I too see all these homes where people went in and put in new kitchens etc. And the worst part about all the work is often it is not what I would do and the owners still want 60k for something that cost less than 30k
To observations to add
I went to home depot yesterday with my wife and before I could say anything she commented on how empty it was for a Saturday. No one else in line to checkout.
Second we went to a home show in OC several months ago and you could have literally shot a cannon and not hit a soul. We talked to several vendors who were extremely perplexed and disappointed by what they said was a horrible turn out.
But since the OC show was several months ago I would have expected the downturn to happen sooner and not see the MEW numbers you posted. I guess people can last longer than I would think and now with the new firm allowing you to "access" your 401k through the use of a 401k credit card, this spending binge could last beyond the first quarter (was on the today show I believe, perhaps good morning america). Mew is gone, hellocs gone, credit card maxed out, oh yes, there is that 401k I can spend.....
In one thing I do have complete faith in this "faith based economy" is that the vast majority of Americans will spend until there is absolutely no more money to be found. So how long will the 401k's last?
Over on the Yahoo MHK message board, they are quoting a Barron's article that says MHK's business is 20% new construction and 80% improvement/renovation. So, if you wanted a short based on CR's hunch about improvement downturn, MHK would probably be the most pure.
Aside from paint, floor coverings are probably the thing you do most often to keep a house fresh. Rugs wear out every 10 years or so. Tiles start looking dirty and old in maybe 15. We've redone five rooms in the last six years and new rugs/floors went in 4. Yep, money came from HELOC at prime minus one-half percent. DIRTY FLOORS REDONE DIRT CHEAP.
Mrs. Dawg keeps hoping for a reality show; "Pimp My Toidy (Bathroom)." Truth is when we see those renovation shows the prices are just too outrageous.
Anyway, my serious point is in wondering what the NAR would think of their slice of the pie reverting to the long term mean of 0.25% of GDP rather than the recent peak of 0.9%. I imagine the REIC actually getting disintermediated and that number going far below that long term share.
It is a somewhat interesting social phenomenon-- the thought that we are all above average now. Places like Costco are built on that premise-- that everyone is entitled to luxury/specialty goods.
My grandfather would dismiss certain goods as "for the rich." They were incompatible with who he was- as if it would be a violation of some law of nature if he purchased a car with air conditioning or a $100 pair of shoes. He appreciated the goods-- it brought tears to his eyes when my Mom got him a pair of "rich man's shoes" for Christmas-- but he would never dream of getting them for himself.
Is it really that unacceptable to admit that you can't afford something?
I don't understand the 401(k) credit card deal. At least where I worked you could borrow up to 50% of the balance which was repaid in installments plus interest which you paid to yourself. Seems like whoever administers the 401(k) plan for the employer would have to be involved as the transactions could get confusing. If the plan's assets are in stock, would a sale have to be made if the card is used?
Regarding "pimping out" homes, my Father always said that when you put a $300 radio in a $500 car you still had a $500 car.
I ran into the contractor who worked on our house, he specializes in kitchen remodels, small additions, etc. We talked about the bubble-pop (which so far here is pretty mild.) And he told me he assumed things would be much worse for him next year. He said that easy-credit going bye-bye was only part of it, the psychology of a downturn was much more important. He said in the 1980s when interest rates were much higher, his business did pretty well.
But when people are worried about jobs, etc., they cut back fairly quickly.
I'm loving the MHK short idea - looks like it could run to $87 or so (200 day MA) first though, which would be $4 of pain from today - not sure its worth trying to call the top though, since it could easily run all the way back down to $63 at any time in this environment.
Also at the top of the RSI band......but I'm no technician, so it could be a terrible short on this basis as well, who knows.
We bought our house in '91 and had a bathroom done last year; next, the kitchen. We're not intending on selling, its' for us; because while the house as a whole is okay, the developer (local small-timers) went low-bid low-quality on tile work, countertops, cabinets, fixtures (crappy fiberglass shower inserts, etc.)
It all looked like crap, with water leaks in tile and behind cabinets, crumbling grout, mold growing here and there, etc. Now one of the bathrooms looks like it should.
You can say a bathroom "should" last more than 15 years, but it really depends on the clowns who put that stuff in. For that reason, I don't think remodeling even on relatively recent homes will ever slow to a halt, though there might be more do-it-yourself and less hire-the-contractor -- with mixed results, I'm sure.
We've redone most of our house in the 20 plus years we've been here, but never before it really needed it. I waited 15 years for my kitchen, dammit... seeing these spoiled kids pimping out their houses has always kind of pissed me off.
And we do our own demo, since that's the fun part, so it doesn't really end up costing us all that much. We used to do all our own labor, but there are some perks of age. Although watching hubby fix the faucet this afternoon was amusing. ;^) Price Pfister is great, btw - just call them and they will send you all free parts. Love lifetime warranties that are actually honored! Even on my ebay faucet....
And when everything matches, kids? It doesn't look great - it looks boring. The huge television just lets me know you have absolutely nothing better to do with your life. And for goodness sake, at least get one bookcase - when I walk in your house and there are no books, I just cringe at the ignorance showing.....
With absolute prices still quite high (although falling) in many areas (among them Seattle), it is natural that people being asked to put up the better part of $1m for a property would demand a certain level of quality. And first on most lists are kitchens and bathrooms. So it's a reasonable investment, and in a buyer's market may be absolutely necessary if you want to sell the property.
Any Realtor will tell you that "kitchens sell homes" and I think it's true. Personally, I would not want to buy a house with a crappy kitchen.
I started renovating my house in May 2007, put it on the market in early August and sold it in October 2007. The house was in Durham, NC which has not been badly impacted by the housing bubble. Prices never went up like crazy, so there was only a minor correction (so far).
I spent about $12k renovating the kitchen, and that was the "cheap" option. New cabinetry and granite tops would have made the total a lot closer to $35k. But if I had done nothing to fancy up the kitchen, it's doubtful the house would have sold at all.
If the plan's assets are in stock, would a sale have to be made if the card is used?
Yes. There's no third-party lender. You are loaning your own money to yourself. You have to designate which investment you want liquidated.
The maximum is 50% up to $50,000.
401(k) plans don't have to offer loans and many don't. Most plans charge per-loan fees to participants who take them. Most plans think loans are a pain in the rear.
As I've said, a low income person can put $2,000 into a plan, get a $1,000 federal matching tax credit and maybe $1,000 in 50% employer match. Thus, no personal money in. Then, take a loan. Free money out.
1) One good/bad aspect of major remodeling is that most of the $$$ did not go offshore. They went into labor, domestic materials and products that at least had a chance of being manufactured domestically. If that spending source dries up, it will directly affect the domestic economy.
2) I'm also in the SF Bay Area and concur that there has been substantial upgrading, although I wouldn't characterize it as universal as your contacts do. Regarding furnishings, in my neighborhood the standard is to "stage" a home for sale so virtually all furnishings are rented. It would be misleading to draw a conclusion based on that.
Cal - I think everyone (including us) was in Costco yesterday buying stuff for the Super Bowl! I think January is probably a slow season for HD - things start to pick up there at the start of gardening season (which for us is late February).
BTW - I don't think there is any home improvement where you get - on average - more than 100% of your investment.
I have always been perplexed by the level of finish work and furnishings I see in higher end houses in my neighborhood. So cheap. Simply appalling. 50 cent electrical plates - sofas from Rooms to Go. I guess there has been a tendency for builders to build really big - and as cheaply as they can. Because that's what buyers seem to want. As for the furniture - I think people run out of money when they buy the house - and Rooms to Go provides the easiest credit in town.
We built our house - and we did it differently. Built a relatively small house (for our area) - but did nice finish work.
Donna - I had to laugh at your story about hubby fixing the faucet. Last time my husband tried to change a shower head - he broke the shower arm! We had to call the plumber to fix it. Plumber said it happens all the time .
As for big screen TVs - they can look nice. Here is ours:
Don't worry about no books on the bookshelves. We have dozens of linear feet of bookshelves elsewhere - mostly tucked away (e.g., I have a big walk in closet in my home office which has a "library wall"). Roby
Like home sales, future home improvement demand was "brought forward". Didn't matter whether it was a new or existing home, for personal use or investment purposes, they were usually pimped out shortly thereafter. Expect a huge dropoff going forward.
I would like to point out that my (one room) apartment is furnished with matching furniture. And every single piece is from IKEA. First class all the way, nothing but the best! Well, at least the best that IKEA has to offer, that is.
On a more serious note, my feeling has always been that the home improvement frenzy has been driven by that good-old-fashioned keeping-up-with-the-Jones mentality. It became fashionable to upgrade the home, and as soon as it became fashionable, everyone had to do it, regardless of the cost.
People spending tens of thousands of dollars to upgrade the kitchen despite the fact that they always eat out, huh? That makes no sense (at least they use the bathroom.)
P.V. Me too! I spent $2500 at Ikea in one, and only, go in 2006. Got what I liked, and what was suitable for my lifestyle, and it was very fun putting it all together (kinda like tinkertoys from back in the day).
Note how only 3M of the 23M in "Service Occupations" are in healthcare support. However, there are 4.5M in personal care and 7.3M in food prep.
Check out all the categories, and you'll find our service economy is highly discretionary, whereas in the late 20's most people were employed making things that people really needed.
Someone on CNN this morning during the "Your Money" show or some such, while talking about housing and foreclosures, mentioned that we have the "Alt-A and Option ARM loans - all prime loans - that are going start to hit in '09" - somebody there has been reading here, I think.
