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The New Wind Freaked Out Many Home Sellers

It’s Friday desk clearing time for this blogger. “The residential property market in Palo Alto has cooled down meaningfully in the last six months or so. The median home price of all homes sold in Palo Alto has dropped to $2.79 million in the second half of 2018, 10 percent lower than $3.1 million in the first half.”

“Price reduction has become the new norm. One out of four homes listed in Palo Alto since July 1 has reduced its listing price. The last time Palo Alto had more than 60 reductions in the late half of the year was 2012. This year’s sudden shift is more than seasonality and has left many home sellers in an awkward position.”

“By many measures, the Santa Cruz County economy enjoyed a record-breaking year. The median home price, the midpoint of what sold, set a record — $935,100 — in March. By November, it slipped to $911,250 on 134 sales, down 27 percent, according to Gary Gangnes of Real Options Realty, who tracks the numbers.”

“San Diego County home prices were up 1.1 percent in November after two months of declines, CoreLogic reported. The median price was $565,000 — still down $18,000 from the all-time peak reached in August. Najla Wehbe Dipp, a real estate agent primarily in East County, said she has met with several potential buyers who say they are waiting until next year for a big Great Recession-style drop in home prices.”

“There were 703 home sales in Ventura County at a median sale price of $575,000 in November, according to CoreLogic. That is an 18.5 percent decrease in sales from October, when 863 homes were sold in the county. The median sale price also dropped by 3.4 percent from October’s $595,000 median.”

“‘Prices have now fallen on a month-to-month basis in four of the past five month in the detached home market, which suggests home values may have peaked this summer,’ explained Greater Boston Association of Realtors president Marie Presti . ‘As a result, for those looking to maximize the value on the price of their home, this winter may be a better time to do so than waiting until spring, as there will be less competition due to fewer homes listed for sale.'”

“Manhattan’s housing market sharply downshifted in 2018, especially at the high end and in new development, as rising inventory and other factors kept homes on the market longer and forced more sellers to readjust both prices and expectations.”

“‘The word of the year is reset,’ said Jonathan J. Miller, who runs the Miller Samuel appraisal firm in Manhattan. The past year was more of a ‘normalization of the market,’ he said, after record activity in recent years, highlighted by New York City’s single most expensive closing (for now), in early 2015: a $100.5 million penthouse at the pinnacle of the One57 skyscraper.”

“‘Pamela Liebman, the chief executive of the Corcoran Group, agreed with that assessment. ‘Since 2009, the market has gone on a very aggressive ride, and I think it’s normal that we see a bit of a slowdown.'”

“2018 was the year of the housing slowdown in Dallas. After seven years of rising home purchases in North Texas, the speeding home market hit a speed bump in 2018. The new wind blowing through residential neighborhoods freaked out many home sellers who were hoping they could keep asking the moon for the roofs over their heads.”

“‘The sky is not falling’ on D-FW’s housing market, insists Dr. James Gaines, chief economist with the Real Estate Center at Texas A&M University. ‘You’re just getting back to normal.'”

“The latest report from S&P CoreLogic Case-Shiller shows that Seattle’s home prices have considerably cooled. And while Seattle’s annual increase in home prices was 7.3 percent through October, prices in King County have also gone down 11 percent over the last six months as of November, per the Northwest Multiple Listing Service.”

“Some would argue that it’s less a crash in the market, and more a much-needed righting of the ship. ‘I expect this trend to continue into 2019, which will cause appreciation to slow somewhat, while giving buyers more options,’ said OB Jacobi, president of Windermere Real Estate. ‘This does not mean the real estate sky is falling, rather it’s a much-needed shift towards a more sustainable, balanced mark.'”

This Post Has 129 Comments
  1. https://www.reuters.com/article/us-usa-economy-homes/u-s-pending-home-sales-fall-unexpectedly-in-november-idUSKCN1OR14Q
    Business News
    December 28, 2018 / 8:03 AM / Updated an hour ago
    U.S. pending home sales fall unexpectedly in November

    “Pending home contracts are seen as a forward-looking [leading] indicator of the health of the housing market because they become sales one to two months later.

    Compared to one year ago, pending sales were down 7.7 percent in November, the eleventh straight year-over-year drop.”

    “Unexpectedly”… (except for HBB bloggers!)

    BTW, still waiting for the Nov. New Home Sales data (another leading housing indicator). It was “unexpectedly” delayed due to the ongoing partial gov’t. shutdown. So many “non-essential” people in the public sector. Seems to indicate that if personnel cut by 50%, no one would know or care, but it would be a lot easier to get a vacation rental. 🙂

  2. “…she has met with several potential buyers who say they are waiting until next year for a big Great Recession-style drop in home prices.”

    Eee-bola strikes San Diego real estate!

    1. “…for a big Great Recession-style drop…”

      Memo to Realtor Najla Wehbe Dipp

      No, its not Great Recession-style, it is *Great Recession*.

      One thing we all can agree on, its gonna be big, *really big*, Ed Sullivan style.

  3. It seems to be getting quite windy early in the trading day on Wall Street. I wonder if late-day rescue operations will be needed again today to paint the tape at the closing bell?

      1. Gravity seems mighty powerful on Wall Street for the moment, despite the mysterious force that keeps pulling it back to the zero bar after every dip. Watch out below in case of a breakout to the low side…

    1. Vanguard Founder Jack Bogle Says It’s Time to Play It Safe
      By Leslie P. Norton
      Dec. 28, 2018 5:00 a.m. ET
      John “Jack” Bogle, founder of Vanguard Group
      Photograph by Ken Cedeno/Bloomberg News

      In case you’re thinking that it’s safe to dive back into the stock market, think again. Jack Bogle, the father of the index fund, is advocating caution. Over the past several years, index fund investors have reliably bought the dips in the stock market, expanding the valuations on growth stocks and helping push the S&P 500 higher. But that probably no longer is a savvy approach, says the founder of the Vanguard Group.

