Archive for April, 2008
Home Ownership
Wednesday, April 30th, 2008
The causes of the run up, in no particular order –
- Changes in lending practices on the part of the lenders stretching back to the early 90′s (easy credit, lower rates, creative lending, loc’s) .
- The baby boomers, who moved heavily into housing in the 90′s.
- The stock boom in the late 90′s which helped generate wealth on paper (but not in pockets).
- The stock crash in 2000, which helped make housing look more attractive to investors.
- The FED’s reaction to 9/11, extremely low interest rates.
- Speculative buying in general throughout the cycle, but particularly acute between 2001 and 2006.
Kind of a “perfect storm” if you step back and look at the big picture.
References –
FRBSF Economic Letter, 2006
Lending Rate Trends
Wikipedia
S&P/Case-Shiller Home Price Indices For Feb
Tuesday, April 29th, 2008
Click through for the complete (really big) version covering 1987 to February of this year. Data can be found here. I’m not seeing much if any leveling off in any of these numbers.
ALT-A
Sunday, April 27th, 2008
Ouch
Sunday, April 27th, 2008
08-27-1997 – $50,000 vacant lot: yes
06-04-2004 – $330,000 vacant lot: yes
07-23-2004 – $430,000 vacant lot: yes
11-22-2005 – $1,000,000 vacant lot: no
07-03-2007 – $466,000 vacant lot: no
01-10-2008 – $365,000 vacant lot: no
Sales vs. listings for the community this property is in -
Something tells me demand is not going to keep pace with supply.
It’s interesting though, mid-level ‘bubble’ price areas (650K -> 1M) where ownership is primarily for investment and secondary income seem to have hit a secondary ceiling after experiencing a signifigant drop over the last year or so. Sales have also been very sparse during this time. There was a signifigant decline in price last year (1M down to 650K) with very few sales. Now, I’m seeing listings skyrocket at 650K with sales around 450K. I suppose this could be due to owners in these areas having deeper pockets, so they’ve managed to delay having to sell in the hopes of seeing a recovery, or, maybe they have been unable to accept what’s happening. Now it seems these owners are finally accepting reality and are starting to unload en mass before it gets worse. They still list at prices higher than local sales though, indicating they haven’t accepted reality completely. I’d guess that will change in time as supply in these areas increases. Best guess is these properties will sell at 2002-2003 levels by the end of the year – 275K -> 350K, which I’d consider reasonable.
Higher priced areas (800K->2.1M) seem to be in the same mode, but are lagging behind mid-level areas. Most of these areas aren’t seeing any sales. List prices of the few homes on the market are very high (2005 levels). I wonder if we’ll see these areas go through the same cycle.
Hunter Spotting in Fear and Loathing
Thursday, April 24th, 2008
Maybe I’m not the first, but I caught this tonight while watching FAL on HBO. About 3/4 of the way in, right after the ape in the hotel bar scene –
Cool!
Social Security
Thursday, April 17th, 2008
What I have proposed is that we raise the cap on the payroll tax, because right now millionaires and billionaires don’t have to pay beyond $97,000 a year.
But the point is, we’re going to have to capture some revenue in order to stabilize the Social Security system. You can’t — you can’t get something for nothing. And if we care about Social Security, which I do, and if we are firm in our commitment to make sure that it’s going to be there for the next generation, and not just for our generation, then we have an obligation to figure out how to stabilize the system.
-Obama
The problem with SS is not that it lacks revenue. The system currently generates a profit and has been for I believe, about 25 years or so. The reason why SS is approaching insolvency is due to the fact that excess profits SS generates land in the capitol hill feeding trough – congress and the President spend them. (yes, on things like the 1 trillion dollar war on terrorism and 500 billion dollar appropriations bills loaded with pork.) During the 90′s, when we were paying down our debt, the majority of those debt payments came from the SS surplus. At that time Congress was doing something it rarely does, it was spending what it legitimately took in in revenue. In that situation, it makes sense to use excess SS income to pay down national debt, because the income gains on decreased interest payments can then be used to pay for future increases in SS outflow. The Federal Government basically invests excess SS revenue in debt reduction, rather than spending it.
Obama’s solution to SS is simple – throw more money in the trough. I wish somebody would ask him why he thinks that will somehow solve the problem of SS insolvency.
But when it comes to Social Security, fiscal responsibility is the first and most important step. You’ve got to begin to reign in the budget, pay as you go, to try to replenish our Social Security Trust Fund.
And with all due respect, the last time we had a crisis in Social Security was 1983. President Reagan and Speaker Tip O’Neill came up with a commission. That was the best and smartest way, because you’ve got to get Republicans and Democrats together.
That’s what I will do. And I will say, number one, don’t cut benefits on current beneficiaries; they’re already having a hard enough time. And number two, do not impose additional tax burdens on middle-class families.
There are lots of ways we can fix Social Security that don’t impose those burdens, and I will do that.
- Clinton
She’s right on this point. Fiscal responsibility must come first. Without it, the problem just gets worse.
Real-estate
Wednesday, April 16th, 2008
The more I dig into some of the areas I’m looking at, the more I’m feeling sorry for folks in the area. Most of the properties I’m seeing were last sold in 2004, 2005, and 2006, for two or three times what the property is worth today. (who knows how much they’ll be worth at the end of the year.) I can’t even begin to imagine what it feels like buying a beach house for $950,000.00 and then listing it two years later for $650,000.00, then $550,000.00 and then $455,000.00. If things go the way the experts are predicting, these homes might get back down to their 2001 or 2002 price levels, which means that same house may end up being listed for $200,000.00 – $300,000.00. Can you imagine taking a $700,000.00 loss on an investment you thought would net you a couple hundred grand in profits plus rental income? That has got to suck.
Food Prices
Wednesday, April 16th, 2008
Skeptics have long questioned the value of diverting food crops for fuel, and the grocery and live- stock industries vehemently opposed an energy bill last fall, arguing it was driving up costs.
A fifth of the nation’s corn crop is now used to brew ethanol for motor fuel, and as farmers have planted more corn, they have cut acreage of other crops, particularly soybeans. That, in turn, has contributed to a global shortfall of cooking oil.
Spreading global dissatisfaction in recent months has intensified the food-versus-fuel debate. Last Friday, a European environment advisory panel urged the European Union to suspend its goal of having 10 percent of transportation fuel made from biofuels by 2020. Europe’s well-meaning rush to biofuels, the scientists concluded, had created a variety of harmful ripple effects, including deforestation in Southeast Asia and higher prices for grain.
Even if biofuels are not the primary reason for the increase in food costs, some experts say it is one area where a reversal of government policy could help take pressure off food prices.
In 2005, the United States passed a very large energy bill that helped kick this into high gear via biofuels mandates. Obama – for, McCain – against, Clinton – against. (Bush – for)
Update – actually I can’t give McCain credit for seeing into the future. He had other reasons for voting against it – mainly tax breaks for oil companies. As did Clinton.
Funtasticus
Saturday, April 12th, 2008
Great imagery blog. Some content NSFW.
Ouch
Friday, April 11th, 2008
