Jul292013
Investor activity to plummet, home sales volumes will drop
Large private-equity hedge funds will begin tapering their purchases of houses shortly. Prices have simply gotten to high, and with the flood of rentals from their previous purchases, rents are softening in many of the markets where these funds have been most active. Rising costs and declining income doesn’t make for a good combination. However, despite the apparent worsening of conditions for this investment class, some housing analysts are worried that investors will remain too active and possibly overheat prices.
Investor Momentum In The Housing Market May Have Swung Too Far
John Burns, John Burns Real Estate Consulting Jul. 25, 2013, 6:51 PM
During the downturn and early stages of recovery, we were huge proponents of investors taking advantage of overcorrected home prices to make great investments while also helping the housing market recover. Mission accomplished.
I laid out the case for investing in these properties in the post Buy Las Vegas real estate back on August 5, 2010. I knew that the activity of investors like me would help the market bottom. What I didn’t know at the time was that Wall Street would also figure out what a good deal these homes were and enter the market in force. Between the infusion of hedge fund cash and the change in policies at the banks favoring can-kicking over foreclosure, the inventory dried up just as demand hit the market. The result was a premature bottom and a rapid rise in price since.
We are now concerned that investor momentum has swung too far in the other direction.
Recent developments include:
- Highest investor activity ever. We now have an all-time high level of investor activity, reaching 30% of all resales in the markets we track and 45% in markets such as Orlando and Florida. We believe that thousands of organizations and individuals now have the capital and infrastructure to invest quickly, and we don’t know what will shut it off.
I nearly got funded by a large private equity group from Chicago who wanted to get into this business. I know how private equity works. They will fund anything where they see a return, and they will defund anything that doesn’t provide returns just as quickly. The idea that this money can’t or won’t be shut off quickly is rather silly.
In the hedge fund agreement I was party to, the fund was going to provide increments of $5M up to a max of $200M. After we spent $3.5M of the $5M, we were supposed to provide the fund with an analysis of market conditions and a recommendation for future funding. If I had told them prices were up significantly and rents were falling, the spigot would have been turned off immediately. The funding conditions of these private equity deals mostly have similar terms.
- No more bargains. Price appreciation at the lower end of the market now exceeds 30% YOY in markets such as Atlanta, Phoenix, Minneapolis, and Las Vegas (Case-Shiller data). The bargains are gone.
The real bargains are certainly gone. Overall prices are still well below historic norms, but raise the price of anything 30% and lower it’s income potential, and the deal won’t be as compelling.
- Above replacement cost. We are hearing many stories of investors buying new homes, both in bulk and by pretending to be a real buyer in the new home sales office. The great investment thesis of buying below replacement cost is now gone.
Every home I purchased in Las Vegas I purchased at below replacement costs. The sticks and bricks cost more than the house did.
I honestly don’t know what he is talking about with people buying new homes under replacement costs. What builder would do this? Would anyone build a house for $100/SF and sell it for $80/SF? If they did, they wouldn’t be in business very long.
- Flippers. House flipping is up 19% YOY according to Realtytrac, and we are hearing radio ads again for companies who will teach you how to flip a home. Never underestimate the American allure of making a quick buck!
- Debt availability. The big institutions have raised debt from banks, and Blackstone recently announced B2R, a platform to lend to medium-sized investment groups. We suspect that small investors are finding or will find debt soon. All of this will allow investors to double their platforms without raising any more equity.
While the permabears or big name economists (who are lucky to have a staff of one focused on housing) went on TV claiming that rising mortgage rates would cause another downturn, and Wall Street responded by selling all things housing,
Was that a dig at Mark Hanson?
we went public on June 3 and June 26 saying that rising rates were necessary to prevent another bubble.
I imagine the homebuilders were happy for his assistance in talking up the market.
Since investors remain as optimistic as ever, rising rates do not appear to be cooling the market much at all.
Oh, really?
Not according to the Wall Street Journal: As Rates Rise, New-Home Orders Slow for Home Builders.
And as Mike noted over the weekend: Buried in the June housing report, New Home prices down 11.5% from April.
