Last week the Telegraph UK ran an article about the Royal Bank of Scotland’s recent red-alert to investors on the state of global credit. They are predicting a full-scale stock and credit meltdown as central banks worldwide are paralyzed by inflation. I know to some this may sound extreme, but the article make some good points, and the comment stream that follows is pretty insightful. I’m curious to know what you guys think about the current state of affairs. (And yes, you can talk about oil.)
Noah Rosenblatt over at Urban Digs, who watches Wall Street like a hawk on behalf of Manhattan real estate, is also seeing signs of deterioration.
Even ritzy Aspen, Colorado, has begun to feel the pain (minus the $36 million sale to the Russian oil tycoon, of course).
The State of the Nation’s Housing Market 2008, courtesy of the Joint Center for Housing Studies at Harvard University. The summary in a recent California Association of Realtors newsletter, courtesy of my good buddy Jeff Brown, summarizes as follows:
"HOUSING DOWNTURN SLOW TO REVERSE, BUT DEMAND EXPECTED TO CLIMB OVER NEXT DECADE. Record numbers of foreclosures, coupled with tighter lending practices, will make it more difficult for the country to recover from the current housing slowdown, but immigration growth is expected to create a demand for more homes over the next decade, according to a new study released Monday by the Joint Center for Housing Studies at Harvard University."
American Express says late payments on credit cards are on the rise (thanks, RI).
Sully
Don, actually I wasn’t trying to compare the deduction amount for the first mortgage, as much as I was trying to say that the AMT reduces your deductions to comical amounts.
And the ongoing expenses, other than property taxes, are not deductible – period. So, by the time the mortgage and property taxes are added, the actual amount you save in taxes are washed by a good extent by ongoing expenses.
Add that to your illustration, and you probably have a net loss. The devil is in the details. 🙂
longerwalk
In many ways, American (and some Western European) consumers are overextended, and, like any person who is overextended, they will have to make some hard decisions. I would guess many could greatly reduce their food and gas bills (and others), especially if they opted to reduce their consumption, i.e., their choice to dine out instead of cook in, stop treating shopping as a sport, and carpool. What it requires, and what most of our beloved citizens don’t want, is the self-discipline to make the hard choices. Unfortunately, many people have come to regard many former luxury items as necessities.
Few of our citizens really know what hardship is, and most of those are former citizens of other countries.
I am confident the economy will survive. Take a good look at both sides of what’s going on before declaring doomsday. And always live below your means.
Future Buyer
First time buyer–you don’t have to like any of the houses that sold for way below zillow-I didn’t either–but there is no getting around the fact that they ALL have an impact on your future house and it’s value. I would just be careful when buying a new house right now because the entire area is affected by the downturn. I’ve already decided to wait and see where the cards fall. We are also buying our forever house, so we want to get the most house for the money.
hmm
First time buyer is probably a troll. He/She is very knowledgable about the market – Arrowcreek in particular – and parroting standard real estate sales scripts. Seriously, which first time buyer is shopping for million dollar house in Arrowcreek?!
Diane Cohn
MikeZ, thanks for the correction, I’ll make the change.
Don, you should be able to insert links with HTML tags, but I’ll check the spam filter to see if yours maybe ended up there.
Everyone, thank you for your continued input on this thread. This is a great discussion. So if I inherited a chunk of cash tomorrow, I should put it into silver and gold, Canadian Dollars and oil (maybe)?
first time buyer...waiting
hmm- a troll? no my dear, we have good jobs and have saved for years. We live within our means and have minimal debt (no credit card debt) I never said we will spend a million (or near that) but I do know people that do and have.
We have been watching (almost)every single house in Arrowcreek, Saddlehorn, St James, Cross Creek and most of Galena for over 1 year. My agent says I know much more about these areas than she does. I also have friends that have bought and sold in these areas over the past 5 years so I know what they went for.
I feel as a buyer these days you HAVE to be very well informed, it’s my money and I have to be sure about what I’m getting for it and where. You also have to have insight into what parts of Reno are going to recover or maintain value and I still strongly believe the SW will do that.
That is also where again I’d like to thank the insightful and helpful comments many of the regulars make! I’ve learned a lot from you and it is very interesting to see your predictions and how everything is unfolding.
