House Prices: The Long Tail
Submitted by
CalculatedRisk on Tue, 06/30/2009 - 10:34am (169 comments)
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Eats shoots and leaves.
Then chits in the woods.
From the other thread:
Next Segment Of The Housing Market To Crash: $1+ Million McMansions
Next Segment Of The Housing Market To Crash: $1+ Million McMansions
Pigged: Semi OT
Just to be 100% clear, when you sign a mortgage you have literally printed money for the banks.
Money that was never in existance until now.
We are no longer diving into the mountain. Now we are merely flying into it.
so maury why are they paying you in dollars
No sirree, only Chinese pandas for me.
"Congress ( House ) just passed $550b Pentagon budget ( nice to see US has its priorities straight )"
btw, I'd like to see the reserves pulled out of Hawaii, so we don't have to pay for them to live in paradise, suntan on the gorgeous beach, and cruise in the beautiful mountain on my tax money (although I don't pay tax anymore
) I saw so many of them on the beaches in Oahu last week, just suntanning and enjoying the view. Granted, maybe they were keeping an eye out for the North Korea missiles
Looks like that golden cross is being jammed up someones green chute.
arent some cali prisons ran by vendors? have they said that they would take ious. and im sorry forgot its a new post.
I was just reading Kunstlers blog....he said and I quote, Micheal Jackson was in debt for over $800 million....how can that be?...$800 million?
When you sign a mortgage you have (not-so-literally, since there's no currency involved in the transaction) printed money for yourself. That money is a liability for the bank--they've committed to placing it in a demand deposit account assigned to you, or more likely to the seller of the house. You've also created an asset for the bank, your obligation to repay the note.
Dorean Group and their ilk notwithstanding, I don't see what's so hard to understand here.
CRs last graph shows this CSI decline to exactly replicate the 1990 decline x2. Extrapolate and then knurd to calm your nerves.
shill - the debt was written against his assets. #1 being the full rights to the Beatle's music worth a few hundred mil today.
Marie Antoinette and Arnold are both ex-pat Austrians that were beloved initially in their adopted countries, until cooler heads prevailed.
Yalt - my point is that the Fed has bought those MBS's with real money. Hence the "literal" part.
Those liabilities are off the banks' books as we speak. They are in the FED's and Treasury's books now.
Enjoy that sandwich.
So Mr Shiller, how was the roast beef?
Micheal Jackson was in debt for over $800 million.
Wow, that's awesome.
He's a true American Legend.
Did you know that 12 fans have committed suicide over his death?
low end areas are done - the tail is minimal there b/c these areas had to mark to market
high end areas have just begun, a very long tail on these areas, because buyers and sellers in these areas can avoid marking to market
Case Shiller probably over represents the low end, so I suspect the cliff diving in C-S is over, and we'll enter a super flat period for 5-10 years
MS/Ciao, EHP, 12th Percentile, Basel Too, and others: Is anyone else wary of Major Bank earnings during the 3rd week of July? If I recall correctly, CR (and others) had a post on the latest "explication" of accounting rules and argued that it incentivized Major Banks to book any profits (manipulated and otherwise) in the coming Q2 earnings report. Is anyone else wary of this manipulation (akin to the AIG-goosed earnings report of Q1 2009)? Or are Q2 earnings expected to be too high?
Any thoughts would be appreciated. Thanks in advance.
(**Full Disclosure: I have major short positions with SRS, QID, and other shorts. I am certain a major leg down is approaching sooner or later. However, I am wary about the Q2 Bank earnings temporarily goosing the stock market.)
Gee, wasn't april like the month interest rates bottomed?
No coincidence there, no siree.
Those liabilities are off the banks' books as we speak. They are in the FED's and Treasury's books now.
The liabilities are off the banks' books? They've taken the money back from the seller of the house?
The demand deposit account is the bank's liability; the mortgage is the bank's asset. You seem to have the transaction turned upside down.
CR , you da man ! I really appreciate what you blog., especially in the light of the fact that BHO has not done anything to fix any of our financial messes and has chosen to kick the can down the road. If there was a nobel like prize for bloggers, I would recommend you!!!
Imagine people not getting enough of anything real estate for years, followed by years of falling prices where apathy reigns, followed by another bubble as the dollar sinks and people scramble to buy things of value with their greenshootbacks?
@v - Maury thinks it's really hard to make money during earnings season and prefers to be out of his positions and into nice warm Chinese pandas by then.
Yalt - I used the word liability carefully. When they have an "asset" that is worth 50 cents on the dollar, and they are reporting it as 99 cents on the dollar... I dunno about you, but I call that a significant liability.
black dog (profile) wrote on Tue, 6/30/2009 - 11:44 am
So Mr Shiller, how was the roast beef?
For future reference the correct format:
Hey [nickname]! How was the roast beef?
e.g.:
Hey Paulie! How was the roast beef?
Hey Chrissie! How was the roast beef?
Thus:
Hey Bobbie! How was the roast beef?
I would be very much pleased if this becomes Barry's signature phrase legacy much like; "This sucker is going down." or "That depends on what the meaning of 'is' is."