I postulated that Future housing markets will be very interest rate sensitive. This will be particularly true for homebuilders. The resale market is still undervalued in most areas, but that isn’t true for homebuilders. They usually charge such a stiff premium that they quickly raised their prices to the limit of affordability nearly everywhere.
For example, when I was still actively acquiring properties in Las Vegas, I noted homebuilders were obtaining a 30% premium for new homes over the same floorplans from just a few years earlier. In one neighborhood, I was bidding on properties with a $160,000 resale value built in 2005 and 2006, and the builder was selling houses the same size a few blocks away for $210,000. Since Las Vegas was so drastically undervalued, the builder premium grew very large.
Since builders are already selling at the limit of affordability, sudden interest rate jolts like we had in May pummels their business. Homebuilder stocks sold off because investors recognize that builders face problems when interest rates go up.
At this pace, the Fed will soon accomplish their unstated goal of eliminating negative equity, which will allow for refinancing that will be great for the economy.
Actually, it will provide collateral banking for bank bad loans. Will it provide those few buyers at the bottom and those who didn’t borrow themselves into oblivion with a chance for free HELOC money? Perhaps, but the existing homeowners who didn’t tap their equity before the bubble aren’t likely to go Ponzi now.
However, I don’t know what will shut off the investors other than another crisis or recession.
Rising prices will shut off the funding — quickly. This notion doesn’t even rise to the level of a tempest in a teapot. It’s a big nothingburger.
… As for now, the fundamentals still look strong.
Oh, really? Which fundamentals are those?
It isn’t stellar wage growth (See: With stagnant wages, what will cause rents and home prices to rise?).
It isn’t robust economic growth (See: Economy skids dangerously close to contraction, and Leading Economic Indicators Flat in June).
It isn’t falling interest rates or improving affordability (See: Mortgage rates move higher, housing less affordable).
It isn’t a commitment to endless quantitative easing (See: Can the fed taper housing market stimulus with no ill effects?).
I guess you just have to take his word for it. The fundamentals are great.
What will happen as investors slow their buying activity?
The hedge funds pumping money into real estate are about to turn off the spigot. My estimation is that over the remainder of 2013, investor activity will decline sharply. The fantasy has always been that owner occupants would step up and take the place of investors as they pulled back. But how likely is that really?
I never believed this inevitable transition would be orderly. Owner occupants are less active in the market for the reasons I pointed out above, they have too much debt, bad credit, and too little savings. These conditions won’t change quickly, certainly not as quickly as the investors will curtail their buying. Owner-occupant buying is still in its four-year holding pattern at 1990s levels.
Now consider that since March of 2012 — a time of low owner-occupant activity — prices have risen 20% to 30% in most markets, and interest rates have removed 10% to 15% of the purchasing power of potential buyers. How is the number of owner occupants supposed to increase when houses just got 40% more expensive?
The restricted inventory conditions will not change, and nobody expects any must-sell inventory to come to market any time soon. Given those facts, it isn’t likely prices will fall. If there is a “fundamental” supporting the market, that’s it. What’s far more likely is that as investors stop buying, sales volumes will decline. Low inventory and low sales volumes is what we have to look forward to through next spring.
Perhaps that $863,000 HELOC wasn’t a good idea
The owners of today’s featured property borrowed against the rising value of his property, but it wasn’t so egregious that they can be classified as full-blown Ponzis. 
- They bought this house on 11/21/2000 for $1,005,500 by borrowing $804,000 and putting $201,000 down.
- On 1/25/2002 they refinanced with a $937,500 first mortgage and withdrew $133,500 of their down payment, and they opened a $162,500 HELOC that they didn’t use.
- On 2/10/2003 they refinanced with a $937,000 first mortgage.
- On 10/2/2003 they refinanced with a $934,300 first mortgage, so they were paying their mortgage down. Although, they also opened a $250,000 HELOC at the same time.
- On 4/14/2006, they opened a $863,000 HELOC. They must of spent at least some of it, because the house is currently listed as a short sale for $1,100,000.
So were they Ponzis? I’ll let you decide.
