Houses Can’t Possibly Behave Like a Stock…

Posted on March 19, 2009 | 2 Comments

Around March 2006 I started to theorize that housing prices in the San Francisco Bay Area might be this decade’s bubble.  It followed that we could see a collapse in housing prices to the same dramatic proportion as we saw in the NASDAQ.  When discussing this concept with friends, relatives and even a tax accountant I was presented repeatedly with these arguments of why that was impossible:

  1. The Bay Area is still a highly desireable place to live so housing prices could never decline and if they did never that dramatically.
  2. Houses take longer to sell and can’t be traded like a stock so prices can’t fall as fast.
  3. Also since you can always live in your house (and you can’t live in your stock) there is no reason for a fire-sale so prices can’t fall as far.

At that same time I saw a chart of house prices in which the curve was shifting to the point where it was almost going straight up.  That reminded me of what the NASDAQ looked like in March of 2000 and we all know what happened in April of 2000.  So could this happen again?   Were all bubbles fundamentally the same (eventhough the assets were dramatically different)?

Well clearly we are in the midst of a price adjustment but evenso it can’t be as bad as the NASDAQ, or can it?

So the other night I decided to do a little data-diving and found two key pieces of information:

  • Month-end NASDAQ prices from 1981 to the present.
  • Month-end median housing prices for the Bay Area back to 1987.

I then overlaid the data on top of one another after shifting the NASDAQ data up by 6 years.  Why 6 years?  Simply put the NASDAQ bubble popped in 2000.  The housing bubble, it is currently agreed, popped in 2006.   By shifting the NASDAQ data by 6 years we could see how well the curves aligned.

So what you see graphed below are month-ending NASDAQ prices starting in 1981 and month-end median house prices for the Bay Area starting in 1987.  See anything interesting?

housing-vs-nasdaq

So there you have it.  All three arguments as to why the housing prices wouldn’t collapse like the NASDAQ were COMPLETELY WRONG and now we see that no matter what the asset the dynamics of the bubble are the same.  Yes it is true that the run-up in housing prices is not as fast BUT the fall was just about as fast and there is a good chance that it will go as far.

So next time someone says “this time its different” make sure to laugh discretely and sell quickly. 

Now the next question is when do you buy?  Certainly not now. 

I wouldn’t advise using the chart above as a way to peg a specific date and I would go back to fundamentals.   The key fundamentals you need to check are:

  • Is owning now cheaper than renting?
  • Are prices equal to or less than 3 times the median of incomes in the area?

If you answer “no” to either of these questions then  DO NOT BUY.

Now what if the fundamentals do check out but the market is still falling?  This is where the trend information in the chart can come in handy.  To find a bottom wait until prices move upward for about 3 consecutive months (make sure they are prices for your city and NOT the county or region).  If they do and the fundamentals still check out then its time to buy.  While its true you will miss the absolute bottom its much better to buy on the upswing than to “catch a falling knife”.  Until it turns you have no idea how much more its going to fall so its worth paying a small premium for some certainty.  As you can see from the chart waiting a little bit won’t result in you missing a big upswing.  It took the NASDAQ about 6 years to reach HALF of what it was worth at the peak.  Missing three months of house price gains isn’t going to break the bank.


Oh and according to this article house prices are in for another fall and there is an interesting analogy to the sinking of the Titanic you might find interesting (with video)

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Posted in Housing Bailout, Market Cycles, Recession

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New York Times FINALLY Says NO to Housing Bailouts…

Posted on March 14, 2009 | 4 Comments

An article published on March 14th by Joe Nocera of the New York Times finally called it out clearly that homeowners who got  in over their head shouldn’t be helped by the government. Take this part from Mr. Nocera’s article:

I suppose you could argue that most … lacked the ability or the financial sophistication of someone like Mr. Hedges. But it shouldn’t have mattered…

“These were people with a fair amount of money, and most of them sought no professional advice,” said Bruce C. Greenwald, who teaches value investing at the Graduate School of Business at Columbia University. “It’s like trying to do your own dentistry.” Mr. Hedges said, “It is a real lesson that people cannot abdicate personal responsibility when it comes to their personal finances.”

And that’s the point. People did abdicate responsibility — and now, rather than face that fact, many of them are blaming the government for not, in effect, saving them from themselves…There is a powerful sense that because the agency was asleep at the switch, they have been doubly victimized. And they want the government to do something about it.

And how about this snippet:

“The government should come and say, ‘We bailed out so many others, we can bail you out, and when you will do better, you can give us back the money,’ ” he (Elie Wiesel) said at the Portfolio event.

