3/25/2011 1:36 PM ET|
Caution: More housing woes ahead
Banks and the Fed helped paper them over, but deep problems remain for the real estate market. And they could soon trigger even more financial turmoil.
Remember the housing crisis? It's over, right? Well, the crisis part is, but the underlying problems in that sector are not. With so much else going on in the world (and obviously not just in the world of money), it's easy to forget about certain issues, especially if they no longer appear as threatening as they once did.
But every so often, it is important to check the rearview mirror and see which of our troubles we have, in fact, left behind.
Even though it is has been relegated to the inside pages in terms of media coverage, the real estate market is still an area to be concerned about. For those who don't know, one of the best sources on that topic is mortgage lending expert Mark Hanson, who has been warning anyone who will listen that the stimulants that helped housing in 2010 have worn off and that the sector is liable to hit the skids once again.
On a clear day, you can sell forever
Last week's existing home sales data corroborated that view: Supply increased, prices fell, and about 40% of transactions were from distressed sales. Having said that, and noting that there has already been a tremendous decline in prices, in many cases the real estate market still has not "cleared" -- i.e., prices have not fallen enough to bring out buyers at the margin.
Part of the reason is that banks have been pursuing an "extend-and-pretend" strategy and have not yet forced out many delinquent home "owners," for two reasons. One is the pressure the banks are under from a documentation standpoint. The other is the fact that they don't want to recognize the losses on their books as they continue to present themselves as healthy, bolstered as they have been by free money from the Federal Reserve.
Nevertheless, at some point the banks will have to foreclose on people who are not making payments and will then be forced to sell those foreclosed properties. That will increase supply and create another round of lower prices, forcing lenders to take even more real estate back onto their balance sheets.
I believe the real estate market won't bottom out until we get through a second round of liquidation. In the meantime, at some point interest rates are liable to rise, which will only add to the pressures on that market.
Your lack of results may vary
So while real estate is not still the front page news it was for some time, it remains a smoldering problem that has not gone away. And it won't until the bear market has run its course.
Not all price points and communities will experience this phenomenon at the same time; thus, certain locales will see the lows well before others do (while some markets will see prices decline less than others will). I may be off in my thinking as far as how this will play out, but something different will need to happen to convince me of that. For now, this is my view.
This is a stickup
One area to keep an eye on as this tale unfolds is the financial sector. The March 19 Wall Street Journal contained an interview with Paul Singer, the extremely smart and successful founder of Elliott Management. A couple of his comments I thought were worth passing along. (I encourage folks to read the article "Mega-Banks and the Next Financial Crisis.")
Singer sees the likely trigger for the next crisis as monetary policy, which he deems "extremely risky . . . the risk being massive inflation." He also worries that folks could finally lose confidence in the dollar due to money-printing. When asked what that would look like, he answered, "Gold going absolutely nuts."
In addition, he expects that if we have raging inflation, it will hurt the big financial institutions, which he thinks will be at the epicenter of the next crisis. Singer notes that the Dodd-Frank financial reform bill "has made the system more brittle and has shaped the next crisis in a very negative way."
He also made a point that I have made many times, which is that the financial statements of the banksters are essentially black holes and tell you nothing: "'The opacity of financial institution financial statements has not been addressed or changed at all. . . . We have a very large analytical research effort here and we have not found anybody that can parse' the sensitivity of big banks to changes in interest rates, asset prices and the like. 'You can't do it.'"
Through a Glass-Steagall, darkly
Well, I've got news for you. If the people at his shop, who are extremely capable, can't determine how the moving parts in banks will respond to changes in interest rates, loan losses, etc., no one can. Thus, Singer believes that financial institutions will be at the heart of the next crisis, and I certainly wouldn't argue with that.
Dodd-Frank essentially didn't do anything, in the same way Sarbanes-Oxley failed, with the latter creating plenty of work for accountants, and additional costs for corporations, but obviously doing nothing to stop the disasters we saw as financial stocks melted down two years ago.
One might have thought, in the wake of two burst bubbles, that the government would have made some intelligent changes in the laws in order to prevent abuses. In the end, they created more work, but didn't solve many problems.
Regrettably, real estate and financial companies will be sources of grief for some time still.
On the air
For readers who enjoy my interview series with Eric King, our latest exchange is now available here.
This column is a synopsis of Bill Fleckenstein's daily column on his website, FleckensteinCapital.com, which he's been writing on the Internet since 1996. Click here to find Fleckenstein's most recent articles.
VIDEO ON MSN MONEY
You are almost correct; at least about the 3.8% part. Every thing else you stated is wrong.
