Here is your open thread for the weekend beginning Friday June 19th, 2009. You may post random links and off-topic discussions here. Also, if you have an idea or a topic you’d like to see covered in an article, please make it known.
Be sure to also check out the forums, and get your word in the user-driven discussions there!
Poetrywater » Jun 19, 2009 at 7:13 am
Okay, we sold our house in 2006 and we had a semi retirement while we enjoyed the last 2 1/2 years living partially on the proceeds.
Now we are ready to buy again and found a place where (if they accept our offer on Monday) we are paying 2005 prices (as we asked down almost 100K and they are considering it as they have had no other offers and need to move in a month.) It has a rental on the property and with the low mortgage rate, we couldn’t rent a studio in this area for what we will be paying monthly to buy this home.
However, we will have a mortgage again. (30 yr fixed)
And of course there are always fix up costs.
If you feel like sharing your opinion on if you think we should buy right now, I would love to hear what you think.
Thank you!
patient » Jun 19, 2009 at 8:21 am
RE: Poetrywater @ 1 – With a 2005 price level you are paying current market price and there are no signs that Seattle’s prices are anywhere close to a bottom, check The Tim’s Case shiller posts for a reference. So it’s more than likely the home will continue to loose significant value. I don’t think it’s a good idea to buy at market price today. If it was a deeply disciounted (from current market price ) short sale or foreclosure at 2002 or earlier price it would be harder to say wether it’s a good idea or not. In general I think it’s a bad idea to buy now when prices are falling and the economy is very fragile. It’s a very good time to wait, imo.
Trigger » Jun 19, 2009 at 8:22 am
I have a question and I am not sure this was analyzed here.
From financial standpoint – in general:
- Is it better to buy land and build a new house on it or just buy the house with land?
Kary L. Krismer » Jun 19, 2009 at 9:08 am
By patient @ 2:
If you’re looking only at Case Shiller, you won’t really know much because they concentrate so much on price (and again they’re very out of date). To say there are no signs we’re at a bottom is an overstatement, but in any case, when we’re at a bottom will probably be more dependent on when the economy is at a bottom than anything.
My answer to the question would obviously be different. I wouldn’t advise anyone to buy or not buy based on what they guess the prices will do in the future. That would probably be the 10th most important criteria in a contest where you only look at the top 5 criteria.
I would note, however, that the “bargains” are probably in the upper price ranges–over $1,000,000, or at least over $500,000. So talking of 2005 prices doesn’t really mean much. And in any case, except for condo units the only way the average person would know 2005 prices on a property is if the property sold in 2005. And even then they might not understand the circumstances of the sale (e.g. was it a foreclosure).
deejayoh » Jun 19, 2009 at 9:10 am
RE: Trigger @ 3 – I think it is almost always better to buy a house already built. Even if you can build a house super cheap you are probably looking at $150/sqft for custom construction – so unless you want something very specific I have never been able to see how to make the numbers work.
deejayoh » Jun 19, 2009 at 9:13 am
Check out this listing. They raised the price by almost $300k today. After sitting unsold for 9 months, I guess a 25% price bump makes sense. Somehow… It’s almost as if someone transposed the numbers, but since they made the same change to TWO MLS listings, I am pretty sure they meant to do this.
1546 32nd Ave S
Date Event Price Appreciation Source
Jun 18, 2009 Price Changed $1,540,000 — NWMLS #28161867
Jun 18, 2009 Price Changed $1,540,000 — NWMLS #28157648
Feb 24, 2009 Price Changed $1,249,000 — NWMLS #28157648
Feb 24, 2009 Price Changed $1,249,000 — NWMLS #28161867
Sep 23, 2008 Listed $1,375,000 — NWMLS #28161867
Sep 22, 2008 Listed $1,375,000 — NWMLS #28157648
May 22, 2008 Sold $1,060,000 6.7%/yr Public Records
Scotsman » Jun 19, 2009 at 9:23 am
What’s the default rate on these refis- 50+% already? This will help. How dumb can they be?
June 19 (Bloomberg) — President Barack Obama’s program to help more homeowners refinance may be expanded to include borrowers who owe more than 105 percent of their homes’ values, Federal Housing Finance Agency Director James Lockhart said.
The Obama administration is considering allowing Fannie Mae and Freddie Mac to refinance loans with current loan-to-value ratios of 125 percent or higher, Lockhart said at a National Association of Real Estate Editors Association conference in Washington yesterday.