If we do see a real downturn in home improvement, and in appliance sales, as HELOCS dry up, I wonder if the big-box home improvement store becomes an unsustainable business. I imagine those guys need to do a lot of volume to pay the overhead. How many vacant Home Depots etc. will dot the landscape a few years from now?
Maybe the mom-and-pop lumber yard and hardware store will make a comeback--or at least, will manage to survive, as the smart ones always did, in good times and bad.
This is a great boon for the bankers. In the great depression the banks got back homes in great need of repair -- people were unable to make need repairs due to the depression --this time they will get homes in good shape.
"Maybe the mom-and-pop lumber yard and hardware store will make a comeback--or at least, will manage to survive, as the smart ones always did, in good times and bad."
A lot of the mom-n-pops, at least the fairly large ones, have been bought out by outfits like Lumbermen's and are now part of a chain. They keep the old management and don't always change the old names, so it can be hard to tell that anything's happened. Walking in to find the staff trying to learn a new inventory/POS system is always a clue, though.
As far as kitchens go, I think the ubiquitous nature of the stainless steel/granite counter craze means these kitchens will age badly. It will be the avocado of yore. Nothing will date a redo and scream '05 housing boom more than a kitchen full of stainless steel appliances clashing with farmhouse country cabinets.
"Home Depots would make good skating rinks, basketball courts, and the like."
I was remarking to the wife the Europeans have much less retail than we, and we had a nice discussion about how all the excess retail in our neighborhood could be repurposed... roller rinks, communal housing, hospitals, elementary schools, police precincts, and so on.
As somebody who remembers the '73 gas crunch well, I remember all the excess gas stations that were abandoned by the oil companies afterwards, and what happened to them. They were turned into liquor stores, shoe repair shops, garages (of course), hot dog stands, and more. Eventually the landlords took down the prefab metal buildings and put up something new. But that wouldn't happen this time; no prefabs.
"As far as kitchens go, I think the ubiquitous nature of the stainless steel/granite counter craze means these kitchens will age badly. It will be the avocado of yore"
My thoughts exactly. My wife and I are hoping to be house shopping in a year or two, and this is our nightmare, that all the houses will have these overdone generic kitchens we won't really like. And of course it's all done for show; hardly anyone seems too concerned about the actual qualities of the material or whether the kitchen is laid out well for actually working in it. I'd much rather get something a little rundown and old that I won't feel bad about ripping out when I can afford to.
I've been thinking this for years. If "Office Space" were made today, the main character's cookie cutter condo would surely be outfitted with a stainless and granite kitchen.
Our very local HD is brand new. Took over the space from a KMart that closed. Had to fight the local Ace Hardware interests for years to get the place - but they finally did it (there is a lot of NIMBY stuff when it comes to big box retailers where I live). The people in Neptune Beach (about 10 miles north of us) - would rather have a vacant shopping center (where a Scotty's used to be) than a Walmart. I am not exactly a Walmart shopper - but I would rather have an active Walmart shopping center than a boarded up eyesore.
I wish Ikea existed when I was younger. It's a great place for good design at low prices.
4Runner - Costco doesn't carry luxury goods. Higher end mass market IMO. OTOH - most of its stuff isn't junk.
John Stark - The mom and pop hardware stores like Ace here are simply being killed by HD and Lowe's. They are increasingly relying on stupid stuff like fake florals to stay afloat. How can they compete on things where pricing is competitive (they charge $14 for a gutter extender that costs $7 at HD). OTOH - with things that are price controlled - like Weber grills - their service is better than that at the big box stores. Finally - when it comes to some expensive purchases like lawn equipment - mowers etc. - we have found that the stores that specialize in those things are better than both the mom and pop general hardware stores and the big box stores (in terms of prices and service).
PV - Perhaps if people built functional kitchens - as opposed to those "builders' dream kitchens" (which are almost always much too big and don't work very well if you're really trying to cook anything) - people would be inclined to use them. I know mine gets an awful lot of use (I designed it for me - e.g., I am short so the cabinets are low - and for the way I cook). Roby
Rich, What you are missing with the 401K debit card is that you end up paying taxes twice -- it is a boon for the IRS. The money went into the account tax free, but you have to pay taxes when you retire. Now if you take some of it out you have to put it back with money you earned that was not tax free -- regular taxable salary. Also, you may be paying the interest to yourself, but the interest you pay is paid out of your taxable salary -- so you end up paying even higher than double.
So, comparing a regular credit card with a 401K card you end up paying maybe 30% extra taxes to the IRS for borrowing the money -- so if you can find a bank that lends for less I'd go to the bank. Tell me anyone if I'm confused here but I can't see it any other way.
"Did you see the chart that both Kunstler & Winter posted last year regarding retail space per capita? We're hugely overbuilt."
Yes. It's especially noticeable in California, where Prop. 13 limits on property tax increases have had all the local gov'ts chasing sales tax revenue for 30 years. There's been huge enthusiasm to approve any retail development, except in the most well-monied of communities. In bubble boomtowns like Modesto, the amount of new retail is actually obscene. While old retail in older parts of town moulders underutilized.
I'm sure a lot of the granite/stainless crazy has been driven by ego and image, but nonetheless a nice kitchen is a good thing. Somebody turning their 1500sf Cape Cod into a gem makes a lot of sense to me. OTOH, I find the underfinished McMansion baffling - 5000sf of wall-to-wall and fiberboard trim. Ugh. Expensive to furnish, heat, and especially to upgrade to something decent 10 years after it is built.
It is a somewhat interesting social phenomenon-- the thought that we are all above average now. Places like Costco are built on that premise-- that everyone is entitled to luxury/specialty goods
The wealthy have always been able to afford such but the middle and upper class via media have been sold on the idea of using debt to create the same effect or at least buy the knock offs made them wealthy or at least felt that way. Sort of the designer lifestyle can be yours but the middle and upper class did not understand the difference between debt and wealth. One cannot just go into debt, buy knock offs and therefore have the "confidence" that they are living like the wealthy, real life is much diffent then the media presentation.
Well, we go to Costco to buy baked beans and spaghetti sauce by the case. Also TP, frozen ground turkey, etc. I do succumb to the occasional wedge of gourmet cheese, but for us, Costco is the place we go because we're below median income--not to get bargains on leather furniture.
I do wonder whether we may see a major implosion of big box retail. Correct me if I'm wrong, but the whole business model is based on high volume, is it not? That enables the low prices that attract more volume.
But if sales volume crashes as we go off our debt binge, big box becomes unsustainable and we evolve backwards to right-sized stores with higher prices, serving smaller market areas. I'm not sure we go all the way back to the corner grocery store, but big box electronics and home improvement stores are definitely on thin ice.
Merrill Lynch economist David Rosenberg says Americans now pay 14 percent of after tax income for interest on debt. That is unprecedented and unsustainable. Getting back to historic norms may mean that a lot of commercial development is going to have grass growing in the cracks in the parking lot five years from now.
As you know, high volume means low margins, so when volume slips those margins will disappear. Does anyone really question the idea that volume will in fact slip?
Robyn-- of course you are right-- Costco doesn't really carry luxury items.
The message behind their marketing still disturbs me, though. They carry a very small selection of products, but that selection is the high end mass market that you describe. Every Brie must be double cream, every jacket must be North Face, and every blender must be from Kitchen Aid.
By displaying those goods in the big-box context of concrete floors, crowded aisles, and large sizes, it sends the message that you too are entitled to the blissful Nirvana of high end mass market, provided you just put up with our otherwise hapless retail approach.
Look-I fully understand that people want to treat themselves to something special, but it should not become a full-time occupation.
Well, we go to Costco to buy baked beans and spaghetti sauce by the case. Also TP, frozen ground turkey, etc. I do succumb to the occasional wedge of gourmet cheese, but for us, Costco is the place we go because we're below median income--not to get bargains on leather furniture.
JS-- if it really is that tight-- start clipping coupons. I spent four years in grad school living on 12k$ a year. By indexing my coupons according to the aisle on which the food was found at my local grocery store (which offered double coupons) and only buying things when the item had a store discount AND I had a coupon, I made out like a bandit.
It also helps if you walk past a Starbucks every Sunday and pick up 2-3 coupon circulars... ;^)
In Atlanta, if you drive by the McMansions at night you notice that many of them do not have window treatments on all of the windows(can't afford them) and so anyone passing by gets a great view of nearly empty interiors--can't afford the furniture either.
As to granite,etc., interior finishes: Granite is very hard to maintain if you actually want to do soemthing rad, like cook in you kitchen. Ditto for stainless appliances which are hard to clean without them becoming a smeary mess. The cabinets boxes are all laminated junk. The "hardwood" flooring used now is even worse junk--and if the atrocious laminated floor stuff gets wet, it turns into giant curly fries & has to be replaced. So IMO, all of these "upgrades" are obsolete as soon as they are installed.
Rich, What you are missing with the 401K debit card is that you end up paying taxes twice -- it is a boon for the IRS. The money went into the account tax free, but you have to pay taxes when you retire. Now if you take some of it out you have to put it back with money you earned that was not tax free -- regular taxable salary. Also, you may be paying the interest to yourself, but the interest you pay is paid out of your taxable salary -- so you end up paying even higher than double
I've looked at the 401K loan issue and the only money that is taxed twice is the interest to yourself you're paying on the loan.
