Economic News

[glassgowkiss]

I honestly don't know. It sounds necessary, but is anathema to my beliefs.

i don't see how dumping our retirement money into companies which went bankrupt in the first place is a good idea at all. there are no guarantees against another melt-down in 5, 10 or 15 years. i think (IF ANY!) help should be a slow and cautious process, not some mad rush.

[glassgowkiss]

This is the market correction that's been long overdue. I say let the McMansions and the willfully and ignorantly overextended suck it...just like Barney Frank.

 

I totally agree. We need to protect our assets from foreign takeover but at the same time I think this country needs a hard lesson that as individuals, companies, and government that we can't live off of credit and loans, especially when an increasing amount of our money is leaving.

 

what about american companies taking over firms in europe , s america or asia? free market means everyone competes with everyone.

[JayB]

""The only unknown is how many billions of dollars in welfare payments that the government will shell out to homeowners in an effort to put an artificial floor under prices. ""

 

Do you think it will be less or more than the $700 BIL corporate welfare being proposed to "bail out" the lenders that intentionally created this mess in the first place? And who pays the welfare for either the corps or the people? Just the worker or do the golden parachute boys kick in anything from their offshore tax havens?

 

""The decline in home prices will probably bring at least as many people into the market for homes as foreclosures eject from them, so I don't expect net home-ownership percentages to drop substantially over the long term. ""

 

So is this just a POTA figure or you got some kind of study/survey to back this up?

 

""As an aside, there's no convincing data to support the notion anything inherently negative about renting, especially when you can do so for considerably less than it would cost to cover the mortgage, taxes, insurance, and upkeep on the same property.""

 

Good luck saving enough to equal the value of a home you own outright after 20 or 30 years. What do you do invest those savings in the stock market? LOL!

 

""As far as the folks being foreclosed on are concerned, I don't think that many of them will be able to shoehorn their way into a 105% LTV neg-AM, I/O, pay-option-ARM for a property that's 8X their gross-income ever again in their lifetimes, which is a net positive for all concerned.""

 

So in a round about way you're admitting it was a large negative to allow these types of loans. Now why don't you go on to admit who's responsible, who profited? Of course it's the crooks you elected into office.

 

"" After home-prices mean-revert to the point where their rental yield covers the cost of owning them, they'll probably be able to qualify for a loan at 2-3X their gross income if they can muster the discipline necessary to save the 20% downpayment that any sane lender should require of them before approving the loan.""

 

once again admitting these people were not sane IF they were trying to do the right thing. But they weren't, they were just new world record crooks. They're the experts, they knew the loans would fail when the ARM's went up, it worked just like it was planned.

 

It doesn't bother you all the fees collected (stolen)? How much is the average mortgage in fees now, about $5G's?

 

Pretty good scam. Collect the fees, transfer the loan, the first several years of payments are on the interest only, so no equity, even if there was some it would be lost on foreclosure. So fees, plus interest payments, then when foreclosed you get the home back to sell again. You might lose a bit on falling values, but then you get the "bail-out" on the taxpayers dime. It's a win win (GIGANTIC RIPOFF) for the suits no matter how you look at it.

 

So JayB, concerning the $700 Billion. What amount of that is your personal share to pay back? Is it true that 100% of your federal withholding goes just to pay the interest on the national debt? In other words your federal income tax doesn't buy you anything, it's merely a transfer of wealth from the worker to the rich.

 

God knows if there's been one person on this board that's been an unrepentant cheerleader for the current status-quo when it comes to every component of the real-estate market, from appraisal to securitization, it's been me. Ditto for the sustainability of the price run-ups relative to income and asset growth, the incentives that lead to plowing staggering amounts of capital into McMansions and granite countertops instead of productive assets, etc.

 

Anyhow, I'll try to respond.

 

-Bailout:

Has to be structured so that any bank that reaches for that life-ring gets coughs up an ownership stake equal to the dollar value of the welfare check that Uncle Sam cuts them via the issue of warrants or subordinated debentures that the government can subsequently sell. Determining what to pay for the distressed assets should involve an auction mechanism that's open to private bidders. Re-capitalizing banks by simply overpaying for bad assets is a very bad idea for a number of reasons. A ground up bail-out of overextended homeowners would cost more, take more time, and be less effective IMO - but the idea is roughly the same.

