Aug062013
Don’t stress about rising home prices
House prices are rising rapidly, and the cost of ownership is rising even more rapidly. realtors are busy stoking fears with “buy now or be priced out forever.” Under these circumstances, it’s easy to get stressed out and worry about what’s outside of your control.
I didn’t buy an OC house at the bottom of the downturn. I knew it was a good time to buy, but for a variety of reasons, I was not in a position to buy when the market was ripe. Now that the cost of ownership is 30% higher, I am less motivated to buy a home, not more. Am I stressed about it? Not really. And you shouldn’t be either.
It’s Not Everyone’s Time to Buy a Home
By CARL RICHARDS — Published: July 22, 2013
My family and I are renters, and most of the time that feels fine. But last week I found myself in a state of temporary panic when I read this Twitter post from the financial journalist Felix Salmon: “John Paulson: if you rent, buy. If you own, buy a second home.”
When I read it, I immediately felt anxious. I recognized the feeling. It’s the feeling you get when you think you have to act on something right away or you’ll miss out. After all, if John Paulson, the guy who made “The Greatest Trade Ever,” was saying I should rush out and buy a house, I’d better get on it!
Don’t you get the same feeling when a realtor tells you you’d better buy now or be priced out forever? You’re supposed to. That’s the point. They want to create a sense of urgency and angst to motivate you to generate a commission for them.
After allowing myself to get all worked up about this, I did what I’ve done several times before. I pulled out a piece of paper and a pencil and worked through the emotions and the numbers. In the end, I was reminded of something incredibly important.
John Paulson doesn’t know me or my situation.
There is absolutely no reason I should be making decisions based on something he said. The same is true for any other “expert” who decides to share his guess about what he thinks will happen next in the housing market.
The same holds true for the other three people who just happened to express similar concerns to me about buying right now. Two were convinced that if they didn’t buy a house now, they’d be priced out of the market, and maybe they will be. But I heard that argument a lot in 2005-6.
Didn’t we all?
Then there was the third conversation I had.
It’s time for this person to downsize to a different home. The children have all moved out and the house just takes too much work. But even though it’s the right decision to sell now (given her individual situation) and buy a smaller home, a decision has been made to wait because the news, the forecasts and even the guesses are implying that the house could be worth substantially more sometime in the next 12 months.
This is madness!
Last week in Housing subsidies are detrimental to America, I lamented the need for timing the housing market:
“I developed the OCHN rating system to combat the volatility in our housing market. Timing the housing market is important, but it shouldn’t be. We should not need to focus so much attention on real estate prices because of excessive volatility. It shouldn’t matter when you buy. If your income can afford a certain level of housing entitlement, it should always be able to provide the same. As people get periodic salary raises, the cost of resale housing should rise in direct proportion as others who received the same wage increases would also bid up the value of houses. Unfortunately, that’s not the world we live in.”
Buying a home is one of the biggest financial decisions that most of us will make in our lifetimes. And yet it’s often a decision in which the person with the most knowledge about what makes the most sense gets overlooked: You.
There’s a simple way to fix this problem. As I was reminded last week, all it takes is a piece of paper, a pencil and some time. So if you’re struggling with this decision to buy (or sell), take a minute to think through these questions and write down the answers, because I suspect you’ll need to refer back to them the next time somebody decides to share what he thinks will happen with housing market. This list is not meant to be prescriptive. It is meant to get you thinking about something other than forecasts and guesses.
■ Can you afford it, and do you have enough saved for a down payment? Make sure you include the cost for things like property taxes, homeowner association fees and utilities.
I provide the detailed cost of ownership for the featured property each day, and I recently commissioned a consultant to create a custom IDX system that will show the cost of ownership for every property available on the MLS. Everyone who searches for a property here once the new system is launched will know the detailed cost of ownership of every property they look at.
■ Can you qualify for a loan? If the answer right now is no, then you can stop torturing yourself, because it doesn’t matter if the market is about to take off. You can’t buy a house.
This is the simple truth lost on many people who stress out over the recent rise in prices. If you can’t finance the property, and if you don’t have cash, what’s the point worrying about it?
■ How long do you plan to live in the home? There’s some debate about the minimum time you should live in a home for it to be worthwhile, but if it’s less than five years, forget about it.
