Forbes publisher Rich Karlgaard has an item online that claims four unfair reasons make people think a recession is coming. Included on the list (read it HERE) are, and let me paraphrase, business-hating, bitter and unskilled journalists. (Of course, except the staff at Forbes.) Hey, the man’s entitled to his opinion. And, I’ve been called worse.
Karlgaard went further, claiming bumbling business journalists fan recessionary fears by failing to give proper context to the challenges facing the economy. As an example, Karlgaard wrote …
When reading about any business problem or challenge, how often do you see the problem stated in relative terms? For example, what dampens spirits today? The subprime mortgage mess. How big a problem is this? No one really knows, but so far banks have written off about $150 billion in bad loans. Now, $150 billion sounds huge. But it is only 1% of America’s annual GDP. It is also less than 1% of the market capitalization of U.S. stocks. In any typically volatile trading day U.S. stocks gain or lose $150 billion every hour. How often does one hear that? “Surely that $150 billion will grow,” you say. No doubt. Let’s say the amount of bad paper doubles or triples. Would that finally bring the U.S. economy to its knees? I don’t think so. The nearest historical comparison we have is the savings-and-loan crisis of 1986-95. On a constant dollar basis — so we can compare apples with apples — the S&L crisis saw $700 billion in bad loans. Nearly five times as much as we’ve seen in the subprime mess so far. The S&L crisis caused some damage, to be sure. But during the 1986-95 period the U.S. economy grew and stocks went up. We survived stock shocks in 1987 and 1989 and a mild recession in 1990. The country did not collapse into a 1930s-like depression.
Sounds good. But wrong. $700 billion? Where did he get that? So you know the true history, which your blogger lived as a reporter, it goes like this from government docs (like THIS ONE) ….
• The government’s Resolution Trust Corp., between 1989 and 1995, liquidated 747 failed S&Ls that owned worth $400 billion in assets. (Most of the assets were worth more than a few pennies.)
• RTC losses on those S&Ls was estimated at $87 billion.
• Add in the cost of S&Ls that failed from 1986 to 1989 and the cost bumps up to $156 billion. (82% of that was taxpayer funded, by the way!)
• If one assumes those outlays were made equally, on average, from 1986-95, in today’s dollars the S&Ls added up to a $250 billion mess.
Sadly, the subprime crisis is approaching the cost of the S&L crisis. And, perhaps worse, many of the bad S&L debts were to developer types — not to mom and pop home buyers who took out subprime loans. So, Rich, do your homework before sliming your own craft!
Leave it to Lansner to dispute an expert that would like to add some clarity to the situation. As long as there is mass confusion and hysteria, Lansner is king of the bloggers. And those figures don’t seem to add up to make his point.
VOR - aren’t you cute…
“So, Rich, do your homework before sliming your own craft!”
Haha, you tell em’ Lansner ! You should start getting involved in the comment section. :-)
Good to see a Wharton Alum kicking some you know what.
You can put a mule in a horse harness, but its still a mule.
What would the Donald say?!
VOR, I think Trump still has debt to pay for getting his daughter Ivanka in.
He makes an excellent point. The problems have been blow way, way, way out of proportion. The needless damage this has caused is absurd. The hysterical reactions have been akin to going after a mosquito with a bazooka.
Ivanka, she is an excellent daughter and she has a lot of class. She would probably fire Jon for being such a putz.
Pending Home Sales Jumped 13% in the Western US.
VOR, considering she could easily be Paris Hilton and she is not… I’d agree.
VOR, John is our fearless blogger and defender of the free world, so I don’t agree with your last point.
Watch out, his head may explode. I have read his column for years, long before this blog started. He is, indeed, the defender of the little guy and he has been pushing the “market adjustment” agenda for a long time (I’d say three years). He even wrote a column once that lamented the fact that recent immigrants could not afford OC property. He teamed up with his pals at Chapman University (a liberal arts college in Orange) to convince us that everyone deserves to own property, and we should feel guilty for keeping them from their entitlements. Whether you agree with him or not is not the point. I always thought a financial writer should just give us the facts, and keep their political views to themselves.
Okay, so this subprime fallout is really no big deal at all. Just small change. I’m so glad I read these postings.
