A commentary on the bubble

Greenspan will not be Fed Chairman by the time NO is rebuilt.

True, but I think after the meeting with Bush today, he decided to suspend the three scheduled rate hikes for this year. Check the news.

>>Is this ludicrous or plausable?<<

Yes...no


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WARNING: WEAK COMEBACK AHEAD
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>>Shelley, you need a vacation, or a move from the panhandle, because hurricanes are in your future.<<

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RESUME SPEED
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>>BTW, I just heard on the news that Greenspan is going to halt raising interest rates until we recover from this disaster. Good for the market? Should be.<<

All the human suffering and destruction of Katrina aside, the economics of the situation is yet to be realized--especially due to the current trend of the areas' over leveraged homeowners who tragically lost their homes. The recent trend of diversifying risk by bundling and selling mortgages and equity loans to investors and the effect of their subsequent defaults or early pay-backs will play out in the months to come. But that won't concern Greenspan in the short time he's got left.

Greenie "claims" he'll only dink with the interest rates to keep inflation in check. He raises Fed fund rates to slow down the economy headed for inflation or lower rates to ramp up the economy when heading for recession. He started cranking down rates after the "tech bubble burst" and then after "9-11" to keep the economy moving. As a result of cheap money, the focus switched from the "Tech Bubble Weenies" trading on margin to "Real Estate Vultures" leveraging real estate (same greed, different melody).

With corporate profits moving up in the past couple of years (believe it or not) he started raising the rate (measured of course) to keep inflation in check. Additionally, he needed to continue to raise rates because at 1% to 2% the Fed had no cushion to rely on should there be another major economic catastrophe. By raising the Fed funds rate, he was counting on the long-term interest rates to increase (that's what Economics textbooks say they should do)--but that didn't happen (a conundrum) and the yield curve flattened. So to this day he keeps increasing the rate hoping the long-term rates will cry "uncle."

With the high gas prices, the cost of everything will start going up (retailers and manufacturers can't keep eating the costs forever) and we'll experience inflation--just the kind of thing Greenie wants to avoid.

If Greenie sticks by his guns, he should continue to raise interest rates to keep inflation in check. He may skip the next interest rate increase to make Bush look like a hero in the face of his administration's screw-up in the New Orleans, but those rate hikes have gotta start moving the long-term rates (which drive the mortgage rates). Of course if the long-term rates continue to stay low (or worse, fall) we will find ourselves in a recession which isn't good for the economy either.

My guess is Greenie wants to stick to his guns and continue his increases. If he does stop, he'll identify a reason like some "lower than expected X-economic indicator..blah..blah..blah." But with the 10-year yield down to 4.03% today, I don't any reason for him to stop raising the rates.
Either way, some investors may find it prudent to think about putting their money into the "Bank of Serta" until the economy settles.

...
With the high gas prices, the cost of everything will start going up (retailers and manufacturers can't keep eating the costs forever) and we'll experience inflation--just the kind of thing Greenie wants to avoid.

If Greenie sticks by his guns, he should continue to raise interest rates to keep inflation in check....

I believe I follow you. I have a question, though. With the forthcoming increase of the price of construction materials, due to the upcoming demand in materials and cost of fuel, if interest rates go up to keep inflation in check, do you think that people will stop building altogether? After all, you have suggested that property values will be decreasing in the near future. It seems to me that if construction stops, there will be less supply, thereby increasing demand and prices, even with increased interest rates.

True, but I think after the meeting with Bush today, he decided to suspend the three scheduled rate hikes for this year. Check the news.

The Fed is likely to pause politically for this crisis, but if you check their stated intentions, the short term interest rates hikes were in response to OPEC driven inflation. The hillarity of the scenario is that the FED holds no sway over the cost of light sweet crude, not now, not 20+ years ago when Paul Volker, as Fed chairman, dismantled our economy with crushing interest rates. The prime, I believe touched 18 percent. Volker used the same excuse[opec driven inflation] to raise rates. The truth is that the Fed can do nothing about oil, with the recent hikes allowing room to ease credit later when our economy eventually slows. The thinking here is, the Fed has no hammer later if they don't raise now. I recently had an email published on Bankrate.com on this very subject.

