Real Estate Market / Inflation / Recession / Depression (Denver, Boulder: mortgage, foreclosure, debt)

[jazzlover]

Originally Posted by Mike from back east

Okay crew, let's stop bashing the realtors, every business segment has a positive view.... stock brokers will sell you any sort of investment you want today, even though the stock market has gone down and is going down further, and the SUV and Hummer dealers are screaming buy buy buy...so.... let's get back on topic....

"Federal Reserve chief Ben S. Bernanke told lawmakers today it is "critically important" that any economic stimulus package take effect quickly if it is to help ward off recession, remarks likely to push Congress and the White House toward faster action on an ...." washingtonpost.com - nation, world, technology and Washington area news and headlines

Bernanke seems almost in a panic. Those words are not the usual sort of stiff upper lip comment the Fed is long known for... IMO he says we're in real trouble... and of course he declines to blame his predecessor or chief executive for starting the real estate bubble with insanely low interest rates to spur an economy after 9-11 and the dot-com crash, a bubble made worse by a collective failure of every watchdog agency in the nation to halt mortgage practices that were absurd and/or criminal.

I think a recession has already started, will run 18-24 months, and the Dow will sink to 10,750 before it turns up. Bets?

And I've been wanting to add this to the thread for some time now.... that being, in addition to the known economic troubles that lie ahead, the sudden happening of a wild card event, like bird flu becoming human transmissible... and what happens if it really gets rolling in the fetid teeming masses of China, India, Pakistan, Bangladesh, Malaysia, North Korea ... tens of millions die, probably several hundred million, all travel stopped, imports curbed... talk about a bad scene...

Enough rosy scenario for now, gotta go get a haircut.... while I've still got some...

Aw, Mike, your spoiling all of our fun . . .

So, you're saying being a stockbroker married to a realtor living in a $500,000 house with a 90% mortgage, with two kids--one a mortgage broker and the other an RV salesman, driving two Hummer H2's and a Lexus SUV or two a hundred miles a day each, with all of the 401K's invested in mortgage derivative funds, 6 American Express and Visa cards (maxed out)--and an appetite for things with brand names like Rolex, Tiffany, Armani, and Halsten might not be an idyllic family situation right now? I'm crushed.

Seriously, though, I think the Fed (with a lot of help) has painted itself into an awful corner. If it does nothing, it will be blamed for whatever happens next. So, I think we will see some sort of "stimulus" package out of them and/or Congress. Unfortunately, that is a "hair of the dog" solution. We got ourselves into this god-awful mess in real estate and the general economy because of lax lending, excess liquidity, overconsumption, and spiraling debt. So, what Congress and the Fed propose to fix it is: lax lending, excess liquidity, overconsumption, and spiraling debt. I wish I was smart enough to have figured that out!

The truth is, the "fix" probably won't fix anything. If, as Bernanke says, it should be a "quick" stimulus, it will encourage immediate consumption. Since what most of America consumes is foreign-made, that is likely to worsen the already bad trade deficit. It will also likely weaken the dollar further, which will increase the costs of everything we import--including oil. So, much of the "stimulus" will wind up in the pockets of foreign oil producers and Chinese widget-makers. A stimulus package will not fix what is fundamentally happening, either--Americans spending money they don't have on high living, oil imports, foreign-made garbage, and suburban box houses that don't produce anything. It also won't fix dollars chasing ever more scarce basic resources--like oil.

If the Fed or Congress wanted to do a "stimulus" package that would make sense it would be a longer-term sensible package to make long-term public investment in our essential infrastructure. No, not in sprawl-producing highways, but rather in things like a robust, usable, passenger rail system--both long and short distance; rebuilding of our core cities and smaller towns into something livable for middle-class Americans; investing in the American industries and businesses that are vital to nation's long-term security; and spending on the research and development necessary to get this country out of its increasingly dangerous energy predicament. That would be a sensible stimulus and investment package. Anything else is just BS window-dressing that really won't do any good.

And, at the end of the day, Americans are going to have to accept the fact that they are probably going to be living in smaller houses, driving less, vacationing less, working more, and retiring older--probably for a long ways into the future. We thought there really was a "free lunch" for way too long, and now we have to pay for it.

