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powayseller
ParticipantHi cabinboy, you wrote “(many mutual funds performed very well in 92-96, despite RE’s troubles).” Your years are troubling me somewhat. How did the mutal funds do heading into the housing downturn? Examples, please.
The correlation with NAHB was plotted only to 1996, but it is very well known about the correlation between the housing market and the economy. Edward Leamer has a report which shows that housing leads the economy. Every time housing has turned, a recession followed.
Cabinboy, how can the stock market go up when corporate profits are falling? Leamer’s report negates your story. Sorry…
Sometimes, economic cycles are such, that the best thing we can do is preserve our assets. This is such a time. This is the time to take your winnings off the table, hold in cash until we are in the middle of the recession next year, and then buy back at the bottom. When s&p is at 600, then get back in.
Do you want me to find you Leamer’s report, or could you just google it? It’s not his opinion, but a report showing how housing led the economy into every recession since WWII, with the exception of the years we propped up the economy with war spending (Korea and Vietnam). But this time, Leamer says, we don’t have the financial strength as a country, to fund a big war.
ParticipantI have no knowledge of how to buy currencies. My cousin works at a large german bank, and when I asked him how to buy euros, he suggested euro bonds.
So were do we buy euro bonds and swiss franc annuities?
Also, what are the considerations for a long-term investor, as far as the economy, that we should also consider? I’m looking for a country with low debt, strong exports, rising GDP, with a good economic policy (not the bubble-blathering fools like Bush and the Fed).
avidsaver – on the piggington home page, the lower right column is titled – other bubble bloggers – That is great stuff, and Barry Ritholtz from The Big Picture is one of the featured bloggers.
ParticipantCool, will you update us and provide commentary and analysis? Pleeeeaaaase?
ParticipantI built my house with 2×6 studs, giving me 50% more wall thickness and insulation. It costs a little more, but is one of those things that sets apart those crappy look-alike tract homes that I abhor, from the creative well-built solid construction, which is real building.
A house on a permanent foundation is considered a house for lending purposes. Otherwise, it is a mobile home and the lending guidelines are much tougher. The house we bought in 2000, before the fire, was a manufactured house on a permanent foundation. Nobody knew it was manufactured; the only way I was reminded was from the hollow sound in the floor when walking around, and the strips on the bathroom and kitchen walls to connect the drywall sheets. The newer homes don’t have those strips. BTW, I looked at a 2300 sq ft rental house outside of 4S Ranch ($3100/month), and I could tell right away when walking in it, that it was a manufactured home; the hollow sounds gave it away.
Participantjg, we need more people to speak up as you did. You get the Reality-Check-of-the-day Award.
Consumption has got to get back to trendline. If it doesn’t, we’re going to run this country into bankruptcy around the time we run out of $70/barrel oil, and are into $100/barrel oil shale deposits.
ParticipantUSAA takes only military accounts. WAMU is in deep financial doo-doo.
Doesn’t anyone else get suspicious when a bank offers the highest rates around? I think: “Why are they so anxious for more cash? What is going on?” Then the light goes on: the largest yields are being paid by the biggest subprime lenders, World Savings and WAMu.
Lenders count unpaid interest from option ARMs as income, generating tens of millions of dollars each month. What happens if that income doesn’t materialize? Now their bank reserves are in jeopardy, and they need to get savers in the door ASAP before things go to hell in a handbasket.
Get a Weiss report before you put your money into a bank. By 2008, when your bank goes under, and you wait for the overburdened FDIC to cut you a check, you will wish you had taken .5% less and had your money in hand.
Just remember that banks pay the minimum amount of interest they can. Anytime someone pays more than market rate, something should signal you to ask Why? They either need a large sudden inflow of cash, or they can’t get depositors through the regular channels.
That said, I put money into one of those risky banks too, World Savings. I am taking it out when that CD expires in September, and moving to Treasury bills, state tax free and the safest way to hold dollars.
