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We Call It The Real Estate Casino

It’s Friday desk clearing time for this blogger. “An American developer is looking to attract the international buyers who would have previously looked to Vancouver. The Spire was originally going to be a rental tower, which has been the trend for years in Seattle. But the developer switched to condos last year, pricing the units at US$1,200 a square foot. ‘Everybody was doing rental,’ says long-time developer Bob Kagan. ‘The condo market dried up around the recession and is just now coming back. In real estate timing is everything. We call it the real estate casino – that’s really what it is.'”

“While Boston real estate circles have questioned if there are too many luxury condos slated for the market, Jon Cronin thinks there aren’t enough. He isn’t too concerned with a glut of supply and said the St. Regis is in a good position as the last residential project to go directly on the Seaport waterfront.”

“The federal government has dramatically expanded its exposure to risky mortgages. In 2019, there is more government-backed housing debt than at any other point in U.S. history, according to the Urban Institute. A growing number of homeowners faces debt payments that amount to nearly half of their monthly income.”

“‘There is a point here where, in an effort to create access to homeownership, you may actually be doing it in a manner that isn’t sustainable and it’s putting more people at risk,’ said David Stevens, a former commissioner of the Federal Housing Administration. ‘Competition, particularly in certain market conditions, can lead to a false narrative, like ‘housing will never go down’ or ‘you will never lose on mortgages.'”

“The Federal Housing Finance Agency, at the time under Director Mel Watt, began working on plans to direct Fannie Mae to purchase loans with higher debt-to-income thresholds, Watt said. ‘It is intuitive – you think the higher somebody’s debt-to-income ratio, the more problems they are going to have,’ he said from his home in North Carolina, where he is now retired. ‘But that’s just not the best criteria to apply to be quite honest.'”

“August’s median price of single-family homes sold in the county dropped to $877,000, according to Gary Gangnes of Real Options Realty, who tracks the numbers. In August 2018, the median price was $920,000. ‘I feel I’m seeing more reduced prices this year at this time,’ said Sue Seeger, a David Lyng Real Estate agent. Seb Frey, 2019 president of Santa Cruz County Association of Realtors said many would-be buyers are not purchasing homes because they are afraid another price drop will happen like it did in 2008. ‘You can’t live your life in fear of a zombie apocalypse,’ Frey said.”

“Stream Realty Partners Managing Director Bret Morriss: Without a wide variety of shops, restaurants and fun gathering spaces, employers are turning away from San Diego as they want to locate in a robust area where their employees can engage in the surrounding ecosystem of their office space. However, our biggest concern regionally is related to workforce and moderately priced housing. There is a glut of luxury and out-of-reach residential units on the market.”

“This year’s hot housing flavor is something every house hunter can agree upon: a price discount. It’s no blip. The frequency of price-cutting in Southern California, statewide and across the nation is running at or near post-recession highs. Five of the 11 big metros with the steepest jumps in price reductions were in the Golden State. So, who’s lowering asking prices the most? Silicon Valley. In Southern California, more sellers are cutting prices, too.”

“Las Vegas had the second-biggest surge in reductions, running to 22.5% this year from 12.3% a year — an 82% jump. No. 4 was Seattle, 14.6% from 9.3% — a 56% increase. Then there was No. 6 Denver: 18.1% from 13.8% — up 31%; No. 8 Atlanta: 15.1% from 12.3% — up 23%; No. 9 Salt Lake City: 19.6% from 16.1% — up 22%; and No. 10 Kansas City: 13.2% from 10.9% — up 21%. Ah, housing price cuts. Everyone complains about affordability … and now house hunters get what they’ve wished for: Discounts! Of course, lowered prices can be a doubled-edged sword. When housing markets cool, plenty of buyers get cold feet fearful of overpaying for housing.”

“CORE shows Manhattan had a whopping 8.8 months of inventory on the market last quarter, up from just 7.9 last year. With this glut of listings, prices dipped, clocking in at an average $1.6 million—a drop of 12% from 2018. It was also the first time the median sales price dropped below $1 million in four years. ‘Many look back to 2008 and want to avoid purchasing at the wrong time, so even with low mortgage rates, buyers are appropriately re-evaluating their price range and opting for something slightly less expensive,’ said Compass’ Rory Golod and Elizabeth Ann Stribling-Kivlan.”

“The number of vacant homes, like the deserted luxury house in Saskatoon that has garnered national attention, appear to be on the rise across Canada. The report states 66,000 homes are sitting empty in Toronto, and around 64,000 vacant homes are in Montreal. Calgary, Ottawa and Edmonton each ‘have more than 20,000 vacant properties,’ and Vancouver has around 25,000 vacant homes.”

“‘The country’s housing problem extends beyond foreign buyers jacking up prices and unaffordability taking over major cities,’ the report states. ‘Investor speculation and short-term rentals are the main culprits behind high vacancy rates in places like Toronto and Vancouver.'”

“In the most exclusive central London postcodes, where property prices average £4.4 million, price falls slowed to three per cent. This left them on average 13.6 per cent below their pre- referendum levels, and 20.4 per cent below the market peak five years ago. For a US dollar buyer this equates to an effective fall of around 42 per cent once the slump in the value of the pound is also factored in.”

“As the property market slows down, people are no longer aggressively bidding against each other in driveways for homes, a local auctioneer has said. Gordon Kearney said up to six months ago, it was common for up to 20 people turning up to a well-priced property in the Limerick suburbs, with an on-the-spot bidding war materialising. ‘House prices are falling for the first time in years, and we are feeling the same negative wind here in Limerick,’ he said.”

