Malkiel

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    • Wed Apr 30th 11:51 AM
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      Commented on:
      The Housing Bubble Goes Pop
      That the price of homes is tied to income is the long-standing fundamental fact of that market, not a belief. That could change, however, if something about the way homes are sold changes (like having a business model based on long-term leasing come into existence which supplants ownership and allows the lessor to sell the land later for development).

      That homeownership is not an investment is an erroneous belief, not a fact. Whether you want to treat ownership psychologically as an investment or not does not make it not an investment. In fact, the best way not to get burned by the burdens of buying property is to treat it as a dispassionate business transaction.

      And for Tom B facing the prospect of buying into a still over-priced market, I would suggest that any house you're considering which is priced within the traditional income ratios (2.5x your income is the ideal, 3.25x income is the current average) will probably not significantly depreciate in the future and you can feel safe about buying it. If you have a much higher than average income which would warrant a more expensive than average home purchase, pay more attention also to the size and amenities of the house (have a realtor or appraiser assess its value in relation to other high-end homes in that market).
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    • Wed Apr 30th 10:46 AM
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      Commented on:
      From Housing to Employment: We're in Big Trouble
      Mr. Thomas seems to be a relative newcomer to some of the economic issues. America has been transforming into a service economy ("skills that involve shallow talk!?) for decades, which is why so many places became economically viable without old-economy industries like "manufacturing&qu... or "timber". His figures for income to housing cost ratio don't jive with numbers reported elsewhere (the historical ratio is about 3.25 times income, a not insignificant difference from 4 times income). And most of the refi boom went to pay off credit card debt hanging over from the '80's and '90's, so it's only true that equity went to pay for consumer goods in a sublimated way. As for college degrees having no relation to production, we'll let Nasa and General Motors and Silicon Valley answer that one...
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    • Wed Apr 30th 10:33 AM
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      Commented on:
      S&P/Case-Shiller February Home Price Data
      "You say "As shown, the fall from the cliff hasn't hit the ground yet." Where is this shown?"

      The downtrends on the charts must show an upleg in order to assume a bottom.

      I'm afraid what may be happening now is that ad hoc policies adopted by lenders, such as higher down payments in certain markets, may be strangling the whole market. Potential buyers will likely give up applying for mortgages and give up their home shopping this season if the first 2 or 3 lenders they talk to all ask for the impossible, like 20% down payments with high credit scores...
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    • Wed Apr 30th 10:25 AM
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      Commented on:
      No Sign of Bottom in Existing US Home Sale Prices
      It would help to have some specifics on WHY he thinks the Bear bailout is bad. What did he expect to happen to the markets and the economy if it wasn't done?

      As for mortgages, I suspect many markets which aren't overpriced are now beginning to suffer because mortgages are being effectively being denied to first-time and low-income borrowers by lenders instituting high-down-payment minimums (including mortgage insurance minimums on condo's). The devil is in the details, and "temporary" measures lenders put in place because of "declining" prices are threatening to push the prices even lower as potential buyers give up applying for mortgages with impossible conditions...
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    • Tue Apr 29th 15:44 PM
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      Commented on:
      Equity Exodus - Right Near a Bottom
      Your rank-and-file were using that March rally to sell into. In their world the sky is falling down, many will need to cash in some of their holdings to deal with other problems like unemployment or mortgages, and all of them expect another big downleg before this is all over. I expect another big downleg too, regardless of the good numbers the S&P and Dow have put up, because domestic and international consumer spending will have to be worse later this year than it is now. Those who have money in the game aren't fools for preserving capital against what they can see coming...
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    • Tue Apr 29th 15:37 PM
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      Commented on:
      The Fed’s Dilemma: Rescue the Housing Market or Feed the Poor?
      I'm dubious about your proposition that inflation is going to beget wage increases that will help the mortgage problem. Wages go up very slowly, but mortgage holders get stopped out of the game quickly once their ARM's reset. There just isn't enough time for wage increases or real estate price increases to save these people--in the real estate bust of the early 90's buyers were mostly out of the market for a long 3-year stretch, and foreclosures from that era were still happening toward the end of the decade.

