies..it was hairy when they moved in their home because the people were moving out..by force..mad..this was a foreclosure and their new neighbors there are VERY happy that they moved in..yes, there are times when 3year old twins and a 4 year old is a vast improvement.
Arkey,
Ah, okay, I wasn't thinking about the kids at all!!
Makes a lot more sense than this guy's new neighbors resenting him for having a smaller mortgage payment. Thanks! It's good to hear that all is right in the world and that people view new fiscally responsible neighbors with kids as a positive development. Much better.
Cara..that's one thing I have yet to encounter or hear any negative comments about..most of us that I talk to are tickled pink that the homes are selling instead of sitting empty. Its a nice cross section of new people coming in. It's not like I agreed or understood the prices they were getting for those homes. I used to shake my head and mutter..who in h double sticks can afford that?
In more news of, "don't believe press releases from academic papers":
Atlantic Monthly author persuasively disputes Elizabeth Warren's thesis that over half of all bankruptcies arose from medical bills.
Presumably this is the study cited by the Rueters article that just calls them "US researchers".
Cara,
Thanks for doing that research. Looks like <$100k is investors with them phasing out above that.
The problem with the implosion of the US economy is that the rest of the world would have to come with us.
Even under this financial crisis, the United States continues to be the safe harbor for money around the globe. Why would banks, governments, investors buy so much of our paper? Because we have a 250+ year history of creating wealth and value, unmatched in any era in the history of the world.
Google. Could have come from anywhere in the world. ANYWHERE. But where does is come from? Right..right here. They've got 20,000 people that have created $130B in wealth. And whatever follows google will come from here too. Bank on it. We have so much talent, and creativity, in addition to being the best place on the planet to live, we're not going too far down.
Robert,
no problem. That was my conclusion too, although it is a bit light in terms of evidence. My target zip code of 22015 is almost exclusively above 200k (in April, there are some low May sales down there) concentrated more around 300-400k, and there were only 3 cash buyers. So, it appears the trend holds. (We also have fewer FHA than conventionals).
Contrarian -
Two words: Civil War
Dude, nothing, and I mean nothing can compare to it. And, what? Our democracy survived and prospered.
Contrarian,
I think you take what *could be* a natural progression and run its course without considering that people, society, government, will react in the interim.
I choose to see the positive outcome.
Having said that, I do see the US standard of living declining. But only in so far as the rest of the world catches up.
I do admit that the idea of a natural resources war with China frightens me a bit but then, hopefully, an inventive individual can truly develop alternative energy as a more productive outcome than global war, destruction, and the eventual failure of mankind...
My $0.02
Cara,
I grew up in 22015 -- moved there when I was three. Graduated LBSS. Have ridden my bicycle on almost every street and path.
Contrarian -
With your thesis, you might do well buying stock in gun manufactures. Just trying to help.
contrarian,
I put the chances of anarchy very low. I do think there is a chance that if high unemployment remains in DC we will start to see crime rise.
Also the City Council continues to be reckless. They are talking about paying for a hotel for the convention center and breaking the debt levels that provide the city with a strong rating.
The five cent tax on plastic (and paper!) bags is not going to devastate the DC economy but for those of us (like me) who do shopping in both in the suburbs and DC might do more suburban shopping.
I still remain hopeful that DC can keep the nice qualities that have come this decade but I've always felt the natural state of DC was probably to decay to where it was pre-Mayor Williams.
Insurance company buys gold
contrarian,
Regarding the USA Today article you mention. Those seniors lived beyond their means. When did they first buy their home? 40? I mean honestly, if you bought your home in your early 30s (as most probably did) you should have paid it off in 30 years (so early 60s).
If you kept doing home equity loans or moved up and started the 30 year cycle over you made a bad decision.
People apparently do not realize how high health care costs get when they are 60+. Your only shot at retirement is to have paid off your mortgage.
Also, you are retired! You no longer have to live close to jobs or other high cost areas. You don't need as much home. You can trade down.
Anyone 60+ also should have earned tons of home equity. I mean the amount of home equity that anyone that age could have built since the 1970s is enormous.
Contrarian -
I have no problem torturing terrorists. Yes, that's part of democracy. The Constitution isn't a suicide pact.
Listening on my phone calls? Go ahead. If it can stop millions of people from being killed I'm all for it.
I read your article on health care. So what? If it's ridiculous, hopefully it'll be killed by Congress. This balance of powers thing really does work most of the time. Obama wants European style big government. I don't like it, and we'll all suffer, but I've been to Europe, it's pretty cool.
Your chart is silly. I can draw lines like that and show the exact opposite outcome. If you are a chartist, you must know that those guys are all over the map. How do you know which one to believe?
I'm not inferring civil war. I'm only saying that the devastation of our Civil War was of biblical proportions...and here we are today banging away on our keyboards. I'm feeling pretty free and safe.
"Contrarian said...