“The real estate market in Tel Aviv is expected to cool off, but home prices are still high, according to UBS Global Wealth Management, which for the first time included the city on its list of global real estate bubbles. The report said the growing difficulty of purchasing an apartment and the rise in mortgage prices led to an actual price drop of almost 10 percent. ‘The party is over,’ the UBS report declared.”

“A luxury residential project jointly developed by Novaland Investment, one of Vietnam’s biggest property firms, is in limbo. Singapore-based Kwan Ng is one buyer who spent around US$500,000 for a two-bedroom apartment that he planned to use as an investment property. Mr Ng said he was disappointed by the turn of events. ‘I expect better from one of the biggest developers in an ambitious country with a very bright future.’

“Thailand’s condominium market is likely to end up 25 per cent in the hole, as the Baht continues to soar. Its the most severe situation in 10 years, according to the executive director of Property Perfect. A total of 454,814 residential condo units across the country were left unsold last year, with a value of $41 billion. Chinese investors have historically made up the bulk of foreign property buyers in Thailand. But their presence has waned as China’s economy slows and capital controls limit outflows.”

“There are signs of further softening in Hong Kong’s property market. Homeowners are slashing prices by more than 20 per cent. On Wednesday, the owner of a 378 sq ft flat at La Cite Noble lowered the asking price by 7.1 per cent, from HK$7 million (US$892,700) to HK$6.5 million. A day earlier, a 919 sq ft flat at Lake Silver in protest-hit Ma On Shan sold for HK$13 million, after the price was slashed by HK$3.3 million, or 20.2 per cent. ‘Hong Kong’s political crisis has not been settled and the global economy is gradually deteriorating [so] investment sentiment is extremely negative,’ said Eric Ong, chief operating officer at Midland.”

“A Port Pirie, South Australia mortgagee home has sold for $66,750. The home sold after it was placed on the market for 400 days. Set on 864 square metres, the home was built in 1954. The house was being offered for less than it sold for in 2004 when the home transacted at $102,500. It saw its asking price slashed to $89,000 from $145,000 over the course of the life of the listing.”

“Enchanted Hill, a prime Westside development site owned by the estate of late Microsoft Corp. co-founder and philanthropist Paul Allen, is returning to market at $110 million, down from $150 million a year ago. The 120-acre property, crowning a hilltop between Beverly Glen and South Beverly Park, is one of the largest undeveloped sites remaining in Beverly Crest. Allen bought the property in 1997 for $20 million.”

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This Post Has 125 Comments

  1. There’s so much global bubble popping going on I could have made 3 desk clearing posts today.

  2. ‘This year’s hot housing flavor is something every house hunter can agree upon: a price discount. It’s no blip. The frequency of price-cutting in Southern California, statewide and across the nation is running at or near post-recession highs. Five of the 11 big metros with the steepest jumps in price reductions were in the Golden State. So, who’s lowering asking prices the most? Silicon Valley. In Southern California, more sellers are cutting prices, too’

    ‘Las Vegas had the second-biggest surge in reductions, running to 22.5% this year from 12.3% a year — an 82% jump. No. 4 was Seattle, 14.6% from 9.3% — a 56% increase. Then there was No. 6 Denver: 18.1% from 13.8% — up 31%; No. 8 Atlanta: 15.1% from 12.3% — up 23%; No. 9 Salt Lake City: 19.6% from 16.1% — up 22%; and No. 10 Kansas City: 13.2% from 10.9% — up 21%’

    ‘The frequency of price-cutting in Southern California, statewide and across the nation is running at or near post-recession highs’

    The REIC media will be happy to sell their grandmothers for one more months commission.

    1. Sounds like eee-bola has finally spread to Southern California, just in time for the ice cold holiday sales season.

      Good luck to all the lachrymose landlords and flopped flippers with slashing your asking prices enough to attract a buyer away from holiday preparations in order to make a shack purchase!

      1. This years vacation will likely last many years. Caution to sellers; your golden gooses are bunkered up in there Chinese sky rises and all the feet stomping has made them too sore to come visit and buy your piggy bank. Your only hope is to get a realtor who has been in and out of jail for there pathological lying and history of theft and drug use. This breed of realtor will the best resource you have to lure in your victims. 8s in price and a statue buried in your yard isnt working anymore. Time to get to it, the exit door is getting smaller each passing day!

        1. It seems like the screws are starting to turn on the funny money mortgages guaranteed by Fannie Mae and Freddie Mac. If massive government-guaranteed loans to marginally qualified buyers dry up, what will become of demand for houses priced northwards of $500K, which is pretty much the only kind in coastal California?

  3. ‘The federal government has dramatically expanded its exposure to risky mortgages. In 2019, there is more government-backed housing debt than at any other point in U.S. history, according to the Urban Institute. A growing number of homeowners faces debt payments that amount to nearly half of their monthly income’

    So the Washington Post woke! Readers here have known this since 2014. I put this blog together for myself: so I know what’s really happening or as close to it as I can. And I ban ankle-bitters cuz they waste something I don’t have enough of – time. Someone mentioned yesterday how CRE dummies are still building malls. It reminded me that readers here know more about many markets than people who are big shots in their fields. And that includes me, which is the objective. This blog is indispensable, and I don’t say that because I put it together. I’d be happy if someone else did, and I could just get up and read it every day. But that’s not the case.

    I don’t want more readers, I don’t want click-bait like these clown websites who follow me around looking for information they are too lazy to dig for. I just want to know where this mania is headed and I think we all know the answer now.

      1. Wework’s woes to deflate London office rents

        https://www.thetimes.co.uk/article/short-bets-on-wework-hit-record-high-ws00n8bw6

        A comment:

        “I thought that the CEO of IWG, similar business but makes profits, was rather good on WeWork. He said it was like a hotel with a free bar; you would get lots of business but not make any money.”

