housing bubble posts
FeedPosted Feb 26th 2011 10:30AM by Ted Allrich (RSS feed)
Filed under: Comfort Zone Investing
In the 1630's, it was tulips. More specifically, it was Semper Augustus, a tulip of extraordinary beauty; deep, deep blue with a band of white and touches of crimson flares. In its day, it was the must have thing. There was one man who owned the dozen flowers known to exist. He was offered the equivalent of one year's annual income from a wealthy merchant for one bulb. He turned it down.
Tulip prices increased throughout the decade as more speculators got into the game. In 1633, a farmhouse was traded for three rare bulbs. By 1636 any tulip could be sold for extraordinary sums. Futures markets started. Trades were made in fields or taverns, between farmers and merchants. Some bulbs were bought and sold 10 times in a day. One father left his seven children an inheritance of 70 tulips. One sold for the all-time record price of 5,200 guilders.
Then, one day in 1637 everyone decided to stop playing. No buyers showed up at the local tulip auction in Haarlem. Within days, panic started, then spread. Tulips that sold for 5,000 guilders soon went for less than 50. (Source:
Tulipomania by Mike Dash)
Continue reading Comfort Zone Investing: Bubbles Always Burst
Posted Mar 17th 2010 4:40PM by Sheldon Liber (RSS feed)
Filed under: Market Matters, KB HOME (KBH), Options, Chasing Value™, Stocks to Buy, Housing
It's time to get serious about home builders again, and today I started building a position in KB Home (
KBH) using options. Since the collapse of the residential real estate market three years ago prognosticators have been debating when the home builders might be worthy of investing your precious coin of the realm.
As is to be expected in these volatile times most were either too optimistic or pessimistic and few got it right. Like many stocks the home builders appear to have bottomed last March. In the case of KB Home shares were available at $10. Today they have been trading between $17.64 and $18.00 per share, up 80%, although it has been a rocky road.
That is a very healthy return, but there is much more upside to come. How would you like to make 43% quick? Yeah me too!
Continue reading Chasing Value: 43% Gain to Build a Position in KB Homes
Posted Feb 15th 2010 3:40PM by Mark Fightmaster (RSS feed)
Filed under: Columns
Elkhart, Indiana; a favorite stomping ground of President Obama - where the government's economic stimulus plan was to be on full display, helping the town rise like a phoenix from the ashes. According to this
New York Times article, Elkhart has gained jobs in the past nine months, but the federal support for housing is failing. More than one in 10 mortgages in Elkhart is "seriously behind" on payments and the median sale price of homes is back to where it was 10 years ago. One of the main goals of the federal support program was to keep prices from falling and mortgage delinquencies from rising, and how is that working out? Elkhart residents note that the only reason their real estate market works at all is because of the emergency federal funding. In fact, in the past 18 months, the FHA upped loans in Elkhart by 40% while defaults increased 174% --- not a good ratio.
Continue reading Has Elkhart, Indiana Come to Symbolize Federal Housing Failure?
Posted Aug 23rd 2009 11:10AM by Tom Johansmeyer (RSS feed)
Filed under: Housing, Recession
It looks like the housing market is coming back, but there's still reason to be careful. In July, home resales had their highest monthly increase in at least a decade. The rush is driven in part by a tax credit that expires on November 30, 2009. The rate of sale grew 7.2%, ahead of expectations.
Last month, sales hit a seasonally adjusted annual rate of 5.24 million in July -- up from a 4.89 million in June. This is the fourth month in a row in which seasonally adjusted sales increased, and it was the strongest growth rate since August 2007. A Thomson Reuters survey had forecast 5 million, but the reality exceeded that.
Continue reading Housing sales come back, led by first-timers
Posted Dec 23rd 2008 3:15PM by Lita Epstein (RSS feed)
Filed under: Housing, Recession
This post is part of our feature on Money Losers of 2008. See all 20.
For a second year in a row, American homeowners are among the biggest losers of 2008. In 2007, predictions were that American homeowners would lose over $103 billion. Now at the end of 2008 the number jumped to losses of $2 trillion as the value of homes continue to fall with no end in sight. As job losses increase, even more families will be forced into foreclosure.
