How screwed are we?
September 04, 2006
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A time capsule of the greatest financial mania in the history of mankind, told in real-time by regular folks and patriots. May future generations better understand the madness of crowds, and how power and money corrupt.
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56 comments:
You have the greatest graphics and rubrics of any housing bubble blog!
Kudos!
Delilah
DC Housing Bubble Blues
Those of us who planned for the housing crash and those of us who are planning for the upcoming recession aren't screwed at all. Those who refuse to see the obvious are completely screwed.
50% of last two year gains will be lost across bubble (red and pink) states.
New RE bubbles in "non Bubble" (yellow) states.
Interest rates up, housing in depression, rest of commodities in inflation, dollar tanking.
No run on banks.
I am ready.
I Believe we as a whole are screwed, Unless you have a well put togeather Portfolio you will weather the storm.
I would not be in a 403B or a 401k..I feel these are risky spots for a retirement package..non the less one way or another we are all going to feel the pain.
Maybe not thru housing or any big purchases..but thru the cost of things, everyday things..such as food and energy.
post, then drink, Keith. post, then drink.
this about sums it up how "Nut" we are, I mean "Bolt", I mean "SCREWED"
http://tinyurl.com/flclm
Bork:
I read in one of the internet news site that Americans, after they're done drying up all their home equity, they're turning now to their 401ks for consumption.
How?
Very!
How screwed are "we"? Well, I guess it all depends on how you define "we." If you're a mortagage broker, re agent, contractor, or (worst of all) re flipper/investory, you're completely screwed.
If you sell humvees, swimming pools, plasma tv's to the option arm crowd, you're pretty damn screwed.
If you design microchips, prepare wills and estates, run regressions, schedule factory production... you may be in good, fair, or poor shape.
If you diagnose disease, teach school, work for the dmv, etc... and you had the patience to say out of the easy housing money, you'll probably be fine, and may even do very well.
Keep in mind that economic numbers are averages. Lots and lots of unemployed brokers and car salesmen doesn't necessarily lead to unemployment in all sectors of the economy... and the ones left standing can name their price for that 3/2 with a pool,
How screwed are "we"? Well, I guess it all depends on how you define "we." If you're a mortagage broker, re agent, contractor, or (worst of all) re flipper/investory, you're completely screwed.
If you sell humvees, swimming pools, plasma tv's to the option arm crowd, you're pretty damn screwed.
If you design microchips, prepare wills and estates, run regressions, schedule factory production... you may be in good, fair, or poor shape.
If you diagnose disease, teach school, work for the dmv, etc... and you had the patience to say out of the easy housing money, you'll probably be fine, and may even do very well.
Keep in mind that economic numbers are averages. Lots and lots of unemployed brokers and car salesmen doesn't necessarily lead to unemployment in all sectors of the economy... and the ones left standing can name their price for that 3/2 with a pool,
I went back to my old neighborhood down in Baltimore over the weekend to visit an ailing old school friend. I took note of some of the FOR SALE signs around the block and jotted down a few addresses. I asked how long they had they had been up, and he said for quite a while, and they stay up a lot longer than they used to (always was a desirable area.)
When I got home I got online and checked the prices. Good Grief!
I know there's a bubble, have known for some time thanks to Keith and others. But when you see what prices are where you USED TO LIVE. GoodGawdAMighty! It really slams home how much this bubble
NEEDS to crash into the ninth pit of hell, and then some, before it reverts back up to the median!
I've got a boatload of cash saved up.
I can't wait to tear the eviction notice off my new McMansion that I get for 60% off when this sucker bottoms out.
I read in one of the internet news site that Americans, after they're done drying up all their home equity, they're turning now to their 401ks for consumption.
Yup funny thing is Anonymous my brother inlaw is into his third year, on a home addition (dont ask)..and guess what..his wife borrowed $10,000 large to side their Money Pit.
and it is a money pit trust me.
But those best off of all, work for the people who can simply print up new money for payroll: The U.S. Government.
My bad ..$10,000 large out of her 401k that is.