But why? What happened … is terrible. But every day in this country, people lose money due to financial fraud or negligence. Innocent investors who bought stock in Enron lost millions when that company turned out to be a fraud; nobody made them whole…People lose it all because they start a company that turns out to be misguided, or because they do something that is risky, hoping to hit the jackpot. Taxpayers don’t bail them out, and they shouldn’t start now. Did the S.E.C. foul up? You bet. But that doesn’t mean the investors themselves are off the hook. Investors blaming the S.E.C. for their decision to give every last penny to Bernie Madoff is like a child blaming his mother for letting him start a fight while she wasn’t looking.

OK, now for a little truth-telling. As you may have been able to surmise this WASN’T and article about housing bailouts but about victims ot Bernie Madoff’s Ponzi scheme but isnt’ the sentment the same? In fact its worse than that with respect to homeloaners.  Here Mr. Nocera is saying that vicitms of an outright fraud and theft don’t deserve government help.  The victims in the housing industry are, for the most part, NOT vicitms of fraud (yes there was some but seriously its a VERY small part of the market) and therefore should get even less help. I mean if you aren’t going to help vicitms of crime then why would you even help those that are victims of themselves and just plain bad circumstances.

Does it make any difference that the money lost was in investments as opposed to a house?  Technically it shouldn’t (you spend less either way) but housing has been given a special, irrational place in society as something different.  True you don’t live in your investments but you can always rent, you don’t have to actually own a house (and if you hold a mortgage you don’t “own” your house anyway, you have an option to own in 15-30 years).  But renters are the invisible detritus of society but that is a topic better covered here.

Thank you Mr. Nocera (you can also email him your thanks as well) for being a voice of reason! Please help the New York Times editorial department see that reason as well. Or is that not what you really meant?

(You can see the original text of Mr. Nocera’s article here.)

P.S. See how the Obama administration has now come out AGAINST  in-bankruptcy loan modifications in this article.

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Obama HURTS 100 Million to Help 9 Million

Posted on February 22, 2009 | 25 Comments

Dear President Obama,

HI!,  yoo-hoo, over here, we are 100,000,000 men, women and children who rent and we seem to be invisible to you and the media (including NPR, New York Times and the Wall Street Journal) but clearly our numbers make us important.  We are wondering why you are helping 9 million people at the expense of me and my 99,999,999 friends, neighbors and fellow countrymen.   Not to mention the additional millions of former homeowners who will soon join us because they rationally decided to live within their means and rent.

But how is your plan hurting 100,000,000 renters?  It is hurting them in three major ways:

  1. By putting a floor (and debatable how stable or realistic that floor is) under housing prices above what they were before the bubble began you are continuing to price renters out of the market.
  2. By raising the deficit you are going to be putting some of the tax burden on renters (yes some will go to homeowners as well).
  3. Because many former owner-occupied properties have turned into rentals rental prices are actually falling.  By keeping people in houses they can’t afford you will, in effect, raise rents again.

The net result is that you are charging renters, through the eventual taxes needed to pay for this, for the privilege of NOT being able to afford a house while also raising their current rents.  This reminds me of the former Soviet practice of making soon-to-be-victims of execution pay for their own bullets and then charging their families for their burials.

Point #1: This plan is further eliminating renters ability to buy a home by reducing their income (through higher taxes and raising rents) and through maintaining artificially high prices (through so-called “stabilization”). 

To make matter worse renters comprise those who either can’t or have decided not to overextend themselves to have the “American Dream” (which was originally “life, liberty and the pursuit of happiness” until it got co-opted by marketing experts in the real-estate industry in the last century).  Renters are STILL disproportionately Hispanic and African-American and lower income.  Homeowners are disproportionately white and have higher incomes.

Home Ownership by Race - (US Census Bureau)

Home Ownership by Race - (US Census Bureau)

Point #2: Helping homeowners at the expense of renters is yet another transfer of wealth from the lower class to the upper class.  How Bush-league.

Oh and why would the the vast majority of homeowners (who do, truthfully, outnumber renters) care to help us ? Very simply because the  survival of any market (or pyramid scheme which the housing market has proven to be) depends on a continous stream of first-time buyers to fuel growth from the bottom.  By attacking renters you are attacking the first-time buyer base and, while you may temporarily save the market, you are draining the pool in the medium to long term.

Point #3: Homeowners need to watch out for renters if they want to truly protect their home values.

