Saturday, May 21, 2005

"A Game Of Musical Homes"

The thoughts expressed by Jeff Alworth in the Oregonian must be in the minds of millions of homeowners this Saturday morning. "My wife and I have a particular interest. Since last winter, we've had plans to sell our house, and we've been gussying it up for a summer sale."

"We love that our house has appreciated so much in value since we bought it in 1999. We're less excited that everyone else's homes have gone up so quickly with it. The rise is dizzying, as is the calculation of whether we'll be able to sell our home and afford another. Could we be the ones left standing with no home when the market crashes? Or worse, what happens if we take on an inflated mortgage, only to see a market correction in the next year?"

"If this is a mortgage bubble, when will it burst and by how much? What will happen to the value of my house?"

"I would hate to see us make our move just when the bubble bursts and lose all we've worked so hard for. But whether we are the ones to get caught, or someone just like us a year from now, the signs look unmistakable: The housing market will stall out. When it does, and the game of musical homes stops, someone will be left with an overpriced home. I sure hope it's not us."

18 Comments:

At 9:41 AM, Anonymous Anonymous said...

My favorite quote:

"I would hate to see us make our move just when the bubble bursts and lose all we've worked so hard for..."

Oh really? What "work" did you do?

Sorry, breathing doesn't count. I just find it fascinating that all these HOMEDEBTORS believe that just by signing off on a home loan, they are entitled to--and are experts in--financial "appreciation (aka inflation).

 
At 9:44 AM, Blogger Ben Jones said...

9:41 anon,
Good point that I didn't really catch. Perhaps he's referring to the 'sweat equity', but most homeowners do see their 'equity' as an entitlement. Thanks for commenting.

 
At 9:53 AM, Anonymous Anonymous said...

Sell your home and rent. Do your homework on the savings vs costs. I'm sure you'll be able to find a nice rental and maintain your lifestyle while paying off your debt.
Speaking of possible lifestyle changes; has any one seen this article:

http://www.financialsense.com/fsu/editorials/kirby/2005/0518.html

It appears that China and the Bank of Japan have stopped buying our treauries three months ago. Mysteriously, Caribbean Banking Centers have taken up the slack! No main stream media attention whatsoever! For some reason I'm suspecious!
I'd like to hear everyone's comments on this issue, but I believe this is ominous for interest rates; the Caribbean pirates now control interest rates and could precipitate a sudden change.
By this time next year the housing market and our lifestyles could be a different story.

 
At 10:01 AM, Anonymous Anonymous said...

In this market, the last thing I'd do is buy a house unless I found
(By some bizarre consequence a really good deal and something I expect to be in for the next 30
years).

Selling your house and renting for a while is a good choice if you don't need much space. Better do
it quickly before the bubble pops.
Start the price 15% under market value, and start a bidding war.
You might get current market value for it while people are still nuts, and IO loans still available.

Otherwise, I think its best to just stay put for a while until this boom blows over.

 
At 10:02 AM, Blogger Ben Jones said...

9:53 anon,
I have a post recently that looked at the falling asian demand for GSE bonds as well.

http://thehousingbubble.blogspot.com/2005/05/foreign-sources-of-mortgage-capital.html

 
At 10:56 AM, Blogger John Law said...

(I would hate to see us make our move just when the bubble bursts and lose all we've worked so hard for.)

this is my problem, nobody really worked hard to have their house double in 5 years. they worked hard to pay their mortgage and upkeep, but the massive credit bubble worked for them. at least they see it and are scared the bubble will work against them.

think about, they've worked just as hard the last 5 years as they probably will the next 5. yet if their house is worth 50% less in 5 years, what with that?

 
At 11:04 AM, Blogger David said...

Wow, 9:53. There's more there than you allude to. If the Fed has indeed been fudging numbers and printing dollars to make up the shortfall, it's mind-boggling. Further, it raises the question of how accurate the restated numbers are.

Also (again, if accurate), the implications of the Chinese, Japanese, and especially the British having said nothing about these grossly inaccurate numbers are likewise staggering. They know what they bought. If they're letting us twist in the wind, they've already priced in and decided they can live with a major dollar drop. Wow.

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

"...Could we be the ones left standing with no home when the market crashes?"

I think that's the luckiest thing that could happen to you, no?

 
At 11:20 AM, Anonymous historybugg said...

(It appears that China and the Bank of Japan have stopped buying our treauries three months ago. Mysteriously, Caribbean Banking Centers have taken up the slack!)