But those best off of all, work for the people who can simply print up new money for payroll: The U.S. Government.
oh and get this...he was on the verge of Foreclosure..when out of thin air he was refied..from a sweet 5.25% 30 year fixed..into an Adjustable rate mortgage 10%!!!! because of the pre forclose..and get this $10,000 penalty if he refies within 1 year...
10%!!!!!!!!!!!!!!!!!!!!!!!!!!
Are you thinking what I'm thinking?
yup! gold & silver
there's this old joke about the lone ranger, seeing that he is surrounded by indians, turning to tonto and saying "looks like we're in trouble now,", and tonto says "what do you mean we, white man?"
I'm thinking the same thing. We"re screwed? I'm not a mortgate broker, or a real estate agent. I didn't buy with an option arm teaser rate suicide mortgage at the peak. I've been renting, and my job doesn't involve selling humvees to people who are using helocs to buy.
Economic numbers are just averages. Job grown has been housing driven, and a housing bust will take that all away. But plenty of people will be in a very good position once this goes bust.
The "Still For Sale" signs will look Terrific wrapped in Christmas Holiday twinkle lights..in 2008 with Santa in his REPO MAN costume.
The average person with a 401K cannot retire...ever. Why do you think companies changed to a 401k from a retirement plan? It costs them less. That corresponds to you having less. I work for the gov't. I get state retirement...for as long as I live
I am beginning to see more and more homes for sale in the Portland,OR/Vancouver,WA area. My question is when a property is listed for sale, where can you go on the Internet to find the last selling price and when it was last sold? I know that other people seem to have access to this info.
Anon 8:59:54,
"The average person with a 401k cannot retire..."
What about a union pension, is it safe? Please comment if you know.
Thanks.
:There is nothing wrong with the 401K system
Well, a self-employed, self-directed 401K is great because you can create a tax sheltered investment vehicle of any kind. This is where you can make out with a portfolio of Gold, AAA Intl bonds, cash in other currencies, and can flip-flop between bear market funds and S&P trackers depending upon market cycles (a.k.a your own hedge fund).
The ones that the standard corporation offers is basically a joke with a set pool of funds and they really don't allow for much diversification.
You can find the previous purchase price of any home on zillow.com You can also go to your county website and look up tax records regarding the last sales price of any home.
I am beginning to see more and more homes for sale in the Portland,OR/Vancouver,WA area. My question is when a property is listed for sale, where can you go on the Internet to find the last selling price and when it was last sold? I know that other people seem to have access to this info.
Your county property tax appraiser will have it on the Internet and it is all public record.
Zillow.com is way behind ad couldn't catch up with the sale activities. www.realestatedecline.com provides a comparison between Zillow.com and other listings.
Yo, Anon @ Tuesday, September 05, 2006 1:24:18 AM
This is what I'm doing with my 401!!
EXCEPT for the AAA Intl bonds...
What are you buying there??
Thx, Matt
Union, private and city / state pensions are not safe. If the pension fund is mismanaged and goes belly up the money can dry up and the people won't get their pensions. My mother gets teachers retirement. There was a big scandal about 10 years ago when her pension fund lost millions of dollars by investing in derivatives. If the percent invested would have been higher, the pensions would have had to be cut. Someone posted an article on this blog a while back talking about pension funds that had invested in real estate. Ouch.
The federal government is also screwing a lot of pensioners by getting rid of retirement perks like healthcare coverage. My uncle had a sweet federal government retirement program after working with his agency for 47 years. In the 90's they took away his healthcare benefits and put him on medicare. They then removed his spousal pension coverage (she was supposed to get his pension after he died until she died). They finally cut his monthly pension check due to "balancing the budget."
Just because you have a contract with the government does not mean they have to honor it.
Anon 11:38-
County Government websites have the sales histories and mortgage data on homes in WA.
Once a house has sold, it takes a month or two for the sale to show up on the site.
Prior sales usually only go back to the previous 3 or 4 in King County.
BTW, this sales history is the ONLY way to find out if things are going under asking price.
