Friday, February 17, 2006

Thorns and Bubbles and Crashes.. Oh My!

Some more 'required' reading to keep you busy over the weekend. This piece comes from Will Carless at the Voice of San Diego.

Thorns Aren't Good for Bubbles

Highlights:

Buy a house, just don't expect to make any money on it until 2012. Get a mortgage, just don't get a negative-amortization loan or an interest-only loan, because you may well find yourself foreclosing on it. Read the press releases from National Association of Realtors, just don't believe them.

That's just three of the gems Chris Thornberg, a senior analyst at the University of California, Los Angeles Anderson Forecast spent an hour showing off and polishing Thursday morning.

...

He said the real estate market has witnessed nothing less than an extraordinary run-up in prices, with 10 consecutive quarters of above-average price growth. At the same time, Thornberg said, while employment has remained steady, job growth has been in sectors directly related to the real estate boom. A boom constructed around building homes, trading homes and remodeling homes is simply unsustainable, he said.

The real estate fire has been fanned primarily by consumers, Thornberg said, who have spent themselves into the lowest private-savings rate in the United States ever. The average American now spends more than they save, he said, and this "spending binge," -- which is being mirrored by the federal government -- has led to the economy becoming "seriously out of whack."

...

Thornberg said all the statistics show that he was right to be concerned. In the past, when the real estate market has seen bubble-type home price appreciation, things have been more measured. In the bubble of the 1970s, home prices appreciated 55 percent, he said. In the 1980s, they rose 45 percent. In this latest boom, prices have increased 85 percent.

"A bubble is when the market price of an asset has no basis in what the rate of return on that asset is going to be … when the fundamentals say one thing and the market says another," he said.


Caveat Emptor!
Grim

23 Comments:

Anonymous Anonymous said...

http://biz.yahoo.com/bizwk/060217/b3973062.html

Figures the liberals will figure a way to punish everyone for those that were stupid.

2/17/2006 05:12:00 PM  
Anonymous Anonymous said...

Anyone given any thought to the effect of a major terrorist attack on NY City? Such as a 'dirty bomb' or a nuke in a cargo container?

If NY City is no longer viewed as a desirable place to work, combined with the fact that people can work remotely from anywhere via broadband access, the real estate surrounding the city should drop in value.

This is in addition / aside from any 'bubble' issues we're seeing.

Additionally, this could happen during the bubble implosion, in a Perfect Storm of sorts.

Anyone else think about such stuff? It seems inevitable, if not in the next 2-3 years, certainly within the next 20 years. There's just no way to contain such deadly technology from the lunatics of the world (Iran, Pakistan, North Korea, etc).

I've given serious thought to just getting the hell out -- from the crazy property prices, to worrying about this type of nonsense.

And if such a thing happens in 20 years, that's just as my kids will be entering the workforce.

2/17/2006 05:48:00 PM  
Blogger grim said...

Get ready for the 50 year mortgages!

Bond Sales May Promote Long-Term Mortgages

NEW YORK - The Treasury Department's resumption of 30-year bond sales could have an interesting impact on the home mortgage market, with lenders offering more 40-year loans and maybe even 50-year mortgages for the first time to help some consumers qualify for loans.

Sheer insanity. These aren't affordability products at all.

400,000 on a 30y fixed (6%)
Payment ~ $2398/mo
Interest Paid ~ $463,000

400,00 on a 50y fixed (6%)
Payment ~ $2105/mo
Interest Paid ~ $863,000

Save $400 to pay an additional $400,000...

grim

2/17/2006 05:54:00 PM  
Blogger grim said...

Yes, I used the same rate in that example.. You'll likely save a few points with the 50.. The big question is how much lower will that rate really be..

grim

2/17/2006 06:01:00 PM  
Anonymous Anonymous said...

Check out this joker:

100 Meadowbrook Road
Short Hills, NJ 07078
$949,000 - ("firm")
http://www.forsalebyowner.com/show-listing.php?currentlySearching=1&iListingID=20586724


Flash back less than 3 years ago, with the help of domania.com, to March 2003:

100 Meadowbrook Rd
Closed Mar 2003 @ $585,000 Assessed @ $414,900


No, we're not in a bubble at all, this looks fine.

2/17/2006 06:15:00 PM  
Anonymous Anonymous said...

anon at 5:48

that is a major concern in my line of work.


CDF

2/17/2006 06:37:00 PM  
Anonymous jonstreet said...

look at this!

http://newjersey.craigslist.org/rfs/134655573.html

nuff said

2/17/2006 09:22:00 PM  
Blogger Roadtripboy said...

Anon 6:15pm,

Hey I'd make an offer on that place---I'm serious about buying and I'd offer a solid 350k for that POS! They must be kidding about the asking price!!!! It's not such a bad place, but worth 900K? Not in this lifetime!

I know they'd laugh at my "offer". My question is how long before they come begging for my offer of 350K? Of course my offer might just drop to 300K at that point; I'm fickle that way! :-)

2/17/2006 11:04:00 PM  
Blogger Roadtripboy said...

Jonstreet,

Wow! Where do we sign up! I'd love to get a 3.25% rate on a 40 year loan. I'm sure they won't care that I have a 200 fico score (I don't really; I'm just playing a part here!).

Sounds far too good to be true but I'm sure that won't stop many people from biting the worm on the hook.