VOR: I see facts in Lansner’s statement.
What are the sources of Karlgaard’s statements? Lansner uses actual governtment documents.
Lastly, I never read Lansner stating that immigrants should be able to afford OC RE. Do you have a link to such statements? I call that one out immediately.
If you are simply stating that Lansner noted that immigrants cannot afford OC RE, well then thanks for restating the obvious. Any other conclusions drawn from that would have to stem from some weird paranoid, schizoid attempt to put purpose behind benign statements that are simply stating an observation. All depends on what past statements you are actually referring to. Please post.
The “West”? Either way, that’s too broad for my tastes. In fact, that’s what bothers me a lot of this data. If you’re just looking for an overall general trend, then fine. But I don’t think the same rules apply to Gallup, NM and OC, CA. There are way to many local nuances to group all these places together. We don’t even know how Data Quick compiles their local data when it comes to “sales” or “average price”. Do they count Foreclosure Sales (a previous Lansner blog said they accounted for 38% of “official sales”, which in itself is vague), Trustees Deeds, Deeds in Lieu, etc.? All these factors can radically change the meaning of the data. We can list all the national, regional, or even local “trends” that you want, but without specifics, or at least knowing how the source of the data, they are only vague indicators, at best.
nbi, it was a couple of years ago. I don’t have a link, sorry. But if there is a way to bring up old columns, you will readily see that they have a definite political bend.
karlgaard is venting to the wrong audience… this vent should be directed at bernanke… an all the other idiots trying to save the housing market…
i agree these toxic loans are a very small percentage of the gdp…
stop the rate reductions now… no relief to the distressed home owners…
if you can not afford your mortgage then walk away… the pain is now gone…
Hey Mr. Bubble Head,
Did the Pending Home Sales jump 13 % in the Western US or not? You even said it did. And I didn’t fail to mention anything, I made a statement. If they were down 13% you be doing a little Bubble Head dance all over this blog. Somebody ought to pop you in the Bubble.
VOR,
You make a good point about the press whining about how lower classes couldn’t afford homes. Goggle search “The Real Scandal” and look for the February 5th New York Post article by Stan Liebowitz. That’ll tell you how this mess got started.
Lancer:
Defender of the little people everywere….ahahahahh
700 BILLION in SUB PRIM LOSSES ========= S & L CRISIS
That much is true……….
It was good to see a perspective regarding the Stock Market / losses Etc.
However,
Did you guys see what the DOW did in the 90’s ?
Did you guys see the money move to the stock market ??
Some people are predicting 18,000 Dow?
Huge inflation = $1,000 ++++gold ??
What do you guys think ?
ScottA,
Run as far away from equities as you possibly can right now.
Mav:
Thank you for your Input….
With all your Edcucation….
I hope you are not a school teacher?
My cousin is very well educated, and makes 40K a year …..Blaaaaaa
I assume you have a good job?
I assume you have money to invest?
What is it you do for a living sir ?
What will you do with your investments?
ScottA,
None of your business. But if I wanted to I could buy a nice house with cash. The fact that I won’t for a few years should tell you something.
For those of you invested in gold I would be careful. Take some profits, it looks like there is a bubble in gold currently.
Daddy Warbucks Says: “Somebody ought to pop you in the Bubble.”
well, it ain’t going to be you. That is for sure.
oops, it looks like somebody is getting very defensive around here.
I guess the permabulls can’t handle the truth. Any unbiased expert would agree with me that this is the worst housing market at a national level since the great depression and the worst in OC since the early 90s but you permabulls hate the facts.
Oh well, I’ll keep pointing out the misleading statements on this blog and exposing you.
I can only say one thing: mission accomplished.
I fail to understand how some cannot read the ominous writing on the wall, and instead choose to attack others here. Let’s review the current economic climate look at the top ten reasons why now is not a good time to buy:
1. Dollar at all time lows vs. other world currencies.
2. Fed dropping rates despite inflationary pressures.
3. Oil at > $105 barrel
4. Gold at historic highs
5. Massive subprime fallout, likely to affect other sectors of the lending industry, making sensible loans more difficult to obtain.