How can you help?  Well if you can’t bring yourself to let the market work out the right price then at least provide renters with some rental income tax deductions so they don’t wind up paying (two to three times) for the mistakes of homeowners.  Additionally this will help incent those on the edge of home-ownership not to over-stretch to buy a house so they can get the equivalent mortgage income tax deduction.  Its the least you can do.

Finally, of those 9 million you are helping, at the expense of 100,000,000, how many got themselves into their situations by cashing out their equity cushion for home-improvements, new cars or family vacations?  I guess its comforting to know that the money we saved by renting will go to buy some nice stuff…even if it isn’t ours.

DO YOU HAVE A STORY OF HOMEOWNERSHIP GONE BAD?  If so share it on reallyfuckedhomeowner.com.

ADDENDUM: In honor of Rick Santelli’s Tea Party I have posted his poll here so you can voice your opinion to the Obama adminstration.

Rick Santelli  of CNBC (as do I)  want to know the following:

To see what the Rick Santelli Housing Bailout Tea Party is all about see this video

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Posted in Benefits of Renting, Housing Bailout

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A Recession Even Letters Can’t Describe

Posted on February 16, 2009 | 5 Comments

In all the financial press there has been much discussion about the shape of the recovery, always in the form of letters.  Would it be a “V-shaped” recession – sharp drop followed rapidly by a sharp recovery?  Or possibly “U-shaped” – sharp drop followed by a period of bottom-trawling followed by rapid recovery? Or even a “W” – two sharp drops with recoveries after each?  Some have even proposed an “O” as in “O sh#t its never going to recover!”

I have found that letters cannot describe this recession.  My belief is it will be a sharp drop (been there, currently doing that) followed by a long and slow climb out for stocks and house prices.  Well nothing in the English alphabet can possibly account for this.  So what could?

Stumped, I sat staring at my Smart Phone looking for answers and then it hit me.  Looking above and to the right of the screen, not where I typcally find answers to my internet queries, I saw my cell phone carrier’s name and logo and VOILA!!! 

Welcome to the official shape, logo and motto of The Great Recesssion.

recezion5

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Posted in Housing Bailout, Market Cycles, Parody, Recession

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Don’t Negotiate with Real Estate Terrorists

Posted on February 6, 2009 | 1 Comment

Finally a lower cost way (from a taxpayer perspective) to keep many people in their homes and to prevent foreclosures.  Lets start with the only two reasons for foreclosure:

  1. You can’t afford your house.
  2. You can afford your house but choose not to (e.g. because its “under water”).

The thing is that there is a big difference between the two.  The first are unlucky or irresponsible.   The latter are engaging in common extortion by threatening to help trash the economy if they don’t get paid off through debt restructuring (even though they can afford their homes without help).  Simply put they are real estate terrorists and we shouldn’t negotiate with terrorists

So how do you differentiate the between the two?  Very simple, instead of using a carrot (restructurings) to keep #2 in their houses use a stick (more severe penalties for leaving).  Carrots are expensive and we  all have to pay for them, sticks are cheap and don’t cost taxpayers a dime.

Foreclosures look bad on your record but we should make them look worse than if you declare bankruptcy.  If you abandon your house we should double the time it stays on your credit report, put a lien on any future tax refunds that then gets paid into a foreclosure fund to pay banks at least part of the debt lost from those who abandoned their houses (that might also help relieve the negative downward pressure on banks’ desire to lend).  Even tax, as income, the amount left behind on the loan as if it were a forgiven loan.  Oh, I’m open to other punishments from people who know better.

Now what about those that truly can’t afford their homes, should they be punished as severely? Well they can be offered a trade-off.  Simply put if you declare bankruptcy (which if you are truly under financial water is a viable option) you don’t suffer the enhanced punishment for those who don’t declare bankruptcy.  As stated above this may even be a better option with less severe penalties.  Granted there are still penalties but now bankruptcy is the more attractive option.

Why favor bankruptcy as opposed to foreclosure out of bankruptcy?  In bankruptcy you have to report to a bankruptcy judge that helps you make the tough decisions to become financially solvent again and the burden is on you.  In bankruptcy you learn how to get back on your feet and stay on them.  If you just walk away from your house in a standard abandonment you learn nothing, the burden is mostly on others, and may very well find yourself in this situation again (and so will all those around you who pay to bail you out).