Sound advice. I recently had an extended conversation with a gentleman considering buying a home in San Diego County. He thought there was a good chance he would move in two years, but he considered buying anyway because the house might appreciate 20%. It might, but it might not, and he might end up trapped in a house he can’t sell and get his down payment back out of. He ultimately decided it wasn’t worth the risk.
■ What guess are you making about housing prices? It is a painful reality that the one variable that makes a huge difference in this decision is unknowable. What is going to happen to housing prices in the short term is anyone’s guess. But for your own sanity, just assume that housing prices will continue to increase by about the long-term average of inflation, or 3 percent. You really can’t afford to buy a house if the decision depends solely on what the house might one day be worth.
Unfortunately, many buyers today are motivated solely on what they believe the house will be worth in the future.
The answers to all of these questions will depend on you and your individual situation. And that’s the point. Hopefully it’s clear now how ridiculous it is to buy a house based on some stranger’s advice.
Through this process, you may discover that buying and owning a house isn’t for you, and that’s O.K., too. But these questions can also help end your anxiety around what is probably the biggest financial decision you’ll make. Don’t you think that’s worth a piece of paper, a pencil and a little time?
That article has plenty of good advice. Think about it next time you get stressed about rising home prices.
$327,410 in Mortgage Equity Withdrawal and Four Years Squatting
The Ponzis who used to own today’s featured property extracted every bit of value they could from the property. After putting a scant $6,410 down, they extracted $327,410 in HELOC booty, and when they quit paying in early 2008, they were allowed to squat until 2011 when they were finally foreclosed on. The servicer then sat on the property for another two years waiting for the market to come back. Nobody has made a payment to occupy this property in over six years.
As these former owners sit in their rental and wait for their credit score to recover, I imagine they are quite stressed about the free money they won’t be spending because they missed the bottom.
[raw_html_snippet id=”newsletter”]
[idx-listing mlsnumber=”OC13150655″ showpricehistory=”true”]
13411 MARTY Ln Garden Grove, CA 92843
$289,900 …….. Asking Price
$246,000 ………. Purchase Price
12/28/2001 ………. Purchase Date
$43,900 ………. Gross Gain (Loss)
($23,192) ………… Commissions and Costs at 8%
============================================
$20,708 ………. Net Gain (Loss)
============================================
17.8% ………. Gross Percent Change
8.4% ………. Net Percent Change
1.4% ………… Annual Appreciation
Cost of Home Ownership
——————————————————————————
$289,900 …….. Asking Price
$10,147 ………… 3.5% Down FHA Financing
4.46% …………. Mortgage Interest Rate
30 ……………… Number of Years
$279,754 …….. Mortgage
$78,859 ………. Income Requirement
$1,411 ………… Monthly Mortgage Payment
$251 ………… Property Tax at 1.04%
$0 ………… Mello Roos & Special Taxes
$60 ………… Homeowners Insurance at 0.25%
$315 ………… Private Mortgage Insurance
$0 ………… Homeowners Association Fees
============================================
$2,037 ………. Monthly Cash Outlays
($225) ………. Tax Savings
($371) ………. Principal Amortization
$17 ………….. Opportunity Cost of Down Payment
$92 ………….. Maintenance and Replacement Reserves
============================================
$1,551 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$4,399 ………… Furnishing and Move-In Costs at 1% + $1,500
$4,399 ………… Closing Costs at 1% + $1,500
$2,798 ………… Interest Points at 1%
$10,147 ………… Down Payment
============================================
$21,742 ………. Total Cash Costs
$23,700 ………. Emergency Cash Reserves
============================================
$45,442 ………. Total Savings Needed
[raw_html_snippet id=”property”]
Realtors are not the ones pumping home prices. The Fed is doing the pumping. The Fed always has and always will pump house prices. When home prices drop, buy the dip because the Fed will always pump. And, if home prices ever drop over the long term, the Fed has lost control, and our economy as well as the currency will implode … in this case, you are better off with a home than sit on currency. Forget gold … it is dangerous to own hard metal. Renting is like betting against the Fed, which is a fools game. But, renting is better in 3 cases: 1) when trying to time a housing bottom and 2) when living in a city where home prices are a poor investment, which is the majority of places and 3) when you are living the permanently single life …
I think it’s dangerous to owe a lot of debt, which is the case with a lot of these beach homes.
It’s funny you bring up debt … and beach homes. I’m gonna rant a moment.