Future Buyer
I don’t think you are a troll First Time Buyer–I just think you are looking for someone to tell you on this blog that it is a good time to buy and most of us cannot do that. There are plenty of blogs that will tell you what you want to hear. If you are at all worried about losing money on a house now is NOT the time to buy. If it is your house that you will raise your kids in and live in for at least ten years you have nothing to worry about other than maybe getting a better house if prices drop. By all means DO NOT go by what has happened to this market in the last 5 years–that was an anomaly–only look what has happened this past year. I do not believe the Reno job market can support the housing prices as they are now.
Myrna the Minx
Demand for oil will continue to escalate because of the growth of China and other second world contries. Increased demand ensure that oil prices will not fall to any significant degree. To think otherwise would be to ignore the facts. Drilling in ANWAR will have no impact–if they even ever actually drill. Furthermore, look to the current administration and the the misplaced values of the political party that supported them for the wholesale deregulation of the financial industries that operated with near impunity until this crises. This crisis is at least forcing many Americans to look truthfully at what is going on around them and at least think about accountability as a national value.
john
First Time Buyer – I am curious if you have you been watching Montreux over the past year as closely as the other areas you mention surrounding it. (Excluding, of course, the Renaissance tract subdivision which is now bargain basement with a couple foreclosures) If so, what is your impression? Do you see prices dropping, or is Montruex “special, a hidden gem,” and immune to steep price declines as many have mentioned on this blog. So far, asking prices are not going down much, but not much is selling either this year compared to last, and some houses have been on the market for 2 plus years. Contrary to how the the Kool-aid sipping sales office inside the pearly gates likes to spin things, it would seem a necessary correction could be ahead.
At what price per sq ft. and what point in time going backwards is Montreux a fair deal? 2003 selling prices? Under $300 per sq foot? Or are these prices still too high based on what may happen over the next 12 months? Smarten, any thoughts? I know you have been lurking in Montreux as well. Any one else?
BanteringBear
“Demand for oil will continue to escalate because of the growth of China and other second world contries. Increased demand ensure that oil prices will not fall to any significant degree. To think otherwise would be to ignore the facts.”
Interesting Myrna. Question: Why has the price of a barrel of oil risen 97% in one year, when demand has been flat?? Answer me that.
SmartMoney
Oil is a bubble, similar to real-estate in ’05. Sad people on here can’t see that. It won’t turn overnight, but give it six months to a year. If you want to make money, back up the truck in financial stocks, that’s where the big money will be made during the next few years. Buy now while they are depressed and very cheap.
Grand Wazoo
OK, somebody please explain the pricing rationale on 577 Marsh in Old SW Reno (MLS 70014116). Very, very nice place, purchased in 2004 for $400K, listed at $680K. Not sure if the renovations were done this time around or by a previous buyer, but regardless, this price baffles me. Anyone?
BanteringBear
Grand Wazoo:
That’s just another fantasy listing that will NEVER sell. When the dust settles, that place will go for $250k, and that’s only because of the neighborhood.
EdBear
Sully, thanks for your input. Any thoughts of where the prices might go?
Thanks again,
Ed
smarten
John, I can’t answer your question re Montreux. But let me give you a similar Washoe County market to compare it to; Incline Village.
We’re now starting to see some very substantial price reductions in Incline. There’s a gorgeous Lake view home that had a $500K price drop last week; down from $2.5M. Two doors down, there was a $200K price drop today [down from $1.795M]. Last February an Incline home we looked at was offered for sale at $1.395M. A month later the price dropped to $1.295M and still no takers. The listing expired and a couple of weeks ago, it resurfaced on the MLS at $995K.
Insofar as the first two examples are concerned, still not enough for me. But give me another $200K price drop, and it will be [see below for the reasons why].
I have the same type of litmus test for Montreux. When we start seeing $250K-$500K price drops, we’ll know we’re on our way. I don’t mean to pick on Guy but he just took a $1.75M listing on Dijon Circle. Although I haven’t seen the inside of the property, when properties like these are offered at $1.3M, they’ll be enough for me.
So for BB’s benefit: you know, your conscious mind knows many things about many subjects. But your sub-conscious mind just knows!
Don Cooper
Smarten, the price drops in my area are beginning to hit the higher end. The local paper had an article about this which said the drops had started inland and had migrated to the coast, which is another way of saying lower and higher end homes. So I think you’re probably right on that the price drops are now migrating to the higher end homes in Incline Village.
I notice that there are a couple of listings in my neighborhood at 1.6M. That’s pretty interesting because a few years ago one sold for 1.8M and the neighbors were outraged that someone could have undersold a 2.4M home by so much. Now, if the sales price ends up being 1.4M, that would be pretty fair since I believe the 2000 prices would have been in the 1.2M range.
