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"What are the implications?" -- KurtS
Well, for one, HELOC debt is "secured debt" while credit card debt is unsecured. Meaning that you can lose your house if you don't pay off your HELOC. You can't have your house seized if you cannot pay your credit card bill. Of course the HELOC generally has a lower interest rate than CC debt, so anyone paying of CC debt with HELOC is taking the upside of lower debt servicing costs with the downside of losing their home if they are unable to make the HELOC payments in the future.
jeffolie-
Thanks for the clarification. I'm assuming HELOC's have a term for repayment, what is that? I suppose my point was--people can pay off their CCs anytime, but if they get a HELOC to pay off a CC, they're now paying over the term of that loan.
Frank
The Fed can monetize debt by buying all the bonds it wants thereby giving money (credit) to the default worthless bond holder. The Fed pays for the monetized bonds with fictional money (credit) thus creating money out of nothing but whole air. The Fed can open the "discount window to member banks". giving them credit for virtually nothing.
In this era of ultra fast communications via first the internet, then radio programs and last the main street media will create an avalanche world wide at the speed of sound. I look for real estate be down 80 percent from the peak, stocks down 85 percent, and mortgage backed bonds down 95 percent by the end of 2007. This would be followed by more financial disasters.
When the Fed floods the credit it will do no good. Economists use the phrase "push on a string". Stock market people say who wants " to try to catch a falling knife" - fear rules. Japan has experienced 15 years of deflation.
Let us acknowledge the vast power of the Fed to flood in liquidity (credit) after the recession or depression. Pumping money may or may not devalue the dollar causing inflation or even hyperinflation. Devaluing the dollar may cause the collapse of bonds as China and other dump the reserves of bonds. The Fed could monetize these bonds and the dollar and credit created from nothing (fiat money) would be worthless. The Fed will be viligent but stagflation or hyperinflation after the collapse is likely.
Helicopter Ben applies an analytical approach called the "sacrifice ratio". Simply put he raises current interest (he targets rates and inflation) trades off against the increase or decrease in employment. The ratio of 1 being low and 4 being high. He plainly speaks his mind, so watch his language for forecasting the Fed policy.
Peter P
2006 Jan 17, 8:28am
Yahoo shares just went down 12% today. Wow. Just part of the big picture….
All eyes on GOOG. Or will it become Googron? ;)
Yahoo's shares plunged by more than 13 percent after the report's release Tuesday.
GOOG
Last Trade: 449.20 7:59PM ET
After Hours Change: 17.91 (-3.83%)
Today's Change: 17.05 (-3.66%)
Bid: 449.02
Ask: 450.00
I have a neighbor down two streets putting up a FOR RENT sign today, in a home that is worth rought 1.6M in today's market (well plus minus 200K), a nicely updated classic ranch home with .25 acre lot and a BMW M5 parked in front. The funny thing is, it is not the whole house for rent, it's a sublet of one-room suite for $1,200.
I'm guessing as the ARM/I/O/HELOC loans go sour, there will be many million-dollar homes for sublet, how about 5 families cramming into a $2.5M home in Woodside? That sounds cool, yippie.
"Yahoo shares just went down 12% today. Wow. Just part of the big picture…. "
Yeah, well, markets are due for pull-back. Been rallying for two months now. I'd probably buy some Yahoo tomorrow after a 12% drubbing if I had more cash to throw into tech stocks. I like catching falling knives.
Over the weekend I found another good online savings account. Here's a good place to park the cash portion of your wad folks:
Anyone inclined to proffer a forecast for Ford or GM? Is it a good sign that Ford holds 130+ patents on hybrid technology? Where is GM's interest in the hybrid market? Which produces the most military vehicles and will there be a government bailout?
Unalloyed
GM and Ford are doomed. An excellent website for the "GM Death Watch" go www.thetruthaboutcars.com .
SQT
Why am I not surprised that a stockbroker is bullish on stocks. Just like realtors are bullish on houses.
jeffolie: Thanks. Those are hard hitting editorials. I'm trying to imagine the ripple, I should say tsunami, effect of such massive corporations biting the dust.