6. Unemployment starting to spike up
7. Record personal debt
8. Inverted yield curve
9. DJA off nearly 25% from Jan 1st.
10. Stagnant wages
If you think there is a conspiracy of reportage, you need to either face the facts or go hide from the black helicopters. The world economy has always been cyclic and we are entering a down cycle. Obviously this will affect all of us, but those of us to traditionally feel this first are in the real estate industry (RE has historically dumped before recession is clear). Face your own personal bias and deal with it.
Sensibull is exactly right. This has nothing to do with Doomsday. Our economy is contracting. We are going to see a forced shift away from credit and debt in this country.
MAV:
So…….Deffensive…..a……??
Bubble in gold??
Not till it runs past $1,500.
You heard it hear first……..
But then again Mav………
I have not heard anything out of you ????
No advice……..
No disclosure…….
No reccomendations……..
Just what not to do……..
That does No-One any good…
NAY SAYING…..and HAGGLING…….. ON THE FENCE…
Total BS
Yo MAV……….Stick your neck out and take some risks !!!!!
S-Bull. That’s all fine and well. I’m sure you have researched this, but what I see on the ground, here and now, is that the price of OC homes has dropped about 12 to 15 percent, depending on the area and situation, mortgage help is here or on the way (and in this context, it’s not important whether you believe it’s a good idea or not), and there are subtle indications that there is demand and that affordability is at hand. So, although I don’t pretend to know exactly what will happen, or when, the outlook doesn’t look completely bleak to me.
Well, that’s all fine and good - and priced in already. Which is why activity is way, way, way up. And your #7:
Household Net Worth at Record High
By Tony Crescenzi
RealMoney.com Contributor
12/6/2007 2:45 PM EST
Household net worth increased $624 billion in the third quarter to a record $58.6 trillion, according to data released today by the Federal Reserve in its quarterly Flow of Funds report. The data provide one of the strongest explanations for the resilience of consumer spending seen throughout the past few years amid numberous headwinds.
Over the past five years, household net worth has increased $21 trillion (yes, that’s with a “T”) — a gain of 56%. Real estate assets represents $8 trillion of that gain. It is odd, however, that real estate assets increased during the third quarter in light of price declines and decreases in the homeownership rate.
Those decreases should have partially offset some of the increase in the total level of homeownership resulting from increases in the number of U.S. households, which grows about 1 million or so annually. Assuming prices fall about 10% from current levels and the homeownership rate falls about a 0.5 percentage points next year, household net worth could be cut by about $1.5 trillion.
Where have assets increased over the past five years? Largely in areas that do not seem to be at risk, given the increase in corporate earnings that has occurred over the past five years:
Deposit accounts: +$2 trillion
Credit market instruments: +$1.1 trillion
Corporate equities: +$1.5 trillion
Mutual fund shares: +$3.0 trillion
Pension fund reserves: +$4.6 trillion
Equity in noncorporate businesses: +$3.1 trillion
ScottA,
Sometimes the best advice is to do nothing and stick to fundamentals.
What do you want me to do: send you a bunch of get rich quick videos?
Right now I think muni’s with tax free interest and inflation protected securities are the way to go.
So Mr. Bubble Head, a little good news comes along and you guys up the noise, and that’s all you guys are, hot air and noise.
ScottA,
If you want to “invest” in equities, I’d reccomend SRS and SKF. Look into them.
Sensibull,
Very well said!! When people are thinking about buying a home, they should consider the state of the economy. As you pointed out, every single indicator other than exports (and exports are up only because of the collapsing dollar) is going negative.
When the economy goes into recession, people lose their jobs and real estate suffers. That is Economics 101.
What makes things much worse this time around is that the U.S. consumer is more leveraged than ever before. If the permabulls don’t want to believe us, they should believe the Fed which almost every day is out there trying to come up with a new bailout plan. Why would they do that if things were fine like the permabulls say?
Obviously, the permabulls have an agenda and that is keeping their overinflated home prices. Unlike what some of you might think, I don’t have an agenda, I’m not a renter. I own my home. I just look at what is happening and I can see we are in a bubble. When things change, I’ll be the fist one to become bullish.
I just hope that first-time home buyers at least read the newspapers instead of believing realtors and all these permabulls.