Once a primary trend change occurs, it will continue in motion until it is finished, despite any action the government takes."
Contrarian, not to get too esoteric, but this statement right here, is my (and many many others) chief complaint with the elliott wave. As many have noted, if this is correct, (i.e. nothing can stop the trend) then you are essentially denying free will.
To wit, you claim we have deflation and homes will go down 90% in value - that is part of the the trend change that cannot be stopped. However, if Bernanke literally drops billions of dollars from a helicopter tomorrow, classical economics suggests we will have hyperinflation. If we have hyperinflation, bread will cost $1,000 and homes will explode in value, causing the bubble run up to be laughably small by comparison. To be sure there will likely be riots, massive unemployment, etc. but make no mistake, home prices will explode - there is no getting around this.
So if as you claim, "Once a primary trend change occurs, it will continue in motion until it is finished, despite any action the government takes." then you are denying one of the following, either (a) hyperinflation cannot exist or (b) free will does not exist. Please pick one.
Tom/Konstantin/Pat(maybe)
Sorry to interrupt the re-fighting of the War of Northern Aggression and another round of doing the Wave(personally, I think Taleb's Black Swan anti-theory is more interesting), but I just received an e-mail from Phoenix Condo near Courthouse Metro. On Sat (6/6) 12 to 4 pm they are selling last 5 condos (refreshments from Whole Foods). 4 units are 2 bedrooms priced from high $400K to mid $500K; one is a 2 bedroom with den priced at low $600K.
Seriously, contrarion, read my newest post on yesterday's thread, and then go and LEARN something about the difference between PRICE SHOCKS and deflation/inflation.
Meanwhile, in 2008/09, 38 depositary banks have failed, and as far as I know, ALL experienced FDIC intervention. In 1930, 750 (!!!!) banks failed, and as far as I know, NONE had their deposits guaranteed or even received emergency loans. So, look me up when the bank failure numbers get ANY WHERE NEAR looking like 1930, but don't bother me until at least ONE fails to receive government help.
And by the way, with Fed rates and CD yields near zero and bank lending rates at 5% and up, banks that are not already insolvent and have a portfolio of performing loans can MAKE MONEY HAND OVER FIST right now, which is a main reason why bank stocks (XLF) have more than DOUBLED since March. In the 20's and 30's the government was TIGHTENING credit and the money supply to kill the speculative bubble, which also was putting the screws to the banks' income statements.
Once the (newly elected) government of the modern era decided to ACT against the economic problems instead of deny them like Bush and Hoover, comparisons to the 20s/30s became a study in CONTRAST not similarity. For details, simply google "1929 versus 2009".
Contrarian -
You know the government is monitoring this message board. Be careful what you say.
Well, my grandfather's old house is officially up on the market today, so I'll be spending some more time watching the PG market closely. I'll get to see what it's like from the other side, which is good. I don't have any close experience with selling a house at all.
Cara, I did not find the Atlantic M. "critique" even slightly convincing. I haven't read Warren's study so it may be that for reasons the Atlantic writer didn't include, the study is indeed weak. But I'll wait for a better critique. (One with fewer misspellings would have a bit more credibility, as a start!)
Contrarian - thanks for making a respectable attempt to answer my question - and only once did you question my intelligence...charming.
Lets get back to my hypothetical. I want to focus on a statement of yours:
"It is not a black-or-white, either/or issue as you present it. It is both. After the deflation run it's course, you can have your inflation. But you cannot stop mother nature."
I promise you with every fiber of my being, this is just flat out wrong. Your not thinking big enough. Suppose (per my hypo) the treasury sent every man woman and child a stimulus check of ONE BILLION DOLLARS tomorrow AM, with the promise to send another billion each and every month til inflation set in.
Within hours, perhaps minutes, deflation in just about every asset class would stop - cold. By
the middle of next week all home prices would easily double.
When the MRIS report came out next month. I am confident the median price of homes in PWC would jump from 165K to (at the very minimum) Ten Million Dollars, (a mere three days of stimulus pay) possibly much much much higher than that.
Granted there would be huge problems. Within months, banks would fail in far greater amounts than what they are now unemployment would likely hit 25%, china very well could declare war against the US - god knows what else would happen.
Still, even with all that economic uncertainty out there (wars, raging unemployment, catastrophic bank failures, etc), PWC homes would "only" be One Billion Dollars (i.e. one months stimulus payment) by the end of the year.
Now, do I think this will happen? Hell no. Deflation isnt that severe to cause any major intervention like this yet. Still thats not the question, the question is CAN deflation be stopped before running its course? CAN human intervention stop the deflationary aspect of the wave before completion. The answer is a resounding and unambiguous yes.
Can you really not see this?
My 2 cents on the whole issue:
I think to some extent both contrarian and Scott are right.
Many opposing forces are at work. Let's keep in mind the basics of nominal price levels.
