From the Merc article: The average asking monthly rent for units in large apartment complexes — from studios to four-bedrooms — fell to $1,536 last quarter...
So naturally, price-to-rent ratios of, say 150, put housing in the $225K range. As near as I can tell, that won't buy you an outhouse in SJC.
Maybe reality is finally setting in, and people are wondering around baffled when they finally got out of the doors of the casino.
Some are in the fetal position screaming.
:: also ::
There would be dimes aplenty - there would be no shortage of money as the dollars repatriate - its the stuff those dollars would buy that would disappear once a treasury strike occurred. The forex would explode - USD would go to near zero and everything we import would become virtually unavailable at the quantities & pricing we were used to... orders of magnitude more expensive in things like oil, electronics, etc.. Or rationed like during the 70s embargo.
The USD treasury market & the forex are like inseparable Siamese twins. Forex & commodity markets likewise inseparable.
That would continue until we [1] got used to a lot less consumption and [2] learned to make more of the remaining essential stuff like we used to do. Might take a decade or two to get there IF the world really cut off the debt engine which is supported by offshore buys.
Of course they too would see their exports to us go away so I don't expect to see that day happen anytime too soon.
posts
O/T: for those with eyes for oil
if you really believe in oil, then maybe expect what happened last time as it's beginning to feel very familiar
Feb 07 - Apr 08, $50 -> $115. 14 months, 2.3x
Apr 08 - Jul 08, $147.5. 3 months, 1.3x
Mar 08 - Oct 08, $32 -> $75. 7 months, 2.3x
=>Oct 08 - Nov 08, $75 -> $97.5. 1.5 months, 1.3x
also, NAHB prospective buyers sub-index. NAHB: Builder Confidence Slips in October
dropped. It does a good job of predicting new home sales. looks like cash4homes might have had the same impact on future housing demand as cash4clunkers did in the US and Europe
Pigged...
The currency crisis research evolved over time covering factors that were missed or ignored in earlier 1st, 2nd,or 3rd generation models research...central bank opacity had not been taken into consideration...
Lessons of emerging markets' currency crisis...
'Public debt and currency crisis: how central bank opacity can make things bad?'
-Meixing Dai, Dec. 2008
''However, in previous currency crisis models, it is assumed that the central bank (or government) is perfectly transparent about its preferences and no attention has been paid to the effect of central bank transparency as the liklihood of currency crisis. In practice, central banks are not always transparent...It is suggested that more policy transparency and communication...reduces the uncertainty or noises in financial markets.' http://mpra.ub.uni-muenchen.de/13867/1/MPRA_paper_13867.pdf
did CR snark on Owner's Equivalent Rent, "Falling rents is great for renters, but it means ... possibly a declining CPI (rent is the largest component)"
possibly a declining CPI (rent is the largest component).
c'mon, just say it: Price Deflation
And if we're really talking about 5-10% declines in rents which IIRC are nearly half (40%?) of the CPI, then the Fed needs to generate equal-and-opposite 5-10% price inflation in everything other than housing, just to keep the CPI on an even keel overall. Except with only 70% of industrial capacity being utilized, there isn't enough demand for finished products to trigger price inflation in anything other than commodities. (Now it becomes clear why the dollar has been driven down and commodity prices up! It's the only lever the Fed has to keep CPI from being way negative. Except that while the Fed does this, we may not have a CPI "price deflation", but we're still in a credit-contraction deflation, and standards of living will be hurt across the board -- except for renters who can finagle lower leases and who don't consume much in the way of commodities.)
Bottom line: Renters might come out okay but homeowners will take a "biflationary bath": equity gone, not enough cash flow to rent the place out, and price increases in everything else to "balance out" the declining "owner's equivalent rent". A perfect storm.
Perhaps these next few years of pain will finally bring the "Owner's Equivalent Rent" concept to a timely death, and we can cook up a new CPI that's actually based on reality? (Be nice if we could kill off "hedonic adjustments" and "substitutions" as well...)
Rents have a lot of downward pressures at the moment...
(a) job losses
(b) government incentives (including low borrowing costs) to buy a home
(c) gobs of homes being put on the rental market by investors from (b).
Jay.D. wrote
............dont worry about them ......q3 gdp released just after this news thread.......
............ China’s Economy Grows 8.9%, Fastest Pace in a Year (Update2) - Bloomberg.com .........
oh come on, you must believe now that the Chinese economy is pretty much a sham being kept afloat with negative return investments from the government. Just look at steel and shipbuilding to start
Don't be ridiculous. As dryfly has (and just again) noted, there's plenty of resources, it's just a matter of proper allocation, and it doesn't take socialism to fix that, either.
According to the stats anyway - similar to the 'mild inflation' we had a few years ago when rents were flat but housing prices sky rocketing... Imagine how much the CPI would have fallen on paper if they really used housing prices... now that would be a report to read.
. . . there would be no shortage of money as the dollars repatriate - its the stuff those dollars would buy that would disappear once a treasury strike occurred.
dryfly, the imported stuff, for sure. The domestic production (don't laugh) would still be available and dollars would still be the medium of exchange.
The USD treasury market & the forex are like inseparable Siamese twins.
Okay, but that really doesn't affect day to day life, where trades work just as well as currency. Sure, that would mean a major readjustment in large metro areas, but not that big a stretch in less populated areas. Just think how the local radio stations have been relying on trades for decades.
For right now, their export needs are important enough to them that we have a decade to reposition. I don't think we'll get it done unless someone hits the panic button, but eventually we'll get it done.
government incentives (including low borrowing costs) to buy a home
On the plus side, if the homeownership ratio tracks the employment-population ratio down, it will only be a few more years before renters outnumber homeowners, and the government's perverse incentives to manipulate the market will be reversed!
Don't be ridiculous. As dryfly has (and just again) noted, there's plenty of resources, it's just a matter of proper allocation, and it doesn't take socialism to fix that, either.
Cramer said this is exactly what Lenin said before he killed all the bankers
Don't worry. Owners' Equivalent Rent is calculated by dividing whatever number Ben Bernanke finds convenient by one. I am confident the result will be a number that is consistent with providing massive taxpayer subsidies to banks without any regulatory requirements. So we are clearly on the right course.
Don't be ridiculous. As dryfly has (and just again) noted, there's plenty of resources, it's just a matter of proper allocation, and it doesn't take socialism to fix that, either.
Ya - there would be some dislocations for sure - any time a monetary shot like that hits there'll be some noise - but it doesn't have to mean everyone starves and lives in a box. Might happen if the problem is mismanaged [if say run by GS for GS] but doesn't have to happen that way.
TJ and I've been over this one time and time again... and while we disagree on a lot one thing we agree on - there will be no balanced budget or fiscal responsibility until the bond market demands it. It will be painful when it happens but need not be a bad thing at all.
http://www.bls.gov/cpi/cpifacnewrent.pdf The following questions, asked of consumers who rent their primary residence, are
the basis of the weight for Rent:
“What is the rental charge to your [household] for this unit including any
extra charges for garage and parking facilities? Do not include direct
payments by local, state or federal agencies. What period of time does this
cover?”
...
Because rents change rather infrequently, the CPI program collects rent data from
each sampled unit every six months. (Price collection is monthly or bimonthly for
most other CPI items.) Collecting rent data less frequently allows a much larger
sample. The CPI divides each area’s rent sample into six sub-samples called panels.
The rents for panel 1 are collected in January and July; panel 2, in February and
August, etc.
The big questions I have are how they correct for the mix in rentals (I assume their sample was skewed towards lower income people during the housing boom, hence why OER never went up much, which is to say they do not adjust for the change in mix very well if at all)
In my neighborhood, house at peak sold for $420,000.00 and now rents for $1,200.00 per month.
Not a good sign.
On the contrary, I think this is a good sign. The cost of housing is coming down.
I don't feel any glee over those who lost value in their homes, but the readjustment was necessary to get us back to putting realistic numbers on things like the value of shelter.
Landlords scared to drop rent in complexes so they're giving ridiculous move in specials. So instead of cutting rent 50% they just say "Six months free! Move in special!" Then the neighbors can't complain.
Don't think it'll last. I just noticed in the last two days here on the bay in San Diego rent on a few houses that were sitting for three or more months just made huge cuts in asking rent. Huge meaning > 10%.
It will be painful when it happens but need not be a bad thing at all.
painful for whom?
it'll be painful for all of us, one way or another. Sure, some will feel more pain than others, but what I believe is important is that the society is able to absorb the blow and survive.
While I'm more inclined to agree with dryfly than TJ on social issues, I'm not blind to the current problems and the simple fact that a solution has to be found to keep society functioning.
I have a very basic q -
Supply side economics argues for abundant supply of any goods in the economy for price stability.
If that is the case, supply siders should also argue for and pursue policies that allow for lower rents or house price. This did not seem to be the case during the last 25 years that was dominated by supply side economists. Am I missing something?
josap
Cheap housing is a great asset for the economy and society. They key thing we have learned from developing countries is to assign ownership rights instead of being willfully blind to squats/slums until there is a new purpose for the land. I don't understand how the Federal government can pursue an expensive housing strategy, and win even if they are successful
That we have to work through - if the Goldman Sachs proxies we have in there now manage it - painful on everyone but them. But it doesn't have to be that way. There are a lot of ways to make sure no one starves, sleeps on the street and still cost less [in real resources] than the bail outs we have now. But that means bankers have to take some hits - they've avoided a lot of that. And a lot of folks are going to lose mini-mcmansions & suvs [BK & foreclosure]... that isn't necessarily the same as starving & sleeping on the street.
The big questions I have are how they correct for the mix in rentals
Can't answer your question, EHP. Can say, here in bubbleville, california, that the mortgage payment and property taxes combined are about $100 less per month than the cost of renting a standard 3BR/2BA house.
Rents will have to fall below the cost of ownership, at least in my town, but I believe everywhere.
Yeah, you are missing that "supply side" economics is as stupid as "aggregate demand" economics. Which, come to shove, is about as stupid as the rest of economics.
sportsfan,
I'm thinking a lot of the speculator-landlords renting out higher priced homes to former homeowners could show rent increases for some areas, while an apples to apples comparison would not. The other factor for the Jan/Feb surveys I think might be that a good portion of renters/lessors will have had the opportunity to negotiate/accept cheaper rents by then.
OT: I have, in the last few days, experienced a visceral desire to riot. Grab the mossy, put on the riot pants and just go. This is a new experience for me and I do not like it.
I don't feel any glee over those who lost value in their homes, but the readjustment was necessary to get us back to putting realistic numbers on things like the value of shelter.
And to send messages to people they can understand [prices] that activity was overdone.
if the Goldman Sachs proxies we have in there now manage it - painful on everyone but them.
man, i love the following quote (i know i posted it yesterday). “We have to tolerate the inequality as a way to achieve greater prosperity and opportunity for all,” Brian Griffiths [a Goldman Sachs International adviser], who was a special adviser to former British Prime Minister Margaret Thatcher, said yesterday at a panel discussion at St. Paul’s Cathedral in London. The panel’s discussion topic was, “What is the place of morality in the marketplace?” Goldman Sachs’s Griffiths Says Inequality Helps All (Update1) - Bloomberg.com
More lessons from developing countries financial/banking crises...regarding regulation and transparency...
'Bank-Firm Relationships and Contagious Banking Crises'
Conclusions-
'This paper shows that banks can be easily subject to problems of contagion in financial systems...if there is incomplete information...a lender of last resort, for instance, could not prevent the illiquid banks from becoming insolvent...an improvement in the regulatory and legal system that encourages transparency...seems warranted to increase the stability of bank-based financial systems and to avoid banking crises and contagion.'
-Mariassunta Giannetti
Journal of Money, Credit, and Banking (April 2003) http://www2.hhs.se/personal/giannetti/jmcb.pdf
Basel Too
I'm all in favor of differentiation, but it must be tied to merit. Collecting more money than the sum of your labors is a model of theft or fraud.
"What would happen to rents if.... suddenly all the delayed foreclosure victims were thrown out on the street, and their houses thrown on the market?"
