Crash / Recession!

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Wise One
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Crash / Recession!

Postby Wise One » 2008 Apr 16 20:48

The housing news is multidimensional and scary, touching on dozens of national concerns. It's important and complicated, so I leave that to others for the moment.

For now, here's just one point that may not have dawned on you. Bush Republicans, for all their failures and incompetence and corruption, may actually be solving a long-standing national problem. Amazing !?!

For a decade, growing scarcity of "affordable housing" has closed growing numbers out of home ownership. Good news - housing is getting affordable again!

My personal prediction is that average national house prices will decline by 30% from their peak before they stabilize about 5 years from now. During this time opportunities will finally appear for many young and less-affluent people to enter the housing market.

Of course, this is the last thing that Bushies wanted, or planned for, or did anything on purpose to achieve. It is the consequence of irresponsible, boneheaded deregulation. Predatory lenders, irresponsible appraisers and real estate agents, funny-money securitization of bundles of mortgages, fraudulent bundling of bundles of that crap into even bigger hedge funds, etc., ad nauseum, all proceeded with Bushies saying only, "More deregulation!"

So congratulations - we're getting cheap housing again. If you are unlucky enough already to own a house, you're paying for it - as you watch its value go down by 1/3.

:smile3: But I'll be fine under my umbrella. :smile3:
"If your only tool is a hammer, every problem looks like Donald Trump."

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loverockbridge
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Re: Pop! Goes the Housing Bubble

Postby loverockbridge » 2008 Apr 17 21:49

Good point and one I had not thought of. Meanwhile, I cannot help but notice that building continues unabated in Rockbridge. There is a new house under construction every mile or so across the county, it seems. Try to hire an excavator, carpenter, plumber or electrician and rotsa ruck. And with this alleged excess of housing, why is William Campbell building over an 100 new residences on Greenhouse Road? Who is going to buy them when local realtors are crying the blues they cannot move existing houses? Is he going to be able to sell them for less than what an existing house is selling for? Cheap as in poorly-built, is the only way to do that, it seems to me. Is the county going to get stuck with another development with a sinkhole or worse that the taxpayers are going to have to pony up the money to fix?
So either the housing recession has not hit Rockbridge and there are more people wanting houses than houses to be sold, or these developers are building on yesterday and financial disaster is right around the corner.

10thFO

Re: Pop! Goes the Housing Bubble

Postby 10thFO » 2008 Apr 18 05:19

Wise One what in the world are you talking about? There won't be affordable housing in Rockbridge until the prices are cut in half. then again we could take down all the white fences and put up barbed wired ones and the prices would fall in due time. 5 years? Have you been paying attention to the global economy? People will move if they see a 10% decrease in prices, afraid that the property they were eyeing for their retirement, or dream home could soon be gone if it goes any further. Surely you don't understand the economics of housing in Rockbridge. You could buy 4 times the house in Roanoke as you can in this county.

Also our Realtors here crying the blues, because now our homes are taking as long as what homes in other markets averaged during the "good" years we just left? That is funny. Most Realtors only see the quick buck anyway, so when the quick buck leaves and they can't afford the lifestyle they have been living, then sure they are going to complain, but no matter what they say the market here is still very stable, do to the lack of overage of housing unlike other areas. You see none of the really "big" developers ever came to Rockbridge. Not enough infrastructure, and when you have to start putting that in, you start cutting into profits. No they were going to areas like Staunton and Charlottesville that had a lot in place. So there was one good thing about our "we do things at our own pace" Board of Supervisors. They kept the big guys out.

If William Campbell goes belly up on his project then so be it. The county has better measures in place now than they did with the Jake Moore learning experience in Natural Bridge. Always one to toot the "we are damned" horn aren't you? Rockbridge is in a protected zone, we are not feeling the wrath of falling prices like other areas have.

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Wise One
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Re: Pop! Goes the Housing Bubble

Postby Wise One » 2008 Apr 18 11:02

Thanks for your remarks, loverockbridge & 10thfo. I'm particularly intrigued by your assertions that Rockbridge is, essentially, immune to the kind of housing price deflation we see biting so deeply elsewhere.

Is it really true? What has happened in Rockbridge to the number of transactions, the best indicator of the state of the market?

In recent go-go times, the supply and demand price curves proceeded together. Thus, many transactions occurred - buyers were willing to pay sellers' prices.

Has there not appeared, in Rockbridge, a disparity between sellers' prices and buyers' bids, to cause a price gap that stalls the market, causing transactions to plummet? In most of the country, we are in the yellow stall zone where very little is moving except for rare instances when buyer and seller move to meet each other way out of their comfort zone.

If so, the number of transactions cannot recover to normal levels until sellers' prices decline to meet buyers' demands, at the right side where blue and black curves touch each other again. This must happen, because family & life changes compel sellers, eventually, to sell at the market clearing price.