The loan itself displaced other money.
You can mentally model this by taking out a loan from the 401K and immediately paying it back.
Here's what I don't understand. In Los Angeles, the developers have put stainless steel appliances and granite counters into the new 'loft' or live/work rental units.
I can understand doing the work for a condo, etc but for an average rental unit?
You pay taxes on the entire 401k when you eventually do take it - lump sum or installments. And you pay taxes on ALL loan repayments. Should you quit with an outstanding 401k loan generally you must pay the entire loan off at that time else you pay taxes on the entire outstanding loan balance.
Costco isn't Dean and DeLuca, of course, but when you compare it to Walmart, it's clearly catering to a "wealthier" bougie customer. A preponderance of prepared/prepackaged foods, all kinds of household non-essentials, lots of (craptacular) wines, etc.
I'm a bulk shopper and always notice others of my ilk at Walmart. But when I look around in Costco, it's like people are doing their daily market shopping (very little in the cart).
Probably 75% of new rental projects that have been built in the last 3 years have been constructed with the expectation that the owner will be able to convert to condo at some point in the future.
Doesn't necessarily need to happen to hit return hurdles, but that is why you are seeing a lot of upgrades and high-end finishes in rental units.
Here in southern NH, with a Lowe's and HD in every town, and so dead you can here a nail drop, but yet they are building two new Lowe's within a few miles of of each other in Manchester.
I guess they figure most contractors won't be able to afford gas for their pick ups so they better build more stores to help them out.
The "Fasten Your Seat Belt" sign is now on.........
quartz writes:
As far as kitchens go, I think the ubiquitous nature of the stainless steel/granite counter craze means these kitchens will age badly. It will be the avocado of yore. Nothing will date a redo and scream '05 housing boom more than a kitchen full of stainless steel appliances clashing with farmhouse country cabinets.
At the risk of sounding completely uncreative...my wife and I are building a house on our wheat farm. We are struggling with appliances and countertops. We'd like a timeless look & are not fond of the idea of having a "me too" look...but actually do like stainless + soapstone countertops. What would you suggest?
Here is Starbucks land, there will be a $1.00 small cup of drip coffee with a free refill. It is being marketed as a new product. Hmmm, sounds like flat sales to me.
He may make it cheaper if folks figure out how to make coffee.
I don't think stainless steel or a stone counterpart is bad per se, it just that they have been to into kitchens of every conceivable design, while stainless steel especially really only complements a few looks--mainly "industrial" loft styles or very sleek modern designs. No reason you can't do a sleek modernist design in a farmhouse if thats what you like. I would just be leery of doing some rustic, or cottagey, or traditional and using stainless.
Probably 75% of new rental projects that have been built in the last 3 years have been constructed with the expectation that the owner will be able to convert to condo at some point in the future.
That would certainly explain it. We're surrounded by condos now. Didn't used to be that way. I think a fair number were snapped up by speculators or as corporate housing because few of the windows are lit up at night.
I like mixing the farmhouse look with stainless. I especially like the soapstone or stainless countertops. We have some of both with pine cabinets, sliding doors with glass insets, knotty pine floor. There are some great old-timey looking stainless stoves at TGI. Just avoid granite. That looks dated already, imo.
robbie,
My lovely significant other is a professional chef. If your family is really into cooking, used industrial restaurant/kitchen supply is your friend. All of the appliances are stainless steel. Very affordable and well-made units though you may have to be patient to get the sizes you want. They usually handle cabinet units and counter tops too. Check local restaurant auctions as well--usually in the Sunday paper.
If you're looking for traditional built-ins and something more domestic, it's not the way to go.
"Here's what I don't understand. In Los Angeles, the developers have put stainless steel appliances and granite counters into the new 'loft' or live/work rental units."
There is one other reason: I know one outfit that builds and manages subsidized low-cost housing, for the the long term. They've decided to put in granite countertops -- nothing fancy -- because the cheaper ones wear out too fast and they have to replace them every few years. They think they'll save long-term on material and labor cost.
That said, I think that the future-condo-conversion idea is probably just as valid, if not more so.
As far as stainless is concerned, we're thinking of going for stainless countertops. Yeah, it'll take some cleaning, but it's tough stuff. We both have backgrounds in the restaurant trade, long ago, and we miss stainless counters. As for the appliances, going stainless is just BS.
On the subject of big box retailers, CompUSA may be the canary in the mine; they are the first of the big box retailers to be shutting down huge numbers of locations. K-Mart is right behind them, but Circuit City, Home Depot, Lowe's also in trouble. Wal-mart, Target, CostCo can't be far behind.
And I'll second the recommendation on restaurant supply, great source for quality kitchenwares at reasonable prices, even if they're not fancy.
I see the U.S. soon having about three times as many condos as it needs, as the market will support.
With condos, it's not like they will all fill up one-third. The common charges would be too high. About half will fill up totally or partially. The rest will just become useless.
Imagine a thousand or more useless condo projects, some having 300 or more units and costing $50 to $100 million to build.
We're talking about some serious pain, and a long time, maybe a decade, when it won't make sense to build new condos in many parts of the country.
1- Congratulations to the NY Giants for the super upset. This is why they play the game on the field and not on paper.
2- In my first house, the style of every piece of furniture was the same - "Early Attic". If you don't know what that means, you had lots more money in your 20's than I did.
3- Years ago my wife really wanted a stainless steel sink. After a few months, she really wanted to get rid of it ASAP. Stainless is a bitch to keep clean and shows water spots. Too high maintenance for me. We went back to boring white porcelain.
And the Giants win - if you're superstitious about these things - which I am - is a good sign for the markets and the economy too. I was very happy when the Dolphins went undefeated (I was living in Miami) - but the next couple of years were pretty awful (in terms of the markets and the economy).
4runner - I like Costco for certain things. Like pine nuts (I make fresh pesto in the summer and I'd rather pay $12/pound than $5-6 for four ounces. Fruits and veggies too (I can throw half away and still come out ahead in terms of what I'd spend at Publix). The cheese selection is better than that in local groceries - and priced ok. You won't see me buying furniture there anytime soon - and the DVD prices are usually pretty bad. Basically - it's just another grocery store as far as I'm concerned. And I buy stuff there when it makes sense to do so. Roby
Great sports weekend - Patriots go down and Tiger Woods kicks ass. Now back to money:
The leveraged loan market begins the week in disarray following the collapse of efforts to syndicate $14bn of the debt used to finance the $30bn buy-out of Harrahs Entertainment, bankers say.
The group of banks backing buyers Apollo Management and Texas Pacific Group are having trouble selling on the leveraged buy-out debt to third parties. With the bulk of the debt remaining on their books, the banks are sitting on a sizeable loss
The tail end of a spectacular bull run for commercial property before the summer helped to take investment to an all-time high of $930bn in 2007, a 29 per cent rise on 2006, according to research from Cushman & Wakefield, the global property agent.
"The next two to four weeks will be vital for the bond insurers because the biggest ratings agencies have made it clear they are very close to...(begin edit)preparing to consider the possibility of organizing a committee to potentially evaluate the suggestion of an eventual minor reduction of confidence in(end edit)...their ratings.
[Someone on CNN this morning during the "Your Money" show or some such, while talking about housing and foreclosures, mentioned that we have the "Alt-A and Option ARM loans - all prime loans - that are going start to hit in '09]
Then someone ought to check out the latest releases by FED & DSL - 2 ALL-IN OptionARM lenders. Their borrowers are already hitting the wall hard, on recast straight into default.
Well, you know what the wall st crowd says, "NFC winning the superbowl mean it's the all clear for a bull market". Can't wait to hear the CNBC chumps cheering a rally!
Look at section 1, Section "Reserve Bank Credit", subsection "Other loans". For the week ended 1/30 the amount is 28M, and the change from 1/23 is 724; 724 + 28 = 752.
Your chart lists 1/23 as .752B and 1/30 as .028B.
Sooooo, the key here is that the chart does not include TAF, described immediately above as "Term auction credit".
What's funny or ironic about kitchen upgrades selling homes? Most Americans eat out more than they ever have. Casual dining is taking market share away from supermarkets.
Talk about show. Yeah, two parents working want to come home and make dinner. That was thirty years ago. Now, people pay for the convenience of having someone else make it for them.
As regards superfluous condos, those one- and two-story affairs with clubhouses and outdoor parking serve equally well as condos or rentals, regardless of upgrades.
The folks over at Patrick.net coined the expression "repartments" to describe erstwhile condo conversions reverting to rental property. Although I've been old enough to pay attention to such things only since the seventies, I can say reversion to rental has been a common feature of each RE downturn since then. After all, sales are slow in such times and rentals comparatively active.
I still believe that the 401K debit cards result in double taxation.
Say I have $100,000 in a 401 K, and I'm short $10000 and so I decide to borrow the money from
myself via my 401K debit card instead of using a credit card.
I take the money out knowing I have to pay it back with interest to myself (say 10%).
Say have a job and I am in a 30% bracket.
On schedule I repay the 401K a total of $11000 (principle plus interest). Because I am in the 30% bracket I had to earn $11000 + $330 or $14300 in before tax income in order to pay off the $11000.
I am using money that was taxed to replenish my 401K. When I origionally put the money into my 401K it was not taxed, but when I took it out and then put it back, I had to use
money that was taxed.
And worst of all, someday, when I retire and I am allowed to take the money out of the 401K without a 10% penalty, I will still owe taxes on it at whatever my tax rate is at
the time.
