House hunting in a 'fast-zombie' market

I managed to save enough money for a down payment on a starter home in an acceptable locale just before the height of the RE bubble, 2006. Due to circumstances at the time, I chose to rent for the time being. Somehow, it seemed imprudent to take out a 20-30 year mortgage, and incur the transaction/tax/repair costs associated with a purchase at a time when I knew I would have 30 days to leave the country if my employment were to end for any reason whatever.

As the months and years rolled on, I actually did not (at first) pay much attention to the ‘bubble hype’. I really wasn't even too exposed to it – if anything my immediate surroundings (including neighbors and friends, as well as the house listings) were telling me the prices had gone too high – rather than that they could only go higher.

As the end of 2008 finally came around, I unwittingly became an ultra-savvy investor – having preserved my capital by NOT buying a house. As events sped up, I attempted to learn as much as possible about monetary/fiscal/economic history and current conditions. In the early phases of this, I did not at first understand/immediately foresee the re-inflating strategy undertaken by TPTB, or the effects of ZIRP would have in the medium and longer term – I fully expected the housing price to decline or bounce along the bottom.

And bounce along it did for a time – while I STILL did not buy, for I anticipated the eventual cross-country move to my current location. We all saw charts like this one (Shiller / Ritholtz virtual collaboration):

There were also some learnings along the way (I did not simply idly sit by, I researched and scouted the area where I lived, and actively sought an affordable but decent home 2009-2011):

  • Housing prices never declined as much, and have already rebounded in many of the areas where I am likely to find employment in my profession (large economic/technology centers)
    • San Francisco, Boston, NYC, Seattle, Portland, Houston, etc.
  • Bidding wars for suburban homes in these areas are already underway. My neighborhood sports a fresh growth of 3-3.5K sqft faux stone-covered McMonstrosities that sit literally within the locally legal allowable proximity of the next identical house (though I am sure it’s more, I swear it looks and feels like 3 ft). You can open your kitchen window and shake hands with your neighbor who does the same. Price: starting at $800K
  • Rents, while relatively stable for a while (2008-2010? 2011?), are rising substantially this year.

The reality of the market turned out somewhat different from the expectations implied by the bigger chart above:

(from the National Association of Realtors)

There is now a ‘comforting drumbeat’ of stories about renewed confidence by homebuyers, realtors, economists, bankers – you name it. The average house in the UK is appreciating at a rate of £50 per DAY, and apparently the real estate investment trusts and large hedge funds who bought distressed properties in 2009-2010 at firesale prices are now flipping them:

Britain's biggest building society said the acceleration in house prices had been "surprisingly quick", with the annual rate of growth now running at 5% nationally and 10% in London – in both cases the strongest figures since 2010. As recently as May this year, the UK annual rate was just 1%.

The figures were published as it emerged that the Treasury is to give the Bank of England a key role in monitoring the impact of its flagship Help to Buy scheme on the housing market.” – Guardian

For a rather egalitarian-minded treatment of the same topic in the US, you can check out this NYTimes post:

Now, five years after the start of the financial crisis, the housing market has come back, and many of these investors are cashing in. According to tabulations by Redfin, an online real estate listings site, banks have already sold about 1.5 million of the nearly 2 million homes that were foreclosed on during the past half-decade. […]The boom-bust-flip phenomenon is just one of the most obvious ways that research suggests the financial crisis has benefited the upper class while brutalizing the middle class. Rents have risen at twice the pace of the overall cost-of-living index, partly because middle-class families can’t get the credit they need to buy.” -- NYTimes

Housing bubbles in the other 2 larger Commonwealth nations also have yet to pop (Canada & Australia).

So, what IS one to do? Obviously, no relief or reset has come from the exposure of title and mortgage fraud. It is unlikely (at this point) that any such thing will occur under current paradigm. Mortgage rates – despite the (alarmingly) rapid rise in Treasuries recently -- remain low compared to historical standards. As higher debt service load levels are untenable for the government, interest rates CANNOT be allowed to rises substantially (see PIMCO boss’s thoughts on the matter recently). Repealing the income tax credits for mortgage payments does not look imminent.

