Thursday, May 19, 2005

Enough Already, Get Rid Of The Portfolios

The Fed chief is at it again. "Federal Reserve Chairman Alan Greenspan again pushed for limits on the multibillion-dollar mortgage holdings of Fannie Mae and Freddie Mac, saying such restrictions would not hurt the thriving housing market."

"As Fannie and Freddie grow ever larger, their ability 'to quickly correct a misjudgment in their complex hedging strategies becomes more difficult,' Greenspan said. 'We are thus highly dependent on the risk managers at Fannie and Freddie to do everything right.'"

The amazing thing about this is, what is the question about these portfolios? This back and forth about what should be a straight forward issue makes one wonder if something else isn't involved.

"'The assets required for Fannie and Freddie to achieve their mission are but a small fraction of the current level of their assets,' Greenspan said. Thus if Congress were to limit the two companies' holdings so that they can achieve their mission, a substantial liquidation would be required over time, the Fed chief said."

23 Comments:

At 8:22 AM, Anonymous Anonymous said...

A LITTLE TOO LATE

 
At 8:23 AM, Anonymous Anonymous said...

Good blog…but the problem with this Blog and it's postings is that it seems to be a constant, real-time search for the pop in the bubble, as if it will burst.......now! People who can't get in to the market, people who have sold and are renting, people who are jealous and bitter at other people's gains, all want to find comfort in this Blog thinking they are smarter than everyone else, and that when this pops there will instantly be rock-bottom bargains galore and they can laugh at all the idiots.

Well here's the deal folks...people have been calling this bubble for a long, long time and I am not going to list the multitude of books and articles that have discussed it over the past four years. News flash: Duh! It is a bubble, a big-fat-greedy bubble.

But this can go on for years and years, and if it does end, it may not pop, but just whimper, for further years and years. And you may still be reading and posting on this Blog in 2010 for comfort.

So, if you can afford a house with a 30-yr fixed, and you plan on staying a while, buy. If you are thinking of selling and renting...dude, apartments and rent homes can suck, and you can never go back to your comfy home. And if you are bitter and jealous, lighten up; you have your health and hopefully friends and family.

For fellow frugals, take comfort: “There is no dignity quite so impressive, and no independence quite so important, as living within your means...” -Calvin Coolidge.

Good luck to you all.

 
At 8:27 AM, Anonymous Anonymous said...

8:23 Anon Troll -
You are an ass/ A pretty well written ass, but an ass nonetheless.

Are you a realtor, a mortgage broker or some other kind of Used Car Salesman looking to keep your business going?

I will be most happy when you are homeless.

 
At 8:31 AM, Anonymous Anonymous said...

I agree with some of the above, but think it will pop. Though calling the top is impossible, it is still very interesting to track the progress of this bubble. I also think those aware of the situation will be better able to recognize when the tide really turns.

 
At 8:38 AM, Anonymous Anonymous said...

I used to think that this could go on for years. When I bought a home in the summer of 2000, I thought wow, I probably just bought at the top of the market. When I sold the home in the summer of 2004, I thought, wow, I just sold at the top of the market. hehe. Not.

However, the new mortgage lending guidelines that will be out early next year:

http://money.cnn.com/2005/05/19/real_estate/mortgage_guidelines/index.htm

may be the pin that pops the bubble, and in a quick way. I would have bet it would pop due to some other factor, but if the fed banking regulators tighten with screws, the effect will be felt quickly. In fact, they will be felt before the guidelines are published. So much for a long drawn out process where buyers and sellers fight over a listed price...the buyer simply will not be there anymore, unable to get their IO/neg am mortgage. Instant pop?

 
At 8:41 AM, Anonymous Anonymous said...

The Fantasy Troll Policeman strikes again!

 
At 8:47 AM, Anonymous Anonymous said...

We tend to surround ourselves with like minded people. From them we reinforce our own prejudices, and gain comfort from knowing we aren't alone in our thinking. So, its not surprising the majority on this blog agree it's a bubble and it's going to end.

Calling someone who doesn't agree an 'ass' is pretty disappointing though. That's not necessary, and I hope this blog doesn't descend into a Yahoo style bulletin board.