Look at all those poor first time home buyers who believed the realtors in 2005 and are now losing their homes.
There will be a time to buy real estate but not until you see signs that the economy is stabilizing and we are not even close to that.
Thoughtful:
GOOD POST:
That is why the RICH get RICHER.
My RE Mentor Is in ToTal Aquisition mode right now…..
I think he is NUTS however……..
He is buying up stuff at 35 cents on the dollar…….
Any of you renters ever filled out a mortgage application??
POINT BIENG:
The only thing you can list as an ASSET is:
1) Cash
2) Equity
3) Cash equivellents / Gold / Stocks / Bonds or thing easily converted to cash.
SO…………………………………………………………
Every time he aquires… his net worth go’s UP UP UP UP UP UP UP UP !!!
How does he buy in this market you ask ???
He is cash flow possitive $45,000 a month from his rental properties
Think I am BSing
150 Two Bedroom units He has right next to LSU
That is just one of his cards in his deck
MONEY makes MONEY
RICH get RICHER
S-Bull, as far as the press/media thing. No, there is no conspiracy. But you have to wonder about their motivation and priorities when they blow off the whole 6:00 news to show some coked out maniac running from the police. It’s a very competitive business. We all know that “bad news is the best news”.
Mav:
There you have it…..
Thank you Sir……
That was not so hard, now was it !!
lol lol lol ahahahaha
Doesn’t Scott A know it’s tacky to ask how much people make and how much they have to invest? No, of course not…..
Scott A, if you want investment advice, here’s some advice from the richest man on earth concerning gold: “It gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.”
Gold has no intrinsic value, therefore it’s not a good investment. What you are doing is speculating.
I wish the real Truthiness would come back.
This new evolution of ScottA is horid.
I’ve concluded ScottA is the product of some direct marketing loser.
Liar Loan:
“Gold has no intrinsic value”
Total BS…….
I started invesing “SPECULATING” in 2003 price $350 an ounce
You can check http://www.kitco.com to see todays spot price.
Cashed @ 25++K
fix up a vacation rental property in Big Bear Lake with the profits
It has been rented out every weekend since Christmass
That worthless investment now flows Via rental income $225 a night
Mav:
U CALL ME A Marketing losser ????
PLEASE REFRAIN FROM PERSONAL ATTACKS…………….
I checked out you MUNI posts
5 % a year annual return ???
What are you 60….. retiered and AFRAID of losing your pennies ??
I TOLD YOU WHO I AM…
INS BROKER
GOLD DAY TRADER
RE INVESTOR.
PLEASE BACK OFF ME !!!!
S&L Numbers are not being inflation adjusted. They can’t be compared directly. If S&L numbers were moved up for inflation, a different story would emerge.
Liar Loan:
You heard it 1st hear….. Gold will go to 1,500.
I hear ya people lose their shirts everyday…..
Your Killing Me Larry:
Says:
“”I cashed out after I made a killing “”
I am not mad at you…….Props…….
I cashed out as well as I started in 2003 @ 350. and ounce !!!!
See my post above….
$1,500 is a done deal…
The best play on gold right now might be DZZ. (Double Short ETN)
ScottA if you want to speculate look into that one.
Personally I would stay away from gold on either the short or the long side.
Playing in speculative bubbles will eventually burn you.
scott/mav
Is this the kind of “day trader” penny stock investing that some of my co-workers have gotten addicted to? Most of those guys have lost big time. Even an attorney friend of mine couldn’t make a substantial profit at it. Is it possible to be successful at this type of investing?
VOR,
I tend to agree with you.
Personally I am in tax free municipal bonds and inflation protected securities right now.
Scott A-
I’ve heard gold will go to any number of prices. It doesn’t matter because the crash will happen quickly and mercilessly. The Fed will be forced to raise rates in the near future and that’s going to f@#k up the gold market big time.
Liar Lones, 100% agree with you…… eventually the speculative money flocking to gold will go somewhere else and people will be left holding the bag. Timing this is next to impossible unless you are one of the big hitting investment firms. Most little guys will be holding the bag.
“So, Rich, do your homework before sliming your own craft!”
Go get ‘em, Jon.
