Monday, April 01, 2013

A Note on Housing Bubble 2.0

A commenter mentioned a Dr. Housing Bubble post on the bubble being back (ferociously in Irvine, CA). The dirty sewer system of this is:
 
1. Banks trickling out foreclosure inventory to keep prices high and not realize loan losses so they can extend and pretend.
2. FED ZIRP is simultaneously allowing some folks to borrow at old bubble levels but more importantly, pushing investors into rental game because they need an alternative from no return-all risk bond market. Everyone wants to be a landlord now, even Blackstone.
3. Federal government has done loan mod programs to benefit banks as well as tossing out mark to market for illqiuid or forced selling securities.
4. The federal government has kept the National Association of Realtors exempt from money laundering rules so cash transactions over 10K do not trigger any red flags, allowing foreign money to purchase property and keep high end markets afloat.
5. Local governments are seeing property tax revenues stabilize and higher property values allows them to increase all property tax assessments.
 
This is all to re-inflate real estate security assets to benefits banks and well connected capital owners. The banks are trying to mint risk free profit from the FED for as long as they can while delaying the loan write downs. They've traded a bunch of the trash to the FED, too. The money center banks did this before in the '80s with the LDC debt crisis. It is a game for the global elite. Wealthy Chinese individuals are buying American real estate in desirable locations to park cash. This screws over everyone else as the high powered money men and women around the globe work to keep their system alive. There is nothing special about this except for the direct screwing over of people trying to form households and buy homes compared to the weird reflation of our stock market and junk bond market, which doesn't screw over little people directly. This is just a symptom of our current kleptocracy or bankocracy, however you want to label it. They are connected. We are not.

ADDENDUM: Obama is pushing lenders to extend credit to folks with bad credit again! The bubble is in full blow up if they are trying to hook the chumps again.

1 comment:

PRCD said...

Thanks. I actually managed to buy about a year ago and even then we were starting to see bidding wars. Providentially, we got in on the bottom of the market, but even then it wasn't low enough to really make household formation affordable for everyone else.

Interestingly, the 2nd realtor we hired was in league with some Chinese investors. Since he drove a Land Rover, appeared to have plenty of money, and tried to flirt with my wife into buying something out of our price range, I promptly fired him. Our third realtor actually looked out for our interests.

SoCal and the Bay Area have become areas of relentless global striverdom akin to Manhattan. Listen to the stateless androids in the comments talking about all the ins and outs of getting into that narrow market. For what? To have 1.2 children when you and your wife combine for $200k per year? I suppose it's good places like Manhattan and SoCal exist to crush the dreams of global high-IQ strivers. People who live in such places can expect no grandchildren.

Incidentally, I just ran into a Chinese in Beijing who was working in Malaysia after a stint in Hong Kong. Silicon Valley was his next stop. Nice guy, very affable. I have no idea how he plans to set down roots or raise emotionally-normal children in an atmosphere of such globe-trotting cosmopolitanism.

I think the take-away for everyone else is: Don't try to buy in a 'desirable' area. Breed in undesirable areas and invade the desirable ones when you have enough people.