And they definitely are in Seattle, despite all the rahrah from the realtors/REIC.
So watch your step out there if you're contemplating buying.
You need to have the address of the property you're looking up.
Hey Keith, I've taken four weeks to drive around Western America to see what the world looks like in 2006. We drove through the Texas panhandle from Austin, NE New Mexico, Southern Colarado from Alamosa through Colorado City, Denver, Boulder, Steamboat Springs, into NE Utah, Wyoming through Jackson Hole, Montana through Missoula up through Flathead lake region into Southern BC and over to Vancouver (where we currently are).
So far, what have we seen? First, I was shocked to see that cities like Ablilene and Amarillo were not the hell holes of 20 years ago. Lots of new, and I mean lots of new homes and shopping centers. Not a whole lot of for sale signs and for those homes that are for sale, a wide range of prices. New homes seemed to go for at least $100 a sq ft. Older fixers as low as $60 a sq ft. The only real hell hole was Lubbock, though once you went to the new suburbs it wasn't so bad but the center city looked as bad as when I visited it as a kid in the mid-60s.
Southern Colorado, shocked at how expensive it was compared to Austin. Have to also say I was shocked that new homes were as expensive in Amarillo as they were in Austin. Denver seemed to span the range of price with lots of condos still within the average consumer's price range if you want to live in a small condo and commute, however compared to Phoenix, Las Vegas, or California it didn't seem as unreasonable for price, still a lot of for sale signs in Colorado.
Steamboat springs? A joke. $850,000 for a starter and that is a tourist town, no high paying jobs, just tourism and ski resort. Still, lovely valley and lot of sold signs on those million dollar homes.
Wyoming, kind of expensive I thought for living in the middle of no where! Jackson Hole and areas around it like Pinedale, a home would set you back at least $300,000 but you did ge at least an acre and lots of snow! Still, Pinedale is almost an hours drive to Jackson Hole. Jackson hole, expensive and still lots of construction and didn't see a slow down in their market.
Missoula MT, wow, nice town with quick access to Flathead Lake and Glacier National Park. Cute College town, not a lot for sale but a 3/1 bungalow would set you back over $400,000. I guess those mine jobs pay well as does government, college, professional positions but for the average worker? Expensive compared to Texas.
Flathead lake area (gorgeous) and Klapsill, Whitefish area, same tourist towns, logging, mining, same price to buy as to buy in Austin. Not a lot for sale, things didn't seem depressed.
Then comes British Columbia. My wife was glad to be home (vancouver) but from Alberta to Vancouver I found the homes quite expensive. In places like Nelson or in the Okanagan valley, $300,000 gets you a small dump condo. Getting within an hour of Vancouver the prices make parts of California look cheap.
Here in Vancouver it must look like San Diego with all the cranes. It has been two years since we were here last and prices are up at least 30-40% depending on area and quite a number of high rise condos under construction and a lot of new projects and one, in the slums, sold out 700 units in 48 hours (the old Woodwards building off Hastings), and prices started at just under $300,000 for a studiio and went up from there. Some of the condos (Shangri-la for example) have penthouse for $12,000,0000! The average detached home in central Van is over $1,000,000cdn.
The paper says, Market conditions are different here than in the USA. Fundamentals support the continued market at least until the Olympics in 2010. Oh and the average Vancuverite now spends 70% of his income for housing.
Lessons learned so far? 1) Shock. Shock at the prices even in po-dunk towns. 2) The economy. What economy? Most seems to be service oriented, information technology oriented, government oriented, construction oriented. Some commodities if you count farming, mining, timber, fishing.
Every where we went seemed to be having a building boom. Small towns that had hundreds of new homes. Mid-size homes with lots of new subdivision of McMansions. Tourist towns that were filled with second-homes, condos and new shopping centers.
Everyone seems to be going on with their "lives as usual". Construction seems as important to our (Canada/USA) econmies as it is in Spain or China. Take away construction and what economy do we have left?
