Saturday, May 16, 2009

America Needs to Wake the Hell Up!

Just a little commentary today folks.

I read this article today and it made me blow a gasket:

"75% in survey think worst is over in housing slump

Three out of four U.S. homeowners think the worst is over in the housing market.

The National Association of Realtors reported earlier this week that median home sales prices across the country were down almost 14 percent in the first quarter from a year ago.

"While homeowners are now more realistic when looking backward, they are still pretty starry-eyed when looking forward, with three out of four homeowners believing that their own homes' prices will increase or be flat over the next six months," Dr. Stan Humphries, Zillow's vice president of data and analytics, said in the report. "Unfortunately, there are few markets we expect to perform this well."

Thousands of potential sellers are waiting on the sidelines, Zillow said.

More than 30 percent of homeowners said they would be likely to put their houses up for sale at the first sign of a market rebound. That's bad news for prices.

"With almost a third of homeowners poised to jump into the market at the first sign of stabilization, this could create a steady stream of new inventory adding to already record-high inventory levels, thus keeping downward pressure on home prices," Humphries said."

My Take:

I don't know how else to say this so please forgive me for being so crude:


Housing prices are not stabilizing. Sitting on the sidelines and waiting for the market to come back is FINANCIAL SUICIDE!

How many investors held tech stocks at the peak of the tech boom thinking they would come back after the NASDAQ dropped from 5000-3000. How did that work out? Ummm...Not very well considering 10 years later the NASDAQ currently sits at 1680.

Sitting on the sidelines will only guarantee that you end up losing more money because housing is in the midst of reverting to the mean as it recover from an unprecedented housing bubble.

Why will housing continue to collapse?

Its simple:

The fraudulent lending products used to inflate the bubble like subprime are no longer available. This means buyers must conform to old shool lending standards which are much tougher. Interest rates will only RISE going forward because the Fed will eventually be forced to raise rates in order to fight the inevitable massive inflation as a result of printing trillions of dollars of bailout money.

How much is that $500,000 house going to be worth when interest rates go from 5% to 10%? Let me answer that for you: Around $250,000 of LESS.

On top of the issues above, the foreclosure moratorium is now over. As a result, there will be thousands and thousands of new foreclosures hitting the market. This will only put further pressure on housing prices.

Soaring unemployment only adds to to the housing nightmare. One only needs to take a look at Detroit in oreder to see how massive job losses effect home prices. The average price for a home is $30,000 in the city of Detroit. Gee, do you think a 12% unemployment rate in the state due to the collapsing auto industry could have something to do with that?

Now is the absolute worst time that you could buy a house. Realtors will tell you: Interest rates are at an all time low! Now is the time to buy! The problem is realtors don't understand the economy. This sales pitch made sense when interest rates were low at a time when our deficits were also close to zero as they were in the late '90's.

The problem today is we are $11 trillion in DEBT. Money is going to get very expensive moving forward because our debtload is at record highs! Mortgage rates are based on what the yields are on the 10-year in the bond market. The 10-year stays low as long as our deficits are reasonable.

The 10-year rises at times when our country is in debt because the country needs to increase yields in order to make our 10-year bonds more attractive. The reason they need to increase the yields on the 10-year is because debt investors are concerned about the risk of default as a result of America carrying too much debt. If America goes bust, they don't get made whole on the bonds that they bought!


Bottom Line:

Buying a house right now is financial suicde unless you plan on living there for 30 years until the house is paid off. You will NEVER IMO be able to sell your house for a higher price if you buy today unless you are buying at the lower end of the housing market ie: 200k or less.

The home owners that are waiting for housing to stabilize will be in their 70's before they sell because this isn't happening anytime soon. Again, let me bring this back to the tech bubble. Amazon's stock once hit over $400 on the NASDAQ. Today it sits at $73 dollars and its been one of the best performers on the NASDAQ over the past few years.

When bubbles burst they never come back. EVER!