The Home Affordable refinancing program, announced Feb. 18, is part of the U.S. government’s efforts to stem soaring foreclosures and bolster consumer spending.
The 125 percent level on loan-to-values would preserve the ability of Fannie Mae and Freddie Mac to package and sell the debt into so-called real estate mortgage investment conduits, he said. While 125 percent loan-to-value ratio is on the table, Lockhart said “it’s not necessarily the number we’re going to end up with.”
Nick Sincere » Jun 19, 2009 at 9:40 am
There is a program on housing on Weekday on KUOW now with Richard Hager. He just said that it’s better to get the low interest rate that the “one-time” lower house price. Anyone want to call in and tell him why he is wrong? I would but I’m not quite comfortable arguing all the points, I’d just sound like a dumb*ss. The number is 543-5869.
Kary L. Krismer » Jun 19, 2009 at 9:56 am
RE: Scotsman @ 7 – I think you might be confusing refinances with modifications. I haven’t heard any stats indicating refinances are defaulting at a 50% rate.
deejayoh » Jun 19, 2009 at 10:16 am
By Kary L. Krismer @ 9:
The modification number is worse than that. The rate is 65-75% for redefaults according to fitch
http://therealdeal.com/newyork/articles/mortgage-modifications-not-stopping-defaults-subprime-fitch-ratings
Kary L. Krismer » Jun 19, 2009 at 11:04 am
RE: deejayoh @ 10 – I’d heard a higher number too, but that doesn’t mean that the refinance default rate is that high. Keep in mind that not everyone can refinance, and the ones that do are not likely to be in financial trouble. The program mentioned is just something to allow people with some negative equity to refinance, so that they can get lower rates too, making them less likely to default (because of lower payments).
Now maybe there is something that says that sub-group of refinancing folk default at 50%, I just haven’t seen it.
anony » Jun 19, 2009 at 11:06 am
RE: Kary L. Krismer @ 9 – Of course the pertinent info would be the default rate of people who have mortgages for 100-125% of the value of their house. I imagine it would be much higher than the ordinary default rate because not only are they underwater( a subject which we have beat to death here before), but they would be heavily skewed towards people who bought with low to 0 down, got exotic, non or low amortizing mortgages, and/or HELOCed out everything they could at the peak.
Scotsman » Jun 19, 2009 at 11:10 am
RE: Kary L. Krismer @ 9 –
Despite the program name, I think the result is likely to be the same. So you can refinance 125% of your existing current loan. How long will it be before you realize that paying 125% plus interest of the initial value of a declining asset is a really bad idea? If there is a gap in default rates now, it won’t be long before it narrows with this kind of governmental stupidity.
Plus, this way the taxpayer gets to pay an extra 25% plus fees and interest over the cost of just letting the loan default. Would someone please let the adults back into the room!
anony » Jun 19, 2009 at 11:11 am
RE: Kary L. Krismer @ 11 – Good point. For the record I think they will do it just to bail out the people who got low amortizing ARMs who won’t be willing or able to pay once the rate resets. They don’t want all those people defaulting and adding to the foreclosure list.
Scotsman » Jun 19, 2009 at 11:13 am
RE: Kary L. Krismer @ 11 –
Yup, I’m sure they’re a great investment, Kary. You should portfolio some of those loans…. ;-)
softwarengineer » Jun 19, 2009 at 11:17 am
RE: anony @ 12 –
WAIT UNTIL UNEMPLOYMENT RUNS OUT FOR MANY AT THE END OF THE YEAR
Most RE in the Seattle area is/was purchased by households with two incomes. The pure, clear and simple mathematical probability that one of their household incomes are unemployed is twice the probability of households with single incomes. Its like shaking the dice twice for snake eyes, instead of just once.
I predict massive foreclosures when [not if] this happens, because much of Seattle’s housing needs two good incomes to stay above water. The unemployment income is not a good income, which, IMO, is a prime reason why consumer spending is way down and big ticket items are not purchased lately.
Refinancing becomes a joke for many Seattle homeowners when you barely qualified with two incomes and now you’re down to just one.