I’m of the belief that America used to grow economically due to the positive nature of a free-er economy, fair-er tax system, and MUCH less phony capitalism. Many people who bought assets years ago (before NAFTA in 1994), and this includes beach houses, would simply put money down, then leverage (mortgage) the remaining balance, and set back and allow the greatest economy in the world push asset prices higher. But the Wall Street Whores who own the democrats & republicans, decided that wasn’t sexy enough.
When I took economics as a sophomore in HS, I often wondered how the British had any wealth. I mean after all, their empire and influence around the world was shrinking, and they don’t make things. They don’t produce products!!! The only major product they do have is banking & insurance. BTW, Lloyd’s of London is a Ponzi Scheme of epic proportion back-stopped by the Tea-Bag tax payers.
Back to America …
So now that we shipped all the jobs to the third world, the way to make assets grow in America (including beach houses), is to incur more debt. Not only does America incur more public and private debt, we do it at a rate much higher that the rise of assets. We likely borrow a dime, to make a nickle (this multiple may be much higher). This is the only metric that works in an economy that no longer makes things.
Now the USA economy is simply dependent on the FED and perpetually looser monetary policy.
Once again, Earth to Jimmy…..
The rich are saving cash at a record pace
For the top earners—those making $750,000 or more—the No. 1 answer was “saved more.” Ranked second was “done more research about finances on my own” and then “not taken on as much debt.”
According to research from American Express Publishing and Harrison Group, the savings rate of the wealthiest 1 percent soared to 37 percent in the second quarter. That’s up from 34 percent in the second quarter of 2012—and more than three times their savings rate in 2007.
A separate study from Bank of America recently found that 56 percent of millionaires have a “substantial” amount of cash. Only 16 percent of them plan to invest that cash in the next couple of months.
http://www.cnbc.com/id/100935856
After a 33 year run of perpetually lower mortgage rates, and ever ending borrowing, the scheme may just be about over.
Jimmy: what area do you sell homes? Does your last name start with an “R”?
Just curious.
Jimmy, what do you think are good investments if the Fed does lose control?
So if the fed is pumping, and the currency has the potential to explode, gold is dangerous. And in a currency crisis, home prices always do well. jesus.
That was pretty funny.
Demand for Non-Traditional, Sub-prime Loans Up
Adding to concerns of a new housing bubble, lenders reported an increase in demand for “non-traditional” and sub-prime mortgage loans and that they’ve responded to that demand by easing standards, the Federal Reserve reported Monday in its quarterly Senior Loan Officer Opinion Survey.
According to the survey, a net 3.1 percent of lenders responding said demand for “non-traditional” residential loans increased from the survey released three months ago and a net 25 percent of respondents said demand for loans from sub-prime borrowers was higher than it was in May.
Almost half (49.3 percent) of lenders surveyed said demand for loans from prime borrowers had increased, up from 39.1 percent in the second quarter survey.
At the same time, a net 6.3 percent of lenders said they had eased lending terms and standards for non-traditional mortgage loans, while a net 25 percent of survey respondents said they tightened standards for loans to sub-prime borrowers.
The survey results are reported as a diffusion index, that is the percentage of respondents saying they are easing lending standards somewhat or considerably is subtracted from those who report they are tightening standards for a range of different lending products.
In the case of “traditional” mortgage loans, a net 7.5 percent of banks reported easing lending criteria. In the second quarter survey, a net 7.8 percent reported easing.
This will be the lenders’ response to higher interest rates. Those that are priced out due to higher rates will be replaced by those that are now able to qualify due to lowered standards. I mentioned this the other day when Matt asked why I was so bullish on real estate.
Standards lower as a function of price increases.
As this headfake ‘recovery’ in real estate ends, lending standards will tighten as prices soften.
As prices fall, lending standards must tighten because they become all the more important. If prices rise, lenders think can get away with lax lending standards because they perceive ever rising real estate prices as a safety cushion.
You have it ass backward.
Sadly, No he doesn’t:
“Regulators Fold; Lift ‘Skin-In-The-Game’ Rules To Keep Housing Bubble Dreams Alive”
http://www.zerohedge.com/news/2013-07-25/regulators-fold-lift-skin-game-rules-keep-housing-bubble-dreams-alive?source=Patrick.net
Your view on things is one dimensional and based on wishful thinking.
Lenders adjust standards based on their perception of risk vs. their desire for revenue. Right now, the desire for revenue, due to the drop off in refi business, has become the primary driver of lender decision making. This is a major shift in the lending landscape that will affect home prices.
