There should be NO surprises. As an HP'er you should know EXACTLY how this will unfold. This is like watching evolution in real time, and don't you all feel like you know something, some eternal truth, while others are still clueless.
From the HP bible, "Manias, Panics and Crashes" by Kindleberger, with my notes on what each stage felt like to Joe Homedebtor:
* The upswing usually starts with an opportunity - new markets, new technologies or some dramatic political change - and investors looking for good returns.
2001: Hey, isn't it GREAT that the Fed lowered interest rates to 1%! Boy, it sure is easy to get a loan these days, wonder why? That stock market sure sucks, maybe I should try real estate?
* It proceeds through the euphoria of rising prices, particularly of assets, while an expansion of credit inflates the bubble.
2002 - 2003: Everyone's getting rich! Marge, our home just went up in value, let's get a cash-out refi and buy a Hummer! Man, getting credit from a bank has never been easier! Now you don't even need a job to get $1 million!
* 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'.
2004 - 2005: I'm gonna go with my friend Pete and go camp for a few days so we can win a condo! I mean, win the right to pay whatever the developer asks to buy a condo! (No, seriously, HP'ers, just a year ago people were CAMPING OUT FOR FUC*ING CONDOS!)
* 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'.
2005 - 2006: Oh, crap, my Scottsdale investment condo has been on the market for 5 months and no offers. Maybe I should lower the price? But Larry next door sold his a few months ago for X so I should be able to get X too. Hmmm... OK, I'll lower the price. (months go by). Oh, crap, nobody wants this sh*tshack! Where did all the buyers go?
* 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.
2007 - 20??: OH DEAR JESUS SOMEONE BUY MY HOME! Why are all these subprime mortgage companies going belly up all of a sudden? I'll sell my home for any price - I don't care, Mr. Banker, just tell me what I owe! Get rid of this damn thing! I HATE HOUSING! Oh, dear, I need to raise cash and raise it fast otherwise I won't be able to eat! How did I get $2.2 million in debt!? What was I thinking! AAAHHHHGGGHHH!!!! SUZZZZAAANNNNEEEEE!!!!
13 comments:
What was I thinking! AAAHHHHGGGHHH!!!! SUZZZZAAANNNNEEEEE!!!!
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cue - Comfortably Numb, Pink Floyd.
"There is no pain, you are receding..."
Hahaha!
Every new headline brings a new wave of deja vu. You'd think people would have learned after the dot-com fiasco. The deliberate self-deception that has been going on is mind-boggling.
So you're saying "Bang the rocks together"
News on Jan. 2007 foreclosures.
keef, whats with all the swearing?
Kids read HP ya know.
A little extreme there Keith, but right on in one respect... Go ugly early, because it is not going to get any prettier in the morning.
Hey keith - here's another good "great housing crash theme song" for you:
http://youtube.com/watch?v=VLvB29BcsmQ
"Storm's Coming" by Gnarls Barkley. I always think of HP when I here the line
"There's a storm on the way,
and it's comin' no mater what I say."
hope you like.
Camping out at new developments was a common theme in Las Vegas. Back when I sold my house at the tippity top in summer 2004, there were showing people on the news all camped out in front of model home offices with sleeping bags and all just for a crack (via lottery) to become homedebtors. I remember watching it and wondering if there was another Lord of the Dweebs convention in town or something. One day I saw on the news they hauled off these two chicks to jail after fighting over a spot in line... LOL now that's a manic phase!
Excellent synopsis, Keith.
The only thing I might add reagrding what precipitated the bubble, even BEFORE the 2001 Fed-panic-interest-rate-lowering, is the 1997 "Homedebtor Sheeple Free Ride Act" which allowed people to have tax-free "gains" of up to $500k per couple by speculating on what SHOULD NOT have been an "investment for profit" but rather simply a place in which to live...which I might add that housing is a durable good (and not so durable as one has to constantly fix the damn thing!) not a "get rich by burying yourself in debt scheme"
And yes, we are now reaching the panic stage in sub-prime. Look for this phenomenon to eat its way up all the way through to "prime" just like termites through a soft wooden foundation
Thus spake Keitharustra!
Butch, I just started a thought, Did'nt the fed make things worse because of the tax free gains?
Before 1997 you had up to a year to put that money back in to another house or file it as income, now its tax free and I can wait ten years if I wanted before buying another house, therefore making the crash happen faster.
I think the Mel Brooks version in History of the World Part I is more appropriatly applied. Boomers beating off. Is the monkey who kills the homedebtor and the killed the real estate clerk. And the space ship, is that to find cheaper areas to live.
Today I saw my first "House for Auction" sign here in Eureka Ca. The word Sale was covered over with Auction on the House for Sale sign. There are for sale signs everywhere you look here. Time to put on the crash helmet.
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