      In a recent interview with Barron’s, Bogle warned that “trees don’t grow to the sky, and I see clouds…”

    2. Ten minutes to go in the last trading day of 2018, and all three headline Wall Street indexes are bleeding red. Did the tape painters run out of green paint?!

    3. December offered Wall Street’s stock HODLers quite the roller coaster ride. More thrills lie in store for 2019. Happy New Year to all the bulls who share a belief that the stock market always goes up, in the long run!

      1. There was only enough green paint left to pull the Nasdaq above the zero bar at the closing bell. The Dow and the S&P 500 indexes ended down years with losses on the final trading day.

        Stocks edge lower as Wall Street prepares to wrap up week of wild swings
        By William Watts and Barbara Kollmeyer
        Published: Dec 28, 2018 3:43 p.m. ET
        S&P 500 on track for first December weekly gain
        It’s the end of a wild week for Wall Street.

        Stocks were mostly lower in late trade Friday after moving between modest gains and losses over the course of the session, as investors prepared to cap a holiday-shortened week marked by wild swings that has the S&P 500 on track for its first weekly gain of December.
        How are benchmarks performing?

        Stocks moved to session highs in afternoon activity but soon headed back into negative territory,, leaving the Dow Jones Industrial Average (DJIA, -0.33%) down 118 points, or 0.5%, at 23,021 while the (S&P 500 SPX, -0.13%) was off 9 points, or 0.5%, at 2,480. The Nasdaq Composite (COMP, +0.08%) was down 3 points at 6,577, a decline of less than 0.1%. For the week, the S&P 500 was on track for a 2.6% rise, its first since the week ending Nov. 30, with the Dow looking at a an identical gain and the Nasdaq up 3.9%.

    4. Looking on the bright side of the situation, I believe the stock market fared much worse in December 1931, back when Herbert Hoover occupied the White House and the year my mom turned 3 years old, than it did this past month.

      Stock market ends wild week in negative territory, as Dow, S&P 500 set for worst December since 1931
      By Mark DeCambre
      Published: Dec 28, 2018 4:03 p.m. ET

      The Dow on Friday retreated in a holiday-shortened week, colored by erratic and powerful price swings. The Dow Jones Industrial Average (DJIA, -0.33%) closed down by about 77 points, or 0.3%, at 23,062, the S&P 500 index (SPX, -0.12%) declined 0.1% to end at 2,486, while the Nasdaq Composite Index (COMP, +0.08%) finished the session virtually unchanged at 6,585, on a preliminary basis. However, for the week, the Dow rose 2.8%, the S&P 500 climbed 2.9%, while the Nasdaq registered a weekly gain of 4%, with all three indexes marking their first weekly gains after three straight weekly declines. Despite the upbeat moves, the indexes are all poised for annual losses for the first time since 2008, with Dow and S&P 500 on pace for their worst December since 1931, according to Dow Jones Market Data. The market’s swing come against a backdrop of anxieties about the global economy, Federal Reserve interest-rate increases and trade-war jitters that have created a cocktail of concerns that have undercut investors’ confidence.

  4. was watching CNBC yesterday and they had on a high end manhattan agent.

    He claimed that over $10M condos were doing well.

    But the interesting new term he made up — the working rich — were in a wait and see in the $4 to $10M range. He claimed 2 issues – 1) waiting to see if the prices are cut, 2) the possible SALT deduction change

    1. “… a high end manhattan agent…”

      Where do we even begin with these characters?

      “…He claimed that “over $10M” condos were [sic] doing well…”

      What an absurd metric. Might as we claim “over $100M” condos are doing well.

      “…— the working rich —…”

      Thats an instant classic. I adding that one to my thesaurus.

      One small correction, its not the “working rich”, its the “working pretend rich”.

      Definition: “working pretend rich”. Those who have leveraged themselves into financial oblivion, most via real estate, bitcoin and attendance at Robert Kiyosaki Rich Dad Poor Dad seminars. {synonym idiot}

      1. by working rich – i was assuming that he meant bankers (managing director and above) and other execs that were pulling in $500K or $1M total compensation / year.

        I work with one of the money center banks and we got to meet a senior exec (but not one of the top 10 in that firm). As we walked out, our account exec stated matter of fact that his TC was $2.5/yr (even thought a bunch was deferred). I have no idea if that is right – but he gives off that vibe.

        This is why the big banks take big risks – they need to pay these inflated compensation

        1. “…This is why the big banks take big risks – they need to pay these inflated compensation…”

          I have often wondered what it is these folks do that is so damn important that they can justify such outrageous salaries?

          I have met a few at my company, and other than they all wear expensive suits, drive expensive cars and [sometimes] have trophy wives I don’t see any real difference between them and the regular worker bees.

          B, Since you are close to the action, perhaps you could offer some insight. What am I missing?

          Another angle about outrageous salaries is that many piss it all away anyway.

          Is this what is meant by “trickle down economics”? <;}

          Here are some interesting articles:

          https://www.cnbc.com/2018/03/05/why-some-families-earning-500000-still-dont-have-any-savings.html

          If you're making $500,000 a year, you're among the top 1 percent of earners in America.

          https://www.thestreet.com/personal-finance/even-high-income-people-overspend-14776389

          Of those earning $150,000 or more, nearly 30 percent have less than $1,000 saved…

          1. I have often wondered what it is these folks do that is so damn important that they can justify such outrageous salaries?

            It’s not that it’s “important”, IMO. It’s that it makes money.

            If you can make more loans and hand it off to the taxpayers, taking a cut, then you make more money. If you can better front-run the fed or anyone making trades, you can make more money. If you can convince someone to let you manage a big sum of their cash while taking a cut (and taking on no risk)…well, you get the point.

            As a society, “we” have voted this is valuable and have voted with our dollars. Everyone uses credit cards for every transaction, letting the banks/financiers take a percentage of our entire economy. We’ve allowed our government to take all the risk off the bankers plate while letting them get the reward. We all invest in 401k funds or mutual fund or ETFs where the bankers all get a percentage of the funds with no downside.

