Gloomy housing outlook in the WSJ

Prices still have a way to go, this analyst says.

How much further will prices fall across the country? Nobody knows, of course. But history says the bigger the bubble, the bigger the crash.

Those “professionals” in the market continue to be wrong-footed. Early last year I wrote that even though prices in Florida and California had collapsed, those markets were still overvalued. Naturally I was on the receiving end of lots of angry emails from real estate brokers who told me I was an idiot (or worse). Events since then have borne out my analysis.

House prices nationwide have now fallen about 30% from their 2006 peak. At these levels the contrarian, inevitably, starts to wonder if they have fallen far enough.

Certainly there are great deals out there. It is a buyer’s market. The aggressive and opportunistic can probably find the worthwhile bargains.

But for the market overall the picture isn’t as hopeful as you’d like.

Even today, prices overall have only reverted to levels seen in late 2003. Yet by that stage the bubble was already well inflated. You would expect a crash of this scale to retrace its steps much further. To find pre-bubble prices you have to go back to about 2000 – when values overall were about a third lower than they are today.

Is there a bullish scenario for house prices? Sure. If all the government spending to turn around the economy reignites inflation in a year or two—as some predict—house prices could begin climbing again. But if the current price deflation continues, look for house prices to keep dropping. [I'd bet on wild inflation -Ed]

Over the long term, average home prices have tended to track average earnings. And by this measure the market may have much further to fall.

I looked at Case-Shiller’s index back to 1987 and compared it to federal data on average earnings. The result, rebased to 100 in January 1987, can be seen here. And it’s alarming. By this (admittedly very simple) measure, today’s home prices are actually more expensive, in relation to average earnings, than at the peak of the 1989 property bubble.

Equally noteworthy is that when the last property bubble burst, it took about eight years before the market showed really strong signs of revival. This bubble was far, far bigger.

The black helicopters have taken off

G-20 summit approves limits on pay, new regulations on business to establish ” the new world order.” 

The Group of 20 policy makers, meeting in London, called for stricter limits on hedge funds, executive pay, credit-rating firms and risk-taking by banks. They tripled the firepower of the International Monetary Fund and offered cash to revive trade to help governments weather the turmoil resulting from the surge in unemployment. They avoided the divisive question of whether to deliver more fiscal stimulus to their own economies.

The statement amounts to an effort to rewrite the rules of capitalism to address an integrated world economy that has outgrown the ability of nations to keep it in check. The assembly echoed — on an international stage — the introduction in the U.S. of securities regulation after the 1929 crash.

“By any measure the London summit was historic,” President Barack Obama said after the talks. U.K. Prime Minister Gordon Brown said, “we have reached a new consensus that we take global actions together to deal with the problems we face.”

Even as the G-20 leaders said they will maintain power over their own markets and companies rather than cede it to a cross- border regulator, they closed ranks behind “greater consistency and systematic cooperation” to flesh out a new regulatory order first outlined at a November meeting in Washington.

The crackdown is “a major step forward,” Nobel laureate Joseph Stiglitz, a professor at Columbia University, said in an interview. “It’s a historic moment when the world came together and said we were wrong to push deregulation.”

Blaming “major failures” in regulation as “fundamental causes” of the credit crunch, the G-20 said national regulators will be revamped to better monitor threats to the international system.

A new Financial Stability Board will be established to unite regulators and join the IMF in providing early warnings of potential threats. Once recovery is underway, work will begin on new rules aimed at avoiding excessive leverage and forcing banks to put more money aside during good times.

Hedge Funds

Hedge funds that are “systemically important” will be subjected to greater oversight as will all key financial instruments, markets and instruments, the G-20 said. That signals a setback for German Chancellor Angela Merkel and French President Nicolas Sarkozy, who wanted all of the investment funds to brought under the spotlight.

Principles will also be introduced on pay and bonuses to create “sustainable compensation schemes” after concern that executive remuneration rewarded short-term risk-taking over the long-run interests of companies. Accounting-standard setters were urged to improve valuation methods and credit-rating companies will be forced to meet a code of good practice.