I don't think I am missing anything here. I think I will end up owing more this way
and even the interest I paid to myself will be double taxed -- paid with money taxed before I put it in and taxed again when I take it out at retirement.
Loan proceeds for both = 10K
Tax considerations for both loan payments = payments made with aftertax money
Interest pocketed by = your 401K vs. CC company
You are not replacing tax free-money with after-tax money. Your loan proceeds are after-tax - your 10K loan amount is not added to income when you receive the loan. It is that after-tax 10K your are repaying with after-tax 10K.
If it were possible to repay loans with pre-tax money, here is what it will result in.
Assume I have 100K in my 401K. That's 100K untaxed. Assume 0% interest and returns for ease of calculation.I borrow from 410K to buy my Hummer, say 50K. Since I am now assumed able to repay with pre-tax money, I have to earn only 50K to repay the loan amount.You borrow from the bank to buy the Hummer.You have to earn about 71.5K pretax to repay the loan.I get to deduct my Hummer from taxes, you dont
So if you were allowed to repay 401K with after-tax money, 401K loans then become a means to convert expenses to tax-free status.
To understand how history will view pimped out kitchens, you have only to look at the housing stock around you if you're in an older city.
Your housing stock tells the story of when your city was prosperous--and when it wasn't.
Where I'm from, the town boomed in the early 19th century, so we had a nationally famous inventory of Greek Revivals. Then there was a huge boom in the teens and twenties, so there are blocks after blocks of charming Tudors and Colonials and quite a few very pretty Craftsmans.
By contrast, Boston, where I live now, became an economic backwater in the 20th century up until the 1980s boom. So the neighborhoods are full of Victorians (not always a good thing) interspersed with new developments built between the Reagan era and now. There's very little from the rest of the century, because there just wasn't much growth then.
The point is, anybody living in an older city with a brain could have looked around and seen through the BS about "real estate only goes up" and "home improvement is always a great investment." Your own neighborhood is like a tree ring record of the RE booms and subsequent busts of the past.
On the what to use when re-doing a kitchen, try tile for countertops, esp large tiles. Ceramic lasts for a long time, and its very nice being able to put hot pans right onto the countertop. Large tile cuts down on the amount of grout that gets dirty. Also can have some very interesting looks.
Our condo (building built two years ago, rented out because the city wouldn't let them sell as condos due to flooding of market) is well-built, yeah with the ubiquitous granite countertops, but pretty crufty other stuff and that horrible ivory carpet that makes no sense. I've noticed a sizeable percentage of us condo-purchasers have had the carpet ripped out and wooden flooring put in. I also had the stupid HomeDepot wire racks ripped out and had decent shelving installed.
Some of these upgrades should actually be more efficient in the long run...at least I don't have to worry about pulling the shelving out of the wall.
Now am waiting patiently to save up enough money to deal with the lighting (needs more, especially in the storage room/walk-in closet) and have the bathroom redone with not-so-crappy fixtures.
The other factor going into rehap costs is that the housing stock in the US has never been older. How will that play in the mix going forward?
And we live in a very nice area of the SF Bay Area, and for the most part, my opinion is that for every home that has been remodeled well, there are many more that were remodeled poorly or are in need of significant upkeep repairs.
Starting Day 1: $10K in 401K, $0K in checking, $0K in savings
Day 2: $0 in 401k, $10K in checking, $0K in savings
Day 3: Buy $10K car with cash: $0K in 401K, $0K in checking, $0K in savings. Car in driveway.
Day 4 - Day 1829: Pay back 401k ($10k + int) thru after-tax income
Day 1830: $10k (plus int) in 401k, $0 in checking, $0 in savings. Car in driveway/repair shop/junk yard.
You pay taxes on the entire loan payback ($10k + int). You will also pay taxes on the full $10k (plus int)when you take it out of 401k at retirement (possibly sooner).
"In nearly every middle class house listing I view, I see upgraded kitchens with granite (usually slab) counter tops . I also see matching stainless steel appliances and high end cabinets.
Now, these houses and condos are all less than 15 years old, so the owners were not generally replacing worn out or really out-of-style stuff. And these houses did not come equipped like this. I also see living rooms and family rooms that have complete, matching sets of furniture, probably from places like Pottery Barn. Not just one or two pieces, but every single_ piece_. It's like all living, dining and family room furniture was swapped out at exactly the same time. I contrast this with how houses used to be furnished: a piece here, a piece there, a gift from relatives, etc., gradually over the years. No more. Everyone is going for the "showroom" look. ..."
I laughd so hard when I read this, I spilled my coffee!
I see the same thing around here - including granite coutertops and marble floors in the bathroom in an 800 sq ft house priced at $65,000!
Basically it is the 2000-version of the Sears or JC Penny look of the 1960s. Everything matches - and everybody in the neighborhood has the exact same stuff. Talk about mind-numbing conformity! It makes me nervous to just be around such little robots passing as human.
Dark granite countertops and stainless steel remind me of nothing more than the biology and chem labs in college. If I made on offer on a property which had been done up with that crap, the contract would make it a condition of the sale that the seller pay to remove and haul away the cloned-looking granite counters and the either stainless steel or jet black appliances.
I will admit that my choice of decor is probably not 'in style' according to the home magazines. I refer to is as 'early grandmother's basement' - but antique dealers swoon when they walk in and insurance agents start upping the policy coverage. For me, it really IS "grandmother's (and great-grandmother's and great-great-great-grandmother's) basement" since it is just stuff that has been in the family for years and anything I have added has been of the same age and genre. My idea of kitchen cabinetry is having it made so it is just like great-great grandmothers (and yes, it can been done like that for a lot less than the 'fashionable' stuff.)
Weird thing is that every time we have sold a house, the potential buyers walk in the door and fall in love. They keep saying 'its so beautiful', 'it feels like home', 'it is so comofrtable'...... (And they write nice large checks too without quibbling not realizing that it is the decor that made the house.)
The funniest thing was one of my neighbors was geting ready to list their house and was doing the 'redecorate and make it look like every other house' thing and was over complaining about the project. She looked around, and sighed and said "I wish I could just make it like you have your house - I love coming in here, it is so warm and comfortable but the realtor says buyers want it only to look like all the other houses they see..." Duh!!!
I too see all these homes where people went in and put in new kitchens etc. And the worst part about all the work is often it is not what I would do and the owners still want 60k for something that cost less than 30k
To observations to add
I went to home depot yesterday with my wife and before I could say anything she commented on how empty it was for a Saturday. No one else in line to checkout.
Second we went to a home show in OC several months ago and you could have literally shot a cannon and not hit a soul. We talked to several vendors who were extremely perplexed and disappointed by what they said was a horrible turn out.
But since the OC show was several months ago I would have expected the downturn to happen sooner and not see the MEW numbers you posted. I guess people can last longer than I would think and now with the new firm allowing you to "access" your 401k through the use of a 401k credit card, this spending binge could last beyond the first quarter (was on the today show I believe, perhaps good morning america). Mew is gone, hellocs gone, credit card maxed out, oh yes, there is that 401k I can spend.....
In one thing I do have complete faith in this "faith based economy" is that the vast majority of Americans will spend until there is absolutely no more money to be found. So how long will the 401k's last?
Over on the Yahoo MHK message board, they are quoting a Barron's article that says MHK's business is 20% new construction and 80% improvement/renovation. So, if you wanted a short based on CR's hunch about improvement downturn, MHK would probably be the most pure.
Aside from paint, floor coverings are probably the thing you do most often to keep a house fresh. Rugs wear out every 10 years or so. Tiles start looking dirty and old in maybe 15. We've redone five rooms in the last six years and new rugs/floors went in 4. Yep, money came from HELOC at prime minus one-half percent. DIRTY FLOORS REDONE DIRT CHEAP.
Mrs. Dawg keeps hoping for a reality show; "Pimp My Toidy (Bathroom)." Truth is when we see those renovation shows the prices are just too outrageous.
Anyway, my serious point is in wondering what the NAR would think of their slice of the pie reverting to the long term mean of 0.25% of GDP rather than the recent peak of 0.9%. I imagine the REIC actually getting disintermediated and that number going far below that long term share.
Declining HELOC/MEWs, declining wages and rising unemployment.
S&P 1600 anybody?
CR,
Thanks for the addition of the specific data set!
It is a somewhat interesting social phenomenon-- the thought that we are all above average now. Places like Costco are built on that premise-- that everyone is entitled to luxury/specialty goods.
My grandfather would dismiss certain goods as "for the rich." They were incompatible with who he was- as if it would be a violation of some law of nature if he purchased a car with air conditioning or a $100 pair of shoes. He appreciated the goods-- it brought tears to his eyes when my Mom got him a pair of "rich man's shoes" for Christmas-- but he would never dream of getting them for himself.
Is it really that unacceptable to admit that you can't afford something?
S&P 1600 anybody?
I think that guy James Glassman is going to have to update his book before the end of the year and call it "S&P 36,000".
What that graph tells me is that housing alone is going to have a 2.5-3% hit to GNP recent peak to current trough and then add on muliplier effect.
I don't understand the 401(k) credit card deal. At least where I worked you could borrow up to 50% of the balance which was repaid in installments plus interest which you paid to yourself. Seems like whoever administers the 401(k) plan for the employer would have to be involved as the transactions could get confusing. If the plan's assets are in stock, would a sale have to be made if the card is used?