            Want these people to stop getting paid so much? STOP GIVING THEM MONEY!

            Pay cash for purchases, even if you don’t get a discount. Don’t participate in 401k programs (yes, this is a tough sell if there’s a match), or work with your company to have it managed at a place with lower fees, and using low-fee funds. Invest in local businesses rather than buying stocks. Demand change from our politicians, vote for those that won’t bail out the bankers, and better yet, keep political power at the local level rather than pushing it to the federal level where all of this is possible.

            It’s your money these people are getting paid with to buy their fancy suits, cars, boats, etc. Stop giving it to them.

          2. I dont have a great answer octal77. My only guess is that it is cursue of the tier1 MBAs (the ones that graduated in the top50% of their class from top10 MBA schools) that are parashooted up the management ranks. Somehow banks, investment companies, insurance companies, pension funds – all seem to want to have an army of these ‘decision makers’

            “I have often wondered what it is these folks do that is so damn important that they can justify such outrageous salaries?

            I have met a few at my company, and other than they all wear expensive suits, drive expensive cars and [sometimes] have trophy wives I don’t see any real difference between them and the regular worker bees.”

          3. “I have often wondered what it is these folks do that is so damn important that they can justify such outrageous salaries?

            I have met a few at my company, and other than they all wear expensive suits, drive expensive cars and [sometimes] have trophy wives I don’t see any real difference between them and the regular worker bees.”

            They’re not worth the money, it’s just the way all companies and salaries are structured. All the money goes to the top. “Who you know” and “luck” are going to decide if you get to share in the spoils.

          4. “Of those earning $150,000 or more, nearly 30 percent have less than $1,000 saved…”

            The ants who save will enjoy supporting these highly compensated grasshoppers in their old age.

          5. You can’t analyze income inequality at the top 1% without taking a hard look at the tax and regulatory structure. Planet Money did a deep dive on when CEO pay really exploded and it looks like it coincides with stock-based compensation under Bill Clinton. Allowing companies to deduct the full value of their executive pay is terrible. A lot of CEOs and C-suite individuals basically set their own pay and its a cozy quid-pro-quo environment with reciprocity for board seat members to oblige.

            https://www.npr.org/sections/money/2016/02/05/465747726/-682-when-ceo-pay-exploded

    1. Try not to catch yourself a falling knife.

      Apple lost $9 billion buying back its own stock in 2018
      Kif Leswing
      3m
      Tim Cook Apple CEO Tim Cook. Getty
      – Apple spent nearly $63 billion on share buybacks in 2018 so far, not including the fourth quarter.
      – Some of those purchases were at the stock price of $222, but now it is trading at $156 per share.
      – The value of Apple’s buybacks is $9 billion less than when Apple purchased the stock, The Wall Street Journal reports.
      – Apple announced $100 billion in buybacks earlier this year, and as much as 70% of the war chest hasn’t been spent yet.

      1. “Some of those purchases were at the stock price of $222, but now it is trading at $156 per share.”

        This shows why it’s a bad idea to purchase risk assets (e.g. stocks, houses, Bitcoin, etc.) near the peak of a credit bubble. You could lose alot of money…alot!

    2. – Stock buybacks used to be illegal (with good reason).
      – Mainly enriches insiders.
      – False P/E signal as # shares reduced.
      – Diverts $ from Cap. Ex./new equipment/Co. expansion. = Less growth + fewer new positions = millennials living in parents basement = underemplyment = gig economy = low wage job recovery, etc.
      – Typically buy at peaks, so (negative) shareholder value.
      Another adverse outcome from financialization of the U.S. economy.

      1. ^^^^^ This

        From a CNBC article – example 1

        1. GE’s share price won’t even buy you a McDonald’s meal combo.
        Take General Electric. Last Friday the company made official its dividend cut to just a penny a share. It has a massive debt load that is rated just one notch above junk, and its cash flow is a growing worry for investors. I’m willing to bet anyone that the $46 billion GE spent over the last decade on buybacks, according to S&P Dow Jones Indices, and the $24 billion the company spent on buybacks in 2016 and 2017 alone, would be better served in its checking account, giving it more runway to restructure the company back to profitability.
        Today the stock is in the $7 range, which means a share can’t even buy you a meal combo at McDonald’s. And with the dividend just a penny per share, you’ll still need to reach into your pocket to pay the sales tax on your meal combo. By the way, GE was trading above $30 a few years ago. It’s down almost 60 percent just this year alone.

        1. I’ve said it before and I’ll say it again: the straw that broke GE’s back was its foray into long-term healthcare insurance. The skyrocketing cost of so-called “free market” healthcare has brought down a once-renowned industrial titan. If you really want to unleash US private sector, expand Medicaid and let Americans buy in.

          1. Great another one who would rather live in a socialist hell hole than to live free of tyranny and enjoy the self-respect that comes from building wealth. Let’s go all in. How do you feel about el Presidente por vida Xi Jin Ping jailing people for suggesting that he looks like Winnie the Pooh? Are you in favor of anybody altering the laws of their country to enable them to rule forever?

      2. Example 2 from CNBC article

        2. After spending $83 billion on buybacks, IBM’s big deal has it taking on more debt.
        IBM spent an eye-popping $83 billion on buybacks after the Great Recession, according to S&P Dow Jones Indices. A lot of those purchases were funded with cheap debt. So with the purchase of open-source cloud software Red Hat, in a transformative deal to get IBM back to growth, it is planning to issue even more debt for the $34 billion deal.
        It makes sense to use a combination of cash and debt when making deals, especially when rates are low. But a company would do better taking on debt, cheap or not, for reinvesting back into the business, not on buybacks that over the long term don’t help a company’s stock if business results don’t justify it. My frustration with IBM’s approach can be summed up in this question: After taking on debt for buybacks, now you want to take on debt for an acquisition?
        With IBM’s stock down over 20 percent this year and having been stagnant for years, the company could have used its cash much earlier during a difficult transition from mainframe technology to open-source software, cloud computing and artificial intelligence.