"Gee, wasn't april like the month interest rates bottomed? "
Good point. A short term favorable condition being peddled as good news. Kind of like foreclosure moratoriums; nice for some short term spin, but painful long term. September - October should be brutal when the buying season ends. Just yet another instance of kick the bad news can down the road.
Did you know that 12 fans have committed suicide over his death?
Think of it as evolution in action.
Barrack-former reagan official...nice...wow some unreal back slapping in dc..
Barrack's Colony plans IPO targeting toxic assets - MarketWatch
"Think of it as evolution in action. "
This might be MJ's greatest contribution to the gene pool.
Think of it as evolution in action.
True for CA and America, too.
Once the high end real estate prices in California collapses, so goes California, so goes US, so goes dollar.
House prices only go up == the long(told) tale
The ppip is going to make the rich really rich per article I posted above..Toxic assets=green shoots for the rich
Meanwhile the DOJ wants tax evaders with UBS accounts
DoJ asks court to force UBS tax-evader disclosures - MarketWatch
Uncertainty Clouds Recovery of U.S. Investment in GM
Uncertainty Clouds Recovery of Government's Investment in GM - washingtonpost.com
Many states are about to shut down/raise massive taxes, and the mainstream financial news headlines are:
CNNFN: Dumbest moments in business (so far!)
GM partners with Segway. Apple 'shakes the baby'. And what's up with those empty seats at Yankee Stadium? More
CNBC: Government Pressing UBS to Identify Secret Accounts
Bloomberg:
Top Stories From the Web
Five States With Budget Gaps May Shut Government: LA Times Link
Yahoo Finance: Wall Street Falls Sharply as Second Quarter Ends
CNNFN: Johnson County consumer confidence falls in June
Bloomberg wins!
Scrooge McDuck (profile) wrote on Tue, 6/30/2009 - 12:00 pm
Once the high end real estate prices in California collapses, so goes California, so goes US, so goes dollar.
Eviscerating Prop 13 could do the same thing faster and by proclamation.
Personally, I've already given back $600k in primary home equity. How much more do you other 49 bloodsuckers want?
Does it hurt as bad to catch a slower falling knife?
Al Franken is the new Senator from Minn. ....
Comedy on Capitol Hill ?
said a few times already on this thread and elsewhere: 417k+ (or that +15%) is still total, complete toast.
of course, the activity accompanying that crash may well significantly raise the median
Personally, I've already given back $600k in primary home equity
You gave back money you never had and that never existed.
Oh, the horror.
Sorry, but we need a big chunk of that savings account, too.
Ran some numbers for my "fortress" Northern CA town (Mill Valley), for 3-bedroom homes:
Over 2.0MM, 37 listings, just 4 in escrow.
In the 1.4MM to 2.0MM price range, there were 30 listings, only 4 in escrow.
From 1.0MM to 1.4MM, there were 41 listings, with 5 in escrow.
Under 1.0MM (most in the 800's and 900's - very cheapest is a $425 teardown, next cheapest is a $575 teardown) - 44 listings, 16 in escrow.
Most prices are down 20% from last year. People are buying the "good" (ie, not handyman special) houses in the 800's and 900's. The few higher-priced houses that are selling have been marked down 30% or more. Spring selling season coming to an end, seems pretty obvious what the next step is gonna be...
dp (homepage, profile) wrote on Tue, 6/30/2009 - 12:07 pm
Does it hurt as bad to catch a slower falling knife?
Here. Hold out your hand and I'll show you. [I still own substantial CA real estate.]
Consumer Confidence Hits Highest Level in Over a Year - Economy * US * News * Story - CNBC.com
i was shocked to read that consumer confidence had fell.
and the leading contenders for this year's Darwin awards are:
Did you know that 12 fans have committed suicide over his death?
In a move set to infuriate and send many Zero Hedge readers over the top, the NYSE has taken action to make sure that nobody will henceforth be able to keep track of the complete dominance that Goldman Sachs exerts over the New York Stock Exchange.
Zero Hedge: NYSE Halts Transparency, Feels Goldman Program Trading Disclosure Is Unnecessary
I would have to say the above is the read of the day....and I read a lot.
bkold3000;
"Ran some numbers for my "fortress" Northern CA town (Mill Valley), for 3-bedroom homes:"
I haven't been to Mill Valium for quite a few years, but I remember a lot of old, run down houses.
Is it still like that, or was the town McMansionized?
broward (homepage, profile) wrote on Tue, 6/30/2009 - 12:08 pm
Personally, I've already given back $600k in primary home equity
You gave back money you never had and that never existed.
Oh, the horror.
Sorry, but we need a big chunk of that savings account, too.
Yes and no. Yes, I knew and always treated it as paper wealth. No, because I saw and picked the top and could have cashed out but didn't. The last rental property I sold in April 2006 had the same "phantom" appreciation yet those gains (minus taxes) sit in cash instruments today. Phantom?
Of course your last comment is prescient. Liquid assets have laser targets painted on them.
So what do all the MJ fans do all day? Listen to old 80's hits, Thriller, Beat It, Billy Jean, etc, all day long?
"How much more do you other 49 bloodsuckers want? "
Well, I would think it should be a function of income, as the amount of money a buyer can pay being limited to 2.5 to 3 times annual income. Since California got to 13.5 X at the peak, there is a lot of downside. Throw in some unemployment and belt tightening by the Cali Gov, and I would consider an overshoot likely.