8:32 makes some valid points. I think he/she's wrong. But trashing this person for expressing a contrary view is not right. And, it's good to hear the other side of the argument.

 
At 8:57 AM, Anonymous Anonymous said...

"Good blog…but the problem with this Blog and it's postings is that it seems to be a constant, real-time search for the pop in the bubble, as if it will burst.......now!" People who can't get in to the market, people who have sold and are renting, people who are jealous and bitter at other people's gains, all want to find comfort in this Blog thinking they are smarter than everyone else..."

Good blog but full of jealous, bitter people? Which is it? Besides the increasing level of RE speculation, goverment warnings, economic indicators, and media reports (all much more in evidence this year than any years past), a minor bit of evidence moving me toward belief in a bubble is that most bubble-doubters only proffer overrwrought, emotional responses to some very clearheaded and evidence-based arguments on the other side.

I'd like to believe there won't be a bubble, but saying it won't be so because it hasn't popped today is just ... hot air.

 
At 9:05 AM, Anonymous Anonymous said...

"Good blog but full of jealous, bitter people? Which is it? "

I'm a different anon.

I think it's both. This blog has excellent and frequent updates from Ben, but there's someone who posts Peak Oil stuff all the time, and it seems there's one person who sees a troll in every 3rd post.

Many commentators are cranks!

 
At 9:05 AM, Blogger deb said...

Anon 8:23 has some very good points. I have been posting and reading this blog for quite some time and I agree with much of it. I have been watching the bubble, believing that it was a bubble, since 2002. We finally sold in '04. The equity we had became enough that it was a life changing sum and we couldn't pass up the chance to make it real money, not just equity. We basically rolled a 5% down on a $208k house (in '95) into $525k equity in a $910k house. Time to cash out.

If it goes up, so be it. If it goes down, we will buy when we find something affordable that makes sense and not try to time "the bottom".

I do think that the end is drawing nearer every day. The mass media coverage will begin to breed fear in people who can ill afford the houses they have bought, and the new lending guidelines should prevent more from doing the same. The End.

 
At 9:17 AM, Anonymous Anonymous said...

Whether it is a bubble that will burst with a hard landing or simply a boom that will peter out, the present situation cannot continue.

I am watching condos planned at $600 a square foot in New Orleans in a high crime neighborhood where no local with any sense would live. The parking spot alone is $50K. I know these will be marketed to out of state folks with lots of money, but it still makes no sense.

People buying in the suburbs here with traditional 30 years mortgages should be fine. Speculators in marginal neighborhoods or young people barely squeaking into condos with interest only loans could be hurt big time.

In older neighborhoods they are getting $200 to $300 a square foot for 100 year old renovated shacks in an area where the median income is less than $30K. There is just not enough wealth and buyers to sustain this.

 
At 9:27 AM, Anonymous Anonymous said...

Anon 8:23 AM is a classic, well-crafted troll. Everything he/she says is well meaning, but *this* is the kicker that is meant to inflame anger:

If you are thinking of selling and renting...dude, apartments and rent homes can suck, and you can never go back to your comfy home.

I thought this is quite an interesting statement, because I hear it often from people who own property. However, as one-time property owner and now avid fan of renting, I find that most places to rent are actually very nice. The trick is to take your time, and find a place to rent by interviewing the landlord or property manager. Many people choose their home very carefully, but put almost *no* thought into choosing an apartment. If done wisely, you can stay in an apartment for 5-6 years with *tiny* rent increases, and have a great, friendly relationship with your landlord. I live in Los Angeles, and while there are plenty of really dumpy places to live (mostly large apartment complexes), there is no shortage of very small houses and individual condos that are an absolute joy to live in. As a young 30-something, I like living in apartment complexes because I often find young, single men and women who are so much fun to hang out with in the evenings; it feels so much like a community, and we go over to each others places and watch TV, play board games, and even set each other up with friends.

When I lived in my condo, I had none of that. What I found were families crammed into small places, working *very* long hours and never home. We tried, annually, to have a BBQ to get together. But everyone was always on guard, because they assumed it was just a way to bring some HOA contentious issue. And rarely did more than a third show up, and the renters often didn't show up becaues the condo owners neglected to tell them about the meetings (probably didn't want them to hear about what was going on with the HOA members).