[raw_html_snippet id=”newsletter”]
[idx-listing mlsnumber=”PW13130597″ showpricehistory=”true”]
25 ELLIOT Ln Coto de Caza, CA 92679
$1,100,000 …….. Asking Price
$1,005,500 ………. Purchase Price
11/21/2000 ………. Purchase Date
$94,500 ………. Gross Gain (Loss)
($88,000) ………… Commissions and Costs at 8%
============================================
$6,500 ………. Net Gain (Loss)
============================================
9.4% ………. Gross Percent Change
0.6% ………. Net Percent Change
0.7% ………… Annual Appreciation
Cost of Home Ownership
——————————————————————————
$1,100,000 …….. Asking Price
$220,000 ………… 20% Down Conventional
4.88% …………. Mortgage Interest Rate
30 ……………… Number of Years
$880,000 …….. Mortgage
$234,472 ………. Income Requirement
$4,660 ………… Monthly Mortgage Payment
$953 ………… Property Tax at 1.04%
$0 ………… Mello Roos & Special Taxes
$229 ………… Homeowners Insurance at 0.25%
$0 ………… Private Mortgage Insurance
$215 ………… Homeowners Association Fees
============================================
$6,057 ………. Monthly Cash Outlays
($1,522) ………. Tax Savings
($1,081) ………. Principal Amortization
$413 ………….. Opportunity Cost of Down Payment
$158 ………….. Maintenance and Replacement Reserves
============================================
$4,025 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$12,500 ………… Furnishing and Move-In Costs at 1% + $1,500
$12,500 ………… Closing Costs at 1% + $1,500
$8,800 ………… Interest Points at 1%
$220,000 ………… Down Payment
============================================
$253,800 ………. Total Cash Costs
$61,600 ………. Emergency Cash Reserves
============================================
$315,400 ………. Total Savings Needed
[raw_html_snippet id=”property”]
As long as a few central banks are printing money, even if the Fed stops, and as long as job growth for the educated half of society remains decent, as it has for a few years, the better end of housing will do fine. I would forget about lower end housing … that demographic is having a horrible time in the job market. Remember, as in any investment, buy quality and stick with the upper demographic, and you will do fine over a 10+ year period. Who cares what investment funds do in the low end of the market.
FYI ,, when I say quality, I mean buy old fixer homes on good size lots within a mile or so of the beach located in a better zip code. Make sure the home has no traffic problems. Over 10+ years, you will have a great return. Making money in residential real estate is a long process. There will be ups and downs. But, in the long run, you will do great.
Earth to Jimmy…
*the lower the rates, the higher the cost basis
*the 10yr UST bond will essentially be priced into your financial model
Where does housing stand today?
*uber-speculative dynamics fully in-play,
*sector is no longer supported by income/productivity gains
*sector sustenance is totally dependent on inputs from central planners, whose models are based-on academic case studies
*QE extinguishes all market signals including the ones re price, so when it’s time to get out, nobody will be able to see the signs
*homedebtors still signing a MERS mortgage with lots of fine print
*current price model is dependent on the continuance of negative real rates
Oh… and then there is ‘this’
tick-tock!
“*homedebtors still signing a MERS mortgage with lots of fine print”
Does that mean more deficiency judgements in the future? No more just writing off bad debts?
When NAR just wasn’t enough.
New group being formed to advocate for homeowners’ interests
WASHINGTON — Do 75 million homeowners need their own advocate before Congress and federal agencies on issues such as the mortgage interest tax deduction, retention of low-down-payment loans and the start of tougher financing rules next January?
A group of mortgage and real estate industry veterans, joined by leaders of national community development, fair housing and consumer groups, thinks so. They’re set to launch an unusual effort — a national nonprofit organization modeled after AARP, the seniors lobby, solely to speak for the home-owning public.
It’s called America’s Homeowner Alliance and is scheduled to be formally announced within two weeks. The mission, according to its sponsors, is to “protect and promote sustainable homeownership for all segments” of the population, from moderate-income renters saving money for a down payment to long-established owners.
Members will be asked to pay annual dues of $20 — AARP’s dues are $16 — and will receive access to an extensive program of rewards and discounts from more than 1,000 participating companies that offer home-related products and services. They include Home Depot, Lowe’s, Best Buy, Sears, Verizon, major appliance manufacturers, furniture and housewares stores, and encompass what sponsors say will be more than 1 million products. Members will earn points on every product purchase and be able to redeem them for merchandise, travel or other benefits.