Despite their zombified state, the government loan guarantees afforded by Freddy/Fannie are still around, exerting influence and buying up loans.

Theoretically, all of these bode for a continued rise in housing prices in the near-medium term.

While sort of a non-sequitur, here is a bonus snippet of our friend Benny promising low inflation, a scaling back of extraordinary monetary measures, reduction of the Fed balance sheet and why it's perfectly natural and healthy that banks should get free money for parking reserves at the Fed. It is a beautifully honest, prescient forecast for the 4 years that followed:

(note the date: Feb. 22, 2009)

It's good that we can count on our monetary policymakers and macroeconomic forecasting experts to unwaveringly guide us to prosperity through these troubled times... My only gripe is WHEN will flash trading FINALLY be introduced for single-family residences so we can have efficient, real-time, computer assisted price discovery and sufficient, constant liquidity in this market, finally?

So how DOES one approach a house purchase with the knowledge of the above, but in light of the ongoing end of the G(reat)K(eynesian)E(xperiment)? What is the calculus for possible prospects under a variety of potential future scenarios:

  • Continuing stagflation (persistent financial repression, manipulated/centrally controlled prices for  EVERYTHING without any significant economic growth or structural reform -- but also no collapse)
  • Deflation (actual and acknowledged default cascade destroys capital and results in cascading reduction of monetary base)
  • Inflation (FedRes raises inflation targets, claiming ‘necessity to address persistent unemployment’ and the need for continuing response to exigent economic circumstances) – but as BB promised all those years ago – moderate, controlled inflation
  • Repeat of 2008, only writ even LARGER
  • True economic ‘recovery’ – through a miracle of science, technological innovation or a race of aliens who want to trade purified hydrocarbons and pure oxygen, in return for CO2, radioactive waste/fuel/corium and iPads
  • Hyperinflation
  • More than one of the above in the next 12-18 months.

87 Comments

PMBull's picture

I Need to Get a Life...

Because it is ridiculous that I am FIRST on this late in the evening (early in the morning?) post. 

Look forward to reading the article. Back in the day, I was running around trying to figure out how to short real estate, near the bubble peak. Best I could come up with was shorting a few REITS with most of their properties (condo developments) in Miami.

Only after the implosion did I read The Big Short, the whole while thinking to myself that I wished I were smarter at that time. Sure, the REIT short worked out, but I didn't become a gazillionaire like those guys did.

El Gordo's picture

Well, who can top PMB?

At least my excuse for being up at this hour is that I'm at work.

atarangi's picture

I need to get a wife - -

My wife was screaming at me: "Leave!! Get out of this house!" she ordered. "All you ever do is look at metals sites".
As I was walking out the door she yelled, "I hope you die a slow and painful death!
"So I turned around and replied, "So now you want me to stay?"

atarangi's picture

How Americans see the world - -

6a00d8341c7ae753ef01676309c9d4970b-pi

Bollocks's picture

A good listen.

Spilling the NSA’s Secrets: Guardian Editor Alan Rusbridger on the Inside Story of Snowden Leaks

http://www.democracynow.org/2013/9/23/spilling_the_nsas_secrets_guardian_editor

argentus maximus's picture

I think that for financial

I think that for financial repression-stagflation periods the ideal asset is an income producing hard asset.

Gold for example is a non income producing hard asset, and has underperformed (so far).

Large cap stocks produce dividends and have outperformed gold (so far). Low income producing bonds have outperformed gold (so far).

In my view, a house is an income consuming hard asset which will in the longer term conserve it's value to a degree. Therefore the decision is related to the rental income saved minus the maintenance and taxation costs incurred by ownership of the house.

Due allowance should be made for expectation of taxation and rental cost increases in the decision. If your personal income will rise together with inflation you are ok, but if you are on fixed income or delayed pay raises the rent increases will break you during the stagflation. Because of this aspect, a new question arises : would it be wiser for example to buy woodland and use that inflation indexed income to pay rent on a house?

This is not taking account of two other material factors.

The first would be unsold inventory as a drag on future performance of houses.

The second would be the availability of credit in the future to finance and thereby support the prices of houses... despite the presence for some of easy money now.