And here's the best part - if your apartment ever loses its charm, you can spend as little, or as much, time as you want searching for your next home. No pressure - once you find it, just give 30 days notice and jump into a new community. It's the most fun I've had in my life, and I'm saving money too!

 
At 9:43 AM, Anonymous Anonymous said...

[Anon 8:23 AM is a classic, well-crafted troll. Everything he/she says is well meaning, but *this* is the kicker that is meant to inflame anger:

If you are thinking of selling and renting...dude, apartments and rent homes can suck, and you can never go back to your comfy home.

I thought this is quite an interesting statement, because I hear it often from people who own property. ]

I didn't write the original, but it's TRUE! Renting *can* suck!

In my case it was having a rotten wall around a window that took forever to fix and forced me to move my bed for about a month. In another case it was freqent requests for rent increases, even in a city where there were 100s of vacant apartments nearby. It was having neighbors downstairs who left a fan on that would vibrate the floor, a barbeque grill that blew smoke upstairs, etc.

 
At 9:47 AM, Anonymous boulderbo said...

i think most of us that visit the board are people that have a material interest in what will transpire with real estate market in the very near future. i find it much more informative to hear feedback from people all over the country about their impressions on what's going on, rather than to read the fluff in the media. we're not unhappy renters, but people trying to make an informed decision about a home sale or purchase, or the direction a business should take. keep up the good work ben.

 
At 9:47 AM, Anonymous Anonymous said...

Regarding the "troll" post - I am in agreement that this post is a well crafted bit of trollin written to spread discontent.

I agree that this statement:

"if you are thinking of selling and renting...dude, apartments and rent homes can suck, and you can never go back to your comfy home."

is false as can be.

I sold my very nice home and am renting an equally nice home (my wife prefers it to our previous home!) for less then half of what we were paying for mortgage, taxes and maintanence.

 
At 9:52 AM, Anonymous Anonymous said...

"If you are thinking of selling and renting...dude, apartments and rent homes can suck, and you can never go back to your comfy home."

In San Jose, 1900 a month can get you a two-level 2/2.5 apartment in a brand new complex, with 2 parking spaces, W/D, A/C, berber carpet, floor-to-ceiling window, large patio, and yes, granite countertop.

It is not a McMansion, but it is quite sufficient for a couple.

BTW, you don't need to be frugal to save money. You just need to be aware of your spending and your investments.

 
At 10:22 AM, Anonymous Anonymous said...

Anon 8:23 post was well written and he/she does agree that there is a big-fat greedy bubble. I would not consider him/her a troll. As others have said we should not be trashing them for expressing their opinion. Lets keep it civil and intelligent.

 
At 10:39 AM, Blogger John Law said...

there is virtually no place to hide during a bubble, any kind of bubble. even stocks buffet owned got hit big during the burst.

with the amount of creative loans out there, you can tell we're near the end.

 
At 12:40 PM, Anonymous Anonymous said...

The reaction to the troll was justified. So, the troll thinks it's ok to ride the wave until it blows out -- well good for him, but there are a lot of very innocent but very foolish people who are going to be hurt by this, and the touters of the RE market will have the figurative blood of those people on their hands when it is over. Along with the speculators will go down a pitiful number of widows and orphans.

It may well be true that those who read this blog are on top of the situation, but that does not excuse the touters from the consequences of their actions towards those who are not so informed.

 
At 1:14 PM, Anonymous nostradamus said...

(Well here's the deal folks...people have been calling this bubble for a long, long time...But this can go on for years and years, and if it does end, it may not pop, but just whimper, for further years and years. And you may still be reading and posting on this Blog in 2010 for comfort.)

Yes, it can go on for years. But it has already go on for 5-7 years (depending on area). That makes it the longest such RE boom in US history. The '70s boom in Calif was about 4 years, the '80s boom was 4-5 years.

Yes, people have been talking about for years (myself included.) But as recently as last fall, when I was unloading property and telling everyone I knew about the housing mania, I could only find one website that exclusively discussed it (Piggington about San Diego).