Here are the facts of this claim:
"The claim: Beginning in 2013, a new federal sales tax will apply to the sale of a home
The claim is that, beginning in 2013, all real estate sales will be subject to a new 3.8% federal sales tax. The e-mails making this claim generally contain some variation of the following text: "Under the new health-care bill--did you know that all real estate transactions are now subject to a 3.8% sales tax? (Look familiar, Centerfire?) The bulk of these new taxes don't kick in until 2013 … If you sell your $400,000 home, there will be a $15,200 tax."
This claim, though inaccurate, has a basis in fact. There's no federal sales tax being imposed on the sale of homes. But, beginning in 2013, the health-care reform legislation does impose a new 3.8% Medicare contribution tax on the net investment income of high-income taxpayers (individuals with adjusted gross income (AGI) exceeding $200,000, and married couples filing joint returns with AGI exceeding $250,000). Net investment income will include gain on the sale of a home. However, the tax will not apply to any gain from the sale of a principal residence that is excluded from income (individuals, if they qualify, can generally exclude the first $250,000 in gain from the sale of a principal residence; married couples filing joint returns can generally exclude up to $500,000). That means that in most cases, at least where a principal residence is concerned, the 3.8% tax would kick in only if your AGI exceeds the threshold above, and only if profit on the sale of the home exceeds $250,000 ($500,000 for married couples filing jointly)."
So the only way that you would pay the $15,200 in taxes on the sale of your home that you claim in your post is IF you had $400,000 in profit (i.e.- capital gains) AND your AGI is over $200,000 ($250,000 MFJ).
With wages/incomes very low the home prices will have to be low as well for the fundamentals to be correct. I am in new home construction and I cannot believe the amount they are building now---I am manufacturing enough parts for 100 homes a week sometimes more. I really do not get it... glad but do not think it will last all.
Wages are not coming back even though corporations are flushed with cash it is all about the top 2% keeping all the money so they will have to buy all the homes and let the 98% of us move in for the recommended 20-25% income to mortgage ratio---How does that sound--at least it would have true fundamentals................
No doubt....and amazing that the market is basically ignoring housing....
Anoither issue arising is the way insurance Co. are raising fees to accomodate "replacement costs"" ....whereas our homes are going down in value every day....and try to convince your local community tax office of this......
New homes are becoming more of a bad deal...
"The median price of a new home in the United States is now 48 percent higher than that of a home being resold, more than three times the gap in a healthy housing market. Slowed by those higher prices, new-home sales have plummeted over the past year to the lowest level since records began being kept in 1963"
amazing how some of the Homebuilders are close to yearly highs...
I don't think housing can go anywhere with the unemployment situation as it is....we need 6 or 7% max...
The leprechaun, we are all the products of a lifetime of propaganda influence. Home ownership (the view) has been carefully cultivated by the special interests over our life time. PHDs in Freudian psychology have been earning 7 figures working for corporations directly and indirectly for generations. It is a multi billion dollar industry.
The message is that home ownership is an investment and they have done the same for the Wall Street casino. They are both lies but most of population think they are true statements. Therefore, in their eyes they are truths and they will defend their belief vigorously. That is the power of indoctrination.
If you buy a house 300k and add all the interest payments over the life time of the loan, what have you actually paid for it? Somewhere near double. The banks pricing controls create an appreciating asset out of a depreciating asset, but are unsustainable causing boom and bust cycles. If you buy at the bottom of a bust cycle you may be able to recuperate the 600k purchase price, maybe.
Inflation is also in play. Even at 5% inflation per year there is a mountainous mathematics problem; 5%x5%x5%….5^30. Five to the power of a 30 year loan is a huge number (scientific notation required). Even a ten year loan makes the concept of a profit from home ownership near impossible.
A home is a consumer good. It is a depreciating asset. It is a liability on the balance sheet and a hamster wheel. The rest is an allusion to keep the tread mills full until robotics technology gains remove the need for labor completely.
Bankster price supports and inflation are very bad things any way you look at them. You would be better off without them. The founding fathers understood this over 200 years ago and there is renaissance underway.
I truly understand the problem. It is not about inheritance, culture, socialism, fascism, or entitlement. It is a problem of mis-perception and manipulation. Reality sucks for those of us who are in touch with it or will be.
When you remove the smoke and mirrors there is nothing under the sheet. It’s all an allusion and perhaps the biggest con job in history. The preverbal big lie.
Will you ever sell your house?
Did you know that if you sell your house after 2012 you will pay a 3.8% sales tax on it?
That's $3,800 on a $100,000 home etc.
When did this happen? It's in the health care bill. What the HELL does this have to do with Health care??? Just thought you should know.
SALES TAX TO GO INTO EFFECT 2013 (Part of HC Bill) Why 2013? Could it be to come to light AFTER the 2012 elections?
REAL ESTATE SALES TAX
So, this is "change you can believe in"?
Under the new health care bill - did you know that all real estate transactions will be subject to a 3.8% Sales Tax? The bulk of these new taxes don't kick in until 2013.