        Vacant storefronts hit Chelsea and Greenwich Village hard as businesses battle higher rents

        https://www.thevillager.com/2019/10/vacant-storefronts-hit-chelsea-and-greenwich-village-hard-as-businesses-battle-higher-rents/

        A comment:

        “Do not be fooled by this study. Long established successful stores have been forced to close before Amazon or enet shopping even existed. The businesses close because they have no rights when their leases expire and the hyper real estate speculation with bidding between banks and chains for prime space wrecked the retail rent market. What the public see today are the empty stores which are the “canary in the mine” for a failed small business policy. A pro real estate policy which lawmakers like Stringer and Johnson did nothing
        to pass the Small Business Jobs Survival Act to give businesses rights when their leases expired. This study was nothing but the continued rigging at City Hall to keep all the rights in the hands of the landlords. The same landlords who have gotten rich while the merchants are being destroyed. The same landlords filling the campaign coffers of corrupt politicians to do fake studies to keep the status quo.”

        1. Same here in LA.. and I’ve been watching it for years. Where I live in West Hollywood I run the same route everyday along Sunset and Santa Monica Blvds so I see the businesses open up for a couple of months and go bust. Then rinse and repeat. Even long time favorites are closing because the rents are out of control. Just like residential – plenty of vacant units just not at prices that make businesses viable.

      2. Agreed. The HBB has been a lonely outpost of truth and light holding firm against the lies and mendacity of the corporate media and its REIC-owned hacks and scribblers.

        1. My +1000000 was supposed to be a reply to Paoburen, not sure how it ended up so far down the line.

    2. “I just want to know where this mania is headed and I think we all know the answer now.”

      – Housing sales slow
      – Inventory builds
      – “Not giving it away”
      – Developers undercut recent buyers to get finish their projects
      – Prices slowly start to come down (they are “sticky!”)
      – “Not giving it away!”
      – Housing sales freeze
      – Inventory gets to levels that it seems every street has a dozen “for sale” signs in it
      – Flippers get crushed (The “alligator” needs to feed every month)
      – “Still not giving it away – you f*ckers!!!!!”
      – Prices start to accelerate downward
      – Chase that market down!
      – “Scum sucking vultures low ball offers – I am not giving it away!!!!”
      – Foreclosures skyrocket
      – Mortgage bond funds crash
      – “We need a bailout! No one could have seen this coming!!!”
      – Contractors actually show up and are happy for the work
      – Fly by night contractors go out of business by the dozen. Illegals mass at Home Depot
      – Underwater is a thing. And traps people.
      – “I got to bring HOW much to the table to SELL my house?”
      – Bankruptcy
      – Misery
      – Walk away. Jungle mail.
      – I didn’t know it was a recourse loan. Where is my paycheck?
      – Help me save my house!
      – We are victims! Banks took advantage of us!
      – Concrete in the toilets
      .
      .
      .
      …. articles on how buying a house is much cheaper than renting

      1. ‘concrete in the toilets’

        Lolz

        Don’t forget:

        Stripped copper piping and disappeared appliances, sconces, doors, counter tops, bathroom vanities Etc… Etc… Etc…

        Ben, love the blog. Thanks for giving us a place to learn, share, and grow. =p

      2. depending on gov interference the price adjustment takes 3?5? years

        i imagine 1921 was fast
        2006-2010 for the last go round

    3. Your blog kicks ass.

      With the repo-Apocalypse happening and stories of massive derivative exposure + junk or rehypothicated assets has me wondering if bailins could happen in the US?

    4. ‘A growing number of homeowners faces debt payments that amount to nearly half of their monthly income.’

      Where did all the “no subprime lending after 2009” posters go? Do you still maintain your opinions about this?

      In retrospect, it appears Uncle Sam was the subprime lender-in-chief over the post-2009 period, while private lenders wanted nothing to do with the practice.

  4. One of obama’s greatest legacies.

    “The Federal Housing Finance Agency, at the time under Director Mel Watt, began working on plans to direct Fannie Mae to purchase loans with higher debt-to-income thresholds, Watt said. ‘It is intuitive – you think the higher somebody’s debt-to-income ratio, the more problems they are going to have,’ he said from his home in North Carolina, where he is now retired. ‘But that’s just not the best criteria to apply to be quite honest.’”

    1. He’s a liar, and he knows what he’s saying is a lie. When I first started this blog I would read a ton of reports from the mortgage credit graders, S&P, Fitch, etc. I got a good handle on how they look at it. They sort everything by type. It’ a large body, so statistics are crucial. One thing stood out: if you ease lending, you’re gonna get more defaults. So if people ask me how do I know there’s going to be more foreclosures, the answer is they have been easing lending standards like nuts for years.

      https://www.housingwire.com/articles/appraisals-will-no-longer-be-required-on-certain-home-sales-of-400000-and-under/

      1. ‘When it comes to the percentage of home equity increase, no city in the nation could top Tacoma. The report found that those who bought a home in Tacoma in 2012 have earned a stunning 1,453 percent increase in home equity. Part of the reason for the huge percentage jump is that a lot of Tacoma-area homebuyers are in the military and would have been able to take advantage of a loan from the U.S. Department of Veterans Affairs, which often has small or no down-payment requirements, meaning their home equity started out particularly low in 2012.’

