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At The Top Of Any Market, It Always Looks Good

A report from the Berkshire Edge in Massachusetts. “Employment is strong; we can all agree on that—or can we? I suppose it depends on whom you ask. If you ask the average person, they’re going to say yes. If you ask someone in the mortgage industry, they might have to force a fake smile.”

“In the last few months, we’ve seen hiring weakness in the mortgage industry. That’s corroboration of the horror story that is going to be housing. Admittedly, housing is still good. But it was still good in 2007, too. I remember looking at a house to buy and trying to talk shop with the Realtor. I got a talking-to for ‘crying wolf’ about my concerns.”

“I understood her defensiveness; when things have been going well, you extrapolate that and expect the future will be similar to recent past. The problem is that, at the top of any market, it always looks good. It is called a peak for a reason, after all.”

“It is a decade after the old housing crisis and we silently slipped into the beginning of a new housing crisis. Today, the problem is a lack of affordable housing. There are plenty of $400,000+ homes listed for sale. That is a separate issue, yet related. Home-building growth has gone to zero, and that will be a drag on the growth of construction hiring. That high level of supply will correct itself, but the adjustment won’t be positive to the U.S. economy.”

“Rising house prices have substantially outstripped income growth over the last six years and now half of Americans can only afford a $230,000 house. I should air-quote ‘only’ because that’s a nice house in most of America. However, the average sales price for 11 of the top 19 builders is about $400,000.”

“Yes, things are still good. However, I don’t get concerned because things are good. We should embrace those times when things are good. But when we see data suggesting the tide is turning, we have to recognize that bad things were once good and that there was a turning point.”

From Mansion Global. “Where have all the buyers gone? It’s a tune sellers in many key luxury real estate markets will be singing in 2019, as political and the economic uncertainty put a damper on sales from London to Los Angeles. Sellers in New York City will have to lure shy buyers with discounts of as much as 10%, according to analysts and real estate agents.”

“Sales and prices have cooled in Manhattan over the past two years, a hyperlocal downturn that some predicted would have improved by now. ‘We’ve just had this malaise,’ said Darren Sukenik, a broker with Douglas Elliman who works primarily in downtown Manhattan. ‘In April it’s going to be two years.'”

“Part of the issue is too much overpriced housing stock, especially with a new development pipeline promising another 2,000 units in 2019, said Donna Olshan, president of Olshan Realty. ‘Most of the market is overpriced by at least 10%,’ Ms. Olshan said. ‘Then you have the structural change of the tax law putting downward pressure and you have interest rates rising. In a sense, you would call that a perfect storm.'”

“‘It’s like the city’s standing on a banana peel and it’s either going to slip or it will stabilize,’ she continued. ‘Right now, the perception ‘ and the reality is that it’s a buyers market.'”

“Discounts will be most prevalent at the higher end of the Los Angeles market, according to Knock, a real estate analytics site, which predicts 90% of homes sold in the first quarter of next year will sell for a discount.”

“A report from the UBS Chief Investment Office predicted the divergence between housing markets on the East Coast versus the West Coast will begin to even out in 2019. ‘Los Angeles and San Francisco have been buoyed by tech company expansion,’ according to the report, but ‘looking forward, we consider it likelier that the gap will narrow because of the West Coast market weakening rather than the East Coast strengthening.'”

“It’s a stockpile of Florida’s luxury condo inventory, specifically along the beach and neighboring barrier islands, that continues to weigh on the market and keep downward pressure on luxury prices. In the third quarter of 2018, there was still 45 months-worth of luxury supply along coastal Miami, according to the latest market report from Douglas Elliman and Miller Samuel.”


This Post Has 84 Comments
  1. ‘In the last few months, we’ve seen hiring weakness in the mortgage industry. That’s corroboration of the horror story that is going to be housing. Admittedly, housing is still good. But it was still good in 2007, too’

    Here’s the thing: the housing bubble in Miami Beach popped three years ago. In Manhattan over two years ago. Where have the freaking main stream media been?

    ‘We’ve just had this malaise,’ said Darren Sukenik, a broker with Douglas Elliman who works primarily in downtown Manhattan. ‘In April it’s going to be two years’

    It’s over two years Darren. I’ve never been to Manhattan and I know that. I can show you archives of this blog to prove it.

    ‘I remember looking at a house to buy and trying to talk shop with the Realtor. I got a talking-to for ‘crying wolf’ about my concerns’

    Yes, we “silently” get shamed by used shack salespeople into never uttering a discouraging word, even though prices shoot past incomes for almost a decade. Now these useless “real estate analytic” companies are falling over each other to “predict” what has been happening for years in some cases. Jeebus!