That is actually a good question I have been thinking about myself.
Supply AND demand for rental housing would increase. However, I think supply would go up more, as some demand would be sucked out as people move back with Mom.
Also, not all foreclosures are currently occupied, so that would tip the balance to more supply than demand.
I'm thinking a lot of the speculator-landlords renting out higher priced homes to former homeowners could show rent increases for some areas, while an apples to apples comparison would not.
EHP, I don't think those 'accidental landlords,' as we call them here, will be counted at all. The government seems to focus on the larger multi-family housing complexes when seeking statistical information.
Having said that, I'm convinced the government will be behind the curve on rents dropping. CR's post, OTOH, is more to the point about what is happening.
(Along with sm_landlord, who I believe said he is waiting about 6 months, but watching, I'm watching the MF housing market with keen interest, especially in clobbered areas like Phoenix and Las Vegas.)
By "slogging through foreclosures" do you mean the number of people actually removed from their homes will have hit peak and begun to decline significantly?
Or do you mean the majority of foreclosures currently in process will have been completed, but a lot more may have been filed and there is no way to know whether there will be more or less foreclosures in process three years from now?
Because I don't have any trouble believing that the first pig will be through the python in three years, but I think there are a large and currently unknowable number of pigs.
TJ, your opinion that everything would be fine if the "free market" was just allowed to function without hindrance is totally unfounded. The truth is we have people, many people, who are just not capable of functioning in such a hardhearted marketplace. Living within our means is another way of saying we can't afford any slack in the system, for lack of a better phrase. If you could explain how we could support the least among us, under a free market system, I'm all ears.
So if someone went postal on a bunch of bankers -- Goldman Sachs employees, say -- and you were sitting on the jury, you wouldn't vote "not guilty" just for the heck of it?
"Or do you mean the majority of foreclosures currently in process will have been completed, but a lot more may have been filed and there is no way to know whether there will be more or less foreclosures in process three years from now?"
Good questions.
Just one man's opinion, of course, but I think the current pig plus whatever gets added to the pile in the next 6-9 months will be worked through over 2-3 years. After that, we will be dealing with an elevated number of foreclosures for years, but delinquency rates will decline, as banks get more efficient at processing people through the system, these dumb modification programs are cancelled, etc (remember dq rates are reflective of inventory, so the faster they are processed, the lower inventory stays).
We won't really work through the majority of the bubble for another 5 years, and there will be stragglers after that.
The primary problem is negative equity, some people will literally be underwater forever, or until they walk, default, short-sell, etc.
Bottom line: Renters might come out okay but homeowners will take a "biflationary bath": equity gone, not enough cash flow to rent the place out, and price increases in everything else to "balance out" the declining "owner's equivalent rent". A perfect storm.
Wisdom Speaker, you seemed to get a standing O for that one.
TJ, your opinion the everyything would be fine if the "free market" was just allowed to function without hindrance is totally unfounded.
I agree, borrowing from EO Wilson: "Great Idea, Wrong Species"
But there is long spectrum of possible options - it doesn't have to be communes vs galt gulch. It isn't necessarily 'binary'.
Point is the system is broke & the bond market has been the #1 enabler... not only fiscally unsustainable but also the #1 driver pushing US jobs offshore. It kills savers and it kills workers alike. The question shouldn't be how to make the CAD & bond market imbalances continue but rather how to unwind it with as little real social damage as possible. It isn't completely avoidable but can be mitigated. That conversation isn't happening - it has to happen.
Totally. Yes, we need, at the very least, leverage limits that include "innovative products" put out by our friends on Wall Street. And yes, we also need to really let the markets work and end TBTF.
I wish that the left and the right could understand that, on this one, they have a common enemy. The banksters are enemies of the common man and of capitalism and, come to it, liberty. Let's fight about abortion later, guys.
Hmmm, I'm looking for YLSP and a couple other commenters to talk about their experiences. In the last year a few people were commenting that even though things were bad, the property managers weren't budging.
I wish that the left and the right could understand that, on this one, they have a common enemy. The banksters are enemies of the common man and of capitalism and, come to it, liberty.
Those of us on the left or the right can appreciate that. The politicians, though, whether they verbalize from the left or the right, gladly take their campaign donations.
Possibly because I am in Phx, I see a real potential for large numbers of people just walking away from mortgages. In the next year they are going to figure out that they are too far underwater to ever surface from the debt. No amount of lower payments for a few years, lower interest or a 100 yr loan are going to solve the problem of no equity.
This should apply to several markets in Az, Ca, Nv & Fl at the least. When someone can rent for hundereds less, why pay on a mortgage that will never get you equity? There are also way too many condos that were way over priced in the bubble, those don't even rent anymore.
TJ, your opinion that everything would be fine if the "free market" was just allowed to function without hindrance is totally unfounded.
I said nothing of the sort. Don't read things into my statements that aren't there.
I'm talking about the government spending matching its revenues, which in turn causes it to re-evaluate its spending priorities to focus on only those things that are absolutely necessary. No more special interests feeding at the government trough via pricey K-street lobbyists. No more bailouts, subsidies or tax breaks. No more zombie companies, no more pork. No more foreign bases, let alone foreign wars.
The safety net? It will survive because to do otherwise is not only inhuman but also risks anarchy. It will change shape of course, because it will have to.
I see a real potential for large numbers of people just walking away from mortgages.
I think you've got that right. I'm seeing 2BR/2BA apartments around $850/mo. in your area and expect to see it drop to $750 by next year. Why wouldn't people walk, especially if they can cut down on their commute?
Geez, be real careful about Vegas. That town has no reason to exist beyond tourism, and it's overbuilt 5x for that. Beyond tourism the only major employer was construction, and there's no real need for that for another decade.
Income property just won't pay when there's more houses then there are residents.
TJ, I can't imagine how I could have gotten your worldview so wrong in the last few years.
I'm talking about the government spending matching its revenues, which in turn causes it to re-evaluate its spending priorities to focus on only those things that are absolutely necessary. No more special interests feeding at the government trough via pricey K-street lobbyists. No more bailouts, subsidies or tax breaks. No more zombie companies, no more pork. No more foreign bases, let alone foreign wars.
you could have taken the words right out of my mouth.
The safety net? It will survive because to do otherwise is not only inhuman but also risks anarchy. It will change shape of course, because it will have to.
if this is truly your view, I apologize completely.
I've looked only at newspaper ads in the respective towns but: rents in Newport, OR, and nearby towns (Depoe Bay, Waldport, Seal Rock . . ) on the coast, seem to average about $200-$300/month higher than in Eugene, OR (Willamette Valley). Rents are a bit better 10-15 miles inland of the coast, but there is also some housing in very bad shape in at least one of those further inland towns, as well as old single wide manufactured homes. Rents on the coast (despite the scarcity of wellpaying jobs), have always been somewhat higher, but I wouldn't have thought the difference was that substantial. The UE in the county Newport, et al, is probably close to 11%, so I don't know who the LLs think are going to pay those rents. I heard that a few LLs were starting to negotiate rents downward in May, but the advertised rents are still too high.
My guess is that rents in Eugene and the rest of the southern Willamette valley have dropped but this part of the coast--apparently not quite yet.
No doubt. It is really scary there. I don't think there is a city in the U.S. that has been hit harder, across the board, i.e., residential, commercial, industrial, land and entitlements.
I actually brought up a similar point in a meeting earlier today: "For what reason does the current version of Las Vegas exist? Back in the early 1990s, with about 200,000 people, it made sense. Now it's just too much of everything that's too much." (Yes, I exist within a group - I'm sure there's some deep psychological explanation for my sociological views there.)
And ditto for property managers. There are some good ones out there, but the chance of finding them are nil. While the bad ones will just add additional costs. It's a tough job that's only going to get tougher and tougher as "professional rent skippers" learn to game the system and the newbies.
We're well on the way to the bottom in house prices, but 2 reasons why it's not yet time to purchase:
- years of foreclosures left to process, why be the first to buy. see how deep that pool of buyers is
- interest rates will rise before the period of heavy foreclosures finish. When interest rates rise, prices will decline to maintain affordability
Tangentially, housing is fungible. Doesn't matter what the ownership is, there is a surplus of housing relative to the number of households. Household size could rise, making the oversupply even greater. So as houses/condos jump between for sale and for rent, both prices and rents will continue falling for some time to come. Meanwhile we can expect local + state governments to collect more taxes/fees to provide the same or fewer services.
There's no rush to buy in anywhere. Houses, stocks, etc.
Being mobile with your capital is the place to be for now.
Apology accepted. Nothing irritates me more than having words put in my mouth.
Too often people take one specific opinion and then presume the rest, and I'm not that easily pegged. If you have a question about my stand on any issue then just ask, but please don't assume.
FTR, I'm one of those that consider myself fiscally conservative, socially liberal, and more or less politically libertarian.
There's no rush to buy in anywhere. Houses, stocks, etc.
Most graphs of housing will show that you can wait for two full years for the signs of the bottom. You might not get the very bottom, but you'll be within 3-5 percent of it.
sdtfs
Exactly. The key is that prices won't skyrocket, it pays to wait and see the bottom confirmed: in terms of choice and knowing you are getting competitive price.
Sportsfan, you're too generous. I am merely human, subject to all the vagaries of the flesh. My opinions of commenters here are based upon their own words over a considerable period of time. TJ has never given me any indication that he was anything more than a hard-core righty, or libertarian. I am always willing to be pleasantly surprised that I am wrong in my estimations of others.
interest rates will rise before the period of heavy foreclosures finish. When interest rates rise, prices will decline to maintain affordability
I've made that point over at JtR's blog but people just don't like to hear it.
Those $300/sf homes at current rates will be $200/sf when rates revert to mean. Sure, the house and the payment will remain the same, but I just won't take the (negative) equity risk. There's also a rather large chance that interest rates and/or prices will seriously overshoot, too.
Some people also seem to think that either (a) rates will remain low or (b) high inflation will justify owning. Japan's disproves the former, and if rates reflect double-digit inflation then watch out below.
I'm perfectly happy paying rent that's less than owning while I wait.
Unfortunately too many people there think SDRE exists in it's own world.
The key is that prices won't skyrocket, it pays to wait and see the bottom confirmed:
An old land man once told me "If a parcel is selling for $100,000 now, I'd rather wait and pay $200,000 for it, because then I know I can get $400,000."
I agree with both of you, there's no skyrocketing coming down the pike for the foreseeable future.
U-3 is at 9.8%.
8 months ago the new administration said it would max out at 8.9% and be declining before year end
When you add in the BLS advance birth/death correction of -824,000 for jobs that were assumed to have been created between February 08 - March 09, that brings U-3 today up to 10.5%
unemployment plays a huge role in defaults, especially the when the time unemployed is so long (eg 6 months of expenses saved up is insufficient)
John Meriwether, the hedge fund manager and arbitrageur behind Long-Term Capital Management, is in the process of setting up a new hedge fund – his third. The move comes barely three months after Meriwether decided to close his second company, JWM Partners, after clients saw the value of their investments fall by more than 44% in the financial crisis. The new venture, JM Advisors Management, will, like Meriwether’s previous companies, be based in Connecticut.
When the 'bottom' in RE comes, investors will need ca$h plus money to repair damaged and neglected homes and pay back taxes. If rents are in the tank, the 'pencil out' might be a challenge...
I just popped back in before bed, and I see sportsfan (among others) wrote:
Wisdom Speaker, you seemed to get a standing O for that one.
Glad to be of service to the commentariat! I bow before you in receipt of my ! (Too bad we don't have a :bows: or a :thanx: icon...) Wish I could chat here more often. And that I could pop out a gem like that more often!