 

-Mortgage lending:

 

The bad regulations that metastacized into the current nightmare when combined with loose monetary policy and mass-psychology predate the current administration. Reform had very few friends on either side of the aisle before the bubble popped.

 

Fannie and Freddie seem to have had more friends willing to stifle reform on the Democratic side, in the name of "affordable housing" since at least the early '90s. If you've got evidence to the contrary, feel free to share it.

 

-Various actors in the real-estate market/existing regulations/incentives/subisidies:

 

You won't find me defending them.

 

-Housing vs Investments:

 

When sanity prevails, most houses are a wash, financially - after you account for taxes, interest, insurance, maintenance, upgrades, etc.

 

If you can rent the same property for less than the total price of owning and have the discipline/knowledge required to invest the savings in a diversified portfolio for as long as the rent vs own disparity exists, I think you'll wind up with more money and more piece of mind than if you'd purchased the same property in most market environments. If you are like most Americans, you should probably just buy a house and cross your fingers.

 

-Home Ownership percentages:

 

The more prices fall, the more willing buyers there'll be. If the total cost of owning approximates the cost of renting, or drops beneath it, there'll be buyers of one kind or another. If lending is tight, the first round of buyers will probably be those who have lots of cash and intend to rent them out. If lending returns to some kind of sanity in the wake of this debacle, a significant percentage of those post-bottom buyers will be individuals with savings and good credit. I'd like to think that there are as many of these people out there as there are lemmings/retards and get-rich-quick schemers, but I'm not aware of any stats that would help prove or disprove this assumption.

 

Question for Buckaroo:

 

-Any idea what differentiates the particulars of the home-price bubble in the US from the property bubbles in Spain, Ireland, England, New Zealand, Canada, Australia, Russia, China, etc? Seems a bit much to hang on the Republicans, IMO.

[JayB]

This is the market correction that's been long overdue. I say let the McMansions and the willfully and ignorantly overextended suck it...just like Barney Frank.

 

I totally agree. We need to protect our assets from foreign takeover but at the same time I think this country needs a hard lesson that as individuals, companies, and government that we can't live off of credit and loans, especially when an increasing amount of our money is leaving.

 

what about american companies taking over firms in europe , s america or asia? free market means everyone competes with everyone.

 

Yup.

 

We're in no position to refuse capital infusions from private entities, wherever they may be from.

[Hugh Conway]

We're in no position to refuse capital infusions from private entities, wherever they may be from.

 

Unfortunately the Paulson plan would have the US taxpayer infusing capital in foreign entities

 

Put Palin is on the case!

 

in an interview with Katie Couric, Sarah Palin:

 

COURIC: You've said, quote, "John McCain will reform the way Wall Street does business." Other than supporting stricter regulations of Fannie Mae and Freddie Mac two years ago, can you give us any more example of his leading the charge for more oversight?

 

PALIN: I think that the example that you just cited, with his warnings two years ago about Fannie and Freddie--that, that's paramount. That's more than a heck of a lot of other senators and representatives did for us.

 

COURIC: But he's been in Congress for 26 years. He's been chairman of the powerful Commerce Committee. And he has almost always sided with less regulation, not more.

 

PALIN: He's also known as the maverick though. Taking shots from his own party, and certainly taking shots from the other party. Trying to get people to understand what he's been talking about--the need to reform government.

 

COURIC: I'm just going to ask you one more time, not to belabor the point. Specific examples in his 26 years of pushing for more regulation?

 

PALIN: I'll try to find you some and I'll bring them to you

[JayB]

I think Jay's point is that most owners of hard-to-unload properties, be them banks, individuals, or developers, would probably sell at a discount or a loss to willing buyers with less money than give them to all those nice kitties. Obviously, America has a glut of living space right now, so it makes sense that prices will continue to come down until supply roughly balances with demand; probably about the point where purchase prices are low enough so as to be covered by rental income.

 

The biggest losers will be the McMansion owners. Awwwwwwwwwwww.

 

I think I get it, maybe not. I guess my question in this scenario is where is that demand going to come from? In real life...you know like, not from a diagram.

 

If the economy's in the shitter and no one can get a loan no matter how good their credit/income/savings look per traditional lending guidelines (20% down, fixed), then most of the buyers will be either rich people or institutions.