The new group, which will be headquartered in St. Louis, is the brainchild of Phil Bracken, former executive vice president for Wells Fargo Home Mortgage and now chief policy officer of government relations for Radian Guaranty Inc., a private mortgage insurer. His specialty as a lender has been financing and promoting affordable homeownership, especially for entry-level buyers, and he has chaired or co-chaired groups such as the Consumer/Lender Roundtable in Washington, D.C.
Their first action should be National Rent Control. With greed pushing rental prices higher and higher, it is simply not possible for anyone to “save” money to buy.
If landlords don’t count as homeowners, that would be a policy they would push. Unfortunately, rent controls are hated by landlords, and over time it causes properties to get run down as owners refuse to put money in for maintenance.
Rents not easing despite rise in rates; owners are benefiting
With interest rates slowly on the rise, that means bad news for home buyers and good news for renters, right? After all, aren’t the single-family and multifamily markets countercyclical?
In the words of the old song, it ain’t necessarily so. Here’s why: The number of renters increased more than 1.1 million during 2011-12. That marked the eighth straight year of expansion, according to a Harvard University study, which finds that there is currently an “unprecedented strength of rental demand.”
For those of you who took Economics 101, the trend is clear: An increase in demand means an increase in prices — or in this case, rents — no matter what is happening on the buying side.
According to the Census Bureau’s Housing Vacancy Study, the median asking rent for vacant units last year was at a record high $720 a month. And MPF Research found similar strength in the country’s metropolitan statistical areas, or MSAs.
If you are a renter in Las Vegas, Albuquerque, Tucson or Greensboro, N.C., your rent went down last year. But if you rent in any of the other 89 MSAs tracked by MPF Research, your rent went up — in some places, significantly.
Living the good life in Honolulu cost renters a hefty 8.5% more last year. And Bay Area cities such as San Francisco (up 8%) and San Jose (an increase of 7.7%) weren’t far behind.
Vacancies have come down sharply the last couple of years, according to the Harvard Joint Center for Housing Studies’ latest “State of the Nation’s Housing” report. Last year’s vacancy rate was 8.7%, down from 10.6% in 2009. Econ 101 applies here as well: fewer vacancies, more demand, higher rents.
This was a good article in Sunday’s LA Times.
Watch for the revision later…
Pending Home Sales Slip in June
WASHINGTON (July 29, 2013) – After reaching the highest level in over six years, pending home sales declined in June, with rising mortgage interest rates beginning to impact the market, according to the National Association of Realtors®.
The Pending Home Sales Index,* a forward-looking indicator based on contract signings, edged down 0.4 percent to 110.9 in June from a downwardly revised 111.3 in May, but is 10.9 percent higher than June 2012 when it was 100.0; the data reflect contracts but not closings. Pending sales have been above year-ago levels for the past 26 months, and the pace in May was the highest since December 2006 when it reached 112.8.
Lawrence Yun, NAR chief economist, said higher home prices and interest rates are beginning to impact affordability, notably in high-cost regions. “Mortgage interest rates began to rise in May, taking some of the momentum out of contract activity in June,” he said. “The persistent lack of inventory also is contributing to lower contract signings.”
Yun notes not all contracts go to closing. “There are some homebuyers who sign contracts with strong lender commitment letters, but have floating mortgage interest rates. Those rates can be locked as late as 10 to 14 days before closing, so some homebuyers may change their minds if the rate rises too much, which apparently happened with some sales scheduled to close in June,” he said. “Closed sales may edge down a bit in the months ahead, but they’ll stay above year-ago levels.”
NAr has set up its analysis to make it look like sales are always rising. Their methodology nearly always overstates the current month’s activities, then the downwardly revise it in the following month. The effect is always to make the month-over-month change look positive even when its not.
You know things are bad when their number fudging can’t get the sales from June to exceed the downwardly revised May’s numbers.
The following chart from Credit Suisse fully explains why the US housing “recovery” has just ground to a halt: in a few short weeks, US housing affordability (a topic we first covered a month ago) has collapsed as a result of the monthly payment on the median home sold soaring by nearly 40% from under $800 to just shy of $1100, a level not seen since 2008. Now if only US personal incomes would keep pace.
http://www.zerohedge.com/news/2013-07-29/chart-day-monthly-home-payment-soars-40-2008-levels
Thanks, I added that chart to the post.