So, here's a little bit of anecdotal: I've got a jumbo 30 year fixed and still have 5-10% equity on the East side of California Bay Area. Inventory seems to have stabilized and our Zillow and Cyberhomes scores are up, so we started looking at refinancing. The initial thinking was we'd put some cash in to get the equity back to 20% (required by lender for refi), and take advantage of the higher conforming limits (and maybe a 15-year fixed or a 7/1 ARM) to get lower rates. Looks like we could get a rate 1% less than we've got now (maybe 1.5% less with the ARM), and we could save about 10%-15% off our current payments this way! 5 years ago we'd have jumped on this, but now, one must watch the risks:
After consulting around, our former realtor and other folks tend to agree that the property value in our market segment will still fall for a while yet. If we put cash in, and prices fall more than 5-10% more, we risk losing the cash if we had to sell the house. While we seem to be okay for the next year or so (and probably at least 2), we aren't confident enough about the next 10 years to be certain we might not take that biflationary bath. On the other hand, the interest savings over 10 years would come close to making up for the potential loss of cash... Except a lot can change, including both health and personal goals, and if one of us were to leave work, we'd have trouble making the payments on the 15-year fixed... or, if we went with the 7/1 ARM and hit the adjustments just when the Fed (finally) raises rates to fight rising inflation, we'd lose some of those interest savings. (Then again, high inflation might moot that issue.) So the risks loom larger than they used to, whereas the potential interest savings would go a long way towards meeting our long-term savings goals (not consumption goals)... Anyone want to venture some advice here?
Watchdog warns over traders’ limits
The US must not unilaterally impose limits on the trading positions that traders may take in oil and commodity futures and should enlist the support of the G20 group of industrialised nations to crack down on speculation, a leading regulator warned on Thursday.
The comments by Michael Dunn, a commissioner at the Commodity Futures Trading Commission (CFTC), are a sign that efforts by the US futures regulator to tackle “excessive speculation” in derivatives and commodity markets by capping holdings are running into trouble.
...
The UK’s Financial Services Authority sees no need to impose position limits in London’s vast oil markets. However, this week the European Commission proposed rules giving regulators the authority to set limits to counter “excessive price movements or excessive concentration of speculative positions”. FT.com / Companies / Financial Services - Watchdog warns over traders’ limits
Way out my league,...but have you thought about just asking for a mortgage mod? I realize that you probably don't qualify under any sensible scenario, but I've heard of some strange things.
Without divulging too many details, how long would it take for the lower payments to recapture the extra cash you'd have to put in? Oh, and is your current mortgage a purchase loan or a refi?
Gallup: Obama Suffers Worst 3rd Quarter Drop in Approval Since 1953 - Real Clear Politics – TIME.com
I the the current administration already having power slide through its fingers. They are too worried about optics, have mostly maintained the exact status quo, and have accomplished nothing as such. The only to-do item undertaken is healthcare, and even if they do pull that off eventually it won't be in time to demonstrate results by the time of 2010 midterm elections. Opposition will be like hyenas, they will have less of a free hand
EHP, the unwind of the commodity exchanges would be explosive if serious limits or margin requirements were instituted. Then again if they let the charade get too obvious the real action will leave anyways. I see patterns where things go up in Asia just to have them come back down as we spin around to NY time. It seems most pronounced in Au & Ag. I wonder if it's a physical market fighting a paper one. If so that's one hell of a Ponzi which will eventually end badly.
Way out my league,...but have you thought about just asking for a mortgage mod?
Yeah, but we're still too prosperous to make it stick with the bank without doing something more amoral than I can stomach.
Here's a simpler way to ask my question: Suppose you own a house, still have equity and are fiscally solvent, but you know you're about to take the biflationary bath. There's the cold water: loss of equity. And the hot water: inflation in living expenses. You can refi to get additional cash (might prove useful for those living expenses!), but have to put more equity at risk. What's the best way to balance the risks and get the "least worst" outcome?
P.S. for TJ: Right now it'd be about 15-20 years for the lower payments to repay the cash we'd have to put in, depending on which mortgage we pick. Edit: current mortgage is original purchase mortgage, non-recourse state.
one big problem is that the margin requirements are flat. $4 per barrel whether the price is $40 or $80, or whether the volatility is high or low
I say a 5% margin for contracts promising to deliver/receive, 10% margin for cash settlement. Break out the statistics on each. Limit the number of cash settled open interest relative to contracts for delivery.
Here's a simpler way to ask my question: Suppose you own a house, still have equity and are fiscally solvent, but you know you're about to take the biflationary bath. There's the cold water: loss of equity. And the hot water: inflation in living expenses.
There won't be inflation in living expenses unless there is inflation in incomes. I'm not sure that inflation matters in buy vs rent, unless you expect that your mortgage real interest rate is low. A very good possibility with a 30yr 5% fixed rate. If you have positive equity at the bottom of prices, I'm not sure why you would want to walk away. If you won't have positive equity (even accounting for a negative real interest rate loan), then you might as well join the millions who are living rent-free. Credit rating is not a concern. Most Americans will have 'bad credit' that lasts up to 7 years, but lenders have to deal with most Americans if they want to stay in business so they can't hold it against you.
The only way to entirely protect yourself is sell. Short of that, stick with the current mortgage; you can offset the interest savings simply by adding a little more to your existing mortgage payment.
Should prices really go down the tubes you can walk away, no-recourse, and not have put any more cash in. Not great, but an option should the need arise -- as Dawg would say, The Cold Equations.
Many of the shorts hold the commodity-- that's their hedge. When basis breaks down, futures can sky while the physical is un-sellable at anything like the futures price minus carry. The margin calls are immediate (daily) and can be deadly. Both shorts and longs can take the contract to closing day, and there are even some specs that arrange to take delivery on occasion. But it doesn't help during all the potentially volatile days before closing day. My hunch is that unless exchanges can fix the futures market, restore historical basis, and retain use as a viable hedging mechanism, they will have lost their raison d'etre and will remain simple casinos. Maybe it's not fixable with so much underlying leverage and dollar doubt. I don' t know.
One other item on my mind (before actual bedtime): Anyone here tracking the Hindenburg Omen signals? I'm a fan of this indicator after the last 2 years. Basically, if the NYSE 10-week moving average is rising (market "thinks" it's going up), the McClellan oscillator is negative (breadth is weakening / money flowing out), the NYSE new highs and new lows are both > 2.2% of the issues (some stocks have started showing true weakness while most others haven't got the message yet) and the new highs is < 2x the new lows (the remaining strength is now being challenged by the emerging weakness)... then the market is saying the bottom is starting to fall out and there's a high probability of either a sharp correction or an outright crash. You need a second "confirming" Hindy Omen within 36 days for the signal to be valid. Now, there's some element of data mining here, but the indicators make sense, and historically every major market drop in recent history has been preceded by an Omen, and only a couple of Omens in the last few decades (out of dozens of signals) haven't led to a major drop. It's a good indicator for a bear (or a worried bull) to keep handy!
The reason I bring it up now is this: The various data sources I look at don't agree on how to count the NYSE New 52-week Lows. Depending on which data source I look at, we're either well away from a Hindenburg, or just about to get one. And I don't know which data is right. So I'm wondering if anyone else is plugged into this?
Anak
good post, worthy of re-reading.
My recommendations were based on 2 things. 1. Margin should scale to price/price swings, lest the market structure be pro-cyclical. 2. There needs to be an incentive to bring in the the participants of the real physical market. London + NYSE are less than 5% of oil globally, yet they set the price for the other 95%. The asymmetry is encouraged by market structure, and provides a situation ripe for abuse.
I'm fine with speculation, so long as it is limited from price manipulation.
Thanks to josap, EHP and TJ again. I'm not sure I agree with EHP about inflation in living expenses necessarily requiring inflation in incomes. (Seems like falling dollar and rising oil can trigger cost-push inflation that's got nothing to do with incomes? But I'm not an economist, just a physical scientist.)
josap wrote:
How old are you? How long do you plan on living in the house? Retiring in the house? Is / will the equity be part of your retirement funds?
Over 30 and under 50. "The Plan" is to live in the house for at least 10 more years and possibly retire here. We like the house and the area, and if things go well we won't need the equity to retire. But we're somewhat worried about being able to complete "the plan" given the economy and where our employer and careers are headed.
I'm currently inclined to agree with TJ's view and hold the current mortgage while it makes sense. EHP's idea of ruthlessly failing to pay the mortgage could make sense at some point, but for now would create undesirable complications. Right now we can invest the money that could've gone to additional equity / principal payments, and make more than the mortgage interest (after tax effects are included), if we're smart about it. In fact, either refinancing or investing the refi money would be better than what we're doing now, which is sitting on the cash (low interest) trying to decide which way to go...
So if someone went postal on a bunch of bankers -- Goldman Sachs employees, say -- and you were sitting on the jury, you wouldn't vote "not guilty" just for the heck of it?
No, I would convict -- they did it, man. But I would try to connect, then stay in touch, with the guilty and try to help them out over the years.
I would hope they would understand -- you get caught, you do your time. While I might appreciate aspects of their rough justice, it's not the world I want to live in. As much as it pisses me off.
EHP, I'd think a scaled margin requirement would be easy to institute. But how to bring more physical traders into the market is a problem. They'll voluntarily come if the futures and options markets can be used to hedge physical positions.
Specs don't really care about the fundamentals or viability of the market the same way as physical traders do. And the long only specs would like inborn bias so long as they can watch it.
Some traders have told me a 50:50 spec hedge ratio is healthy, and can tolerate it going 60:40 (you can count on commerical interests taking on positions early, late, more or less than the physical, so it's hard to measure).
But the key for the physical guys is the relationships between physical and futures prices staying within a tolerable range over time. If that's not there, you're laying on more risk by "hedging".
Finally, the conclusion is that the NYSE hasn't seen the bottom falling out yet, and the new lows are much too low to initiate a Hindenburg signal just yet. If we start from the premise that the market has outrun the fundamentals, and the fundamentals aren't going to improve, then the lack of a Hindenburg suggests a trading range for a while, with the risk of a significant market drop still some time in the future.
Two indicators likely to roll over before the NYSE New Lows picks up:
In fact, either refinancing or investing the refi money would be better than what we're doing now, which is sitting on the cash (low interest) trying to decide which way to go...
If there were a safe sensible choice you would have known it by now, sitting on the cash while you make up your mind what to gamble on seems to be a pretty smart thing to do; both those other choices seem to be fraught with danger, and right now, the nibble from the weakening dollar isn't too high a price to pay.
Then again, Volker the Viking has got this sure thing he's working on, so maybe you should just give all the money to him. He seems like such a nice man.
Why not just stay in the house with the current mortgage? You can pay down principal if you want, or just keep the cash on the side line for now. Some of the gain you are thinking about will be offset by lending / refi fees, points and recording costs.
If the future looks iffy or unstable to you - sell the house and down size into something that only takes one income to cover. Keep your savings.
josap- my business partner says he seen a huge increase in new property management companies in San Diego, same in Phoenix? We got on the subject talking about a pretty sorry one in Bakersfield that a friend has hired (I'm guessing because they seemed cheap. False Economy personified!)
Not many new management firms. But lots of sales agents that are now managing for the unintentional landlords. Most have no clue what they are doing, nor the types of property registration, rental tax etc etc they should be handling for the properties.
I have, in the last few days, experienced a visceral desire to riot.
Sure, if it can be done from the air conditioned comfort of my living room, in front of the TV, I'm all for it. Rioting is for those willing to sweat. See any great numbers of those types about?
If you could explain how we could support the least among us, under a free market system, I'm all ears.
Your question implies you are not free to take in boarders or volunteer your time and money helping people with your own resources. Ever hear of charity? You want to help people? Get off your ass, step away from that keyboard, and get out your door and go do so. Set an example for the rest of us. If you aren't wearing sack cloth, you aren't sincere. Or do you want to force other people to help people?
I think a second crash is only likely if enough homeowners go for the "American bailout" and stop paying their mortgage which triggers a workout and 30% lower monthly payment. Or just stop paying and get foreclosed on. I don't think anyone has any idea how many it would take to sufficiently depress prices; but you can be damn sure banks aren't going to let anyone know whats going on.
The recent post about someone who got a workout which put their payment ~ 1500 to 1100... welcome to the new market price in the neighborhood for monthly rent. But I think there are enough people willing to overpay for fear of inflation.
sdtfs:No. If the history of this type of crime teaches us anything, it's that the wrong people get shot.