        ‘But the Tacoma area’s large military population is just one of many factors that have contributed to massive home-equity growth, says Ellen Campion, a Redfin agent in Tacoma. “Buyers were paying too much in 2005 and 2006, and once the recession hit, a lot of those people unfortunately had their homes foreclosed on,” Campion said. “So during and after the recession, folks were desperate and had to sell their homes for less than what they paid, and investors and savvy homebuyers snapped them up, often with the help of (federal) loans.”

        https://komonews.com/news/local/tacoma-seattle-lead-nation-in-home-equity-value-earned-since-2012

        1. “So during and after the recession, folks were desperate and had to sell their homes for less than what they paid, and investors and savvy homebuyers snapped them up, often with the help of (federal) loans.”

          So it’s always a good time to buy the dip? No real danger? Just opportunity as far as the eye can see?

          1. “So it’s always a good time to buy the dip?”

            This is how the Great Hoard of ignorant pukes have successfully been conditioned to think, conditioned to believe.

            Like it, love it, want more of it.

    2. So if ability to repay is not the best criteria to apply, what IS the best criteria to apply? I think I know the answer…

  5. ‘The Federal Housing Finance Agency, at the time under Director Mel Watt, began working on plans to direct Fannie Mae to purchase loans with higher debt-to-income thresholds, Watt said. ‘It is intuitive – you think the higher somebody’s debt-to-income ratio, the more problems they are going to have,’ he said from his home in North Carolina, where he is now retired. ‘But that’s just not the best criteria to apply to be quite honest’

    That’s right, this fudging idiot was in charge of the entire US government shack lending racket for years.

    1. ‘But that’s just not the best criteria to apply to be quite honest.’

      There’s one way to find out if a man is honest – ask him. If he says, ‘Yes,’ you know he is a crook.

      — Groucho Marx

  6. In ANY casino…Guess who wins?

    “We call it the real estate casino – that’s really what it is.”

      1. In this casino, the lender is the house. And for good measure, the house has an explicit government-backed guarantee.

  7. There was a time in American history – when businesses looked for low taxes, plentiful /inexpensive water, plentiful /inexpensive electricity, affordable land, rail hook ups, good roads and a hardworking workforce.

    “Without a wide variety of shops, restaurants and fun gathering spaces, employers are turning away from San Diego as they want to locate in a robust area where their employees can engage in the surrounding ecosystem of their office space.”

    1. low taxes, plentiful /inexpensive water, plentiful /inexpensive electricity, affordable land

      San Diego doesn’t have these either.

      1. “…San Diego doesn’t have these either….”

        San Diego *does* have [according to many] one of the most corrupt public employee pension systems in the USA.

        Apparently a lot of push back to convert San Diego public pensions from defined benefit to defined contribution [401(k)] plans.

        1. San Diego *does* have [according to many] one of the most corrupt public employee pension systems in the USA.

          https://timesofsandiego.com/politics/2019/03/18/supreme-court-deals-san-diego-a-blow-on-public-pension-reform/

          This reminds of when the voters of Massachusetts voted to shutdown the Mass Turnpike Authority after Dukakis gave it a new lease on life by approving a new bond issue as one of the last things he did before leaving office. The new bond holders sued claiming they had a right to be paid through income from the tolls instead of the general fund and won in Massachusetts court. Massachusetts drivers are still paying for it to this this day and will never be able to shut it down. The gift that keeps on giving from the original Tank Man…Michael Dukakis.

        1. Seems like Enron loomed large in mucking up the local economy at one point, as well. (Predated my time in SD, though.)

    2. “Without a wide variety of shops, restaurants and fun gathering spaces, employers are turning away from San Diego as they want to locate in a robust area where their employees can engage in the surrounding ecosystem of their office space.”

      Seems like everyone wants those hip startups to locate in their downtown areas. Problem is, most of those startups will never turn a profit and will vanish as soon as their funding runs out. And once the downturn hits, investors will stop funding them altogether.

  8. A drop in housing prices = “You can’t live your life in fear of a zombie apocalypse”

    Almost like if a bank failed due their reckless behavior = “tanks in the street”

    1. “Almost like if a bank failed due their reckless behavior = ‘tanks in the street’.”

      Wrong! If banks failed due to their reckless behavior (or for any other reason – real or imagined) they would be bailed out as always because the vast hoardes of totally dumbed-down ignorant pukes that unfortunately inhabit this globe have been convinced, have been conditioned to believe that to do otherwise would be absolutely disastrous. Hence bankers have always and will always be bailed out.

      Once again, pukes work, bankers reap.

      God’s Plan .

    2. “You can’t live your life in fear of a zombie apocalypse”

      Zeb can’t live his life period without his commission checks… Santa Cruz is in full CR8R mode and as for zombies, we have tons roaming our streets leaving discarded needles and smash and grab, theft remains all over.

      Sep 30th housing snapshot for Santa Cruz:

      Single Family Average list price $947,580 average sold price $713,773

      1. The homelessness problem in once-beautiful Santa Cruz is sad. People who wrecked their lives on drugs and dissolute living have put the painful aftermath on open display.

        1. California is doomed if cities like SC keep feeding the problem rather than fixing them. We get a lot of the overflow from SF and instead of addressing the problems, we encourage them. I hear the same complaints from friends in San Diego and other coastal cities in Ca. Seems to be more of a drug problem than a homeless problem…

  9. ‘Ng is one buyer who spent around US$500,000 for a two-bedroom apartment that he planned to use as an investment property. Mr Ng said he was disappointed by the turn of events. ‘I expect better from one of the biggest developers in an ambitious country with a very bright future’

    Well it was cheaper than renting Kwan. No soup for you!

    1. Wow. I used to live in Cardiff (bailed the state years ago as it started to become third world). Those places aren’t worth a third of the ask. I looked at some other properties listed in the area, more than a few were bought in the past few years for outrageous prices. Dumpy old homes with mind numbing traffic. 1.5M! Crazy. This will end very badly.