I’m just letting you know what’s actually happening on the street. You’re free to cling to your theories.
I tend to think that both arguments have merit. Which factor will be stronger? I dunno.
Short term, I agree with Mellow Ruse. A sham recovery brought on by sham interest rates will create a situation where lenders decide to relax lending standards. This is temporary and will subside as interest rates rise, the false economic recovery is exposed, and house prices fall once again.
Mellow Ruse tends to have a short sighted, snapshot perspective which can seem right in the short term, but is proven wrong long term.
Perhaps Mellow Ruse is right, or perhaps not….
Lending standards continue to tighten
here is still a wide pool of potential homeowners hoping to lock in a mortgage, according to the Federal Reserve July 2013 Senior Loan Officer Survey.
The survey is based on responses from 73 domestic banks and 22 U.S. branches and agencies of foreign banks.
The demand for prime residential mortgages became moderately stronger over the past 3 months, according 57% of banks surveyed.
Additionally, 6 out of 32 banks reported moderately stronger demand in nontraditional residential mortgages.
Home equity lines of credit also experienced an increase apart from normal seasonal variations, with 17 out of 68 banks, or 25%, saying they had moderately stronger demand.
While overall demand may be spiking, lending standards have become somewhat tighter than the average since 2005.
Almost 23% of banks said prime residential mortgages with a conforming loan balance and FHA and VA loan standards were somewhat tighter.
This is happening at the same time as the industry is shifting to a purchase driven market, with refinance applications reaching their lowest level in more than two years.
How Bubbly Housing Prices Helped Lift Startups
It’s hardly news that a lot of entrepreneurs borrowed against inflated home values to fund their businesses during the bubble of the past decade. Recent research sheds light on the link between housing prices and small businesses. Areas where home values jumped before the 2007-09 recession saw substantially bigger increases in the number of new businesses and employment by small companies, according to a working paper from the National Bureau of Economic Research. Larger companies in the same places didn’t have the same growth in payrolls.
The effect was most pronounced in industries where it doesn’t take a lot of money to start a company, researchers at MIT and Duke wrote in the paper. That makes sense: You probably can’t use a home equity loan to start a big factory, but you could use it to start a small service business such as a home-care agency.
And the small business gains in bubbly housing markets weren’t just the consequence of greater demand for local services, such as construction: The researchers found that the pattern held true for businesses that shipped goods long distances, so the growth didn’t depend on local demand. Higher home values that gave business owners more collateral to borrow against accounted for as much as 10 percent to 25 percent of precrisis employment growth.
While the paper doesn’t really address the post-recession period, the results suggest that the long, steep drop in property values exacerbated the credit crunch for small business owners. Recent gains in home prices, then, are particularly good news for entrepreneurs.
Just as a reminder, NEW home median prices fell 11.5% from April to June. Existing home prices are sticky.
Home prices continue their upward trajectory
Home prices in June rose for the 16th consecutive month, rising 1.9% from May and jumping 11.9% from year earlier levels, research and analytics firm CoreLogic (CLGX) said Tuesday.
Those numbers include distressed properties – namely short sales and real-estate owned transactions. This is the first time in 36 years that prices have risen at this fast a pace, the research firm suggested.
When CoreLogic excludes distressed sales from its calculation, home prices month-over-month increased 1.8% and grew 11% from June 2012 levels.
“In the first six months of 2013, the U.S. housing market appreciated a remarkable 10%,” said Dr. Mark Fleming, chief economist for CoreLogic. “This trend in home price gains is moving at the fastest pace since 1977.”
The first half of the year brought “robust price appreciation,” Anand Nallathambi, president of CoreLogic said. The firm accurately predicted double-digit growth during the first six months of the year.
Do you think the short sale tax forgiviness act will finally end in december. And what effect do you think this will have.
I doubt it will end. I think Congress will finally amend it to include everyone who bought between 2004 and 2007 and make it permanent.
Another flaw that perpetuates stupidity in our tax code. This is very simple, any home equity loans, 2nd mortgages, or cash out refi’s shouldn’t be eligible for mortgage forgiveness … they spent the money, and it should be treated as income.
What if you go through the checklist and decide that it is your time to buy a house, but all you find out there are homes that are overpriced by 200k given the rapid rise in prices and rates? At the same time, your wife is terribly unhappy renting, but doesn’t want to settle for less house than she wants? What do you do then? Turn the bow toward Scylla or Charybdis?