And if the violence makes anyone feel better, rest assured it's just going to make it easier to take more civil liberties away.
This is something I agree with whole heatedly. One of the things that struck me with the Oklahoma bombing was that the guy killed a bunch of middle aged ladies whose main job was making sure that peoples taxes were filed correctly, which is the kind of job you find under any governement.
Personally as for what happened with wall street, I blame coke. It's use among the people in those industries is endemic. And I've seen how it corrodes peoples personality over time making them impulsive, self centered and amoral.
But I think there are enough people willing to overpay for fear of inflation.
Hee-hee. That's rich. (And I don't mean the SLW tout.)
If you asked the average American if they believed their house was a hedge against inflation, he or she would answer, "Naw, I don't garden much."
People are willing to overpay for residential real estate for a variety of reasons, but fear of inflation is way, way down the list. Sixty-plus years of the "American Dream" mentality, by contrast, comes top of the table, and that's going to take more than a couple years' worth of price drops to undo.
Personally as for what happened with wall street, I blame coke. It's use among the people in those industries is endemic. And I've seen how it corrodes peoples personality over time making them impulsive, self centered and amoral.
Well, no, not necessarily. It's a classic chicken-or-the-egg problem.
Wall Streeters, and I've known a few, also booze, gamble, and cheat on their spouses with far greater frequency than the average. Does the nature of the job drive these sorts of behaviors as release, or do the nature of these personalities naturally gravitate toward this and similar lines of work?
Mook
interesting... many years ago I had a conversation with a major Hollywood producer (Kramer v. Kramer) who said that the movie industry was the only business that rewards sociopath behavior, I added that some elements of banking could also be included,
say traders and bond salesmen....
....
finally, a small jab at Jim the Realtor for complaining about my send-ups of his YouTube videos.. .http://www.youtube.com/watch?v=dV1bRl8FSz0
...
EDIT
Anak and EHP,
When futures settle in cash rather than delivery, in most cases, the basis risk approaches zero when the contract expires or is in delivery. This would seem desirable, but liquidity can dry up because traders would no longer have a profitable edge and might not trade as the "reward" would not be worth the "risk" Also as traders offset their positions fewer traders remain causing liquidity to dry up anyway. (basis risk might still occur before delivery if the trade is offset before then...) As it is now during non cash delivery period, traders try to figure out which large, well funded traders hold what positions and which direction they will push the basis and whether they will take or make delivery.
European / UK commercial real estate facing tough market over the next couple of years. I'm sure the US is in the same position.
Oct. 22 (Bloomberg) -- Investors in the first U.K. commercial mortgage bonds to be liquidated since the financial crisis began may lose as much as 1 billion pounds ($1.6 billion) after values of properties backing the two deals collapsed.
Epic (Industrious) Plc issued bonds on 1,500 warehouses, which fetched 44 percent of their peak value in sales that completed this month. White Tower 2006-3 Plc packaged bonds against nine London office buildings owned by Simon Halabi, six of which went into administration this week.
snip
“There’s very little appetite among banks to recognize losses on their property loans, but CMBS doesn’t have that luxury,” ... “If maturity is looming, you’re up against a hard date.”
Owners of European commercial mortgage bonds include Citigroup Inc., Merrill Lynch & Co Inc., ... BlackRock Inc. and Banco Santander SA, according to Bloomberg data. Royal Bank of Scotland Group Plc, which manages the Epic bonds, owns 2.2 billion pounds of European CMBS, according to its half-year results.
snip
“It’s just the tip of the iceberg,” ... “Most investors are expecting further defaults and further losses.”
About 6.5 billion euros of European commercial mortgage bonds are due to mature by the end of next year, according to Barclays Capital. That will rise to 16.5 billion euros in 2011 and 12.1 billion euros in 2012.
“The focus is increasingly shifting to loans maturing during 2010 to 2012,” Moody’s Investors Service Ltd. said ...
Rents have fallen so fast and hard in Vegas. I signed a lease last January for a nice 3/2 condo for $950 a month and a similar place can now be rented for $100 less easy. By the time my lease is up probably less. If my landlord doesn't agree to at least a $100 drop I'm leaving.
Chief Executive Officer Andrew Liveris fired workers, shut plants and sold assets to buoy earnings and pay off a loan used to buy Rohm & Haas Co. in April. Profit rose in five of Dow’s seven units, and lower U.S. natural gas prices helped cut raw- material costs by $3.5 billion.
Sales fell 22 percent to $12 billion, topping analysts’ $11.8 billion average estimate.
Dow dropped $1.32, or 4.9 percent, to $25.50 yesterday in New York Stock Exchange composite trading. The shares gained 69 percent this year before today.
actually knew a buddy of mine who dealt on the side, didn't need to since he made 3 or 4 million off the spin-off
of RJR but he was a 'lude head and that was his main line - actually had a chemist, etc but had to shut down 5 years
back when the chemist got nervous due to the tracking of certain chemicals...
my friend's biggest problem? all the black money he made - about 900K and how to dispose of it...
There are plenty of people pointing to various incentives driving down rent, or unemployment.
Given the geographic distribution of the decline, don't forget the possibility that it's also people moving out of those areas. As I keep reminding people in CA, if outward migration continues, there is no bottom to housing prices. There would also be ongoing rent declines.
There won't be inflation in living expenses unless there is inflation in incomes.
I don't think this is really true, look at previous currency collapses. What happens is that people's consumption of luxuries goes down to support spending on necessities. The real price of food can double, but then people will spend less on I-PODs.
In a larger sense, falling rents is EXACTLY what we believers in a housing bubble were predicting years ago. Just as the purchase price/rent ratio would return to sanity, equivalant rents would fall because of the huge oversupply of housing that was built. Bubbleheads just don't understand that rents respond much more quickly to the supply and demand of housing than purchase price. Condo conversions and rehabs TEMPORARILY removed a significant amount of housing from the market in response to absurdly high purchase/rent ratios. And now much of that is back, and rents are responding to the oversupply of housing. And of course rents stand to fall hardest in the market segments that were the most overbuilt: downtown "luxury" condos and distant greenfield developments.
Wall Streeters, and I've known a few, also booze, gamble, and cheat on their spouses with far greater frequency than the average. Does the nature of the job drive these sorts of behaviors as release, or do the nature of these personalities naturally gravitate toward this and similar lines of work?
Or do they simply earn enough to support these expensive vices? A mixture of all three, I'd wager.
If you asked the average American if they believed their house was a hedge against inflation, he or she would answer, "Naw, I don't garden much."
People are willing to overpay for residential real estate for a variety of reasons, but fear of inflation is way, way down the list.
The first statement is probably true, but I dispute the second. At the height of the bubble, if you'd asked buyers if they were worried about "being priced out forever," you would have had a fairly high positive response. Likewise, if you'd asked them about where they thought house prices would be in a couple of years, they would have predicted continued high rates of appreciation. Many people just didn't realize that asset price appreciation = inflation*
*where inflation here is defined as price increases, not neccessarily as in increase in the monetary supply.
Duke, don't feel too special, my wife has you beat by decades. Just because your some loser that can't make it in the U.S. doesn't make you anything out of the ordinary!
Or do you want to force other people to help people? - kidbuck
either I didn't express myself very well, or you completely missed the point. In my opinion, one of the functions of government is to provide a social safety net for the weaker members among us, however you wish to define them. For them to have to rely on the charity of others gives those others too much discretion. You see where I'm going here?
I lived in a country for a while that had no social safety net, and I can tell you, it wasn't a pretty sight. Basically a two-tiered society of the rich, who were very rich, and the poor. If you've ever witnessed anything of the sort, you might feel differently about relying on charity alone for the needs of the poor.
I also believe that a true bottom will be marked by the time when most remaining real estate brokers are out of the business, all of the homebuilder stocks are below $5/share or completely gone, and we stop seeing Wall Streeters and Barbara Corcoran go on national media shows proclaiming that housing prices are great value now.
IOW, good news!
We do, but not a dime more than we can afford.
who decides that?
Hmm, house prices just got a bit more overpriced, according to that price/rent ratio.
Should be good for a 20% plunge in SRS tomorrow.
barfly wrote:
Not sure you're following the basic concept here -- it's called "living within our means".
From the Merc article: The average asking monthly rent for units in large apartment complexes — from studios to four-bedrooms — fell to $1,536 last quarter...
So naturally, price-to-rent ratios of, say 150, put housing in the $225K range. As near as I can tell, that won't buy you an outhouse in SJC.
I dig the concept, but reality is something else. Are we ready to crank up the ovens?
Maybe reality is finally setting in, and people are wondering around baffled when they finally got out of the doors of the casino.
Some are in the fetal position screaming.
barfly wrote:
Okay, now you've lost me.
JP wrote:
Perhaps not this year. How far are we into this meltdown?
don't play stupid.
barfly wrote:
:: also
::
There would be dimes aplenty - there would be no shortage of money as the dollars repatriate - its the stuff those dollars would buy that would disappear once a treasury strike occurred. The forex would explode - USD would go to near zero and everything we import would become virtually unavailable at the quantities & pricing we were used to... orders of magnitude more expensive in things like oil, electronics, etc.. Or rationed like during the 70s embargo.
The USD treasury market & the forex are like inseparable Siamese twins. Forex & commodity markets likewise inseparable.
That would continue until we [1] got used to a lot less consumption and [2] learned to make more of the remaining essential stuff like we used to do. Might take a decade or two to get there IF the world really cut off the debt engine which is supported by offshore buys.
Of course they too would see their exports to us go away so I don't expect to see that day happen anytime too soon.
If you're suggesting fiscal responsibility is somehow fascist then you've totally lost it.
O/T: for those with eyes for oil
if you really believe in oil, then maybe expect what happened last time as it's beginning to feel very familiar
Feb 07 - Apr 08, $50 -> $115. 14 months, 2.3x
Apr 08 - Jul 08, $147.5. 3 months, 1.3x
Mar 08 - Oct 08, $32 -> $75. 7 months, 2.3x
=>Oct 08 - Nov 08, $75 -> $97.5. 1.5 months, 1.3x
CRL Testimony via Hussman Funds - Weekly Market Comment: The Stock Market Has Never Been This (Intermediate-Term) Overbought - October 19, 2009
Came across some numbers I recognized from back-of-the-envelope calculations last year.
8.1mn foreclosures, 1 in 10 get successful mod
2.4mn annual foreclosures, so 2.5 more years of heavy foreclosures at current rate
however, this is dependent on the economy remaining stabilized
also, NAHB prospective buyers sub-index. NAHB: Builder Confidence Slips in October
dropped. It does a good job of predicting new home sales. looks like cash4homes might have had the same impact on future housing demand as cash4clunkers did in the US and Europe
Pigged...
The currency crisis research evolved over time covering factors that were missed or ignored in earlier 1st, 2nd,or 3rd generation models research...central bank opacity had not been taken into consideration...
Lessons of emerging markets' currency crisis...
'Public debt and currency crisis: how central bank opacity can make things bad?'
-Meixing Dai, Dec. 2008
''However, in previous currency crisis models, it is assumed that the central bank (or government) is perfectly transparent about its preferences and no attention has been paid to the effect of central bank transparency as the liklihood of currency crisis. In practice, central banks are not always transparent...It is suggested that more policy transparency and communication...reduces the uncertainty or noises in financial markets.'
http://mpra.ub.uni-muenchen.de/13867/1/MPRA_paper_13867.pdf
If you're suggesting fiscal responsibility is somehow fascist then you've totally lost it.
what do you suggest we do with the "unaffordable" people?
did CR snark on Owner's Equivalent Rent, "Falling rents is great for renters, but it means ... possibly a declining CPI (rent is the largest component)"
CR writes:
c'mon, just say it: Price Deflation
And if we're really talking about 5-10% declines in rents which IIRC are nearly half (40%?) of the CPI, then the Fed needs to generate equal-and-opposite 5-10% price inflation in everything other than housing, just to keep the CPI on an even keel overall. Except with only 70% of industrial capacity being utilized, there isn't enough demand for finished products to trigger price inflation in anything other than commodities. (Now it becomes clear why the dollar has been driven down and commodity prices up! It's the only lever the Fed has to keep CPI from being way negative. Except that while the Fed does this, we may not have a CPI "price deflation", but we're still in a credit-contraction deflation, and standards of living will be hurt across the board -- except for renters who can finagle lower leases and who don't consume much in the way of commodities.)