Regarding "pimping out" homes, my Father always said that when you put a $300 radio in a $500 car you still had a $500 car.
Jim
I ran into the contractor who worked on our house, he specializes in kitchen remodels, small additions, etc. We talked about the bubble-pop (which so far here is pretty mild.) And he told me he assumed things would be much worse for him next year. He said that easy-credit going bye-bye was only part of it, the psychology of a downturn was much more important. He said in the 1980s when interest rates were much higher, his business did pretty well.
But when people are worried about jobs, etc., they cut back fairly quickly.
Rich,
I'm loving the MHK short idea - looks like it could run to $87 or so (200 day MA) first though, which would be $4 of pain from today - not sure its worth trying to call the top though, since it could easily run all the way back down to $63 at any time in this environment.
Also at the top of the RSI band......but I'm no technician, so it could be a terrible short on this basis as well, who knows.
Hmmmmmmmm
We bought our house in '91 and had a bathroom done last year; next, the kitchen. We're not intending on selling, its' for us; because while the house as a whole is okay, the developer (local small-timers) went low-bid low-quality on tile work, countertops, cabinets, fixtures (crappy fiberglass shower inserts, etc.)
It all looked like crap, with water leaks in tile and behind cabinets, crumbling grout, mold growing here and there, etc. Now one of the bathrooms looks like it should.
You can say a bathroom "should" last more than 15 years, but it really depends on the clowns who put that stuff in. For that reason, I don't think remodeling even on relatively recent homes will ever slow to a halt, though there might be more do-it-yourself and less hire-the-contractor -- with mixed results, I'm sure.
We've redone most of our house in the 20 plus years we've been here, but never before it really needed it. I waited 15 years for my kitchen, dammit... seeing these spoiled kids pimping out their houses has always kind of pissed me off.
And we do our own demo, since that's the fun part, so it doesn't really end up costing us all that much. We used to do all our own labor, but there are some perks of age. Although watching hubby fix the faucet this afternoon was amusing. ;^) Price Pfister is great, btw - just call them and they will send you all free parts. Love lifetime warranties that are actually honored! Even on my ebay faucet....
And when everything matches, kids? It doesn't look great - it looks boring. The huge television just lets me know you have absolutely nothing better to do with your life. And for goodness sake, at least get one bookcase - when I walk in your house and there are no books, I just cringe at the ignorance showing.....
;^)
With absolute prices still quite high (although falling) in many areas (among them Seattle), it is natural that people being asked to put up the better part of $1m for a property would demand a certain level of quality. And first on most lists are kitchens and bathrooms. So it's a reasonable investment, and in a buyer's market may be absolutely necessary if you want to sell the property.
Even worse than no books is when there is a posh collection of books that were obviously bought for show and never read.
Any Realtor will tell you that "kitchens sell homes" and I think it's true. Personally, I would not want to buy a house with a crappy kitchen.
I started renovating my house in May 2007, put it on the market in early August and sold it in October 2007. The house was in Durham, NC which has not been badly impacted by the housing bubble. Prices never went up like crazy, so there was only a minor correction (so far).
I spent about $12k renovating the kitchen, and that was the "cheap" option. New cabinetry and granite tops would have made the total a lot closer to $35k. But if I had done nothing to fancy up the kitchen, it's doubtful the house would have sold at all.
Yes. There's no third-party lender. You are loaning your own money to yourself. You have to designate which investment you want liquidated.
The maximum is 50% up to $50,000.
401(k) plans don't have to offer loans and many don't. Most plans charge per-loan fees to participants who take them. Most plans think loans are a pain in the rear.
As I've said, a low income person can put $2,000 into a plan, get a $1,000 federal matching tax credit and maybe $1,000 in 50% employer match. Thus, no personal money in. Then, take a loan. Free money out.
Two comments...
1) One good/bad aspect of major remodeling is that most of the $$$ did not go offshore. They went into labor, domestic materials and products that at least had a chance of being manufactured domestically. If that spending source dries up, it will directly affect the domestic economy.
2) I'm also in the SF Bay Area and concur that there has been substantial upgrading, although I wouldn't characterize it as universal as your contacts do. Regarding furnishings, in my neighborhood the standard is to "stage" a home for sale so virtually all furnishings are rented. It would be misleading to draw a conclusion based on that.
I have not already said this haloshit.
If you're asking rich,
YouTube -
Cheers,
Cal - I think everyone (including us) was in Costco yesterday buying stuff for the Super Bowl! I think January is probably a slow season for HD - things start to pick up there at the start of gardening season (which for us is late February).
BTW - I don't think there is any home improvement where you get - on average - more than 100% of your investment.
I have always been perplexed by the level of finish work and furnishings I see in higher end houses in my neighborhood. So cheap. Simply appalling. 50 cent electrical plates - sofas from Rooms to Go. I guess there has been a tendency for builders to build really big - and as cheaply as they can. Because that's what buyers seem to want. As for the furniture - I think people run out of money when they buy the house - and Rooms to Go provides the easiest credit in town.
We built our house - and we did it differently. Built a relatively small house (for our area) - but did nice finish work.
Donna - I had to laugh at your story about hubby fixing the faucet. Last time my husband tried to change a shower head - he broke the shower arm! We had to call the plumber to fix it. Plumber said it happens all the time
.
As for big screen TVs - they can look nice. Here is ours:
Living Room on Flickr - Photo Sharing!
Don't worry about no books on the bookshelves. We have dozens of linear feet of bookshelves elsewhere - mostly tucked away (e.g., I have a big walk in closet in my home office which has a "library wall"). Roby
Like home sales, future home improvement demand was "brought forward". Didn't matter whether it was a new or existing home, for personal use or investment purposes, they were usually pimped out shortly thereafter. Expect a huge dropoff going forward.
I would like to point out that my (one room) apartment is furnished with matching furniture. And every single piece is from IKEA. First class all the way, nothing but the best! Well, at least the best that IKEA has to offer, that is.
On a more serious note, my feeling has always been that the home improvement frenzy has been driven by that good-old-fashioned keeping-up-with-the-Jones mentality. It became fashionable to upgrade the home, and as soon as it became fashionable, everyone had to do it, regardless of the cost.
People spending tens of thousands of dollars to upgrade the kitchen despite the fact that they always eat out, huh? That makes no sense (at least they use the bathroom.)
You see that green line representing broker's commissions? That was approaching 1% of GDP in the peak boom years of 2004-2005?
You know what else is supposed to be 1% of GDP?
The miracle stimulus package that is going to keep us out of recession now.
You know what else these 2 things have in common?
They are simply credit, spent in the present, that has been extended from the future, and that must be paid off from future productivity.
God help us all.
P.V. Me too! I spent $2500 at Ikea in one, and only, go in 2006. Got what I liked, and what was suitable for my lifestyle, and it was very fun putting it all together (kinda like tinkertoys from back in the day).
rcryan,
If you're out there, check out this:
http://www.bls.gov/cps/cpsaat9.pdf
Note how only 3M of the 23M in "Service Occupations" are in healthcare support. However, there are 4.5M in personal care and 7.3M in food prep.
Check out all the categories, and you'll find our service economy is highly discretionary, whereas in the late 20's most people were employed making things that people really needed.
OT
Someone on CNN this morning during the "Your Money" show or some such, while talking about housing and foreclosures, mentioned that we have the "Alt-A and Option ARM loans - all prime loans - that are going start to hit in '09" - somebody there has been reading here, I think.
If we do see a real downturn in home improvement, and in appliance sales, as HELOCS dry up, I wonder if the big-box home improvement store becomes an unsustainable business. I imagine those guys need to do a lot of volume to pay the overhead. How many vacant Home Depots etc. will dot the landscape a few years from now?
Maybe the mom-and-pop lumber yard and hardware store will make a comeback--or at least, will manage to survive, as the smart ones always did, in good times and bad.
Home Depots would make good skating rinks, basketball courts, and the like.
Much easier to rent space than to sell inventory.
This is a great boon for the bankers. In the great depression the banks got back homes in great need of repair -- people were unable to make need repairs due to the depression --this time they will get homes in good shape.
Troy writes:
Home Depots would make good skating rinks, basketball courts, and the like.
Or homeless shelters, soup kitchens...
Just kidding. Laugh already.
"Maybe the mom-and-pop lumber yard and hardware store will make a comeback--or at least, will manage to survive, as the smart ones always did, in good times and bad."
A lot of the mom-n-pops, at least the fairly large ones, have been bought out by outfits like Lumbermen's and are now part of a chain. They keep the old management and don't always change the old names, so it can be hard to tell that anything's happened. Walking in to find the staff trying to learn a new inventory/POS system is always a clue, though.
As far as kitchens go, I think the ubiquitous nature of the stainless steel/granite counter craze means these kitchens will age badly. It will be the avocado of yore. Nothing will date a redo and scream '05 housing boom more than a kitchen full of stainless steel appliances clashing with farmhouse country cabinets.
"Home Depots would make good skating rinks, basketball courts, and the like."
I was remarking to the wife the Europeans have much less retail than we, and we had a nice discussion about how all the excess retail in our neighborhood could be repurposed... roller rinks, communal housing, hospitals, elementary schools, police precincts, and so on.
As somebody who remembers the '73 gas crunch well, I remember all the excess gas stations that were abandoned by the oil companies afterwards, and what happened to them. They were turned into liquor stores, shoe repair shops, garages (of course), hot dog stands, and more. Eventually the landlords took down the prefab metal buildings and put up something new. But that wouldn't happen this time; no prefabs.