From what I've read, a lot of very savvy financial folks (and not just tinfoil-hat conspiracy types) believe that the Fed itself is behind the Carribean purchasing.

Most of the major money center banks (Goldman Sachs, et al) in NYC and increasingly London have Caribbean operations for tax and regulatory reasons. The Fed works very closely with these financiers and it is not unlikely that they are funneling money through them to support low long-term Treasury rates. They are picking up the slack from the reduced buying by China and Japan.

If this sounds like we are taking money out of one pocket and putting it in another, that's exactly right. Greenspan calls the low long rates a "conundrum". Methink he doth protests too much. He knows exactly what is happening because he is the guy responsible for it.

Clearly Greenspan knows (as we all do) that a significant rise in rates (especially if they force mortgage rates higher) would be devastating to the housing market. So on the one hand, he is raising short-term rates to pay lip service to the notion of fighting inflation, and on the other hand, he is buying longer-term Treasuries via Caribbean hedge funds and money center banks to keep the housing market from falling apart.

I'm not convinced Greenspan is eager to see the housing bubble go even more parabolic. He's probably worried about it. So he's buying time to see if he can "engineer" a soft housing landing without cratering the rest of the economy in the process. Tricky business, particularly with our "lenders of last resort" (China and Japan) pulling back.

 
At 2:30 PM, Anonymous Anonymous said...

I agree with the general sentiment on this thread, but I have to disagree with the baseless assertions that the Fed is somehow controlling Caribbean interest in treasuries.

 
At 3:30 PM, Anonymous Anonymous said...

Yes, I have also heard it is the FED buying through the Caribbean Banks. After all who else has a $100 million a month to buy low interest paying/dollar falling treasuries. Certainly, if it's not a suitable investment for China, the fastest growing economy in the world, and Japan the second largest economy in the world, then who??
Still baseles in facts, but it makes sense.

 
At 3:50 PM, Anonymous Anonymous said...

All sorts of entities could be responsible for buying treasuries from Carribbean domiciles--including Asian, European, and Russian central banks. There are thousands of hedge funds, and even more other kinds of investors, that could make a $100 mln bet, and many of them are domiciled in the Carb for tax and regulatory reasons.

 
At 7:14 PM, Anonymous Anonymous said...

Sorry that was supposed to be $100 billion a month not million. OK so how long can whom ever keep buying?

 
At 10:53 PM, Anonymous Anonymous said...

Um. If you feel that way, sell, take adavantage of rental glut and buy after the crash.

 
At 8:18 AM, Anonymous Loren said...

Most of the equity I have in my house is from paying off the mortgage. I've had relatively bad experience in real estate, that's why I know so much of this stuff is a scam. I was in Michigan after a big GM layoff. I was in Denver, but tied to the MI loan, so couldn't buy until after the big run up there. I moved to NC which didn't go anywhere the time I was there, and then I moved to Northern Colorado just as it was levelling off. The money I have in the house is MINE.

My only complaint is the debt. If this was a cash game I woudn't mind. I don't care if people get rich, but I don't like banks lending out my money to people who are just driving up prices on things I don't think are worth it. It's not like all those borrowers are going to pay it back.

 
At 2:33 PM, Blogger Jeff said...

I'm probably way too late for anyone to read this response, but to anonymous, who wrote "I just find it fascinating that all these HOMEDEBTORS believe that just by signing off on a home loan, they are entitled to--and are experts in--financial "appreciation (aka inflation)."

I've spent hundreds of hours working on this house. You're right that I'm in debt (though most economists describe it as good debt), but how this converts my house to an entitlement isn't clear. The word "work" here isn't a rhetorical flourish. You put hundreds of hours into something, you get to feel invested.

 
At 2:38 PM, Blogger Jeff said...

And to John Law ("think about, they've worked just as hard the last 5 years as they probably will the next 5. yet if their house is worth 50% less in 5 years, what with that?")--

No, I'm never working this hard again. I've ripped out a lawn and put in a perennial garden; I've done a complete remodel on the kitchen and bathroom; I've sheetrocked 2/3s of the upper floor and moved a closet door; I've scraped every square inch of the exterior, caulked the tongue and groove and painted the siding; I've refurbished the casement windows (all 60 lights); I've Jasco-ed the paint off the wainscotting, etc etc.

No, never again.

 
At 5:01 PM, Anonymous Anonymous said...

Ass pirates

 

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