Of course the third alternative is to drop anchor and wait out the storm, which is a generally an unpleasant affair. If only the news media would stop filling her head with so much bullshit I have to clear out every night. I am really starting to dislike these people.
Amen.
And then you remember that it will be you spending your weekends fixing that overpriced POS house, and you hold your ground. Buying is more than money, it’s responsibility. Renting can be one less problem to manage.
I bit the bullet and bought her the house, and I now could care less if prices increase or decrease. A few weeks ago was the first time I looked to see what our house is “worth” after living here a year and a half and I was shocked at the appreciation. But, … we aren’t selling so what diff does it make.
RahRah – Not only do I spend my weekends working on our overpriced POS house, but I also spend every daylight hour working on it when I get home from work. It really was a POS. We closed on a two an a half week escrow one day before it went to auction, and the previous owners had not done any maintenance in years. Renting is definitely less house problems, but renting when you have the money to buy can be a marriage problem and that is much more expensive.
That last sentence is classic!
At least I know I’m not alone.
Well, at the least you can tell her the fall is when prices cool (or come down). So you should wait until October or so to see what happens. If there is genuine long-term appreciation going on, you’ll see prices merely pause and interest rates hold steady. If not, and you see both come down (the first because sellers panic, the second because the Fed does also) then you’ll have a sweet opportunity. If prices come down and interest rates hold or (ugh) climb, you are looking at savage stagflation with the Fed out of arrows and God knows what will happen. Personally, I think the scenario of both prices and interest rates continuing their climb is unlikely — not consistent with the fundamentals. Of course, as they say, markets can remain irrational longer than you can stay solvent, ha ha, so take with the usual sack o’ salt.
Anyway, you can at least wait until October. You are not going to be priced out forever with two months’ waiting, and a great deal will become clearer after those frenzied to close before school starts are done, the September Fed meeting and whether “taper” starts this fall, next year, or never, the next GDP print, the employment report heading into the Christmas season, and whether Congress and the President get their heads out of their asses with respect to the various budgetary deadlines coming up fast. We’ll also know the next Fed Chairman, maybe. Plus we’ll see if the “Great Rotation” out of bonds into stocks has any kind of legs.
“If only the news media would stop filling her head with so much bullshit I have to clear out every night.”
What I find really challenging is convincing my better half the merits of buying some gold that she can neither wear nor adorn herself with (like Valcambi cards and Kruggerands) 🙂
many throughout history have cut links from jewelry to keep fed. jewelry is better than cash. one can be melted, the other goes up in smoke.
Thanks. It’s good to get a little moral support. I keep telling her that once the drop in rates and rise in inventory kicks in that prices have to drop. She doesn’t believe me. She just talks about 7 year up / 3 year down cycles like it was written on a tablet brought down from Mount Ararat.
I say that the inventory crunch this spring has driven every buyer mad and prices rose from pure panic. Her response is that prices rose when I said they should drop (from the rising taxes and sequester). I still think we haven’t seen the true effect of rising payroll, income and budget cuts yet, although it’s starting to show up in the Q1/Q2 GDP.
So the upshot is that she’s mad we didn’t buy at the bottom (she forgets that we just had a baby in January, our second, not to mention other family issues, so we had no opportunity to look, much less buy). No rational arguments will prevail – time to call the florist, or spend some of that down payment money at Tiffany’s. Ugh!
What’s really infuriating/humorous is that every house we look at has something “wrong” with it: it’s too small, it’s too large, it looks funny, its too old, the paint color is wrong, the door doesn’t face the street, the stairs face the door, the house doesn’t face the right compass point, the bedroom is over the stove, the house has a pool, the house doesn’t have a pool, there’s an association fee!, it needs too much work, or IT’S TOO EXPENSIVE. With the low inventory, how the hell am I EVER going to find this woman a house? And yet, its all my fault… Just shoot me!
You just helped me to remember that one of my strategies was to take extravagant vacations to places she had never been to and wanted to see. I am a big believer in cycles, but the Fed responded in ways that stopped the fall which short circuited the culling process. Still too much fat.
Mark – I prefer 100 ounce bars.
( just kidding )
I don’t think any wife would bitch if a husband brought home a 100 oz bar or two.
Russ, That was funny. Thank you.