But I suspect that with oil and food inflation and the horrible consumer confidence numbers we are going to overshoot to the downside. I also think that homes in the 1M-2M range are the most vulnerable. I think, partly because of personal knowledge, of this type of home as being bought by posers who have really stretched themselves. With more time I suspect you’ll see even more carnage in this price range than in other ranges, though the $995K house my be getting there.
The other issue I see is that a lot of these homes are very large, 3000sf – 5000sf, and the shifting tastes are towards much smaller homes. I’ll note that the celebrities are giving up the McMansions for (equally expensive) cottages, people I know who always drove a Mercedes or a BMW are now driving a Prius (and it’s not the cost of gas), and young women say they’re more impressed by men driving electric cars than sportscars. The zeitgeist seems to be changing fairly rapidly.
Sully
EdBear – its hard to say. Depends to no small extent on the swarm of earthquakes hitting the area.
Many people, myself included, have aversions to earthquakes. A small one, now and then, is no problem, but having even those coming every 1/2 hour for 3 months running would be enough to run me off. I was on top of a “under construction” overpass when the Loma Prieta hit in 1989, after all that rocking and rolling, I prefer to not be reminded of it.
Then, add the current market conditions, and you might be singing the Limbo Rock.
BanteringBear
Here’s a must read:
http://www.lacitybeat.com/cms/story/detail/house_of_cards/7181/
From the article:
“What this adds up to…is that we are actually face to face with the results of the most massive failure of our political and economic system since the Depression. Since Ronald Reagan, we have been living in an era in which neither the meltdown of the savings and loan banks in the 1980s nor the Enron-like scandals of the Bush years has stopped the relentless advancement and protection by both parties of the ability of financial institutions to make a buck at any cost to the social good and economic fabric. Which is what you get, of course, when both parties are so dependent on massive financial contributions to get their candidates into office and when the corporate media, heavy with advertising from the FIRE sector – Finance, Insurance and Real Estate – doesn’t warn the public or investigate the egregious fudging, misrepresentation and outright fraud that underpins the subprime and looming credit card crisis.”
Sully
BB; the next article will be the Fed saying they didn’t see this coming. But, then again, we all know the Fed couldn’t see yesterday coming.
Now the credit card industry true reasons for having the bankruptcy laws changed is apparent.
JohnHenry
Bantering Bear,
Your question “Why has the price of a barrel of oil risen 97% in one year, when demand has been flat??” can be answered with one word, “depletion.”
Bottom line, the rate of new oil production is not keeping pace with the rate of depletion from the worlds largest oil fields. For example, Indonesia (an OPEC member, is no longer an exporter of oil, but rather an importer).
Last year the UK made the same transition.
Production at Mexico’s largest oil field, Cantarell, is declining at a rate of about 16-20% a year, as is the North Sea oil fields at about 8-16%. The only country in the world projected to be able to increase production to mitigate this rate of depletion is Saudi Arabia, but there are questions as to whether they truely have the capacity.
The current oil price of $140+ is for light sweet crude, which is what the vast majority of refinerys are configured to refine. However, more and more the only crude available is heavy (thick) and heavy sour (high sulfur content), with fewer refinerys capable of refining it and higher refining costs with less refined product.
There is alot more that needs to be said, but would be best learned from a blogging website called theoildrum.com.
IMHO, we are witnessing a historic paradigm shift from cheap abundant energy to ever increasing costs for energy that will impact our standard of living in ways unimaginable only a few years ago.
We are living in interesting times.
BanteringBear
JohnHenry:
I’m not sure where you get your information, but I’d have to bet that it’s from a source whose best interests are served by high priced oil. Your information is erroneous. The Wall Street Journal posted an article back in January documenting a study by Cambridge Energy Research Associates which surveyed data from the top 811 oil fields worldwide. What they found was that production from those fields dropped 4.5% for the year, but new oil production more than offset that.
This is the most comprehensive study to date. The whole argument about demand out pacing supply is totally bogus. Oil is in a massive speculative bubble, as is housing. Anyone who can’t see that massive amounts of money are chasing prices higher is wearing rose colored glasses. The inevitable result of this high priced oil is demand destruction which will be followed by a crash in oil prices. Don’t drink the Kool Aid.
MikeZ
The inevitable result of this high priced oil is demand destruction which will be followed by a crash in oil prices.
This is one of the few subjects where we disagree.