      3. Think about this. 2 formally great companies that did great work to establish the modern economy.

        Then in the 90’s / 00’s got more and more into financial engineering, rather productive work.

        And are going to both fade into obvilion.

        1. Reagan really screwed a lot of things up. Carter, certainly no economic genius, had the guts to install solar on the white house after the Arab oil embargo in a symbolic push to diversity US energy policy. Reagan pulled down solar panels. The world would be a lot safer if billions of oil money wasn’t flowing into the coffers of the likes of Iran, Russia, Saudi Arabia, and Venezuela.

          1. ‘The world would be a lot safer’

            That’s a strange thing to say. So should they just starve? Anyway, all of your oil money is going to Texas.

          2. That must be why Ronald Reagan won the election against Carter by a landslide, receiving the highest number of electoral votes ever won by a non-incumbent presidential candidate. Yes, that’s how much America loved Carter and his policies. In the 1984 US Presidential Elections Reagan won 49 of 50 states; won a record 525 electoral votes; and received 59% of the popular vote. Reagan’s 1984 landslide victory is the largest electoral college victory in American history. When he was governor of California we had one of the best education systems in the United States. California is now second to the last. Chew on that.

          3. Ronald Reagan and Margaret Thatcher started it making households, corporations and governments feel good again with easy credit policies. And the Clinton administration gave Wall street everything that was left. Fast forward to the present and the national debt [is] the economy. The plebs can barely pay the interest as they spend themselves deeper in debt.

          4. FWIW, I am conservative in everything I do. I’ve always been pragmatic, suspicious of ideology in any form. And thanks for the compliment.

        2. Ronald Reagan ended the UC system’s free tuition and generally started the race to zero for US competitiveness in the world. He also advocated violence publically against Vietnam protesteors

    3. Maybe, if the stock is cheap then yes, if the stock is expensive then no. They reduce the number of outstanding shares so the same earnings now are spread amongst fewer shares so each share commands more earnings than pre buyback. That should in theory increase the value of the share.

      1. If a company had some spare cash then it might be a good idea for it to buy up another company’s stock if the fundamentals of the other company prove that the other company is selling at a bargain price.

        The same rule holds true if the “other company” is one’s own company.

          1. The issue here isn’t diversication, the issue is recognizing value priced on the cheap and taking advantage of the situation.

            The company buying shares of itself has a clear advantage in that value is (or should be) clearly recognized by the company insiders.

      2. @Xi Jin POOH TARD

        Carter’s failings were economic in nature, namely price fixing. Reagan’s failings were massive public debt explosion. You are all over the place. If you had visited this blog before, you might know that I’ve a registered nurse and work in the thick of the US medical system. I see the many faults of our current system, including waste, mismanagement, and over-utilization. If you want a good primer, try Elizabeth Rosenthal’s book “American Sickness” for the myriad ways that American healthcare systems are totally. We have a free market in the sense that you are free to pay exorbitant prices for a total racket and free to go to the poor house for a basic human need. I have no love for Xi, don’t confuse my disdain for the US healthcare for an embrace of Chinese socialism. My only point above was that US competitiveness is hindered by our massive overspending on healthcare. It’s not like we get more for what we spend, we just pay more. And we have worse outcomes.

  5. Wow…a point I have made here a gazillion times has spilled over into the MSM!

    Why home buyers could be forced to shrink their budgets in 2019
    By Jacob Passy
    Published: Dec 28, 2018 8:59 a.m. ET
    A cooling housing market could mean lower prices, but it’s not all good news for buyers
    Getty Images/iStockphoto
    Americans may have a much harder time affording homes like these in San Jose, Calif., thanks to rising mortgage rates.

    The U.S. housing market may be cooling off — but that doesn’t mean prospective home buyers will catch a break.

    Rising interest rates are seriously reducing Americans’ home buying power, according to a new analysis from real-estate company Zillow (ZG, -3.16%) Based on the principle that a household should spend no more than one-third of its income on housing-related costs, a household earning the national median income in January 2018 could have afforded to buy a $393,700 home. Now, that same household could only afford a $373,000 home, if they wanted to keep their housing-related expenses at or below a third of their monthly income. In that time, mortgage rates have risen from around 4.15% to 4.63%.

    1. “Rising interest rates are seriously reducing Americans’ home buying power, …”
      – Nonsense! Mortgage rates go up = House prices go down (inverse relationship); because the Principle, Interest, Taxes, Insurance (PITI) payment (nut) is a constant and = ~3x income. Another industry BS article. Guess what? Prices now have to come DOWN because of this historical relationship. Speculators are exiting the market (or trying to), leaving shelter-buyers tied to the 3:1 price-to-income ratio. Hint: If house prices in your MSA are > 3:1, guess what’s going to happen? Lower house prices is EXACTLY what’s needed right now, and we’re going to get it (good and hard!).

      1. The 3:1 “historic” price to earnings rule was when interest was 7% so if money is cheaper then the price can be higher. The problem is in a rising interest rate environment you are basically looking at a falling housing price in order to keep everything in balance as you noted. Prices are sticky takes time 2-3 years probably.

        1. 1) Price: 3:1 house price to income is historical ratio. Interest rates up: price down. This assumes no bubble. Bubble adds a temporary price adder due to extremely low rates and easy money. When mania is over and bubble pops (as in now) prices “revert to the mean”, which is set by said ratio.
          2) Timing: RRE is an illiquid asset. Takes time to sell. Time of bubble inflating generally = time of bubble deflating (symmetrical), and so yes, it’s expected that next buying opp’ty. 3-4 years down the road. Expect undershoot, if no additional Fed/Gov’t. intervention, which is a big IF.
          3) Sad that the Fed and Gov’t. have got the avg. Joe speculating in RRE. This is because the economy is not good and need to prevent civil unrest (same for student loan/higher ed. bubble). This is insanity! Used to be (should be) shelter and a depreciating asset; it will be again soon. Mean reversion coming to a theater near you…

          1. Dd to that the human nature aspect of perception regardless of metrics. Perfect example is the quote about buyers waiting to take advantage of a great recession like downturn.

