So the value of developed world housing wet up from $30 Trillion to $70 Trillion-plus these past few years during the biggest leveraged speculative bubble in human history.
Now, like all leveraged speculative bubbles, that paper wealth simply gets washed away via asset devaluation and deflation, which is already well underway.
But $40 Trillion? Damn, that's gonna suck. The world has never seen something like they're about to see now. I hope you're all ready (as ready as you can be)
Asset Deflation Crashes Through the Window
The jig is up, my friends. The elephant that is asset deflation has slowly crashed through the big bay window straight onto our living room carpet and the no-fun part of speculative excess and leveraging (not to mention reckless borrowing and spending) has more than begun.
One by one the commodities markets are going splat, proving once and for all that post-bubble phenomena will ultimately always win out over money-supply pumping, speculative frenzy, and the Pollyannaish, mistaken notion that "prices will always go up forever."
Homebuilders are quaking in their boots as right before your very eyes, ordinary folks have figured out that if they wait 'til next year, prices will be lower. Soon they will figure out that prices will be a LOT lower. The speculators have run kicking and screaming from the housing market (step one) and the general consensus is already that the "housing boom is over." Lower interest rates aren't helping at all.
You should probably get accustomed to the following, coming-soon-to-the-business-section-of-your-local-newspaper phraseology: Oversupply, excess inventory, "hard landing," foreclosures, "upside-down" mortgages, contract cancellations, "fire-sales," bankruptcies, foreclosures, bank failures, credit crunch, credit contraction, bank crisis, Fannie Mae crisis, liquidity crisis, real estate deflation, asset deflation, price deflation, foreclosures, meltdown.
Real estate values will fall from peak values somewhere in the range of 50% to 90%, depending on area, location, property type, "intrinsic value" and scarcity.
If you don't realize how much this economy has been built (on stilts) with money ordinary citizens borrowed against their homes, you really haven't been paying attention.
September 08, 2006
Is $40 Trillion about to go poof? Get ready America and the world for some serious asset deflation
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55 comments:
Karma's gonna be a bitch for alot of people
Realtor, Mortgage Broker Run Train On Client
Yeah its going to slow down more then people want to believe. My brother in law builds large trophy home along the Pacific coast (1mill-2.5mill)and things have really slowed down. No projects past October, was working on one other project but the clients went with a non-licensed contractor, he'll get turned in for that. These people are not normal home builders, lots and lots of "money", but even they are not biting. Get ready for a interesting show as people will have to live under their means ( what a concept)
Keith Mr. Lereah has a message for you!
http://tinyurl.com/fwcdj
“The boom is cooling now,” said David Lereah, the chief economist for the association, who added that falling home sales have been “a bit worse than we had anticipated.” hahaah!
riddle me this batman...
is that an african or indian elephant...
Bonus question for ANONS...
does it matter?
Elephant? I must have missed it. Guess I was too busy admiring the crown molding and granite couner tops.
These serial refiers, speculatiors and flippers are the cause of this RE greed - more news articles about bad mortgages this weekend in yahoo finance.
This will give them something to think about this weekend...
I drove around the SW area of Reno yesterday, and checked out the progress on some tear-down homes in established neighborhoods and noticed no one working at 7 of the 8 sites. Extended Labor day vacation...maybe, then again probably not.
To:
anon Friday, September 08, 2006 3:39:33 PM
LOL
Thank god that house has 7 bathrooms, or when dumptime comes for the elephant there would be an awful mess
will asset deflation be followed by ass deflation? one can only hope
The biggest question I have is when is it safe to buy? I am still waiting to find a home that is priced fairly. There are a few I would consider, but they are 200k more than they are worth, an deven at that price they need 100k of work.
I get automatic listings sent, but in my price range (450-550k) I can't see anything decent. A few homes that are priced 600-750k are nice, but way overpriced.
Do I sit back and wait for these prices to fall, or do I bite the bullet and buy a piece of crap for what I can afford?
I am sure this sounds like a dumb question, but I don't see when sellers are going to start pricing lower when they are comparing to the outrageous "comps" from a few months back. Thanks
tj
tj, wait...just wait.
Laziness always pays off now and patience always pays off later....you can't lose.
anon 4:31
Read your own post.
"I am still waiting to find a home that is priced fairly."