[Mike from back east]

Jazzlover, you hit the nail right....

That excess liquidity is one of the things that drives me crazy, especially all of those "private equity" firms buying up the best corporations we have, i.e., taking away from me the chance to own stock in the best, more profitable firms out there. A year ago, I sat in an investment chat in Littleton at Koelbel Library and the guy was predicting all this stuff, even then. He said then that the end of cheap credit would be the end of the buyout boom. Even a year ago, cheap money was coming to an end as the FED had raised the rates up to 5.25% or so.

I remember when our 'dear' president told us that tax cuts favoring the wealthy would benefit us all, that they knew how to put money to work, that they would take that money and invest it, and (get this) "they'll open factories." He was talking to us like we were a bunch of 8 year-old children. I remember it well. I wanted to do an "Elvis" and shoot the damned TV when he spoke to me like that. Oh sure, Intel, the great computer chip firm, is opening a new $1B chip factory. In Vietnam. BTW, Intel is closing a 1M sq ft chip plant here in COL SGPS (800 jobs, poof). Anyone seen any new factories in America lately? No, the wealthy took that money and stuck it in hedge funds, or they bought up tons of houses to flip. Any hedge fund holding CDO's backed by the "collateral" of no-down liar loan mortgages is losing their ass right about now, and many flippers are in dire straights. Just desserts are a beetch.

So yes, cutting rates to spur consumption is just more of the consumer-spending crack that Wall Street smokes. Are we put on this earth just to "consume." Yes, the Fed is in a tight spot, as you say. Cutting rates can spur demand-based inflation (evil) and doing nothing means recession (evil). Fed dilemna is which evil do they want to cause. Inflation is happening as we speak, wages aren't keeping up, so it's almost for certain that it's back to the future we go for another round of 1970's-style stagflation.

How I wish we had that $1T of tax-cut red ink in the Treasury these past 7 years - for all the infrastructure things you mention, especially rail. That sort of spending would've lifted the stock market from all the spending and jobs it could've created, a far better way to lift markets than just putting cash and cheap credit into play to chase a finite number of stocks, firms or homes. At least that would have given our nation hard infrastructure assets, on the ground, to last another hundred years.

Wall Street, Congress and the White House act like we don't have a future as a nation, so let's go out in a blaze of red ink.

[2bindenver]

Realtors' expert sees good future for local housing, an article from The Denver Post, reports that Lawrence Yun, the top economist for the National Association of Realtors, offered a positive prognosis for the Denver-area housing market to those attending the 2008 Real Estate Forecast in Lakewood. He reminded the attendees that while the housing market is in the dumps nationally, it's important to remember that all real estate is local. Yun said, "It's nonsensical to concentrate on the national figure. Local information is far more relevant." In 2007, nationally, prices declined 2%. But in Denver, prices were up slightly from 2006. "Denver is one of the markets to watch. Austin (Texas) already has seen a boom. Denver will be among the next markets to see a boom," Yun added.
The Denver Post - Realtors' expert sees good future for local housing

[jazzlover]

Originally Posted by Mike from back east

Jazzlover, you hit the nail right....

That excess liquidity is one of the things that drives me crazy, especially all of those "private equity" firms buying up the best corporations we have, i.e., taking away from me the chance to own stock in the best, more profitable firms out there. A year ago, I sat in an investment chat in Littleton at Koelbel Library and the guy was predicting all this stuff, even then. He said then that the end of cheap credit would be the end of the buyout boom. Even a year ago, cheap money was coming to an end as the FED had raised the rates up to 5.25% or so.

I remember when our 'dear' president told us that tax cuts favoring the wealthy would benefit us all, that they knew how to put money to work, that they would take that money and invest it, and (get this) "they'll open factories." He was talking to us like we were a bunch of 8 year-old children. I remember it well. I wanted to do an "Elvis" and shoot the damned TV when he spoke to me like that. Oh sure, Intel, the great computer chip firm, is opening a new $1B chip factory. In Vietnam. BTW, Intel is closing a 1M sq ft chip plant here in COL SGPS (800 jobs, poof). Anyone seen any new factories in America lately? No, the wealthy took that money and stuck it in hedge funds, or they bought up tons of houses to flip. Any hedge fund holding CDO's backed by the "collateral" of no-down liar loan mortgages is losing their ass right about now, and many flippers are in dire straights. Just desserts are a beetch.