Tea bag sent as protest to Congressman paralyzes office in fear

The revolt of the tax payers. Imagine the havoc if we sent them all CFLs!

Here’s one of the “greater good” we have a moral obligation to care for

Rapist of six-year-old boy, on probation for attempted rape of 7 -year-old boy, gets life sentence – eligible for parole in 15 years.

NEW BEDFORD, Mass. (AP) — A man who raped a 6-year-old boy in a public library, while on probation for an attempted rape, was sentenced Thursday to life in prison.

Corey Deen Saunders pleaded guilty in February to the January 2008 rape of the boy at the New Bedford Public Library.

Prosecutors said Saunders lured the boy into a reading room at the library while the victim’s mother worked on a computer only a few feet away. At the time of the attack, Saunders was a convicted sex offender who was on probation after serving four years in prison for the attempted rape of a 7-year-old boy.

The Bristol District Attorney’s office sought a life sentence for Saunders in part because of the ages of the victims in both cases.

Saunders, 27, will be eligible for parole after 15 years. He was also sentenced to lifetime probation.

Saunders was released from prison in December 2006, despite objections from prosecutors and three psychologists who said he was too dangerous to be let out. He is a Level 3 sex offender, a designation given to those believed most likely to re-offend.

The case reignited debate over a civil commitment law that allows prosecutors to request that sexual offenders be locked up indefinitely after completing their prison terms.

Prosecutors sought to have Saunders committed after he served his term. But a judge rejected the request, citing Saunders’ history of being sexually abused as a child and his lack of sexual crimes while in prison.

Well gee, he was on his best behavior for 13 months after his release – that should count for something.

Well damn – jury finds in Ward Churchill’s favor

The Colorado jury hearing Ward “Little Eichmans” Churchill’s suit against CU for firing him has determined that he was terminated for political reasons. The man was a plagiarist, a seller of forged art work, and an academic fraud who suckled at the governmental teat for decades because of his fales claim to be an Indian and hence entitled to special consideration for his slipshod work. He should have been horsewhipped, not fired, but there you go. The jury did award this charlatan just $1 in damages, though, so they must have found him as repellent as I do. Still, too bad.

Channeling Bernie

A reader sent me this link to Bernie Madoff’s Blog from Prison.  The poor guy’s pining away, waiting for Walt to join him. Just think, if they end up in Connecticut, they can marry!

Our next senator at work

Overlawyered.com reports on an NPR story debunking the phthalates plastics ban

Although most coverage of the CPSIA debacle (this site’s included) has focused on the lead rules, the phthalates ban (phthalates are an ingredient often used to make plastic soft and bendable) is also extraordinarily burdensome, for a number of reasons: 1) as readers may recall, a successful lawsuit by the Natural Resources Defense Council and others forced the last-minute retroactive banning of already-existing playthings and child care items, costing business billions in inventory and other losses; 2) vast numbers of vintage dolls, board gamesand other existing playthings are noncompliant, which means they cannot legally be resold even at garage sales, let alone thrift or consignment shops, and are marked for landfills instead; 3) obligatory lab testing to prove the non-presence of phthalates in newly made items is even more expensive than testing to prove the non-presence of lead.

Earlier coverage: Feb. 6(NRDC and allies win court case on retroactivity); Feb. 7 (various points, including Connecticut Attorney General Richard Blumenthal’s vow that his office will “take whatever steps are necessary[emphasis added] to ensure this phthalate ban is enforced”)

Frankly, I could care less about infant toys – what really gets me hetted up is that the ban caused the disappearance from the market of Nalgene water bottles, the best backpacking invention since the Kelty pack. Until Nalgene, hikers were forced to choose between crappy polyethylene bottles that imparted a stench of plastic to every mouthful or a heavy metal container. We’re back to that now, for no good reason. And in case you’re not a hiker, you might want to thank Blumenthal for his efforts for another reason: IV bags, that replaced glass and were stronger, cheaper and lighter, contain phthalates – so they’re gone too. But again, if it saves the life of one polar bear,….