CNN: "The Tokyo Stock Exchange halted all trade 20 minutes early at 2:40 p.m. (0540 GMT), as the number of trades neared the 4-million capacity limit of the exchange. Earlier in the day, massive selling, which saw more than 2.3 million trades in the morning session alone, prompted the exchange to issue an extraordinary warning that it might have to suspend trading. " Yikes!
brightc you are right, Civic Center is actually the nicest and wealthiest part of the city. You are lucky you did not try and park in one of the rougher neighborhoods, like Pacific Heights or the Marina.
The schools are all bad in San Francisco, even the private ones. Roving gangs of slavers grab children out of the halls and sell them into bondage. School children in San Francisco all know this and come to school armed.
If you park your car in San Francisco, within minutes someone will strip it of all valuables and burn the rest. That is why it is so easy to find parking here, no one is willing to risk it.
Please stay away. As far away as possible, preferably.
Jeffolie,
Wow, that sure seemed like a knee jerk statement, someone says stockbroker you say thief. Have you ever run a trade, I mean other than on ETrade? In case you haven't noticed some of us are trying to support you but when you re-post your chart worshipping theories again and again with statements like stocks/MBS AND real estate will lose 98% of their value by late 2007 as from the burning bush it can't help build anyone's credibility. The number of people that blew THEMSELVES up on ETrade and then blamed stockbrokers b/c they are an easy target could fill every stadium in America. Like SQT's husband I pleaded with clients not to sell John Deere shares that had been in the family for generations to buy that days tech IPO. It didn't work and when they went ahead and did anyway we were still to blame! For those of us that interface with the market on daily basis this is ANCIENT history, along with yesterday. Besides, this format is supposed to be about intelligent discussion about the housing crash, not advancing whacko theories. If you want to slam realtors, I'm all for it. It's part of the package. If you want to slam brokers I'm sure there are plenty of Blogs elsewhere that will welcome you with open arms.
DinOR
I was wrong to take the cheap shot at stockbrokers. I have been trading for 35 years and have seen many bubbles burst. Iwill try to keep on message here with the real estate bubble.
Paul McCulley of PIMCO announced that in California over 80% of new mortgages over the last year have been exotic creatures – interest only, pay option, and negative amortization concoctions.
The Labor Department reported:
The 3.4 percent increase in consumer prices for the 12 months ending in December was up slightly from a 3.3 percent rise in 2004.
It was the biggest annual gain since a similar 3.4 percent price rise in 2000, the final full year for the country's 10-year economic expansion, the longest in U.S. history.
Possible debtor "strategery" during the "seasonal" downturn.
Remember, it's not a house, it's a HOME.
It only goes up, expect for this temporary "seasonal" downturn.
You don't want to miss out now do you?
Remember as the ditech commercial says "need money for a purchase, to pay off debt or whatever". Love that one, using a "loan" to pay off "debt". Kind of like using dirt to wash off grime.
If you don't buy now I'll lose my job.
WASHINGTON (Reuters) - U.S. consumer prices fell unexpectedly in December but rose when energy and food costs were excluded, reinforcing expectations the Federal Reserve will continue to raise interest rates at the end of the month.
jeffolie, why do you hate Amerika? Why can't you accept the fact you are living in a time of unparalleled economic expansion, where there is abundant opportunities for everyone. Productivity is at an all time high, wall st. is doling out bonuses like candy, CEO pay is at an all time high. What's your gripe? Prices declined, period. You were paying 3/gallon for gas a few months ago, now you're ONLY paying 2.5/gal, dude that's a 17% savings. This is real money in your pocket. The economy is red hot, the fed knows exactly what they are doing, their inflation numbers of course exclude everything you and I would buy or use. But come on now, have you seen the price of computers, bra's, ball bearings, and other exotic widgets? All time low, shit you can buy a gross of white tee shirts at Wal-Mart for 50 cent. This offsets any increase you've seen in housing, medical, childcare (why you having kids anyways, it will interfere with you working). We're winning the war on terror, and bringing hope, Christianity and democracy to the unbelievers in the Middle East. Who cares if it is coming unwanted or at the end of a gun, did I mention that the economy is doing great. Never mind that real wages have fallen for 5 straight years, if you just take the average salary for executives you will see very clearly that wages are robust. I think it's time for you to FACEREALITY and embrace the entrepreneurial spirit that made Amerika great. Get out there and become a CEO, rock star, pro basketball player, real estate agent. And remember the journey of a thousand miles starts with the first step.