"A few homes that are priced 600-750k are nice, but way overpriced."
Sounds to me like you know the answer to your own question.
"do I bite the bullet and buy a piece of crap for what I can afford?"
question answered with a question:
Why? Why buy a "piece of crap" now?
From the people over at
"The Truth will Set you Free"
watch this video
http://tinyurl.com/q3coq
This video is really old (the reference to $20 billion in interest that taxpayers pay annually to service the federal debt has now mushroomed to over $350 billion), but it provides an excellent primer on how the federal reserve system came into being and an illustrated blueprint for how international bankers rule the world.
The human mind is like a computer, no matter how efficient it may be, its reliability is only as great as the information fed into it.
If it is possible to control the input of the human mind, then no matter how intelligent a person may be, it's entirely possible to program what he will think. And yes it's even possible to program people to laugh at the mere mention of the word 'conspiracy.'
We are under total control, yet we think we are 'free.'
Can you say ‘con-spir-a-cy’?
"Can you say ‘con-spir-a-cy’?"
Bork - just like the F-bomb - U can't use that word on this blog...kinda pisses both the ANONs and Keith off.
In fact Keith wrote me off line to say that his sobriety is going well...so Bork - let's just see if we xcan help him along here...ok?
Thanks for the encouragement. I am/still/will wait - but it's like telling me I can't have my cocktail this weekend - it really pisses me off!
tj
I'm in the exact same boat tj.
But I've got my feet up, the BBQ going and I'm not going to sweat it.
Cheers,
wooden
bork
The Matrix has you!
Move over tj Wood, I'll have the next seat on that boat. Here is a beer(_)3 for the BBQ Wood
bork, as in ...Exclamation commonly used by muppet swedes? Urb Dict. gotta love it!
Anon said:"Do I sit back and wait for these prices to fall, or do I bite the bullet and buy a piece of crap for what I can afford"?
Even if sellers mark down a house 50-100k, this is nothing! Homes here in Reno have gained 300-400% in 5 years. It's the same elsewhere.
Don't fall for sellers whining that they are loosing money, with their measley price reductions...wait for 200k-300k discounts, it could take a year or two, but its worth every penny you will save on those outragious property taxes and insurance bills if you buy a house this year.
I am following my own advise - we are going to buy a home in about 2-3 years or when prices on a mortgage cost us the same as renting.
I don't think that people run kicking and screaming from something. One is *dragged,* kicking and screaming from something, or one runs screaming from something.
If you ran kicking and screaming from something, I guess that would be a really geeky kinda flailing run with alot of arm flapping and inefficient leg motion.
P.S. The flipper that bought my house in December, and had it on the market in April, hasn't sold it yet.
tj - how much more will you be pissed off when in a couple of years that 600k house is going for 300k?
And... even IF the prices don't drop at ALL... what would it hurt to wait a year? Do you really think prices will go higher?
With all this instability... wouldn't it be better to just 'wait and see'?
"The stock market crashed as the real estate bubble continued to get larger. Then the real estate bubble popped. The econmony stagnates for more than a decade. No-one wants stocks or real estate, just cash and govt bonds.
Our story is playing out just like Japans."
+++++Not quite. The yen was NOT operating as the world's reserve currency as the dollar is, plus Japan's consumers were NOT propping up on the world's economy.
The world's economy did NOT tank when Japan's speculative bubble popped. IMHO, things will be different when the USA's economy tanks....
When house prices finally fall $100,000 or $200,000 in price, Will the Insurance man or the tax man lower the value automaticaly or will you have to fight to get the premiums or assessments value lowered every year? And what about PMI, will it kick in automatically when your house depreciates $100,000? Thanks.
Striker.
hey, love your blog!!
hey, love your blog!!
The guy who bought my house in summer 2005 for 3 x what I bought it for in 1999 is allready in preforeclosure he owes an additional 22,000 on his OPTION ARM. The house is in san Diego area. Maybe I can buy it back in a year for 2/3 less then what he owes?
I found it on foreclosure.com
btw he also bought another house in the area one month later and that one has gone foreclosure allready.
He is about 25 newlywed new baby and works construction and also had another night job working a printing press. I didn't think he'd be able to swing it even with the other hispanic family living there although he drove a nice truck with huge chrome rims on it.