If you sell your $400,000 home, there will be a $15,200 tax. This bill is set to screw the retiring generation who often downsize their homes.
Does this stuff make your November and 2012 vote more important?
Oh, you weren't aware, this was in the obamacare bill?
They had to pass it to see what was in it?????
Guess what, you aren't alone. There are more than a few members of Congress that weren't aware of it either.
I wish I had something positive to say and I do not. All the comments were excellent and you guys know your stuff. I am actually disgraced by what is happening to our nation. This is the first time in history where the older generations are much smarter than the younger generations which have not a clue other than technology which has 'dumbed' them down and it continues. I hate to see this 'war' stuff and I want it stopped and soon. It is like leading sheep to the slaughter as they 'do not know' and it is not right. The 'power' brokers are the one's that need to in the 'field' and not conning everyone with 'positive' reports that things are improving. They are not and the next huge 'crisis' with the housing market is here now. It is not good now and it will only get much worse.
I ALWAYS LAUGH WHEN PEOPLE CALL THEMSELVES A HOMEOWNER (YET THEY STILL OWE ON THEIR MORTGAGE TO THE BANK). MISS A FEW MORTGAGE PAYMENTS AND FIND OUT WHO (THE REAL HOMEOWNER) IS. THE BANK.
WHEN I FINALLY DECIDE TO PULL THE TRIGGER AND BUY A NEW HOME I WILL PURCHASE IT IN CASH, THEREFORE; I CAN TRULY CALL MYSELF AN ACTUAL HOMEOWNER.
OF COURSE, I WOULD STILL NEED TO PAY MY PROPERTY TAXES TO KEEP THE COUNTY FROM BEING THE NEW HOMEOWNER NOT MYSELF. LOL.
Jhol Oil companies havent raised their rates.
Commodity traders have driven the price of oil up. WHy cant you people understand what you run your mouth about before you speak?
When gas was $4 a gallon everyone blamed the middle east. OPEC kept raising output but prices kept going up. They came out and told people that they were not the cause of the surge in prices, and they werent lying. The supply was much higher than the demand, but fear kept making it go up amongst the traders trying to make a quick buck.
Same crap goes now. Libya oil doesnt even come to the US, but our oil prices went up. Get rid of the commodity traders and find out what real supply and demand is and I GUARANTEE oil will drop back down to $50 a barrel. Traders create a false demand thats never really there. THey have no desire to take possesion of ANY of the commodities they trade in. Want to get rid of it? The government should force them to take possesion of 10% of what they buy or have a clause that they must hold onto the commodity for 3 days before they can sell it. Boy you will see prices spiral if that happened.
amazing how some of the Homebuilders are close to yearly highs...
Tborow, that reminds me. In some areas home builders kept building median and low end housing. Care to guess why?
They rent them out to people that have lost their homes (ex home owners make great tenants) and section 8 government housing is also a guaranteed cash flow machine. They create shill corporations just for this purpose. When the title transfers from one corporation to the other it technically becomes a “sale” on the books of the builder. Since the same people/company has ownership interests in both corporations it can be quite misleading. They are real cash flow machines.
It is going to be interesting to watch the 2012 election. The RINO's will run on cutting social programs, but once elected will flip flop to protecting the corporate interests of landlords/banks/builders who are lobbying machines. Meanwhile back at the outhouse, the middle class becomes renters and the section 8's get to live in brand new houses with granite countertops and the latest designer floor plans. This is the kind of innovative corporate/republican/democrat thinking that has made America what it is today. God bless America the land of corporate opportunity.
Robert Farrell, you must be planning on living in a state without property tax. Do those still exist? Property tax is just a rental agreement with the state when the state can take it away from you if you don’t pay the rent.
There is a lot of propaganda coolaid being passed around by the industry through a matrix of front groups spreading it like it is the dark gospel. The problem is the industry believes its own lies and makes some really bad decisions based on those lies. What else would you expect from a bunch of glorified salesmen?
Getting a true perspective on the size of the problem and direction of the RE market is a real challenge. Asking a Realtor is not going to cut it. If you don’t buy they don’t get a commission. They will tell you what they think you want to hear to achieve that goal. With them now is always the best time to buy or sell.
I walk, drive, and door knock. I’ve been counting house for so long I know the history of a lot of the houses in my head. Finding out the truth is a puzzle. For sales signs and listing services tell you what is or was on the market. Vacant houses tell you what is coming on the market. Talking to people gives you a feel for the shadow inventory/extend and pretend (hidden in the pipe line).
I see from the post that a lot of posters are confused by the high end new home sales in some arias. The poor do not buy. The middle class is in sorry shape and declining, while the wealthy are doing very very well. This explains the new home market’s apparent multi-personality disorder. Most of the great mansions were built during the Great Depression for the same reason.