...this time they will get homes in good shape.
Don't know about that -- lots of FBs expressing their displeasure by trashing the places before they leave.
Bob Dobbs,
Did you see the chart that both Kunstler & Winter posted last year regarding retail space per capita? We're hugely overbuilt.
"As far as kitchens go, I think the ubiquitous nature of the stainless steel/granite counter craze means these kitchens will age badly. It will be the avocado of yore"
My thoughts exactly. My wife and I are hoping to be house shopping in a year or two, and this is our nightmare, that all the houses will have these overdone generic kitchens we won't really like. And of course it's all done for show; hardly anyone seems too concerned about the actual qualities of the material or whether the kitchen is laid out well for actually working in it. I'd much rather get something a little rundown and old that I won't feel bad about ripping out when I can afford to.
"It will be the avocado of yore."
I've been thinking this for years. If "Office Space" were made today, the main character's cookie cutter condo would surely be outfitted with a stainless and granite kitchen.
Our very local HD is brand new. Took over the space from a KMart that closed. Had to fight the local Ace Hardware interests for years to get the place - but they finally did it (there is a lot of NIMBY stuff when it comes to big box retailers where I live). The people in Neptune Beach (about 10 miles north of us) - would rather have a vacant shopping center (where a Scotty's used to be) than a Walmart. I am not exactly a Walmart shopper - but I would rather have an active Walmart shopping center than a boarded up eyesore.
I wish Ikea existed when I was younger. It's a great place for good design at low prices.
4Runner - Costco doesn't carry luxury goods. Higher end mass market IMO. OTOH - most of its stuff isn't junk.
John Stark - The mom and pop hardware stores like Ace here are simply being killed by HD and Lowe's. They are increasingly relying on stupid stuff like fake florals to stay afloat. How can they compete on things where pricing is competitive (they charge $14 for a gutter extender that costs $7 at HD). OTOH - with things that are price controlled - like Weber grills - their service is better than that at the big box stores. Finally - when it comes to some expensive purchases like lawn equipment - mowers etc. - we have found that the stores that specialize in those things are better than both the mom and pop general hardware stores and the big box stores (in terms of prices and service).
PV - Perhaps if people built functional kitchens - as opposed to those "builders' dream kitchens" (which are almost always much too big and don't work very well if you're really trying to cook anything) - people would be inclined to use them. I know mine gets an awful lot of use (I designed it for me - e.g., I am short so the cabinets are low - and for the way I cook). Roby
Rich, What you are missing with the 401K debit card is that you end up paying taxes twice -- it is a boon for the IRS. The money went into the account tax free, but you have to pay taxes when you retire. Now if you take some of it out you have to put it back with money you earned that was not tax free -- regular taxable salary. Also, you may be paying the interest to yourself, but the interest you pay is paid out of your taxable salary -- so you end up paying even higher than double.
So, comparing a regular credit card with a 401K card you end up paying maybe 30% extra taxes to the IRS for borrowing the money -- so if you can find a bank that lends for less I'd go to the bank. Tell me anyone if I'm confused here but I can't see it any other way.
"Did you see the chart that both Kunstler & Winter posted last year regarding retail space per capita? We're hugely overbuilt."
Yes. It's especially noticeable in California, where Prop. 13 limits on property tax increases have had all the local gov'ts chasing sales tax revenue for 30 years. There's been huge enthusiasm to approve any retail development, except in the most well-monied of communities. In bubble boomtowns like Modesto, the amount of new retail is actually obscene. While old retail in older parts of town moulders underutilized.
I'm sure a lot of the granite/stainless crazy has been driven by ego and image, but nonetheless a nice kitchen is a good thing. Somebody turning their 1500sf Cape Cod into a gem makes a lot of sense to me. OTOH, I find the underfinished McMansion baffling - 5000sf of wall-to-wall and fiberboard trim. Ugh. Expensive to furnish, heat, and especially to upgrade to something decent 10 years after it is built.
It is a somewhat interesting social phenomenon-- the thought that we are all above average now. Places like Costco are built on that premise-- that everyone is entitled to luxury/specialty goods
The wealthy have always been able to afford such but the middle and upper class via media have been sold on the idea of using debt to create the same effect or at least buy the knock offs made them wealthy or at least felt that way. Sort of the designer lifestyle can be yours but the middle and upper class did not understand the difference between debt and wealth. One cannot just go into debt, buy knock offs and therefore have the "confidence" that they are living like the wealthy, real life is much diffent then the media presentation.
You guys don't know what "Home Improvements" really are.
You're not "pimped out" in Toronto without a walk-in fridge.
Oh, and an in garage cash-wash.
Get with the program!
LOL, I mean CAR wash but HELOC ATM money does need cleaning from time to time.
Well, we go to Costco to buy baked beans and spaghetti sauce by the case. Also TP, frozen ground turkey, etc. I do succumb to the occasional wedge of gourmet cheese, but for us, Costco is the place we go because we're below median income--not to get bargains on leather furniture.
I do wonder whether we may see a major implosion of big box retail. Correct me if I'm wrong, but the whole business model is based on high volume, is it not? That enables the low prices that attract more volume.
But if sales volume crashes as we go off our debt binge, big box becomes unsustainable and we evolve backwards to right-sized stores with higher prices, serving smaller market areas. I'm not sure we go all the way back to the corner grocery store, but big box electronics and home improvement stores are definitely on thin ice.
Merrill Lynch economist David Rosenberg says Americans now pay 14 percent of after tax income for interest on debt. That is unprecedented and unsustainable. Getting back to historic norms may mean that a lot of commercial development is going to have grass growing in the cracks in the parking lot five years from now.
John Stark,
As you know, high volume means low margins, so when volume slips those margins will disappear. Does anyone really question the idea that volume will in fact slip?
Robyn-- of course you are right-- Costco doesn't really carry luxury items.
The message behind their marketing still disturbs me, though. They carry a very small selection of products, but that selection is the high end mass market that you describe. Every Brie must be double cream, every jacket must be North Face, and every blender must be from Kitchen Aid.
By displaying those goods in the big-box context of concrete floors, crowded aisles, and large sizes, it sends the message that you too are entitled to the blissful Nirvana of high end mass market, provided you just put up with our otherwise hapless retail approach.
Look-I fully understand that people want to treat themselves to something special, but it should not become a full-time occupation.
Well, we go to Costco to buy baked beans and spaghetti sauce by the case. Also TP, frozen ground turkey, etc. I do succumb to the occasional wedge of gourmet cheese, but for us, Costco is the place we go because we're below median income--not to get bargains on leather furniture.
JS-- if it really is that tight-- start clipping coupons. I spent four years in grad school living on 12k$ a year. By indexing my coupons according to the aisle on which the food was found at my local grocery store (which offered double coupons) and only buying things when the item had a store discount AND I had a coupon, I made out like a bandit.
It also helps if you walk past a Starbucks every Sunday and pick up 2-3 coupon circulars... ;^)
In Atlanta, if you drive by the McMansions at night you notice that many of them do not have window treatments on all of the windows(can't afford them) and so anyone passing by gets a great view of nearly empty interiors--can't afford the furniture either.
As to granite,etc., interior finishes: Granite is very hard to maintain if you actually want to do soemthing rad, like cook in you kitchen. Ditto for stainless appliances which are hard to clean without them becoming a smeary mess. The cabinets boxes are all laminated junk. The "hardwood" flooring used now is even worse junk--and if the atrocious laminated floor stuff gets wet, it turns into giant curly fries & has to be replaced. So IMO, all of these "upgrades" are obsolete as soon as they are installed.
0.2% for this kid . . . I'd pay the CB off but it's 2.9% for life
'course I drive a year 2000 car, no house yet, and try to save half my income . . .
Sort of the designer lifestyle can be yours but the middle and upper class did not understand the difference between debt and wealth
Actually, being wealthy is simply having the stuff that makes life putatively more enjoyable/convenient.
The opposite of debt is "savings", not "wealth".
Rich, What you are missing with the 401K debit card is that you end up paying taxes twice -- it is a boon for the IRS. The money went into the account tax free, but you have to pay taxes when you retire. Now if you take some of it out you have to put it back with money you earned that was not tax free -- regular taxable salary. Also, you may be paying the interest to yourself, but the interest you pay is paid out of your taxable salary -- so you end up paying even higher than double
I've looked at the 401K loan issue and the only money that is taxed twice is the interest to yourself you're paying on the loan.
The loan itself displaced other money.
You can mentally model this by taking out a loan from the 401K and immediately paying it back.
No double taxation in that case, right?
No Wood-Mode for you!
Here's what I don't understand. In Los Angeles, the developers have put stainless steel appliances and granite counters into the new 'loft' or live/work rental units.
I can understand doing the work for a condo, etc but for an average rental unit?
It also helps if you walk past a Starbucks every Sunday and pick up 2-3 coupon circulars... ;^)
What's gonna happen to Starbucks if people figure out how to make their own coffee?
You pay taxes on the entire 401k when you eventually do take it - lump sum or installments. And you pay taxes on ALL loan repayments. Should you quit with an outstanding 401k loan generally you must pay the entire loan off at that time else you pay taxes on the entire outstanding loan balance.
Costco isn't Dean and DeLuca, of course, but when you compare it to Walmart, it's clearly catering to a "wealthier" bougie customer. A preponderance of prepared/prepackaged foods, all kinds of household non-essentials, lots of (craptacular) wines, etc.