The answer to these two variable depends much upon which societal force wins in the ongoing contest: the revolutionary force towards repudiation of the old regime debt load by sound money, constitutionalists and youth, or the force of the old regime, banks, government and the system created around them which has held control for 150+ years and are not about to walk away from their apparachik most favoured status above the rest of the population.

I think the part of decision based on current investment conditions is conventional enough and well documented in the investment world. But the latter two points require an estimate of the unity, vision and power on the as yet unpoliticized student loan debtor population, in the next 25 years. Will they figure it out? Can they turn the situation around? Can the best of them, the potential mavericks who possess leadership qualities, slip free from the shackles of debt, misinformation, society structure, and sedatives administered and become the third political force? Houses of the future will be cheaper if they can, but cynical reading of history says the odds of that are low and just buy the monetary and interest rate dip.

atarangi's picture

Zerocare - -

cure for post - natal depression                                                                                     invented-first-gun-1.jpg

Hrunner's picture

Red Phone, Wednesday, 0900 EST

Mr. Obama:  Hello.

Xi Jinping:  Hello my little friend, this is Xi.

O:  Hi Xi, what's up?

X:  Well, you know that little APEC meeting next week to discuss Asian business, you don't need to bother coming over.

O:  What?  I was hoping to get a break from these pain in the ass capitalists that want, you know, crazy stuff like private healthcare.  How uneducated! We both know that the state is the only way to go.  I mean, everyone in China has access to hip replacements and the latest cancer drugs, right?

X:  Well, like I said, don't bother coming over.

O:  Are you sure, what can I say to change your mind?

X:  We've got your gold, our gold, London's gold, and Russian energy and wheat.  What can you offer us?

We took a vote and decided we don't need to listen to your tired, self-important, lazy, stupid ass.   We've got a lot of business to get done.

O:  What am I going to tell my people?

X:  I don't care.  Make up something stupid.  You are an effective liar.

O:  <click>

X:  <click>

Wizard's picture

Recieve in email. Cracked me up

I was in my neighborhood restaurant this morning and was seated behind a group of jubilant individuals celebrating the coming implementation of the health care bill. I could not finish my breakfast. This is what ensued:
They were a diverse group of several races and both sexes. I heard a young man exclaim, “Isn’t Obama like Jesus Christ? I mean, after all, he is healing the sick.”

A young woman enthusiastically proclaimed, “Yeah, and he does it for free. I cannot believe anyone would think that a free market wouldn't work for health care.”

Another said, "The stupid Republicans want us all to starve to death so they can inherit all of the power. Obama should be made a Saint for what he did for those of us less fortunate.”

At this, I had more than enough. I arose from my seat, mustering all the restraint I could find, and approached their table. “Please excuse me; may I impose upon you for one moment?”

They smiled and welcomed me to the conversation. I stood at the end of their table, smiled as best I could and began an experiment.
“I would like to give one of you my house. It will cost you no money and I will pay all of the expenses and taxes for as long as you live there. Anyone interested?”

They looked at each other in astonishment. “Why would you do something like that?” asked a young man, “There isn’t anything for free in this world.”
They began to laugh at me, as they did not realize this man had just made my point.

“I am serious, I will give you my house for free, no money whatsoever. Anyone interested?”

In unison, a resounding “Yeah” fills the room.
“Since there are too many of you, I will have to make a choice as to who receives this money-free bargain.”

I noticed an elderly couple was paying attention to the spectacle unfolding before their eyes, the old man shaking his head in apparent disgust.

“I tell you what; I will give it to the one of you most willing to obey my rules.”

Again, they looked at one another, an expression of bewilderment on their faces.

The perky young woman asked, “What are the rules?”

I smiled and said, “I don’t know. I have not yet defined them. However, it is a free home that I offer you.”

They giggled amongst themselves, the youngest of which said, “What an old coot. He must be crazy to give away his home. Go take your meds, old man.”

I smiled and leaned into the table a bit further. “I am serious, this is a legitimate offer.”

They gaped at me for a moment.
“I’ll take it you old fool. Where are the keys?” boasted the youngest among them.