I can tell you right now you’re right. I keep track of activity in my neighborhood and things have definitely cooled off since the spring. Give you an example: absolutely identical houses, same model, same build year, same tract/HOA/school. One two blocks north went on the market in March and had offers instantly, sold I think for 720, maybe 20 over list. One just down the street, went on the market about two weeks ago, listed at 699 — but they’ve already lowered it to 685, and they’re having their third open house this weekend. Hang in there.
My data shows the same thing. The best data is pending sales. It’s also the hardest to come by, although it is publicly available through redfin. They don’t allow you to download the pending dates directly into excel. What you have to do is keep a running log of what went pending each day, go to the house page on redfin, write down the pending date and the price the listing went pending at. Assuming that the sale-to-list percentage isn’t changing much day to day, on average, and that the sales mix doesn’t change much either, you can get a real good idea of how the market pricing is changing week to week.
So, here is what I am seeing in YL. I look at the 1/2/3 week $/sf trailing averages of pending sales. The 1 week tends to be volatile and the 4 week has too many pendings turn into closed sales and drop out of the dataset. So the 2 and 3 week are the most useful for seeing the trend, but the 1 week helps to see if there is a sudden jump in high dollar per sf sales that close within a week (Chinese Investors or New Home sales).
The 1 wk $/sf average peaked at 370/sf, for sales that are currently pending, on July 5th. So, contracts signed on June 29 thru July 5, averaged 370/sf. As of this morning, the 1 wk $/sf pending average is at 292/sf. It has pretty much fallen in a straight line over the last month. There was a spike in the $1.5M+ pendings at the beginning of July which might account for the rise and fall of pending $/sf. It looks to me like a Chinese tour came through at that time, and talking to a realtor at an open house about a week ago, he confirmed that he had just sold 3 properties to Chinese in Kerrigan Ranch, all cash – so not all speculation.
The 2 wk trailing average is similar showing contract peak $/sf at 356/sf on July 7 dropping to 311/sf today. The 3 wk trailing average peaked at 342/sf on July 18, and is down to 312/sf today. The average pending $/sf is 320 for the whole data set, but the trend has been heading lower to the low 300s.
Turning to closed sales. A trailing average of closed sales, on a dollar per square foot basis, for the last 30 closed sales, shows a peak at 333/sf on July 26. Today, it is at 309/sf. The low in the last 2 months was 304/sf on June 14. It appears that we had a run up in prices associated with the jump in rates. My thought is that a lot of buyers downgraded when they saw they couldn’t afford their target house anymore and bid up the $/sf of the smaller homes.
Turning to volumes. Pending sales are down from 60 on July 8 to 43 today. Active listings have risen from 104 to 109 over the same period, but are recently down from 115. Sales have jumped 98 to 117 (last 3 month total), over the same period.
In summary, we have fewer pending sales (60/43) at significantly lower $/sf (342/312) over the last month. We have more closed sales (98/117) at lower $/sf (333/309). Prices seem to be headed in the right direction (i.e. the direction prices should head when rates rise along with inventories — down). We aren’t even seeing rising prices on lower volume, we are seeing falling prices on lower volume (Egads!).
So when I say the correction has begun, it’s not me that’s saying it, it’s the data. The data is just a proxy for what other buyers are saying the prices should be. The market is saying we are in correction because other buyers aren’t willing/able to pay what they paid 2 months ago. BIG SURPRISE!
Moar equity withdraw please. Also this will affect DTI in the long term.
Why keeping up with the Joneses just got tougher
Consumers trying to keep their budgets balanced will be dismayed to find that keeping up with the Joneses is getting pricier as the global middle class expands.
Economists generally consider the middle class to be people with the financial resources to make discretionary and small luxury purchases-from an automobile to concert tickets. By that broad brush, about 2 billion worldwide qualify, said Jack Plunkett, CEO of Plunkett Research.
By 2030, that number will balloon to 5 billion, with many of the newcomers in developing countries such as India, China and Brazil.
Consumer spending in Brazil, Russia, India and China accounted for 8.1 percent of global gross domestic product in 2010, according to IHS Global Insight. It is expected to reach 12 percent by 2015. U.S. consumption as a percentage of GDP peaked at 22 percent in 2002 and is expected to be roughly 14 percent by 2015.
That emerging middle class pushes prices higher, because there are more people vying for resources and products. Rising wages, which help create a middle class, also inflate prices because goods are more expensive to produce, Plunkett said.
“The long-term effect is going to be pretty dramatic,” he said.