I'm a bulk shopper and always notice others of my ilk at Walmart. But when I look around in Costco, it's like people are doing their daily market shopping (very little in the cart).
FT Woods,
Probably 75% of new rental projects that have been built in the last 3 years have been constructed with the expectation that the owner will be able to convert to condo at some point in the future.
Doesn't necessarily need to happen to hit return hurdles, but that is why you are seeing a lot of upgrades and high-end finishes in rental units.
Here in southern NH, with a Lowe's and HD in every town, and so dead you can here a nail drop, but yet they are building two new Lowe's within a few miles of of each other in Manchester.
I guess they figure most contractors won't be able to afford gas for their pick ups so they better build more stores to help them out.
The "Fasten Your Seat Belt" sign is now on.........
quartz writes:
As far as kitchens go, I think the ubiquitous nature of the stainless steel/granite counter craze means these kitchens will age badly. It will be the avocado of yore. Nothing will date a redo and scream '05 housing boom more than a kitchen full of stainless steel appliances clashing with farmhouse country cabinets.
At the risk of sounding completely uncreative...my wife and I are building a house on our wheat farm. We are struggling with appliances and countertops. We'd like a timeless look & are not fond of the idea of having a "me too" look...but actually do like stainless + soapstone countertops. What would you suggest?
Here is Starbucks land, there will be a $1.00 small cup of drip coffee with a free refill. It is being marketed as a new product. Hmmm, sounds like flat sales to me.
He may make it cheaper if folks figure out how to make coffee.
Robbie,
Research kitchen counters based on cost and the ease of cleaning. Beauty you will appreciate as it ages well.
There really are no words:
http://www.bloomberg.com/apps/news?pid=20601109&sid=ay5LDbjbjy6c&refer=home
Why the school district didn't claim fraud/breach instead of bending over is beyond me.
Soap stone is beautiful, but requires a lot of work to keep it clean. Take a look at some of the synthetic materials, I saw a great quartz product.
Anonymous, saw that. Imagine 15 million to the school district and 13 million in fees. The joys of deregulation.
I don't think stainless steel or a stone counterpart is bad per se, it just that they have been to into kitchens of every conceivable design, while stainless steel especially really only complements a few looks--mainly "industrial" loft styles or very sleek modern designs. No reason you can't do a sleek modernist design in a farmhouse if thats what you like. I would just be leery of doing some rustic, or cottagey, or traditional and using stainless.
Probably 75% of new rental projects that have been built in the last 3 years have been constructed with the expectation that the owner will be able to convert to condo at some point in the future.
That would certainly explain it. We're surrounded by condos now. Didn't used to be that way. I think a fair number were snapped up by speculators or as corporate housing because few of the windows are lit up at night.
I like mixing the farmhouse look with stainless. I especially like the soapstone or stainless countertops. We have some of both with pine cabinets, sliding doors with glass insets, knotty pine floor. There are some great old-timey looking stainless stoves at TGI. Just avoid granite. That looks dated already, imo.
robbie,
My lovely significant other is a professional chef. If your family is really into cooking, used industrial restaurant/kitchen supply is your friend. All of the appliances are stainless steel. Very affordable and well-made units though you may have to be patient to get the sizes you want. They usually handle cabinet units and counter tops too. Check local restaurant auctions as well--usually in the Sunday paper.
If you're looking for traditional built-ins and something more domestic, it's not the way to go.
"Here's what I don't understand. In Los Angeles, the developers have put stainless steel appliances and granite counters into the new 'loft' or live/work rental units."
There is one other reason: I know one outfit that builds and manages subsidized low-cost housing, for the the long term. They've decided to put in granite countertops -- nothing fancy -- because the cheaper ones wear out too fast and they have to replace them every few years. They think they'll save long-term on material and labor cost.
That said, I think that the future-condo-conversion idea is probably just as valid, if not more so.
As far as stainless is concerned, we're thinking of going for stainless countertops. Yeah, it'll take some cleaning, but it's tough stuff. We both have backgrounds in the restaurant trade, long ago, and we miss stainless counters. As for the appliances, going stainless is just BS.
Rich, What you are missing with the 401K debit card is that you end up paying taxes twice
Greedscam,
Trust me, you are not paying taxes twice. You only pay taxes on 401(k) distributions.
Loan = tax free income.
Repayment of loan = repayment of tax-free income.
No different, actually, than any other loan. No benefit to borrowing from your 401(k) compared to the bank. No penalty.
HOW BOUT THEM GIANTS!
On the subject of big box retailers, CompUSA may be the canary in the mine; they are the first of the big box retailers to be shutting down huge numbers of locations. K-Mart is right behind them, but Circuit City, Home Depot, Lowe's also in trouble. Wal-mart, Target, CostCo can't be far behind.
And I'll second the recommendation on restaurant supply, great source for quality kitchenwares at reasonable prices, even if they're not fancy.
Actually, being wealthy is simply having the stuff that makes life putatively more enjoyable/convenient.
The wealthy have money well beyond their immediate generation and do not acquire debt for knock offs.
I see the U.S. soon having about three times as many condos as it needs, as the market will support.
With condos, it's not like they will all fill up one-third. The common charges would be too high. About half will fill up totally or partially. The rest will just become useless.
Imagine a thousand or more useless condo projects, some having 300 or more units and costing $50 to $100 million to build.
We're talking about some serious pain, and a long time, maybe a decade, when it won't make sense to build new condos in many parts of the country.
1- Congratulations to the NY Giants for the super upset. This is why they play the game on the field and not on paper.
2- In my first house, the style of every piece of furniture was the same - "Early Attic". If you don't know what that means, you had lots more money in your 20's than I did.
3- Years ago my wife really wanted a stainless steel sink. After a few months, she really wanted to get rid of it ASAP. Stainless is a bitch to keep clean and shows water spots. Too high maintenance for me. We went back to boring white porcelain.
Jim
If you were a Giansts fan this post season, you really got your money's worth in nail-biters wins.
It was almost like God was on the Giants side. Which is pretty weird, because God hates NY.
The Giants -- no containment!!! Congrats to all the fans!
"Is it really that unacceptable to admit that you can't afford something?
4runner | 02.03.08 - 5:10 pm | #"
Why do you hate America?
And the Giants win - if you're superstitious about these things - which I am - is a good sign for the markets and the economy too. I was very happy when the Dolphins went undefeated (I was living in Miami) - but the next couple of years were pretty awful (in terms of the markets and the economy).
4runner - I like Costco for certain things. Like pine nuts (I make fresh pesto in the summer and I'd rather pay $12/pound than $5-6 for four ounces. Fruits and veggies too (I can throw half away and still come out ahead in terms of what I'd spend at Publix). The cheese selection is better than that in local groceries - and priced ok. You won't see me buying furniture there anytime soon - and the DVD prices are usually pretty bad. Basically - it's just another grocery store as far as I'm concerned. And I buy stuff there when it makes sense to do so. Roby
Robyn,
But what about the January effect?
Its January effect versus Super Bowl effect - what wins?
With O-Joes Long Wave intact, maybe it'll be the Super Bowl effect.
Great sports weekend - Patriots go down and Tiger Woods kicks ass. Now back to money:
The leveraged loan market begins the week in disarray following the collapse of efforts to syndicate $14bn of the debt used to finance the $30bn buy-out of Harrahs Entertainment, bankers say.
The group of banks backing buyers Apollo Management and Texas Pacific Group are having trouble selling on the leveraged buy-out debt to third parties. With the bulk of the debt remaining on their books, the banks are sitting on a sizeable loss
FT.com / In depth - Loan market in ‘disarray’ after Harrah’s upset
Strangest Super Bowl commercial (local ad, I think): from Realty Executives, "Don't miss the window of opportunity. Buy Real Estate Now!"
Maybe it's just me, but that window looks like it will be open for a while.
Latest news on MBIA and AMBAC.
FT.com / UK - Private equity firms unlikely to rescue Ambac and MBIA
Hooray for the Giants!
It was tough for a San Diegan to root for Eli Manning. But, it was great to see Belichek run off the field early in a huff. Ha, ha!
FT.com / Financials - US banks warned on housing market risks
The tail end of a spectacular bull run for commercial property before the summer helped to take investment to an all-time high of $930bn in 2007, a 29 per cent rise on 2006, according to research from Cushman & Wakefield, the global property agent.
rc,
Great story linked. Looks like the PE guys don't think the monolines are worthy of their rating, either.
from rc's link above to ft.com:
"The next two to four weeks will be vital for the bond insurers because the biggest ratings agencies have made it clear they are very close to...(begin edit)preparing to consider the possibility of organizing a committee to potentially evaluate the suggestion of an eventual minor reduction of confidence in(end edit)...their ratings.
[Someone on CNN this morning during the "Your Money" show or some such, while talking about housing and foreclosures, mentioned that we have the "Alt-A and Option ARM loans - all prime loans - that are going start to hit in '09]
Then someone ought to check out the latest releases by FED & DSL - 2 ALL-IN OptionARM lenders. Their borrowers are already hitting the wall hard, on recast straight into default.
tj
Denninger over on his site today was making a big deal about the -8000 or so in non borrowed reserves on FRBNY site u linked yesterday.
i keep asking w/o any answers but how do u reconcile with total borrowed reserve graph going to zero last wk?