SF rocks, I love divisadero st. for some reason whenever i'm in the city, that street takes me where ever I want to go. The houses, views, etc, I think SF is one if the the most pretty city i've ever seen. What to see a true shit hole in my opinion, go to LA or NYC.
Mortgage rates may rise for 2 reasons:
1. Inflation will increase when the Fed stops raising rates (and starts lowering them). The fact that the Fed is tightening monetary conditions and ostensibly keeping inflation in check has doubtless helped to keep the bond market complacent about inflation. When the Fed stops tightening, some of that complacency may disappear. When the Fed starts lowering rates, inflation expectations will almost certainly rise, and rates may rise along with them. I believe that the Fed is fairly close to completing its tightening cycle, so inflation expectations could increase within a couple months. When the Fed starts lowering is unclear for now, but the combination of a potentially slowing economy and financial market nervousness about a new Fed chair could induce the Fed to start cutting as early as the beginning of 2006.
2. The Treasury is about to bring back the 30 bond. If demand for 10 year bonds weakened in favor of 30 year bonds, we could very well see markedly higher interest rates for mortgages.
How, you ask? Well, many mortgages are aggregated and packaged as 10-year bond offerings on the MBS (Mortgage Backed Securities) market. They typically have a 10 year maturity because the average mortgage tends to be redeemed at that point, not 30 years. So, the reduced demand on MBS's could rais interest rates noticeably.
Some people might be asking at this point, "Is this for real, or just another hoax?" Well, it worked the same way in reverse. When the 30 year was discontinued, demand for the 10 year jumped substantially and they yields (along with mortgage rates) went in the crapper.
SFResident, exactly! The amazing rise in RE prices is due to the lack of supply, high demand, low unemployment, and a robust economy. Speculation has little to do with housing costs doubling in 4 years. Makes perfect sense when you figure the average persons wages fell during this period. Nothing artficial here. Forget those propoganists that present data that shows that 00% of mortgages in Ca last year were some form of exotic Paul McCulley of PIMCO announced that in California over 80% of new mortgages over the last year have been exotic creatures – interest only, pay option, and negative amortization concoctions. The fundamentals tell otherwise, such as your experience with the lack of homes for sale. Tight man, it's tight, buy now or forever be beholden to the great gods of rent.
"Very well said. I think the demand is there because:
1. People in general desire to own their home.
2. People would like to live within a reasonable commute to work." -- SFResident
None of that means shit when people can NO LONGER AFFORD THE HOME.
"Also, I did not see a lot of open house signs in San Francisco as several people in this blog claimed happened in other areas." --SFResident
That's strange, out in the Inner Richmond by GG Park where I'm at there are many places up for a sale. There's a house on the corner of 15th and Cabrillo that's been sitting on the market for over 2 months with an open house every weekend.
Anyway, if you're so sure that "the demand is there" then get off your ass and go buy a second house here in San Francisco. Put your money where your mouth is as I and most of the others on this blog have already done.
"People in general desire to own their home." --SFResident
Oh, how fucking helpfull and informative! What a delightfully delicious tidbit of information we have here! This of course surely means that housing prices shall rise in perpetuity! Ya know, people in general ALSO desire to be pro sports players and bang supermodels on a regular basis, but this does not exponentially increase the population of pro ballers and cheap supermodel sluts now does it?
I for one am positive the demand is there; so much so that I'm currently taking an ITT tech correspondence RE agent course, and will hopefully soon get my license. The world will be my oyster. MMMM oysters.
@SFRenter, good work, embrace the dark lord, I can taste your anger, you are doing well my son. Have you also tried incorporating profanity into your daily life? I for one have found it very helpful when dealing with customer service representatives. Not finding them too helpful, tired of getting crapped on, speak up with profanity.
Come to think of it. If SF were so bad, why people bother to come to SF and cause traffic jam ?