      A giveaway that the property is overpriced junk is when a third of the pictures for the property are of the beach and/or town highlights.

    2. I’ll put up a Shake Shack burger that the “pending” doesn’t close and it is back on the market in 30 days…

      1. Bingo.

        This pending thing is just like the “bidding wars”. They admitted they lied about both all along.

        Realtors are liars.

        1. Like the new shack sales. “Over 60% aren’t started or finished. How can you sell something that isn’t there? We took a deposit. How much? Maybe $1,000, maybe less. Can they cancel? Yes.”

          So there probably isn’t a shack. Very little was actually paid and the “buyer” can change their mind. I don’t see the point of mentioning it. Why not just report finished, paid for shacks?

      2. Old Winemaster supposedly had a contingent offer (not shown on the MLS) that fell through but was expected to return. The house frankly needs too much interior and exterior work to be selling above $1.5M.

        1. “…was expected to return.”

          With Halloween, Thanksgiving, Christmas and New Year’s Eve around the corner, I frankly wouldn’t hold my breath.

          2. The “pending” nonsense is just another twist on supposed bidding wars.

            These are realtor deceptions.

          3. These are realtor deceptions.

            Whatever it is, I’m not feeling ANY sense of urgency. The longer I wait to do the 1031 exchange, the lower my property taxes will be.

        2. And who informed you of this “contingent offer”? (I picture realtor sneakily putting both hands up and making “ “ with her rat paws while mentioning this said “offer”). I have seen more contingent / pending properties fall out of contract or expire than actual sales recently. People are realizing there’s no urgency to buy, “bidding wars”, as realtor will assure you will happen on their listings, have become a “back when I was a young lad” memory. I know it’s hitting us up north faster than socal but it’s happening. I think your realtors are more convincing down there and likely bigger in numbers.

  12. ‘The condo market dried up around the recession and is just now coming back.

    Are you on crack, Bob?

    1. It’s a pretty area, though a bit fire prone. Lots of palatial homes in that niche are destined to sell at reduced prices over the course of next real estate bust.

  14. ‘Many look back to 2008 and want to avoid purchasing at the wrong time, so even with low mortgage rates, buyers are appropriately re-evaluating their price range and opting for something slightly less expensive,’ said Compass’ Rory Golod and Elizabeth Ann Stribling-Kivlan.”

    Nice try at damage control, Rory and Liz. But I’m opting for “something slightly less” than 50% of current values, though if the cratering overshoots that’s fine by me, too.

    1. “…and want to avoid purchasing at the wrong time…”

      So Rory and Liz, how does your statement square with the REIC mantra that “its always a good time to buy Real Estate”

      Didn’t get the memo, you say?

  15. Millennials earn 25 percent less, on average, than Baby Boomers did at the same age.

    https://www.wsj.com/articles/playing-catch-up-in-the-game-of-life-millennials-approach-middle-age-in-crisis-11558290908

    So how are they going to pay an inflated enough price for housing to allow the Baby Boomers to both pay off multiple mortgages AND fund their entire retirement? Increase the debt income level to 50 percent.

    https://larrylittlefield.wordpress.com/2017/12/09/fannies-mae-and-freddie-macs-stealth-economic-war-on-the-millennials/

    And if they default? They just have to fund it with debts that poorer later born generations will have to pay off.

  16. So how are they going to pay an inflated enough price for housing to allow the Baby Boomers to both pay off multiple mortgages AND fund their entire retirement?

    By having 25%-50% fewer kids than the boomer generation. Also, by spending a larger chunk of their income paying rent/mortgage and less on discretionary items as a percentage.

    Of course, this all means lower aggregate demand for consumption as more resources will be directed toward paying for basic shelter. It will also mean less demand for housing (assuming immigration slows/stabilizes), so it will eventually lead to a secular decline in housing. I still think we have 8 years before we reach the tipping point.

      1. My wife and I call that “South Jordan (Utah)” style. The cabinets and decor look like some sort of bad attempt at Tuscany/old-world Italian.

      2. All that brown window trim is reminiscent of the Craftsman style. But a California-tropic style house should not have a Craftsman interior.

        The “swinging chairs” under the kitchen island are an excellent — and expensive — alternative to barstools. They were invented for malt shops and diners. These chairs swing out from the counter when you use them and swing back when you get up. The “steps” underneath are actually a steel counterbalance to hold the weight; just screwing brackets to the counter is not strong enough. I think they’re quite beautiful and uncluttered compared to barstools. (that’s 16 chair legs you don’t have to vacuum around)

      2. That house was a “parade” house, meaning “Parade of Homes”. Attending the Parade of Homes in So Utah is one of the big events down here. There are 4: Hunstman Senior World Games, St. Marathon, Iron Man, and Parade of Homes. The ER always filled up on those weekends.

  18. Federal agencies dramatically expand exposure to risky mortgages, echoing concerns before Great Recession
    Author: Damian Paletta, The Washington Post
    Oct. 3, 2019 (1 day ago)

    “After intense debate, Cordray and his aides decided they would cap the debt-to-income (DTI) threshold at 43 percent. So if a borrower earned $5,000 a month, payments on his or her mortgage and other debt had to be less than $2,250, or the loan could be labeled as improper.”

    “The 43 percent threshold wasn’t a scientific target, Cordray said, and people had differing views on whether it was the right level.”

    “It’s hard to know whether the 43 percent . . . was the right answer,” Cordray said. “Is there a right answer? Who can tell?”

    “The companies were allowed to continue operating, but with a much smaller appetite for risk, in part because taxpayers were on the hook if anything went wrong. Before the housing crisis, the companies had purchased loans with debt-to-income ratios that stretched up to 65 percent, but that was scaled back dramatically after they were seized.”