>>Is this ludicrous or plausable?<<

Yes...no


------------------------------------
WARNING: WEAK COMEBACK AHEAD
------------------------------------

>>Shelley, you need a vacation, or a move from the panhandle, because hurricanes are in your future.<<

----------------------------------------
RESUME SPEED
----------------------------------------


>>BTW, I just heard on the news that Greenspan is going to halt raising interest rates until we recover from this disaster. Good for the market? Should be.<<

All the human suffering and destruction of Katrina aside, the economics of the situation is yet to be realized--especially due to the current trend of the areas' over leveraged homeowners who tragically lost their homes. The recent trend of diversifying risk by bundling and selling mortgages and equity loans to investors and the effect of their subsequent defaults or early pay-backs will play out in the months to come. But that won't concern Greenspan in the short time he's got left.

Greenie "claims" he'll only dink with the interest rates to keep inflation in check. He raises Fed fund rates to slow down the economy headed for inflation or lower rates to ramp up the economy when heading for recession. He started cranking down rates after the "tech bubble burst" and then after "9-11" to keep the economy moving. As a result of cheap money, the focus switched from the "Tech Bubble Weenies" trading on margin to "Real Estate Vultures" leveraging real estate (same greed, different melody).

With corporate profits moving up in the past couple of years (believe it or not) he started raising the rate (measured of course) to keep inflation in check. Additionally, he needed to continue to raise rates because at 1% to 2% the Fed had no cushion to rely on should there be another major economic catastrophe. By raising the Fed funds rate, he was counting on the long-term interest rates to increase (that's what Economics textbooks say they should do)--but that didn't happen (a conundrum) and the yield curve flattened. So to this day he keeps increasing the rate hoping the long-term rates will cry "uncle."

With the high gas prices, the cost of everything will start going up (retailers and manufacturers can't keep eating the costs forever) and we'll experience inflation--just the kind of thing Greenie wants to avoid.

If Greenie sticks by his guns, he should continue to raise interest rates to keep inflation in check. He may skip the next interest rate increase to make Bush look like a hero in the face of his administration's screw-up in the New Orleans, but those rate hikes have gotta start moving the long-term rates (which drive the mortgage rates). Of course if the long-term rates continue to stay low (or worse, fall) we will find ourselves in a recession which isn't good for the economy either.

My guess is Greenie wants to stick to his guns and continue his increases. If he does stop, he'll identify a reason like some "lower than expected X-economic indicator..blah..blah..blah." But with the 10-year yield down to 4.03% today, I don't any reason for him to stop raising the rates.
Either way, some investors may find it prudent to think about putting their money into the "Bank of Serta" until the economy settles.

Shelley, what kind of guns will "Greenie" be using to make oil go back to $25 barrel.

Dam! I just started reading this thread :shock: ... I'm gonna go get my popcorn :blink: .... Carry on....😀

Just heard on the radio that Baton Rouge is in the middle of a real estate boom and shortage. According to the reporter, the population went from 300,000 to to 400,000 overnight. We may get some but I don't know how many.

Just heard on the radio that Baton Rouge is in the middle of a real estate boom and shortage. According to the reporter, the population went from 300,000 to to 400,000 overnight. We may get some but I don't know how many.

See the thread and post by Fox.

I believe I follow you. I have a question, though. With the forthcoming increase of the price of construction materials, due to the upcoming demand in materials and cost of fuel, if interest rates go up to keep inflation in check, do you think that people will stop building altogether? After all, you have suggested that property values will be decreasing in the near future. It seems to me that if construction stops, there will be less supply, thereby increasing demand and prices, even with increased interest rates.

There will indeed be a shortage of construction materials/labor with a subsequent raise in the cost of new housing--believe it or not, a vast number of people will stop buying new housing until prices fall again to a level where they can afford it.

Properties, condos and land in coastal resort areas are mainly being purchased as second or vacation homes, vacation rentals, or speculative investment purchases as there are no high-paying jobs in the area to support the sky-high purchase prices (even with "exotic financing"). There are vulture capitalist (arbitrageurs) with deep pockets and L-O-N-G investment horizons who have sold these properties previously to "bigger fools" patiently waiting in the wings for the prices to come down below what they originally sold them for previously. These people are richer and smarter than the current speculators who cluelessly think they will turn these properties over in the next year or two with a 30-50% return--a return they've already baked into their financial situation which, when in fails to materialize, will send them straight to the poorhouse. The arbitrageurs' time to pounce may have been shortened due to Katrina.