Homeowners who bought at the top of the housing bubble between 2005 and 2006, could wait decades for the prices to reach that level again. People who must move for a new job or family crisis find they either have to come up with cash for closing (if they find a willing buyer) or they must walk away from the loan and give the house back to the bank either through foreclosure or through a deed-in-lieu of foreclosure.
The housing bubble that started to inflate in 2002 and burst in 2007 drove housing prices way out of the normal range. The normal ranges for housing prices track these measures:
- Income: The house price should not exceed three times your average household income, which was true from 1950 to 2000. In 2006 the average household income was $66,600, so the average home price should have been about $200,000. But during that year the average home price was about $300,000.
Continue reading Money losers of 2008: The American homeowner, still sinking after the bubble burst
Posted Oct 24th 2008 3:56PM by Joseph Lazzaro (RSS feed)
Filed under: Forecasts, Industry, Politics, Housing, Recession, Financial Crisis
Every once in while during a crisis or history-altering event, you run across a quote or an observation that sort of summarizes events on the ground, in a nutshell. Former U.S. Federal Reserve Chairman
Paul Volcker articulated one such observation during a recent chat he had with
PBS's Charlie Rose.
"It seems to me what our nation needs is more civil engineers and electrical engineers and fewer financial engineers,"
Volcker said.
U.S.: a decade of descentAnd there you have it -- the United States' decade of descent, in a nutshell. Volcker's observation speaks volumes about where the United States economy -- and the nation, at large, for that matter -- is today.
For reasons that historians will undoubtedly debate for decades (globalization, automation, flawed public policies, inadequate regulations, overconsumption, the availability of foreign capital, greed) the United States embarked on a financing boom -- creating an increasing array of creative and untenable mortgage types, accompanied by an equally problematic set of mortgage backed securities. It generated an unsustainable housing bubble, which ended as all bubbles do -- badly -- triggering the global financial crisis.
And yet, all the while, as Volcker observed, public investment in infrastructure -- the physical backbone of the economy, of the nation, really -- declined. That infrastructure is now in a state of disrepair. The nation's schools, hospitals, roads/bridges/mass transit systems/air travel system and even our electric grid are inadequate to meet the nation's current requirements, let alone the requirements of an expanding, vibrant, dynamic, twenty-first century economy.
Continue reading Volcker: U.S. needs more civil engineers and fewer financial engineers
Posted Oct 2nd 2008 3:39PM by Sheldon Liber (RSS feed)
Filed under: Other Issues, Rants and Raves, Interviews, Berkshire Hathaway (BRK.A), Money and Finance Today, Media World, Politics, Housing, Recession
The Oracle of Omaha, Warren Buffett, of
Berkshire Hathaway (NYSE:
BRK.A) spent a few moments on CNN answering some key questions about the economy at a Fortune Magazine Forum. He was asked where he would place the blame for the current financial crises being played out on the world stage, and he said he is not one to point fingers. There is plenty of blame to go around.
Initially Buffett quipped that
"every saint has a past, and every sinner has a future." He went on to say that the everyone participated in the creation of the housing bubble with the unrealistic expectation that prices would continue to rise.
He summarized that home ownership is worshiped in the United States, and once cheap funding became available and prices started to rise there became the feeling that if you did not buy a home now you would be facing higher prices next year and perhaps less favorable interest rates as well.
Continue reading Fortune interviews Buffett on CNN
Posted Sep 15th 2008 2:19PM by Joseph Lazzaro (RSS feed)
Filed under: International Markets, Forecasts, Industry, Employees, Economic Data, Housing, Recession
Many economists, analysts, traders and others agree it's way too soon to assess the impact of this latest, mortgage-related jolt on the stock and bond markets, and on the U.S. and global economies.
There are too many moving parts, and too many unknowns to form meaningful, enduring conclusions. The reason? The financial world order we see today may not, in fact, be the financial world order we see tomorrow. The
Dow was down about 256 points to 11,165 early Monday afternoon.
But there is one conclusion U.S. investors / citizens can form regarding the U.S. economy, so says an economist: expanding credit and rising home prices, in and of themselves, are not engines of economic growth.