"the "good" (ie, not handyman special) houses in the 800's and 900's."
and those will finally bottom at jumbo + 15 down (450-520K)
the process might take a decade, or longer.
shill,
Agreed. The NYSE taking away this data pretty much confirms ZH's allegations. If he was just a spouting conspiracist, the blog posts would be ignorable, or NYSE could put out a rebuttal using the same data.
"How much more do you other 49 bloodsuckers want"
For the record, I live in California. Sold my condo in SM in 2006 and my rental in Palos Verdes in 2007. Got lucky in both as I had a 2-3 months gap of no offers before an offer came. I can't imagine paying 600k+ for another real estate ever again.
shill
In a move set to infuriate and send many Zero Hedge readers over the top, the NYSE has taken action to make sure that nobody will henceforth be able to keep track of the complete dominance that Goldman Sachs exerts over the New York Stock Exchange.
Blogger: Page not found...
~~~~
Pretty much says it all ... Matt Taibbi says "I told you so ! "
"Suck on Our Yachts": Goldman Sachs Issues Non-Apology for Destroying the World Economy
"Suck on Our Yachts": Goldman Sachs Issues Non-Apology for Destroying the World Economy | | AlterNet
Scrooge McDuck (profile) wrote on Tue, 6/30/2009 - 12:20 pm
I can't imagine paying 600k+ for another real estate ever again.
Amen Brother. Testify!
This is the future of RE investment. Scrooge and Dawg have no interest in expensive real estate. This is a huge hit to the RE industry as we won't be generating commissions or supporting prices any more.
"I remember a lot of old, run down houses.
Is it still like that, or was the town McMansionized? "
Still a lot of old, run-down houses. There were a LOT of people who were taking the 1000 sf 80-year old bungalows, throwing on a second story to double the size, and re-doing the interiors like Dwell magazine. Up till a year ago, they were buying these at $700-800k, putting $500k into them, and selling them for $1.8MM or so. I know a number of people who were playing this game and got caught with one last house they can't get rid of. So they're renting it for a year or two till the market comes back (hah!- who had the article about that yesterday, was it Ritholtz?). These "new" houses are not quite as egregious as your typical Merced McMansion, but there are many, many cases of terminal pergraniteel. Anyway, they represent much of the 1.4-2MM stock.
scrooge
ga wants 3.9b
thank you in advance
scrooge i am sorry that is not for you
whomever posted
CR states: "With record delinquencies, record foreclosures, few move-up buyers (impacting the mid-to-high end), a huge overhang of inventory, I believe prices will continue to fall in many areas..."
To this I would add:
I just can't see how home price erosion won't continue through (at least) most of 2010.
I'm thinking a nice bright, austere condo for a buck fifty in down town SD (or given urban residence)
Robert Shiller has always understood the problem, but he generally tends to understate the impact. I still respect him, t
hough, because he was one of the people who warned relatively early on.
Mr. Kermit..... COME ON DOWN!!!!!!!!!!!!!!!!!
Of course your last comment is prescient. Liquid assets have laser targets painted on them.
Shhhh.
Don't tell anyone here.
They don't know it yet.
broward (homepage, profile) wrote on Tue, 6/30/2009 - 12:32 pm
Of course your last comment is prescient. Liquid assets have laser targets painted on them.
Shhhh.
Don't tell anyone here.
They don't know it yet.
i don't remember seeing you at the meetings. What color is your hood?
@Rob Dawg
You got that right....when I think about how much money I paid out to my realtors and title company.....makes my blood boil. I'll never use another realtor again.
Commission slashes lawmakers' cars, per diem, health insurance
Commission slashes lawmakers' cars, per diem, health insurance - Latest News - sacbee.com
The TAIL (UE) will be wagging the dog for some time to come. And UE -> default latency implies this tail should be pretty long.
Ultima Ratio
By Friederich Georg Juenger (1898-1977)
Trans. from the German
Conceit of the titanic
Falls to rust,
Everything metallic
Unforged to dust
Passionately mad
With foolish faith,
Lost everything they had
Both steel and lathe
Shapelessly it lies
In uselessness -
Patience! It will pass
To nothingness
All that time they made
What shattered them,
Lifted overhead
What threw them down
[Sie schafften stets ja mit,
Was sie vernichtet,
Und fallen mit der Last,
Die sie errichtet.]
Pavel
March 30, 2004
Cali Needs its Own bank !
California's Empty Wallet: Turning Crisis into Opportunity
Ellen Brown: California's Empty Wallet: Turning Crisis into Opportunity
"Looking at California's budget figures, projected state revenues for 2009 are $128 billion. At a reserve requirement of 10%, if California deposited all $128 billion in its own state-owned bank, it could issue $1.28 trillion in loans, far more than it would need to cover its $23 billion budget shortfall. To lend itself the money to cover the shortfall, it would need only $2.3 billion in deposits and about $2 billion in capital (assuming an 8% capital requirement). What Sheldon Emry wrote of nations is equally true of states:
It is as ridiculous for a nation to say to its citizens, "You must consume less because we are short of money," as it would be for an airline to say, "Our planes are flying, but we cannot take you because we are short of tickets."