Yeah tj, I'm doing the same thing. Currently in a holding pattern to avoid an upside-down mortgage.
http://bullnotbull.com/archive/japan-tale.html
The real estate crash in Japan from M. Nystrom, who says he was there
one man's armageddon is another man's reality
i don't think it's keith i think it's the writing on the wall
As a renter, this is all well and good - a rather encouraging news, Keith.
But quite frankly, I'm not seeing the home price erosion in Orange County California that your website keeps reminding us is "just around the corner" and "as evident as an Indian Elephant standing in the living room".
OC home sellers are still trying to flog 3 bed room, 2.5 bath concrete shithouses (there is no better word to describe these non-basement, cramped, no-yard homes) for $500,000 to $775,000! These homes are nothing special.
So, somebody on the HP team needs to make a red flag post or something when the homes in California's "red-alert real estate area" (i.e. Orange County) start to get down to a reality price for what you are going to live in - you know, $200,000 to $350,000.
These homes are NOT worth more than this.
I repeat, these homes are NOT worth more than this.
will we learn??
I doubt it!
http://tinyurl.com/pgodd
When house prices finally fall $100,000 or $200,000 in price, Will the Insurance man or the tax man lower the value automaticaly or will you have to fight to get the premiums or assessments value lowered every year? And what about PMI, will it kick in automatically when your house depreciates $100,000? Thanks.
Striker.
Striker- Yes,it not easy to have the property reassessed. It requires a new appraisal-which costs you out of pocket money, and by the time the city reassesses your property (along with other requests) prices continue to go drop lower still. Kinda like chasing the tax man downhill...property values drops more the next year? too bad again, the city needs another appraisal which cost more $$$.
Its more practical to wait out the cycle than to keep getting re-appraisals on the downside in my opinion.
Regarding PMI: If putting down less than 20%, then PMI is required. YOU NEVER STOP PAYING IT. I never had PMI, but heard a phone call with the bank would get it taken off the mortgage, but that wont happen until the RE market goes up again, (can you wait about 10 years more for positive equity?) Count on paying PMI until the next upturn.
Wouldnt you rather buy a bigger, nicer home, with a lower tax and insurance base? Its the perfect combination!
And the exact oposite of what is happening to buyers right now.
Just sit tight and be thankful that you are renting! I know I am.
Does everyone want to read something that will make you sick to your stomachs? In preparation of the 5th year since the most devestating attack on US soil, read how the government contributed to our outstanding debt, much like this housing implosion.
"What happened at the Top of the Towers that morning in many senses served the same purpose as a magician’s wand- the events at the top were, in part, a sick sort of diversion, to draw attention away from the events going on at and below ground level.
As we all continue to learn more about this topic, we start to comprehend the grandiosity of the thefts and fraudulent transactions that took place under the umbrella of 9-11- specifically hundreds of billions of dollars worth of gold bricks which were surreptitiously liberated from their safety deposit vaults under the World Trade Center. Couple that with the realization of the verifiably true statement made by Donald Rumsfeld on September 10th 2001- wherein he announced that $2.3 trillion dollars in U.S. taxpayer funds had been misappropriated by Pentagon accountants and “lost”.
When we’re talking about Trillions of Dollars missing, we’re talking about the largest crime ever committed- right in front of all of our lives and using 9-11 as the getaway vehicle- and what was stolen, was our collective Future, it’s about time we realized it.
Not only did Rumsfeld’s September 10th ,2001 announcement not draw much attention then, but even today it’s widely unknown… and it’s worth mentioning here that DynCorp, which is partially responsible for the bogus Pentagon accounting, is still receiving tens of billions annually in Pentagon contracts… in other words, it’s my contention that what America doesn’t know is exactly what’s killing America, and Americans. Based on that contention- if we simply build a mechanism to restore the unrestricted flow of information to the People, the country should self-resuscitate.
Who do we trust now?
Oh yeah and by the way, reports today confirm that Saddam had no ties to Al Queda. This is rediculous.......
The building of condominiums and apartments here in Pasadena, CA is still going strong, even though existing dwellings are not selling. My retail business is down by leaps and bounds and wholesale business is nonexistent. I know someone who works at the Porsche dealership in Pasadena who says you can count the cars they sold last month on one hand. There are still a few folks out there who didn’t hear the music stop. I’m going out to get their money. BYE!