So yes, cutting rates to spur consumption is just more of the consumer-spending crack that Wall Street smokes. Are we put on this earth just to "consume." Yes, the Fed is in a tight spot, as you say. Cutting rates can spur demand-based inflation (evil) and doing nothing means recession (evil). Fed dilemna is which evil do they want to cause. Inflation is happening as we speak, wages aren't keeping up, so it's almost for certain that it's back to the future we go for another round of 1970's-style stagflation.

How I wish we had that $1T of tax-cut red ink in the Treasury these past 7 years - for all the infrastructure things you mention, especially rail. That sort of spending would've lifted the stock market from all the spending and jobs it could've created, a far better way to lift markets than just putting cash and cheap credit into play to chase a finite number of stocks, firms or homes. At least that would have given our nation hard infrastructure assets, on the ground, to last another hundred years.

Wall Street, Congress and the White House act like we don't have a future as a nation, so let's go out in a blaze of red ink.

I had an ol' econ professor way back when. I didn't agree with a lot of his politics (real left wing), but he said something that rang very true--and the latter part of the 1970's proved it. He said that if the government were to try to stimulate the economy, it should do it by investing in infrastructure. The stimulatory effect is much slower, admittedly, but the spending will produce tangible assets that will last (if done correctly) several lifetimes. Stimulus that just goes to people to consume, especially when those consumables are either scarce or imported (like oil) will just cause inflation.

While the WPA, CCC, and other federal projects done during the Great Depression were often criticized as being needlessly inefficient (and, at times, they were) they actually produced some things of lasting value, not just one-time consumption. I just came back from a "WPA"-era post office that is in better shape than most of the buildings in town that are 40 years newer.

I will also say (stepping out on a political limb here, which I usually don't do) that--while the Bush administration gets blamed for a lot of this (and it sure deserves its share of credit)--the whole consumption, speculation, merger, acquisition, don't-worry-about-maintaining-our-industrial base, real estate speculation, funny money BS economy that we have now was well-rooted already back in the Clinton administration. This debacle has been a long-time coming, and it is rooted as much in the attitudes of some pretty spoiled American citizenry as it is in our leadership. Those leaders just let us go where we wanted to go--unfortunately, sometimes leadership means taking people where they don't want to go. Leadership is like good parenting--sometimes you have to have the courage to say, "No, you can't do that," or, "You know, you just can't have everything you want." I can't think of ONE of our current crop of Presidential candidates that has the huevos to say that to the American people. Presidents like Washington, Jefferson, Lincoln, Teddy Roosevelt, FDR, and Truman must be rolling in their graves.

[jazzlover]

Originally Posted by 2bindenver

Realtors' expert sees good future for local housing, an article from The Denver Post, reports that Lawrence Yun, the top economist for the National Association of Realtors, offered a positive prognosis for the Denver-area housing market to those attending the 2008 Real Estate Forecast in Lakewood. He reminded the attendees that while the housing market is in the dumps nationally, it's important to remember that all real estate is local. Yun said, "It's nonsensical to concentrate on the national figure. Local information is far more relevant." In 2007, nationally, prices declined 2%. But in Denver, prices were up slightly from 2006. "Denver is one of the markets to watch. Austin (Texas) already has seen a boom. Denver will be among the next markets to see a boom," Yun added.
The Denver Post - Realtors' expert sees good future for local housing

Yeah, maybe 20,000 unemployed Detroit auto workers and 50,000 bankrupt Wall Street whiz kids will move to Denver and buy $300,000 houses. Or, maybe the umpteen thousand people working in construction in Denver metro will just keep building crackerboxes that most people will no longer qualify to borrow money to buy. The Colorado real estate market is sort of like a 150 lb. receiver in a football game. He's still running, but those footsteps are coming up behind him real fast. Time to tuck the ball in, and get ready to get hammered by something MUCH bigger. It's gonna hurt and you hope you don't get carried off the field on a stretcher.