St Joe Company's (JOE) stock price is down almost 16 smackers off it's 52-week high. JOE has had a pretty good run (putting it mildly) after Ivan, But this time it is very different. Investors are spooked and taking their profits hand over fist--as the price begins to tumble, it kicks off stop-loss orders and down and down the price goes. The words "Florida and Gulf Coast" don't drum up the same idyllic thoughts in the minds of investors as they did prior to Katrina. JOE's CEO is gonna have to fall back on a lot of "Disney Magic" from his bygone days to get out of this one. His post-Katrina dividend increase announcement was unable to stop the bleeding. (Maybe JOE should consider reverting back to timber production to keep the excutives' and their families fed.)

There may be increasing demand for existing housing in the wake of Katrina, but I will bet my farm in Iowa it won't be $2.5 million beach houses or $500,000 postage-stamp sized lots on the coast of Florida.

Shelley, what kind of guns will "Greenie" be using to make oil go back to $25 barrel.

I understand he's proposing to sink a few oil wells off the coast of Seaside and Grayton Beach. :cool:

I understand he's proposing to sink a few oil wells off the coast of Seaside and Grayton Beach. :cool:

And you think that's cool? :shock:

There will indeed be a shortage of construction materials/labor with a subsequent raise in the cost of new housing--believe it or not, a vast number of people will stop buying new housing until prices fall again to a level where they can afford it.

So they are going to be buying what around here? There are not that many existing homes, and the ones that are on the market are often priced higher than the ones under construction.

So they are going to be buying what around here? There are not that many existing homes, and the ones that are on the market are often priced higher than the ones under construction.

The point is...they're not going to be buying around "here."

Texas, Louisiana, & Mississippi--all of whom have cheaper land and labor--are going to benefit. Company execs are gonna want to stay close to the action as their properties are being re-built or moved further inland with access to the transportation, deep water port systems and lucrative reconstruction contacts NOLA offers--Florida is too far removed from the "action" and has gotten far too expensive. Although I do expect JOE will be kissin' arse offering them some sweet deals to move their way, JOE may be a bit slow off the mark since I heard displaced corporations are this very minute snapping up real estate as close to NOLA as possible.

I suspect a broken down warehouse in Baton Rouge will be selling for twice the price of SoWal waterfront by the end of next week. How many "speculators" saw that one coming?? :blink:

Shelly, are the biting flies getting to you? Why are you so negative about South Walton? You seem almost gleeful as you predict oil rigs off the coast of Seaside and a crash of the housing market.

What are you trying to accomplish with all of these posts? What you are telling us about the housing market isn't exactly news to any of us. All of us locals have lives and jobs that are, in some way connected to housing and/or tourism and, we are all intelligent enough to understand the "market."

At the end of the day though we still have the sunsets and the sand (yes, there is still sand). We've got stars in the sky and best of all, we've got lots of friends and neighbors in the community who care for and support each other.

If you can't say something nice . . .

I suspect a broken down warehouse in Baton Rouge will be selling for twice the price of SoWal waterfront by the end of next week.

:roll:

As for a bubble, I think it would serve SoWal well to slow down on the building for a while. There are already several nice new communities in the process of being built. In the long run, for those who are concerned about property values, the property values will be worth much more in the future if we don't overbuild now. Much of what makes SoWal special is that it is made up of several small beach towns (and some resorts). If there's a bubble, speculators will move elsewhere and leave the area of people who have a long-term interest in the community. By the way, speculators are fine with me -- we bought both of our properties from people who bought and flipped and we're very thankful they took the initial risk.

Here's an article from Yahoo news this morning:

Protecting Yourself From a Housing Bubble
By Greg McBride
Bankrate.com

The run-up in home prices in many markets around the country makes it a matter of when and where, not if, the housing bubble bursts. Consider this comment from economist Joel Naroff after new-home sales hit yet another record high in June, "Welcome to our worst nightmare. It is the housing market."

In that vein, we cannot ignore the potential for a housing bust any longer. Like procrastinators living in a hurricane-prone area that eventually scramble to stock up on supplies as a storm nears, it is time to look at some strategies homeowners and home buyers can adopt to weather the housing market storm.