            I deal daily in real estate metrics and they have their place but will be handily trumped when fear enters into the equation. This is why, if you have noticed, there is presently a gigantic effort underway by numerous sources to publish glowing positive real estate articles. Obvious attempt to counter the data coming out showing all the reductions. Saw one yesterday relating to Florida ourlook saying that Miami was a RE hotspot! Yeah right, unless you consider 48 months of condo inventory which currently exists.

            These folks just look like clowns, but that is the PR game when the stakes are high. Unbelievable.

          2. Price: 3:1 house price to income is historical ratio

            50 years ago a prudent financial adviser would tell you not to spend more than 25% of your income on everything related to housing. I always took it to mean take home income. The housing mania changed that.

            A person who thinks money spent on shelter is money down the drain doesn’t want to spend 3 x gross income on a shack, especially if they are convinced prices will go down, and really especially when the money has to be borrowed at interest.

        2. “This is why, if you have noticed, there is presently a gigantic effort underway by numerous sources to publish glowing positive real estate articles. Obvious attempt to counter the data coming out showing all the reductions.”

          Unless the interested public is a lot more clueless than I can imagine, this strategy can seriously backfire, once it sinks into the masses that they have been hoodwinked, with data undeniably contradicting those glowing reports.

          1. Mean reversion coming to a theater near you…

            The thing about mean reversion is that it rarely jumps right back to the mean. The pendulum usually overcorrects. So it is likely that the historically 3:1 ratio might look more like a 2:1 ratio.

            Having said that, there is no law that says that shelter “must” be 3:1 or any other ratio. That is just historically what it has been. It is conceivable that a psychological shift could occur and people decide they want to spend more (for whatever reason) on shelter and cut out other costs. But I don’t think that is the case. The fact is that the market is not providing decent shelter at the 3:1 ratio. But if it were, it would be very possible. Oxide says you have a binary option: take the bus or drive a Mercedes. There is the missing (affordable) middle.

          2. might look more like a 2:1

            My choice was more like 0.25:1. But I was trying to live outside the mania. No telling what will happen to the median folks.

    2. “In that time, mortgage rates have risen from around 4.15% to 4.63%.”

      If those are the rates they used in their analysis, then the results may be misleading, as 4.15% to 4.63% doesn’t seem representative of the full range of increase so far. If I get motivated, I’ll check the math later…

      1. It looks like a better comparison would be from 3.31% to 4.63%, to capture the 132 basis point increase in 30-year mortgage rates from the post-2009 trough.

        Posiblemente mañana…

        Historical Mortgage Rates: Averages and Trends from the 1970s

        Over the past 45 years, interest rates on the 30-year fixed-rate mortgage have ranged from as high as 18.63% in 1981 to as low as 3.31% in 2012. Mortgage rates today remain at historical lows, with over 60% of mortgage holders paying rates between 3.00% and 4.90% as of 2015. We used interest rate data from Freddie Mac’s Primary Mortgage Market Survey (PMMS) to examine historical mortgage rates and the factors that have impacted their downward trend.

  6. The PPT’s “back up the truck” stock purchase program is going to make it hard for the Fed to NOT raise rates another 4+ times next year without the stock market and economy grotesquely overheating, causing economic distortions the likes we’ve never seen.

    The higher they inflate this bloated pig, the worse it’s going to be. The FED has painted themselves into a corner. Now they’re looking down the barrel of Trump’s sawed-off shotgun on one wall, and a ****RED ALERT**** signal flashing on the other.

    1. “…causing economic distortions the likes we’ve never seen.”

      Actually after Nixon successfully convinced the Fed to not take away the punchbowl, a decade of runaway inflation ensued, followed by the crushing pain of Volcker’s punchbowl removal operations.

  7. Don’t worry guys! NAR King Yun hath spoketh: ” Yun saying he believes that there are good longer-term prospects for home sales. “Home sales in 2018 look to close out the year with 5.3 million home sales, which would be similar to that experienced in the year 2000. But given the 17 million more jobs now compared to the turn of the century, the home sales are clearly underperforming today. That also means there is steady longer-term growth potential.”

  8. https://finance.yahoo.com/news/u-retirees-try-keep-cool-stocks-tumble-173730543–sector.html

    Nancy Farrington, a retiree who turns 75 next month, admits to being in a constant state of anxiety over the biggest December stock market rout since Herbert Hoover was president.

    “I have not looked at my numbers. I’m afraid to do it,” said Farrington, who recently moved to Charleston, South Carolina, from Boston. “We’ve been conditioned to stand pat and not panic. I sure hope my advisers are doing the same.”

    What the hell is someone who’s 75 thinking with having their assets invested in stocks?

    You’re doing it wrong, Nancy.

    1. someone as in the women across the street from me, a retired school teacher, 75…multi-millionaire who’s advisor makes here a few million more every time there is a recession. She retired at 55, has lived very frugally where she lives in a modest yellow-looking tract house she and her husband bought in seattle, water front as a fixer 25 years ago. The put seat equity into that so they could save and invest ore dimes. From the outside, modest – inside, filled with beautiful antiques bought at estate sales. They use a lot of patience along with frugality. He passed on and she continues, independent, still frugal, and thriving. As all of the other retirees in the hood panic after they have been slammed into retirement w/little saving and leave for work of some form or another barely making ends meet, the women in the yellow house descends from the Garage in a beautiful Jag – her only material luxury she cares about (bought used in cash of course) – driving out into the world on a weekday morning to do what ever the hell she wants. She has invited us to dine in her magnificent home many times and as she watches all the people running around her all stressed out, she just chuckles, winks and says after 55, we lived a life of complete freedom and it’s been wonderful – THAT’S WHAT.