Scotsman » Jun 19, 2009 at 11:24 am
Here’s some great bear porn- I’d say it’s “Sniglet” bad. How the future could unfold:
http://theautomaticearth.blogspot.com/2009/06/june-17-2009-40-ways-to-lose-your.html
1.Deflation is inevitable due to Ponzi dynamics (see From the Top of the Great Pyramid)
2.The collapse of credit will crash the money supply as credit is the vast majority of the effective money supply
3.Cash will be king for a long time
4.Printing one’s way out of deflation is impossible as printing cannot keep pace with credit destruction (the net effect is contraction)
5.Debt will become a millstone around people’s necks and bankruptcy will no longer be possible at some point
6.In the future the consequences of unpayable debt could include indentured servitude, debtor’s prison or being drummed into the military
7.Early withdrawls from pension plans will be prevented and almost all pension plans will eventually default
8.We will see a systemic banking crisis that will result in bank runs and the loss of savings
9.Prices will fall across the board as purchasing power collapses
10.Real estate prices are likely to fall by at least 90% on average (with local variation)
11.The essentials will see relative price support as a much larger percentage of a much smaller money supply chases them
12.We are headed eventually for a bond market dislocation where nominal interest rates will shoot up into the double digits
13.Real interest rates will be even higher (the nominal rate minus negative inflation)
14.This will cause a tsunami of debt default which is highly deflationary
15.Government spending (all levels) will be slashed, with loss of entitlements and inability to maintain infrastructure
16.Finance rules will be changed at will and changes applied retroactively (eg short selling will be banned, loans will be called in at some point)
17.Centralized services (water, electricity, gas, education, garbage pick-up, snow-removal etc) will become unreliable and of much lower quality, or may be eliminated entirely
18.Suburbia is a trap due to its dependence on these services and cheap energy for transport
19.People with essentially no purchasing power will be living in a pay-as-you-go world
20.Modern healthcare will be largely unavailable and informal care will generally be very basic
21.Universities will go out of business as no one will be able to afford to attend
22.Cash hoarding will continue to reduce the velocity of money, amplifying the effect of deflation
23.The US dollar will continue to rise for quite a while on a flight to safety and as dollar-denominated debt deflates
24.Eventually the dollar will collapse, but that time is not now (and a falling dollar does not mean an expanding money supply, ie inflation)
25.Deflation and depression are mutually reinforcing in a positive feedback spiral, so both are likely to be protracted
26.There should be no lasting market bottom until at least the middle of the next decade, and even then the depression won’t be over
27.Much capital will be revealed as having been converted to waste during the cheap energy/cheap credit years
28.Export markets will collapse with global trade and exporting countries will be hit very hard
29.Herding behaviour is the foundation of markets
30.The flip side of the manic optimism we saw in the bubble years will be persistent pessimism, risk aversion, anger, scapegoating, recrimination, violence and the election of dangerous populist extremists
31.A sense of common humanity will be lost as foreigners and those who are different are demonized
32.There will be war in the labour markets as unempoyment skyrockets and wages and benefits are slashed
33.We are headed for resource wars, which will result in much resource and infrastructure destruction
34.Energy prices are first affected by demand collapse, then supply collapse, so that prices first fall and then rise enormously
35.Ordinary people are unlikely to be able to afford oil products AT ALL within 5 years
36.Hard limits to capital and energy will greatly reduce socioeconomic complexity (see Tainter)
37.Political structures exist to concentrate wealth at the centre at the expense of the periphery, and this happens at all scales simultaneously
38.Taxation will rise substantially as the domestic population is squeezed in order for the elite to partially make up for the loss of the ability to pick the pockets of the whole world through globalization
39.Repressive political structures will arise, with much greater use of police state methods and a drastic reduction of freedom
40.The rule of law will replaced by the politics of the personal and an economy of favours (ie endemic corruption)
softwarengineer » Jun 19, 2009 at 12:00 pm
RE: Scotsman @ 17 –
I HAD A FRIEND IN THE NINETIES THAT SUMMED UP THE GLOBALIST [PROGRESSIVE?] “POWER GRAB PSYCHOLOGY” IN ONE SENTENCE
“When they scream for help, we will come.”
Scotsman » Jun 19, 2009 at 2:05 pm
RE: softwarengineer @ 18 –
Heh. I like that, so true. It certainly fits with the idea that “no crisis should be wasted.” that seems popular now inside the administration.
One Eyed Man » Jun 19, 2009 at 3:02 pm
RE: Scotsman @ 7 –
They’re moving more debt and risk of default (on FHA insured loans) off the balance sheets of the private financial institutions and onto the government’s balance sheet to further insulate the private financial system from systemic collapse. And they want the public crapper loaded with as much debt as they can stuff in before they flush it.