Don't be a fool. If you rent don't buy because the rates are too artificially low. If you are selling drop your price aggresively before the thousands of foreclosures come on to the market. The housing market is only going to get uglier and tougher moving forward. Inventories are only going to rise. Sell and get the hell out!

The only houses that I would consider buying are houses in the $200k and under market. The low end of the market is selling because buyers are able to qualify to buy. Prices seem to be holding up reasonably well here for now. The problem is as unemployment continues to rise, I worry that even this end of the market may fold like a tent down the road.

Stay on the sidelines! Prices will be deflating for years.


CT-Hilltopper said...

I weep for this country. I really do.

Is there anyone out there that doesn't understand that the uptick in consumer spending that CNBC and all of the other asshats were getting all excited about was because people weren't paying their mortgages anymore, and that's why they had money to spend?

The banks haven't been touching these people, and it hasn't been because of any government sponsored moratoriums. They just wanted their books to look good so they could get out of TARP quicker. Plus, theres already millions of foreclosed properties falling apart across the country from the first wave of foreclosures that haven't come close to being sold yet. Why have a lot more empty properties sitting around falling apart?

I don't understand why the banksters don't rent out the foreclosed properties until better times. They would be making money one them, and better yet, they would have people living in them to prevent the vandalism that has been occurring.

Anyway, to prove your point, check out this site. It mainly deals with California, but you'll getthe point.

Also, another feel good article, this one about the coming devaluation of the dollar and how it's being played out:

I don't know what will wake the majority of Americans up, Jeff. Most are gullible. They elected someone for President running on a platform of hope and change. My father (who fought in WWII, loved his country, and died before any of this happened thank God, it would have broken his heart) always told me to beware of politicians that ran for office on hope and change, because that meant they didn't have a platform. He said that if you saw one of them coming to hold on tight to your wallet and run for the door. I think my father was one of the few intelligent men left on the planet. I haven't seen anything today that proves him wrong.

I digress. People have been waking up a few at a time, but most won't wake up at all. I believe that. I fight this battle every day with people. They refuse to be awoken. By the time they see what's been happening all along, there will be nothing left to save. by that time, I won't even say "I told you so". It will just be too sad.

Anonymous said...

I hope you are right about housing prices, but it sure is disheartening to see the deluded attitudes in the baltimore/washington area.

I went looking at houses today to rent, and many of them were majorly overpriced and undermaintained. One of them had the last tenant move out over 6 months ago, and it still wasn't rented out.

Maybe by the time prices come down I will have my 20% saved up.

snood said...

I don't think there everyone is waiting for a rebound to put their house on the market, I think everyone is waiting be able to sell their house for what they owe on it.

This means prices will rise very very slowly, probably as a rate below that of inflation. As prices go up the flood of houses on the market will force prices back down.

It will be a generation before some people manage to get out from under their houses.

Jeff said...


Great rant!

I share your frustration in terms of getting people to wake the hell up.

I don't understand why Americans are not more angry.

I am furious! Your dad sounds like a proud smart man. We need someone like that in Congress!

Our morals have collapsed and our country is falling apart as a result.

I appreciate the comments. Keep em coming! The more knowledge we can share with each other the better.


Jeff said...


Be patient.

There will be a point where panic ansues once the denial stage has passed.

Your 20% payemnt may be a 50% payment if you are patient.

There is NO RUSH here. Sellers are delusional. When a housing market colapses it takes years for them to recover.

Housing in Japan is cheaper today than it was in 1989. 30 years of zero appreciation after their bubble burst!

Patience is a virtue! I rent and I don't plan on even looking for another 3-4 years.

Jeff said...


No offense but keep dreaming and get off the drugs.

There will be no tick up in prices.

People that overpaid for a house will never get their money back. There will be no "tick back up" in prices.

The banks no longer want to lend like they did. If people overpaid for their house and can't sell it for what they paid they are screwed!

There will be no mercy buying to make them whole.

These home owners have two choices: Either they short sell it and take the hit or get foreclosed upon.

Waiting to sell for what they paid is foolish. How many buyers of Amazon at $400 in 1999 are waiting to sell 10 years later for $400.