The reality of the major impact rising interest rates is having on the housing market is slowly leaking out. Homebuilders were all told by the “experts” rising interest rates would have no effect, so now they are scrambling to lessen its impact.
The idea behind this story is that education — make that indoctrination — can overcome people’s ability to perform basic math. Rising interest rates and rising prices is making houses much more expensive to own, so potential homebuyers are pulling back, some by choice, and some due to the fact they can no longer afford to buy.
Can Homebuilders Teach Mortgage History to Wary Millennials?
What a difference a percentage point makes. A slight rise in U.S. mortgage rates—the average for a 30-year fixed mortgage inched from about 3.3 percent in May to 4.3 percent this week—is spooking would-be home buyers and complicating forecasts for builders. Much to the agony of those builders, younger consumers appear transfixed by the shockingly low rates of recent years without paying any mind to historical mortgage norms.
Skittish buyers have become more worried about rising rates than they are about surging home prices, according to a new survey from real-estate data company Trulia (TRLA). Some 41 percent of respondents cited interest rates as their top concern, compared with 37 percent who pointed to prices. “We did anticipate that it would be a big concern; we just didn’t realize quite how much,” says Trulia spokeswoman Daisy Kong. “Low interest rates were the one thing people were able to count on for a while.”
And financing jitters aren’t just showing up on studies—those anxieties were abundantly evident in a round of reports from big U.S. homebuilders this week. D.R. Horton (DHI) posted only a 12 percent increase in new orders for homes from the year-earlier period, less than half the amount expected, while PulteGroup (PHM) saw its orders drop 12 percent. “A lot of buyers were counting on trying to pick the low in the pricing and the low in the interest rates,” D.R. Horton’s chief executive, Donald Tomnitz, said on a conference call.
Executives have tried to downplay the fallout in their earnings presentations, arguing that a lot of things are worse than rising rates. A supply shortage, for one. A crummy economy, for another. “As an industry,” PulteGroup CEO Richard Dugas says, ”we can sell more houses if more people have jobs, even with modestly higher rates.”
Investors haven’t been reassured, sinking shares of both homebuilding companies.
“What a difference a percentage point makes. A slight rise in U.S. mortgage rates—the average for a 30-year fixed mortgage inched from about 3.3 percent in May to 4.3 percent this week—is spooking would-be home buyers and complicating forecasts for builders.”
What a difference a calculator makes: 1% rise in rates (from 3.3 to 4.3%) = 30% rise in borrowing costs. A 30% rise in borrowing costs doesn’t just spook buyers, it scares the hell out of them, and rightly so.
What the author left out of his analysis is that it matters not what rates have been historically, it only matters what the rates have been recently, and more importantly, whether the houses have been priced to sell at the recent rates. If rates rise and houses are not repriced accordingly, then sales volumes will fall. All that realtors will be left with is cash sales and a few mortgaged buyers that can scrape together a little more cash, or take on a higher payment. Since when do lower volumes at higher prices equal a housing market recovery?
Hmmm…
Survey: Most California Investors Opting to Hold Rather than Flip
A survey from the California Association of Realtors (C.A.R.) revealed preferences and strategies of a typical California investor.
For the most part, investors in the Golden State plan to keep their purchase for at least a year.
According to the survey, 26 percent of investors who worked with Realtors over the last 12 months before April 2013 said they intend to flip the property within a year, while 66 percent plan to keep the property for more than a year as a rental. However, three-fourths of investors plan on retaining their property for less than six years.
About 75 percent of investors were in the “mom-and-pop” category, meaning they own one to 10 properties, while just 6.6 percent of investors own 11 to 20 properties, and 4.8 percent have 50 to 100 properties.
Investors were also largely drawn to single-family homes. According to the survey, 78 percent of transactions were for single-family homes, while 14 percent were for multifamily properties.
The survey also showed a strong preference for cash purchases, with 67 percent of investors buying with cash. Investment properties in the state were sold for a median sales price of $272,500, while the median price spent on repairs was $10,000. The median rate of return was 14 percent for investments.