Lansner’s just torqued cause Forbes wouldn’t give him a job as a Stringer.
Jimmy,
Regarding your inflation adjusted comment:
According to Lanser “in today’s dollars the S&Ls added up to a $250 billion mess”
But you’re right, we’ll have to wait a few years to see what the total subprime mess will be so we can really compare it to the S&L disaster. I wouldn’t be surprised if in the end, it surpasses the S&L mess.
WAY TO GO MR. WIZARD OF BLOGGING LANSNER WAY TO SHOW WHO HAS THE FACTS
HERE IS SOMETHING THAT MIGHT SHOW YOU HOW MUCH WEALTH HAS BEEN TAKEN OUT OF THE ECONOMY
TODAYS NEW READ IT
The major stock indexes fell further after the Mortgage Bankers Association reported record home foreclosures as 2007 came to a close. Read full story.
“The housing data that just came out is very equity bearish, and we saw a huge acceleration in the sale of gold. I think that it’s another case of traders/funds looking to get cash free,” wrote Oxman.
On the New York Mercantile Exchange, gold fell $11.40 to end at $977.10 an ounce. Read Metals Stocks.
Early data had initial filings for state unemployment benefits falling to their lowest levels since the latter half of January in the latest week, while continuing claims hit their highest mark since September 2005. See full story.
And, the Federal Reserve reported Americans to be poorer at the end of 2007 than they were the previous year, with the net worth of U.S. households failing by $533 billion, or a 3.6% annual rate, in the fourth quarter. Read Economic Report.
NOT EVEN GOLD IS IMMUNE,……LOLLLL
The effect of a crash isn’t just about the losses of coorporations but among other things losses in value of the assets themselves.
Also, thoughful, I don’t know why you are posting last quarters household net worth numbers when this quarters have been released and are down more than 500 billion.
VOR said:
“S-Bull, as far as the press/media thing. No, there is no conspiracy. But you have to wonder about their motivation and priorities when they blow off the whole 6:00 news to show some coked out maniac running from the police. It’s a very competitive business. We all know that “bad news is the best news”.”
I fully agree. It’s really kind of sad that we as a society are only intrigued by tragedy. It’s that part of our psyche that wants to look at the accident on the side of the road, despite the fact we are delaying traffic for miles in so doing. There just aren’t enough good news stories out there.
But I disagree when it comes to the business report. When there is good financial news (.e.g. the stock market is up, or RE prices are skyrocketting), the media is very interested in getting the message out there because every one of us is interested. Bias can show up just about anywhere, and you always must be mindful of the source. But if you look just at raw numbers and trends, there are many disturbing things looming in world economies. Even you must admit some concern, esp. if you are employed in the RE or mortgage industry.
As both a homeowner and investor, I have cheered these news stories. However, just as I noticed in about 1998-99, those incessant “good news” stories started bugging me as they appeared to be unlinked to fundamentals (both in stocks and in RE) about two years ago. Maybe I’m a bit on the conservative side, but I survived quite nicely the 2000-01 dump in the stock market bubble. I think we’ll do okay this time as well.
Jonathan: I think one thing that greatly hurts your case here is your blog roll, which is overwhelmingly tilted towards blogs which have a ‘pro-bubble’ agenda and so tend to focus on negative stories. The only neutral blog you list with a national focus is Calculated Risk (one of my own favorites), with the other neutral ones focused on local regions:
* Calculated Risk (neutral)
* Curbed LA (neutral)
* Dr. Housing Bubble (bubble!)
* Housing Bubble Blog (bubble!)
* Housing Panic (bubble!)
* Irvine Blog (neutral, leaning to bubble)
* LaLaLand (neutral)
* Patrick.net (can’t WAIT for more bubble!)
* Piggington (neutral, leaning to bubble)
Given that three of the nine blogs you list have “bubble” in their blog names and some others are really housing bubble blogs in disguise, can you really claim to be just an objective observer? Perhaps you are, but your blog roll would imply otherwise.
I’ve asked you to include my own BALANCED blog on your blog roll — which is good enough to be carried almost daily by the likes of Reuters, Fox Business News, The Wall Street Journal and the Chicago Sun-Times — but I never even received the courtesy of a response from neither you nor the writer of Mortgage Insider.