The new book out, "The disposable American" probably sums up the sell out our government and Big Business has practiced the past 30 years while we Americans have sat back and just "taken it".
Don't know what to make of what I've seen. The contrast between those with a lot of money and those just getting by has been the most pronounced I've seen in my life. I can't say how many people are stressed about money or jobs but most people seemed happy and unfazed by the current state of the economy and definitely not cutting back on spending.
Oh, last thing, everything is so expensive. We travel a lot and hotels have doubled in price over the past four years, no bargains there any more. Gas is high, food is outrageous. You can't eat out without spending $40-50 for a meal for two and here in Canada we even have gone to the market to get a sandwich and soda and it has cost us $32 for a meal. So, house prices have risen but so has everything but our wages. I think inflation is very much alive and well.
End thoughts? I am glad we sold in 2005 in Phoenix and bought our home in Austin. Austin is looking pretty good from this trip as does the cost of living there.
My wife and I really like Austin. A warmer version of Seattle. A nice progressive city with a major university to keep it "young".
Austin has 5 months of horrible weather and Seattle has 7 months of partially horrible weather....pretty much a tossup. Seattle wins on natural beauty but Austin wins on the friendliness of people.
A tough one to call.....
Is is too late to SELL?
It's never too late to sell...
For the right price
Just heard that a family member who owns a high end construction company in Northern California, doesnt have any work lined up after October. He has always had clients and jobs backed up.
paintblot,
25% of home owners have ARM's!
Look out below.
I'm not screwed, and I work for the REIC. I'm actually in what could be the next mortgage-related growth sector, and my own mortgage is fixed.
I am a Mortgage Fraud Investigator and Collector. I don't see me running out of work any time soon. When new business dries up, you have to cut losses as much as possible. It's an ugly, but relatively secure and endlessly enjoyable job!
Doesn't mean I'm ready to blow my 'emergency fund' on a new deck and hot tub yet, though.
"What about a union pension, is it safe? Please comment if you know.
Thanks."
I have no idea on that. It's better than a 401k assuming the company is financially responsible.
"I am a Mortgage Fraud Investigator and Collector."
Great, but the "Collector," - be careful, because a 250 pounder who lost everything including his house might open the door when you knock. Ain't gonna be funny.
We don't do collections in person. Our main goal is to persuade them to start paying something, while we figure out if we need to sue, foreclose, refinance, or what. I don't show up to doors. If I did, I would be sure to exercise my rights as a concealed handgun permit holder. At 5'9", 150 lbs. I'm not gonna be physically strong-arming too many irate borrowers :)
Take a look at this chart of inflation-adjusted incomes (1999-2005)
http://tinyurl.com/kb3m3
This is seriously bad news for the housing market and our economy in general. It shows what total lies government inflation numbers are, and says that consumers are tapped out. The only way to avoid a total crash is if the Feds promote wage inflation on a massive scale.
Those who bought at the peak last year here in Florida are beyond screwed. Prices were completely out of line with salaries in the Tampa Bay area. Those people are going to get burned between now and 2008.
Me, I rented, so I'm not worried about the coming crash so much. I am concerned about the coming recession and my job stability because of it.
-Dragasoni-
Ditto Drag.
People that visit this site don't realize that the housing industry has been fueling the economy for over 10 years. Without a prosperous housing market the house of cards will fall faster than you can imagine. Feels like 1980 to me.
Why are so many here encouraged by a failing economy?
Homes: Sharpest pullback in 31 years
Government index shows the largest quarter-to-quarter fall off in home price increases in three decades.
By Les Christie, CNNMoney.com staff writer
September 5 2006: 11:45 AM EDT
NEW YORK (CNNMoney.com) -- New evidence of a housing market slowdown emerged Tuesday - growth in the price of a single family home was just 1.17 percent in the second quarter, a decline of more than one percentage point from the prior quarter when prices grew 2.20 percent.
The Office of Federal Housing Enterprise Oversight (OFHEO), which released the report, said it was the slowest quarterly increase since the fourth quarter of 1999 and was the sharpest quarter-to-quarter pullback since OFHEO began the index in 1975.