 

If people with the right credit/income/savings profiles can borrow 70-80% of a home's price at rates below 15% then the buyer mix will shift towards people who have to work for a living.

 

In the long-term, if demand returns to something like a pre-bubble equilibrium, most of the rich people/institutions that own residential properties will probably take their profits and invest them someplace else, where they can get a better return.

 

It's notoriously difficult to achieve profits, let alone decent returns by owning and managing large numbers of single family homes. Very expensive and time consuming relative to the cash flow they generate, and they tie up capital that could earn better returns elsewhere. This is one reason why the big-boys tend to stick with apartments and commercial properties and the concentrations that you speak of have never materialized.

[Mal_Con]

We judt got 3 more credit card offerings today, 2 yesterday more over the weekend, so it goes.

[prole]

Maybe I'm just taking too short-term a perspective here considering the economy is in the shitter and the number of Americans with the "right credit/income/savings profiles" seem to be scarce to say the least and shrinking by the news cycle.

[prole]

I also wonder if the blight of cheaply built homes that now litter the landscape will actually last long enough to see the next "period of equilibrium", if there is one.

[tvashtarkatena]

Durability is going to be a major problem for a lot of newly built home owners, particularly because it looks as though people will hanging onto their homes longer than before, whether they like it or not. Standards for the visual quality of interiors is pretty high, but the materials are shit. As for exteriors: materials, workmanship, and appearance are all a joke.

 

Last election I canvassed over on the east side, and I was pretty shocked at how shoddy even some of the pricier homes looked after only a few years. Add to this the lack of neighborhood walk-to businesses, terrible traffic flows, and an overall feeling of cultureless brain-death and, the enormous glut of cookie cutter spec homes, and I have a feeling that many suburbanites just aren't going to see their home values rise much ever again. Increasingly expensive energy means that party is over.

[Fairweather]

I'll bet that living in a pressboard home thoroughly wrapped in Tyvek is like sleeping in a moldy sandwich baggie. I've also wondered what some of this new construction will look like 20 or thirty years from now. Condos too.

Edited September 25, 2008 by Fairweather

[tvashtarkatena]

At this point, we'd all be advised to purchase a really high quality tent...with cash.

[Fairweather]

We've had one of those big canvas-sleeps-twelve tents for almost 20 years now. It's moldy and smells bad. I'm gonna get one of those teardrop trailers plated in stainless with a mahogany interior and 15 inch alloy wheels. Camping's gonna be great now the kids are gone.

Edited September 25, 2008 by Fairweather

[JayB]

I also wonder if the blight of cheaply built homes that now litter the landscape will actually last long enough to see the next "period of equilibrium", if there is one.

 

Depends on how much money/time/effort their owners are willing to sink into them, I suspect. Most of that will be determined by variables beyond those associated with the construction of the houses.

 

I suspect that there are literally thousands of well-constructed homes rotting on their foundations in Michigan, Buffalo, etc. There are also a bunch of homes in Seattle that were probably thrown together with cheap material and slipshod labor during the post WWII boom that have held up better than anyone building them would have thought possible, thanks to the fact that Seattle is home to a high concentration of relatively prosperous people who are willing to pay a ~$300,000 premium to spend less time in traffic-hell.

 

I'd have to agree that most macro trends are unfavorable for the McMansion. I also suspect that we'll see whole subdivisions on the periphery of the commuter-zones near the hardest-hit metro-areas rendered uninhabitable, and demolished before this thing is over.

 

 

[JayB]

I'll bet that living in a pressboard home thoroughly wrapped in Tyvek is like sleeping in a moldy sandwich baggie. I've also wondered what some of this new construction will look like 20 or thirty years from now. Condos too.

 

The best part of the boomtime-condo equation is that you get a share of liability for the entire structure. Yipes.

[olyclimber]

I have a post wwii house, and it seems like it was probably cheap to make at the time...but would be pretty damn expensive to put together today. it is a '46 home...the wood is all solid old growth and the cedar siding on the outside is still perfectly solid. i bet this place outlasts the cheap mccmansion they built next door with modern crap materials.

[tvashtarkatena]

Yeah, even 'poorly built' homes of WWII and before were built with much better materials, and generally better designs (real eaves, for example, you know, the keep the rain off and stuff). Generally where the older homes fall short (aside from wiring/plumbing) is the foundation; a lot of crappy old concrete work. The quality of wood that went into those homes just doesn't exist anymore.

