August 08, 2007

Has this housing bubble and crash been textbook Econ 101 or what?

I feel sorry for people who haven't taken an Econ 101 class, or listened to ignorant and corrupt realtors on commission who don't even have high school degrees, but damn, is this mania, panic and crash straight out of the textbook or what?

Adam Smith, John Kenneth Galbraith, John Maynard Keynes and Milton Friedman would all be smiling today - and renting!

And they'd all be pissed that the two NAR hacks David Lereah and Lawrence Yun call themselves "economists". What a disgrace to the profession.

35 comments:

Butch said...

And now for the mathematics lesson:

The housing bust will blast a three-quarters of a trillion dollar hole, per year, in the REIC's Titanic.

Here is how I arrived at this number:

-Right now there are approximately seven million homes perpetrated on the sheeple every year--about a million new homes and six million used homes.

-According Credit Suisse, approximately 52% of ALL loans in 2006 were "non-prime". The breakdown is as follows:

Sub Prime: 20%

Alt A: 20%

Jumbo: 12%

-Every indication that I have seen in the last week or so shows that these three "easy money" scams have been, literally, shut down.

So, if we just round off the percentage down to fifty percent then that would effectively cut out 3.5 million of the homedebting sheeple who would have signed off on a death pledge, but now will be prevented from doing so.

Next, we take that number and times it by the average McMansion price, which I estimate at $220k.

The result?:

Seven hundred seventy five billion--or three-quarters of a trillion in loans/MBS/CDOs that won't be done beginning right now, and 3.5 million houses that won't be sold, also beginning right now.

Every year.

And you wonder why the Battleships Fannie and Freddie are being put to sea right now to fight this collapse tooth and nail?

This is the real deal, folks. And the goverment will pull out all the stops to try to prevent the inevitable.

Anonymous said...

what crash? ohhhhh the 2% drop in prices...right that crash

Anonymous said...

Price are still up in most area's. If i don't see a house that was bought for 650,000 in socal go to 400,000 then i will not feel there was a crash. Because even at 400,000 it would still be overpriced by 100 to 150,000. When houses are selling for 350,000 plus in Utah there is not a crash. When a teardown on Maui is 600,000 thats not a crash.

6% Realtor said...

Hey - Let's find out how educated this blog is. I'll start -
me:
Cert. IT, BA Econ, MBA Marketing

Have a great day!

Anonymous said...

some crash:

+1.20 18.59 D R HORTON INC
+2.91 35.97 KB HOME (KBH)
+1.38 24.33 TOLL BROTHERS INC
+1.06 11.92 STANDARD PACIFIC
+2.91 38.58 CENTEX CP (CTX)
+1.47 21.85 PULTE HOMES (PHM)
+1.54 36.03 LENNAR CP CL A (LEN)
+2.32 66.75 FANNIE MAE (FNM)
+1.00 62.64 FREDDIE MAC (FRE)

BWA HA HA HA HA HA

BWA HA HA HA HA HA

BWA HA HA HA HA HA

Anonymous said...

NAR is the laughing-stock of the industry right now, and has ZERO credibility with the American public due to their own GREED and absolute willful ignorance of the facts in front of them, plain as day.
I believe this has been Econ 101--you just needed to pull your head out of your A$$$ to see it.

Anonymous said...

It certainly has been textbook econ 101. I keep reading that folks fear that prices won't adjust to the inventory (or are too slow to do so). I'm reassured by econ 101 basics (as demand goes down and supply goes up a new price point will be set) ... Don't worry about sellers being slow to adjust to the new price, it's not up to them (The market will only bear what's reasonable).

We often get too bogged down with complexities in the markets (rely on the basic principles, and you won't get confused)

Paula said...

It is Econ 101 brought to life, all right.

