Sunday, April 17, 2005

"Real Estate Haiku For Tomorrow"

A critical week is ahead for the housing industry. This post on a message board captured the moment.

"Price rises like cliff
But buyer's income is flat
Many signs linger"

4.17.05

19 Comments:

At 10:33 PM, Anonymous Anonymous said...

On Friday, Sec. of Treasury, Mr. Snow was out "up talking" the market. Was I seeing things or was Mr. Snow wearing a Cheerleader Uniform? (I would think he would have more important things to do that hit all the talk shows!)

Ben, with your blessing, I would like to start a Cheerleader list and have others add to it. If we are correct, the end could be closer than we think.

Cheerleaders:
Monday-Thursday (April 18-21)

Name/Position- “Quote”

1. Mr. Snow/Sec. of Treas. “We are in a strong recovery”
2. Mr. Greenspan/FMOC Fed “There is no bubble, we must be on guard for inflation”
3.
4.

 
At 11:06 PM, Anonymous Anonymous said...

Ben

great blog. like some one pointed out, it is becoming an addition. at time i feel with out this , i'd go and buy a house (so many people out side, it wont go down, not su much as 20 %, may be static!)

I was not in this country during savings and load debacle. i was research(great word for googling). i found this at http://www.fee.org/vnews.php?nid=3150

Between 1929 and 1933, the number of banks declined from 26,000 to 14,000, mostly by failure. Indeed, the very first act of newly elected President Franklin D. Roosevelt was to declare a "bank holiday" and close all banks in the country for at least one week in order to prevent depositors from cashing any more of their deposits into currency. The banks were permitted to reopen if the government found them solvent. Thereafter, banking became a relatively stable industry through the late 1970s.

something like this is a possibility! mortatorium on all US debt payments for e.g. G7 goons getting together and hide the same in so many words.

Thanks
Madhu
PS: many gems in this artile.
When interest rates increased sharply in the late 1970s as a result of inflation, the disaster occurred. Between 1976 and 1980, interest rates on three-month Treasury bills jumped from 4 percent to 16 percent and those on long-term Treasury securities from 6 percent to 13 percent. By 1982, an estimated 85 percent of all S&Ls were losing money and two-thirds were economically or market value insolvent so that, ceteris paribus, they would be unable to pay their depositors in full and on time

regulators publicly denied the magnitude of the problem, argued that the problem was a liquidity rather than a solvency problem, introduced creative accounting measures to make the industry's net worth appear higher even than the already overstated book value levels (i.e., they covered up the evidence), delayed imposing sanctions on insolvent and nearinsolvent institutions, and encouraged institutions to reduce their interest rate exposure by using newly permitted variable-rate mortgages and shorter-term loans to reduce their maturity mismatch.
The National Commission appointed in 1992 to identify and examine the origins and causes of the S&L debacle concluded that: "It is difficult to overstate the importance of accounting abuses in aggravating and obscuring the developing debacle. It would have been difficult for the process to continue for so long in the absence of an information structure that obscured the extent of the mounting losses."

 
At 11:17 PM, Blogger Ben Jones said...

(It is difficult to overstate the importance of accounting abuses in aggravating and obscuring the developing debacle. It would have been difficult for the process to continue for so long in the absence of an information structure that obscured the extent of the mounting losses)

Better words have never been posted to this board, thank you.

 
At 6:45 AM, Anonymous BoyInTheBubble said...

Zero-down, neg-am,
Interest-only ARM?
Prices only rise!

 
At 7:37 AM, Anonymous Anonymous said...

"For a US economy that is living dangerously beyond its means, the tough love of fiscal and monetary discipline is the only way America will ever make lasting progress on the road to rebalancing. A further decline in the dollar is needed, as is a meaningful increase in real US interest rates. The longer we wait, the more treacherous the endgame. As Paul Volcker also reminds us, “what can be left to later usually is — and then, alas, it’s too late.”"

http://www.morganstanley.com/GEFdata/digests/20050415-fri.html#anchor0

 
At 8:36 AM, Anonymous Anonymous said...

Cheerleader awards #3

Marshall Prentice (president DataQuick)

"There have been some pretty dire predictions about the real estate market, it looks like a lot of the analysts are going to have to go back to their drawing boards. Everyone expects some cooling off, the bigger question is whether there will be a so-called soft landing or a crash. As things look right now, the soft landing scenario looks more likely," said Marshall Prentice, DataQuick president.

 
At 8:53 AM, Anonymous BoyInTheBubble said...

As things look right now, the soft landing scenario looks more likely

OK, quiz time: Name one successful soft landing, ever, in world economic history.

 
At 9:28 AM, Anonymous hellboy said...

(Name one successful soft landing, ever, in world economic history.)

The 2000 recession that was supposed to happen but never did.

 
At 9:33 AM, Anonymous BoyInTheBubble said...

That most certainly WAS a hard landing in tech... and there was an "official" recession in 2001-02.

 
At 10:08 AM, Anonymous hellboy said...

(That most certainly WAS a hard landing in tech... )

I didn't mention anything about tech being a soft landing?

(and there was an "official" recession in 2001-02. )

If you call that a recession you must have been born after 1982.

 
At 10:19 AM, Anonymous BoyInTheBubble said...

The ECRI called 2001-02 a recession, which is as close to an official definition as you can get. And I spent the '82 recession in the one city that was probably hit the worst (Pittsburgh).

Seriously, this isn't worth arguing about.

 
At 11:57 AM, Anonymous Anonymous said...