The year-over-year price gain was 10.06 percent.
OFHEO's numbers are generally regarded as the most accurate gauge of housing prices. Instead of measuring the average sale prices of homes, it compares repeat sale prices of the same single family homes.
Even so, according to Jonathan Miller of Miller Samuel, an appraiser in New York, the slowdown may be even more pronounced than the numbers are showing.
"The index may not reflect what's really happening out there," he said.
Miller thinks that many sellers are holding out for unrealistically high asking prices, and the buyers actually purchasing homes are only the ones willing to pay those higher prices. "That's why there's been such a drop-off in volume," says Miller.
In a normal market those sellers would more readily accept lower bids but, conditioned to oversized price increases, they are reluctant to abandon their asking prices.
To close deals with the on-the-fence or reluctant buyers, sellers will have to drop their prices and only then will the index reflect the actual market. The effect could snowball if sellers get a bit panicky and try to unload their properties quickly, before prices erode further.
All markets are local
The release from OFHEO said that appreciation in many states declined dramatically and the largest effects were felt in states that had experienced the greatest increases in recent years, such as Arizona and Florida.
"Of the seven states that saw more than 80 percent appreciation over the 2001-2005 period," read the report, "only Rhode Island's appreciation rate has increased over the last year. The remaining markets experienced rapid decelerations."
Conversely, states where prices appreciated more modestly over the past few years experienced more modest pullbacks this quarter.
In Arizona, the average home sold for 2.94 percent more than during the first quarter. That was after five years of rapid growth during which prices nearly doubled.
Florida prices, which spiked nearly 113 percent over the past five years, rose just 2.51 percent.
Michigan was the worst performing state during the quarter. Prices fell 0.72 percent. Other losers include Massachusetts (down 0.44 percent ) and Maine (down 0.20 percent).
The number one gainer among metro areas was Bend, Oregon, where the median price rose 7.37 percent for the quarter and 36.65 percent in the past 12 months.
The biggest fall was endured by Columbus, Indiana, where prices declined 3.55 percent for the quarter. Ann Arbor, Michigan prices fell 1.28 percent for the year, the most of any metro area.
Homes: Sharpest pullback in 31 years
Government index shows the largest quarter-to-quarter fall off in home price increases in three decades.
By Les Christie, CNNMoney.com staff writer
September 5 2006: 11:45 AM EDT
NEW YORK (CNNMoney.com) -- New evidence of a housing market slowdown emerged Tuesday - growth in the price of a single family home was just 1.17 percent in the second quarter, a decline of more than one percentage point from the prior quarter when prices grew 2.20 percent.
The Office of Federal Housing Enterprise Oversight (OFHEO), which released the report, said it was the slowest quarterly increase since the fourth quarter of 1999 and was the sharpest quarter-to-quarter pullback since OFHEO began the index in 1975.
The year-over-year price gain was 10.06 percent.
OFHEO's numbers are generally regarded as the most accurate gauge of housing prices. Instead of measuring the average sale prices of homes, it compares repeat sale prices of the same single family homes.
Even so, according to Jonathan Miller of Miller Samuel, an appraiser in New York, the slowdown may be even more pronounced than the numbers are showing.
"The index may not reflect what's really happening out there," he said.
Miller thinks that many sellers are holding out for unrealistically high asking prices, and the buyers actually purchasing homes are only the ones willing to pay those higher prices. "That's why there's been such a drop-off in volume," says Miller.
In a normal market those sellers would more readily accept lower bids but, conditioned to oversized price increases, they are reluctant to abandon their asking prices.
To close deals with the on-the-fence or reluctant buyers, sellers will have to drop their prices and only then will the index reflect the actual market. The effect could snowball if sellers get a bit panicky and try to unload their properties quickly, before prices erode further.
All markets are local
The release from OFHEO said that appreciation in many states declined dramatically and the largest effects were felt in states that had experienced the greatest increases in recent years, such as Arizona and Florida.