David Losh » Jun 19, 2009 at 3:37 pm
RE: softwarengineer @ 18 – RE: Scotsman @ 17 –
The one thing software engineer has right is over population. The world has become the rats in a confined enclosure experiment. That was where the rats bred in a confined space until there was no more room. The rats killed and ate each other.
If you read the Bible this could be what Armegedeon looks like. There were many times before the Bible was written when people belived they were confined by mountains or on islands. In 1492 people believed the world was flat. Now it’s completely populated. A million years or so to populate Africa and Europe, the Amiricas, and BOOM, in six hundred years there is no more space.
OK, now what do we do?
anony » Jun 19, 2009 at 3:47 pm
RE: Scotsman @ 13 – Scotsman, Isn’t it a program to refinance 125% of the current appraised home value, not the current loan? I thought it was to allow people who are already underwater by up to 25% to refinance (where they couldn’t under the current underwriting criteria -the asset must be worth more than the loan). If they are letting people with no equity do a cash out refi of 25% more, that would be completely different.
anony » Jun 19, 2009 at 3:50 pm
RE: David Losh @ 21 – David, add “Logan’s run” to your Netflix queue.
Dave » Jun 19, 2009 at 4:25 pm
The refinance program and the loan mod program are different. Refinanace allows Fannie Mae/Freddie Mac to refi the loan to a lower rate. Changing the LTV value is actualyl a good thing. The program was supposed to help people significantly underwater – those that will lose the home if somethign happens. The previous program with a lower LTV didn’t work at all – it could only be used by those not underwater – not really those people who have a problem. The refi program doesn’t have sign. default rate – you can’t be in the program if you miss/are late with even one payment.
Th loan mod program – completely different. Reducing principle and lengthening things out to 40 years. That one (to qualify) needs to have missed paymnets. Not surprsing the program that only takes people who miss payments has a high default rate. Logical really.
Dave » Jun 19, 2009 at 4:26 pm
The refinance program and the loan mod program are different. Refinanace allows Fannie Mae/Freddie Mac to refi the loan to a lower rate. Changing the LTV value is actualyl a good thing. The program was supposed to help people significantly underwater – those that will lose the home if somethign happens. The previous program with a lower LTV didn’t work at all – it could only be used by those not underwater – not really those people who have a problem. The refi program doesn’t have sign. default rate – you can’t be in the program if you miss/are late with even one payment.
Th loan mod program – completely different. Reducing principle and lengthening things out to 40 years. That one (to qualify) needs to have missed paymnets. Not surprsing the program that only takes people who miss payments has a high default rate. Logical really.
Sniglet » Jun 19, 2009 at 4:26 pm
Here is yet another example of the budding deflationary process at work.
http://surkanstance.blogspot.com/2009/06/iron-ore-producer-drops-prices-282.html
Scotsman » Jun 19, 2009 at 4:30 pm
RE: anony @ 22 -
Yes, you’re right- it’s 125% of current value, but that will still help a lot of folks. Of course they still have to qualify, which they may not have had to do originally.
“One Eye” nails it, anything to move debt from the private to the public sector. It still won’t help though- despite all the noise I’d expect a pretty small dollar amount of transactions. The qualifying requirement will kill those that really need the program, the same ones that are most likely to default going forward.
anony » Jun 19, 2009 at 4:48 pm
By Scotsman @ 27:
Agreed, and as it should be. Those who can’t qualify due to other credit issues will likely default and should lose the home and find a rental.
I could see it being a good deal for the GSEs in the cases where someone owes them say $500K on an option ARM they won’t be able to pay when it resets next year, and that patsy er. “responsible homeowner” is willing to keep paying the 500K + interest (with the lower rate) rather than default and give fannie or freddie a $400K home that is rapidly depreciating in value.
David Losh » Jun 19, 2009 at 7:56 pm
RE: anony @ 28 –
Stay with me here for a minute because there was a radio show talking about the cash for clunkers program. A caller made the comment that this was just another attempt by the government to get people into a long term loan.
In that way cash for clunkers is a lot like the $8K first time home buyers credit. The government will give you money if you take out a long term loan.
That can only help the banking industry and financial markets.
Just thinking out loud, it would be much better for banks just to make across the board deals right now with debtors. You may get some of the people to buy in this time around, but in a couple of years it will be harder to find fresh blood for the Ponzi scheme.