JohnHenry
Bantering Bear,
I was curious how long it would take for CERA to be cited as a reference since they are the only organization out there stating that the world is awash in oil, that’s of course if you count the oil sands in Canada and the Shale in Colorado which are not viable alternatives given their low Energy Return on Energy Invested ratio and horrendous environmental impact.
If you wish to follow CERA’s analysis, bet the farm and short crude. That’s not to say crude could not experience a 10-20% short-term pullback (as no market’s rise is linear), but the long term trend is definitely up.
I’ve studied the issue sufficiently to feel confident that demand destruction will not be enough to cause a crash in oil prices.
Especially given the fact that one of the main culprits with regards to reduced oil exports is that exporting countries own consumption rates are increasing substantially (due to heavy subsidies, e.g. Venezuelans only pay 12 cents a gallon) while their oil production remains flat.
According to US Department of Energy’s Energy Information Agency, net exports from the world’s 44 exporting countries declined 2.24% from 2005 to 2007. I don’t think DOE is an organization interested in higher oil prices.
By the way, there’s a post on the WSJ’s Environmental Capital blog titled “Peak Oil: IEA Inches Toward the Pessimist Camp” that pretty much reiterates the things I’ve noted.
And for bragging rights I’d bet that oil hits $200 before it hits $100.
And just because someone has a different perspective doesn’t make them a Kool Aid drinker especially when the position your taking may be from Kool Aid that’s a bit more tainted.
BanteringBear
JohnHenry,
As far as “bet[ting] the farm and short[ing] crude”, I’m not a gambler so I stay away from the stock market-especially short positions. That’s not to say I won’t buy something here and there to hold long term, but for the most part, forget about it.
I do wonder how you explain away the massive speculation in oil futures in conjunction with the spike in prices. If it quacks like a duck… As for your comment “the long term trend is definitely up”, you could make that case for anything. A very vague statement indeed.
In a world where species of plants and animals routinely go extinct before their “discovery” by us human beings, I find it laughable to suggest that we have found, let alone exhausted, the majority of our petroleum reserves. It’s incredibly naive to say the least. I don’t even believe in “Peak Oil” as it pertains to todays rate of consumption.
As for bragging rights on whether oil goes to $200 a barrel vs. $100 a barrel, I could care less. However, you show me $200 a barrel oil and I’ll show you a country on it’s knees.
first time buyer...waiting
Future buyer-thanks for the advice, we opted not to buy the house we made an offer on for quite a few reasons, the inspector found a few broken things that were not in the disclosures that were blatent and I guess the owners hoped would be missed. Gave us a sour taste and made us wonder what else we would discover over time. Everything happens for a reason, right???…. we’ll wait for the “right house” and continue to rent!!
See you at the pool!
John-I do not follow Montreux as closely, it’s beautiful and the houses are built very well but it still is very expensive and I’m not sure it’s the right community for us. We were in 2-3 on delacroix and cartier, the 3 bedroom has a strange floor plan and the 4 bedroom was ok but not for that price.
Don Cooper
BB – I’m not big on speculation as the culprit for higher oil prices. This article seems about right to me. Basically inelastic demand in the short term (which means you need big price increases to get small decreases in demand) and an expectation of higher prices in the future keeping oil off the market (maybe that’s speculation of a sort).
http://online.wsj.com/article/SB121486800837317581.html?mod=opinion_main_commentaries
If we get some leasership in Washington on this issue and we start a credible program to drop demand drastically — which is more than possible with cars like the GM VOLT, the Prius, and the Poulsen Hybrid — we’ll change the expectation about the future demand for oil, more oil will be released on the market, and prices will drop.
Future Buyer
First Time Buyer–One more thing to consider BEFORE buying in Arrowcreek that you might not know if you aren’t renting here. There is a BIG fight going on between equity golf members and homeowners regarding use of the pool and tennis vs. the golf and I believe they have even tried to block the buyout. I’ve gotten many flyers on my door. You may want to wait until the dust settles on that issue–as if you needed one more reason not to buy quite yet…Good Luck and yes I will see you at the pool.
john
First Time – you may want to check out this house in Montreux. I think it is bank owned now. I heard it had some poor quality construction issues as did several other Renaissance models from phase 1.
Apparently a wall caved in during a wind storm and part of the roof flew off. Still, a decent price, and could probably be had for much less assuming you get clarity on the quality issues.
$950,000
MLS# 80007363
16820 Delacroix Court