      Because it seems none of the measures designed to help mortgage holders are working, it would be better for the FED to concentrate on the currency and inflation. The one thing that will help the mortgage market is restoring confidence among lenders, a process requiring different tools than interest rates...
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    • Mon Apr 28th 10:00 AM
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      Commented on:
      How Housing Finance Actually Works
      Tom's analysis of loan lifespans is important because there's way too much being written (especially invective against sellers) without a perspective on how real estate transactions really work--but ArnoldCountry above makes an important reference to the problem of the upside-down seller in bubble markets. I've commented elsewhere that sellers who are too upside-down on their mortgages (meaning they lack the cash to pay off their old mortgage; in typical housing transactions the new lender makes payoff of the old loan a precondition and expects it to happen at the closing table simultaneously with the activation of the new loan) have no viable strategy other than to list their house at a noncompetitive price and hope to outlive the trend. Short sales are coming into the mix but I'm not sure many lenders are giving in to those. We end up with a body of "hidden" troubled loans whose outcome is suspended in time; they don't resolve until the holders give in to foreclosure or outlast the trend. In bubble markets, where some homes will never recover their inflated value, there may be a hump of foreclosures 2 or 3 years beyond the expected reset dates for the known problem loans...
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    • Mon Apr 28th 09:36 AM
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      Commented on:
      Microsoft Should Listen to Its Heart (and ignore the bean counters)
      You talk in vague generalities here, but some commitment to the issues is required--do you believe OS software will be replace by online services or not? And if so, how soon? And do you believe Apple's expansion from its meager base of 4% of the market to 4.8% of the market is a meaningful trend yet? Do you consider Apple and Linux penetration into the market a significant or growing trend, or not? And with every company on US exchanges failing guidance because of general economic conditions, is there something unusual about Microsoft's particular failure?
      And why would first-rate companies choose any office suite software other than the world's best at the current moment, even if many of their users don't need the advanced features? MS Office is the de facto official office suite of the MAC as well as the PC.

      I don't share any of the convictions about where online services or software are heading that some, including Microsoft's own executives, seem to pull out of the air so easily. Microsoft is currently the world's best software company and they should maintain and sustain that part of their business as long as possible, especially refocusing on retail customer satisfaction. The bid to buy Yahoo has to do with Ballmer's obsessive but wrong belief that Microsoft is about to be steamrollered by companies that are about to monetize online services (while Mac's partner AT&T, aka "the internet" since its wires ARE the internet, is warning us expansion of online services will collapse the current infrastructure) and I don't give a fig one way or another how this bid turns out because I consider it irrelevant. Microsoft can afford it at whatever price, either buy it and be happy or don't buy it and give your shareholders a dividend. In either case, stop obsessing about long-term plans that are so long-term they go beyond the age of the whole industry that nobody predicted would come into existence just 15 years ago...
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    • Fri Apr 25th 16:22 PM
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      Commented on:
      As Home Sales Plunge, Some Say the Crisis Is Almost Over
      As one who bought a house and sold a condo recently, I'm struck by how much every detail matters to the little people who are expected to do the buying and selling, but how little detail seems to matter to the pundits who sit in the towers of gotham speculating on it all.

      Take the recent move by the mortgage insurance cartel to cut condo's out of the loop by requiring 20% down payments in any "declining" market. Condo's are entry level housing in most markets, and substantial numbers are bought with 0%, 3%, and 5% down FHA or VA type loans. If the mortgage insurers follow through with their plans, the freezing out of first-time buyers could exacerbate all the bad news--further price drops, higher inventory, plummeting confidence, more foreclosures. This story didn't invade the consciousness of the mainstream media, but it's a small detail that looms big.