Consumers are likely to notice first-and may have noticed already-with basic items such as groceries and gasoline.
“When people get a higher income, they want to eat more meat,” said Chris Christopher, an economist with IHS Global Insight. Prices for a pound of ground chuck and whole chicken are up 20 percent and 28 percent, respectively, in the past five years, according to the Bureau of Labor Statistics.
Sure, except that China is going to implode, and anyone who draws a straight line extrapolation out 20 years deserves what he gets (which is not pleasant). What happens if you draw a straight line from 1955 to 1975? How about 1975 to 1985? 1985 to 2005? You have to be pretty careful in picking a 20 year period to have your extrapolation actually work, and not cross a Black Swan or two that makes you into a monkey.
For those that want to learn to time the market better, tonight’s meetup at the Irvine Hilton will address that very topic.
http://www.meetup.com/Orange-County-FIBI/events/127854362/
Come say hi to me if you can pick me out of the 120 or so investors that will be there.
I read Mr. Campbell’s book many years ago …
Why not make it easy for us to find you… just wear a baseball cap with the letters ‘Cgog’ embroidered on it. Lollllllllllllllllllllllllll
Unlike you, I’ve never posted under multiple names on this blog.
You never used the name ‘Liar Loan’ on this blog? Or was that just Lansner’s?
I used that name at Lansner’s, TalkIrvine, OCReader, once at IHB, and once at your blog. I’ve never used it here.
el O was my inspiration for starting fresh when I came to this blog, since he used to post under a different name at Lansner’s blog.
As someone who is not above a bit of trolling here and there, nothing delights me as much as knowing I got under your skin so…
Thanks for that.
The Taper monster can strike at anytime.
Taper may start in September or anytime this year
NEW YORK (Reuters) – Stocks slid to session lows on Tuesday following comments from Dennis Lockhart president of the Atlanta Federal Reserve Bank, that the central bank could start reducing its bond-buying program as soon as September.
The selloff accelerated in late morning after Lockhart, in an interview with Market News International that was picked up by a Wall Street Journal blog, said that while the Fed’s easing back on monetary stimulus could come in September, the move could come at any time before the end of the year.
“It’s almost as if the market was looking for an excuse to sell, and they found that from Lockhart’s comments. It’s nothing new, but at these levels, any news from the Fed could serve as a good reason to book profits,” said Ryan Detrick, senior strategist at Schaeffer’s Investment Research in Cincinnati.
The steep downturn, which drove the three major U.S. stock indexes down to session lows with the Nasdaq briefly down 1 percent, took place around 11 a.m., a Thomson Reuters chart showed. This move extended declines linked to investors taking profits from the recent rally that lifted the Dow Jones industrial average and the S&P 500 to back-to-back record highs late last week.
The market’s swings were exaggerated by thin trading volume, which was light for the second consecutive day. Monday marked the lowest volume for a full-day session so far this year. With major U.S. economic data like the nonfarm payrolls report and earnings from bellwethers out of the way, volume is expected to be light throughout the week.
Did anyone ask Mr. Lockhart who was going to buy the treasuries that the Treasury Dept needs to sell every month to keep the government from defaulting on it’s debt? Did anyone ask Mr. Lockhart if he had an opinion on the future of the $750 trillion worth of interest rate swaps if the Fed stops buying $85 billion of treasuries every month.
Maybe the Fed will taper, but I am more prone to look at their actions than their talk.
Hedge fund offloads entire GSE portfolio
Passport Capital told investors it wanted to cut some risk from the hedge fund.
Therefore, the hedge fund sold off all of its Fannie Mae, Freddie Mac and Ginnie Mae holdings in the second quarter.
According to a letter to investors, obtained by Bloomberg, the decision turned a profit for the firm.
Coming soon to a pension near you:
“Derivative claims are considered “secured” because the players must post collateral to play. They get not just priority but “super-priority” in bankruptcy, meaning they go first before all others, a deal pushed through by Wall Street in the Bankruptcy Reform Act of 2005. Meanwhile, the municipal workers, whose pensions are theoretically protected under the Michigan Constitution, are classified as “unsecured” claimants who will get the scraps after the secured creditors put in their claims. The banking casino, it seems, trumps even the state constitution. The banks win and the workers lose once again.