    “In 2014, even with the new CFPB rules, Fannie Mae and Freddie Mac did not show much interest in buying loans with high debt-to-income levels. Fannie set an internal cap at 45 percent, 2 percentage points higher than the CFPB policy. Freddie Mac mostly followed Fannie Mae’s lead.”

    “Homeownership rates kept falling, particularly among African Americans. In 2016, the homeownership rate fell to 63 percent, the lowest level since Fannie Mae and Freddie Mac were created. Then the government stepped in.”

    Why was this article published in the Anchorage Daily News and not WaPo? Anchorage isn’t even in the continental U.S., but maybe that’s the idea (?).

    – I’m sure “it’s nothing”, “it’s different this time”, and “no one saw it coming.” 🙂

    – Apparently we live in a financial world without moral hazard, where pigs can fly, and every government housing agency employee is making decisions based on prudence and historically sound economic practices, such as 25-33% maximum DTI.

    – Oh, and BTW, it’s OPM, as the taxpayer is ultimately on the hook. I think I’m detecting a pattern here…

    – So, remind me again, who is it exactly, that’s watching the watchers?

    2. The Washington Post wrote it, I linked to this reprint so people wouldn’t have paywall issues.

      “It’s hard to know whether the 43 percent . . . was the right answer,” Cordray said. “Is there a right answer? Who can tell?”

      So they pulled it out of their a$$. I’ll say who can tell: what would people use if they had to borrow actual money from somebody who was going to put up the money? Not fractional reserve funny business. Shack prices became detached from reality when the GSE’s expanded hugely in the 1980’s and it’s gotten worse ever since.

      1. RE: paywall issues. OK, got it. I got to the WaPo link by whitelisting the website with my ad blocker.

        “Shack prices became detached from reality when the GSE’s expanded hugely in the 1980’s and it’s gotten worse ever since.”

        – (nodding head in agreement) The business model is somewhere between the “crash and burn” and “slow train wreck” scenarios. 🙂

        – Wish they could pull their heads out of their a$$es as well, but I suppose that’s too much to ask…

    1. “NY Fed to extend operations to pump money into markets through Nov 4”

      Yo homie, y’all got me covered ’til the election?

        1. “Securities eligible as collateral include Treasury, agency debt, and agency mortgage-backed securities.”

          It’s that last one that probably triggered the repo operations. The mortgage market is unraveling well before the Iowa Caucasus and the 2020 presidential election. How long can they stall the mortgage quality problems?

    2. “NY Fed to extend operations to pump money into markets through Nov 4”

      I can hear “jeremiah babe” already!

    1. (snip)

      “Seventeen percent of millennial and Generation Z homebuyers from ages 18-34 regret purchasing a home instead of renting, according to a Zillow survey.

      “Speculating as to why, Josh Lehr, industry development at Zillow-owned Mortech, said getting the wrong mortgage may have driven that disappointment. For example, the Zillow survey showed 22% of young buyers had regrets about their type of mortgage and 27-30% said their rates and payments are too high.”

      Bahahahahahahahahahaha.

      “Lehr pointed out that 57% of the millennials shopped lenders online. Yet, they didn’t know what they didn’t know regarding the details of various financing instruments and finding the best fit for them.”

      Bahahahahahaha … what a bunch of dummies.

      1. Speaking of regrets, there is one thing I regret about my Tesla model 3: I purchased the long-range, extended battery (e.g. 310 miles of range vs 240). I ended up paying an extra $8k. Having never owned an EV, I figured that this extra cushion would be worth it. Well, it turns out that I almost never need it and supercharging stops are so fast that I wish I would have gotten a smaller battery. Now maybe I will think differently when winter comes around.

        The other regret that I have is that I opted for ceramic coating on my car, which was an extra $1500 (including paint correction) and paint protection film. I think for my wife’s model 3 we will just get the lower priced model 3 and put on a good coat of sealant and do the wax thing every 3 months. This ceramic stuff is nice, but not worth the price IMO.

        1. I purchased the long-range, extended battery

          Those suckers are heavy. It’s like always having a half a dozen passengers or a cord of firewood in the back.

          Powerplant to road you’re doing about 22% thermal efficiency on the HC fuel according to the DOE and others.

          A Toyota 2 liter is supposedly 40%.

          Lots to regret.

          1. No regret on the car. Best purchase I’ve ever made. Will never go back to a gas car ever. Feels archaic.

          2. I’m not against electric cars as long as they can match the dependability and refuelability of the ICE cars. ISTM they have a ways to, especially on the refueling. But I hope they keep plugging along. While everyone else is screaming climate change, I still think about Peak Oil.

          3. Powerplant to road you’re doing about 22% thermal efficiency on the HC fuel according to the DOE and others.

            Well St. George is running a mix of hydro, nat gas, and dwindling coal. So combined efficiency is going to be much higher. Besides, the average efficiency of an internal combustion engine is 20%, not the near 40% in a few make/models of Toyota. Bottom line is that EVs are more far efficient, even accounting for transmission and generation loss of electricity and they get quite a bit more so when you generate, store, and use your own electricity to power your own vehicle, which I will do sometime in the not-too-distant future.

            https://www.igu.org/natural-gas-efficient

          4. While everyone else is screaming climate change, I still think about Peak Oil.

            Necessity is the mother of invention. John Stuart Mills predicted everyone would starve to death because he extrapolated a current set of assumptions and couldn’t account for advances in technology/agriculture. Same thing will happen with tech. Battery advances are going to be big in the next 10 years.