Dave » Jun 19, 2009 at 8:29 pm
Scotman @ 17 – We don’t need another hero.
eadg » Jun 20, 2009 at 1:00 am
I’d have a suggestion for a future post: is there any anti-trust process being thought against builders? One thing that I notice is that the price for new houses is somehow fixed. No matter how far you move, whenever the $/sqft drops, they just increase the areas of the houses in order to keep the prices around 400-450K. Is that true, or it is just my eyes?
Kary L. Krismer » Jun 20, 2009 at 6:53 am
RE: Sniglet @ 26 – It’s not deflation every time a price drops. And it’s not deflation or inflation when a single product changes price.
Kary L. Krismer » Jun 20, 2009 at 6:56 am
RE: Scotsman @ 27 – How is it moving from private to public? I think these things already are Freddie or Fannie, and will be so afterward.
I wonder what the loan costs are on these refinances.
Kary L. Krismer » Jun 20, 2009 at 7:03 am
RE: David Losh @ 29 – I really hate this cash for clunkers program. I just know that immediately after the program terminates, so will my 20 year old truck that the EPA rates at 17 mpg, qualifying it for a $4,500 credit.
But David, I don’t think this is to benefit the banks as much as the auto makers. To me though, it’s an incredible waste of resources because there probably are not that many people like me that drive older vehicles that can afford to buy new, and to the extent someone like me would turn in a perfectly good vehicle to be scrapped, that’s not a good use of resources. So the only effective use of the program would be for someone who has an old PoS vehicle, that can afford new and otherwise wouldn’t buy within the next year. I’d suspect that’s a pretty small group, but the qualifying group is much larger. They’re just going to move some sales from 2010 and 2011 into the 3rd and 4th quarters of 2009.
One Eyed Man » Jun 20, 2009 at 9:28 am
RE: Kary L. Krismer @ 32 –
Of the approximately 10 trillion in US mortgage debt, Freddie and Fannie hold about 2 trillion as their assets, plus another approximately 3.5 trillion which backs outstanding mortgage backed securities they’ve sold. Assuming that Freddie and Fannie didn’t guarantee the outstanding MBS’s in some manner, Freddie and Fannie only have the risk of loss on about 20% of the outstanding mortgages in the US. Assuming a random distribution of the refi’s in the program, about 80% of them would involve a transfer of risk of loss from private holders to the quasi public balance sheet. The percentage might be higher if more previously non-qualifying loans are refied.
One Eyed Man » Jun 20, 2009 at 9:42 am
RE: Kary L. Krismer @ 32 –
I pulled up a site that says Freddie and Fannie did guarantee their MBS’s so they hold the risk of loss on 50% of the outstanding mortgages in the US. But the refi’s would still probably shift risk of loss from private holders to quasi public over 50% of the time if more previously non-qualifying loans are refied under the program which would seem probable.
Of course it also assumes that Freddie and Fannie purchase the refi loans without recourse against the originator.
http://www.econbrowser.com/archives/2008/07/fannie_mae_and.html
deejayoh » Jun 20, 2009 at 9:54 am
RE: Kary L. Krismer @ 31 – that might not be evidence, but I think this is
http://www.moneyandmarkets.com/new-hard-evidence-of-continuing-debt-collapse-34202
David Losh » Jun 20, 2009 at 10:32 am
RE: Kary L. Krismer @ 33 – RE: Kary L. Krismer @ 32 – RE: Kary L. Krismer @ 31 –
Let’s start with the price of Iron ore. The price of scrap metal is down as well. Demand for steel is an infrastructure indicator the way, or maybe more so, than oil is.
Cars are going to be smaller, and buying a car today is just a bad investment.
All of this ties to the banking industry. Loans are a suckers bet in a good market, but stupidity in a down market. If in fact we have deflation, if the price of goods, and services, goes down, there will be less need to finance.
Now look at the link the one eyed man provided. It’s all about moving money around. Stocks, bonds, securities, are all based on loans. If we start paying off debt it takes money out of the financial markets.
To be real clear we have an economy, global economy, based on people borrowing money and paying it back. The housing, food, and health care are secondary to the financing.
Look at the comments on this blog. it’s all about the velocity of money, the printing of money and how are we going to pay back the federal debt.
It’s all about the debt and if we pay it off, or allocate dollars to paying off debt, then it’s another set of problems .
The consumer needs to stop the madness and resign themselves to paying off personal debt. Those without debt can help the others because we are all in this together. We will all pay no matter what.