Boy, I'm really feeling sarcastic tonight!

Happy Friday everyone.

2/17/2006 11:09:00 PM  
Blogger Roadtripboy said...

Grim,

Question about the longer-term mortgages: I've always been inclined to take a longer term loan with a smaller payment because it gives me more flexibility. I can pay more than the required payment each month and use the excess to pay down the principal. But if I have a bad month, I only have to come up with the required payment.

For example, I paid off my 5 year car loan in 2005 in 2 years, 2 months by paying an extra $50 on every payment during the first year, (I have a Pontiac Vibe by the way, cool little station wagon, holds my bike in the back when I fold the seats down, gets good MPGs, lots of amenities and is fun to drive. But I digress---now you see why I call myself RoadTripBoy! :-) ). The 2nd year, I started paying an extra $100 each month and when I received my tax refund, I used that to pay my loan off in full.

My question is what if I took out a 40 or 50 year mortage but was able to pay an extra $300 monthly on top of the required payment? What would the total interest payments be when you compare that to a 30 year fixed where I only pay the required monthly payment?

2/18/2006 12:19:00 AM  
Blogger Richie said...

I recommend you check out a mortgage amortization calculator so you can see what the payments look like. There's tons of articles that say 40yr mortgages are a bad idea. Thats a LOT of money wasted on interest.

There's tons of amortization calculators out there, here's one to get you started:

Amortization Calculator

-Richie

2/18/2006 12:54:00 AM  
Blogger Richard said...

short hills property is nice, but not $949k nice. even in today's market i wouldn't give them more than $600k. still it's short hills and there's plenty of fools that have to live in that town so they'll cough it up. unfortunately for them they won't be able to turn this property around for $1.3 million in 2009. i predict it'll be lower than their purchase price.

2/18/2006 02:59:00 AM  
Anonymous Anonymous said...

anonymous 5:12, Yeah, we should just let 'em drown like the bushies did in New Orleans! Do you honestly think that milions of homeless families would be good for anyone in the country, even the superior "smart" ones? I suggest you turn off the talk radio and open your eyes. Your post illustrates that there are many brands of stupid.

2/18/2006 08:33:00 AM  
Anonymous Anonymous said...

Richard wrote:

"short hills property is nice, but not $949k nice."


Note that they had it listed at $979 two weeks ago.

As for Short Hills as a town, it's definitely a nice town for those interested in nice architecture. Every house looks different, and is impeccably maintained. Top-rated schools as well.

The taxes can be rough, though.

2/18/2006 12:26:00 PM  
Anonymous Anonymous said...

The Washinton Post??? Here's their Dana Milbank wearing a costume to make fun of VP Cheney:

http://www.wonkette.com/politics/dana%20milbank.jpg

Definitely an objective source -- not.

Popular Mechanics deals in facs and science -- don't like facts and science, look elsewhere.

Further the article you cite primarily blames local and state government agencies and their leaders:

"[the report] criticizes preparations and decisions by Louisiana Gov. Kathleen Babineaux Blanco (D) and New Orleans Mayor C. Ray Nagin (D), who knew that 100,000 city residents had no cars and relied on public transit. The city's failure to complete its mandatory evacuation, ordered Aug. 28, led to hundreds of deaths, the report said."


Popular Mechanics also finds the report cited by the Washington Post "riddled with poor logic, internal contradictions and exaggerations":

http://www.popularmechanics.com/blog/science/2315386.html


But hey, don't worry about facts, just Blame everything on Bush.

2/20/2006 05:28:00 PM  
Anonymous Anonymous said...

I'm the joker that just paid $902k for the Short Hills spot...I will be happy to sell it for more in a few years to another "fool" who respects the area, schools, commute, etc. This house was impeccably maintained and features amenities in houses twice the price. Try to find a house of this quality in this area at this price....keep trying.

4/22/2006 07:45:00 PM  
Anonymous Anonymous said...

With the , you don't have strangers coming through your home, day after day, often week after week, at times which are not always convenient. Your home must look great ... truly great ... for one weekend only .

7/03/2006 01:58:00 PM  
Anonymous Anonymous said...

Here's the home buying process into a single weekend. She does it by compressing the real estate marketing budget into a much tighter timeframe than normal .

7/04/2006 08:59:00 AM  
Anonymous Anonymous said...

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7/05/2006 08:23:00 AM  
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7/05/2006 04:08:00 PM  
Anonymous Anonymous said...

. Noise does not sell well. Let the Realtor� and buyer talk, free of disturbances. Background "soft playing" music is okay, but the wrong sounds will turn buyers off. Noisy children and animals are roadblocks to a contract � and traffic, trains, and planes must be dealt with honestly, if they are part of the deal. Go here for more ideas.

7/08/2006 03:53:00 PM  
Anonymous Anonymous said...

Even if you sell your home "as is, subject to inspection" � you can do a lot to . A top-notch Realtor� will probably hand you a list of at least a dozen things you can do to help improve your sale. If they don't, well, maybe you need to .

7/09/2006 01:14:00 AM  
Anonymous Anonymous said...

Blogging is not always a rewarding journey, but I ran across yours on this trip and it was a good break from my own real estate work. Thanks. Keep up the interesting work and visit my site if you have a chance.

7/09/2006 07:24:00 AM  

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