      Her advisor she said is old school, high quality div paying stocks. Know the business cycle, rebalance discipline, and so on. She is the perfect example of the millionaire next door.

      1. Too bad it’s impossible to do that anymore – that AFFORDABLE HOUSE DOES NOT EXIST. HIGH RENT DOES. She was a product of her times. That is the past.

        1. A lovely fable. If we take the view that the stock market returns are akin to the Random Walk Hypothesis, then trying to copy this approach could lead to financial ruin if things don’t play out the same way (e.g. past performance is no guarantee of future results).

          Millionaire next door, meet Nassim Nicholas Taleb:

          “Olen reminds us that the Stanley millionaire model was a bit fraudulent from the start. Economist Nassim Nicholas Taleb noticed, in his own book, “Fooled by Randomness,” that the picture painted by “The Millionaire Next Door” was the product of survivor bias — “the authors made no attempt to correct their statistics with the fact that they saw only the winners,” he wrote. What of the millions of investors who invested in the wrong things or whose paving companies failed? They outnumber the winners by a large margin.

          Taleb also observed that the book reflected “an unusual episode in history” when the return on assets was astronomical in historical terms. It arrived when that episode was playing out. Only three years after its publication came the dot-com crash; less than a decade later came the 2008 crash and a grinding recession that consigned lots of formerly million-dollar small businesses to oblivion.

          https://www.latimes.com/business/hiltzik/la-fi-mh-the-death-of-the-millionaire-next-door-dream-20150310-column.html

          1. @OneAgainstMany –

            Agreed. The principals in the book are mostly sound but presented as absolutes. But as you note, there was no mention of the need to ‘pick correctly’, and have good timing, or that in general there was no guarantee of results for similar given actions.

            @Chinbabwe – besides the house no longer existing in the same form (lower purchase price relative to income followed by long stretch of above average gains driven by population growth, land use policy, etc), another thing that has all but disappeared is the high quality dividend stock.

            It used to be that the dividend was a major reason you purchased a stock. When the tech boom came along, it became much, much about price appreciation, with many of the “best” stocks of the era not even paying a dividend. That also coincided with the great bull run, fueled in part by all the new 401K boomer retirement money pouring into the market, then add the fed printing money and blowing their asset bubbles. The result: dividends diluted down as PE ratios and the general price of equities soared relative to performance of the underlying company.

    2. It really depends on her overalll wealth portfolio. For instance, if she has a defined benefit pension plus Social Security providing sufficient income to cover her monthly living expenses, then some stock market exposure seems reasonable. However, if the stock investments are her primary wealth portfolio component, then hoping for more bubble-era rates of appreciation hoing forward may prove detrimental to her future financial security.

  9. Aside from holding physical gold or otherwise storing money under a proverbial mattress, what investment strategy could have worked in 2018?

    1. The Financial Times
      Equities
      US stocks close lower after wild ride
      Global equities on track for worst year in a decade
      Equity markets have been on a roller-coaster ride throughout the Christmas period

      Nicole Bullock and Joe Rennison in New York and Kate Allen in London
      2 hours ago

      US stocks settled almost where they started on Friday, but only after a volatile day of trading that capped one of the wildest weeks on Wall Street in recent years, leaving both American and global equities on pace for their worst year in a decade.

      The US indices had swung between positive and negative territory on the final full day of trading of 2018, reflecting the volatility that investors increasingly predict will persist into the new year. Investors seeking the relative safety of government bonds bid up 10-year Treasuries, whose yield on Friday hit the lowest level since February, down 7 basis points to 2.71 per cent.

    2. No tape painting for junk bonds…

      The Financial Times
      High yield bonds
      Investors flee risky US corporate debt
      High-yield bonds and loans on course for worst month since 2011 as outflows swell

      Joe Rennison and Nicole Bullock in New York yesterday

      US investors have pulled back sharply from the riskiest corners of the debt markets, putting junk bonds and loans on course for their worst month since August 2011, when the market was reeling from a downgrade of the US government’s credit rating.

      The broad sell-off comes alongside a downturn in US equities that reflects gathering concerns about the global economy, but unlike in equities there has been little sign of a rebound in investor confidence since Christmas.

      1. US investors have pulled back sharply from the riskiest corners of the debt markets,

        I even got out of the Corporate bond market completely. Lots of short term debt coming due and if earnings fall, could get ugly refinancing even for “solid” companies.

    3. Dec 28, 2018, 9:21 am
      A 2019 Oil Forecast? Like 2018, Or Worse.
      Ariel Cohen, Contributor
      Energy
      I cover energy, security, Europe, Russia/Eurasia & the Middle East

      As 2018 winds down, we can expect the oil market rollercoaster to continue its wild ride into the year ahead. And wild it has been. West Texas Intermediate (WTI) crude prices rose close to 30% between January and October, from $60/bbl to $78/bbl, only to crash to multi-year lows this December. WTI futures are now trading under $45 whereas Brent crude – the global benchmark – is now trading in the $50-60/bbl range. What’s more, day-to-day oil prices are fluctuating as much as 5%, reflecting an unprecedented level of volatility in the marketplace.

    4. So many crypto evangelists, so many f’d HODLers…

      Cryptocurrency’s Terrible 2018
      Prices plummeted. Scams abounded. But this bitcoin evangelist sees positives in the “year of consolidation.”
      By Aaron Mak
      Dec 28, 20182:22 PM
      Bitcoin logo and chart showing value decrease

      After attention-grabbing growth in 2017, cryptocurrency markets spent most of this year in turmoil as values alternated between slumping and plummeting. Around this time last year, Bitcoin hit a record value of $19,783.21 after several whirlwind months on the market. It is now worth about $3,700. Other cryptocurrencies had similar trajectories: Litecoin fell from $366 last December to $30 now. Ethereum fell from $1,400 to $130.