I’m shocked the percentage of wouldbe flippers is so high. It’s very, very difficult to pay full retail price for a property, fix it up, then resell it for a profit, particularly if you are paying full realtor commissions. I suppose hope springs eternal, and those that intended to flip will find themselves becoming long-term owners.
“… As for now, the fundamentals still look strong.
Oh, really? Which fundamentals are those?”
I would assume he’s referring to strong rental demand and increasing rents.
That’s the only factor I can see favoring the market. Perhaps that’s it.
With the overbuilding in the multi-family space, the rent increases will continue to slow down. I’ve been looking over the data from Riverside and San Bernardino counties, and rents have been stagnant for a couple of years now because the influx of REO-to-rental properties.
The fact that it’s still much cheaper to own than to rent in most areas is the real driver of housing demand, but that discount is shrinking fast.
Are we at peak frenzy now?
Chinese investors betting on Detroit comeback, buy up real estate
Downtown Detroit is home to one of the worst housing markets in the country, as prices of homes have collapsed and foreclosures have soared in the city’s depressed economy.
But some Chinese investors hungry for real estate are hoping Detroit’s losses will be their gain. After Detroit filed for bankruptcy July 18, Motor City property has been a hot topic on China’s social media platform, Weibo, according to a Quartz.com report.
News of the bankruptcy, coupled with a Chinese TV report in March that claimed you could buy two houses in Detroit for the same price as a pair of leather shoes, has piqued investors’ interest.
Quartz spoke to Caroline Chen, a real estate broker based in Troy, Mich., who says she has received “tons of calls” from mainland Chinese expressing serious interest in the market.
“I have people calling and saying, ‘I’m serious — I wanna buy 100, 200 properties,’” Chen said. She added that a colleague had recently sold 30 properties to a single Chinese buyer.
Chinese housing is among the most expensive in the world. Capital controls also make investing big sums in overseas stocks or property a challenge.
Buyers seem to be purchasing purely as investment, and don’t plan on moving to Detroit anytime soon. Though Chinese realtors had planned tours of the city in late spring, many were canceled when investors didn’t receive visas, according to Chen.
Since there are no plans to live in the homes, shopping remotely from China is not a problem. “They say, ‘We don’t need to see them [the properties], just pick the good ones,’” Chen said.
This may be only the beginning of a buying trend. Wei Kefei, an organizer of a Beijing property fair, told state-run Global Times that Chinese were investing now and expecting Detroit’s economy to come back, helped by the city’s auto industry. “Some people did rush to buy houses in Detroit, betting on the U.S. economic recovery, which they believe will boost development in the auto industry,” Wei told Quartz.
The buying craze was so significant that China’s Ministry of Foreign Affairs warned citizens about the risks of investing, and the many hidden costs that buyers take on when they purchase U.S. real estate.
Chen doesn’t seem as convinced as the Chinese of the Motor City’s recovery. She compared the chances of the city’s housing market turning a profit to winning the lottery. “Thirty-five years ago downtown Detroit was like this and it’s not getting better.”
That won’t end well…
Is the USA the new Arizona? Back in 2006, when California real estate started to be too expensive, a whole lot of speculative money started to flow across the border into Phoenix, and Las Vegas.
It seems to me that the Chinese are following the California model: Sell one property in California and Buy three in Arizona. The problem when an outside investor buys in an area of relative affordability is that they invariably overpay. The basis for the next investor is based off the mispricing by the prior investor. This continues until someone is left holding the bag. Who is going to be the Chinese bag holder? Volunteers?
Last week, awgee was lecturing me about the history of gold/silver backed currencies. His main point : “the longevity of backed currencies far exceeds those mandated by fiat”. He then masterfully put me away using an old quote.
awgee says:
July 27, 2013 at 7:49 pm
.
“MR – There are numerous examples of fiat currencies in history and numerous examples of currencies backed by gold and/or silver, and the longevity of backed currencies far exceeds those mandated by fiat. You may care to know something about money and currency before you make ridiculous arguments.
“Better to be silent and be thought a fool, than to open one’s mouth and remove all doubt.”
Epic.