“Then I presume you accept ALL of my terms then?” I asked.

The elderly couple seemed amused and entertained as they watched from the privacy of their table. “Oh yeah! Where do I sign up?”

I took a napkin and wrote, “I give this man my home, without the burden of financial obligation, so long as he accepts and abides by the terms that I shall set forth upon consummation of this transaction.”
I signed it and handed it to the young man who eagerly scratched out his signature.

“Where are the keys to my new house?” he asked in a mocking tone of voice.

All eyes were upon us as I stepped back from the table, pulling the keys from pocket and dangling them before the excited new homeowner.
“Now that we have entered into this binding contract, witnessed by all of your friends, I have decided upon the conditions you are obligated to adhere to from this point forward. You may only live in the house for one hour a day. You will not use anything inside of the home. You will obey me without question or resistance. I expect complete loyalty and admiration for this gift I bestow upon you. You will accept my commands and wishes with enthusiasm, no matter the nature. Your morals and principles shall be as mine. You will vote as I do, think as I do and do it with blind faith. These are my terms. Here are your keys.”
I reached the keys forward and the young man looked at me dumbfounded.
“Are you out of your mind? Who would ever agree to those ridiculous terms?” the young man appeared irritated.

“You did when you signed this contract before reading it, understanding it and with the full knowledge that I would provide my conditions only after you committed to the agreement.”

The elderly man chuckled as his wife tried to restrain him. I was looking at a now silenced and bewildered group of people.

“You can shove that stupid deal up your a** old man. I want no part of it!” exclaimed the now infuriated young man.

'You have committed to the contract, as witnessed by all of your friends. You cannot get out of the deal unless I agree to it. I do not intend to let you free now that I have you ensnared. I am the power you agreed to. I am the one you blindly and without thought chose to enslave yourself to. In short, I am your Master.”

At this, the table of celebrating individuals became a unified group against the unfairness of the deal.

After a few moments of unrepeatable comments and slurs, I revealed my true intent.

“What I did to you is what this administration and congress did to you with the health care legislation. I easily suckered you in and then revealed the real cost of the bargain. Your folly was in the belief that you can have something you did not earn, and for that which you did not earn, you willingly allowed someone else to think for you. Your failure to research, study and inform yourself permitted reason to escape you. You have entered into a trap from which you cannot flee. Your only chance of freedom is if your new Master gives it to you. A freedom that is given can also be taken away. Therefore, it is not freedom at all.”

With that, I tore up the napkin and placed it before the astonished young man. “This is the nature of your new health care legislation.”
I turned away to leave these few in thought and contemplation -- and was surprised by applause.

The elderly gentleman, who was clearly entertained, shook my hand enthusiastically and said, “Thank you, Sir. These kids don’t understand Liberty .”

He refused to allow me to pay my bill as he said, “You earned this one. It is an honor to pick up the tab.”

I shook his hand in thanks, leaving the restaurant somewhat humbled and sensing a glimmer of hope for my beloved country.
1. Remember... Four boxes keep us free: the soap box, the ballot box, the jury box, and the cartridge box.
2. THIS SHOULD GO AROUND THE UNITED STATES SO PEOPLE CAN SEE JUST WHAT IS GOING ON. MAYBE EVEN THE POLITICALLY BLIND ONES WILL LEARN SOMETHING FROM IT.

"Any man who thinks he can be happy and prosperous
by letting the American Government
take care of him;
better take a closer look at the American Indian."
Henry Ford

ag1969's picture

Would SAVE II Act Prohibit Bullion and Numismatic Coins?

An article published last week discussed the SAVE II Act (H.R. 3146) introduced in the House of Representatives on September 19, 2013 by Representatives Patrick E. Murphy (D-FL) and Mike Coffman (R-CO). The intention of the bill was to generate savings to the US Government by eliminating duplication and increasing efficiency. One of the provisions of the bill would prohibit the "non-cost effective" minting and printing of coins and currency.

Specifically, the bill would amend Section 5111 of title 31, United States Code by adding at the end the following:

(e) Prohibition on Certain Minting- Notwithstanding any other provision of this subchapter, the Secretary may not mint or issue any coin that costs more to produce than the denomination of the coin (including labor, materials, dies, use of machinery, overhead expenses, marketing, and shipping).

