From my favorite mania book of all time, the one who inspired me to start HousingPANIC - Manias, Panics and Crashes by Charles Kindlberger. Here's the way it goes down, and my brief comments:
· The upswing usually starts with an opportunity - new markets, new technologies or some dramatic political change - and investors looking for good returns.
(collaterized loans, 1% interest rates, globalization)
· It proceeds through the euphoria of rising prices, particularly of assets, while an expansion of credit inflates the bubble.
(Hey, my house just went up 20%! Masses quit their jobs to get realtor licenses. Neighbors talk about prices at cocktail parties)
· In the manic phase, investors scramble to get out of money and into illiquid things such as stocks, commodities, real estate or tulip bulbs: 'a larger and larger group of people seeks to become rich without a real understanding of the processes involved'.
(Lines of sheeple at Toll Brothers' Grand Openings, condo flippers making $100,000 in a few weeks, the shoeshine guy getting into real estate, Casey Serin scores $2 Million in debt)
· Ultimately, the markets stop rising and people who have borrowed heavily find themselves overstretched. This is 'distress', which generates unexpected failures, followed by 'revulsion' or 'discredit'.
(Inventory explodes. Greg Swann tells you everything is OK. Prices start to come down. Builders go with 'fire sale' pricing and incentives. Foreclosures mount. People can't sell their dead inventory. Denial is over.)
· The final phase is a self-feeding panic, where the bubble bursts. People of wealth and credit scramble to unload whatever they have bought at greater and greater losses, and cash becomes king.
(Housing panic sets in. Neighbor vs. neighbor fire sale pricing. Foreclosures soar. Fed lowers rates. Stocks fall. Other countries start their downfalls. Greg Swann finally submits resume to McDonald's. People are disgusted with housing.)
January 10, 2007
Kindleberger tells you how it's gonna be. Don't argue. Don't worry. Just be happy you know.
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16 comments:
Although people are still buying. Surely people should stop buying new cars, before they give up on houses. Don't see it crashing yet.
The single most important missing part of the equation is DEBT. Similar to the 1920's excesses, the 2000's excesses where funded by borrowing. This debt is what will accelerate the decline of perceived wealth.
In the 20's, people borrowed 90% of the money for stocks and houses. When the market slowed and prices fell by more than 20% people couldn't afford to sell without realizing a loss. Margins on stock trades were also 10%. The same thing happened in the 1929 stock market crash, except the sale was forced after a decline with a margin call.
I think we are in the "distress" phase ..
Investors here in Central Florida are competing with builders. One of the inversotrs I spoke to told me he would meet or beat the builder's price!
The builder had already cut prices by 30k in that developement. The investor will lose money selling it at that price.
I think we are in the "distress" phase ..
Investors here in Central Florida are competing with builders. One of the inversotrs I spoke to told me he would meet or beat the builder's price!
The builder had already cut prices by 30k in that developement. The investor will lose money selling it at that price.
I have a graph showing the four horsemen of the housing apocalypse.
Four Horsemen of Housing
I have tailored it to Southern California. We are already seeing the first sign which is large inventory jumps.
It's different this time. In the past, people always put some of their own money into the game. Never before have so many people been givin 100% loans or even 110% loans and not had any of their own skin in the game. What will stop them from walking off and giving the finger to the lenders? The MBS buyers and taxpayers will be taking it up the ass this time. The scammers will have their credit ruined, but it's no big deal. I heard a broker on the radio advetising that they could get you a 100% mortgage one year out of filing bankruptcy.
The lending standards haven't changed. They've just gone away completely.
yep, that's about right.
My favourite book is Paul Kennedy - The rise and fall of the great powers
America always reminds me of 15th century Spain - you will keep on partying, keep on exporting your industry and keep on spending money on wars until one day you will find you are a third world nation.
I went to a bachelor party a coupl of months. There was a dude there who told me he sold his home for $380K in a part of town where $350K is unheard of.
So I asked him how did he do that especially in a down market like this. He said point blank, oh the buyer's fucking over the mortgage company. He'll get $50K cash at closing and then plans on walking away from the mortgage, won't even bother moving in. I'll have my mortgage paid off and walk away clean.
I was stunned. Not so much that this happens, I know it does but at how open the guy was about it. No big deal he was about to committ mortgage fraud. I was even more stunned that the bachelor who I know pretty well knew this guy well enough to invite to his big soiree.
The world is a messed up place.
Why not?
How is that campaign any different than a campaign by GM to convince you now is the right time to buy a new car.
GM never claims that now is a good time to buy or that car prices only go up. GM doesn't put buyers into option ARMs where repo is a certainty.
We are going down faster than Spain because they didn't have all the welfare leeches to support.
Whatchoo talk'n' about Willis?
GM doesn't put buyers into option ARMs where repo is a certainty.
Yeah they do. They get people into 8 or 9 year loans where it takes longer to pay the loan off than the length of time the car is on the road.
Wake up man.
Keith is right, folks! Housing prices will be down nationwide another 10% in 2007 and a FURTHER 25% in 2008. In 2009 the market will slow to only another 5-7% loss. Forclosures will be up 15% in 2007. No predictions further than that. The economy will slide into a DEPRESSION (not a recession) that will make the "great depression" seem like a hic-cup.
After this, unemployment will hit a high about 25% then stabilize, however minority unemployment will hit 75%. Riots will follow and L.A., NYC, Chicago, Boston, Miami, and Washington D.C. will be in flames. Martial law will be declared and the UN(!) and NATO will be called in to assist the National Guard in shooting looters thereby only inflaming the situation. Bernie Sanders (I) of the Socialist Party will take over the Governement via a coup with sympathetic generals in the army and air force. Capitalism will be replaced with a kinder and more fair system of government based on the Chinese system. The Generals, tired of Sanders rule will oust him and set up a strong arm dictatorship which will confiscate all privately held guns (for our safety) and then take away all our gold and silver ingots we have been hoarding.
Bernie Sander LOL!!! Like they'd ever let a jew be president...oh wait you may be on to something. If HP is correct the jews run everything so it makes perfect sense that they would install one of their own.
Hmmm it's all starting to make sense now
PS: Isn't minority unemployment close to 75% already?
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