Scotsman » Jun 20, 2009 at 8:57 pm
Recent reading focusing on a review of various monetary theories along with the availability of quite a bit of new data leaves me more convinced than ever that we are headed into a nasty deflationary spiral and ensuing depression, one that will take a long, long time to work our way out of. It might be a good time to broaden one’s range of future possibilities when looking ahead and come up with a variety of contingency plans. Life 5 years from now may be very different than we think.
The Tim » Jun 20, 2009 at 10:25 pm
Sneak preview for you open thread regulars.
I’m working on a Google Map of stalled/slowed developments around Seattle. It’s open for anyone to add to. Just look at the existing points I’ve added and try to follow the same general format.
I’ll be posting it to the main page sometime next week. I’m populating it with the developments that I drive by in my area on a regular basis. Any additions you all would like to make before then would be welcomed. Thanks!
jon » Jun 20, 2009 at 11:12 pm
By deejayoh @ 37:
That guy really needs to have his doctor check his meds. The first paragraph in the report he quotes from puts it into perspective:
“Debt of the domestic nonfinancial sectors is
estimated to have expanded at a seasonally adjusted
annual rate of 4 percent in the first quarter of 2009,
about 2 percentage points less than in the previous
quarter. The deceleration was concentrated in the
business and federal government sectors.
Household debt contracted for the second
consecutive quarter, although at a slower pace than in
the fourth quarter of 2008.”
mukoh » Jun 20, 2009 at 11:59 pm
RE: Scotsman @ 39 – Scotsman, you and Snig always bring up some points to deflationary, and there are some indicators that are showing deflation is certain ways. Futures on base commodities dropping and such. But can you bring up something more concrete? A small drop posted by Snig earlier in metals is 0.0001 on the deflation radar. Its all blabber so far.
Hugh Dominic » Jun 21, 2009 at 6:16 am
RE: mukoh @ 42 –
Mukoh, here is a good short summary of why deflation is still more of on an issue than inflation by an economics proffesor at Princeton and former vice chairman of the Federal Reserve.
http://www.nytimes.com/2009/06/21/business/economy/21view.html?hpw
With house prices still declining (and likely to continue to decline for some time), until the spector of deflation is off the table, you run a double risk in buying a house: one that the house you buy is over valued and that prices could drop significantly more, but also that the value of the debt you assume will go up relative to the goods and services you can buy .
And as Japan found out in the 90s, once a deflationary spiral starts, it is very hard to get out of. So unless you find a real gem, it is still very risky to buy in this market.
Hugh Dominic » Jun 21, 2009 at 6:24 am
RE: The Tim @ 40 –
Great idea Tim – there are a lot of half built lots in my area as well…will try to add some this week…
Kary L. Krismer » Jun 21, 2009 at 8:10 am
I was looking at an appraisal yesterday, done in March, 2008. It determined a property was worth $370,000 by using 3 comps, two of which sold for over $400,000, and one of which sold for under $320,000. Of the two higher priced comps, one had a completely remodeled kitchen, which the subject property had too, except its remodel occurred sometime in the 1950s. The other was a non-NWMLS sale, where less than a year earlier it had sold through the listing service for over $100,000 less. The two higher priced sales were also earlier sales, written before the full effects of the downturn in the market hit from the August 2007 mortgage crisis.
Doing my own search, there were plenty of other comps to use that didn’t go back so far in time. The most expensive was a property selling for almost $420,000, but again it had a remodeled kitchen and had other old house features the subject property lacked. The next most expensive possible comp went for under $340,000, but was a house almost 50% larger and a lot over 2x as big. The next most expensive possible comp was under $300,000.
Fortunately the owner of this property didn’t refinance for anywhere near the appraised value, or even anywhere near $300,000.00. But the point is at the appraised value the owner could have refinanced with an 80% loan for almost $300,000, on a property that in reality was unlikely to have even been worth $300,000.
It’s no wonder the banks are underwater on so many loans.
One Eyed Man » Jun 21, 2009 at 10:49 am
RE: Scotsman @ 39 – RE: deejayoh @ 37 –
Interesting posts from both of you. After deejayoh’s posts yesterday, I wrote a couple of paragraphs that I decided not to post on whether any of the theorists were writing about realistic ways to stop a deflationary spiral. It basically asked the question whether the Keynesians are really dead and the only way out of the down draft deflationary hurricane is to let it burn itself out as we reach a new economic equilibrium. It concluded by asking whether anybody had come across layperson accessible economic articles by quality theorists setting forth a feasible road map for a way to stop the deflationary spiral. I didn’t post it because I’ve become sensitive to the criticism I’ve received about not being able to spell and just posting Huckleberry Finn/Will Rogers common sense BS. So I decided to go back and find a few internet articles I’ve looked at and link them.