Note: The top of the black curve looks flat, a reflection of human behavior. Sellers just cannot believe their houses are worth less than last year. They insist on old, high prices, denying reality as long as they can, finally and grudgingly beginning to succumb to what the market requires.
pop.gif
pop.gif (11.29 KiB) Viewed 7929 times
Black curve = what sellers demand for their house
Blue curve = what buyers are willing to pay
Stall Zone = very few transactions occur
Market Volume = number of transactions
"If your only tool is a hammer, every problem looks like Donald Trump."

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Amy Probenski
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Re: Pop! Goes the Housing Bubble

Postby Amy Probenski » 2008 Apr 29 12:40

Gosh, I never thought about how the market works in quite those terms. Very clear, thank you.

By chance, this popped up in the news today. It certainly looks as though the country is on the downward slope of your curve. It would be wonderful, but I cannot quite believe, that Rockbridge County is dodging a bullet that nearly every other American region is taking in the gut.

What is the real story on house sales and prices around here? Where can we get accurate statistical reports, rather than some real estate agent's hype?

On April 29, 2008, ASSOCIATED PRESS wrote: Home Prices Down 12.7% in February

Housing prices dropped in February at the fastest rate ever, a widely watched index showed on Tuesday, reflecting that the housing slump is gaining momentum and showing no signs of letting up.

The Standard & Poor's/Case-Shiller home price index of 20 cities fell by 12.7 percent in February versus last year, the largest decline since its inception in 2001. Seventeen of the 20 metro areas reported record annual declines.

The index dropped 10.7 percent in January and 9.1 percent in December. ''There is no sign of a bottom in the numbers,'' David Blitzer, chairman of the index committee at S&P, noting that all 20 metro areas have declined for six straight months.

Half of the cities saw home values plunge by double digits led by Las Vegas at 22.8 percent and Miami at 21.7 percent. Those two areas experienced the sharpest appreciation in 2004 and 2005 with annual increases above 50 percent and 30 percent. Only Charlotte, N.C., posted a positive return of 1.5 percent year-over-year.

The narrower 10-city index declined 13.6 percent in February, a record drop in its two-decade history.

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Wise One
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Re: Pop! Goes the Housing Bubble

Postby Wise One » 2008 May 06 16:30

To my surprise, the latest Rockbridge Advocate contains a table of retrospective Rockbridge real estate sales data. I plotted them up, to give this:
rockbridgesales.gif
rockbridgesales.gif (5.13 KiB) Viewed 7801 times


In the spirit of my prior posting, I eyeballed curves that might be drawn through the data points, to produce this:
rockbridgesales2.gif
rockbridgesales2.gif (5.76 KiB) Viewed 7817 times
"If your only tool is a hammer, every problem looks like Donald Trump."

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loverockbridge
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Re: Pop! Goes the Housing Bubble

Postby loverockbridge » 2008 May 11 20:33

Great job, Wiseone! So we are seeing a sharp decline in sales activities (transactions) in Rockbridge and the realtors are not just being whiners. So back to my original question: are we going to see Campbell's big development out on Greenhouse Road go belly up? How can anyone afford to put that kind of money into building houses that may never sell? It would be a relief to many if it did, the road out there was never designed to carry that kind of traffic and both visability and sidewalks are lacking from the new driveway down Greenhouse to the river. With the large college student population along that road, joggers and walkers are out in the road every afternoon. Going the other way, we have the hairpin turn around Hostetter Excavating and the slow zone in front of the high school. Any of us can visualize the impact on the traffic of a high volume development like this but the powers that be apparently cannot.
So more Go Slow is fine with me.

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PattyPink
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Re: Pop! Goes the Housing Bubble

Postby PattyPink » 2008 Jun 23 21:34

I figure if an engagement ring should cost 2 or 3 months' salary and a car about 10-12 months' salary, then a house shouldn't cost more than 5 years' salary. Am I living in a dream world? :dontknow:
Don't ask if you don't want to know.

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nudgewink
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Re: Pop! Goes the Housing Bubble

Postby nudgewink » 2008 Jun 26 12:46

Yours is the American dream. And, no, you are not living in a dream world - you are living in a nightmare world.

But cheer up. Bush's policies and nonperformance have set in motion a real estate crash that'll reduce housing prices about 1/3 before they stabilize, so you may be nearing your dream after all.

My first house cost 2 years salary. My present house cost 10 years salary, so I will very likely lose some of that money.

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PattyPink
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Re: Pop! Goes the Housing Bubble

Postby PattyPink » 2008 Jun 26 17:42

When I bought my house I paid twice my yearly salary and now, 25 years later, it is worth...twice my yearly salary. My home may not be as big and fancy as most of my friends' houses but I am not struggling to pay the bills. Maybe that is why so many folks are so deeply in debt...too much pride and not enough salary???
Don't ask if you don't want to know.