Bottom line: Renters might come out okay but homeowners will take a "biflationary bath": equity gone, not enough cash flow to rent the place out, and price increases in everything else to "balance out" the declining "owner's equivalent rent". A perfect storm.
Perhaps these next few years of pain will finally bring the "Owner's Equivalent Rent" concept to a timely death, and we can cook up a new CPI that's actually based on reality? (Be nice if we could kill off "hedonic adjustments" and "substitutions" as well...)
Rents have a lot of downward pressures at the moment...
(a) job losses
(b) government incentives (including low borrowing costs) to buy a home
(c) gobs of homes being put on the rental market by investors from (b).
Jay.D. wrote
............dont worry about them ......q3 gdp released just after this news thread.......
............ China’s Economy Grows 8.9%, Fastest Pace in a Year (Update2) - Bloomberg.com .........
oh come on, you must believe now that the Chinese economy is pretty much a sham being kept afloat with negative return investments from the government. Just look at steel and shipbuilding to start
Don't be ridiculous. As dryfly has (and just again) noted, there's plenty of resources, it's just a matter of proper allocation, and it doesn't take socialism to fix that, either.
Wisdom Speaker wrote:
According to the stats anyway - similar to the 'mild inflation' we had a few years ago when rents were flat but housing prices sky rocketing... Imagine how much the CPI would have fallen on paper if they really used housing prices... now that would be a report to read.
. . . there would be no shortage of money as the dollars repatriate - its the stuff those dollars would buy that would disappear once a treasury strike occurred.
dryfly, the imported stuff, for sure. The domestic production (don't laugh) would still be available and dollars would still be the medium of exchange.
The USD treasury market & the forex are like inseparable Siamese twins.
Okay, but that really doesn't affect day to day life, where trades work just as well as currency. Sure, that would mean a major readjustment in large metro areas, but not that big a stretch in less populated areas. Just think how the local radio stations have been relying on trades for decades.
For right now, their export needs are important enough to them that we have a decade to reposition. I don't think we'll get it done unless someone hits the panic button, but eventually we'll get it done.
dryfly wrote:
It's only fair since they didn't count'em on the way up.
@Short Courage:
On the plus side, if the homeownership ratio tracks the employment-population ratio down, it will only be a few more years before renters outnumber homeowners, and the government's perverse incentives to manipulate the market will be reversed!
In my neighborhood, house at peak sold for $420,000.00 and now rents for $1,200.00 per month.
Not a good sign.
TJ and The Bear wrote:
Cramer said this is exactly what Lenin said before he killed all the bankers
EvilHenryPaulson wrote:
You say that like it's a bad thing.
and it doesn't take socialism to fix that, either.
I'm so sure Capitalism will handle it.
Don't worry. Owners' Equivalent Rent is calculated by dividing whatever number Ben Bernanke finds convenient by one. I am confident the result will be a number that is consistent with providing massive taxpayer subsidies to banks without any regulatory requirements. So we are clearly on the right course.
TJ and The Bear wrote:
Ya - there would be some dislocations for sure - any time a monetary shot like that hits there'll be some noise - but it doesn't have to mean everyone starves and lives in a box. Might happen if the problem is mismanaged [if say run by GS for GS] but doesn't have to happen that way.
TJ and I've been over this one time and time again... and while we disagree on a lot one thing we agree on - there will be no balanced budget or fiscal responsibility until the bond market demands it. It will be painful when it happens but need not be a bad thing at all.
TJ and The Bear wrote:
Agree. Lies both ways.
dryfly wrote:
The alternatives -- which we're working towards -- are worse.
It will be painful when it happens but need not be a bad thing at all.
painful for whom?
TJ and The Bear wrote:
I've been saying since the 90s - it has to happen - the longer it goes the rougher the ride.
http://www.bls.gov/cpi/cpifacnewrent.pdf
The following questions, asked of consumers who rent their primary residence, are
the basis of the weight for Rent:
“What is the rental charge to your [household] for this unit including any
extra charges for garage and parking facilities? Do not include direct
payments by local, state or federal agencies. What period of time does this
cover?”
...
Because rents change rather infrequently, the CPI program collects rent data from
each sampled unit every six months. (Price collection is monthly or bimonthly for
most other CPI items.) Collecting rent data less frequently allows a much larger
sample. The CPI divides each area’s rent sample into six sub-samples called panels.
The rents for panel 1 are collected in January and July; panel 2, in February and
August, etc.
The big questions I have are how they correct for the mix in rentals (I assume their sample was skewed towards lower income people during the housing boom, hence why OER never went up much, which is to say they do not adjust for the change in mix very well if at all)
josap wrote:
Not a good sign.
On the contrary, I think this is a good sign. The cost of housing is coming down.
I don't feel any glee over those who lost value in their homes, but the readjustment was necessary to get us back to putting realistic numbers on things like the value of shelter.
Landlords scared to drop rent in complexes so they're giving ridiculous move in specials. So instead of cutting rent 50% they just say "Six months free! Move in special!" Then the neighbors can't complain.
Don't think it'll last. I just noticed in the last two days here on the bay in San Diego rent on a few houses that were sitting for three or more months just made huge cuts in asking rent. Huge meaning > 10%.
House values in Phx Metro have dropped 50%+ to date.
What that rent price means is that house values have another 20% to drop.
Not a good sign from where I sit.
Going Postal will make a comeback, CBC News - Edmonton - Armed standoff ends with surrender
barfly wrote:
painful for whom?
it'll be painful for all of us, one way or another. Sure, some will feel more pain than others, but what I believe is important is that the society is able to absorb the blow and survive.
While I'm more inclined to agree with dryfly than TJ on social issues, I'm not blind to the current problems and the simple fact that a solution has to be found to keep society functioning.
What would happen to rents if.... suddenly all the delayed foreclosure victims were thrown out on the street, and their houses thrown on the market?
Actually, change that from "if" to "when".
I have a very basic q -
Supply side economics argues for abundant supply of any goods in the economy for price stability.
If that is the case, supply siders should also argue for and pursue policies that allow for lower rents or house price. This did not seem to be the case during the last 25 years that was dominated by supply side economists. Am I missing something?
josap
Cheap housing is a great asset for the economy and society. They key thing we have learned from developing countries is to assign ownership rights instead of being willfully blind to squats/slums until there is a new purpose for the land. I don't understand how the Federal government can pursue an expensive housing strategy, and win even if they are successful
barfly wrote:
That we have to work through - if the Goldman Sachs proxies we have in there now manage it - painful on everyone but them. But it doesn't have to be that way. There are a lot of ways to make sure no one starves, sleeps on the street and still cost less [in real resources] than the bail outs we have now. But that means bankers have to take some hits - they've avoided a lot of that. And a lot of folks are going to lose mini-mcmansions & suvs [BK & foreclosure]... that isn't necessarily the same as starving & sleeping on the street.
EvilHenryPaulson wrote:
Can't answer your question, EHP. Can say, here in bubbleville, california, that the mortgage payment and property taxes combined are about $100 less per month than the cost of renting a standard 3BR/2BA house.
Rents will have to fall below the cost of ownership, at least in my town, but I believe everywhere.
dfwmix wrote:
That works fine until the Invisible Fist punches you out.
Yeah, you are missing that "supply side" economics is as stupid as "aggregate demand" economics. Which, come to shove, is about as stupid as the rest of economics.
Almost.
Cheers,
prat
EvilHenryPaulson wrote:
It never really left us completely, but I hear you, violent crime of all kinds is up, way up.
That includes domestic violence. It's not always just about money.
sportsfan,
I'm thinking a lot of the speculator-landlords renting out higher priced homes to former homeowners could show rent increases for some areas, while an apples to apples comparison would not. The other factor for the Jan/Feb surveys I think might be that a good portion of renters/lessors will have had the opportunity to negotiate/accept cheaper rents by then.
"Apartment Rents "Plunge" in the West"
plunge
like they are stuck in the toilet...plunge
ok i get it
OT: I have, in the last few days, experienced a visceral desire to riot. Grab the mossy, put on the riot pants and just go. This is a new experience for me and I do not like it.
Is anyone else having this problem?
Cheers,
prat
sportsfan wrote:
And to send messages to people they can understand [prices] that activity was overdone.
if the Goldman Sachs proxies we have in there now manage it - painful on everyone but them.
man, i love the following quote (i know i posted it yesterday).
“We have to tolerate the inequality as a way to achieve greater prosperity and opportunity for all,” Brian Griffiths [a Goldman Sachs International adviser], who was a special adviser to former British Prime Minister Margaret Thatcher, said yesterday at a panel discussion at St. Paul’s Cathedral in London. The panel’s discussion topic was, “What is the place of morality in the marketplace?”
Goldman Sachs’s Griffiths Says Inequality Helps All (Update1) - Bloomberg.com
sportsfan wrote:
Definitely. I also want to say I'm not making light of these stresses at all, just trying to tie together cyclical phenomena
sportsfan wrote:
I used to get high with the guy in OC who defined that term.
It was a bit unnerving, after the shootout.
"so 2.5 more years of heavy foreclosures at current rate"
That is consistent with my estimates - 2-3 years of slogging through foreclosures at the current pace.
Basel,
This is not helping.
Cheers,
prat
Then, you should go for this - http://www.showdowninchicago.org/index.html
praetorian wrote:
No.
"Going Postal will make a comeback"
all the more reason to legalize and tax marijuana
ok i have seen that poly drug users can be violent
but pure stoners...hippies...pot heads...are usually more interested in music... sex... and twinkies
More lessons from developing countries financial/banking crises...regarding regulation and transparency...
'Bank-Firm Relationships and Contagious Banking Crises'
Conclusions-
'This paper shows that banks can be easily subject to problems of contagion in financial systems...if there is incomplete information...a lender of last resort, for instance, could not prevent the illiquid banks from becoming insolvent...an improvement in the regulatory and legal system that encourages transparency...seems warranted to increase the stability of bank-based financial systems and to avoid banking crises and contagion.'
-Mariassunta Giannetti
Journal of Money, Credit, and Banking (April 2003)
http://www2.hhs.se/personal/giannetti/jmcb.pdf
Wisdom Speaker wrote:
I am absolutely stealing your term.
josap: Where are you located? (I used to be in SJC, which causes me to follow the prices.)
Basel Too
I'm all in favor of differentiation, but it must be tied to merit. Collecting more money than the sum of your labors is a model of theft or fraud.
JP wrote:
I saw it first damn you - ITS MINE! [blogging version of going postal]...
"What would happen to rents if.... suddenly all the delayed foreclosure victims were thrown out on the street, and their houses thrown on the market?"
That is actually a good question I have been thinking about myself.
Supply AND demand for rental housing would increase. However, I think supply would go up more, as some demand would be sucked out as people move back with Mom.
Also, not all foreclosures are currently occupied, so that would tip the balance to more supply than demand.
But it is interesting to think about.
EvilHenryPaulson wrote:
EHP, I don't think those 'accidental landlords,' as we call them here, will be counted at all. The government seems to focus on the larger multi-family housing complexes when seeking statistical information.
Having said that, I'm convinced the government will be behind the curve on rents dropping. CR's post, OTOH, is more to the point about what is happening.
(Along with sm_landlord, who I believe said he is waiting about 6 months, but watching, I'm watching the MF housing market with keen interest, especially in clobbered areas like Phoenix and Las Vegas.)
Damn.
Re: the Chi-town clusterstuck: will this be mostly small banks? Or will Wall Street show up?
I don't think that the crowds are going to understand the distinction.