      1. The world’s largest maker of cryptocurrency mining chips will likely lay off more than 50% of its staff, according to reports
        Nick Bastone
        Dec. 26, 2018, 12:14 PM
        FILE PHOTO: Bitcoin mining computers are pictured in Bitmain’s mining farm near Keflavik, Iceland, June 4, 2016.
        REUTERS/Jemima Kelly/File Photo Thomson Reuters
        – Bitmain may start a massive round of layoffs this week that could impact more than 50% of its employees, according to a report by CoinDesk on Tuesday.
        – Bitmain is the world’s largest producer of cryptocurrency mining chips.
        – The layoffs are expected to occur across all divisions, but will likely impact teams working on Bitmain’s auxiliary products most.
        – In 2018 alone, the Beijing-based chip maker grew from 1,000 to 3,100 employees.

    5. Housing market signaled potential future downturn in 2018
      Long plagued by housing shortages, inventory spikes signal change may be coming
      By Jeff Andrews Dec 21, 2018, 11:00am EST

      Coming out of the summer on the West Coast, homes that were expected to spark bidding wars instead lingered on the market, leading to huge spikes in inventory for sale. San Francisco, San Jose, and Denver—some of the hottest markets over the last five years—were among the cities that saw the biggest inventory jumps.

      This fall, those same markets saw median listings prices drop considerably. It’s important to distinguish the difference between a listings price and a sale price, because listings prices can still be bid up, but usually listings prices are leading indicator as to where home prices are headed.

      If that holds true, 2019 could see West Coast home prices drop, which other than a few exceptions like 2008 rarely happens.

      1. I was mostly in near-cash (e.g. short-to-intermediate low-risk bond funds). Think I got back 3%+/-.

        In retrospect, safe and boring was a relatively good choice this year.

          1. The conundrum is that there exist few attractive middle-ground options between low-risk/low-reward and high-risk/high-reward in the current investing landscape. What’s worse, for the risk HODLers at least, is that the reversal of the QE policy that drove a flood of investors into risk assets at ever more bubbly valuations over the past decade virtually guarantees the risk HODLers massive losses during QT. I can understand why politicians might prefer indefinitely postponing the Fed balance sheet unwind and interest rate normalization.

          2. One of the hallmarks of a bubble is a lengthy price runup phase where everyone who buys the asset makes huge near-certain investing gains, right up until the very moment of collapse, after which anyone who didn’t sell on time faces massive, near-certain losses.

          3. @Professor Bear – Besides interest rates, I’m of the thought that our “information revolution” and instant transactions have helped drive overall returns down in sort of an ‘averaging effect’, along with HFT type mechanisms that only benefit the major financial firms.

            It’s so much easier now to track the market performance of anything and everything, that if anything out-performs the median or expectations, that information spreads almost instantly to huge numbers of entities looking for such, who then jump into (and out of) particular assets in search of any and all advantages.

            At least when compared to decades ago, when it was a lot more work (and thus cost) to stay on top the performance of individual companies and instruments, and to get into and out of them.

            Is that a crazy theory? Maybe I just need sleep.

          4. “It’s so much easier now to track the market performance of anything and everything, that if anything out-performs the median or expectations, that information spreads almost instantly to huge numbers of entities looking for such, who then jump into (and out of) particular assets in search of any and all advantages.”

            That’s a good explanation of what proponents of the Efficient Markets Hypothesis term the No Arbitrage Condition: Any information that could be used to discern whether one investment opportunity is better or worse than others will be picked up and diceminated among market participants so rapidly that it will be instantaneously reflected in prices, taking away any information advantage to those who toil many hours carefully researching the best investment opportunities. Apparently the internet should strengthen this effect; however, the housing market offers an example where many financially clueless market participants create mass inefficiencies.

            An everyday example regards parking near the movie theater. People like my wife always park a good distance away, as they figure all the spots close to the theater are take. I always park close to the theater, as I realize most others think like my wife, and won’t bother to look there.

          5. Is that a crazy theory? Maybe I just need sleep.

            It sounds reasonable to me. Basically, due to the speed of information flow, for all but a few of the HFTs that can front-run things, any knowledge/advantage is already “priced in”.

            I suspect this is true in many ways, but also believe there are Benjamin Graham-esqe opportunities where the market is simply mis-valuing a company, technology, etc. But they are likely more rare now.

          6. I can understand why politicians might prefer indefinitely postponing the Fed balance sheet unwind and interest rate normalization.

            I think it’s worse than that. Not only will there be immense pressure to postpone, there will also be a lot of pressure to add more QE every time the pain notches up. Which is why I think eventually the Fed (and the chosen few) will own everything. Because they will repeatedly step in and buy everything required to save the banks before it can become a truly good deal for anyone else.

          7. That’s a reasonable hypothesis, Carl, especially in light of the fact that they played this card in the post-2009 period with nary an objection from the sheople.

    6. I missed this pearl earlier.

      Markets
      China Has the World’s Worst Stock Market With $2.4 Trillion Loss
      Bloomberg News
      December 27, 2018, 3:00 PM PST
      Updated on December 28, 2018, 12:34 AM PST
      – Shanghai Composite Index is a quarter down from start of 2018
      – Trade war, slowing economy and deleveraging have hurt stocks

      For China’s stock investors and forecasters, 2018 has been a gloomy year marked by unwelcoming milestones.

      The benchmark Shanghai Composite Index is 25 percent below where it started this year, making it the worst-performing major stock market in the world.

    7. Bloomberg
      Wealth
      Omega, Jabre Capital Among Hedge Fund Casualties in Dismal 2018
      By Saijel Kishan and Shelly Hagan
      December 27, 2018, 4:00 AM PST
      – Hedge fund industry is headed for worst performance since 2011
      – Closures picked up toward the end of the year after sell-off

      Why 2018 Was Such a Bad Year for Hedge Funds
      Bloomberg’s Peggy Collins and Sonali Basak discuss multiple hedge fund closings in 2018.

      It has been yet another year to forget in the world of hedge funds.