While this change would prohibit the production of the cent and nickel which cost more than their respective denominations to produce, a few commenters pointed out that this would also prohibit the US Mint from producing bullion coins, which cost far more than their denominations to produce. Similarly, various US Mint numismatic products which cost more than their denominations to produce would also be prohibited.
1 oz American Gold Eagle with "50 Dollars" denomination

http://news.coinupdate.com/would-save-ii-act-also-prohibit-bullion-and-numismatic-coins-2169/

TomMack's picture

thanks JY

for reminding me when i bought my house june 2007, yikes..  i feel worse that the bubble still has a way to go!!!

ag1969's picture

No worries Tom Mack

I bought two commercial buildings in 2007 for 900 grand. Put 200 grand of my own money into them and the bank took them back in 2010. Sure wish I knew better, but you know what they say about hindsight?

What has hindsight taught me? Well I have some sage advice you have never heard before: Don't employ anyone Don;t ever be in a position where you need to come up with 120K each and every month just to pay your bills. Don't invest in anything made of paper Never spend money you don't have unless it is a mortgage for your primary residence, and then, maybe! If you are going to save money, never save in a vehicle that bankers and politicians can print Bankers are not friendly, or your friend Don't pay the cartels; energy, Insurance, Banking, taxman, etc. Don't shave in an earthquake Don't let your meat loaf

Don't say ag1969 never taught you anything!

And if you ever want to really learn from me, I am absolutely expert in losing money.  From the Tech bubble to the financial crisis, my track record is astounding.  Fortunes made and lost, and all of it an illusion.

jolidacrown's picture

No take away here - perhaps

No take away here - perhaps my boredom.

Published in November 2009

Published in January 2012 Sinclair last mention of Armstrong.

And finally.

Bollocks's picture

Here's the run-up to the Greenwald Newsnight interview

that I posted up yesterday. It includes an interview with the former director of GCHQ (whatever you do, DON'T forget to mention paedophiles!).

ag1969's picture

When life gives you lemons...

You see, sometimes life can change in an instant.  After opining about my propensity to lose large sums of money, I stopped in at another blog I frequent and saw this video:

Within minutes of seeing this, I went all in on these:

I will no longer need to buy any silver or gold, as this little trick provides a lifetime supply.  What could go wrong?  All of Turdville should thank me for giving you the Alchemical solution to a perpetual stack!  Don't tell anyone!  It's our little secret.wink

22tlane's picture

Obamacare rollout

Anyone else think the Obamacare rollout (website issues) are intentional so the nasty details do not come out why the Tea Party contingent are still trying to kill it. That could get a nasty ball of momentum going. 

The Doc's picture

Jim Willie: US T-Bond Market:

Jim Willie: US T-Bond Market: The Greatest Asset Bubble in Human History Nears the Cliff

cartel

The great global Paradigm Shift involves far more than wealth migrating from West to East in the form of Gold bullion. The corruption among the Wall Street bankers, the Chicago pit commodity traders, and the London bankers is all playing out in the COMEX & LBMA fall from grace.
This article should add a good deal more light on the phony USTreasury Bond market which is not well understood for its status as being the greatest asset bubble in human history, not just modern history. It exceeds the housing & mortgage bubble that formed a decade ago, if not from volume, then from scope since it is laced throughout the entire global banking system.
The USGovt shutdown is blatant evidence of the march to the cliff.
The global USTBond dumping, combined with some diversification from sovereign bonds to gold bullion, aggravated by Indirect Exchange, will continue to put great pressure on the USFed to maintain the bond equilibrium charade. The volume of USFed monetization is going to rise from all these negative factors at work. In 12 months, it will be clear.