As a card-carrying member of the banking elite, California could create all the credit it needs to fund its operations, with money to spare. "
Then we could get TARPed !
mj 800 million in debt?!
no wonder Congress had a moment of silence for him
hey GS is hanging around, end of the month, so come on everybody get happy..housing has recovered..4th of July coming up..apple pies, tri-tip, county fair...
YouTube - The Partridge Family Opening TV Theme Song 1970
"How much more do you other 49 bloodsuckers want? "
Well, it wouldn't hurt if you could somehow take a chisel to the border there and chisel yourselves out to sea. Then you'd have a lot more oceanfront real estate, so really it would be a win-win.
If not, then move the Mexico/US border fence around your state to keep you from escaping east.
That would be a start.
How much of the slowing decline is due to the foreclosure moratoriums? Have people forgotten about those?
While everyone wonders what happened to the PPT today, I can just imagine CR with his finger on the publish button for the after-market post.
Is everyone ready for Q2 earnings coming up?
Pavel,
Familiar with Louise MacNeice's Bar Room Matin?
quite relevant.
http://robertoryan.googlepages.com/BarRoomMatins.pdf
--bh
they have thrown the rule books to the winds
it's like playing golf with Willie Nelson
"Scrooge and Dawg have no interest in expensive real estate."
Sadly (for me, a future "prudent" buyer anyway) here in fortress LA there seems to be a fairly sizable pool of people who are still interested. Ya really gotta see it to believe it. "Low end" $900k "starter" houses are still selling. Oh, there's plenty of inventory not selling, but enough is moving to reinforce sellers decisions to continue with 2006 style pricing. :-/
JBR: Would you describe a 900k starter house?
"Sadly (for me, a future "prudent" buyer anyway) here in fortress LA there seems to be a fairly sizable pool of people who are still interested."
I was in LA back in Feb, and was astonished by the amount of a)For Sale Signs, b) For Sale Signs advertising a short sale.
Not sure if it has changed in the past few months, but I would guess every 5th house was for sale in some of the (nicer) neighborhoods.
"Low end" $900k "starter" houses are still selling.
I think we need a blog post about the 2 alternate realities taking place.
O.K.
Let us now debate the CA Decoupled from US Economy argument... /endsnark
/sigh
--bh
"Not sure if it has changed in the past few months, but I would guess every 5th house was for sale in some of the (nicer) neighborhoods."
Oddly, the signage has tapered off somewhat, at least in the small area around me. Some of the "for sale" signs on the condos have been changed to "for lease" signs.
I think people are digging in for another year of trying to wait it out.
I gotta go get a picture of the condo building my wife and I walked past in Chicago yesterday.....
The courtyard has a locked gate.
On that gate must have been at least ten re-litter lockboxes.
Headline Number: S&P up 15% this quarter.
Monthly Numbers:
April: 9.4%
May: 5.3%
June: 0.0%
"June: 0.0% "
Yup, so much for that rally. Now what?
"Oddly, the signage has tapered off somewhat, at least in the small area around me. Some of the "for sale" signs on the condos have been changed to "for lease" signs."
Interesting. You did see similar behavior during the early 90s. I know of some people who rented for 10 years rather than take a nominal loss. Of course they took a real loss.
@ mmckinl (profile) wrote on Tue, 6/30/2009 - 12:08 pm
Al Franken is the new Senator from Minn. ....
Comedy on Capitol Hill ?
Well our our two party 'make pretend system of representative democracy' has become embarrassingly transparent.
It’s nothing more than a PUPPET SHOW
bloomberg commentaters all agree---Franken is a bozo
"Would you describe a 900k starter house?"
1600-2000 sg ft on a 4k to 6k sq ft lot. insane... here's a few examples.
TheMLS.com: Guest Search
TheMLS.com: Guest Search
TheMLS.com: Guest Search
TheMLS.com: Guest Search
"Oddly, the signage has tapered off somewhat, at least in the small area around me. Some of the "for sale" signs on the condos have been changed to "for lease" signs."
Also, I did notice a lot of the signs were For Sale/For Lease, i.e. we will take whatever we can get.
A lot of shadow inventory there.
I think Franken will do great ...
He is not enamored by D.C. B.S. ...
"I think we need a blog post about the 2 alternate realities taking place."
I second that. it really is astounding...
I agree and would love to be a fly on the wall with his interactions with corporate lobbyists
JBR-
thanks for reminding me why i left.
good lord.
The definition of insanity is $899K for a 2 br house. Put that in the glossary, please.
bloomberg commentaters all agree---Franken is a bozo
~~~~
Bloomberg had a great guest on ...
Talked about how computers were painting the tape ...
Most of the trades were program trades ...
How the 'green shoots' are BS ...
The guy was GOOD ... !
1600-2000 sg ft on a 4k to 6k sq ft lot. insane... here's a few examples.
.Looked at the pics. .worth no more than 300K in my estimation. Real estate agents are nuts!
[examples of insanely overpriced starter houses]
Some of those older places have good bones - they're just small, and not in particularly great neighborhoods. Probably worth $250K on a good day, factoring in the California Sun Tax.