I’m not the best at searching for this type of thing and my own limited investigation had ended with the following articles. One is by the San Francisco Fed and if I understand it correctly seems to say as one might expect that we should be doing what the Fed is doing. The second is an article from last January by Toscano, who The Tim keeps tabs on at Piggington’s in San Diego concerning their Bubble. At least as of last January, he says he thinks we can print enough money to end a deflationary spiral. In part two of the article he challenges Scotsman’s theory that printing money is peeing in the ocean by basically saying the USA has a bladder the size of the Pacific. The last article is by Krugman. Of the three, I like Krugman’s the best. Unfortunately he seems to say if we want to stop deflation before we have a depression, we can’t mess around with trying to fine tune the economy so we have just a little inflation. If I understand him correctly he says we should create an expectation of inflation. I’m my opinion that probably means buying treasuries, blowing up the dollar, and letting interest rates move up as fast as they want to go. I think it basically means early 1980’s stagflation is better than depression so bring it on.
I don’t have any ultimate conclusions and if anyone else has any article they can recommend to me, I’d appreciate any help I can get.
I think I can live at my house with stagflation. If it’s depression, I’m concerned because all four of our fireplaces burn gas and I won’t be able to use my trees for fuel. My escape plan is a 52 ft Hylas sailboat (which I haven’t bought yet) with gear to harvest crab, shrimp and fish; wind and solar generators, and enough firepower and ammunition to hold of the pirates. As the 1970’s recruiting ads for the Navy used to say, “It’s not just a job, it’s an adventure.”
Bon Voyage!
http://www.voiceofsandiego.org/articles/2009/01/21/toscano/744nodeflationaryspiral012109.txt
http://www.frbsf.org/publications/economics/letter/2009/el2009-12.html
http://web.mit.edu/krugman/www/deflator.html
Sniglet » Jun 21, 2009 at 6:24 pm
There are plenty of examples of deflation. Wages are deflating (just ask anyone trying to find a job right now, about how much lower the salaries are than a year ago at this time). Farmers are getting dramatically less for their products (my relatives on the dairy have seen their income drop precipitously). Even my brother (a teacher at a snooty private school in Atlanta) reports that tuition fees have been lowered dramatically. Oh, and lets not forget that housing prices are coming down.
My brother’s information about tuition reductions is particularly interesting, in illustrating how “hidden” much of the deflationary process is. His school actually has the same published tuition rates as they had last year (which were actually a little higher than the year before that), but the big change is that fact that far more students are getting “financial aid”. His middle school went from offering “aid” to some 20% of the student body in 2007 to giving it to over 60% of attendees in 2009. They basically reduce tuition on ad-hoc basis depending on how much they feel a given family can easily afford. So, from one angle you could say there has been no deflation in tuition at this private school if you just looked at the official rates on their web site. On the other hand, the average student is paying considerably less in 2009 than they did in 2007, and over-all revenue is way down. The faculty is being given a forced, across the board, pay reduction.
Out of all these things, I think the downward pressure on wages is the most compelling aspect of over-all deflation. You simply cannot have inflation unless wages are rising.
S-Crow » Jun 21, 2009 at 7:37 pm
RE: One Eyed Man @ 46 –
Regarding the Hylas Sailboat…. I was in the market for some water craft recently and spent a good two weeks researching and visiting people with boats for sale.
I made a couple offers. Both rejected saying I could not not find a better deal. People….those last few words “you won’t find a better deal” are the very worst words you can mutter in this economy. What is it with people on Craigslist that say, “retail for $29K in 2007, giving it away for $26,000. 15 hours of use….”
It is terribly obvious how many people are over their heads with boats that they cannot unload. It seems like sellers are not doing any research on Kelly Blue Book, NADA or other watercraft appraisal guides. DEALERS are unloading their 2007,2008 old but brand new inventory for LESS than you are asking for a used boat.
mukoh » Jun 21, 2009 at 8:58 pm
RE: Sniglet @ 47 – Snig, I haven’t seen it reflected in the CPI numbers period. And not saying there is inflation either. It seems to be standing still. Just because “some” dairy farmer is getting less, “some” metal ore extractor is getting less is not deflationary.
mukoh » Jun 21, 2009 at 9:00 pm
RE: S-Crow @ 48 – S, you should see the FL market on the top it looks great, once you start digging, and go to a friend of mine in coast guard, he says they retrieve 10-20 boats a week. People file off serial numbers and just anchor them offshore, declare the boat stolen, and etc…
David Losh » Jun 21, 2009 at 9:04 pm
RE: Sniglet @ 47 –
You’ll need to relink the podcast.