[hello-world]

Originally Posted by 2bindenver

Realtors' expert sees good future for local housing, an article from The Denver Post, reports that Lawrence Yun, the top economist for the National Association of Realtors, offered a positive prognosis for the Denver-area housing market to those attending the 2008 Real Estate Forecast in Lakewood. He reminded the attendees that while the housing market is in the dumps nationally, it's important to remember that all real estate is local. Yun said, "It's nonsensical to concentrate on the national figure. Local information is far more relevant." In 2007, nationally, prices declined 2%. But in Denver, prices were up slightly from 2006. "Denver is one of the markets to watch. Austin (Texas) already has seen a boom. Denver will be among the next markets to see a boom," Yun added.
The Denver Post - Realtors' expert sees good future for local housing

so what happens when national AND local numbers point to a downhill slide, or when local numbers are shown to follow national numbers with some lag, typically? i don't know that this is necessarily the case with denver, but there are experts in economies that suggest denver may follow the national trend, right?

[Mike from back east]

As Jim Cramer says, "there's always a bull market somewhere" so maybe Denver and a few others are this year's success. With all the people fleeing the Northeast, FL, AZ, NV, and CA, this is one area they're headed to, as is OR, WA, UT, ID and TX. I'll keep an open mind. I was in LoDo on Tuesday, saw a paper while eating lunch, advertising a nice 2500 Sq Ft loft in LoDo, really nice, for $915k. Wish I had it. That'd be $2M in Miami, or $4M in Manhattan.

[hello-world]

Originally Posted by Mike from back east

As Jim Cramer says, "there's always a bull market somewhere" so maybe Denver and a few others are this year's success. With all the people fleeing the Northeast, FL, AZ, NV, and CA, this is one area they're headed to, as is OR, WA, UT, ID and TX. I'll keep an open mind. I was in LoDo on Tuesday, saw a paper while eating lunch, advertising a nice 2500 Sq Ft loft in LoDo, really nice, for $915k. Wish I had it. That'd be $2M in Miami, or $4M in Manhattan.

i think this is a great point. i do imagine this helping a bit in terms of demand for the region. yet, it still seems clear (from the prices of residential throughout denver, anyhow) that the market here has slowed/receded and could continue to do so. maybe foreclosures and the extra inventory here more than balance that demand? could be interesting to see some info on that kind of thing.

[Mike from back east]

Originally Posted by jazzlover

I had an ol' econ professor way back when. I didn't agree with a lot of his politics (real left wing), but he said something that rang very true--and the latter part of the 1970's proved it. He said that if the government were to try to stimulate the economy, it should do it by investing in infrastructure. The stimulatory effect is much slower, admittedly, but the spending will produce tangible assets that will last (if done correctly) several lifetimes. Stimulus that just goes to people to consume, especially when those consumables are either scarce or imported (like oil) will just cause inflation.

While the WPA, CCC, and other federal projects done during the Great Depression were often criticized as being needlessly inefficient (and, at times, they were) they actually produced some things of lasting value, not just one-time consumption. I just came back from a "WPA"-era post office that is in better shape than most of the buildings in town that are 40 years newer.

I will also say (stepping out on a political limb here, which I usually don't do) that--while the Bush administration gets blamed for a lot of this (and it sure deserves its share of credit)--the whole consumption, speculation, merger, acquisition, don't-worry-about-maintaining-our-industrial base, real estate speculation, funny money BS economy that we have now was well-rooted already back in the Clinton administration. This debacle has been a long-time coming, and it is rooted as much in the attitudes of some pretty spoiled American citizenry as it is in our leadership. Those leaders just let us go where we wanted to go--unfortunately, sometimes leadership means taking people where they don't want to go. Leadership is like good parenting--sometimes you have to have the courage to say, "No, you can't do that," or, "You know, you just can't have everything you want." I can't think of ONE of our current crop of Presidential candidates that has the huevos to say that to the American people. Presidents like Washington, Jefferson, Lincoln, Teddy Roosevelt, FDR, and Truman must be rolling in their graves.