    1. half of Americans can only afford a $230,000 house

      Actually not even close. The lower half families do not all make the median income, they make below the median income. If they all did make $50K, they really can only afford a house of $100K or so, not $230K.

  2. “Rising house prices have substantially outstripped income growth over the last six years and now half of Americans can only afford a $230,000 house. I should air-quote ‘only’ because that’s a nice house in most of America. However, the average sales price for 11 of the top 19 builders is about $400,000.”

    Makes one think they were not building for the average American. Maybe for the foreign specuvestors that have coincidentally shot housing prices to the moon?

      1. “The point is, is that when we succeed, we succeed because of our individual initiative, but also because we do things together”

        Fixed it for ya.

      2. This particular quote is often taken out of context as if to suggest and diminish individual effort and genius. A superficial reading of this could give that impression, but idea was not to diminish entrepreneurship or individual effort, but to reinforce the idea that success is multifactorial and often depends on strong institutions that precede even the most savvy tycoon. A good, functional government with the rule of law, sound institutions, and a level playing field is among many things that are necessary for successful enterprises to thrive.

        1. “A good, functional government with the rule of law, sound institutions, and a level playing field is among many things that are necessary for successful enterprises to thrive.”

          We are in trouble, then. Because we seem to be lacking all of those now.

  3. The frequent “reasoning” i hear on the recent MSM headlines for our cooling market is higher interest rates and the median income vs housing price. When will we hear about a mania that was caused by foreign investors and the FBs that got caught participating in all this money laundering and speculative gambling?

  4. “Today, the problem is a lack of affordable housing. There are plenty of $400,000+ homes listed for sale.”

    As many of these houses get repriced lower, that will fix the issue. The government isn’t helping by increasing the conventional loan limits on mortgages this January by 6.6%.

    I don’t get how th government can say inflation is below 3%, but continue to raise loan limits by +6% year after year to keep pace with house prices increases.

    I live on the border of 2 counties. One county has a conventional loan limits of $600k and the other $453k. Literally drive 1 mile into the cheaper county and the same house is priced vastly different. Conventional loan limits drive prices higher.

    1. I’ve pointed this out for 14 years. Look at the difference between Phoenix shack prices and Flagstaff. It’s all down to the loan limits. It’s just two hours apart.

      1. Just another reason to boycott the housing market until interest rates normalize. Fundamentals are not driving prices, but the funny money by the Fed. The market can stay irrational for a while and indeed has. But in the next 10 years that will change as demographic trends with boomers leaving this earth will hasten the flood of inventory coming to market.

        1. The boomers don’t even need to leave the earth entirely; they just need to leave the house for assisted living and nursing homes. It will be interesting to see just how long these boomers can live in their $400K country-club homes in FL and AZ before moving to skilled nursing.

          1. “Their underemployed children will move in to “take care” of the boomers.”

            +1 And collect SSDI while doing so.

  5. ‘Crypto Craze Drew Them In; Fraud, in Many Cases, Emptied Their Pockets’

    ‘About a year ago, Charles and Claudia Wildes maxed out their credit cards and invested more than $40,000 in a hot new digital currency, just as the crypto mania peaked.’

    ‘Now, all that money is gone—a small part of the billions investors lost as cryptocurrencies plunged in recent months. “My wife and I put a lot of our life savings into BitConnect,” said Mr. Wildes, a computer-support worker from Boynton Beach, Fla. “Sadly, this was a life-changing experience for us.”

    ‘Most of the federal and state cases were designed to close the more clearly illegal digital-coin offerings, as officials fought to tame a market they said was rife with fraud, including Ponzi schemes and pump and dumps, a review by the Journal found.’

    ‘Investors are getting hit by more than just bad actors. Bitcoin has fallen about 70% this year. And of 573 digital coins launched since 2017, 89% are trading at a loss compared with their offering price and worth a total of about $2.1 billion—$8.4 billion less than the $10.5 billion initially invested, a Journal review of data from website ICORating found.’

    ‘As regulators step up their pursuit of frauds, investors will be left to nurse losses. The Wildes have taken out a second mortgage to repay their credit cards, according to their lawye.’

    ‘Dusty Showers, a pest controller and wildlife rescuer in Florida who is also represented in the BitConnect lawsuit, said he doesn’t expect to recover the $6,000 he lost in BitConnect. “I think everything’s gone.”

    Nobody could have seen it coming…

    1. Here’s the caption for a photo at that link:

      ‘Last year, Didi Taihuttu sold almost everything he owned, poured it into bitcoin and moved his family into a trailer park. In this episode of Moving Upstream, WSJ’s Thomas Di Fonzo goes on a year-long journey with the “Bitcoin Family” as they bet everything on a decentralized cryptocurrency future.’