Weirdest story of the day involves Steve Cohen, natch

Dealbreaker informs us that during the two weeks  Stevie Cohen is exhibiting his painting collection at Sotheby’s (the art store, not the Century 21 – owned real estate agency of the same name), the 10th floor deli is prohibited from selling panini. Lattes; corned beef on rye, hold the mustard, fine; but no panini, per express demand of Mr. Cohen. I can’t imagine what a panini ever did to the man to incur his wrath and cause this banishment but I know that Greenwich is populated with SAC survivors, and perhaps they can shed some light on this food allergy.

"But cake's okay, right?"

2005 assessed value benchmark

89 Loughlin Ave

Just recently, a reasonable approach to valuing real estate in this down market was to use the town’s assessment determination of 70% of the market value, based on the 2005 reevaluation. This house on Loughlin Avenue, for instance, has an assessed value (70% of market) of $765,450, so the listing broker’s decision to ask $749,000 seemed conservative. Not as conservative as the market, however, because it was only when it dropped to $699 that it found a buyer. It’s reported as under contract today and I think it’s safe to assume that its selling price will be even less than asking.

But if using the assessed value isn’t a fool-proof way to price a house, it still serves as a useful benchmark. So when I saw a new listing come up today, priced at $770,000 when I had figured its value as somewhere between zero and $450,000, I checked what the town thought: $498,680. Some seller is going to be waiting a long time to get his money on this one, I suspect.

This is great: The Hunter S. Thompson of Real estate

A couple of readers sent me links to this story, originally in the LA Times, about “Jim the Realtor”, whose blogging on real estate makes me look positively civilized. Or it did, but now suitably inspired, I think I can turn things up a notch or two – time to switch to the more sophisticated WordPress program and get a video camera.

The lede says it all: “Sometimes the truth hurts. Real estate salesman Jim Klinge doesn’t care.”

From Peter Hong at the LA Times: The Hunter S. Thompson of real estate

Real estate salesman Jim Klinge … has become a notorious Internet chronicler of the real estate crash in north San Diego County, where he has lived and worked for decades.

Rather than downplay the greed and excess that caused the region’s travails, he revels in exposing them.

He surveys the wreckage with a pocket video camera, shooting footage of vacant, once-pricey houses turned into eyesores, voiced over with his deadpan narration. Then he posts them on his website, at www.bubbleinfo.com.

In one clip, the camera pans across the kitchen of a million-dollar fixer near Interstate 5. He pointedly notes the house’s proximity to the freeway, which he calls the “De-troit river.” There’s mold under the sink and a foot-sized hole in the drywall just above the floor.

“December 2006 this house sold for a million dollars,” he says. “Nineteen hundred square feet, built in ’78, right across the freeway. One million.”
…
His wife, Donna, who helps manage the family brokerage, was nervous. “He was really pushing the envelope with the blog, taking people on, naming names,” she said. “I took deep breaths. I didn’t know how it would turn out.”

She said she was shocked one day to see a photo on the blog of two young men sitting on the floor of a house with their wrists bound like prisoners. They had been squatting in a foreclosed house Jim was selling, and he had sneaked up on them as they slept and tied them up with plastic zip ties in a brazen citizen’s arrest.

Pitchforks and torches

That’s one readers solution for Congress and this story, sent to me by another reader, makes me think he is right. There is no arguing logic with these officials: they are determined to destroy wealth and grab it, and the power that goes with it for themselves.

Hartford Democrats set to enact “millionaires” tax of 8%. ”Millionaire”, of course, is defined as a couple earning $250,000. This tax is aimed squarely at Fairfield County and is done in response to New York’s own tax hike on the same people. Rather than do nothing, and let our competitive advantage triumph, the Democrats see a way to increase their looting behind the shadow cover of New York.

They’re Democrats, and don’t need Fairfield County votes to be reelected, so here they come. I don’t believe our state constitution offers a way to secceed from these thieves, which leave migration to another state.