10thFO

Re: Pop! Goes the Housing Bubble

Postby 10thFO » 2008 Jun 26 19:10

Nudgewink,

Maybe you shouldn't have tried to keep up with the Jones's. Yeah I bought my home exactly 10.5 years ago. It's worth 2x as much now, even after the "slump" But i am smart enough to know, that anything else I buy will be overpriced for the value, not to mentino I switched to a 15 year mortgage. So if I sell and buy again, that would defeat the purpose, as in 7 years my home will be paid for. it's not the markets fault, it's peoples fault for thinking their home is an investment and not a liability.

I feel for my friends that bought up, but then again, it is nice to go to their homes and have dinner. But they do seem to like my views just as well. The payment situation makes them jealous, but we can all get caught up in "keeping up with the Jones's"

So don't blame Bush, blame yourself for getting caught up in the modern day "GOLD RUSH".

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Amy Probenski
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Crash !!!

Postby Amy Probenski » 2008 Oct 11 10:19

This is a powerful retrospective, a cogent analysis of the consequences of temporary national delusion. How could the electorate have considered, even for a moment, giving control to these jerks?
The denyers are now virtually all gone, it being evident to nearly all but a few angry wingnuts that the chickens have come home to roost. And they really, really stink.

BOB HERBERT, NYT on October 11, 2008 wrote:The Mask Slips

The lesson for Americans suffused with anxiety and dread over the crackup of the financial markets is that the way you vote matters, that there are real-world consequences when you go into a voting booth and cast that ballot.

For the nitwits who vote for the man or woman they’d most like to have over for dinner, or hang out at a barbecue with, I suggest you take a look at how well your 401(k) is doing, or how easy it will be to meet the mortgage this month, or whether the college fund you’ve been trying to build for your kids is as robust as you’d like it to be.

Voters in the George W. Bush era gave the Republican Party nearly complete control of the federal government. Now the financial markets are in turmoil, top government and corporate leaders are on the verge of panic and scholars are dusting off treatises that analyzed the causes of the Great Depression.

Mr. Bush was never viewed as a policy or intellectual heavyweight. But he seemed like a nicer guy to a lot of voters than Al Gore.

It’s not just the economy. While the United States has been fighting a useless and irresponsible war in Iraq, Afghanistan — the home base of the terrorists who struck us on 9/11 — has been allowed to fall into a state of chaos. Osama bin Laden is still at large. New Orleans is still on its knees. And so on.

Voting has consequences.

I don’t for a moment think that the Democratic Party has been free of egregious problems. But there are two things I find remarkable about the G.O.P., and especially its more conservative wing, which is now about all there is.

The first is how wrong conservative Republicans have been on so many profoundly important matters for so many years. The second is how the G.O.P. has nevertheless been able to persuade so many voters of modest means that its wrongheaded, favor-the-rich, country-be-damned approach was not only good for working Americans, but was the patriotic way to go.

Remember voodoo economics? That was the derisive term George H.W. Bush used for Ronald Reagan’s fantasy that he could simultaneously increase defense spending, cut taxes and balance the budget. After Reagan became president (with Mr. Bush as his vice president) the budget deficit — surprise, surprise — soared.

In a moment of unusual candor, Reagan’s own chairman of the Council of Economic Advisers, Martin Feldstein, gave three reasons for the growth of the deficit: the president’s tax cuts, the increased defense spending and the interest on the expanding national debt.

These were the self-proclaimed fiscal conservatives who were behaving so profligately. The budget was balanced and a surplus realized under Bill Clinton, but soon the “fiscal conservatives” were back in the driver’s seat. “Deficits don’t matter,” said Dick Cheney, and the wildest, most reckless of economic rides was on.

Americans, including the Joe Sixpacks, soccer moms and hockey moms, were repeatedly told that the benefits lavished on the highfliers would trickle down to them. Someday.

Just as they were wrong about trickle down, conservative Republican politicians and their closest buddies in the commentariat have been wrong on one important national issue after another, from Social Security (conservatives opposed it from the start and have been trying to undermine it ever since) to Medicare (Ronald Reagan saw it as the first wave of socialism) to the environment, energy policy and global warming.

When the Nobel Prize in Chemistry was awarded to the discoverers of the link between chlorofluorocarbons and ozone depletion, Tom DeLay, a Republican who would go on to wield enormous power as majority leader in the House, mocked the award as the “Nobel Appeasement Prize.”