    2. I’m struggling with whether to bring up Bitcoin in upcoming New Year’s dinner conversation with a friend who a little over a year ago tried to convince me of the New Era of investing opportunities that blockchain had created, as evidenced by the recent meteoric increase in the price of Bitcoin. I’m quite certain that he lost a bundle, and very curious to know how he views the situation in retrospect, though also a bit fearful that the debrief could stir up marital discord, as our wives will be present at the dinner.

      1. Oh no, absolutely bring it up! These BitCoin bros had no problems calling you out last year because “you don’t get it man” and bragging about their millions. I’d even open with that: “Nice shirt, surprised you could afford it after BitCoin tanked”.

        1. Ask him if he got out at the peak, and if not, make him feel bad about it. “Why man, you could have banked millions!” Then if he claims it’s going to go back up, advise him to bet the farm at this shockingly low price.

        2. In fairness, he didn’t deride me for failing to grasp the blockchain miracle. Nonetheless, I find it irritating when people who should know better rebuff my attempts to get them to come to their senses. I’m certainly curious whether he recalls our last conversation about Bitcoin.

          1. I find it irritating when people who should know better rebuff my attempts to get them to come to their senses. I’m like that too, even though I believe self-importance is a vice and that rooting it out starts with yours truly.

      2. “I’m struggling with whether to bring up Bitcoin in upcoming New Year’s dinner conversation…”

        I found myself if the same position at Christmas dinner regarding real estate. Someone told me “no one knows what’s going to happen with real estate”. Donkeys either don’t have the intellectual horsepower to understand QE, GSE’s and other bubblenomics or they are too lazy. Their eyes glaze over and they change the subject immediately. Common sense isn’t that common.

    3. ‘The Wildes have taken out a second mortgage to repay their credit cards, according to their lawyer.’

      At least they had the presence of mind to invest in home ownership, in order to be able to fall back on their home equity wealth gains in a pinch.

    4. “‘About a year ago, Charles and Claudia Wildes maxed out their credit cards and invested more than $40,000 in a hot new digital currency, just as the crypto mania peaked.’

      ‘Now, all that money is gone—a small part of the billions investors lost as cryptocurrencies plunged in recent months. “My wife and I put a lot of our life savings into BitConnect,” said Mr. Wildes, a computer-support worker from Boynton Beach, Fla. “Sadly, this was a life-changing experience for us.”

      Ahahahahahahahahahaha!!!

      1. “…maxed out their credit cards and invested more than $40,000 in a hot new digital currency…”

        Cash advances cost around 25%, and most investments have a front-end load, so that investment really has to pay-off big. Where do they find people this dull?

    5. ” And of 573 digital coins launched since 2017, … ”

      Might have lo$t my opportunity to open a $mall office in $outh Bend, IN & launch the “$tudebaker” bitcoin. Dang it!, mi$$ed it bye that much [.]¡!

    6. “…maxed out their credit cards and invested more than $40,000 in a hot new digital currency, just as the crypto mania peaked.”

      “Here’s your sign.” — Bill Engvall

  6. Apparently the Plunge Protection Team is not one of the government agencies affected by the shutdown, as market intervention appears to be in full swing.

    1. “TOP SECRET”?
      The mysterious government organization that pops up at moments of financial crisis
      By Natasha Frost
      December 24, 2018

      US Treasury secretary Steve Mnuchin announced this weekend that he would be convening the President’s Working Group on Financial Markets for a call today (Dec. 24) to discuss the volatility that has plagued markets in recent weeks.

      The official line on the working group is almost staggeringly unsexy: it’s a Reagan-era initiative connecting Wall Street and Washington to work on issues affecting the market.

      For three decades, however, this group of senior federal and NYSE officials has been plagued by confusion, conspiracy theories, and general misinformation. They’re often referred to by a far more glamorous name, coined by the Washington Post in 1997: The Plunge Protection Team.

    2. Taking a chance on FAZ, which ran away from me since I sold out @13.50. Bought back in with 500 @15.83 just now on this dip. Have plenty of ammo (cash), but been burned many times before trying to score one over the big banks. Will add more if it gets to 14.

      1. You mean the government which works entirely in the interests of the moneyed set? The same people who own 92% of all stocks? Why yes, yes it is.

          1. I wonder if the automatic trading programs were set to “backup the truck”?

            And is it a given that the Santa Claus rally will bring the Dow back into the green for 2018 by year’s end?