The climax blow will be the conversion of USTBonds and EuroBonds and UKGilts and JapGovtBonds into Gold bullion that kills the current system and opens the door to the new system. With great disruption, the new Paradigm Shift is in progress, unstoppable, but offering hope for a better day, a better system, a more fair system, with participants and savers given a just system. For three decades, Gold has had a nemesis in the USTreasury Bond. The USTBond is dying, a wreck in progress As the old pillars fall and the new pillars rise, The Price of Gold will be set free.
It is writtenIt shall be done.

http://www.silverdoctors.com/jim-willie-forecast-psychology-rebuttal-to-gary-north/

tyberious's picture

Picturing The Dangers Of An All-Powerful Federal Reserve

tonyw's picture

ag1969, expert in losing money

So, what are you investing in right now:-)

tyberious's picture

AC_Doctor

Awesome find!! Only confirms what we had already thought!!

Orange's picture

Double Mastectomy

My daughter told me that her boss (39) just had a double mastectomy and that it was also in her lymph glands.

I asked her is she thought her boss might be interested in alternative remedies. She was not sure however she was open to letting her know.

We have spoken here before about MMS and Jim Humble, however I thought turdites might be interested in this interview I listened to yesterday while preparing an email for my daughter.

This guy had stage 4 melanoma. His life insurance company even paid before he was to pass away as he was considered terminal. The first 12 minutes or so discusses other things his doctors suggested while fleecing him for everything they could get. No disrespect to doctors, however they should consider all remedies not just what the pharmaceutical companies want them to use.

 
here is a link to Jim's site and what other diseases are helped by MMS.
 
As always do your own due diligence
 
 
The Doc's picture

Gensler stepping down.  Which

Gensler stepping down.  Which Goldmanite is next?

http://www.silverdoctors.com/gensler-to-step-down-as-cftc-chairman/

tonyw's picture

average house in the UK is appreciating at a rate of £50 per DAY

What is happening in the UK is that generally prices around London are increasing whilst prices in the rest of the country are staying the same. There are several reasons for this including:

We have overall net immigration and the population is increasing.

It is difficult to obtain permits to build and there is not much new space available for building so unused offices and factories are being converted to housing.

Unlike France there is no (not yet anyway) high annual property/wealth tax (current annual maximum is about GBP 4,000)

There are no restrictions on foreigners owning property in the UK.

London is seen as a stable & safe place to "store" your wealth.

bullion only's picture

This article is about the FBI

This article is about the FBI shut down of the bitcoin and silk road site.

Interesting that it mentions that the site operator was a follower of Austrian economics and mentions the Mises institute. Almost like infering that the monetary theory was also criminal.

Enjoy: http://www.bloomberg.com/news/2013-10-03/fbi-snags-silk-road-boss-with-own-methods.html

RT

buzlightening's picture

Yes! House hunting can be fun.

Like a couple dozen grenades lobbed in on you.  You decide which one won't explode at your feet as you search frantically for which ones still have pins to pull.  You discover there's not a grenade which has a pin.  They're all set to detonate but you've made your choice and you're right in the middle of it and it's all set to vaporize you.  Other than that it's certain you should buy a house right now and go into debt to buy it.  Take out the biggest low rate bankster mortgage your income allows.  Zero down of course. 

Cash and cash only with no mortgage.  How is that possible?  Use to be every american saved to buy a house and didn't take out a mortgage until it became obvious to banksters the debt gone wild gig is the only way to lead the citizens to slavery.  Appeal to the same thing which drives us banksters to destruction.  Greed, envy, and I'm entitled to all I want now yesterday!

Bongo Jim's picture

All in

I just know the aliens will want all of our radioactive waste, so I sold all my shiney and put it all into Tepco. I can't lose. I can't wait to own the world.

tyberious's picture

The Real Question…

tyberious's picture

“SILVER IS A TICKING TIME

“SILVER IS A TICKING TIME BOMB” — Jan Skoyles

 

This is a fun one, we visit with the one and only Jan Skoyles, writer and researcher for TheRealAsset.co.uk.

Jan has a degree in International Business and Economics, and she’s got a great sense of humor – which is a great asset indeed in these trying times.

Jan tells us the issues with the CFTC and the manipulation in the silver market just make silver even more of a “ticking time bomb.” Jan says her personal allocation for silver and gold is 50/50, “That’s how much faith I have in the silver price.” And if you miss Jan at the Pub, you can always catch her right here at SGT Report, or daily over at The Real Asset Company.

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