Do you seriously think they come to SF to have settle down, have a family, and send their kids to the prestigious SF public schools, like those in the Bay View district? I don't think so. Usually, I stop by SF to take a piss before gettin' back to the road to visit Sausalito and/or Sonoma.
If you park your car in San Francisco, within minutes someone will strip it of all valuables and burn the rest.
I guess that's why, for safety reasons, you've got to pay $18 to park one hour in a garage, and spend another half an hour finding an entrance in the traffic flow to exit from there. Or you can just be brave and push your BMW forward the coming car, hopefully scaring him to yield you a passage, thus reducing your waiting time and become a personal hero to your passenger, all at the same time.
And you must be very, very thankful (after crossing your fingers and other various parts of your body) to have a deed to your own opencompact parking spot assigned to your condo, should you want to purchase one, to settle FOREVER in the wonderful city of SF.
SQT, think about it, Yoda is what 1-2ft high, green with pointy ears, of course he embraces the dark side, it's the yang to his ying.
Peter P
2006 Jan 18, 4:51am
I have found anger/profanity works wonders when dealing with customer service operators who pick up the phone after you have been on hold for 45 minutes.
I tried that years ago and it did not work.
Now I am extra nice to them and occasionally I get goodies. :)
Peter P, in all honesty I first go poodle then doberman, or if you prefer, the carrot and the stick. Very nice, then over the top. Works great.
Peter P
2006 Jan 18, 5:07am
Actually, "poodle" or "doberman", it is all about exploring human weakness.
In this housing bubble, the weakness of potential buyers has been fully exploited. In particular, the greed of gains and the fear of being left behind have driven prices to the peak.
Fortunately, sellers may have more to lose and they should be more susceptible to psychological manipulation.
Randy H
2006 Jan 18, 5:21am
Peter P,
Good to see you again. Ever decide to pursue that behavioral finance education?
"Peter P, in all honesty I first go poodle then doberman, or if you prefer, the carrot and the stick." --Surfer X
Agreed, I always start out with the "polite, professional, and firm" approach and only descend into livid appoplexia when absolutely necessary.
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There is no doubt that the housing bubble has burst. What happens next is everyone's guess, but as many contributors of this blog have pointed out, the bubble burst effects will not be pretty to home sellers. While legitimate homeowners, i.e. those who can actually afford paying their mortgages without exotic, creative loans, can hold on through the rough ride, homebuilders and the so-called "real estate" investors (or flippers) will see the ugliest of the post-bubble era. In desperate attempts to beat out the dear neighbors to free off their "inventories", homesellers will resort to an assortment of gimmicks in hope of salvaging as much of the money they have invested. Let's name a few:
1. The Used-Car Dealer's Approach: Instead of marking the asking price down, the seller bumps up the price to about 5 to 8%, which is, conveniently, the expected "normal increase" for 2006. The goal here to let the buyer negotiate down to just about 10%, thus falling into the price range the seller wants to sell. While this approach may work (as it's worked so often in the used car biz), the seller may not be able to attract many bids because after seeing the price tag, many will just balk and will not bother biding even for a toilet cover in the house. However, the seller need not to worry, for all he or she needs is just one sucker.
2. Furniture Stores' Out-of-Business Approach: Some home builders, worried about the seemingly inevitable massive price reductions in the spring, could declare their communities having a "desperate" sale, with up to $100,000 deduction, and putting out ads that are the same as some furniture stores have done. The keyword here is "up to", and the problem here is that you can rarely have a $100,000 deduction out of the current homebuilders' prices. Having a $40,000 reduction on a $600,000 reduction is not much of a deal, as after six more months, your discount will be at least $72,000. The savings they promise are just as real has furniture stores threatening to "close forever" this weekend, just to let the owner going on vacation and re-open the next week. However, while this trick has gotten too old for furniture stores, homebuilders have started to give it a second thought.
In general, I believe house prices will continue declining over this year and next. In my opinion, buying in the middle of January 2006 is still too soon, as sellers, knowing that you are now well-aware of the bubble burst, will try to put on desperate measures to make a sell or two out of you. Good things come to those who wait.
#housing