Systemically Dangerous Institutions Are Moved to the Head of the Line
The argument for the super-priority of derivative claims is that nonpayment on these bets represents a “systemic risk” to the financial scheme. Derivative bets are cross-collateralized and are so inextricably entwined in a $600-plus trillion house of cards that the whole financial scheme could go down if the betting scheme were to collapse. Instead of banning or regulating this very risky casino, Congress has been persuaded by the masterminds of Wall Street that it needs to be preserved at all costs.”
http://www.globalresearch.ca/the-detroit-bail-in-template-fleecing-pensioners-to-save-the-banks/5345099
That is appalling. Gamblers in unregulated derivatives get paid before pension obligations? Wow.
The Fed and the government will to everything they can to preserve the status quo, but down it will come. Timing? I dunno, but I am betting that it is soon.
Taxpayers will cover private mortgages with this proposal.
Obama Reveals Goals for Housing Finance Reform
In a housing speech Tuesday, President Barack Obama stressed the need for a new housing finance system based on specific core principles that include putting private capital first, ending Fannie Mae and Freddie Mac’s “failed business model,” and ensuring broad access to the 30-year fixed rate mortgage, according to a fact sheet from the White House.
“Fannie Mae and Freddie Mac should be wound down through a responsible transition, and the government role during normal times should be no bigger than necessary to achieve the principles laid out here,” the fact sheet stated.
The call to wind down the GSEs reflects separate housing finance reform bills recently introduced by members of the Senate Committee on Banking and House Committee on Financial Services.
However, the bill from the House would provide for a non-government nonprofit to replace the GSEs rather than a government agency.
To help responsible homeowners refinance, the president also outlined three proposals, which were to streamline refinancing for borrowers with government-insured mortgages, waive closing costs for borrowers who refinance into shorter terms, and expand eligibility for refinancing for those without government-backed mortgage by creating special programs.
The administration estimates families will save about $3,000 a year through refinancing while mortgage rates are low.
Obama also stressed the need for greater clarity on lending rules to help more responsible and qualified families become approved for mortgage financing.
According to the fact sheet, many borrowers “are denied a loan because lenders are unclear of the rules of the road for lending and are protecting themselves by only lending to those with the most pristine credit.”
Obama also expressed the need to fix the “broken” immigration system in order to increase home values.
The fact sheet stated that between 2000 and 2010, immigrants accounted for almost 40 percent of new homeowners nationwide, and account for over 80 percent of the growth in homeowners in California.
Well of course. Taxpayers are not Obama’s constituents.
DON’T PANIC…”For-Sale” Supply Wave Hitting Market?
I am tracking a sharp jump in MLS “listed” supply all over the Western region in the past 3 weeks.
In my little city in California for example, listed for-sale supply went from 60 houses to 100 in the back half of July. Say what?!?
We sell 20 houses per month so this market went from 3 months to 5 months supply “going into” the slow season. This is unprecedented. It reeks of panic. And comes as Realtors from coast to coast tell me that the “frenzied” demand pace through May has all but EVAPORATED.
http://mhanson.com/archives/1419
Thanks, Mark. I didn’t realize who Bubbabear was. I’m glad to see you read and post here.
Too cool.
Home Prices Rising at Fastest Pace in 36 Years
Aug 6 2013, 11:14AM
by Jann Swanson
Housing prices increased by what the Chief Economist for CoreLogic called “a remarkable 10 percent” in the first six months of 2013, the company announced this morning. Mark Fleming noted that the 10 percent year-to-date increase was the fastest pace for home price gains since 1977.
Unprecedented Decline in Mortgage Delinquencies -TransUnion
Aug 6 2013, 11:43AM
by Jann Swanson
Mortgage delinquency data released by TransUnion today show that mortgage delinquencies are plummeting nationally. The rate of borrowers 60 days or more past due on their mortgages fell to 4.09 percent in the second quarter of 2013 from 4.56 percent in the first, a decline of 10 percent, Delinquencies were down 26 percent from the second quarter of 2012.
TransUnion called the rate of decline “unprecedented.” Tim Martin, group vice president of U.S. Housing in the company’s financial services unit said, “This marks the third quarter in a row where we have posted all-time highs in terms of delinquency improvement and that is very welcome news for both borrowers and their lenders. Many of the delinquent mortgages we have been tracking have been delinquent for a very long time, so it is encouraging to see this number is coming down so significantly.”
And I just read that 46% of all loan modifications have re-defaulted.
With the can kicking reaching such extremes, I expect the redefault rate to rise even higher.