That may have been a simple oversight (as I’m sure you’re both very busy these days), but some more balance on the blogs to which you refer would go a long way towards making the Register and your own blog appear more objective.
Just a thought, but I think your blog is still among the best in the country!
YOUR BLOGGER: DONE!
NationalBubbleHead had this to say: “When people are thinking about buying a home, they should consider the state of the economy.”
Now, N.B., are you refering to buying a HOUSE as an investment, when yes, they MIGHT consider the National economy, or are you refering to someone buying a HOME, to live in? If it is going to be a home, I respectfully submit that most folks couldn’t care less about the economy as a whole - they are more interested in their little corner of the world.
I went into an escrow on a HOME in the first week of Sept, 2001. A few things happened a week later, that gave me brief pause for concern, and THAT was a Global situation, not just National. I chose to proceed with my purchase, closed escrow, and the HOUSE is now a rental property, with almost double the purchase value, and a tenant more than making the payment.
So, yes, I BRIEFLY considered world events, the economy, and numerous other facets, but still bought, and am now quite ecstatic I did, thank you.
Right now, in South O.C., is a great time to be looking for an excellent buy in a home. Inventories are down, SOME prices are extremely low, loans just became much less expensive to obtain, and rates are still low. Mark my words, Mr. Bubble, IMHO the bottom is here, right now.
Are those enough reasons to run out and buy a house? While there is NO urgency, because, frankly, prices will probably be relatively flat for at least a couple of years, here are a couple of compelling reasons to do something now.
Right now there is a slightly lower bottom occupied by lender repos (REOs.) and corporate relos. THOSE are today’s great buys, and they are selling right now ( for the past 30 days.) more than they’re being replaced. As those disappear, buyers will be faced with more of an equillibrium - a parity between them & sellers - a “normal” market.
I see that happening as early as this summer. So, wouldn’t it seem prudent to at least be out looking, just to see if what I say might actually be valid? Back to another reason. Interest rates are nudging up, ever so slightly. By fall we might be looking at 6.5% again. ( like 6 months ago.)
If so, even if prices went down ONLY 5% in South O.C., for the rest of 08, a half percent interest rate hike would negate ALL savings, you earned, by waiting. Personally, I don’t think prices in my area will fall an additional 5%, this year, or fluctuate more than + or - 5% for the next 2 or 3 years.
That’s just my 39 years of buying and mostly holding onto real estate in South O.C., opinion. Do YOU have MORE experience? Chime in, by all means.
LiarLoan had this to say: “Look at the 30 Year gold chart if you want to see what’s about to happen”
Yikes! I remember an associate who was buying gold like crazy in the 70’s. I wonder if he’s held it ALL these years, to get back to that same value.
From the charts it would appear that in 30 years gold has tripled or possibly quadrupled. Meanwhile South O.C. house prices are now about 17 times what they were. Especially now, at about $1000./oz, gold seems like an early 2000’s stock market debacle about to happen again.
I’ll stick with houses, thank you.
Patrick Duffy,
I read your blog and it’s basically non sense:
+ Blame the media a recession and housing issues
+ Banking solution BS
I think I am actually now dumber for having read it.
Nothing stops this train wreck. In fact this train wreck is healthy for our economy and a necessity.
A lot of Bears post negative article after negative article, as links to bubble reports dot com, and the like. Here’s a positive article from an unexpected source. Sorry, the link required a password, so I cut and pasted this recent article from Time Magazine:
“Ignore the Headlines! Except this one. Sure, housing’s in a hole. But there’s a potent case for buying now, whether it’s real estate or stocks
By Dan Kadlec February 14, 2008
Famed Money Manager Peter Lynch is perhaps best known for his timeless wisdom that you can beat the pros by focusing on stocks of companies where you either work or shop or have some other edge. But a more relevant Lynchism today is this gem: Ignore the headlines.
That’s no easy thing. How do you tune out all the chatter and ink on recession,housing, subprime woes, the credit crunch, rogue traders, insolvent bond insurers, $100 oil and nukes in Iran? It’s enough to make you sit on your thumbs and wait before making any big moves. But what, exactly, are you waiting for?