          2. I don’t think that 1000-point gain will last. As far as I know, the ppt can’t do much against Jerome Powell. (now, if only Trump can nominate someone sane to take over for Smelly Mel).

          3. “As far as I know, the ppt can’t do much against Jerome Powell.”

            What do you mean? He’s a member of the President’s Working Group. And I hear he may be looking forward to the pleasure of a New Year’s lunch with DJT.

        1. 1000+ at the close but there are still some good deals to be had – especially in strong Co’s that pay Div.

          1. “1086 points in a single day. DOW 50,000 seems possible after this sort of rot”.

            Patience, grasshopper……………………History may not repeat but it often rhymes. Check out the date on the article.

            Stocks Soar 11 Percent on Aid to Banks
            October 13, 2008

            On Monday, for the first time this October, the Dow Jones industrial average ended the day higher than it began. Nine hundred and thirty-six points (936) higher, to be exact, making for the biggest single-day percentage gain in 75 years.

            The surge came as governments and central banks around the world mounted an aggressive, coordinated campaign to unlock the global flow of credit, an effort that investors said they had been waiting for.

            SOME EXPERTS GREETED THE RALLY AS A TURNING POINT IN THE SLOW-MOTION CRASH THAT HAS ERASED FIVE YEARS WORTH OF VALUE FROM THE STOCK MARKET IN THE LAST FEW WEEKS. When Monday began, shares of some blue-chip companies were at their cheapest levels in years.

            https://www.nytimes.com/2008/10/14/business/14markets.html

          2. It’s interesting to see Trump and Mnuchin acting as though a replay of the 2008 financial meltdown is at hand, when outward signs are lacking. What is it they see which is invisible to the rest of us?

          3. “The surge came as governments and central banks around the world mounted an aggressive, coordinated campaign to unlock the global flow of credit, an effort that investors said they had been waiting for.”

            Was that the gun shot that provided the ‘dump all HODLings immediately ‘ signal which sent stocks into a six-months long tailspin?

    3. Shame, shame on those economically backwards Chinese communists for meddling in the unfettered operation of the free market.

      Quicktake
      China’s Market Meddling
      By Enda Curran and Kana Nishizawa
      Updated on December 18, 2018, 5:02 PM PST

      China’s Communist Party leaders say they’re learning to love free markets – to a point. With an economy weighed down by overcapacity and surging debt, the government is overhauling a financial system that was built to fuel high-speed growth. Its stated goal: Give markets a “decisive” role in setting prices and interest rates. The unstated challenge: Avoid exacerbating the economic slowdown, triggering panic in global markets or weakening the party’s grip on power. China’s epic stock market boom and bust in 2015 revealed a leadership frantically shifting course. Leaders stepped in again to contain steep declines in 2018, albeit less aggressively. The fiddling reveals a conflict between the desire to embrace elements of capitalism and an instinct to shelve reforms and assert control when things go awry.

  7. EDITOR’S PICK | 2,687 views | Dec 1, 2018, 2:00 pm
    The Big Con: Reassessing The Great Recession And Its ‘Fix’
    Laurence Kotlikoff, Contributor
    Retirement

    Everyone knows what caused the Great Recession (GR). Bad banks issued bad mortgages. Bad bankers over leveraged. Bad shadow banks evaded regulators. Bad rating companies over-rated securities. Bad regulators slept at the wheel. Bad households drove up house prices. Bad derivatives expanded. Bad traders overtraded. In sum, bad banks full of bad bankers did bad things.

    Some bad banking is a constant. But this time was different. Virtually all outstanding mortgages were subprime and virtually all subprimes were fraudulent no-doc, liar, and NINJA loans. Bank leverage reached record levels. Massively bribed rating companies gave triple As to securities that were triple Fs. Regulators were totally outgunned, outnumbered, and out of touch. House prices soared forming an incredible bubble. Derivatives became “weapons of mass destruction.” Trading grew exponentially. And well-greased politicians looked the other way. The Financial Crisis Inquiry Commission summed it all up in two words – “pervasive permissiveness.”

    There’s just one problem with this narrative. As argued here, it doesn’t fit the facts. Worse, it diverts attention from the real problem. The real problem wasn’t rampant misuse of a good banking system. It was regular use of a bad banking system – a banking system built to fail.

    1. This is definitely something worth thinking about and I enjoyed reading it.

      However I wouldn’t say that was terribly well-written or informative to those uninitiated in micro theory. It’s pretty easy to misinterpret a lot of his points, or unwittingly interpret them through ones own prism.

      I would have liked more discussion of the proposed solution, especially any hypothetical drawbacks.

      As dumb as the blockchain fad is, and I do think it’s dumb, it seems it might be useful for the type of real time balance sheet transparency he’s talking about. But I am no expert on the chain.