High end new homes are still selling. Don’t let that confuse you the Low end housing is struggling to find the bottom. They are struggling to find a new normal because of coolaid drinking asset managers are making a lot of incompetent decisions and don’t rule out other bad behavior, but for the most part the banksters were over whelmed by the volume and still are. Even if the banksters wanted to let the market reach a new normal on its own, they didn’t have the infrastructure in place to handle the volume. The coolaid has been misdefining the problems and bad management decisions continue to be made.
Case in point, recently the prices went up across the board as the banksters in collusion tried to force a bottom to their liking. As a result inventories have been piling up. Maintaining those inventories can be quite expensive especially when they are vandalized. Their gentlemen C economists do not understand downward driven DEMAND cycle. They have only experienced SUPPLY side economics and it is proving to be a very hard lesion for them to learn on the fly. Canned solutions anyone?
Even Bernanke made a bunch of bad assumptions in formulating his belief that monetary policy could have averted the great depression. Supply side is the only perspective any of these so called experts have ever had in real life experience. Bernanke managed to save the banks (the supply side), but didn’t address the real problem on the demand side; the consumer’s loss of purchasing power. The banks are going to have to let housing prices reach a cash equilibrium (bottom) and stay there for a while building on a solid foundation. It is all funny money anyway.
When QE2 ends so does his experiment. Supply side coolaid anyone? Cherry flavor? Very tasty!
Bill seems to be overlooking two obvious things here: 1. Everybody needs a place to live! There's an absolute built-in market - it will fluctuate but real estate will always be worth something. 2. There's no mention of unemployment. I don't think the housing market will recover until the job market does, as lending standards are tight and a lot of people are still out of work.
Most of the article is geared towards real estate as an investment, which is wrong. Owning a home is a way to minimize your living expenses over the long term (by paying your house off).
Just4u311, let me help out. Never buy a primary residence. Buy a rental and rent it to a sibling. Have them buy a rental to your liking and rent it to you. All the maintenance is now deductable from your income and you get the benefit of depreciation on what used to be an appreciating asset.
I didn't loose a spouse! I gained a landlord! I haven’t heard one complaint about the arrangement and complaints used to be all I heard. All perfectly legal.
The leprechaun, let me help you out. When you stop listening to the propaganda mills calling falling prices a crisis and stand back and think about.
Falling housing prices are a god send to the next generation. Their tread mills will be easier to run on. You will eventually get a long period of relative prosperity.
Falling housing prices are a god send to baby boomers expecting to retire in the next five or ten years. Rental prices are still holding up due to all the “new” renters and getting out of the ponzi market at the top of a sucker rally into the rental business will preserve their wealth by getting out before the next crash and provide an income for the rest of their life, but they are going to have to move fast.
The boomers that follow this strategy will be very unhappy with government involvement in propping up the ponzi market with 401ks and such, but a income for life may be worth taking the tax hit when they see what the alternative was. You cannot loose getting the banksters out of your life. Even if rental prices crash, you still will get some income from them. Can you say that about stocks in a 401K.
Every extra year that a mega-bank president can pull the wool over our eyes is an extra year that mega-bank president can be earn tens of millions of dollars in bonuses and stock options. He has absolutely no incentive (except for Sarbanes-Oxley) to be transparent and every incentive to be deceptive. You can bet that every major bank in the country is spending millions (of stock-holder money) on accounting & legal fees to ensure their CEOs and CFOs have a paper trail to show compliance with the LETTER of the law (Sarbanes-Oxley), even though they are INTENTIONALLY VIOLATING the SPIRIT of the law for personal gain. Until the sense of entitlement is purged from the top tiers of management in these firms, we will continue to see financial crisis after crisis after crisis. The majority of executive's, trader's & salesman's compensation should be tied to long-term financial performance of the company (a decade or more into the future). Currently, they are paid Millions based on current years paper profits and/or current years stock price. Talk about an incentive to lie, cheat and steal! The current compensation system has turned the largest banks into legalized, government-subsidized ponzi schemes. 'Nuff said
Copyright © 2013 Microsoft. All rights reserved.
Quotes are real-time for NASDAQ, NYSE and AMEX. See delay times for other exchanges.
Fundamental company data and historical chart data provided by Thomson Reuters (click for restrictions). Real-time quotes provided by BATS Exchange. Real-time index quotes and delayed quotes supplied by Interactive Data Real-Time Services. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by SIX Financial Information.
[BRIEFING.COM] The major averages ended higher across the board as the S&P 500 advanced 0.8%.
Equities climbed steadily since the opening bell as investors prepared for tomorrow's policy decision from the Federal Reserve. Although chatter in recent weeks has included speculation the Fed would look to taper its asset purchases, today's broad gains suggest investors expect mostly reassuring words from Chairman Bernanke at tomorrow's press conference.
All ten sectors ended with ... More
More Market News
|There’s a problem getting this information right now. Please try again later.|