Now, everyone's recognizing 'the obvious'
"We have now entered the age of recognizing the obvious," economist Richard Felson said. "Almost everyone knew that the booming housing market would slow down as soon as all potential buyers had been tapped and as the American economy slowed. But few foresaw the impact the slowdown would have on mortgage bonds, their owners, and the financial system. We now have to rebuild the American credit market, and global credit market, as well, to a degree. It will be a major task."
The primary source of all the above, in Felson's interpretation? Structural problems in the U.S. economy, primarily a lack of jobs, or low job growth, he said.
"For the better part of four years, America went blithely along, confident that the fundamentals of the [U.S.] economy were sound. Yet all the while, job growth and its companion, rising median wages, were inadequate. But they were ignored because corporate earnings were up and home values were rising. But it was a building constructed on quicksand," Felson said. "The boom was not sustainable. The [U.S.] economy did not have growth engines in place for sustainable growth. "
Continue reading Easy credit and rising home prices are not engines of economic growth
Posted Sep 8th 2008 2:24PM by Joseph Lazzaro (RSS feed)
Filed under: Forecasts, Economic Data, Housing, Federal Reserve, Recession
New York Times
columnist Paul Krugman, a person who freely and proudly states his liberal economic outlook, (See Krugman's book:
The Conscience of a Liberal) and his disagreement with the Bush Administration's economic conservatism, once again reminds investors/readers that the U.S. financial crisis is resembling that of Japan's in the late 1980s.
Investors/readers will recall that in the late 1980s, fanned by easily obtainable credit, commercial and residential real estate prices skyrocketed in Japan, with investors and speculators continuing to bid-up prices, despite the fact that numerous indicators signaled that prices were astronomically overvalued. Further, Japan's real estate boom occurred during only a modest increase in household formation and amid an aging population. What followed was inevitable: the bubble burst, albeit slowly, and the correction led to a decade-long economic slump for Japan.
Fast-forward to the United States, 2003-2007: intoxicating rises in home prices, fueled by 'extremely creative' mortgage plans, and a belief that out-sized gains would not end soon. Yet all the while, job growth remained modest at best, with falling real wages in many job categories. The U.S. economy was growing, but the growth was not sustainable because it was rooted in a bubble - - a real estate bubble - - not in an increase in the nation's productive capacity and good jobs, so says economist Glen Langan. Or as Langan called it, the U.S. economy in 2003-2007 was, largely, "an asset appreciation economy."
Continue reading Is U.S.'s economic slump mirroring Japan's late-1980s slump?
Posted Aug 31st 2008 3:30PM by Joseph Lazzaro (RSS feed)
Filed under: Housing, Recession
The real estate research firm
Zillow.com released a sobering statistic, and it took some by surprise: more than one-third of homeowners who bought in the past five years have negative equity in their homes.
Negative equity is owing more on your mortgage than the market value of your home. On the heels of the United States' greatest residential real estate boom in the modern era, how did the above occur?
Two factors, so says economist Peter Dawson.
First, many regions of the U.S., particularly the west, experienced abnormal gains during the 2003-2007 real estate boom. "Total appreciation rates over 300% were not unusual during the period. It was an amazing run, fueled by adequate national GDP growth, and low mortgage rates," Dawson said. "But as we've seen, ultimately the appreciation rates proved to be unsustainable, everywhere they occurred."
Dawson says a 7-9% annual increase in the U.S. median home price is normal, and his models label a 10% annual increase or higher as "outsized" -- a deviation from the mean that calls for a correction at some point in time. "But during the boom, it was not uncommon to see 30%, 40%, 50% annual increases over multiple years," Dawson said. "Clearly unsustainable. Downright frothy. But these conclusions were largely ignored during the boom, on the fallacy of 'what has occurred will continue.' "
Second, a financial habit shifted, Dawson said. Way, way back in the twentieth century, Dawson recalled, the biggest stigma when he grew up in a typical neighborhood in
White Plains, N.Y., a suburb about an hour north of New York City, was... Not gaining acceptance at a good college? No. Not getting the hottest date for the high school senior prom? No. "We learned that the Smith's [not their real name] down the street had to take out...a second mortgage," Dawson said.
Continue reading Some old financial habits experience a comeback
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