Yet in all of his condescension, awgee never cited one shred of evidence to back his claims. (Not good for a tax lawyer.) So I decided to take his advice and “know something before I make ridiculous arguments”.
According to this list on Wikipedia, there are 182 recognized currencies in the world, and apparently, none of these is backed by metal — that is to say you can’t exchange a currency note for a comparable amount of gold or silver at any bank.
http://en.wikipedia.org/wiki/List_of_circulating_currencies
According to this informative post, the last hold out for gold-backed currency caved when Switzerland joined the EU in 1999.
http://www.moneytec.com/forums/f33/gold-backed-currency-14196/#post113392
And strangely, even Zerohedge struggles to find a currency backed by metals:
http://www.zerohedge.com/news/guest-post-are-there-any-currencies-backed-gold
–
So it seems to be pretty indisputable, no matter the source, that metal-backed currencies no longer exist. Yet awgee is certain that longevity is a key characteristic of metal-backed currencies.
Can anybody cite some credible evidence that metal-based currencies “outlive” fiat currencies? (Please don’t link to any sites shilling for gold.)
I’m just trying to “know something” so I can argue competently with awgee.
I can’t answer the question, but I would offer an observation.
All currency is fiat. Gold is a fiat currency. Several thousand years ago, people realized bartering wasn’t very efficient or effective, so they collectively agreed that gold was money. It wasn’t by government decree, but it was by collective agreement among people who needed a way to move beyond a barter economy.
The only real argument in favor of gold as a base of all currencies is that it can’t be manufactured or printed. It’s value can’t be changed by the policy of some government or central bank. That makes it a store of value that isn’t easily raided.
I never said there were currently any backed currencies. I spoke only of longevity. To reiterate: “Better to be thought a fool than to open one’s mouth and remove all doubt.”
I said you may care to understand which currencies last the longest, (longevity), before you make specious arguments.
IR – Sometimes gold has been a fiat currency. Sometimes it has not.
But, at least you are on the right track. You seem to have researched enought to realize that there are currently no backed currencies. If you care to research further, look up what happened to Roman currency, check out Byzantine, Chinese. There are more, but those are good places to start. Figure out the differences between currency and money. What EXACTLY are federal reserve notes and how do they differ from dollars? How is the largest quantity of currency created? Through the Federal Reserve, or fractional reserve banking? In other countries? Has gold backed currency failed? Why? How? Who do central banks benefit?
I found out how the Romans debased their currencies a couple of months ago. The Emperor would over promise (bribe) and borrow huge sums money to pay off these people usually the army. Then he had to figure out away to pay back the lenders. So, they would just debase the precious metals out of the coins and pay back the lenders with devalued money.
It reminds me of today. The 30-year US Treasury bond holder will be paid back in devalued money.
Looking at history can show you what will happen to current fiat non-backed currencies, and in what time frame. So far, all currencies, except those present, have failed. And quite the opposite of taking my word for it, I suggest that you find out for yourself.
“So far, all currencies, except those present, have failed.”
And metal-backed systems haven’t?
I’m getting a lot of advice and attacks from the pro-metal crowd, but not a lot of answers. That is telling.
Mike-
You unwittingly made the argument for why metal-based monetary systems are not better than fiat systems.
Yes, they have all failed, including metal and other backed currencies, but gold and silver backed currencies show a much. much, much greater longevity and less, not no, manipulation by governments and banks. And you may want to check that out before you go throwing out ridiculous arguments about backed currencies. Please, do not take my word for it. Check it out.
Who benefits from paper currencies? Who benefits from gold and/or silver backed currencies? Why does any society value gold, a metal with very few uses. Does gold have “intrinsic” value? Do federal reserve notes have intrinsic value? Can you eat federal reserve notes?
I never said metal backed currencies don’t fail. I said that if you look at the history of money you may be able to tell what has happened to all fiat based currencies, and in what time frame. We have a fiat based currency NOW, and a fractional reserve banking system NOW. And a knowledge of what has happened in the past can tell you what is about to happen next. A knowledge of the past can prepare you for the future.
I think of the folks here know my story. I did not forsee anything because I am smart, or have wealthy ancestors, or a particularly fine education. I looked at the past in So Cal real estate and other assets.