"Of the seven states that saw more than 80 percent appreciation over the 2001-2005 period," read the report, "only Rhode Island's appreciation rate has increased over the last year. The remaining markets experienced rapid decelerations."
Conversely, states where prices appreciated more modestly over the past few years experienced more modest pullbacks this quarter.
In Arizona, the average home sold for 2.94 percent more than during the first quarter. That was after five years of rapid growth during which prices nearly doubled.
Florida prices, which spiked nearly 113 percent over the past five years, rose just 2.51 percent.
Michigan was the worst performing state during the quarter. Prices fell 0.72 percent. Other losers include Massachusetts (down 0.44 percent ) and Maine (down 0.20 percent).
The number one gainer among metro areas was Bend, Oregon, where the median price rose 7.37 percent for the quarter and 36.65 percent in the past 12 months.
The biggest fall was endured by Columbus, Indiana, where prices declined 3.55 percent for the quarter. Ann Arbor, Michigan prices fell 1.28 percent for the year, the most of any metro area.
"It's better than a 401k"
What's wrong with 401ks?
How much do you think you will have when you retire with that 401k? Realize that you most likely will get laid off from whatever job you currently have unless you are a super grade A assmuncher. Even then it is no guarantee. Profits supercede your job and Mr. Executive way above you wants his big bonus more than you as an employee. Thus you will be starting over in that 401k. Yes, you roll your current contributions over but nothing says the next one is better adn it relies on 1 GIANT if. IF the stock market goes up, your 401K grows. Big big IF, since it has done zilch over the last 5 years. Then calculate your needed returns over your career and determine how much you will have. Then imagine retiring....no more income and see if you can live off your $. Then the big disaster hits. Health, whatever. You can't afford it and your account drains. You are screwed TOTALLY. I already made the calculation (see ya) and was lucky enough to get a job at a city with state retirement. That's payment for teh rest of my life. So you say 'what if retirement is not there when you retire.' Easy answer...you are all also screwed because if the meltdown is that big, get your guns.
401k...pure trash. The numbers you are fed are far from reality.
"What about a union pension, is it safe? Please comment if you know."
Ask a Delta pilot.
"super grade A assmuncher"
Now, that's funny! LMAO.
Pension will only survive in government jobs and quasi-gov't jobs like the railroad.
401k's won't be much when the stock market drops 20-40% in the next few months.
Anyone else want to join me in the Iraqi reconstuction? Big bucks!
I'd be concerned if I had a pension provided by certain corporations such as GM or Ford. What happens when the company goes under? I think the liabilities are taken up by PBGC but there won't be enough money to cover the coming defaults.
"401k's won't be much when the stock market drops 20-40% in the next few months."
401Ks sucks because the companies control them. You do not get a full service brokerage account to diversify across the spectrum of investment vehicles: equities, commodities, ETFs, foreign currencies, options, etc. The average big corporation offers roughly a dozen or so funds and that's it. So, it's basically asking the employee to manage his own pension fund but w/o providing the tools to do so and that's the scam!
The 3 leg of having a successful retirement are:
1.) Savings (i.e.assets)
2.) Pension
3.) Social Security
My wife and I have all of the above. We hope and pray that all 3 will still be there when we retire in 18 - 20 years.
Some 401k's are decent. My company allows me to send 50% of my contributions into a brokeragelink account where I can buy anything except options. The other 50% I can contribute to foreign investments, short-term investments (5% avg), bonds or a mixture. Most of my money is in the short-term and foreign funds along with 50% in the brokeragelink.
One "we're all gonna take it" scenario I'm not seeing mentioned:
Housing ATM was driving consumption, which kept China et al happy to prop the dollar. Bubble burst means drop in consumption. Combined with America looking like Charlie Croker in Tom Wofle's A Man In Full (bad debtor) and,just like other governments, we're painted into a corner - we'll have to devalue the dollar to get a handle on our debt. Then hyperinflation sets in, and everyone is completely screwed. This is just one scenario that might not come to pass, but a lot of people think "it can't happen here". Yes. It can.
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