75 people per second are downloading the new 3.5 version of Firefox right now
BTW, it's much faster ( now just second to Google Chrome ) esp for slow to load sites like CR
km4
Yep ... Franken is totally underestimated ...
You have to have chops to be a sucessful comedian ...
Hoenig starting the fireworks a little early.
"thanks for reminding me why i left.
good lord."
I hear ya. Unfortunately for me, my particular entertainment industry job doesn't exist anywhere else. And for me, there is no other job that would make me happy. I love what I do, and I get paid well to do it. So I'll just hang out here in my little apartment. Saving money. Watching the local RE market. Banging my head against the wall.
WASHINGTON (MarketWatch) -- Thomas Hoenig, the president of the Federal Reserve Bank of Kansas City, was critical of the government's "ad hoc" rescue efforts during the financial crisis, saying that the actions have institutionalized the concept of too-big-to fail in our economic system. Fed chief Ben Bernanke has argued that he, and others, acted like the emergency crew that saved a burning home before it destroys an entire neighborhood without asking whether the fire was started carelessly. In response, Hoenig asked "if the fire was started by a homeowner who ignored fire codes and smokes in bed, should the neighbors be required to rebuild the home at twice its original size at their expense?"
It seems pretty silly to predict house price declines over. You'd have to ignore rising unemployment. Ignore the prospect of much higher mortgage rates. Ignore the massive inventory overhang. Is Shiller really willing to ignore all that? Seems pretty loony to me.
On the other hand, perhaps house prices today are analogous to stock prices at the bottom of the dot-com bust. Sure they bottomed and headed up -- for a while. But we all know now that it was merely a mortgage finance bubble that allowed that to happen. When that bubble popped, stock prices resumed their descent.
And the only thing stopping further house price declines (as well as stock price declines) is the current, spectacular government debt bubble.
Wait till that pops. Not sure what's going to stop the declines at that point.
black dog
Thomas Hoenig, the president of the Federal Reserve Bank of Kansas City ...
For Fed Chairman ! ... Sounds like he's looking at it cause he's sure not making any friends ...
I think i ve mentioned that Shiller would be a good candidate for FED. I take it back. : )
Unfortunately, they put too much emphasis on building up our confidence level and too little emphasis on bumping up real investments & technology. : (
Economic growth can rely only on consumption only to a certain extend. And real growth comes from scientific & technological breakthrough, does industrial revolution ring a bell .. hello , someone, anyone ?!? If we use subsidies to keep up the consumption at unsustainable levels, it will come at the cost of innovation and will negatively impact our future economic growth.
duh, no pun intended, i am just trying to talk my frustration away : )
"worth no more than 300K in my estimation. "
"Probably worth $250K on a good day"
Agreed. Now please note that 2 of those little shacks are "looking for backup". People here are truly insane. Oh well, I can pay cash for anything I want, fly first class to visit east coast family, and still save ~40% of my income for a "rainy day". The people who are buying these places.... not so much.
I think Shiller writes about the role of "animal spirits" in economic central planning. So that might explain his "optimism" here.
never seen the "looking for backup " phrase before, at least not in RE. WTF does that mean?
[I think Franken will do great ]
Me too! ...as a circus clown.
" "looking for backup " phrase before,"
IIRC, in escrow, but looking for offers to fall back on if/when escrow fails....
"It seems pretty silly to predict house price declines over. You'd have to ignore rising unemployment. Ignore the prospect of much higher mortgage rates. Ignore the massive inventory overhang. Is Shiller really willing to ignore all that? Seems pretty loony to me."
You would also have to ignore the supply suppression brought on by the foreclosure moratoriums. Remember those? Many of those properties are just now starting to hit the market. Just in time for the "spring selling season" to end.
I predict the decline in house prices will "re-accelerate" as this new supply hits the market with a vengeance, sometime before the end of the summer.
"And the only thing stopping further house price declines (as well as stock price declines) is the current, spectacular government debt bubble."
~~~~
The USG doesn't have a debt bubble ... yet. They are working on it bailing out the banksters...
The debt bubble is still in private hands ... RE, CRE, CCs ... almost $40 trillion worth ...
GDD9000 (profile) wrote on Tue, 6/30/2009 - 1:22 pm
never seen the "looking for backup " phrase before, at least not in RE. WTF does that mean?
The Calvary lead by Gen George Custer ?
"I think Shiller writes about the role of "animal spirits" in economic central planning. So that might explain his "optimism" here."
Shiller is a smart guy, no doubt, but he has the same limitations of any economist, he can only work with the data he is given. He doesn't realize the mass of new supply soon to hit the market.
bearly
[I think Franken will do great ]
Me too! ...as a circus clown.
~~~
I detect envy and anger ...
thanks!
houses like these can be had round my area for between 70k and 100k, maybe 120k tops
the two and ones for sure at 70 to 75
the one tho (3 and 2) is kinda cute, but not for 900k
"And the only thing stopping further house price declines (as well as stock price declines) is the current, spectacular government debt bubble."
Don't forget that many of the houses that closed in April/May had record low mortgage rates that are not available today.