We aren’t the first country to have a central bank, or fiat currency, or fractional reserve banking. The relationship between man and money,(human productivity measures), has not changed, and I don’t think it ever will. Options, futures, derivatives, are not not new to present financial society.
I truly doubt that I ever said metal backed currency is better than non-backed or as we call it, fiat currency. But, if pressed, I will say that one is better for one particular group of users than another.
It’s true they can both be devalued, but much easier to do it in this fiat system and we have been paying for it since the switch years ago. On a metal based system you can see that standards change when new coins are minted. Maybe the population will prevent devaluation from occurring if they can see the results in their hands.
The dollar is still reserve currency, but for how much longer? How do you tax an economy that will increasing go to cash or barter? That is the path started with the QE or maybe it started even easy credit before it.
All I have is the full faith and credit to back up dollar. It’s a little scary with a pure fiat system. I look at my dollars differently compared to years ago.
The point is that longevity doesn’t matter once something is extinct. Besides you don’t have any evidence regarding your claim, that is why your posts are devoid of facts. Your MO is to resort to condescension when you can’t make a basic argument.
I understand this is religion to you, but you can’t expect the rest of us to take it on faith.
Dude, get a grip, gold owned physically is NOT a liability of someone else….
….unlike your precious fiaTsco….
Cheers!
Speaking of facts, longevity, and extinction….
IR – I just wrote a lengthy post that seems to have been caught by the filter. Any way you can release it?
It should be there now.
Thanks
Jeez, over the the top a little.
Tax Foundation: End of mortgage deduction equals 659,000 jobs lost
The mortgage interest deduction remains the hot potato of tax reform and U.S. deficit debates.
To cut it, or not to cut it, that is the question.
If you accept new research that the Tax Foundation – a nonprofit that focuses on tax reform – released, the end of the MI deduction will stifle economic growth, causing the economy to shrink by $254 billion and the nation to lose 659,000 jobs. Wages also would fall at least 1.1%, the agency suggests. All of this, of course, would result from the loss of the deduction because it would kill spending power and growth.
“The mortgage interest deduction is a controversial provision and there are legitimate policy arguments beyond just its impact on revenue for whether it should be retained or eliminated,” said Tax Foundation Fellow Dr. Michael Schuyler. “For the purposes of our estimate, however, we’ve set aside questions of encouraging home ownership or unequal investment treatment and focused on the impacts on economic growth.”
In order for the deduction to make any sense, the Tax Foundation determined that it would have to be paired with other tax cuts to make up for a loss in economic growth. The group claims that it would take a 6.8% income tax cut across the board and write-offs for new equipment at small businesses to make up for growth lost due to the end of the MI deduction.
The Tax Foundation is not the only organization with a dog in this fight.
The Mortgage Bankers Association previously went to bat for the mortgage interest deduction.
File that one under complete and utter bullshit.
” The group claims that it would take a 6.8% income tax cut across the board and write-offs for new equipment at small businesses to make up for growth lost due to the end of the MI deduction.”
I am a bit confused. How does ending the MDI for residential home ownership affect the deduction for new equipment for a small business?
Never mind. I read again, I was confused.
I just drove by an R.E. sign in my neighborhood In Yorba Linda that reads new reduced price … for sale signs are popping up like weeds this week
Because everyone is seeing the writing on the wall and just realized the housing market just pooped the bed and this is may be the last go round before rates start going up. This rate suppression is just as unsustainable long term as Bubble 1.0 was and just as the current one is. If you plan on selling and getting the heck out of your house debt you better do it now. If you bought now plan on staying in it for 10 or more years or you are gonna get slaughtered come sale time.
http://www.latimes.com/business/la-fi-house-flips-20130729,0,6412098.story
“….. was slightly less optimistic, predicting the price run-up would last two to three years. More and more beginning investors, he said, will jump into the market as prices continue to rise.”
I read in the above link that the market will heat up in the next 3 years. I highly doubt this market has enough horsepower to go another three years. Housing is already languishing. We have reached and surpassed what should be the peak for THIS economic time but everyone s not satisfied so they tried to overheat the market to push it to Bubble 1.0 prices and its not happening like they want.
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