Watch, Listen, and Learn

I suppose many folks who bought at high prices expected, or the very idea never occurred to them that, interest rates wouldn’t stay low forever.

That’s a cognitive flaw, and of course as we all know, cognitive thought is the first thing thing thrown out the window when you jump on any bullshit bandwagon (see: soccer hooligans; tulip, stock, and real estate bubbles; peak oil b.s.; global warming due to CO2 b.s.; ozone layer; religion; war; etc.).

Now class, all together now, as interest rates go up… yes that’s right, home prices will go down. Very good!

The recent real estate bubble has been historic. Just think, we- each and everyone of us- get to live in the best of times, the worst of times- just like in Dickens novel. Soak it in, folks, you’re going to have some great stories to tell your grand-kids.

I made a promise to myself at pretty young age: wherever the crowds are, I’ll go over here —>. Meaning: a different direction.

One still needs to keep an eye on them, though. Because the stupidity of crowds (one measure: observe who still supports a stupid war) is long documented. I think I feel even in my genes that when the crowd turns, they don’t necessarily come after the true culprits but whoever is “convenenient.”

I’m not falling for that again!

So sit back, nuke some popcorn, and enjoy the show!

As for the outcome.. I don’t have a crystal ball, but it doesn’t take a genius to see that now that rates are heading back up , predictions for prices to go down are pretty firmly based in reality. It’s already happening in many markets. I live in SoCal, where the median price is staying high, because the higher end of the market is still healthy (but then there are a lot of well off people here who are generally unaffected by the same forces that affect those who earn a “living wage”), while the lower end (see “rental income”)  is getting picked apart by vultures.

In England the hot housing market has been percolating much longer.

This also affected the housing market in Spain, as limeys with equity realized they could get a bit more sun in the south of Europe.

The impact of English and German capital created an unprecedented building boom. Spain overbuilt, and they are now starting see values slide.

What is interesting to me is that this article noted the percentage of income used to pay down a mortgage is apparently a heckuva lot lower in England than it is here in the US:

The Council of Mortgage Lenders said that home-owners are paying the highest mortgage interest in 15 years.

In April, first-time buyers had 18.7 per cent of their incomes eaten up by mortgage payments, it said, while home movers paid 16.3 per cent.

While these figures are still shy of the 25 per cent peaks that helped trigger the housing crash and recession in the late 1980s and early 1990s, they have shot up dramatically from around 11 per cent in the past five years.

The figures I’ve seen cited for the US is generally between 30% and 40%, and certain “special” markets like El Lay closer to 50% (since the bubble took effect). Those are higher than the old rule of thumb of 25%.

Someone at a party once said to me “Europeans aren’t wealthier than us, they just have different priorities.”

Yeah, right. Also, they get to live in Europe.

Hopefully <fingers crossed> prices in the south of Spain will take a big drop in the next few years, so I can afford a little condo on the Med.

Speaking of the sub-prime meltdown, this article simply and adequately explains the anatomy of the housing bubble. Bottom lines it fer ye.

Also makes the point of asking “Who will benefit from the Democratic-proposed bailout plans for those who signed on for homes they couldn’t afford?”

The saps, or Wall Street?

Aw c’mon!

Silent Storm

Nearly 19 percent of all subprime loans, or 1.1 million mortgages, were either delinquent by more than 30 days or in foreclosure, up from 17.9 percent at the end of last year. About 140,000 subprime mortgages entered foreclosure, a process that can last several months, in the first three months of the year. About 20,000 of those loans were in California.

Judging the nature of the typical sub-prime borrower, who is already skating on thin ice (and it’s summer), I expect at least 50% will wind up defaulting. The interest rates on their Option-ARM loans will reset as the prime rate climbs, lowering the value of their homes.

Not that it was ever easy to understand. Most people don’t know what they are signing when it comes to home loan docs. Right or wrong, it is the reality. Time for reform?

If it Looks Like Shit, Smells Like Shit…
When was the last time you recall some big Wall Street financial deal already in the works, the price of the takeover target was lowered?

I know, unheard of, huh?

Has not happened in my recent memory anyway.

Hell, if it smelled so bad, why not walk away, Lehman Brothers?

With such inflated values of real estate, though, it can happen when it involves an REIT.

Blackstone has to be feeling some sour stomach after absorbing Equity Office Properties Trust.


Oh yeah, mah point (I knew I had one). Private equity might do us all a favor and absorb the delta between bubble value and real (1999) RE value.

Yea private equity! Who knew our white knight was also a patriot!


Reality Rusts
That ’57 Plymouth Belvedere in Tulsa that’s been buried underground while optimists anxiously awaited it’s unveiling.

Apparently it has been sitting underwater- for who knows how long.

I wonder if they, the boosters, consulted any professionals such as engineers, undertakers, deep sea divers (in Tulsa? c’mon Paco!) to give them some idea of the forces involved, and the precautions needed. (Hint: a solid concrete floor might not have been a good idea(tm).)

Sad to say it, but that’s pretty much par for the course.

Hey grandpa, way to disappoint your grandkids!Aw, it’s all gud. If it had come out pristine, I don’t think we’d have this dose of reality we so desperately need here in the good ol’ US.


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