Now, just a few months later, it is Topic #1 in the media and there are dozens (hundreds?) of articles and blog items about the housing bubble every day.

This very blog only started up this year. So go ahead and pretend that people have been talking about this for years. They haven't. And largely, they still aren't. The recent Gallup Poll showed that 77 percent of Americans have never heard of the housing bubble. Go ahead and pretend that, because people are discussing it (a few), it can't be a bubble.

I remember how some smart folks started questioning the tech stock boom of the 90s back in 98. But most were blissfully unaware. It wasn't until late 99 and early 00 that the "bubble" talk started getting real loud.

Bubbles always go craziest near the end. And that's where we are---near the end.

 
At 1:19 PM, Anonymous Boca Bob said...

How come trolls always use the word "dude"? Is it because they are all 16-24 years old and wear their baseball caps on backwards? I'm planning to do a study of the sartorial habits and argot patterns of online trolls someday. Right after I flip a couple dozen more condo conversions in Boca.

 
At 8:11 PM, Anonymous alex norman said...

I have commented before on this blog about an important issue the so-called "Troll" raises: the severity and duration of the downturn.

The troll is voicing conventional wisdom that RE markets are "sticky on the downside" because most people live in the homes they own and are reluctant to sell.

The last bubble in So Cal (1990) took almost 7 years to get back to trend, and it overshot on the downside.

This bubble is 3x the magnitude. If it behaves proportionally on the downside, the troll's estimation of 2010 will be too early: it would take 21 years to get back to trend.

For those of us who think this impossible, we have Japan as an example.

However, I am of the opinion that because of the amount of leverage in our system and the amount of speculation with risky mortgage products, our downturn will be shorter and more violent than Japan's.

For those of us wanting to find evidence of a top, we should look for divergences in market technicals, which we are starting to see.

Prices are rising in some markets while sales volume is decreasing sharply.

Days listed numbers are starting to get higher.

The number of HELOCs is outnumbering new home loans.

All these indicators may show the market turning before prices start to fall.

As many have pointed out, the very definition of a bubble is that it collapses under its own weight. It will not need the chinese selling $ or Greenspan & Co. inverting the yield curve (which of course they won't do).

All it will take is for the market to run out of buyers. When the last person capitulates to buy a house they can't afford because of fear or greed, and no one else can be coerced by the realtors to buy, the turn will start.

As someone here pointed out, it will accelerate when the speculators see their paper P&Ls turn from "profit" to "loss"

As someone else has pointed out, a long-term buyer should hope they are not in a neighborhood with speculators.

Prices are set at the margin. When it turns, smart people are not going to have to wait ten years to find bargains. At the margin, they will be there. I believe, within 18 months.

 
At 12:50 AM, Anonymous Anonymous said...

The troll makes an error in his assumption that those of us interested in the Real Estate Bubble are folks shut out of the market or those who took an early exit from the mania. If I owned multiple properties I would have dumped them by now too. I do own a house (purchased in 95') in Orange County CA (Bubble land) so I am not on the outside looking in as the troll might assume. I have been weary of this bubble for more than 2 years. My advice to folks on the sidelines...wait. I have seen this show before. It will be ugly for those who buy at the end of the frenzy. Even if you buy now thinking you can stay put for a while to ride it out...it becomes an ugly dark cloud that hangs over you, your marriage, your career (i.e. willingness to take promotions that require moving) etc. I watched the last correction contribute to the end of 2 marriages.

If you must buy now, there are still lots of nice places to live in this country that are not bubbles. My wife and I just got back from Kansas City, MO and went to some open houses for fun. You can buy what would be a 2-3 Million dollar mansion in Southern California (4,000 sq ft new home in beautiful planned community w? lakes, trails and pools) for $400,000 (the cost of a 1,100 sq ft So Cal condo). Our jaws dropped when we saw what we could buy outright in Kansas City right now with our current equity. I meet an accountant on the plane home who told me he as some VERY wealthy clients (100 Million types) who have dumped their real estate in the last year. Newsflash...the smart money always gets out first!

Keep watching the news, keep reading this blog and keep saving cash. It may be another year or so but you will have your pick!

Pete in OC

 

Post a Comment

<< Home