Things that determine prices:
Supply/Demand of goods AND
Supply/Demand of money/credit
If demand of goods is stable and there is more supply of goods, fundamentally prices will drop.
If demand of money is stable and there is more supply of money, fundamentally prices will rise.
Monetary Deflationary factors:
1) MASSIVE debt overhang
2) High unemployment (if measured by the 70s measurement is in the 12-15% range-U5/U6, still high at 9.4%)
3) Even though massive printing has occured, banks aren't lending out all of it and are saving the money given to them vs. using it
Monetary Inflationary factors:
1) MASSIVE printing
a) T-bills sales
b) 3+ T budget
c) look at the Fed. charts it's quite impressive the amount of printing
Goods Deflationary Factors:
1) People suddenly stopped buying lots of toys (see Baltic Dry Sea Index) -- less demand for "stuff"
2) Goes w/ monetary too, people trying to shore up their balance sheets from realizing oh @#$ I don't have squat saved up.
Goods Inflationary Factors:
1) Massive cutbacks in production
a)much easier with J.I.T. manufactoring
2) Massive amounts of bankrupcies
a) this has deflationary affects on money supply, but inflationary affects on goods.
b) more bankrupcies, auto for example, means LESS stuff is being produced
c) companies are trying to met the lowered demand w/ lowered production to justify their price points.
The Fed is trying REALLY hard to overcome the massive deflationary effects of deleveraging of debt.
My bet is that they can do it . . . just not in the way they want or expect.
I agree w/ contrarian if you look at ANY huge bubble in history in REAL value terms it loses ~90%. South Sea, Tulips, Naz, Nikkie, 1929, Japan Housing bubble, etc. I have yet to find one that didn't lose >70%. In real terms they always stagnate for decades. If one looks at the stock market since 2000 in real terms it's pretty ugly. And in real terms it will continue to go down.
I also agree w/ Scott. The Fed can print at will and can issue as much debt at will. They are trying to re-inflate housing. However, they can't just give everyone 100k though b/c they know that will prob. ignite hyperinflation-though they might try if things get bad enough.
The one thing about housing is that it is a highly leveraged item and is highly dependent upon incomes. If inflation in goods really takes off the only way inflation in housing is sustainable is through wage increase or more leverage. Wages are not increasing. . . leverage is not increasing.
My prognosis and it has been for about 3 years now is what I call biflation. We are going to get decreasing to stagnant prices in leveraged assets homes, cars; decreasing to stagnant wages; and increasing prices in everything not leveraged (food, gas, etc).
In sum a lowered standard of living.
Housing in real terms isn't coming back for a very long time. This doesn't mean it's a good/bad time to buy . . . but the massive amount of people buying now b/c they expect prices in housing to really take off b/c of inflation are in for a very rude awakening. Buying too much house when everything else goes up is really going to hurt.
We very well could have a secondary crash in housing within the next 3 years.
As for the stock market . . . be fearful when everyone is brave and brave when everyone is fearful. If I played stocks, I'd be taking my money off the table right now, easy money is gone.
WOW, contrarian,
I sure HOPE you aren't using the stock market, OF ALL THINGS, as your main barometer for all things economic.
The stock market, where the average P/E lurches from one half-decade to the next, from a level of 6 or 8 or 10 to 20, 22, or 28.
The stock market, whose next day, next week, next quarter, next year value can't be predicted reliably by ANYONE, not even the most genius level quant or the acknowledge best investor in the world.
The stock market, which is populated almost entirely by humans who are either greedy thieves or clueless sheep herds glued to the head scratching on CNBC, LOL.
The stock market, whose sentiment is almost always six months or a year ahead or behind of every key turning point and development in the real economy.
Answering the question quite simply--
the stock market crashed because Paulson/Bernanke LET LEHMAN FAIL and shoved Countrywide down B of A's throat, and Bush stood around like a deer in headlights while GM and Chrysler were getting ready to go dark.
It crashed because everyone realized we could have four more years of such tragedy if Hoover-like "economy is fundamentally sound" McCain got in, which at the time was about a 50/50 shot.
It crashed because it was October and the 80th anniversary of the PREVIOUS time the Party of No did nothing to save us.
It crashed because the TED Spread got to 4. It's now at about .5, levels last seen in 2007.
It crashed because the market decided the Fed rate was too high--at the turn in October 2007 it was at 4.50, and now it's at ZERO--much lower than it EVER got during the Depression. And in August 1929, they WERE RAISING THE RATE to "curb the speculative froth".
And in many ways, the Depression came from other countries--England had RAISED their federal rate 3.5% (350 basis points) by 1931, the start of the really bad part of the Depression. What's England's rate right now? EU's? Brazil's? Australia's? Canada's?
Like I said, STUDY IN CONTRAST.
I anyone wants some good charts:
http://www.itulip.com/forums/showthread.php?t=10043
I don't particularly agree w/ what everyone writes .. . but the charts speak for themselves.
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