Mr. Reagan, the ultimate political hero of so many Republicans, opposed the Civil Rights Act of 1964 and the Voting Rights Act of 1965. In response to the historic Brown v. Board of Education school-desegregation ruling, William F. Buckley, the ultimate intellectual hero of so many Republicans, asserted that whites, being superior, were well within their rights to discriminate against blacks.

“The White community is so entitled,” he wrote, “because, for the time being, it is the advanced race...” He would later repudiate that sentiment, but only after it was clear that his racist view was harmful to himself.

The G.O.P. has done a great job masking the terrible consequences of much that it has stood for over the decades. Now the mask has slipped. As we survey the wreckage of the American economy and the real-life suffering associated with the financial crackup of 2008, it would be well for voters to draw upon the lessons of history and think more seriously about the consequences of the ballots they may cast in the future.

Image

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Uji
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Re: Crash !!!

Postby Uji » 2008 Oct 11 15:19

Thanks for that, Amy.

You're hearing the right-wing talking heads getting their stories straight, the last week or so: The "true" take on the crisis is that the government caused it. That's right, all those incentives for home ownership just made it impossible for the "market" to work properly. All those free-marketeers simply had their arms twisted into making all these irresponsible mortgage vehicles by the bleeding-heart liberals droning on about "low-cost housing." The market was just trying to do the the right thing. De-regulation? Nah, that had nothing to do with it . . .

Beyond belief... History is already being rewritten to fit doctrine.

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Amy Probenski
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Re: Crash !!!

Postby Amy Probenski » 2008 Oct 14 15:25

You are right. Those folks will not be swayed from ideology by anything at all. If the facts do not conform, they just change the facts.

The great Garrison Keillor, for a change being not a bit funny.

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Wise One
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Re: Pop! Goes the Housing Bubble

Postby Wise One » 2008 Oct 16 15:20

Five months ago I posted two commentaries on the likely future trajectory of housing prices:
I was interested to see today's update of the actual price trajectory for housing in the US, looking very much like it's following my general prediction:

Image


And a bit more on this subject:
Image

PS. I've been following a few houses that have been on the market for some time around here. One just reduced its asking price from $500K to $300K, and I'm finally tempted.

:tongue3: Rockbridge is immune to real estate busts? Who believes this any more? :tongue3:
"If your only tool is a hammer, every problem looks like Donald Trump."

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Wise One
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Re: Pop! Goes the Housing Bubble

Postby Wise One » 2008 Oct 19 11:14

From my prior postings, I've been predicting a 1/3 reduction in price from the peak.

But I'm just an amateur. A true professional thinks I'm looking through rose-colored glasses ... a 43% drop is more likely.
Attachments
housing_projection[1].jpg
"If your only tool is a hammer, every problem looks like Donald Trump."

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Uji
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What's Really Wrong with Economic Bail-Out Package

Postby Uji » 2008 Oct 20 10:18

Wow! This is an interview from the WSJ with a 92-year-old economist, Anna Schwartz (also the wife of Milton Friedman). What a wise perspective on the whole mess -- and what's really wrong with what Bernake and the others are doing to make it better.

http://online.wsj.com/article/SB1224282 ... 08_mostpop

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Wise One
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Re: Crash !!!

Postby Wise One » 2008 Oct 24 10:25

She's a quite amazing woman. I'd not even heard of her before, only of Milton.

Yesterday's testimony by Alan Greenspan is illuminating. Much of the Republican party is filled with mindless ideologues, and Greenspan is a person who is clearly a conservative in the sometimes tad extreme Friedman school.

It is refreshing to find that he is smart enough, honest enough, and courageous enough to acknowledge the shortcomings of his prior knee jerk anti-regulatory decisions. Some, if not very many, conservatives are smart and honest people, capable of learning and modifying rigid ideological positions in the light of stark reality.

:cool:

PS ... Addendum. I did two things today setting a personal course rooted in optimism:
  • I mailed my absentee ballot, voting for Barack Obama. (the Arab terrorist ... if you can't beat 'em, join 'em)
  • I bought $20,000 of Vanguard 500 index fund
Hoping for the best, and putting my money where my mouth is! :dance14:
"If your only tool is a hammer, every problem looks like Donald Trump."

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Uji
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Re: Crash !!!

Postby Uji » 2008 Oct 24 14:53

Whoa -- buying an index fund! You are a Brave- as well as a WiseOne. I'm not buying any stocks till P/E ratio is down more -- but I haven't really been following where it is. 15/1 seems to be about right; it's been well over that for a while.

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Wise One
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Re: Crash !!!

Postby Wise One » 2008 Oct 24 16:08

I'll accept the "brave" designation.

How wise this move is will be determined in the year ahead ... I have no illusions about the degree of risk it entails.

:tongue3: Jes' pretendin' to be Mini-Warren-Buffett :tongue3:
"If your only tool is a hammer, every problem looks like Donald Trump."