Bloomberg.com:
Personal Finance
From the New York Times,
China limits game players' use of virtual currency
http://www.nytimes.com/2009/07/01/technology/internet/01yuan.html?_r=1&ref=global-home
...not good news for the US or California...Oh, never mind...
Some OT for others on the watch:
Ministry warns of possible A/H1N1 flu deaths in China
English_Xinhua 2009-06-29 16:14:24 Print
BEIJING, June 29 (Xinhua) -- China is "very likely" to have its first death from the A/H1N1 influenza in the foreseeable future, as the number of the flu cases rises in the country, a health ministry official said here Monday.
"The number of imported cases of the A/H1N1 flu is expected to continue to increase in the near future, and more local people will be infected by the virus," Liang Wannian, vice director of the emergency office under the Health Ministry, said at a press conference.
As the total number of infected people increases, the chances of medical workers and high-risk groups, such as pregnant women and people with chronic diseases, being infected will rise, making serious cases of the A/H1N1 flu or even fatalities "extremely possible," he said.
According to Liang, a collective occurrence of the disease or a regional outbreak of the influenza was "inevitable at this point."
Ministry warns of possible A/H1N1 flu deaths in China_English_Xinhua
Absolutely. Most Americans look at the payment, not the value of the house .. just as they do with cars and credit cards.
" Pavel,
Familiar with Louise MacNeice's Bar Room Matin?
quite relevant."
Thanks, blackhat, I didn't know that poem. I think there's a difference, though, between MacNeice's poem and Juenger's. Juenger's poem is about pride, and he has a specific era in mind. I wonder what they'll say about our era. Maybe something similar. All these houses, with separate lives going on inside them, that aren't really separate. That's what's really happening, IMHO.
"Animal Spirits" is a euphemism for financial fraud. The eCONomy grows at 2.75% real, 5.5% nominal (+/-). Expanding credit and money supply at ~ 9% (as we did from 1995 thru 2008) is a recipe for disaster.
Mainstream eCONomists are shills for corrupt bankers and politicians.
ghostfaceinvestah
Starting tomorrow we will see a meltdown beginning in many states ... by the Fall the situation will be quite ugly ...
Hard to buy a house without a job and rising interest rates without paying cash or a FICO of 1000 ...
"I think Shiller writes about the role of "animal spirits" in economic central planning. So that might explain his "optimism" here."
Shiller is a smart guy, no doubt, but he has the same limitations of any economist, he can only work with the data he is given. He doesn't realize the mass of new supply soon to hit the market.
I think though he recently said or wrote something about the need to target consumer psychology more in response to economic problems. If so, then he may just be practicing what he preaches.
[Agreed. Now please note that 2 of those little shacks are "looking for backup". ]
Proof that there is still plenty of wealth left to tax in CA - way too much to ignore. No bailout until its citizens are flat broke.
Angry Saver
"Animal Spirits" is a euphemism for financial fraud. The eCONomy grows at 2.75% real, 5.5% nominal (+/-). Expanding credit and money supply at ~ 9% (as we did from 1995 thru 2008) is a recipe for disaster.
Mainstream eCONomists are shills for corrupt bankers and politicians.
~~~~~
You forgot to mention a quadrillion in derivatives !
What's a quadrillion bucks between friends .... ?
"animal spirits" = "I haven't got a clue why this happens, but will seek to obfuscate that fact by anthropomorphizing."
mmckinl wrote on Tue, 6/30/2009 - 1:32 pm:
Starting tomorrow we will see a meltdown beginning in many states ... by the Fall the situation will be quite ugly ...
Hard to buy a house without a job and rising interest rates without paying cash or a FICO of 1000 ...
Care to elaborate? What makes you predict such dramatic change from what are currently seeing?
"animal spirits" = "I haven't got a clue why this happens."
~~~~
Think of two elephants mating on the Nat Geo channel ...
Because of the limited jurisdictional reach of a state, an Internet sales tax can only work at the Federal level...
Amazon Cuts Off Hawaii Affiliates
Amazon.com Inc. has informed its marketing affiliates in Hawaii that it is ending its business with them in order to avoid collecting sales tax in the state.
Following in the footsteps of North Carolina and Rhode Island, lawmakers in Hawaii have passed legislation that would require companies to collect sales tax if they have marketing affiliates in the state. Affiliate marketers run blogs or Web sites and get a sales commission by featuring links to outside e-commerce sites.
shortcourage - july 1 is the typical start of the fiscal 2010 budget year for many states. From what Ive been reviewing, the budget gaps are huge all over, with some massive. Fiscal stimulus dollars typically (for smaller budget deficits of around $4 bil) filled about half the gap. When stimulus was announced, the gaps were looking to be fully filled by those fed dollars. Of course, we all know how inept the budget folks are, so they totally missed. Look around the news. ...taxes going up, spending cuts, layoffs, furloughs....much of that starts tomorrow.
"Proof that there is still plenty of wealth left to tax in CA - way too much to ignore. No bailout until its citizens are flat broke."
I live/rent in Menlo Park /PaloAlto area ; damn, here, there are full time live-in nannies that raise the folks's children on weekdays' I see them in droves in the local duck pond and the library, traffic jam of pram's at times. Broke my ass, they just dont want to pay for the nannie's children to go to school!