      1. “…the type of real time balance sheet transparency he’s talking about.”

        Can blockchain do something in this application that you can’t do with an ordinary, publicly accessible web site?

    2. The story fits the facts just fine. The only “fact” that doesn’t fit is the assumption that the banking system was good to being with. And the banking used to be just fine until Fannie Freddie went private and the Senate voted to backstop practically every mortgage sight unseen.

  8. “Yes, we “silently” get shamed by used shack salespeople into never uttering a discouraging word,”

    Home home underwater
    Where DebtDonkeys and HousingHens play,
    Where seldom is heard a discouraging word,
    Fraud and crimes are committed everyday.

    Tampa, FL Housing Prices Crater 10% YOY As Brokers And Media Collaborate To Conceal Plunging Prices

    https://www.movoto.com/tampa-fl/market-trends/

    1. “The diner on the property … closed on Nov. 25 after the owners said they were unable to reach a lease agreement with the landlord.”

      The comments to the article are dead on. The LL raised the rent purposely to kick out the restaurant owners and sell the land for yet another luxury apartment building.

  9. Well silly me, I didn’t think the Guv would rescue equities this fast. Should have bought in, I need to stop forgetting who controls the game. I think I’ll buy a few houses too. They’ll goose the real estate market come springtime.

    1. Dec 26, 2018,12:25 pm
      The Difference Between Crypto And A Dollar, Euro, Yen, Etc.
      Jay Adkisson, Contributor
      Personal Finance
      I cover Wealth Preservation in its legal permutations

      Folks who are considering an investment in cryptocurrency will often ask me about something they’ve been told by a promoter, which is that crypto is exactly the same as a dollar or any other government-issued currency (known as “fiat currency”) in that a dollar bill per se has little practical use, unless you’re looking for something quick upon which to write down a phone number or something, but instead is simply a unit of exchange.

      In an abstract sense, that is true. A unit of cryptocurrency is simply a unit of exchange which has value only because the public gives it value, and that has been true whether it is electronic currency (crypto), little bits of paper (dollars, Euros, yen, etc.), or as in our past, beaver pelts and pretty seashells. Leaving aside the beaver pelts, which in the aggregate can keep you nicely warm, all the things that we have historically used as units of exchange have themselves almost nominal value that in modern times are indistinguishable in value from the numbered and (theoretically) protected electronic units that we call cryptocurrency.

      But we don’t live in an abstract world, and instead live in a very real one where the differences between crypto and the little pieces of paper are light-years apart.

      That difference is that governmental currency, such as dollars, are given the nation’s support to reduce volatility, prevent manipulation, and maintain a steady price. Crypto has no such support.

      1. Example: “About a year ago, Charles and Claudia Wildes maxed out their credit cards and invested more than $40,000 in a hot new digital currency…”

        Buy now or be priced out forever!

        But alas, they actually got in “… just as the crypto mania peaked.” Too late! Suckers!

    2. #Rekt — Borrowed from online gaming slang, to mean utterly destroyed or ruined. One trader on r/bitcoin put out this this elegiac call after one of bitcoin’s many crashes: “MOMENT OF SILENCE FOR ALL OF THOSE #REKT ON MARGIN CALLS”

    3. Your search – fukt cryptocurrency – did not match any documents.

      Suggestions:
      – Make sure all words are spelled correctly.
      – Try different keywords.
      – Try more general keywords.
      – Try fewer keywords.

  10. Patience, grasshopper……………………History may not repeat but it often rhymes. Check out the date on the article.”

    Agree Patience. looks like a dead cat bounce to me. We will see.

  11. Why I keep warning you about the stock market bubble
    By John Crudele
    December 26, 2018 | 10:15pm
    Traders work on the floor of the New York Stock Exchange.

    By now, everyone should understand why I’ve been warning readers about the stock market bubble.

    And I didn’t warn you just once. I’ve been doing it repeatedly.

    The Dow Jones industrial average was down nearly 5,000 points from its peak before a sharp rally in stocks Wednesday made the performance just a little less dreadful.

    Even with Wednesday’s 1,000-point-plus gain, the Dow is still down just below 4,000 points.

    As of Monday — Christmas Eve — the stock market’s December performance alone was the worst since 1931. I think we all know what was going on back then.

    And despite the repeated efforts to coax the stock market higher — “manipulate” is actually the right word — Wall Street’s disaster of the past few months continued unabated until Wednesday’s miraculous intervention by the people who want stock prices up.

    You are going to hear a lot of nonsense about the stock market from all the people who didn’t caution you about the Wall Street bubble. Ignore them.

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