[JayB]

Ditto for the '50s rambler in White Center w/r/t the McMansion next door.

 

I'm sure that there's plenty high-quality timber-framing from '46 rotting away in the rust-belt at the moment.

[Fairweather]

Our house was built in 1955 and has car-decking floors. I've debated for years about whether to have insulation blown into the rafter space of the cathedral ceiling, but would rather pay the extra $NG bill than do battle with mold. Happy with my old house.

[olyclimber]

you might be able to vent that enough to deal with the mold. i blew in 9 inches of insulation into the attic this spring, and replaced all my windows this summer...looking forward to seeing the improved heating bill this winter

[tvashtarkatena]

My wife's house in Shoreline was built in the 50's. Very nice design, very good materials and workmanship. Some cool features, too, like a fireplace on one side and an indoor BBQ on the opposing kitchen side. Lot's of good stuff built in the 50s, and even into the 60s, for sure, as well as some good, open designs.

Then the 70s came along.

[JayB]

Maybe I'm just taking too short-term a perspective here considering the economy is in the shitter and the number of Americans with the "right credit/income/savings profiles" seem to be scarce to say the least and shrinking by the news cycle.

 

Look upon my work, ye real-estate concentrators, and despair...

 

 

"Beware the Foreclosure Allure

Redbrick's Model of Scattered Bets Is Cautionary Tale

By JAMES R. HAGERTY

 

 

Many investors have been tempted by the idea of buying foreclosed homes in bulk from banks, at a steep discount. But the experiences of a Washington, D.C.-based property investment firm, Redbrick Partners LLC, show it can be difficult to manage a large number of single-family rental homes scattered across a metropolitan area.

[redbrick] Reuters

 

Redbrick's business of buying up properties in cities like Trenton, N.J., and outsourcing rentals and maintenance has proved difficult to execute.

 

Though Redbrick was never in the business of buying foreclosed homes, the firm in recent years bought hundreds of properties in working-class areas of East Coast cities including Baltimore, Philadelphia and Trenton, N.J. It hired local managers to handle rentals and maintenance.

 

Now Redbrick, formed in 2003, has concluded that it is too costly to manage those homes and is trying to sell most of them. Tom Skinner, one of Redbrick's managing partners, notes that fixing leaky toilets and other common problems is much more complicated in a diverse array of homes than in an apartment building where fixtures are standard and the manager can walk from unit to unit..."

 

http://online.wsj.com/article_email/SB122222286574070071-lMyQjAxMDI4MjIyNDIyMjQyWj.html

 

[Fairweather]

My wife's house in Shoreline was built in the 50's. Very nice design, very good materials and workmanship. Some cool features, too, like a fireplace on one side and an indoor BBQ on the opposing kitchen side. Lot's of good stuff built in the 50s, and even into the 60s, for sure, as well as some good, open designs.

Then the 70s came along.

 

Vega. Pacer. Luv. K-Car.

[G-spotter]

From Minister Paulson

Dear American:

 

I need to ask you to support an urgent secret business relationship with a transfer of funds of great magnitude. I am Ministry of the Treasury of the Republic of America.

 

My country has had crisis that has caused the need for large transfer of funds of 800 billion dollars US. If you would assist me in this transfer, it would be most profitable to you.

 

I am working with Mr. Phil Gram, lobbyist for UBS, who will be my replacement as Ministry of the Treasury in January. As a Senator, you may know him as the leader of the American banking deregulation movement in the 1990s. This transactin is 100% safe.

 

This is a matter of great urgency. We need a blank check. We need the funds as quickly as possible. We cannot directly transfer these funds in the names of our close friends because we are constantly under surveillance. My family lawyer advised me that I should look for a reliable and trustworthy person who will act as a next of kin so the funds can be transferred.

 

Please reply with all of your bank account, IRA and college fund account numbers and those of your children and grandchildren to wallstreetbailout@treasury.gov so that we may transfer your commission for this transaction. After I receive that information, I will respond with detailed information about safeguards that will be used to protect the funds.

 

Yours Faithfully, Minister of Treasury Paulson

[TREETOAD]

USA= u stand alone