All Things in Moderation

Article I wrote for the Scotsman Guide Dec issue.

18 Responses

1. 

   lmsinca, on December 1, 2012 at 7:35 am said:

   Brent, just finished your article and as a property owner and landlord, I was very encouraged, not just for ourselves but for the economy as a whole. For much of the middle class their financial security is wrapped up in their homes so this is very welcome news. We’ve committed ourselves to working for at least another couple of years (about 3 or 4 more than we originally intended) and hopefully by then we’ll see enough appreciation in our properties to feel a little more comfortable about retiring.

   Thanks for sharing your work here.

   OT, I am trying to drop in a comment here and there to see how I feel about it.

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     markinaustin, on December 1, 2012 at 10:44 am said:

     OT, I am trying to drop in a comment here and there to see how I feel about it.

     All of us feel just fine about it. In case you wanted another viewpoint… .

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2. 

   Michigoose, on December 1, 2012 at 10:38 am said:

   Hi, Lulu, good to see you! I’ve still been crazy busy, so haven’t had much chance to comment myself, either, although I always learn something from Brent’s MR.

   And, Brent, thanks for this; I’m still trying to decide where/what/when to get back into the ownership market and your insight is very valuable.

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3. 

   Michigoose, on December 1, 2012 at 10:47 am said:

   +1

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4. 

   jnc4p, on December 1, 2012 at 2:13 pm said:

   Don’t forget to follow the links to check out the picture of Brent. He doesn’t really look like Thurston Howell III.

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5. 

   Michigoose, on December 1, 2012 at 2:20 pm said:

   I noticed that, jnc. . . he looks much more like a normal guy! 🙂

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6. 

   yellojkt, on December 1, 2012 at 9:40 pm said:

   Nice article if a lot of it went over my head. My take-away is that underwater real estate is a serious drag on economic growth because consumers can’t upgrade or relocate as easily as they want.

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7. 

   lmsinca, on December 2, 2012 at 7:39 am said:

   This guy from Goldman thinks we’re turning a corner in 2013. I sure hope he’s right.

   Check out the chart below this comment:

   The essence of the model is essentially this chart, which recognizes that private sector surpluses (rising corporate and household savings) is the mirror image of public sector deficits.

   http://www.businessinsider.com/goldman-the-economic-crisis-ends-in-2013-2012-12

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8. 

   bsimon1970, on December 2, 2012 at 9:44 am said:

   “My take-away is that underwater real estate is a serious drag on economic growth because consumers can’t upgrade or relocate as easily as they want.”

   Balance that with the observation that the ratio between median incomes & median home prices has improved – making houses more affordable. A significant factor in the housing bubble was the imbalance between income growth & the rising cost of housing – home prices rose far faster than incomes, which was a sign that the bubble was unsustainable. Credit was so cheap, few were paying attention to this problem.

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9. 

   okiegirl, on December 2, 2012 at 9:56 am said:

   Thanks, brent, appreciated the article and everybody’s comments. (lms, sorry I missed you! Hope all is going well.)

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10. 

    Fairlington Blade, on December 2, 2012 at 10:38 am said:

    The UK had a sharp housing crash in 1990. The Tories joined the ERM (predecessor to the Euro) when the pound was significantly overvalued. George Soros earned $1B by shorting the pound.

    The Bank of England, which was then under the Chancellor of the Exchequer’s control (Treasury Secretary), raised rates to something like 20%. There’s no such thing as a fixed rate mortgage in the UK (or at least up through 2000) and so that led to a drop in housing values and a much more severe recession than we had.

    A friend of mine was offered a lectureship in Sheffield and nearly couldn’t take it, because he was underwater on his home in Oxfordshire. I wound up with good timing as housing values were flat until 1998, shortly after I bought my semi-detached. It gained about 40% in value in 3 years.

    BB

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11. 

    Mike, on December 3, 2012 at 5:15 am said:

    Thanks, Brent. Great article.

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12. 

    lmsinca, on December 3, 2012 at 6:27 am said:

    More on the housing comeback.