Several other sure tipoffs existed: 1) The constant racheting of prices upward, when neither homes nor land are in any way scarce in the US. Can Donald Trump or the Sultan of Brunei possibly buy and live in all 200 million-plus American homes? Unlikely. Therefore, the value must go back to what average $40,000-a-year Americans can afford, which is:

2) A home price ceiling of $100,000 for the mythical single average American wage earner, because that is 2.5 times the homeowner's gross income. This old formula went to an undeserved oblivion during this bubble, but it was the gospel for years--for, it turns out, good reason. So, under this rule, if you make $100,000, you can carry a $250,000 home.

Or not, if you make minimum wage, as we are seeing every day and will see through 2009.

Shakster said...

Down to the MSM diversions,omissions,and lies,to calm the heard of "humans",to the trade war with China now in full swing.To the pump,and dump on Wall street all the way to Main street.
To War ,and destruction of Iraq ,and Afghanistan to cover the Dollar Charade ,and it's massive losses to investors,and Humans in general.To the trashing of the Constitution to hold back the Humans in case they wake up.
Yes I would say that none of it is really surprising.I could never predict the order in which it happened thus far,but damn if the people that warned us all about this nonesense weren't right.They were ,and are absolutely right.If the Humans are winning,why do they run around acting like a bunch of animals?Even aninmals don't lie to their children.That is how far into this textbook we have gone,and it's not even half over.
As this ship sinks try to keep a good attitude,and join the HPers in a round of Shine,and popcorn because you might as well have a good time.

Anonymous said...

I don't remember hearing anothing about "Reverse Mortgages" in Econ 101... just curious what that's going to do to grandma/grandpa when the banks reassess the value on their homes.

Hmm, get kicked out because the bank has paid out more than the value on their homes??

Anonymous said...

I had a college prof in the 1980's that said communism would overtake capitalism, basically because capitalism always needs new markets to sustain itself, and that eventually capitaliem would run out of new markets.

I remember thinking, if this guy is so smart in economics, why isn't he rich?

eric the red said...

A housing crash would actually help the economy as people would have more disposible income. Only the FB's, lenders and CDO bagholders would be hurt. In the course of this, people have learned not to trust the sleazy mortgage broker and realtor industry.

I also believe the bankruptcy laws must be made more strict. It is the easy get out of jail free card that is encouraging this wild overspending. Most of the people buried in debt are there due to spending too much, not because they didn't make enough to survive. There can be exceptions for death of spouse or medical problems, but anyone else should be sent to a work camp onthe weekends to pay off their debt.

Anonymous said...

Econ 101 with a Caymen Islands twist.

Bear Stearns chose to dissolve it's two in trouble funds in the Caymen's to avoid creditors and fund investors.

Think your money is 'safe' with Bear Stearns?!?

StuckInAssachusetts said...

-
-
-
-
-
-
-
OMG! I spoke to a woman today that was ready to start a family. They wanted to buy in the Worcester area of MA (lost of foreclosures and crashing prices). I told her that it is not a good time to buy. She responded it is the best time ever. I asked if their realtor had told her that. I was not was surprised when she said yes. She didn't want throw away money on renting etc. I had plenty of time to tell her what was going on with subprime resets irrational exuberance etc., and finally told her to wait a few years and read up on the housing market. I hopefully save them from their worst financial mistake of their lives.

Anonymous said...

.
.
.
.
.
And today... we have the internet which allows even mediocre minds to rent too!

christiangustafson said...

Ludwig von Mises is the go-to guy here on credit expansion, crack-up booms, and gold as money. The guy was a towering genius of the 20th Century.

I have spare copies of "Human Action" and "Bureaucracy" if you need them, Keith.

I also have a copy of his memoirs signed by his late wife, Margit. You can't have that one.

Anonymous said...

Its been a while, but I'm pretty sure the standard texts (Samuelson) did not cover much about manias, panics, crashes, etc.
I learned about this stuff from bagheot's book Lombard Street and the 1830's book on The Madness of Crowds...
I didn't know this was a major part of the Austrian school till recently... all I recall from von Mises is mostly free market type arguments...
maybe things have changed in econ 101 due to recent events...

Anonymous said...