There has rarely been a moment in history when you couldn’t scare yourself into doing nothing. And yet, as Lynch observed nearly 20 years ago, “in spite of all the great and minor calamities that have occurred … all the thousands of reasons that the world might be coming to an end–owning stocks has continued to be twice as rewarding as owning bonds.”
A top reason to not buy stocks, in Lynch’s view, is if you don’t already own a home–in which case, that should be your first investment, since an owner-occupied home is nearly always profitable. Through a spokesman, Lynch reaffirmed these views to me–housing debacle and all.
When prices are falling, few people have the discipline to buy stocks, a house, gold, art or any other asset. But those who do pull the trigger excel in the long run. As John D. Rockefeller famously said, “The way to make money is to buy when blood is running in the streets.”
And the streets are stained crimson. Start with stocks. They have been pummeled this year. GDP braked sharply last quarter, and there has been plenty of panic about a recession. The Federal Reserve is slashing short-term interest rates at the fastest clip in decades. But if you stick to your steady, diversified plan while everyone else is retreating, you will be happy years from now. For one thing, Fed rate cuts always lift the economy eventually, and the stock market typically starts responding just as headlines get gloomiest. Sure, the market could fall again before recovering. But the recession may be half over already–or we may avoid one altogether. You just never know.
As for housing, certainly some skepticism is in order. Formerly sizzling markets in
Florida, Nevada, Arizona and California probably haven’t seen the worst headlines just yet, though they may well be close. And “jumbo” mortgages, those more than $417,000, are likely to remain artificially high for a few more months while banks work through their credit issues.
But let’s say you are emotionally ready to be a homeowner. You have good credit, plan to stay put for five years and have been waiting for the perfect entry point. It’s time to get serious–before an inevitable rise in interest rates wipes out your advantage. “The thing that will make home prices stop falling is the very same thing that will push mortgage rates higher,” says Jim Svinth, chief economist at mortgage firm Lending Tree. So anything you gain by a further drop in prices might be offset by rising financing costs.
Consider a typical home that sells for $218,900. You put down 20% and get a 30-year fixed-rate mortgage at today’s rate of 5.5%. Monthly principal and interest come to $994.31. Let’s say that 12 months from now the same house goes for 10% less, or $197,010. But by then the recession is history and the Fed is jacking up rates to stem inflation. If mortgage costs rise a point, to 6.5%, your monthly payment would be $994.94 and you’d have saved nothing. Meanwhile, home prices might steady and sellers might become less willing to negotiate. And you have spent a year living someplace you’d rather not be.
It’s more complicated if you must sell before you can buy. But that logjam won’t persist forever–and if it appears you’ll be trapped for a few years, try to refinance at today’s lower rates. Risks always seem most acute when the headlines give you ulcers.
But that’s exactly when you should think long term–and get off your thumbs.” End of article.
sighburrdud quotes TIME llooll the same magazine
that called the death of equities right at the very
beginning of the twenty year bull market llooll
time of wise one is the ultimate kiss of death
when they proclaim the death of real estate
reat assured weve hit the very bottom…
Speaking of the S&L crisis- the litigation pending on the subprime crisis is already outpacing the litigation that followed the S&L problems - by nearly twice as much! As usual, the winners of this mess: the lawyers.
‘mav:’
I’m sorry you didn’t like my blog, and in fact “felt dumber for having read it.” Fortunately, there are many others who would disagree.
You are, of course, entitled to your opinion(s), which it looks like you share in the comments section several times per day.
That tells me one thing: you really need to get out more!
It’s a fairly nice day — why not unlock yourself from your computer and go interact in person with other people? Maybe get some exercise? See a movie? It would do you a world of good!
patrick duffy works in the real estate business but
he has no agenda.. llloollll just so you know mr duffy
the media is actually presenting a very optimistic picture
considering we are facing a crisis not seen since the 1930’s
as evidenced by bernankes suggestion for mortgage holders
to actually “cut the principal” on loans… if that doesnt
register in your brain you my friend are in effect brainless
Jon, I am surprised you didn’t point out a flaw in the argument from the Forbes guy about $150 billion (or whatever the number will end up) being chump change in relation to our GDP and typical stock market losses/gains on a daily basis.