"Interesting. You did see similar behavior during the early 90s. I know of some people who rented for 10 years rather than take a nominal loss. Of course they took a real loss."
And if they had negative cashflow every year, they had an even bigger loss.
For owner occupied homes, I am astonished how many people are willing to pay 2x what a similar rental would cost for many years in order to "break even" on the sale price.
ShortCourage
Because the money is not there to go forward ...
Layoffs, hunger, homelessness are all set to explode ...
debtfree - dont forget how small those pockets of wealth are compared to the state overall. Granted, they have amassed most of the wealth, and a large share of the income, so there is still room to tax the upper end. Lots of room at both the Fed and state. That we cap SS tax the way we do is but one of the absurdities in our tax system. Youd think that one might be progressive in some way, but nope.
"I think though he recently said or wrote something about the need to target consumer psychology more in response to economic problems. If so, then he may just be practicing what he preaches."
Could very well be. Note the change in tone of the Administration in March. All of a sudden the tone turned 180 degrees. There is definitely an "animal spirits" effect, and the current Admin gets it.
Which is one reason I am nervous about the fall. Note that most market crashes happen in fall/winter. I'd bet a lot of that is due to "animal spirits" - people are just more optimistic in the spring/summer.
2007 was very bizarre - the secondary markets completely shut in August, after months of failing. The implications should have been clear to anyone in the financial markets. But yet the equity markets kept climbing - until October. If the secondary markets had seized up in March, would the equity markets have topped in May? We'll never know, but it does make me wonder.
You forgot to mention a quadrillion in derivatives !
I'd be worried if the oustanding volume of derivatives started to shrink. Greenspan and Bernanke assured CONgress that derivatives reduce systemic risk.
Also, I track derivatives using a proprietary Avogadros Number type constant.
Avogadro constant - Wikipedia, the free encyclopedia
"there are full time live-in nannies "
maybe that's because it takes two high professional salaries to pay the 800K minimum that a SFR has gone for in menlo/PA since at least 2000...
some investor guy - why would you expect people to make anything BUT bad housing investment decisions? I mean, with stocks, there is little value attached. At least with a home you can live in it and come up with a host of rationalizations. And most people will never know just how bad your investment was...they're just like, OHHHH granite. (oy)
Furthermore, most people dont do a good job of understanding the true cost of a home vs a rental. The upkeep for on. And to compound it, many dont keep good receipts from all capital improvements, so when they go to sell, their cost basis isnt what it should be. No shortage of housing numbskulls from what ive seen.
"If the secondary markets had seized up in March, would the equity markets have topped in May? We'll never know, but it does make me wonder."
well, as someone whose worst plays were in chasing yields in big euro oil last summer, i would remind you that commodities (esp oil) were the real backstory. the fall from the peak in june was truly dizzying.
"And if they had negative cashflow every year, they had an even bigger loss."
True. There is a lot of research on the topic of loss aversion, and how it applies to the housing market. This is an interesting study about the early 90s market in Boston
http://pluto.huji.ac.il/~msfalkin/0101-paper.pdf
"Housing markets exhibit a number of puzzling features for an asset market. In a boom,
houses sell quickly at prices close to, and many times above, the sellers’ asking prices. In a bust,
however, homes tend to sit on the market for long periods of time with asking prices well above
expected selling prices, and many sellers eventually withdraw their properties without sale. Sales
volume can fall 50 percent or more from peak to trough in a real estate cycle. Although the most
dramatic examples along these lines are in local markets,1 a strong positive correlation between
aggregate prices and trading volumes has also been documented at the national level in the US,
Great Britain, and France [Ortalo-Magne and Rady, 1998 and Stein, 1995]. These observations
suggest that sellers’ reservation prices may be less flexible downwards than buyers’ offers."
ghostfaceinvestah;
"2007 was very bizarre - the secondary markets completely shut in August, after months of failing."
Pardon me for being dense, but which secondary markets?
I am concerned that the launch of Shiller's new financial product is affecting his judgment, or has limited the amount of time he has to look at data in depth.
And most people will never know just how bad your investment was...they're just like, OHHHH granite. (oy)
That's why we went with granite floors and travertine counter tops. It really throws people a curve when they walk in
the budget problem at the state level are a definitely a concern, but the messes at the local level are truly sights to behold, especially given the "expertise" at that level. And to make matters worse, many of these political subdivisions just started looking into the budgets the pass several weeks. In the past two weeks alone, I think four different entities have raised property taxes on my parents' house.
It's a good thing that Joe12Pack has no idea how property taxes are computed... Or that Joe12Pack doesn't directly pay the tax bill himself, instead paying into escrow.
"And most people will never know just how bad your investment was..."
that used to be true, but no longer. zillow, cyberhomes etc means that what used to take some work (county tax records, lexis/nexis, etc) is now available to any knucklehead in a matter of seconds. they can find out very quickly and easily.
"That's why we went with granite floors and travertine counter tops. "
What happens when you drop a plate?
hollywood - the info is there, but still many many folks who dont know it. How many times when you say zillow to someone do you get a HUH? For me, nearly all the time.
Also, far too many homes still dont show values on those sites, and many others dont have sales history information. We arent there yet.