Cheers,
prat
GFI
By "slogging through foreclosures" do you mean the number of people actually removed from their homes will have hit peak and begun to decline significantly?
Or do you mean the majority of foreclosures currently in process will have been completed, but a lot more may have been filed and there is no way to know whether there will be more or less foreclosures in process three years from now?
Because I don't have any trouble believing that the first pig will be through the python in three years, but I think there are a large and currently unknowable number of pigs.
praetorian wrote:
Last thread, from Les Miserables, "join the students at the barricades."
Your chance will come.
TJ, your opinion that everything would be fine if the "free market" was just allowed to function without hindrance is totally unfounded. The truth is we have people, many people, who are just not capable of functioning in such a hardhearted marketplace. Living within our means is another way of saying we can't afford any slack in the system, for lack of a better phrase. If you could explain how we could support the least among us, under a free market system, I'm all ears.
"Is anyone else having this problem?"
no
i dont think about violence
i think about tens of thousand s of americans doing a mr beale (network (movie)) "im not gonna take it anymore...mad as hell"
kind of a thing
and using passive resistance, like lying down in the streets to block traffic
i am dead set against violence as any kind of a solution..just begets more of the same
biflationary bath
haha. so it'll cost 3X more to heat/cool the McMansion that's worth 1/3 the price...
barfly wrote:
I agree, borrowing from EO Wilson: "Great Idea, Wrong Species"
praetorian wrote:
I'm really pretty laid back - I'm more apt to head off into the Nat'l Forest & look for stoners than strap on a pistol. But YMMV.
So if someone went postal on a bunch of bankers -- Goldman Sachs employees, say -- and you were sitting on the jury, you wouldn't vote "not guilty" just for the heck of it?
But I despise the spirit of '68. As I said, unnerving.
OK, enough thread hijack. Back to useful economic analysis (sic).
Cheers,
prat
"Or do you mean the majority of foreclosures currently in process will have been completed, but a lot more may have been filed and there is no way to know whether there will be more or less foreclosures in process three years from now?"
Good questions.
Just one man's opinion, of course, but I think the current pig plus whatever gets added to the pile in the next 6-9 months will be worked through over 2-3 years. After that, we will be dealing with an elevated number of foreclosures for years, but delinquency rates will decline, as banks get more efficient at processing people through the system, these dumb modification programs are cancelled, etc (remember dq rates are reflective of inventory, so the faster they are processed, the lower inventory stays).
We won't really work through the majority of the bubble for another 5 years, and there will be stragglers after that.
The primary problem is negative equity, some people will literally be underwater forever, or until they walk, default, short-sell, etc.
JMHO.
jp
Phx Metro.
Edge of Scottsdale - Phx.
Lots of research referenced here...
Keywords: central bank transparency, public debt, currency crisis, speculative attack
Areas: Macroeconomics & monetary economics, International Economics, International Finance
Public debt and currency crisis: how central bank opacity can make things bad? - Munich RePEc Personal Archive
Might be links in the research to the above keywords...
dryfly wrote:
Oh sure. Look at Mr. Just-Go-Hug-A-Tree-And-A-Stoner now.
Wisdom Speaker wrote:
Wisdom Speaker, you seemed to get a standing O for that one.
adornosghost wrote:
But there is long spectrum of possible options - it doesn't have to be communes vs galt gulch. It isn't necessarily 'binary'.
Point is the system is broke & the bond market has been the #1 enabler... not only fiscally unsustainable but also the #1 driver pushing US jobs offshore. It kills savers and it kills workers alike. The question shouldn't be how to make the CAD & bond market imbalances continue but rather how to unwind it with as little real social damage as possible. It isn't completely avoidable but can be mitigated. That conversation isn't happening - it has to happen.
damn. I thought phx was further along than a ratio of 420K/1200.
thx for the info though.
JP wrote:
+1
Nemo wrote:
you wouldn't vote "not guilty" just for the heck of it?
No. If the history of this type of crime teaches us anything, it's that the wrong people get shot.
And if the violence makes anyone feel better, rest assured it's just going to make it easier to take more civil liberties away.
mock turtle wrote:
I'm still amazed it hasn't happened yet. Is everyone else out there asleep or high or what?
Totally. Yes, we need, at the very least, leverage limits that include "innovative products" put out by our friends on Wall Street. And yes, we also need to really let the markets work and end TBTF.
I wish that the left and the right could understand that, on this one, they have a common enemy. The banksters are enemies of the common man and of capitalism and, come to it, liberty. Let's fight about abortion later, guys.
Cheers,
prat
And if the violence makes anyone feel better, rest assured it just going to make it easier to take more civil liberties away
best comment of the day. +1
Hmmm, I'm looking for YLSP and a couple other commenters to talk about their experiences. In the last year a few people were commenting that even though things were bad, the property managers weren't budging.
praetorian wrote:
Those of us on the left or the right can appreciate that. The politicians, though, whether they verbalize from the left or the right, gladly take their campaign donations.
Therein lies the problem.
Possibly because I am in Phx, I see a real potential for large numbers of people just walking away from mortgages. In the next year they are going to figure out that they are too far underwater to ever surface from the debt. No amount of lower payments for a few years, lower interest or a 100 yr loan are going to solve the problem of no equity.
This should apply to several markets in Az, Ca, Nv & Fl at the least. When someone can rent for hundereds less, why pay on a mortgage that will never get you equity? There are also way too many condos that were way over priced in the bubble, those don't even rent anymore.
Wouldn't it be refreshing to see the American oligarchs bitch and complain about having to buy their way to ridiculous riches?
Oligarchs Get an Earful From Russian President - NY Times
barfly wrote:
I said nothing of the sort. Don't read things into my statements that aren't there.
I'm talking about the government spending matching its revenues, which in turn causes it to re-evaluate its spending priorities to focus on only those things that are absolutely necessary. No more special interests feeding at the government trough via pricey K-street lobbyists. No more bailouts, subsidies or tax breaks. No more zombie companies, no more pork. No more foreign bases, let alone foreign wars.
The safety net? It will survive because to do otherwise is not only inhuman but also risks anarchy. It will change shape of course, because it will have to.
josap wrote:
I think you've got that right. I'm seeing 2BR/2BA apartments around $850/mo. in your area and expect to see it drop to $750 by next year. Why wouldn't people walk, especially if they can cut down on their commute?
sportsfan- Are you involved with income property yet? I remember hearing something about Las Vegas a while back.
sdtfs, no, but I'm constantly trying to stay abreast of developments. Next year perhaps.
Las Vegas and Phoenix are definitely two areas of interest to me. They've been hit hard and the pain won't be over soon in either town.
People need a decent place to live. They don't necessarily need to own a house.
Some current equity-challenged owner needs to realize what has happened and his banker needs to take a huge bath.
Geez, be real careful about Vegas. That town has no reason to exist beyond tourism, and it's overbuilt 5x for that. Beyond tourism the only major employer was construction, and there's no real need for that for another decade.
Income property just won't pay when there's more houses then there are residents.
TJ, I can't imagine how I could have gotten your worldview so wrong in the last few years.
I'm talking about the government spending matching its revenues, which in turn causes it to re-evaluate its spending priorities to focus on only those things that are absolutely necessary. No more special interests feeding at the government trough via pricey K-street lobbyists. No more bailouts, subsidies or tax breaks. No more zombie companies, no more pork. No more foreign bases, let alone foreign wars.
you could have taken the words right out of my mouth.
The safety net? It will survive because to do otherwise is not only inhuman but also risks anarchy. It will change shape of course, because it will have to.
if this is truly your view, I apologize completely.
Avoid Vegas real estate like swine flu.
I've looked only at newspaper ads in the respective towns but: rents in Newport, OR, and nearby towns (Depoe Bay, Waldport, Seal Rock . . ) on the coast, seem to average about $200-$300/month higher than in Eugene, OR (Willamette Valley). Rents are a bit better 10-15 miles inland of the coast, but there is also some housing in very bad shape in at least one of those further inland towns, as well as old single wide manufactured homes. Rents on the coast (despite the scarcity of wellpaying jobs), have always been somewhat higher, but I wouldn't have thought the difference was that substantial. The UE in the county Newport, et al, is probably close to 11%, so I don't know who the LLs think are going to pay those rents. I heard that a few LLs were starting to negotiate rents downward in May, but the advertised rents are still too high.
My guess is that rents in Eugene and the rest of the southern Willamette valley have dropped but this part of the coast--apparently not quite yet.
TJ and The Bear wrote:
No doubt. It is really scary there. I don't think there is a city in the U.S. that has been hit harder, across the board, i.e., residential, commercial, industrial, land and entitlements.
I actually brought up a similar point in a meeting earlier today: "For what reason does the current version of Las Vegas exist? Back in the early 1990s, with about 200,000 people, it made sense. Now it's just too much of everything that's too much." (Yes, I exist within a group - I'm sure there's some deep psychological explanation for my sociological views there.)
ShortCourage wrote:
I had some kind of flu 7-10 days ago. Am I bulletproof now?
No, I didn't think so, either.
Avoid Vegas real estate like swine flu.
And ditto for property managers. There are some good ones out there, but the chance of finding them are nil. While the bad ones will just add additional costs. It's a tough job that's only going to get tougher and tougher as "professional rent skippers" learn to game the system and the newbies.
azurite,
How's the timber industry in OR doing?
We're well on the way to the bottom in house prices, but 2 reasons why it's not yet time to purchase:
- years of foreclosures left to process, why be the first to buy. see how deep that pool of buyers is
- interest rates will rise before the period of heavy foreclosures finish. When interest rates rise, prices will decline to maintain affordability
Tangentially, housing is fungible. Doesn't matter what the ownership is, there is a surplus of housing relative to the number of households. Household size could rise, making the oversupply even greater. So as houses/condos jump between for sale and for rent, both prices and rents will continue falling for some time to come. Meanwhile we can expect local + state governments to collect more taxes/fees to provide the same or fewer services.
There's no rush to buy in anywhere. Houses, stocks, etc.
Being mobile with your capital is the place to be for now.
barfly wrote:
It's easy. We spend too much time on what is different about us rather than on what we have in common.
You're a bigger man in my eyes when you can admit a mistake.
barfly,
Apology accepted. Nothing irritates me more than having words put in my mouth.
Too often people take one specific opinion and then presume the rest, and I'm not that easily pegged. If you have a question about my stand on any issue then just ask, but please don't assume.
FTR, I'm one of those that consider myself fiscally conservative, socially liberal, and more or less politically libertarian.
sportsfan wrote:
+1 (to barfly and sportsfan)
There's no rush to buy in anywhere. Houses, stocks, etc.
Most graphs of housing will show that you can wait for two full years for the signs of the bottom. You might not get the very bottom, but you'll be within 3-5 percent of it.
sdtfs
Exactly. The key is that prices won't skyrocket, it pays to wait and see the bottom confirmed: in terms of choice and knowing you are getting competitive price.
Sportsfan, you're too generous. I am merely human, subject to all the vagaries of the flesh. My opinions of commenters here are based upon their own words over a considerable period of time. TJ has never given me any indication that he was anything more than a hard-core righty, or libertarian. I am always willing to be pleasantly surprised that I am wrong in my estimations of others.
EvilHenryPaulson wrote:
I've made that point over at JtR's blog but people just don't like to hear it.
Those $300/sf homes at current rates will be $200/sf when rates revert to mean. Sure, the house and the payment will remain the same, but I just won't take the (negative) equity risk. There's also a rather large chance that interest rates and/or prices will seriously overshoot, too.
Some people also seem to think that either (a) rates will remain low or (b) high inflation will justify owning. Japan's disproves the former, and if rates reflect double-digit inflation then watch out below.
I'm perfectly happy paying rent that's less than owning while I wait.
Unfortunately too many people there think SDRE exists in it's own world.
EvilHenryPaulson wrote:
An old land man once told me "If a parcel is selling for $100,000 now, I'd rather wait and pay $200,000 for it, because then I know I can get $400,000."
I agree with both of you, there's no skyrocketing coming down the pike for the foreseeable future.
U-3 is at 9.8%.