The reason the impact on the economy is much larger with the mortgage debacle/Sub-prime mess than just stocks going up or down is due to the fiat system they operate in. The banks that are taking those loses to their capital base use the Federal Reserves fiat system to normally take $1 in capital they have and turn it into $10 they loan out to borrowers.
So, if banks have $150 billion less in capital due to losses on there books, that means it has 10x the impact on the economy or $1.5 trillion. Now that is definitely not chump change
If I am wrong on this, someone please correct me.\
Thanks…
The majority of Bear bloggers here are predicting 2 primary things. One, that prices will come down significantly further, and two, that the bottom of prices in O.C. won’t come for AT LEAST a year.
I, personally, have been steadfastly suggesting for about a month now, that the bottom is here - right now. The number of escrows is up - dramatically, and the inventory, which is USUALLY jumping by leaps & bounds at this time of the year, is staying essentially the same.
Here is a blurb from Steven Thomas, of Remax, dated 3/6, which Jon will undoubtedly refer to, in a day or two. ( I’m on Steven’s mailing list, just like Jon.)
“Multiple offers in the lower price ranges? Yes, it is true. Our reports from the streets substantiate the latest development: the lower ranges, especially distressed properties, are receiving multiple offers. It is difficult to gauge the current real estate market by reading the papers or listening to newscasts. The absolute best way to assess what’s going on in is to poll the Realtors® out in the field, writing offers, guiding buyers from home to home, and representing sellers in the marketing and selling of their homes. The reports are in: the lower ranges, below $500,000, are seeing plenty of activity, with multiple offers and buyers losing out on their first choices.
The lower ranges were hit the hardest through the subprime shakeup and they slowed first. Logically, it seems appropriate that this range, the entry level, would be the first to heat up. The below $500,000 range accounts for 45% of the current active inventory and 50% of the most recent demand. One year ago, it accounted for 26% of the active inventory and 28% of demand.
First time buyers are stepping into the fray with their first real opportunity to purchase in years. Bank owned foreclosures are in vogue and are seeing the most activity. Foreclosures only account for 7% of the total active inventory, but 23% of demand. There currently is only a 2.37 month supply of foreclosures, an extremely valid explanation for all of the multiple offers.
When the expected market time is below the 5 month mark, it is a seller’s market. Everybody is looking for a deal, but it seems that the banks are in the driver’s seat. With the new FHA and conventional loan limits coming, the upper ranges will witness a similar boost in demand shortly.
Demand, the number of homes placed into escrow within the prior month, increased modestly by 73 homes in the past two weeks from 1,820 to 1,893 escrows. Demand is at levels not seen since June of last year. And, according to our Realtors® out in the field, what is NOT reflected in the data is that when a buyer and a seller come to an agreement on a short sale, where the seller’s combined loans against the property exceed the purchase price, most homes are not changed in the Multiple Listing Service (MLS) to reflect the agreement. Instead, they remain on the market as active listings until formal lender approval of the short sale.
You see, the buyer and seller may agree on a price, but the seller is really bargaining on behalf of the bank since the bank has to take less than what is owed. They are “subject to lender approval” according to the terms of the contract. So, the standard practice of care out in the field is to keep these homes on the market until lender approval occurs. Also, we are not talking a couple of days for the lenders to respond either. On average, they are taking anywhere from 21 to 90 days to respond. Needless to say, demand is currently understated. This should wash out over the next month as more and more lender approvals hit the market. There are over 4,000 short sales currently on the market, 26% of the current active inventory. Short sales only account for 17% of demand (remember, it is currently understated).
That isn’t the entire report, but should suffice for purposes of THIS thread. Conclusion, just as I have been observing for weeks now, there ARE some good buys out there - the lender repos and the corporate relos, and that ASTUTE buyers should be poring over them to find some excellent buys - UNDER the current market.
When those good buys are picked over, and they are not being replaced nearly as fast as they’re being snapped up, buyers will only have “normal”, non-distressed sellers to deal with, at somewhat higher, and firmer prices - in about 2-4 months.
The bottom is here, now, in South O.C.. I’ll be back in 4 months to say “I told you so!” As for now, I’m off to see some properties.