Amen to all that, esp the infrastructure points. That spending in the 1930's is still with us. I've driven the Skyline Drive back in the VA mountains many times, built by the programs of FDR. People all over the south-central area (TN, KY, WV, AR, AL, etc) still get electricity provided by the TVA projects that lit up Appalachia for the first time, and Las Vegas and the Pacific NW. In 2005, we stayed in the Old Faithful Inn at Yellowstone, built in those years. I got furious when I found out that the grand fireplace at the Inn had not yet been repaired after a 1958 earthquake up there....tax cuts for millionaires, but “the people’s parks” can go to hell.

Agree that many administrations have played fast and loose with economic policy, usually to disastrous consequences. I recall 1981, when Reagan put in the Accelerated Cost Recovery System (ACRS) for depreciation on various asset classes. You could write stuff off in 3-19 years depending on the asset class.

Under ACRS, rental homes could be fully depreciated in 19 years. This had the effect of making owning homes very attractive, so people scrambled to buy rental homes and up went the market. Everybody and his brother bought real estate to rent out and milk the U.S.Treasury via the ACRS write offs. The IRS was writing checks to people, like they did in 2001 with the tax cuts and dirt cheap interest rates.

As in the current real estate mess, the benefactors were those with money, not those who needed a place to live. I met a guy at an Army meeting who had over 15 properties and claimed that the ACRS depreciation allowed him to shelter 100% of his income from taxes. Swell. For him. The nation is still paying interest on the red ink piled up during the Reagan years thanks to stupid policy like this one.

It ended in 1986 when common sense made a recovery and ACRS was scrapped. Rental property now has a 27.5 year write off. GOP administrations seem to run these gimmicks, the connected ones and cronies are in on the game and get their bag-o’money early in the game and get out, leaving the rest of us holding the bag.

So, 1986 was a boom year for real estate sales due to the change in tax laws, and then the market went to sleep for years. Of course, not long after ACRS went out, the S&L crisis came in, partly as a result of writing bad mortgage loans in that timeframe. The taxpayer funded bailout was $125B. BOHICA!! (Bend Over, Here It Comes Again!)

[jazzlover]

Originally Posted by Mike from back east

. . . the S&L crisis came in, partly as a result of writing bad mortgage loans in that timeframe. The taxpayer funded bailout was $125B. BOHICA!! (Bend Over, Here It Comes Again!)

Chump change for what lies ahead. All of the malevolent lending practices, speculative buying, non-productive investment are all much worse this go-around. And, this time, we can pile resource scarcity on top of the mix.

By the way, before someone flames about it, I don't really blame the banks solely for this mess. No one was holding a gun to borrowers' heads, saying, "Borrow this money, or else." The culpability of the lenders is that, if they had a brain in their head (and some didn't/don't), they didn't say "no" when they should have. They were pushing money out the door and hoping that the "bubble" would make a questionable loan good. Then, they bundled that putrid stuff up and sold it to people who should have known--but didn't really know--what they were buying, under the theory (the same theory that caused the taxpayers to have to bail out the S&L's in the early '80's) that "a rolling loan gathers no loss."

Unfortunately, when it flies apart, everybody gets hurt. To make another analogy, it's like being the only sober person in a drunken barroom brawl. You know you're in a bad place, you know what's happening isn't good, but trying to get out with most of your teeth in your mouth and your appendages in one piece ain't gonna be easy--even if you didn't start it and you didn't want in on the fight.

One other quick comment in response to this, Mike:

With all the people fleeing the Northeast, FL, AZ, NV, and CA, this is one area they're headed to, as is OR, WA, UT, ID and TX.

They are likely to have MUCH LESS money burning a hole in their pocket when they show up, IF they can sell whatever increasingly toxic piece of real estate they have in those places at all. By the way, just saw a story about how the Las Vegas casino market is tanking. When the most profitable type of recreational enterprise (legal, anyway) there is gets knocked back on the ropes, I don't think Colorado's recreational economy segment is going to fare very well for awhile. I think the only decent play Colorado has right now is the energy business, but it can't carry the whole state economy on its back.