To ANON (JT)
Friday, September 08, 2006 4:31:43 PM
ANSWER: BE PATIENT AND DO NOT BUY.
I too have been wanting to buy a home for about a year. I needed a larger home for my finance and additional children (I already own four 1500-1700 sf homes, 3 which are rented with positive cash flow).
After being uncomfortable about EVERYTHING I reviewed in 2005-2006, I finally decided to RENT a larger home. The moment I made that decision, I knew it was the right one. It felt so refreshing. Sacramento is like SD....so out of balance right now.
I rented a beautiful home from a Flipper, in a subdivision FULL of Flippers with vacant houses they can not sell, due to the market collapsing. I really had my pick of some beautiful homes: 168 homes in the JTS Estates at Lincoln Crossing. About 10 are occupied...3 owners and 7 renters. The rest are owned by Flippers for resale, or came back to the builder, who is discounting them by $100-200,000 per house to dump them (rather unsuccessfully).
I rent for $1700/month. It is a 2700 sf home for which the Flipper paid $669,000! With Mello Roos, taxes, ins, HOA, maintenance, managment, etc., her expenses are about $1200/month BEFORE debt service. Amazing. She nets $500/mon on a $669,000 investment!!?? Stupid? Yes, less than 1% return on a depriciating asset. She should just give the house back to the lender, except she bought THREE more with her three sisters!!! Augh.
Do not buy now. Find a nice stuck Flipper and rent the house. I have a 1-year lease and insisted on a 1-year option.
I will bet dollars to donuts that JTS can not sell the 50 returns at $200,000 reductions and will go to auction in January. The Flippers will struggle for a year or two, and some will go to foreclosure and some will sell at a huge loss (after $40,000/year in negative cash flow after debt service).
That is when I will buy.
The market is INSANELY upside down in many ways. Find something comfortable for a year or two and be happy there. I did and it feels wonderful.
Rem said: "Tillions of Dollars" missing..." I bet you it's that illegal Mexican again who took it - right white folks?
Lauravella, thank you. Striker.
when the news becomes plain enough that even the dullest of "homeowner Americans" realize that they've been swindled and jived - recession. personally, i think we are at the start of it right now. they are going to pull back on their spending and pull back hard. roughly 70% of the adult population owns their house (if i hear the term "home" thrown around anymore i'm going to puke). true, about half have their shack paid in full.
nonetheless, alot of these people are counting on the value of their house to help with their retirement, shortfalls from their pensions, medical expenditures (lots of fat and out of shape baby boomers out there that are going to require medical services not to mention cosmetic bullshit procedures to hide the aging that they loathe), education tuiton for themselves or their kids, and run of the mill wally world consumer spending. as the easy money dries up they are going to squeal. interesting mortgage fraud news website by rachel dollar - lots of new activity within the past 1 year.
Well markus arelius, I feel your pain. As someone living slightly north of you, I'm in the same situation as you. People are holding on for dear life. The delfation process takes time and the LA area is usually the last area to crash.
As for relator ethics, I got a good one to tell. A few weeks ago, I asked a relator about gov. foreclosures (since the sign at the mall kiosk he was at suggested it), he told me have not been any in the SoCal area in the past three years. Any listings were the result of unpaid taxes by the homeowner. Once the taxes were paid, the forclosure was cancelled.
Hi Keith,
The Japanese lesson ...
http://www.financialsense.com/fsu/
editorials/2006/0909.html
... that most Americans fail or refuse to learn.
But, learn they will.
- Prof
A break from your dream world. Lets talk the reality of it all.
Oil is crashing and with it the driving cost of inflation.
Gold is falling.
Home builders are up over 10% from their lows and still rising.
The bottom has come and gone.
Jip:
You know what needs to be done with those realtors? We need to take their names and put them on the billboard, quoting what they've actually said, so that the public will know and the truth will prevail.
We're looking at a depression!
Hold on tight and get into cash!
It will be the worst crash in our life time!
Our story is playing out just like Japans
///////////////////////////
Not quite....
Ya What House Panic Not in San Diego near the Coast (within 5 miles) But quite frankly, I'm not seeing the home price erosion in San Diego County California that your website keeps reminding us is "just around the corner" and "as evident as an Indian Elephant standing in the living room".