8 months ago the new administration said it would max out at 8.9% and be declining before year end
When you add in the BLS advance birth/death correction of -824,000 for jobs that were assumed to have been created between February 08 - March 09, that brings U-3 today up to 10.5%
unemployment plays a huge role in defaults, especially the when the time unemployed is so long (eg 6 months of expenses saved up is insufficient)
barfly wrote:
Ah, but I have and you just haven't noticed. I bet you'll pay closer attention going forward.
barfly wrote:
What does that make the rest of us?
Seriously, we're all different. The variety is part of the strength of CR's commentariat.
If all we did was sit around and agree with each other, none of us would learn anything.
TJ, yes, sir, I will.
sportsfan wrote:
Larry Summers thinks I'm a crab
barfly wrote:
TJ has never given me any indication that he was anything more than a hard-core righty
You must have missed some of his comments about what he does on his own time.
Word is he's teaming up with Laffer Capital
When the 'bottom' in RE comes, investors will need ca$h plus money to repair damaged and neglected homes and pay back taxes. If rents are in the tank, the 'pencil out' might be a challenge...
I just popped back in before bed, and I see sportsfan (among others) wrote:
Glad to be of service to the commentariat! I bow before you in receipt of my
! (Too bad we don't have a :bows: or a :thanx: icon...) Wish I could chat here more often. And that I could pop out a gem like that more often!
So, here's a little bit of anecdotal: I've got a jumbo 30 year fixed and still have 5-10% equity on the East side of California Bay Area. Inventory seems to have stabilized and our Zillow and Cyberhomes scores are up, so we started looking at refinancing. The initial thinking was we'd put some cash in to get the equity back to 20% (required by lender for refi), and take advantage of the higher conforming limits (and maybe a 15-year fixed or a 7/1 ARM) to get lower rates. Looks like we could get a rate 1% less than we've got now (maybe 1.5% less with the ARM), and we could save about 10%-15% off our current payments this way! 5 years ago we'd have jumped on this, but now, one must watch the risks:
After consulting around, our former realtor and other folks tend to agree that the property value in our market segment will still fall for a while yet. If we put cash in, and prices fall more than 5-10% more, we risk losing the cash if we had to sell the house. While we seem to be okay for the next year or so (and probably at least 2), we aren't confident enough about the next 10 years to be certain we might not take that biflationary bath. On the other hand, the interest savings over 10 years would come close to making up for the potential loss of cash... Except a lot can change, including both health and personal goals, and if one of us were to leave work, we'd have trouble making the payments on the 15-year fixed... or, if we went with the 7/1 ARM and hit the adjustments just when the Fed (finally) raises rates to fight rising inflation, we'd lose some of those interest savings. (Then again, high inflation might moot that issue.) So the risks loom larger than they used to, whereas the potential interest savings would go a long way towards meeting our long-term savings goals (not consumption goals)... Anyone want to venture some advice here?
OK. I'm taking TJ off my shitlist. I still got a few others.
Watchdog warns over traders’ limits
The US must not unilaterally impose limits on the trading positions that traders may take in oil and commodity futures and should enlist the support of the G20 group of industrialised nations to crack down on speculation, a leading regulator warned on Thursday.
The comments by Michael Dunn, a commissioner at the Commodity Futures Trading Commission (CFTC), are a sign that efforts by the US futures regulator to tackle “excessive speculation” in derivatives and commodity markets by capping holdings are running into trouble.
...
The UK’s Financial Services Authority sees no need to impose position limits in London’s vast oil markets. However, this week the European Commission proposed rules giving regulators the authority to set limits to counter “excessive price movements or excessive concentration of speculative positions”.
FT.com / Companies / Financial Services - Watchdog warns over traders’ limits
Anyone want to venture some advice here?
Way out my league,...but have you thought about just asking for a mortgage mod? I realize that you probably don't qualify under any sensible scenario, but I've heard of some strange things.
TJ and The Bear wrote:
Amen. Too bad our recent administrations and Congresses have been socially conservative, fiscally liberal, and politically libertine!
What, no "cap and trade" for commodities?
Wisdom,
That BB comment was classic!
Without divulging too many details, how long would it take for the lower payments to recapture the extra cash you'd have to put in? Oh, and is your current mortgage a purchase loan or a refi?
Sell if you can.
Gallup: Obama Suffers Worst 3rd Quarter Drop in Approval Since 1953 - Real Clear Politics – TIME.com
I the the current administration already having power slide through its fingers. They are too worried about optics, have mostly maintained the exact status quo, and have accomplished nothing as such. The only to-do item undertaken is healthcare, and even if they do pull that off eventually it won't be in time to demonstrate results by the time of 2010 midterm elections. Opposition will be like hyenas, they will have less of a free hand
EHP, the unwind of the commodity exchanges would be explosive if serious limits or margin requirements were instituted. Then again if they let the charade get too obvious the real action will leave anyways. I see patterns where things go up in Asia just to have them come back down as we spin around to NY time. It seems most pronounced in Au & Ag. I wonder if it's a physical market fighting a paper one. If so that's one hell of a Ponzi which will eventually end badly.
EEngineer wrote:
That's what some of us physical holders consider "hitting the jackpot".
CFTC running into 'trouble'. Deja vu. Why have 'limits' now? The sky is the limit.
sdtfs wrote:
Yeah, but we're still too prosperous to make it stick with the bank without doing something more amoral than I can stomach.
Here's a simpler way to ask my question: Suppose you own a house, still have equity and are fiscally solvent, but you know you're about to take the biflationary bath. There's the cold water: loss of equity. And the hot water: inflation in living expenses. You can refi to get additional cash (might prove useful for those living expenses!), but have to put more equity at risk. What's the best way to balance the risks and get the "least worst" outcome?
P.S. for TJ: Right now it'd be about 15-20 years for the lower payments to repay the cash we'd have to put in, depending on which mortgage we pick. Edit: current mortgage is original purchase mortgage, non-recourse state.
EHP,
Check the polling on the opposition. Actual hyenas have better numbers.
one big problem is that the margin requirements are flat. $4 per barrel whether the price is $40 or $80, or whether the volatility is high or low
I say a 5% margin for contracts promising to deliver/receive, 10% margin for cash settlement. Break out the statistics on each. Limit the number of cash settled open interest relative to contracts for delivery.
El Lurko
It's easier to criticize than explain, they will do well when the time comes. A bad economy is bad for incumbents winning their seats
Wisdom Speaker
How old are you?
How long do you plan on living in the house? Retiring in the house?
Is / will the equity be part of your retirement funds?
Wisdom Speaker wrote:
There won't be inflation in living expenses unless there is inflation in incomes. I'm not sure that inflation matters in buy vs rent, unless you expect that your mortgage real interest rate is low. A very good possibility with a 30yr 5% fixed rate. If you have positive equity at the bottom of prices, I'm not sure why you would want to walk away. If you won't have positive equity (even accounting for a negative real interest rate loan), then you might as well join the millions who are living rent-free. Credit rating is not a concern. Most Americans will have 'bad credit' that lasts up to 7 years, but lenders have to deal with most Americans if they want to stay in business so they can't hold it against you.
Wisdom,
The only way to entirely protect yourself is sell. Short of that, stick with the current mortgage; you can offset the interest savings simply by adding a little more to your existing mortgage payment.
Should prices really go down the tubes you can walk away, no-recourse, and not have put any more cash in. Not great, but an option should the need arise -- as Dawg would say, The Cold Equations.
Many of the shorts hold the commodity-- that's their hedge. When basis breaks down, futures can sky while the physical is un-sellable at anything like the futures price minus carry. The margin calls are immediate (daily) and can be deadly. Both shorts and longs can take the contract to closing day, and there are even some specs that arrange to take delivery on occasion. But it doesn't help during all the potentially volatile days before closing day. My hunch is that unless exchanges can fix the futures market, restore historical basis, and retain use as a viable hedging mechanism, they will have lost their raison d'etre and will remain simple casinos. Maybe it's not fixable with so much underlying leverage and dollar doubt. I don' t know.
One other item on my mind (before actual bedtime): Anyone here tracking the Hindenburg Omen signals? I'm a fan of this indicator after the last 2 years. Basically, if the NYSE 10-week moving average is rising (market "thinks" it's going up), the McClellan oscillator is negative (breadth is weakening / money flowing out), the NYSE new highs and new lows are both > 2.2% of the issues (some stocks have started showing true weakness while most others haven't got the message yet) and the new highs is < 2x the new lows (the remaining strength is now being challenged by the emerging weakness)... then the market is saying the bottom is starting to fall out and there's a high probability of either a sharp correction or an outright crash. You need a second "confirming" Hindy Omen within 36 days for the signal to be valid. Now, there's some element of data mining here, but the indicators make sense, and historically every major market drop in recent history has been preceded by an Omen, and only a couple of Omens in the last few decades (out of dozens of signals) haven't led to a major drop. It's a good indicator for a bear (or a worried bull) to keep handy!
The reason I bring it up now is this: The various data sources I look at don't agree on how to count the NYSE New 52-week Lows. Depending on which data source I look at, we're either well away from a Hindenburg, or just about to get one. And I don't know which data is right. So I'm wondering if anyone else is plugged into this?
Anak
good post, worthy of re-reading.
My recommendations were based on 2 things. 1. Margin should scale to price/price swings, lest the market structure be pro-cyclical. 2. There needs to be an incentive to bring in the the participants of the real physical market. London + NYSE are less than 5% of oil globally, yet they set the price for the other 95%. The asymmetry is encouraged by market structure, and provides a situation ripe for abuse.
I'm fine with speculation, so long as it is limited from price manipulation.
Flip a coin for the Omen. The historic 'omen' is Oct. 28th & 29th
Thanks to josap, EHP and TJ again. I'm not sure I agree with EHP about inflation in living expenses necessarily requiring inflation in incomes. (Seems like falling dollar and rising oil can trigger cost-push inflation that's got nothing to do with incomes? But I'm not an economist, just a physical scientist.)
josap wrote:
Over 30 and under 50. "The Plan" is to live in the house for at least 10 more years and possibly retire here. We like the house and the area, and if things go well we won't need the equity to retire. But we're somewhat worried about being able to complete "the plan" given the economy and where our employer and careers are headed.
I'm currently inclined to agree with TJ's view and hold the current mortgage while it makes sense. EHP's idea of ruthlessly failing to pay the mortgage could make sense at some point, but for now would create undesirable complications. Right now we can invest the money that could've gone to additional equity / principal payments, and make more than the mortgage interest (after tax effects are included), if we're smart about it. In fact, either refinancing or investing the refi money would be better than what we're doing now, which is sitting on the cash (low interest) trying to decide which way to go...
Nemo wrote:
No, I would convict -- they did it, man. But I would try to connect, then stay in touch, with the guilty and try to help them out over the years.
I would hope they would understand -- you get caught, you do your time. While I might appreciate aspects of their rough justice, it's not the world I want to live in. As much as it pisses me off.
EHP, I'd think a scaled margin requirement would be easy to institute. But how to bring more physical traders into the market is a problem. They'll voluntarily come if the futures and options markets can be used to hedge physical positions.
Specs don't really care about the fundamentals or viability of the market the same way as physical traders do. And the long only specs would like inborn bias so long as they can watch it.
Some traders have told me a 50:50 spec hedge ratio is healthy, and can tolerate it going 60:40 (you can count on commerical interests taking on positions early, late, more or less than the physical, so it's hard to measure).
But the key for the physical guys is the relationships between physical and futures prices staying within a tolerable range over time. If that's not there, you're laying on more risk by "hedging".
Did some more checking on the Hindenburg Omen's new highs/new lows signals. Evidently the "official" data is from the Wall Street Journal, e.g. here: Markets Data Center Home - Market Data, Indexes, Stock Quotes & More - WSJ.com
(BTW, this Yahoo finance page is WORTHLESS: Advances & Declines - Yahoo! Finance )
For charts, the following come close to the WSJ numbers (and are useful for monitoring market health in their own right), but they aren't exact:
Finally, the conclusion is that the NYSE hasn't seen the bottom falling out yet, and the new lows are much too low to initiate a Hindenburg signal just yet. If we start from the premise that the market has outrun the fundamentals, and the fundamentals aren't going to improve, then the lack of a Hindenburg suggests a trading range for a while, with the risk of a significant market drop still some time in the future.