Well, you know what the wall st crowd says, "NFC winning the superbowl mean it's the all clear for a bull market". Can't wait to hear the CNBC chumps cheering a rally!
better yet. it was the NEW YORK giants.
idoc,
Could you post the link to that graph again? I'll take another look and see if I can discern anything new.
tj
St. Louis Fed: Series: TOTBORR, Total Borrowings of Depository Institutions from the Federal Reserve
idoc,
Check out this:
FRB: H.4.1 Release--Factors Affecting Reserve Balances--December 3, 2009
Look at section 1, Section "Reserve Bank Credit", subsection "Other loans". For the week ended 1/30 the amount is 28M, and the change from 1/23 is 724; 724 + 28 = 752.
Your chart lists 1/23 as .752B and 1/30 as .028B.
Sooooo, the key here is that the chart does not include TAF, described immediately above as "Term auction credit".
Okay?
What's funny or ironic about kitchen upgrades selling homes? Most Americans eat out more than they ever have. Casual dining is taking market share away from supermarkets.
Talk about show. Yeah, two parents working want to come home and make dinner. That was thirty years ago. Now, people pay for the convenience of having someone else make it for them.
As regards superfluous condos, those one- and two-story affairs with clubhouses and outdoor parking serve equally well as condos or rentals, regardless of upgrades.
The folks over at Patrick.net coined the expression "repartments" to describe erstwhile condo conversions reverting to rental property. Although I've been old enough to pay attention to such things only since the seventies, I can say reversion to rental has been a common feature of each RE downturn since then. After all, sales are slow in such times and rentals comparatively active.
Rich, etal,
I still believe that the 401K debit cards result in double taxation.
Say I have $100,000 in a 401 K, and I'm short $10000 and so I decide to borrow the money from
myself via my 401K debit card instead of using a credit card.
I take the money out knowing I have to pay it back with interest to myself (say 10%).
Say have a job and I am in a 30% bracket.
On schedule I repay the 401K a total of $11000 (principle plus interest). Because I am in the 30% bracket I had to earn $11000 + $330 or $14300 in before tax income in order to pay off the $11000.
I am using money that was taxed to replenish my 401K. When I origionally put the money into my 401K it was not taxed, but when I took it out and then put it back, I had to use
money that was taxed.
And worst of all, someday, when I retire and I am allowed to take the money out of the 401K without a 10% penalty, I will still owe taxes on it at whatever my tax rate is at
the time.
I don't think I am missing anything here. I think I will end up owing more this way
and even the interest I paid to myself will be double taxed -- paid with money taxed before I put it in and taxed again when I take it out at retirement.
I still don't think I'm missing anything here.
Compare loan from 401K vs loan from credit card
Loan proceeds for both = 10K
Tax considerations for both loan payments = payments made with aftertax money
Interest pocketed by = your 401K vs. CC company
You are not replacing tax free-money with after-tax money. Your loan proceeds are after-tax - your 10K loan amount is not added to income when you receive the loan. It is that after-tax 10K your are repaying with after-tax 10K.
If it were possible to repay loans with pre-tax money, here is what it will result in.
Assume I have 100K in my 401K. That's 100K untaxed. Assume 0% interest and returns for ease of calculation.I borrow from 410K to buy my Hummer, say 50K. Since I am now assumed able to repay with pre-tax money, I have to earn only 50K to repay the loan amount.You borrow from the bank to buy the Hummer.You have to earn about 71.5K pretax to repay the loan.I get to deduct my Hummer from taxes, you dont
So if you were allowed to repay 401K with after-tax money, 401K loans then become a means to convert expenses to tax-free status.
To understand how history will view pimped out kitchens, you have only to look at the housing stock around you if you're in an older city.
Your housing stock tells the story of when your city was prosperous--and when it wasn't.
Where I'm from, the town boomed in the early 19th century, so we had a nationally famous inventory of Greek Revivals. Then there was a huge boom in the teens and twenties, so there are blocks after blocks of charming Tudors and Colonials and quite a few very pretty Craftsmans.
By contrast, Boston, where I live now, became an economic backwater in the 20th century up until the 1980s boom. So the neighborhoods are full of Victorians (not always a good thing) interspersed with new developments built between the Reagan era and now. There's very little from the rest of the century, because there just wasn't much growth then.
The point is, anybody living in an older city with a brain could have looked around and seen through the BS about "real estate only goes up" and "home improvement is always a great investment." Your own neighborhood is like a tree ring record of the RE booms and subsequent busts of the past.
On the what to use when re-doing a kitchen, try tile for countertops, esp large tiles. Ceramic lasts for a long time, and its very nice being able to put hot pans right onto the countertop. Large tile cuts down on the amount of grout that gets dirty. Also can have some very interesting looks.
Our condo (building built two years ago, rented out because the city wouldn't let them sell as condos due to flooding of market) is well-built, yeah with the ubiquitous granite countertops, but pretty crufty other stuff and that horrible ivory carpet that makes no sense. I've noticed a sizeable percentage of us condo-purchasers have had the carpet ripped out and wooden flooring put in. I also had the stupid HomeDepot wire racks ripped out and had decent shelving installed.
Some of these upgrades should actually be more efficient in the long run...at least I don't have to worry about pulling the shelving out of the wall.
Now am waiting patiently to save up enough money to deal with the lighting (needs more, especially in the storage room/walk-in closet) and have the bathroom redone with not-so-crappy fixtures.
I still don't think I'm missing anything here
yeah, you're missing the fact that you still have the 401K withdrawal, even if you "spent" it, because money is fungible.
Case 1: Buy car with 401K money:
Day 1: $10K in 401K, $5K in checking, $5K in savings
Day 2: $0 in 401k, $15K in checking, $5K in savings
Day 3: $0 in 401K, $5K in checking, $5K in savings, $10K used car in driveway
Repay 401K on Day 4: $10K in 410K, $0K in checking, $0K in savings, still have the car
Versus Case 2: Pay cash for car:
Starting Day 1: $10K in 401K, $5K in checking, $5K in savings
Buy $10K car with cash: $10K in 401K, $0K in checking, $0K in savings. Car in driveway.
There's no difference.
The other factor going into rehap costs is that the housing stock in the US has never been older. How will that play in the mix going forward?
And we live in a very nice area of the SF Bay Area, and for the most part, my opinion is that for every home that has been remodeled well, there are many more that were remodeled poorly or are in need of significant upkeep repairs.
And of course the 3rd option is:
Starting Day 1: $10K in 401K, $0K in checking, $0K in savings
Day 2: $0 in 401k, $10K in checking, $0K in savings
Day 3: Buy $10K car with cash: $0K in 401K, $0K in checking, $0K in savings. Car in driveway.
Day 4 - Day 1829: Pay back 401k ($10k + int) thru after-tax income
Day 1830: $10k (plus int) in 401k, $0 in checking, $0 in savings. Car in driveway/repair shop/junk yard.
You pay taxes on the entire loan payback ($10k + int). You will also pay taxes on the full $10k (plus int)when you take it out of 401k at retirement (possibly sooner).
This is far and away the more realistic scenerio.
"In nearly every middle class house listing I view, I see upgraded kitchens with granite (usually slab) counter tops . I also see matching stainless steel appliances and high end cabinets.
Now, these houses and condos are all less than 15 years old, so the owners were not generally replacing worn out or really out-of-style stuff. And these houses did not come equipped like this. I also see living rooms and family rooms that have complete, matching sets of furniture, probably from places like Pottery Barn. Not just one or two pieces, but every single_ piece_. It's like all living, dining and family room furniture was swapped out at exactly the same time. I contrast this with how houses used to be furnished: a piece here, a piece there, a gift from relatives, etc., gradually over the years. No more. Everyone is going for the "showroom" look. ..."
I laughd so hard when I read this, I spilled my coffee!
I see the same thing around here - including granite coutertops and marble floors in the bathroom in an 800 sq ft house priced at $65,000!
Basically it is the 2000-version of the Sears or JC Penny look of the 1960s. Everything matches - and everybody in the neighborhood has the exact same stuff. Talk about mind-numbing conformity! It makes me nervous to just be around such little robots passing as human.
Dark granite countertops and stainless steel remind me of nothing more than the biology and chem labs in college. If I made on offer on a property which had been done up with that crap, the contract would make it a condition of the sale that the seller pay to remove and haul away the cloned-looking granite counters and the either stainless steel or jet black appliances.
I will admit that my choice of decor is probably not 'in style' according to the home magazines. I refer to is as 'early grandmother's basement' - but antique dealers swoon when they walk in and insurance agents start upping the policy coverage. For me, it really IS "grandmother's (and great-grandmother's and great-great-great-grandmother's) basement" since it is just stuff that has been in the family for years and anything I have added has been of the same age and genre. My idea of kitchen cabinetry is having it made so it is just like great-great grandmothers (and yes, it can been done like that for a lot less than the 'fashionable' stuff.)
Weird thing is that every time we have sold a house, the potential buyers walk in the door and fall in love. They keep saying 'its so beautiful', 'it feels like home', 'it is so comofrtable'...... (And they write nice large checks too without quibbling not realizing that it is the decor that made the house.)
The funniest thing was one of my neighbors was geting ready to list their house and was doing the 'redecorate and make it look like every other house' thing and was over complaining about the project. She looked around, and sighed and said "I wish I could just make it like you have your house - I love coming in here, it is so warm and comfortable but the realtor says buyers want it only to look like all the other houses they see..." Duh!!!