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November 6, 2006 at 2:08 PM in reply to: 4S Ranch feels like Curry Campground to me. Anyone else? #39319
powayseller
ParticipantThe PUSD Transportation Dept employee told me that he has lots of 4S Ranch students on payment plans. The parents are telling him they are stretching to make their payments, and have ARMs. They’ve got 400 kids on payment plans, up from 100 just a few years ago. I think 4S Ranch was one of the few subdivisions in the PUSD. We didn’t get any subdivisions in Poway, due to their open land policies and their low growth plan, so 4S Ranch was the only area here that people stretched into.
I was inside a few homes when I looked at rentals, and the lots are very close together. In one home, I felt like in a fishbowl in the backyard, because there is 0 privacy. The 2-story homes back to each other and look down on each other, so your neighbor can see you from his bedroom window, just a couple feet away. One 2300 sq ft home had so many small rooms, it felt like one of those kids’ playhouses. I kept shaking my head and wondering who would spend so much money on a house on a tiny lot.
Those tiny lots are disgusting. I like high density living in condos or townhomes, but a SFH deserves to have some decent space around it. I have more privacy in my townhome backyard, which is a row of attache homes adjacent to each other and with open space behind, than I would have had in any of the three 4S Ranch rentals.
I just don’t understand why people buy those big houses on those tiny lots. Do they just settle for it, or do they like not having the yard work? It boggles the mind…
ParticipantThe pro-Bush folks say this 92K number will also be revised upward, and that our productivity is at such a high level now, that it is natural for growth rates to level off. So a new growth rate of 1-2% is very good, based on the economic boom we’ve had. This same guy calls me a doom and gloomer.
However, if you look at history, each of the 13 GDP declines (a lower rate of growth) since the 1950’s has led to a bear market, where the S&P index fell at least 12%.
In the following quote from Ahead of the Curve, I just wanted to point out that the government and media report GDP in percent change from the previous quarter, whereas Ellis looks at the year over year rate of change. I’d like to give an example of the slowdown in the rate of change: a rise from 100 to 115, is a 15% increase. If the next year we increase to 120, we have only a 4.3% increase (5/115). So even though the number increased from 115 to 120, it was a lower percent increase, signaling a slowdown).
In the 2000-2002 recession, GDP was in 2000: 4.1%, 4.8%, 3.5%, 2.2%. In 2001: 1.9%, .6%, .4%, .2%. The recession started halfway through Q1, when GDP was still 1.9%, but the bear market began in Q2 2000, when GDP was still rising to 4.8%! Three quarters into the bear market, the unemployment rate fell to its lowest level, and capital spending stayed deceptively strong. So this again shows that employment is a lagging indicator.
Ellis explains that bear markets begin when the rate of change slows. “…most bear markets began when the year over year real GDP growth was at or near peak levels of 4% to 8% and occurred primarily as year over year real GDP increased fell TOWARD the zero level. In other words, most bear markets began when the rate of growth in real GDP was STRONG and occurred as that rate of growth slowed from peak levels….
Most recessions…occurred only after the year over year raet of change in real GDP had been declining from peak levels for at least several quarters, and often more than a year. .In most instances, by the time recession was reached, the bear market was largely over.”
So by the time economists measure a recession, the economic harm has already been done. Recessions are the end of the events, and there is too much time wasted in the media on this topic, since it is backward looking.
He continues, “By the time recession is upon us, attention might better be given to leading indicators that would help determine in advance the beginning of the next upturn.
So it is crucial for business managers and investors to distinguish between a decline in the growth rate of the economy, when most actual business and stock market harm is done, and an actual decline (recession) in the economy, which, by the time it is recognized, is little more than an afterthought.”
Ellis’ book is really good!
ParticipantCan you give examples of servicing lenders? They are the ones to whom you make the mortgage payment? The last mortgage we had was sold to Washington Mutual, so WaMu acts as an originator and a servicing lender then?
Participantyes, unlawfulcombatant, that is what I meant. Specifically I had in my mind something like jg’s chart of the OFHEO index, which is an index that tracks the percent change in housing prices (resales and refinances of single family homes financed by Fannie Mae, so under the conforming loan limit, fixed rate mortgages). We can visualize pretty much a straight line for 3 decades, and then in 2000 we see a divergence. I’m not sure why some are arguing about this, as it is pretty clear that we have a trendline going back 30 years.
If someone would like to make a case for a permanently higher plateau, the burden of proof is on them. Why should the median be higher now; what fundamental factors support higher prices? In my opinion, the current housing prices are unsustainable, because people need artifically low teaser rates just to afford a home, and are spending up to 50% of income on housing. A true higher plateau would require wage increases or tax benefits, to allow people to afford the higher prices. The 1997 tax law change did not make any difference in 1997, 1998, or 1999. We also see a huge spike in 2003, when exotic loans became popular. So the rise in prices is linked to the 1% federal funds rate, not to a tax law enacted many years before. I am checking with my CPA about the impact of the tax law on the housing market. It is a very good point that was raised.