Joel » Jun 21, 2009 at 10:36 pm
RE: mukoh @ 49 – One big problem with CPI is that it uses owners’ equivalent rent to measure housing costs. Using Case-Shiller to measure housing costs is more telling.
mukoh » Jun 21, 2009 at 10:43 pm
Joel,
That is just housing. A broad deflation is different. Just like deflation that has taken place in the raw materials sector.
Scotsman » Jun 21, 2009 at 11:01 pm
RE: mukoh @ 42 –
Hmmm, I wrote a response earlier but must have forgotten to hit the “submit” button. The main point of it was that I think it’s really too early to see consistent price declines across the board. What I watch are money supply flows, velocity, interest rates, energy costs, unemployment numbers and the positioning of the larger players in the market as they hedge. All of those indicators suggest we’re setting up for a deflationary scenario with a protracted bottom. But here’s the caution- we won’t really know until fall when we’ve had a chance to see how the markets absorb the coming hundreds of billions in new t-bills for deficit financing. If they shrug them off, we may (but it’s not certain) see inflation. If they don’t, down we go, probably in a relative hurry. Continued increases in unemployment and energy costs will be hard to overcome and are by themselves precursors to recession/deflation. But the fact that the “new” money that has supposedly entered the system isn’t finding it’s way back into the economy through lending, purchases, wagers, etc. is very troubling. You can dump truckloads of money on the system, but if it doesn’t flow through, and with increasing velocity, you’re doomed. It looks like that’s where we are.
Scotsman » Jun 21, 2009 at 11:14 pm
RE: One Eyed Man @ 46 –
Keep posting- we’ll decipher the spillngk!
Any kind of big ticket discretionary spending is dead. I play around quite a bit with collector cars and boats, and both are flatter than a possum in the heat on I-90. By the end of July I’ll have all my smaller boats sold (i.e. given away by 2007 standards) and all of the extra cars. We have a 40′ Tollycraft I was going to sell, but it’s essentially worthless in this market, so I’ve decided to pull the twin gas engines and re-power with a single diesel. It will be our “escape” if it comes to that. While a sailboat would be preferable, this is paid for, livable, and the changes should make it more usable/marketable. I know for sure no one wants a boat any more that sucks down gas at 20-50 gallons an hour, and gets less than a mile per gallon. Especially me.
deejayoh » Jun 21, 2009 at 11:47 pm
By mukoh @ 49:
If you haven’t seen it reflected in CPI, I can only guess that you haven’t been reading the news. Food and Wages are falling. Housing costs are perversely reported as rising. All to be taken with a grain of salt, for sure
Consumer prices inch 0.1% higher in May
U.S. inflation falls 1.3% in past year, biggest drop in 59 years
I believe that “inflation falls” is another way of saying “deflation”
One Eyed Man » Jun 22, 2009 at 5:59 am
RE: deejayoh @ 56 –
Deejayoh, in fairness to Mukoh, the article also says:
“The entire decline in prices over the past year stemmed from a 27.3% drop in energy prices. Crude-oil and gasoline prices have turned higher recently, however.
Core prices have not shown much deceleration, one indication that deflation may not be in the cards. The core CPI is up 1.8% in the past year. ”
And in any comparison to the GD, the 1.3% deflation in CPI is an order of magnitude from the 14% annual decline in 1931 or whichever year it was. I’m not saying that the threat of large scale deflation isn’t scaring me, only that it’s still possible to argue that it really hasn’t shown up in the CPI to any significant degree yet.
Kary L. Krismer » Jun 22, 2009 at 6:47 am
By Joel @ 52:
And the reason it does that is most people don’t buy a new home every month. At best their rent is likely to change once a year, but even that might not happen. The complaint was that doing it differently overstated inflation.
I’d actually argue the cost of houses shouldn’t be included in the measure at all.
Kary L. Krismer » Jun 22, 2009 at 7:08 am
RE: deejayoh @ 56 – You’ll almost always have some prices fall and others rise. It’s sort of like stock prices. You need a pretty significant decline in the market to have 99% of the stocks fall on a given day. Most days some go up, some go down. It’s the same with prices of other things.