          5. Yes this is a critical limitation in EV technology….it is battling the second law of thermodynamics. The amount of energy that can be converted into useful work is limited by the amount of energy lost to entropy. And this happens twice in the EV energy chain, once at the power plant and a second time when the stored energy in the battery is used to power the vehicle.

          6. “And this happens twice in the EV energy chain, once at the power plant and a second time when the stored energy in the battery is used to power the vehicle.”

            If only God had had the foresight to naturally store concentrated energy in large, cumbersome EV batteries the way that he did in the oil underground!

          7. I’m not against electric cars as long as the EV Nazis don’t compell our government to use distortionary price subsidies to hide their true costs, or come after my more convenient and efficient gasoline-powered cars.

          8. EVs are more far efficient

            Simply not true. Thermal efficiency at the power plant is 35 to 40%. Transmission losses are 5 to 10%. 60% of the energy available from the grid at point of use goes into the battery (according to the DOE). That’s without considering extension cords run across the yard. There is also a parasitic load while the car sits parked that is probably 5% loss.

            Electric cars are fun for sure but the reality is that they are less efficient. There are ways to actually use less resources, but this isn’t one of them.

          9. Thermal efficiency at the power plant is 35 to 40%

            Okay, so I’ll use your numbers and do the math for you. Assume efficiency of a power plant is 35-40%. If transmission loss is between 5-10% and the parasitic loss of battery is 5%, that is still 29.75% – 34% efficient (e.g. 35% x 1-.15 and 40% x 1-.15). Remember, the average ICE car is only 20% efficient. So, the EV is about 150% to 170% more efficient.

            Instead of talking about efficiency, we could talk about cost of fuel. I pay 1/3 to drive my model 3 when I pay for electricity where compared to if I bought gas. That makes my gas price about $1/gallon (we are at about $3/gallon here). Our price per kilowatt of electricity is about $.08.

            I am glad you are concerned about emissions because that would indicate that you take climate change serious. If you are really concerned about efficiency, the most efficient source of transportation with the fewest emissions are walking, running, and biking, which I do plenty of.

          10. So, the EV is about 150% to 170% more efficient.

            You left out the x 0.60 for the grid to battery efficiency. In this example the efficiency of the two are equal. Get a Toyota Corolla with an efficient 2 liter and the ICE wins hands down.

            The next consideration is that the EV here takes multiples of the energy to manufacture vs the ICE.

          11. You left out the x 0.60 for the grid to battery efficiency.

            There isn’t a 40% loss in transmission in any scenario. I used your numbers for efficiency of loss due to fossil fuel inefficiency (e.g. 65% – 60% loss due to heat). I also used 10% transmission loss (UT transmission loss averages only 4%). So, I am not sure where you are getting an extra 40%.

            Efficiency of a fossil fuel power plant is anywhere from 35-40%. But according to the Energy Information Administration, loss of electricity is about 2%-6% in transmission and 4% in distribution, or a max of 10%. You have an extra 40% somewhere.

            How Much Electricity Disappears Between A Power Plant and Your Plug

            But you didn’t address how much cheaper it is to run an EV (about 1/3 the price in my area). Also, why do you care so much about efficiency anyways? The only reason to care about efficiency is if you care about emissions and how they contribute to climate change.

          12. why do you care so much about efficiency anyways

            LOL. I got tired of you continually telling us here that your EV was so environmentally friendly, six or ten times ass efficient as a HC burning car.

            The 60% is what the DOE says is the efficiency of converting electricity from the grid to the battery in your car. It needs to be multiplied by the number you got when you shoed me the math. The EV is 20% efficient at converting HC fuel to motion.

            Cost? Your EV with its 1200 pound battery costs multiples to produce vs a Toyota Corolla. Why do you care about cost so much if your virtue is based on less CO2 “pollution”?

            No matter how you jump around, your claims are bogus.

            QED.

        3. Do the ceramic coating yourself. I do mine every year around Thanksgiving break. Lots of junk out there, stick to CarPro Cquartz off Amazon/Ebay for $50 and do it as soon as your get the car. Avoid automatic car washes with brushes and it will look new pretty much forever.

          1. Do the ceramic coating yourself. I do mine every year around Thanksgiving break. Lots of junk out there, stick to CarPro Cquartz off Amazon/Ebay for $50 and do it as soon as your get the car.

            I would have done it myself, but I didn’t trust myself to make it look good. I went to Lux Auto Spa in Salt Lake City and had them do full paint correction right when it came from the Tesla dealership. They did a full front paint protection film around the high-impact areas and then coated the entire vehicle with Modesta. I am honestly not sure how Modesta stacks up to CQuartz. I know OCDetailing swears by CQuartz.

            I do avoid automatic car washes and those tunnels. Only hand washes for me. Car looks better than new and it is almost 8 months old so far.

        4. I have been considering a short range used EV to putt around town with and get me over the hill for meetings. E-golf has been on top of my consideration list. I’m not willing to invest 50k in a Tesla when I can get what I need from a used EV with low mileage for 1/4 – 1/5 the cost

          1. Electric car cost/mile is 38% higher than internal combustion vehicles, directly attributed to the fact that they continued running long after electric vehicles fall apart.

            Why pay 38% more for transportation?

        6. I got tired of you continually telling us here that your EV was so environmentally friendly, six or ten times ass efficient as a HC burning car.

          I have never claimed it was six or ten times more efficient. According to the Union of Concerned Scientists, they are about do have 3 times fewer emissions:

          https://www.ucsusa.org/clean-vehicles/electric-vehicles/ev-emissions-tool

          What I have stated is the simple fact that an ICE engine converts about 17%–21% of the energy stored in gasoline to power at the wheel and an EV converts about 85%-90% of energy to work.