"maybe that's because it takes two high professional salaries to pay the 800K minimum that a SFR has gone for in menlo/PA since at least 2000... "
~~~~
That's what trust funds are for ...
A little empirical evidence, some negotiation...
From LA Times
Christopher negotiates sale
Update: Former U.S. Secretary of State Warren Christopher has sold his Connecticut farmhouse-style home in the Beverly Hills area for $2.15 million, according to the MLS.
The one-story, 4,000-square-foot house has three bedrooms and three bathrooms. It came on the market in March 2008 at $3,259,000.
Built in 1935, the home sits on an 18,000-square-foot lot with mature sycamore and birch trees. There is a pool, white picket fencing and a separate guest studio.
Christopher, 83, who served as the 63rd secretary of State under President Clinton, had owned the home since the 1970s.
Stephen Baker of Coldwell Banker Beverly Hills North represented the seller and the buyer.
"For me, nearly all the time. "
true, though technology has a way of filtering down through time. in a few years, average folks will indulge in the kind of tech-savvy nosiness which early adapters do now.
"Pardon me for being dense, but which secondary markets? "
All of them - mortgages, auto, credit cards. Basically the whole "shadow banking" system.
The implications to the economy were huge. There is no way the economy could have functioned as it was without the financing these markets provided. Big banks had some balance sheet capacity (at the time) to last a few months, but many participants had no balance sheet.
Of course, few could have seen how it would ultimately shake out, so I am not saying I saw the S&P drop by 50%, but the fact that is continued to rise? Totally bizarre. I remember thinking at the time (not in hindsight), "am I missing something, because this is a huge problem?".
I wish I had bet big on that feeling, I'd be retired by now.
"I'd be retired by now."
long range predictions - very easy
timing - very hard
BT,
I have been wondering about that today after perusing the Center on Budget and Policy Priorities June 29, 2009 update, "State Budget Troubles Worsen." (props to the member of the commentariat who linked that earlier today)
The projected state shortfalls take no account of municipal difficulties - anyone have a source estimating the city and county (parish, etc.) budget gap?
The only solution that I can think of to solve CA's financial dieaster is to open the box, major modification or repeal of Prop 13!
GDD9000 wrote on Tue, 6/30/2009 - 1:40 pm
shortcourage - july 1 is the typical start of the fiscal 2010 budget year for many states. From what Ive been reviewing, the budget gaps are huge all over, with some massive. .... Look around the news. ...taxes going up, spending cuts, layoffs, furloughs....much of that starts tomorrow.
mmckinl wrote on Tue, 6/30/2009 - 1:41 pm
ShortCourage, Because the money is not there to go forward ...Layoffs, hunger, homelessness are all set to explode ...
I don't see things "exploding" until yields on Treasurys spike and remain high. Right now, it looks like the world is willing to finance yet another spending binge here in the USA. I am not convinced the Feds cannot (in the short run) print more money for the states.
One day it will blow up, but I just can't agree with your certainty about the immediacy of the kaboom.
States brace for shutdowns
Time is running out for the legislatures in Arizona, California, Indiana, Mississippi and Pennsylvania to solve budget gaps.
By P.J. Huffstutter and Nicholas Riccardi ... June 30, 2009
Reporting from Indianapolis and Denver -- The last time Indiana missed its deadline for passing a budget and had to shut down the government was during the Civil War.
But on Monday, as lawmakers raced to hammer out an agreement over school funding, state agencies began preparing 31,000 workers to be temporarily out of a job. Republican Gov. Mitch Daniels has warned residents that most of the state's services -- including its parks, the Bureau of Motor Vehicles and state-regulated casinos -- would be shuttered unless a budget is passed today.
"I wish I had bet big on that feeling, I'd be retired by now. "
You know, I did not notice that happening at the time. But now that I think about it, I remember that was the period when when we had a health crisis in the family, so I was not paying attention to much of anything else at the time.
At least, that's my excuse for not cashing in.
mmckinl sorry disagree but they will take him in and tell him exactly which of the bread is buttered on. there is no mr smith goes to washington. sorry really sorry
"Prop 13! "
as much as i hate many aspects of prop 13, it is actually the only signficant positive in the budgetary process in terms of the way it smooths out appreciation-based tax revenue. if only there was something like that in place in terms of the orgy of cap gains from the .com which washed through sacto... we wouldn't have dug the hole quite so deep so quickly perhaps.
Shutdowns, if they occur at all, wont last long, but they can be quite disruptive. Im not saying it is a KABOOM, but rather, another downdraft that is going to linger well past the second half of this year, with much of the spending cuts starting as the fiscal year starts. Which is tomorrow.
PIGGED a-gayn! I'll make bacon of you yet!
ShortCourage
Between the layoffs and the cut in social programs tens of thousands will be in dire straits
within two months ...the multiplier effect will mushroom that figure hundreds of thousands by the Fall .
"That's why we went with granite floors and travertine counter tops. "
What happens when you drop a plate?
With granite floors and travertine counter tops, the plates are probably paper.
"Is everyone ready for Q2 earnings coming up? "
Yeah, which accounting standards will be abandoned to make this quarters numbers look good? News alert: Banks still broke.