The game is over and anyone that bought in 2004-2006 will be destroyed financially because there our no buyers that can qualify to pay for artificially unsustainable prices.

Its over and holding out is foolish. If I bought a house during this time frame I would walk away.

Bubbles never come back. I'm sorry if I sound rude but home sellers need to realize they got screwed.

GL and please ignore the home inflation sham.

Its all about the ability to qualify for a mortgage.


Jeff said...


I do agree that it will take a generation to fix this.

I always appreciate the feedback here and I always try to give the best advice that I can.

I just believe that home sellers are much better off getting out now versus later.

Any of us could have made the mistake of buying at the peak. I almost bought one in 2006!

Thank god I have contacts that explained the game to me. Japan as given us the roadmap for what to expect in terms of home prices following a bubble.

30 years and 0 appreciation. I am passionate when it comes to people buying into the false "green shoots" theory that's being sold to us.

Thank you for your thoughts and I always appreciate all opinions.


Jeff said...

Interesting take on Japan from an analyst from a newsletter I have access to:

"The following is from Robert Campbell's fascinating "Campbell Real Estate Timing Letter". This is the best real estate perspective I've seen.

"Although history never exactly repeats itself, I believe there are strong similarities about what happened in Japan and what could lay ahead for the United States. Driven by years of easy credit during the 1980s, the Japanese stock and housing market became a bubble - and everything changed when the bubble burst in 1990.

"One of the first lessons learned - or relearned, actually - is that when asset bubbles burst, there is nothing you can do to re-inflate them. But that's what every U.S. government plan is still trying to do - keep housing prices from falling. In doing so, all we are really doing is wasting trillions and trillions of dollars and digging ourselves into deeper financial hole.

"Another lesson learned from the Japanese experience is that plunging asset prices do not result in typical recession. The recessions are worse - sometimes far worse."

CT-Hilltopper said...

I think that recession is off the table. I think we're in a Depression.

What we're experiencing now is a head fake. Just like that period in 1929, just after the market crashed when things stabilized, and it looked like things were going to get better. Then the other shoe fell, I believe in 1930, with 25% unemployment combined with other factors that finished us off.

Like I said before, I've been trying to warn people close to me to get their financial affairs settled, but they are too busy listening to the people on CNBC to care much about what I have to say. They think I worry too much, that everything is under control by people who know much more about these things than I do. In other words, don't worry my pretty little head about it. It infuriates me, but I've learned now to not worry about things that I can't control

Getting back to real estate, in the link I gave you earlier in this thread (the fieldcheckgroup one)one of the things discussed was the government sponsored deals to keep people in their homes. These aren't as good a deal as they look, and in some cases, people are better off to walk away and just get hit with the foreclosure, it would be better off for them (any deal would tie them to that property for the years of that mortgage) and for their FICO score. Most people who do choose this end up in foreclosure again anyway. The article basically compared the government backed "keeping the people in their home" mortgages (I forgot the technical term for it) with the subprime and swarmy loans that got them into trouble in the first place, and didn't find a lot of difference between them.

This market is nowhere near close to a bottom. We're in a period of "irrational exuberance" right now. Nobody wants to listen to anyone thats telling them that this is going to end, that it's not real. But then again, I could be wrong. But until I'm proven wrong, I'm being very cautious in this market. I pick my plays very carefully, make them quickly, then take my money out. This is not a normal market, and can't be played like a normal market. I feel sorry for people who are being suckered into long term positions, because I don't think it's going to turn out well for them.

Those that don't learn from history are doomed to repeat it.

Jeff said...


Well Said.

I totally agree. Mark from the fieldcheck group does a great job with the housing data.

I try to warn some of my friends. Some of them were financial advisors who laughed off the thought that the market could collapse.

They aren't laughing now. I think we have a ways to go. I continue to scale into short positions in small increments.

I stay mostly in cash though. Its all about capital preservation at this point.

GL and I hope your family starts listening to you!

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