Wow. You've been saying "the bubble has burst! prices are plummeting!!" for about a year now, and I have yet to see it. Are you in the US, or are you in Ireland or something? The gloom-n-doom predictions just aren't playing out. What gives? I am on the sidelines with a ton of cash ready to buy... When?!!!!!!

more funds halt redemption said...

"Aug. 9 (Bloomberg) -- BNP Paribas SA, France's biggest bank, said it froze three asset-backed securities funds because it's no longer possible to ``fairly'' value their holdings". I'd say this is all under textbook econ 101 scenario. Click on my name to get the article.

RJB said...

6% realtor, I have a problem with your credibility when you claim to have a B.A in econ, but (apparently) deny the existence of a housing bubble or at the least, admit the housing market is in need of a correction. Do you realize Mr. Greenspan and Mr. Bernanke do not agree with you? A market (such as California) where 3% of the population can afford the average priced home is not sustainable. That’s Econ 101. You must remember the theory of demand, that is, at higher prices people will demand fewer widgets. Also, there has also been a shift in the demand function when the availability of CREDIT as been tightened, thus causing the demand function to move south. Both of the above will affect the quantity demanded, and we have not even discussed the supply side yet...

It’s been a while since econ so please forgive me if I got anything wrong, but I think you get the idea.

Me-
B.A. (Business Admin); Juris Doctor

6%Realtor said...

I'm sorry RJB, but to the best of my knowledge I never claimed to deny the existence of a "housing bubble" or a market correction. In fact I have been quite vocal in my view on the extent of the market correction still to come. Frankly I can't stand all the "bubble talk" - what an overused term. But I do believe in market cycles, and with the loose lending practices, valuation and investment free for all that we experienced the last few years this market correction will be particularly severe, and is to be expected. All that I have said is that my particular business is not suffering.

If there is an industry where basic economics apply it is Real Estate - supply and demand are critical factors to valuation. You got that one right.

Please do not put words in my mouth.

Thanks!

Anonymous said...

Greenspan was a bonafide "economist", but he drank too many times from the right wing's anti-regulation of everything chamber pot. Ayn Rand first pissed in that one, and then Newt Gingrich and Rush Limbaugh tag-teamed their fat asses to unload the mother of all turds into it.

This isn't just ad-hominem screed---well, OK, it is, but there's truth behind it.

Remember just a month or two ago that Fed governor said that he recommended to Greenspan---back in 2000 or 2001---that the Fed ought to be checking into underwriting standards for mortgages because they were getting awfully loose and may present a risk? Greenspan brushed it off because of his anti-regulatory ideology.

That Presidential Medal of Freedom sure burns doesn't it? The presssscious the pressscious!

Anonymous said...

Econ 101 is all about classical perfect, frictionless, markets run by homo economicus, that idealized human who exists only in econ 101 textbooks.

This is Econ 305, "Modern Behavioral Economics" and Wall Street 101---"Heads we win, tails you lose."

Marx and von Mises were both right about the problems, and wrong about the solutions.

Anonymous said...

6% Realtor, CERT IT? Is that like MCSE or some such nonsense? Son that isn't an education. It's a joke.

Anonymous said...

11:11

Let's regulate everything. Let's also force everyone to join a union and make the minimum wage $50 an hour. Then we will all be rich and since government always knows best, everything will run very efficiently.

Boy oh boy I can't wait until Hillary creates socialized health care and a government employee decides when I can cannot see a doctor.

Anonymous said...

Econ 101 with a Caymen Islands twist.

Bear Stearns chose to dissolve it's two in trouble funds in the Caymen's to avoid creditors and fund investors.

Think your money is 'safe' with Bear Stearns?!?

August 09, 2007 3:49 AM

=================================
I read this too. Is that not amazing filing for bankruptcy in an off shore hot money haven like the Cayman Islands. The Caymans are under British control, where 90% of these hedge funds are registered.
Is American once again under attack by the British Empire?

RJB said...