ParticipantI just remembered some other comments from the broadcast. Campbell was wrong when he said lenders don’t have the liability for loans-gone-bad. Some lenders keep some loans in-house. Washington Mutual keeps a lot of loans in-house, as we discussed on a thread several weeks ago, and is recording $1 billion (?) of income on interest on those loans, interest it has not received and may never receive. Another factor is that banks are on the hook for loans they sell for a certain time period, depending on how they write the contract with the MBS purchasers. Today I just read in the OC Register that “New Century … said more borrowers are missing early payments, forcing the company to buy back more loans that it sold to investors.”
He questioned the sudden wrapping up of the Fannie Mae investigation, surmising that there was too much bad stuff to be found in the books.
If the Democrats gain control the House, how many investigations will they instigate? Will we see independent audits of Fannie Mae (and the Iraq war too)? I sure would like to get to the bottom of the problems with the GSEs.
ParticipantExcellent interviews. Thanks bub for this unique link. I gained a whole new respect for Robert Campbell. This guy is sharp, and he is so convincing about the 5 problems for the US housing market: real estate dependent jobs, voodoo loans, negative savings, and upcoming recession. He lists 3 reasons for recession: inverted yield curve, -2% growth in new autos, and declining housing market leading to lower consumer spending.
Campbell said that exotic loans are neutron mortgages: “the houses will be left standing, but the people will be gone”. All the people he has talked to have said that people just cannot afford the higher payments due to resets, so if they haven’t refinanced out of their ARM, they are losing their homes. Contractors are calling customers asking for work and lowering their bids. Can you believe it?
Robert Shiller made an interesting comment that in Sydney, Australia and in England, the bubble started to pop as their bank raised interest rates, but then suddenly the trend reversed and prices continued going up. He also mentioned Japan’s long deflation in housing, and wondered if this can happen here.
Participantsduuude, your post is seething with contempt. Why do you hate me so much? You will see if you subscribe to my service, that the mean is a straight line going back to the 1960s. So we start with 4 decades of data, ending in Jan 2000. If you have a different idea for what is a mean, by all means post it. I would love to read diverse opinions.
ParticipantFormerSanDiegan, Jubak explains the credit cycle, about 1/3 of the way down in this link. As the credit cycle contracts, banks increase their reserves and tighten their lending guidelines, and consumers rein in as well because they have taken on a lot of debt. The credit cycle is related to the business cycle, so we have waves of credit and spending contraction and expansion. Maybe someone else is can explain it better?
ParticipantI haven’t finalized the price. Rich was charging $8/month for the monthly credit market updates, and I thought it was worth it. I think the housing information and interviews are just as valuable, if not more so. I’ll be the first person to graph the housing data for all Southern CA counties, so I’m hoping folks following Riverside, Orange Cty, Ventura Cty, and LA Cty will pay too. Maybe they will pay only for one month and then cancel, and that is fine too. My daily news and analysis will be free.
ParticipantShe’s just parroting what every realtor has already advised buyers and sellers to do. I don’t see that these “buy now” campaigns are working too well.
Participantsdcellar, I don’t know what you mean. I’m just explaining the decline in inventory.
ParticipantGood site, thanks Perry Chase. I can use this in place of zillow, when I just want the sales info. It’s faster, since it doesn’t ask us to decode the password.
ParticipantReversion to the mean is an accepted asset bubble principal, among those who understand bubbles. There are always those who say this time is different or we’ve reached a new permanently higher plateau. Every bubble in history has reverted to the mean. Anyone who has any doubts, like sduuude, ought to read up on the topic. There are excellent books on bubbles.
In my charts, I went to December 1999 to make my trendline, because I wanted to see the effect of the bubble, which started in 2000. So for 2 full years after the new tax laws were enacted, home prices did not change. But what had a big effect? Low interest rates, looser underwriting guidelines. But as soon as interest rates were lowered, poof, up went prices.
To me, the mean is the period from 1968 to Dec 1999. Over 3 decades of data, all in a straight line more or less.
ParticipantThe unemployment numbers are confusing and are leaving me whiplashed. There is so much revision, you wonder if the initial number is of any use. Has anyone looked at the types of jobs gaining? Is it mostly service jobs in fast food joints, more temporary help in Professional and Business Services, and government and health care, all the same old stuff? We know that housing and auto are slowing down, so it will show up in the numbers soon enough. It definitely will show up. Besides, employment is a lagging indicator. As Ann Marshall from the California Labor Market department told me this week, “employment shows where we are now”. It is a snapshot of today, not the future. I would say it shows where we have been, as Joseph Ellis shows in his book Ahead of the Curve that employment often rises even after a recession started, because it lags so much.
Ellis says many people make the mistake of gauging the economy by employment. It’s the biggest mistake that investors make, according to Ellis. Likewise, the unemployment rate is highest when the recession ends, and instead of getting back into the stock market, people are scared off by high unemployment numbers. Employment lags by several quarters, so it is natural for it to be rising as we go into a recession.
Leading the economic cycle is consumer spending, then capital spending. Both are starting to slow.
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