      Another detail that matters is the order of magnitude problem for upside-down sellers; sellers don't have cash reserves to take more than a small loss, so they can't drop prices on their now-overpriced houses if there's no cash to settle up the old mortgage. When prices fall too fast you're left with a population of sellers who are locked into advertising their home for a noncompetitive price until they die or are foreclosed. The pundits heap ridicule on these sellers as though they had an attitude problem, but what they have is a financial problem worthy of analysis because it will affect the market going forward. They may be a wave of later foreclosures not revealed in ARMS loan data.

      The devil is in the details, but the pundits who aren't in the real estate trenches are missing many of the details...
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    • Fri Apr 25th 15:59 PM
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      Commented on:
      Bloggers One-Up SEC
      Cramer routinely points out fishy market action on his evening show and practically draws a map for how an interested regulator could find out who must be behind it based on buying/selling volumes--If they had the will to pursue these manipulations they would have no end to technically proficient market players who would help them trace the lines...
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    • Fri Apr 25th 15:46 PM
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      Commented on:
      Microsoft / Yahoo: Dead? Dithering? Drunk?
      You have that exactly right, these guys have franchises and don't know what they should be doing. Microsoft has spent way too much energy trying not to be a software company when it's the world's most successful software company and ought to be milking that for everything it's worth. Their obsession with "web-based services" always seemed decades premature, but buying Yahoo could provide them the instant gratification they're looking for. The problem is, Microsoft has a history of giving up on every initiative where they encounter resistance. MSN, Office online, digital signatures, buying Yahoo, you name it; if it's the least bit hard, they've given up on it. This institutional inhibition against risk probably explains their congenital defensiveness toward criticism and Ballmer's ridiculous public posturing. It's all for show, there's no go...
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    • Thu Apr 24th 16:38 PM
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      Commented on:
      Microsoft Earnings Cheat Sheet
      Microsoft is a massively successful computer software company that's been prematurely trying to ditch that end of their business (about 20 years prematurely) for other lines like online services to the point where they damage what they do well. Let them buy Yahoo, it will give them that online services thing that Ballmer seems to feel he needs to fill out his resume, so they can get back to perfecting the next version of Windows and Office, which will remain their bread and butter. Just do it and get it over with so there aren't any more distractions from job 1, which is the OS software. And give up that pipe dream about online services, because as Apple's partner AT&T is trying to tell us, the internet is about to collapse from lack of infrastructure anyway...
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    • Thu Apr 24th 10:37 AM
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      Commented on:
      6.5 Million Foreclosures; Is There a Behavioral Problem?
      I'm willing to accept your apportioning of blame all around, there's certainly been way to much focus on blaming the homeowners, who are the least savvy players in the game because they're the amateurs. I place a higher level of blame on the parties who had official legal and ethical responsibilities, especially mortgage brokers and the analysts for the lenders who bought their product. For naive homeowners to borrow too much because an "expert" told them they could safely do it is understandable, but for the "expert" to offer an unsafe deal and doctor the paperwork to make it fly is reprehensible. And for the bank analysts to close their eyes to what was coming across their desk can only be explained as fear of corrupt managers...
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    • Wed Apr 23rd 10:44 AM
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      Commented on:
      Closer Look at Household Balance Sheets
      "Over-leveraged households earning flat real wages would, at some point, have no alternative to a higher savings rate".

      This is a psychological non sequitur--any people I know in "Over-leveraged households earning flat real wages" are simply living paycheck to paycheck. What law of nature or statistical study backs up your supposition that people will change their habits and become savers?
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    • Mon Apr 21st 17:25 PM
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      Commented on:
      The Energy Sector Could Undermine Itself
      Most oil use in the US is stuff that nobody's willing to do without--heat, ac, pleasure driving, deliveries to Walmart. The recession and gas prices combined will barely make a dent in that. And the Saudis aren't influencing the price, since they can no longer ramp up their production for technical reasons (not enough oil left to justify new drilling). The world's other people are tasting what we've had cheap all these years and we'll never get back to where we were before. Deal and move on...
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