ParticipantI don’t short, but I truly believe this, so I put my money where my mouth is: I liquidated all my index and mutual funds, and went 95% cash in March 06, because I did not want to lose my money. I’ve been convinced since early this year that the stock market would take a dive until this housing bust is over.
BTW, this NAHB chart is new to me. It’s another piece of confirmation for exiting the stock market at this time.
I would really like to short a lot of different companies and indices, but don’t know where to find a knowledgeable professional who can assist me. I am ready to do it with professional assistance, someone who has shorted successfully.
Schahrzad Berkland
ParticipantDean Baker: “It was an enormous mistake for the United States to allow a housing bubble to grow to such dangerous proportions. It is unfortunate that the Federal Reserve Board and others in policy making positions ignored warnings when this crisis still could have been averted. ”
Blame the Fed and your elected officials if you don’t like foreclosures or unemployment.
Honestly, why the hell did they have to create a ponzi scheme that was sure to crash?
As an analogy, let’s say a smoker (cigarette addict) is going through withdrawals in rehab. (This is like the tech crash).
So instead of letting him go through the pain of withdrawal, you give him a case of whiskey so he forgets about smoking and feels better for the next week, but then he ends up an alcoholic, which is even worse. (This is the housing bubble.)
Now what are you gonna do with that alcoholic? Give him heroin to shake off the alcohol? Give him back the cigarettes? What can the Fed really do?
In the eyes of the Fed, it was worth getting drunk because the hangover from the valium withdrawal was so bad. A bunch of wimps!
Where’s the leadership in this country?
JES – I should have added your comments to my post. Young people need a chance to buy a house too. With 5 years out of college, maybe you earn $50K/year, and you can only qualify, w/ a 30 year fixed, for a $150K – $175K home. We need many $150K homes in San Diego for the young first time buyers. Starter homes need to come back to that level. With less money spent on housing, families have more disposable income for education, retirement savings. As it is now, we are lining the pockets of builders, making the rich get richer. Didn’t Toll Bros. CEO get $31 mil last year? That $31 mil could have been used to bolster every buyer’s retirement account by thousands of dollars.
ParticipantThe $10 trillion is not lost, as it has been paid already to the former owners. What has happened now, as in the top of ths stock market in early 2000, is the last people into the ponzi scheme, paid off the lower tier. That’s what a ponzi scheme is.
With every home bought, there is a transfer of wealth, not a dissipation. So for every guy losing $200K on his foreclosure, is a Chris Johnston or a Schahrzad Berkland who earned $200K that is sitting in the bank. There is no money to replace; it already exists. A ponzi scheme doesn’t grow or lose money; it merely transfers it from the last people in, to the last people out.
Chris, if you really feel bad for these people, why don’t you go out and buy a house now, to reduce the unemployment of the construction worker? Better yet, let’s tell him what’s about to happen, so he can go back to school as an engineer. We need fewer construction workers, more engineers.
Also, if you feel bad, return the money you made off your house. That is part of the $10 trillion to be lost. You and I and the others who cashed out, have that money. To whom should we return it?
If the ponzi scheme continued, the next generation would pay 60% of income on housing, leaving nothing for new cars or the other industries that need support. How can car manufacturers have a chance if people are too broke to buy their cars? If housing is only 28% of income, people have enough money to invest and buy other durables and non-durables, creating a more diverse economy.
With the idea that housing prices should stay high, we are crowding out other products, as people just won’t have the money to buy them.
This housing bubble, like the tech stock bubble, is a ponzi scheme. Why would you want to preserve the ponzi scheme?
The millions who lose their jobs in this ponzi scheme will just transfer to more relevant fields in science, medicine, engineering. Some realtors on this forum are engineers already; they can go back to engineering, or selling engineering or biotech products instead of houses.
Building an oversupply of homes, making risky loans, and overseeing those transactions by realtors, inspectors, appraisers, title officers, escrow people (sorry, realtors, you are included here too), will find productive work in research, development, and sales of products which will bring the United States of America back to a global leadership position.