          I also used your own numbers to show that EVs are still more efficient when you account for transmission loss and efficiency of powerplants. But in all actuality, that is an apples vs. oranges comparison because it’s not like you are taking into account the energy and efficiency loss required to get gas to the gas station.

          When I talk about cost, it’s important to understand the fully-loaded cost of a vehicle. Something like Edmund’s True Cost to Own. The reason I love my Tesla is because while it had a higher upfront cost, the cost to maintain it is far, far less because of dramatically lower fuel costs, no oil changes, no brake changes (regen braking), fewer repairs due to fewer moving parts. I view it similar to buying a pricier house buy paying lower in property taxes.

          I like you Blue. You seem like a good person and I admire your dogged determinism in trying to correct the folly of my EV-loving ways. But the fact of the matter is that you can’t put the genie back in the bottle. Why do you think GM workers are striking?

          The GM Strike is Really About the Switch to Electric Cars

          “Timeline projections differ, but many analysts and auto executives believe that EVs will become comparable or cheaper than internal combustion vehicles by the mid-2020s, and most agree that electric cars will begin to outsell conventional ones by 2030 or the mid-2030s.”

          2. GM discontinued the Chevy Cruze, which was a good car, and profitable too. And the Lordstown, OH got their plant idled. Then the Blazer was being made in Mexico. If GM would sell Tesla the plants at a good price, a lot of those GM workers could transition and make the Model Y or the Tesla truck there. Lots of good American jobs could stay.

          3. If GM would sell Tesla the plants at a good price, a lot of those GM workers could transition and make the Model Y or the Tesla truck there. Lots of good American jobs could stay.

            My prediction is that nobody will voluntarily deal with the UAW in the future. Nobody. Therefore plants with a UAW history and a local workforce with UAW expectations will be worth much less to potential buyers than most people would think.

            Watching that Obama/Chinese movie where they tried to make glass in the midwest was kind of painful.

    2. Getting 17% to admit they overpaid is pretty good considering that there is probably another 20-30% that probably regret it but will not admit it.

  21. “We Call It The Real Estate Casino”

    https://www.tbwns.com/2019/02/18/the-bears-lair-ben-bernanke-killed-the-world-economy/#more-1601
    The Bear’s Lair: Ben Bernanke killed the world economy
    Martin Hutchinson | February 18, 2019

    “I would suggest that the Ben Bernanke-inspired wild monetary experimentation from 2008 on has done more damage to the world economy than any other initiative in the history of mankind.”

    “In the United States, vast sums have been poured by companies into buying back their stock, because the earnings cost of doing so is small at low interest rates and companies believe that if their cash flow is solid, they can survive ad infinitum without significant equity capital. They are wrong, but only the next recession will teach them so, at great cost to their employees and the U.S. economy as a whole (doubtless their foolish and greedy top management will emerge with substantial payoffs, as usual).”

    “In London, San Francisco, New York and elsewhere, the prices of high-end real estate have soared without limit. Low interest rates reward those with borrowing capacity, and for more than 20 years now, it has been profitable for the rich to borrow gigantic amounts of money at low interest rates and invest it in high-end real estate. This bubble is now in the process of bursting, much to the benefit of Millennials, for whom the price of modest real estate has been over-elevated by the shenanigans at the high end.”

    “Debt of all kinds has proliferated, whether in auto loans at the consumer end (less so in home mortgage loans since 2008) or in corporate leveraged loans used by the innumerable buyout artists at the high end. Default rates on all these debts are beginning to rise; they will cause massive losses before we are much older.”

    – The GSEs and other Federal housing agencies aren’t helping either…

    – Welcome to the bizzaro world of “modern” Keynesian/Central Bank economics.

    1. “I would suggest that the Ben Bernanke-inspired wild monetary experimentation from 2008 on has done more damage to the world economy than any other initiative in the history of mankind.”

      He will be long gone before many folks catch on to the irreparable economic damage that was done.

    1. “… thanks to the banksters and their hot money flows that made housing so unaffordable.”

      Supply meets Demand. In this case Supply collided with Demand.

      Ignorant puke borrowers demanded the hot money flow so wonderful bankers such as myself supplied it. These ignorant puke borrowers could have just said “no” but mass stupidity on their part got in the way. Bad for them, good for me.

      Note: I open the bank’s door in the morning and into the bank they flock. I shove several pieces of paper in front of them that contain laughable and ruinous terms and they willingly sign them. From this point on these ignorant pukes spend decades toiling at a job (if they are so lucky) and from the pittance they are able to glean from this toil they send me my share. And they will do this month after month, year after year, decade after decade.

      If these ignorant pukes want to punch me out then they will have to take a day off from their daily toil and go to the beach because the beach is where I will be.

  25. “The federal government has dramatically expanded its exposure to risky mortgages.”

    Good. This will hasten the collapse.
    “It is intuitive – you think the higher somebody’s debt-to-income ratio, the more problems they are going to have. But that’s just not the best criteria to apply to be quite honest.”

    To be quite honest? Oh, have you been lying to us previously?

      1. Sadly, $339 HOA/condo fee is nothing around here.

        My partner’s late mother owned a condo in So. Brookline with a condo fee of $750. As I recall she had no control over when the condo board decided to turn the AC and heat on and off. She did have one garaged parking spot, a concierge, an elevator and access to a small pool that was sometimes closed by 6:00PM on a hot summer night. There was a shared laundry on each floor.

        Just saw a new listing of a “garden” level (basement) 2 BR 2 BA condo in Brookline for $675K with HOA of $432….73 Park St. #B.
        Sold for $600K in 2016. I may take a look at the open house today just for fun.

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