      Hardly a month went by without news of the high-fee money managers — young and old, running large and small shops, big and little-known names — shutting down. Many struggled to navigate markets marked by violent stock swings and slumping oil prices, others decided to restructure their firms to make riskier or longer-term bets, while some said they simply had enough of trading. Now as the year comes to a close, the $3.2 trillion industry is headed for its worst annual performance since 2011.

    8. “…the good news, markets are expecting the worst”

      Words like those warm a hibernating bear’s heart.

      The Financial Post
      The bad news is nobody made money in 2018; the good news, markets are expecting the worst
      Martin Pelletier
      December 27, 2018 10:39 AM EST

      The past 12 months have no doubt been difficult for investors, with cash outperforming both bonds and equities for the first time since 1993. To add some further perspective, a whopping 89 per cent of assets handed investors losses in 2018, more than any year going back to 1901, according to an analysis by Bloomberg.

      That means even the pros had trouble finding places to generate positive returns.

      It also certainly didn’t help that the Grinch Stole Christmas with one of the worst Decembers on record for equities — at least since the year Raging Bull, the Empire Strikes Back and Caddyshack were released.

    9. The article I post below makes a huge deal out of how terrible an investing year 2018 was, then goes on to mention that, “Last year, just 1% of asset classes delivered negative returns.”

      How often has that ever happened? Wasn’t that a clear warning that the Everything Bubble was about to burst?

      The Wall Street Journal
      Markets
      No Refuge for Investors as 2018 Rout Sends Stocks, Bonds, Oil Lower
      The failure of so many investment strategies is viewed by some as a warning of what could come following years of above-average returns
      Under Pressure
      A record share of asset classes have posted negative total returns this year, according to Deutsche Bank data going back to 1901.
      Sources: Deutsche Bank; Bloomberg Finance LP; GFDNote: Returns are in U.S. dollars. Data for 2018 are as of mid-November.
      By Akane Otani and Michael Wursthorn
      Nov. 25, 2018 9:10 a.m. ET

      Stocks, bonds and commodities from copper to crude oil to burlap are staging a rare simultaneous retreat, putting global markets on track for one of their worst years on record and deepening a sense of unease on Wall Street.

      Data show global stocks and bonds could both finish the year in the red for the first time in at least a quarter-century, according to BlackRock Inc.

      Major stock benchmarks in the U.S., Europe, China and South Korea have all slid 10% or more from recent highs. Crude oil’s tumble has dragged it well into bear-market territory, emerging-market currencies have broadly fallen against the dollar, and bitcoin’s price—which had a meteoric rally last year—crashed below $5,000 last week for the first time since October 2017.

      Havens such as U.S. Treasury bonds and gold rallied this fall as U.S. stocks and industrial commodities staged their fourth-quarter swoon. But both are still down on a price basis for the year, reflecting solid economic growth and tighter Federal Reserve policy that have begun to push interest rates out of their post-financial crisis doldrums.

      All told, 90% of the 70 asset classes tracked by Deutsche Bank are posting negative total returns in dollar terms for the year through mid-November. The previous high was in 1920, when 84% of 37 asset classes were negative. Last year, just 1% of asset classes delivered negative returns.

    10. It might be worth revisiting a past episode when the Fed attempted to undo the damage due to keeping rates too low for too long:

      Monetary policy
      Alan Greenspan changes key
      As economists try to assess the “Greenspan legacy”, the maestro himself seems to be altering his tune
      Sep 1st 2005 | jackson hole

      Usually the air is pretty thin at 6,000 feet. This time, it was thick with praise for Mr Greenspan. The Fed chairman, however, is not one to let adulation go to his head. Indeed, he sounded a little worried. He gave warning that an unusually long period of economic stability might have encouraged investors to accept lower risk premiums and thus inflated the prices of assets, such as shares and homes. “History has not dealt kindly with the aftermath of protracted periods of low risk premiums,” Mr Greenspan said. In other words, large asset-price booms typically turn to bust.

      Moreover, Mr Greenspan, who until recently gave short shrift to the idea of a housing bubble in America, said that the property boom was an “imbalance” and that prices of homes could fall. He argued that in future the Fed will need to pay more attention to asset prices. This does not mean that the Fed is about to start targeting the housing market, but it does now seem to be trying to talk it down. And as long as surging prices keep fuelling consumer spending and inflation is edging up, the Fed is likely to continue to lift interest rates.

    11. Sounds suspiciously suggestive of yet another collapsed bubble.

      But not to worry, as Megabank, Inc has liquidity out the wazoo!

      Wall St. Shenanigans
      “Leveraged Loans” Bite: Record-Bad Year-End for Loan Mutual Funds & ETFs
      by Wolf Richter • Dec 28, 2018
      Forced selling by loan funds in the once red-hot $1.3-trillion “leveraged loan” market.

      Part of the $1.3 trillion in “leveraged loans” — loans issued by junk-rated overleveraged companies — end up in loan mutual funds and loan ETFs. These funds saw another record outflow in the week ended December 26: $3.53 billion, according to Lipper. It was the sixth outflow in a row, another record. Over the past nine weeks, $14.8 billion had been yanked out, another record. These outflows are, as LCD, a unit of S&P Global Market Intelligence, put it, “punctuating a staggering turnaround for the asset class” that until October was red-hot:

  10. “The median home price, the midpoint of what sold, set a record — $935,100 — in March. By November, it slipped to $911,250 …, down 27 percent, according to Gary Gangnes of Real Options Realty, who tracks the numbers.”

    Do real journalists check the realtor’s math before publishing?

    (911,250 / 935,100 -1) = -0.0255 = -2.6%.

    What’s a decimal place and a digit between friends, eh?

    1. We’ll know when it’s off by 27 percent, by the deafening wails and moans of underwater FBs clamoring for bailouts.

    2. “What’s a decimal place and a digit between friends, eh?”

      Realtors in Santa Cruz often join the homeless in bottle passing, weed smoking, heroine shooting parties. They find that they better make good with their future neighbors.

      1. It sucks, but it sucks in new and original ways no song has ever sucked before. So from that standpoint, it’s groundbreaking.

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