This great country will once again use its creativity, brains, its workers, its money to create, innovate, and build the products and services that increase productivity and quality of life, and increase return on capital.
I mean, what kind of return on capital does our country get for building homes that are 3x their true value, because of a bubble? Instead, let’s use that money to find alternative energy sources, since the end of cheap oil has arrived, and soon enough, the end of oil altogether will be here. Let’s make new biotech drugs to sell all over the world. Let’s increase Africa’s productivity as a farming nation, so they have enough money to buy the drugs we will produce. Let’s make the next generation of computers, pollution-reducing equipment, even better figher planes for your military buffs (although I could do without more military spending). But you get the idea: let’s be productive, to build our future, and start exporting again in a meaningful way.
Asset bubbles are the worst loss of capital and productivity that I can think of. Nothing is created. It’s a total ponzi scheme.
The money and workers that created this ponzi scheme need to be redeployed in a meaningful productive manner.
Schahrzad Berkland
ParticipantI predict piggybacks will fade away, and mortgage insurance will be required. Maybe piggybacks will be offered to the +750 FICO score borrower. But I’m guessing; I know little about the mortgage business.
I am anxious to see how the lending standards will be tightened as foreclosures rise, both on the government side, and by the investors who’ve been snapping up MBS. This H&R Block scandal was a wake-up call. By next year, we will have many many more.
ParticipantWow, this is a creative, interesting product.
Participantgreekfire, I wrote it and then realized it was in your name. An unintended pun.
Your graph clearly shows why the Fed or financial sector (as another poster wrote) cannot save this housing bubble. The trend we’re on requires a borrower to pay ever increasing percentages of his wages on housing. That is not sustainable, nor is it healthy.
We should all root for housing to fall 50%, so we can use our nation’s capital for research, development, production, investment, education, instead of consumption of homes.
Participantsocalalarm, Roubini says that the Fed lowering rates would be like pulling on a string, i.e. it won’t make any difference because households are in so much debt already. I think it could draw out the foreclosures somewhat, but to make a true dent in foreclosure, you would need to put rates back to the same it was when the people took out the loan, i.e. 1% – 3%. If the Fed goes that low, can you imagine inflation really taking off…
The problem is the upcoming job losses and tighter credit lending standards. Even if rates go back to 4.5%, the job losses resulting from construction and MEW-related jobs will cause a recession.
Every asset bubble has reverted to the mean. We haven’t even seen the fallout of the lending industry yet, or the derivatives mess in Fannie Mae come to light. Once the gov’t bails out Fannie, they have to raise taxes or print more money… What will China do as the US consumer pulls back, and they have less money to buy Treasuries – can you imagine their lower demand will really raise the long end of the curve.
The other factors we’re not even considering paint a much worse picture.
In the end, our economy will be cleansed for the next generation, so they can have a shot at a decent life, instead of being buried in our debt and priced out of homes. It’s time that a home costs what a median earner can afford. To me, this is a welcome development.
Participantgreekfire, it’s more like this: c/e/w is the soup cans that were moved off the shelf because the manager moved it out to make room for different merchandise, he is holding it in the back for some other use, or it is past its expiration date. Either way, what does it matter to me as a shopper? All I care about is the price and selection of what is on the shelf today, not the stuff he took off the shelf.
Again, I think all the data we need is in the inventory, pending, sold.
I think c/e/w is a lagging indicator, an indicator that turns when the market changes. So it is as useless as keeping track of commission rates, which also increase as the market turns, but doesn’t tell me anything new. So many factors go in the other direction when the market turns, but they are the result of the market turning. Why track them all?
Another example is builder commission to realtors. It’s gone from 0 to almost 100%. Track that also?
I don’t mean to be too cynical, SD Realtor, I’m just trying to make sense of it out loud. You know I’m your biggest fan:)
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