    The Big Long is now slowly taking shape. House prices have stabilised since their 2009 trough, and have even made small but steady gains in recent months. Investors convinced that a full-blown housing recovery is under way—a big “if”—are looking for ways to profit from it.

    The most predictable of these is to invest in mortgages, or the very same residential mortgage-backed securities that were so avidly shorted in the run-up to the crisis. It is a deep pool: the $10 trillion of home loans outstanding is second only to equities as an asset class. Over half of these mortgages are tacitly guaranteed by the government, turning them into something akin to Treasury bonds. But packaged in tax-efficient structures to which large dollops of debt are added, these can kick yields up to the 10% range: not bad in a low-interest environment.

    The risk is that even a small rise in interest rates will wipe out all the value. “You really have to believe interest rates are going to stay low for the foreseeable future,” says Gregory Perdon of Arbuthnot Latham, a bank.

    http://www.economist.com/news/21567388-new-generation-investors-betting-americas-housing-market-big-long

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13. 

    lmsinca, on December 3, 2012 at 6:39 am said:

    Does this mean “pretend and extend” worked, at least as long as interest rates remain low for a little longer?

    When banks pulled back on foreclosures two years ago following a government investigation into allegations of faulty practices, market researchers, academics and Wall Street analysts said that a surge of delinquent homes would deluge the U.S. market once lenders resolved the claims and worked through backlog, driving down prices for years to come. RealtyTrac Inc., a seller of property data, warned a year ago of a “new set of incoming foreclosure waves.” Susan Wachter, professor at the University of Pennsylvania’s Wharton School, said in February that a logjam may be “unleashed” and destabilize the market.

    In fact, the flood failed to materialize, even after the five biggest U.S. mortgage servicers reached a $25 billion settlement with federal and state regulators in February. Instead, the number of properties for sale shrank to the fewest in a decade, prices appreciated at the fastest pace since 2005, and the gradual healing of the housing market helped boost consumer confidence and the economy.

    http://www.bloomberg.com/news/2012-11-29/foreclosure-wave-averted-as-doomsayers-defied-mortgages.html

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    • 

      markinaustin, on December 3, 2012 at 7:26 am said:

      Thanks for the article, Brent.

      Lulu, I think that as the slow upcurve of the general economy crosses the the downcurve of the burst real estate bubble market the real estate market begins to slowly recover, but the upcurve of the general economy may slow, as investment moves to the real estate vacuum. I think the “pretend and extend” may have ameliorated the slope of the downcurve of the burst real estate bubble market. What surprises me is that it did not simply postpone the inevitable; it made the result more palatable. Or so it seems.

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14. 

    lmsinca, on December 3, 2012 at 7:36 am said:

    That’s pretty much what I’m thinking also Mark, and have to admit after all my complaining re “pretend and extend” that I’m surprised, in a good way. It’s fascinating that economic trends and predictions don’t always comply with the modeling.

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15. 

    jnc4p, on December 3, 2012 at 9:31 am said:

    “lmsinca, on December 3, 2012 at 6:39 am said:

    Does this mean “pretend and extend” worked, at least as long as interest rates remain low for a little longer?”
    
    It may well have. Brent’s observation about how a lot of distressed real estate has been picked over and the role of institutional buyers is worth remembering as well.

    The other piece besides the interest rates is the forbearance shown by the banks. The idea that they just wouldn’t bother to foreclose on delinquent mortgages caught me by surprise, especially now that most of the “robosigning” issues have been resolved.

    Anyone know what the current state of the MERS lawsuits is?

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16. 

    Mike, on December 3, 2012 at 10:06 am said:

    jnc:

    Anecdotally, I’ve talked to several people who are directly or proximally affected by the banks’ forbearance in central FL. A couple of the delinquencies have gone 3 – 4 years without payment, with the banks knowingly allowing the borrowers to continue to live in the houses. Whether this is a function of a backlog in the FL courts or a function of the market, I am unclear.

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