If you live in Ohio, you're probably wondering what all the fuss is about. But if you live in California, New York, Massachusetts, South Florida or Washington, D.C. -- and plenty of people do -- it is all anyone ever talks about. If you call one of these or many other frothy markets home, unless you've lived in the home long enough to pile up substantial equity, you have reason to worry.

So let's establish some frontline defenses against a housing bust busting your financial picture.

First, don't borrow against home equity. This means no taking out of home equity lines of credit to pay off credit card bills, no cash-out mortgage refinancing to fix up the house, and, by all means, no tapping home equity to pay for summer vacation. This is a drastic measure, I know, but these are desperate times, my friends. Home equity has a much lower after-tax cost than credit card debt or other forms of debt, but the cushion provided by home equity will be invaluable when home prices decline. The bottom line on debt consolidations is that it just shifts the debt, it doesn't reduce the debt. If you managed to get yourself in a little too deep on the credit card debt, it's time to figure out how to get out of it. And not by relying on home equity borrowing.

The second rule is to build equity through principal repayment. Interest-only and option ARM borrowers, I'm talking to you. Every month, a larger portion of your monthly payment should be going toward reducing the principal on your loan, and if it isn't, then you're doing something wrong. This leads into my next point.

Making steady progress on paying down the balance is largely dependent upon having a loan with a fixed rate. Therefore, we have rule No. 3: It is time to move away from adjustable rates. There is nothing worse than the payments increasing when the value of the home is declining. This means refinancing out of the short-term adjustable-rate loan that pressures your budget and retards the process of building equity through principal repayment as interest rates climb and getting into a fixed-rate mortgage or hybrid ARM where the fixed-rate period is no less than seven years. Why so long? I'll come back to this point later on.

First-time home buyers are especially vulnerable to a downturn in home prices because of minimal down payments and the lack of established equity that buyers rolling over from a previous home would have. Small down payments and large loan balances increase the likelihood of relying on interest-only loans and the like for affordability. So the message to first-time buyers, and rule No. 4, is this: Make a larger down payment. If you don't have the scratch for a down payment and you can't afford to borrow with a fixed-rate mortgage -- don't buy. It's that simple.

The fifth rule is to live in your home for the longer haul. Whenever you're upside down on a car because you owe more than it is worth, the cure-all is to literally drive your way out of it by keeping the car until the loan balance falls below the market value. Be prepared to do the same with a new-home purchase. If your feeling is that you're going to move in three years, it is time to make plans for other contingencies. Can you afford a mortgage that offers a fixed rate for a longer period, such as a 10/1 ARM or a 30-year fixed-rate mortgage? If not, continue renting. The transaction costs of buying and selling are steep, and any downturn in price over such a short holding period will clobber the unsuspecting buyer.

The home is first and foremost where you live. Get past the "my home is an investment" mentality to protect against the bursting bubble. The home is indeed an investment, but a long-term investment. Treating it as such will vanquish many of the worries about a bursting bubble

>>First, don't borrow against home equity. This means no taking out of home equity lines of credit to pay off credit card bills, no cash-out mortgage refinancing to fix up the house, and, by all means, no tapping home equity to pay for summer vacation. <<

There's lots of folks who are heeding the advice above. They say, "I'm not that stupid. I used my home equity loans to purchase 4 condo pre-construction contracts." :razz:

Another thread with one or two canaries in a coal mine and with everyone else heaping on "condemnation".Prediction--another bubble is building in RE. Not as bad as 2004-05, but moving in that direction. Too many flippers in the market and prices rising too fast. Especially for brand new homes. Resales seem to be more reasonable priced than the new homes. People buying the new homes right now at cost per square foot 20 to 30% higher than resales next door are walking into immediate big losses that will not recover for many, many years if they try to sell.

All of the new construction (for example, Prominence and new St. Joe developments) isn't going to help home values. Supply and demand, and we're going to be getting a lot of supply.

Another thread with one or two canaries in a coal mine and with everyone else heaping on "condemnation".Prediction--another bubble is building in RE. Not as bad as 2004-05, but moving in that direction. Too many flippers in the market and prices rising too fast. Especially for brand new homes. Resales seem to be more reasonable priced than the new homes. People buying the new homes right now at cost per square foot 20 to 30% higher than resales next door are walking into immediate big losses that will not recover for many, many years if they try to sell.

Is the houdini moniker a referenece to the fact that you escaped South Walton or that you escaped foreclosure?