1/2 price sales

30 Strickland Rd

Well not quite, but there are a number of houses that have dropped way off their original asking prices – which is not to say, by any means, that their value has dropped that much – these houses were overpriced to begin with (an opinion based on the fact that they didn’t sell for what they asked) but they’re certainly approaching, and some have reached, a realistic level.

Thirty Strickland is a neat old (1749) house that could probably use a thorough renovation, but I love it the way it is, and it has a rentable cottage in the back that could offset some of those costs, perhaps. I think I’d have liked it better in 1749 before the Thruway went up a few hundred yards away but what is life if not change? This was listed last summer at $1.750 million – today it’s asking $995,000.

24 Maher Avenue, praised in this blog just recently, has dropped its price yet another $100,000, to $2.395 million, down significantly from its first price of $3.175 last April.

614 Riversville Road, another antique (1850) on four acres, started its latest sales history in 2007 priced at $4.2 million. Three brokers later, it’s back on the market today for $2.6. Wise decision.

A sucker’s rally?

DJI 4/2/09

The Dow’s up 200 this morning and I guess that means someone out there thinks things have gotten better. I don’t see any improvement in the fundamental things driving down the world’s economy so I don’t know why you’d want to put money into stocks today. But then, that’s why Walt’s enjoying Mustique while I’m off to tour other people’s homes.

Bonuses for Congressional workers

Given the recent performance of Congress, you might  think this is a bad time to pass out bonuses. You would be wrong. Professor Reynolds suggests that we fire their bosses. I like that.

If it didn’t happen in Bridgeport you won’t find it in Greenwich Time

So, as noted here yesterday and this morning, Massachusetts has charged Fairlfield Greenwich Group and its principals, including Greenwich residents Walter Noel and his son-in-law, Andres Piedrahita, with fraud in connection with the Madoff swindle. You might think that story would be of interest to general readers who live in town but the best our local daily could do was run a short AP article on page five, half of which was devoted to the charges and the other two halves spent on an FGG spokesman denying everything. No mention of Walter, or Andres, or their outsized salaries or, in fact, anything at all connecting the story to Greenwich. I’d link to the story if it were posted on their miserable, slow loading website but it’s not there. That would be like, you know, news, or something. There is a story on a new train run to Yankee Stadium but I’ll let you find that for yourself.

Protecting the rich? Maybe, but more likely is that, now that Greenwich Time is edited by some fellow in Bridgeport, they don’t know the local papers and wouldn’t recognize a Greenwich story if it bit them in the rear. Or the paper is continuing its pusillanimous history of ignoring the dirt on Back Country residents, take your pick. Any recent stories on Round Hill Bourke’s upcoming bribery trial, by the way?

More Blodget: Merrill’s departing economist sees tough times ahead

S&P down to lows 6s for a long time. Key to recovery: housing, which isn’t coming back for awhile. Read more here.

Henry Blodget looks closer at that FGG pay schedule

His conclusion? “It sure didn’t suck to work for Fairfield Greenwich Group”.

Last year was a lousy year, which explains why Piedrahita was on track to make only $27 million and Noel and Tucker $19 million.  Thankfully, the 2009 forecasts showed an expected bounceback…to $48 million for Piedrahita and the normal $31 million each for Noel and Tucker.

And what about FGG’s little people?  Judging from the spreadsheet below, which Fairfield’s CFO emailed to himself, they did just fine.  Of 16 employees, only one made under $1 million in 2007 ($710,000).  Several made $10 million.  The rest made between $2 million and $7 million.

Fairfield loves to point out that its employees also lost money with Madoff.  This total, $60 million (if memory serves), was only slightly more than one firm employee, Piedrahita, paid himself in a single year.

Bad news for Noel, Madoff children

Manhattan co-op prices drop 22%, volume down 48%. Just when these poor kids need every dime they have to pay lawyers fees, fines and disgruntled victims, here comes the mean old real estate market to drive them further underwater. Jesus weeps.