Mr. 6% Realtor,
Part of my job is to put words in people’s mouth, but I gave you the benefit of the doubt by stating “apparently” you did not believe in the housing bubble. I don’t understand why (if you “In fact I have been quite vocal in my view on the extent of the market correction still to come.”) you would challenge the education of the people on this blog. It implies that we are all wrong. Secondly, how can your business not suffer? What do you tell you clients when they ask if this is a goodtime to buy? As part of your “fiduciary” responsibility, do you tell them to what extent you believe in "the market correction still to come"?

Question. I am not sure of the law in this area as it pertains to Real Estate Agents, but do you know what exposure (if any) do agents have for fraud, misrepresentation or a breach of the fiduciary duty? FYI, I am glad to hear that your business is not suffering. I am not a person to whish misfortune on other people. Good luck to you.

caj420 said...

What does REIT stand for, Real Estate Induced Trauma?

Anonymous said...

"Boy oh boy I can't wait until Hillary creates socialized health care and a government employee decides when I can cannot see a doctor."

First, to set the record straight, please know that I am neither a Dem nor a Republican.

Second, I never voted for Bill Clinton and/or Hillary when I lived in NY.

That said, what is with you people and the Clinton hating? My mother still rails against "that pig" Clinton some 7 years later and worships Bush. Bush is by far the biggest assclown this country has ever elected. All that ever comes to my mind when I think of Bush, is Howard Stern commenting, before Bush ever became President, that all Bush ever did was bankrupt the companies he led, and would do the same. And please know, I cite Howard Stern only to illustrate that even he could see that Bush and his Cronies were a bunch of douchebags.

Third, why is it that the US remains the only industrialized, Western nation without even a basic level of healthcare for all?

Finally, if you want above a basic level of care and/or want to see a doctor when you or your wife and/or rat kids want, pay for it your f*cking self.

Evil Capitalist said...

Price appreciation in any market with low liquidity means absolutely nothing. In fact, price appreciation in illiquid market means exactly opposite to the "healthy" market.

Here is illustration:

Pretend we have a closed system with 10 houses. The 10 houses has been changing hands and steadily going up in price for several years. On average every house has been X+20%. For last two years no houses in this market changed hands at any price. The asking price remains stable.

David Beckham moves into this market and sees a house he wants. He pays X+80%. As this is the only sale in the market, the average price INCREASES. The market however remains utterly illiquid as other than David Beckham no one must buy a house now while the seller want to sell now ( that's the only reason why their houses are on the market to begin with )

That's why price appreciation data points mean something ONLY when there is sufficient number of transactions happening.

Anonymous said...

Anonymous said...
what crash? ohhhhh the 2% drop in prices...right that crash

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/08/09/bcnecb109.xml

Good call there genius. You should get on your inside line to the ECB and let them know they're panicking for nothing.

Shakster said...

6% Realtor said...
Hey - Let's find out how educated this blog is. I'll start -
me:
Cert. IT, BA Econ, MBA Marketing
44444444444444444444444444444444444
So is everything gonna be Fine?
What's the purpose of Title Insurance?
What's Better-A.Financial literacy of Americans,orB.Government Oversight of lenders?
If you really have meaningful intentions you'll debate this here at HP.Be warned though,we will prove Cert,BA Econ MBA Marketing means little in a crisis,and all the Framed Awards in the world are pretty much meaningless outside of Cocktail Parties.

6% Realtor said...

Cert IT was a two year degree back in the 80's. No claim to fame, but it is fun to think back about the systems we were taught at the time. Very different landscape than today!

Anonymous said...

"6% Realtor said...
Hey - Let's find out how educated this blog is. I'll start -
me:
Cert. IT, BA Econ, MBA Marketing"

Sure, we believe you...now go back to your Ramen or dancing on the brass pole.

6%Realtor said...

Hey Anon... Why Would I take credit for a cert in IT if it were not true. The work related to my Masters has helped me build a successful business. Jeez, you guys just can't get along can you?

Why is no one interested in sharing their education? Just trying to ridicule mine? I know there are folks smarter than me here (obviously not you my friend Anon).

Closed two more sales today! And got another referral. Very happy clients. Life is good. Going camping this weekend. Perhaps I'll try Ramen, although I prefer Pesto Gorgonzola with a nice cab.