While I agree this isn't worth arguing about, let me just mention that exchanging one bubble for another is hardly a successful soft-landing. To qoute Doug Nolan's last credit bubble piece:

"The Greenspan/Bernanke Reflationary Bubble Period (the fall of 2002 to present) will go down as the most unsound boom in history."

http://prudentbear.com/creditbubblebulletin.asp

Boy's basic premise is correct: It's highly unlikely that any period of explosive growth will revert to a moderate pattern when assests have far outpaced income and cash-flow fundamentals.

 
At 2:33 PM, Anonymous Anonymous said...

hellboy,

just a little bit of real information... the recession of 2001-2002 was real and deep...i've lived through the last 3... and that one was the worst... business just didn't slow-down, it stopped... the fed didn't want to admit it due to consumer confidence issues, but we were very close to slipping into a depression... that was one of the main reasons why greenspan had to cut interest rates so aggressively... now... whether you agree with how much he cut and how long he kept them there for is another issue... but, again... greenspan had to cut interest rates to ensure that we would not slip into a depression...

 
At 3:04 PM, Anonymous Anonymous said...

The problem was that the recession ended up not doing what they are supposed to do, which is clear the way for future expansion. The consumer kept on spending. The excesses were just magnified.

 
At 7:05 PM, Blogger Ben Jones said...

(The problem was that the recession ended up not doing what they are supposed to do, which is clear the way for future expansion. The consumer kept on spending. The excesses were just magnified.)

Good point and I agree. Recessions are supposed to clear the dead-wood and that isn't happening. Look at the airlines.

 
At 7:28 PM, Anonymous hellboy said...

(The problem was that the recession ended up not doing what they are supposed to do, which is clear the way for future expansion.)

That’s probably the second intelligent remark posted on this subject.

I too agree it’s really not worth arguing about given the fact that my post was originally aimed at boyinabubble’s post about there was no such thing as a soft landing. If as one of the Anon states; that his premise is that sooner or later excesses are purged by a hard landing then I mostly agree with him. Alternatively, if he feels there are no such things as soft landings for the economy then I disagree. You can engineer a soft landing to give the economy time to clear the excesses as long as those excesses are not humungous. The fed has achieved this in the past. Unfortunately for all of us, today’s excesses are rather large.

A little food for thought:

According to NBER(official stats)the 2001 recession was 8 months( mar ’01 -nov ’01). I use NBER b/c their stats go back to the 1800s’ and I don’t think ECRI’s goes back that far but I could be wrong. Anyway, the recession back in the 81/82 period was 16 months( jul ’81-nov ’82) and if you ad the mini recession we had before that( jan ’80-jul ’80) one you could call the total collapse a 22 month affair since it was a double dip recession. Employment( officially )in the double digits, rates sky high and some folks standing in line to receive government cheese which affectionately( depends on your point of view )became known as “Reagan Cheese”. I know b/c my dad was one of the people standing in one of those lines.

Just for reference, the last time we had a crash of this magnitude was the ’29 crash which paralleled the ’00 market crash very closely. The recession…oh, excuse me, the depression that followed was 43 months( aug ’29-mar ’33).

We were supposed to have a hard landing after the ’87 crash but didn’t. We ended up with a milder recession some years later( jul ’90-mar ’91)lasting 8 months. The fed was largely responsible for aiding in a soft landing after that mess.

What should have happened after the ’00 crash was that we should have had a longer recession affecting more people. People’s attitude about risk and borrowing should have been altered but they weren’t. Risk is still being priced at near zero. This is largely the result of the fed’s monetary policy and aided by W’s tax cuts. Maybe the recession that followed cannot be entirely characterized as a “soft landing” but it sure as hell was a whole lot better than what it was supposed to be!

I know that many of you work in the tech industry and to you it may seem like a depression. Trust me I know this b/c I have many friends in this industry too. But I still stick by my point that we, as an economy, have not had a hard landing since the early 80’s.

(greenspan had to cut interest rates to ensure that we would not slip into a depression...)

That’s a debatable point left for another day Anon. When the fed releases it’s notes some 5 or 10 years down the line you may be surprised at what they were really concerned about. However, I can pretty much guarantee you that NOW they are concerned with a massive slowdown caused by the bursting of the bubble formed in residential real estate( mainly the two coasts )

 
At 8:48 PM, Blogger Ben Jones said...

hellboy,
Excellent comments. I would add that the Fed has one eye on deflation and money supply. They talk about inflation a lot but I think what scares them is the "D" word. Thx.

 
At 10:36 PM, Blogger Dave F. said...

"However, I can pretty much guarantee you that NOW they are concerned with a massive slowdown caused by the bursting of the bubble formed in residential real estate( mainly the two coasts )"

If this is the case, then perhaps the Fed's policy of "measured" rate increases is exactly the right prescription (assuming the bubble doesn't blow in the very near term.) Can they actually engineer the mythical soft-landing for the real-estate bubble? (a major coup de gras if it's even possible) It seems like the Fed is now stuck in this dilemma.

Ben,

Because the "D" word is so alien to me, can you explain how higher interest rates would help this? It seems to me that the Fed would want to lower rates to avoid deflation, or simply bust out the helicopters. :-)

 
At 11:20 PM, Blogger Ben Jones said...

(It seems to me that the Fed would want to lower rates to avoid deflation, or simply bust out the helicopters)

Another 500 points down in the Dow and they will not only cut rates but break out the B-52's full of cash. Have you seen how much the Mexican stock exchanged has fallen? The bust is on!

We've had the inflation, in homes, now we'll have the deflation.

 

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