So now you have a choice.  If you are truly bankrupt you declare bankruptcy.  If you aren’t you may have to think twice about walking away because you either face even more severe penalities than you would have in bankruptcy.   You certainly won’t declare bankruptcy because well, uh, you’re not really bankrupt.  You’ll just have to stay in that house and tough it out at no cost to the taxpayer.  Oh and we just prevented a foreclosure.

(Make sure to email the Treasury Secretary Timothy Geithner to make sure he doesn’t negotiate with Terrorists)

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Contacting Economic Influencers in the Obama Administration

Posted on January 11, 2009 | Leave a comment

I now have dug up email addresses for Obama’s top two economic advisers Timothy Geithner and Lawrence Summers.  See this page to see how you can email them and make sure that irresponsible homeowners are not bailed out.

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They’re Cool…

Posted on January 7, 2009 | 1 Comment

bailout1

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Posted in American Auto Bailout, Parody

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Is Rick Wagoner Actually Jesus?

Posted on December 31, 2008 | 1 Comment

Speculation has been rampant on this point.  Here are the facts from General Motors CEO Rick Wagoner’s recent past.  You decide for yourself:

  • Both Rick and Jesus are part of a “Big 3″
  • Jesus upset the merchants (John 2:16), Rick upset the entire economy (WSJ 12/17:A1)
  • Rick received presents right around Christmas delivered by “men from the east (coast)” (although they weren’t considered to be “wise”)
  • Rick (at least his job) will likely be killed by foreigners (the same ones who have been persecuting “his people” for years)…
  • …and it will happen in the spring (end of Q1 2009)…
  • …and his career will likely be resurrected (as implausible as that sounds)…

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GM Announces Plan to Save Homeowners, Auto Industry and Retailers

Posted on December 21, 2008 | 3 Comments

Not long after receiving a federal bailout General Motors announced today their new “Mortgage too heavy? Move to a Chevy!” program to provide a lifeline to victims of foreclosure while turning around failing demand for its line of cars.   The new program is designed to allow underwater homeowners to swap out their homes and move into a brand new vehicle from General Motors.

With the price of the average American home hovering around that of a 2008 midsized sedan, General Motors Rick Wagoner thought the time was right for this innovative program.  “Remember when you had to be a wealthy Hollywood star to live in Malibu.  Well now even the poorest former homeowner can too just by going to their local Chevy dealership, where there are enough Malibus for everyone, at bargain basement prices.”  Wagoner then went on to highlight the advantages of living this way,  ”…unlike a typical home, with only a front and a back door,  this one has four doors.  Think of it as a private entrance for each family member.  Now that’s luxury!”

Retailers have also applauded the move.  Ellen Davis, Vice President of the National Retail Federation, saw an opportunity.  “Empty stores have meant empty parking lots”, said Davis.  To deal with this problem NRF and GM have partnered to rent those spaces to new GM homeowners.  Davis went on “Its a win-win situation, our customers get a home, a place to park it and access to the clean bathrooms in our stores which means we’ll finally be able to generate foot traffic in time for the next holiday season.”

When asked about GM’s past failures to improve fuel efficiency Wagoner responded, “We are now providing a way to reduce green-house gas emissions from homes by 100%.   You know how much less fossil fuel it takes to heat a Buick than a 2000 square foot house?  Lets see Toyota top that!”

Wagoner expects to capture 20% market-share of the 10 million foreclosures expected next year leading to a net increase in vehicle sales of 2 million in 2009 alone.

Executives and workers at cross-town rival Chrysler have alredy expressed interest in the program not as competitors but as actual buyers.  Executives for Cerberus, Chrysler’s owner, could not be reached for comment.

Even with this innovative program GM’s famous marketing strategy “A car for every purse and purpose” has not been forgotten.  For those that haven’t been hit as hard by the economic downturn GM offers a a more spacious 2-bedroom Homevee which sleeps both you and your foreclosed neighbors comfortably, although your comfort may vary.

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Posted in American Auto Bailout, Parody

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Bush – In Like a Lion Out Like a Pelosi

Posted on December 19, 2008 | Leave a comment

So today President Bush in his last (we can only hope) in a string of failed crisis management efforts proved that he couldn’t even get being a Republican correct. “Non-binding” was often the strategy used by the Pelosi congress to enact “concessions” from the Bush administration on the war in Iraq. How’s that working?

Well the proposed “non-binding provision” laden loans given to auto-makers, I can only assume , will have the same success.   March 30th watch for the headline “over 4000 have died in effort to save the Auto Industry, loan surge proposed to stop the bleeding”.    Thank you President Pelosi!

DAMMIT where are my shoes?!?!?!?!?

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