San Diego home sellers are still Selling a 3 bed room, 2.5 bath concrete shithouse for $400,000 to $675,000 and they are for the mostpart getting it: allbet in 40 to 75 days rather than 3 to 15 days as was the deal last year (2005) So where the hell is this big downturn? because I am going to be grey and old as shit before it hits here - you must be in some shithole in the first place like Phx ariz or new Mexican some shithole like that - The Fucking rent here is out of this world I just moved from Hawaii and this place is no cheaper - guess if you want the Pacific coast it is gonna cost ya - guess i will rent a motorhome longterm and squat in someones neighborhood until the cops run me off.
The prices in San Diego are coming down slightly BUT......the leading indicators to a real estate crash like increasing Notices of Default, Foreclosures, Bankruptcies, maxing out HELOCs (I work at a large bank in SD and know firsthand), and other signs should comfort you if you're looking for a crash back to normalcy. Patience will soon pay off like it never has before ; )
San Diego home sellers are still Selling a 3 bed room, 2.5 bath concrete shithouse for $400,000 to $675,000 and they are for the mostpart getting it: allbet in 40 to 75 days rather than 3 to 15 days as was the deal last year (2005) So where the hell is this big downturn? \\\
this place on mars must be real nice..ill have to vist there sometime.
The SoCal market will be the last to crash (and at a slower rate) for the following reasons:
1. The coatal areas (SF, LA, and SD) have been built out. In order to build a new house, the old one hast ot come down.
2. New homes built in the area was just enough to keep up with demand.
3. RE Industry keeps a tight hand on the available stock. After being told that there were no foreclosures on the market, I see a TV show with a flipper renovating one. You can't get access to a list of foreclosures on you own without paying for it.
Sorry man, SoCal has busted badly. 1000000 in layoffs coming. Deal and move on.
Anon, stop lying man. San Diego has busted first out of all the Cal cities, literally man, your post is a lie. The data doesn't support your fact. Either tell the truth or don't post here man, understand?
The lags cover the facts: We already have a 10 percent reduction in prices, ALREADY. Let me repeat, a 10 percent reduction ALREADY.
The major homebuilders are indicating 60% layoffs. Either wake up or get out.
Yeah man! Stop lying man! You know that if you are doing this, because you're actually a victim, it is not healthy. Acceptance will lead to quick receovery. You keep on denying it and you'll be the last to jump off the sinking ship.
Remember, nothing will be lost to us even if you keep on twisting the facts, because one, we are not victims. Two, we know based on fundamentals that this bubble cannot sustain and will burst, as it has now. You can inundate us with your twisted facts, but we've got nothing to lose, because we are not buying or selling.
You, you'll end up the loser and yo'll end up hating yourself more. Wake up man.
The significance of the type of elephant is its contribution to the bust:
Indian Elephant: symbolizes outsourcing
African Elephant: represents U.S. as a debtor nation with likely consequence of supposedly impossible currency crisis.
Question for certain groups who shall remain nameless but wrap themselves in the flag and worship the Almighty Dollar - how do you reconcile patriotism with multinational corporations dodging U.S.A. proud-to-be-American TAXES by relocating not only production, but also hidden bank accounts offshore? Could it be you are being played?
Domestic companies that hire American, don't rook workers of their pensions just when they become elegible (Diamond Walnuts, anyone?) and pay their taxes should be rewarded with out patronage. Or is "buy American" another communist, lefty notion, you curmudgeons?
correction : "with our patronage"
Here's some truth to the housing market in OC. Coto de Caza, 2 homes I've recently seen originally went on the market for around $1.3M. They are now below $1M at $950k or so.
Westminster and HB areas. I've been going to open houses and watching the market here for several months now. Anywhere from 10-20% lower in prices than from their original asking prices. I'm in Costa Mesa. 3 homes around the corner from me aren't selling. The are literally right next to each other. 2 more homes down that same street I don't see selling anytime soon either.
The reality of all of this is that home prices are being reduced and I don't see many that are selling. A home that I have been interested in is on the market. 2300sqft 4/2 in Westminster (HB border) for $670k. Decent house but for that price... I think I'll pass. Considering they've already moved out and are motivated to sell.
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