Two indicators likely to roll over before the NYSE New Lows picks up:
In fact, either refinancing or investing the refi money would be better than what we're doing now, which is sitting on the cash (low interest) trying to decide which way to go...
If there were a safe sensible choice you would have known it by now, sitting on the cash while you make up your mind what to gamble on seems to be a pretty smart thing to do; both those other choices seem to be fraught with danger, and right now, the nibble from the weakening dollar isn't too high a price to pay.
Then again, Volker the Viking has got this sure thing he's working on, so maybe you should just give all the money to him. He seems like such a nice man.
Why not just stay in the house with the current mortgage? You can pay down principal if you want, or just keep the cash on the side line for now. Some of the gain you are thinking about will be offset by lending / refi fees, points and recording costs.
If the future looks iffy or unstable to you - sell the house and down size into something that only takes one income to cover. Keep your savings.
Oh, and many futures positions are offset by the options the holders are writing against them. Basis risk screws that business too.
josap- my business partner says he seen a huge increase in new property management companies in San Diego, same in Phoenix? We got on the subject talking about a pretty sorry one in Bakersfield that a friend has hired (I'm guessing because they seemed cheap. False Economy personified!)
Must sleep now.
sdtfs
Not many new management firms. But lots of sales agents that are now managing for the unintentional landlords. Most have no clue what they are doing, nor the types of property registration, rental tax etc etc they should be handling for the properties.
Thanks, goodnight.
praetorian wrote:
Sure, if it can be done from the air conditioned comfort of my living room, in front of the TV, I'm all for it. Rioting is for those willing to sweat. See any great numbers of those types about?
barfly wrote:
Your question implies you are not free to take in boarders or volunteer your time and money helping people with your own resources. Ever hear of charity? You want to help people? Get off your ass, step away from that keyboard, and get out your door and go do so. Set an example for the rest of us. If you aren't wearing sack cloth, you aren't sincere. Or do you want to force other people to help people?
OT, but Southland, after 50 years, has won the Ranfurly Shield, New Zealand rugby's most elusive prize
i've sat thru youse guys using Southland as shorthand for a chunk of Cali real estate but there is an NZ version and we kicked ass
dawg, it's official, your Olympic rugby crown is on the line in rio
could be 50 years before you get it back
if we're feeling nasty we'll send the All Blacks and Southland for a 1-2 finish
Go the Stags
early match wrap
Southland end 50 years without Shield | Stuff.co.nz
RE bottom in 2-3 years is based on the initial crash. A second crash is likely in the next year or two, kicking off another downturn.
I think a second crash is only likely if enough homeowners go for the "American bailout" and stop paying their mortgage which triggers a workout and 30% lower monthly payment. Or just stop paying and get foreclosed on. I don't think anyone has any idea how many it would take to sufficiently depress prices; but you can be damn sure banks aren't going to let anyone know whats going on.
The recent post about someone who got a workout which put their payment ~ 1500 to 1100... welcome to the new market price in the neighborhood for monthly rent. But I think there are enough people willing to overpay for fear of inflation.
sdtfs:No. If the history of this type of crime teaches us anything, it's that the wrong people get shot.
And if the violence makes anyone feel better, rest assured it's just going to make it easier to take more civil liberties away.
This is something I agree with whole heatedly. One of the things that struck me with the Oklahoma bombing was that the guy killed a bunch of middle aged ladies whose main job was making sure that peoples taxes were filed correctly, which is the kind of job you find under any governement.
Personally as for what happened with wall street, I blame coke. It's use among the people in those industries is endemic. And I've seen how it corrodes peoples personality over time making them impulsive, self centered and amoral.
But I think there are enough people willing to overpay for fear of inflation.
Hee-hee. That's rich. (And I don't mean the SLW tout.)
If you asked the average American if they believed their house was a hedge against inflation, he or she would answer, "Naw, I don't garden much."
People are willing to overpay for residential real estate for a variety of reasons, but fear of inflation is way, way down the list. Sixty-plus years of the "American Dream" mentality, by contrast, comes top of the table, and that's going to take more than a couple years' worth of price drops to undo.
Personally as for what happened with wall street, I blame coke. It's use among the people in those industries is endemic. And I've seen how it corrodes peoples personality over time making them impulsive, self centered and amoral.
Well, no, not necessarily. It's a classic chicken-or-the-egg problem.
Wall Streeters, and I've known a few, also booze, gamble, and cheat on their spouses with far greater frequency than the average. Does the nature of the job drive these sorts of behaviors as release, or do the nature of these personalities naturally gravitate toward this and similar lines of work?
Mook
interesting... many years ago I had a conversation with a major Hollywood producer (Kramer v. Kramer) who said that the movie industry was the only business that rewards sociopath behavior, I added that some elements of banking could also be included,
say traders and bond salesmen....
....
finally, a small jab at Jim the Realtor for complaining about my send-ups of his YouTube videos.. .http://www.youtube.com/watch?v=dV1bRl8FSz0
...
EDIT
Anak and EHP,
When futures settle in cash rather than delivery, in most cases, the basis risk approaches zero when the contract expires or is in delivery. This would seem desirable, but liquidity can dry up because traders would no longer have a profitable edge and might not trade as the "reward" would not be worth the "risk" Also as traders offset their positions fewer traders remain causing liquidity to dry up anyway. (basis risk might still occur before delivery if the trade is offset before then...) As it is now during non cash delivery period, traders try to figure out which large, well funded traders hold what positions and which direction they will push the basis and whether they will take or make delivery.
The Deserted Shopping Mall That U.S. Taxpayers Bought
Deserted shopping mall bleak symbol of Fed bailout
| Reuters
Well they need to keep on Plunging. I'm not moving out of my parents house until I see my $150 a month price target. Utilities are extra of course
.
scratch that earlier vid mash-up riposte to Jim the Realtor (Jim TV)
here's the New and Improved YouTube - Alt-A Got You Down? ARM around throat? Arson on your mind? ask Jim the Realtor or Mickey Rourke!
European / UK commercial real estate facing tough market over the next couple of years. I'm sure the US is in the same position.
Oct. 22 (Bloomberg) -- Investors in the first U.K. commercial mortgage bonds to be liquidated since the financial crisis began may lose as much as 1 billion pounds ($1.6 billion) after values of properties backing the two deals collapsed.
Epic (Industrious) Plc issued bonds on 1,500 warehouses, which fetched 44 percent of their peak value in sales that completed this month. White Tower 2006-3 Plc packaged bonds against nine London office buildings owned by Simon Halabi, six of which went into administration this week.
snip
“There’s very little appetite among banks to recognize losses on their property loans, but CMBS doesn’t have that luxury,” ... “If maturity is looming, you’re up against a hard date.”
Owners of European commercial mortgage bonds include Citigroup Inc., Merrill Lynch & Co Inc., ... BlackRock Inc. and Banco Santander SA, according to Bloomberg data. Royal Bank of Scotland Group Plc, which manages the Epic bonds, owns 2.2 billion pounds of European CMBS, according to its half-year results.
snip
“It’s just the tip of the iceberg,” ... “Most investors are expecting further defaults and further losses.”
About 6.5 billion euros of European commercial mortgage bonds are due to mature by the end of next year, according to Barclays Capital. That will rise to 16.5 billion euros in 2011 and 12.1 billion euros in 2012.
“The focus is increasingly shifting to loans maturing during 2010 to 2012,” Moody’s Investors Service Ltd. said ...
Commercial Mortgage Backers Face $1.6 Billion Loss (Update1) - Bloomberg.com
Rents have fallen so fast and hard in Vegas. I signed a lease last January for a nice 3/2 condo for $950 a month and a similar place can now be rented for $100 less easy. By the time my lease is up probably less. If my landlord doesn't agree to at least a $100 drop I'm leaving.
Chief Executive Officer Andrew Liveris fired workers, shut plants and sold assets to buoy earnings and pay off a loan used to buy Rohm & Haas Co. in April. Profit rose in five of Dow’s seven units, and lower U.S. natural gas prices helped cut raw- material costs by $3.5 billion.
Sales fell 22 percent to $12 billion, topping analysts’ $11.8 billion average estimate.
Dow dropped $1.32, or 4.9 percent, to $25.50 yesterday in New York Stock Exchange composite trading. The shares gained 69 percent this year before today.
69% gain. When do you short this sucker?
Mook wrote:
oh no
with all the salary cuts and wipeouts generally
these guys are gonna need a lower priced alternative
that cannot end well
delete
actually knew a buddy of mine who dealt on the side, didn't need to since he made 3 or 4 million off the spin-off
of RJR but he was a 'lude head and that was his main line - actually had a chemist, etc but had to shut down 5 years
back when the chemist got nervous due to the tracking of certain chemicals...
my friend's biggest problem? all the black money he made - about 900K and how to dispose of it...
Volker, just got back from 3 weeks in Viet Nam & Cambodia. Just wondering if your still a communist?
Jeez, just love havin your hand in my pocket! There is a special place in hell for socialists like yourself!
Do you know that you are stealing food from my children?
There are plenty of people pointing to various incentives driving down rent, or unemployment.
Given the geographic distribution of the decline, don't forget the possibility that it's also people moving out of those areas. As I keep reminding people in CA, if outward migration continues, there is no bottom to housing prices. There would also be ongoing rent declines.
speed racer...
3 weeks... that's the Best you've got?
hell, I've been passed out that long in each of those countries at a given moment!
I don't think this is really true, look at previous currency collapses. What happens is that people's consumption of luxuries goes down to support spending on necessities. The real price of food can double, but then people will spend less on I-PODs.
In a larger sense, falling rents is EXACTLY what we believers in a housing bubble were predicting years ago. Just as the purchase price/rent ratio would return to sanity, equivalant rents would fall because of the huge oversupply of housing that was built. Bubbleheads just don't understand that rents respond much more quickly to the supply and demand of housing than purchase price. Condo conversions and rehabs TEMPORARILY removed a significant amount of housing from the market in response to absurdly high purchase/rent ratios. And now much of that is back, and rents are responding to the oversupply of housing. And of course rents stand to fall hardest in the market segments that were the most overbuilt: downtown "luxury" condos and distant greenfield developments.
Or do they simply earn enough to support these expensive vices? A mixture of all three, I'd wager.
The first statement is probably true, but I dispute the second. At the height of the bubble, if you'd asked buyers if they were worried about "being priced out forever," you would have had a fairly high positive response. Likewise, if you'd asked them about where they thought house prices would be in a couple of years, they would have predicted continued high rates of appreciation. Many people just didn't realize that asset price appreciation = inflation*
*where inflation here is defined as price increases, not neccessarily as in increase in the monetary supply.
Duke, don't feel too special, my wife has you beat by decades. Just because your some loser that can't make it in the U.S. doesn't make you anything out of the ordinary!
Why did my rent go up in Washington DC for 2010 then? What a joke.
Or do you want to force other people to help people? - kidbuck
either I didn't express myself very well, or you completely missed the point. In my opinion, one of the functions of government is to provide a social safety net for the weaker members among us, however you wish to define them. For them to have to rely on the charity of others gives those others too much discretion. You see where I'm going here?
I lived in a country for a while that had no social safety net, and I can tell you, it wasn't a pretty sight. Basically a two-tiered society of the rich, who were very rich, and the poor. If you've ever witnessed anything of the sort, you might feel differently about relying on charity alone for the needs of the poor.
Get ready for another big drop in housing:
I also believe that a true bottom will be marked by the time when most remaining real estate brokers are out of the business, all of the homebuilder stocks are below $5/share or completely gone, and we stop seeing Wall Streeters and Barbara Corcoran go on national media shows proclaiming that housing prices are great value now.
The Golden Truth: Don't Believe The Hype About The Housing Market