So, Subprime Is Back
A report from the Orange County Register in California. “You are on notice that there are inflection points in the housing market that may cause a downturn. The Mortgage Bankers Association recently announced for the fourth quarter of 2016 California’s mortgage delinquency rate weighed in at 3.2 percent. The national rate was worse at 4.8 percent. And, the national delinquency rate was up 28 basis points from the previous quarter. Yikes! According to the Mortgage Bankers Association, the loan origination market index (purchase and origination applications) is down 28.8 percent year over year. The refinance index is down by a staggering 45.9 percent year over year.”
“My lender friends are nervous right now with this tremendous slowdown in both purchase and refinance volume. My mortgage brokerage shop was busy for five straight years. Since the first of this year, our loan volume is down dramatically. Last Sunday, one of my neighbors stopped me to comment on my last column on the return of loans for riskier borrowers. ‘So, subprime is back,’ my neighbor said. ‘Pretty much,’ I answered.”
“I remember widely originated subprime loans being the topper inflection point of the last mortgage meltdown. Haunting.”
The Philadelphia Inquirer in Pennsylvania. “It’s a good-news-bad-news situation for local real estate markets, according to research released last week by Zillow. That is, good news for buyers and less exciting news for sellers. The determination comes from an assessment of Philly listings by price cuts and days on the market. Locally, more than 13 percent of listings. Those listings are typically on Zillow for about 101 days. Baltimore tops the same list.”
“Within the region, Zillow counts Pennsauken, Waterford, Pennsville Township, West Deptford Township and Deptford Township as the five best buyers’ markets. There, listings range from 131-173 days on the market and between 17.5 and 22 percent include price cuts.”
The News Press in Florida. “Uncertainty was the word of the day as three real estate experts, backed by facts, shared their reflections and predictions on the market at The News-Press Market Watch. ‘We can’t always see what’s going on,’ said Denny Grimes, president, Denny Grimes & Company as he took the stage. The number of homes sold in 2016 was down in Lee and Collier counties: ‘Notice the color (red). Sales are down 7 percent.’”
“Sales were down in each part of each county (other than Lehigh, up just slightly), with luxury sales and condo sales also down: ‘You getting the trend here?’ he said. ‘I’m calling 2015 a peak year, because we are seeing sales drop.’”
From Metro US on New York. “What goes up, must come down — and in New York City that has led to a decline in the luxury market and higher prices in less expensive areas. Those areas were the only ones to show ‘pockets of rent growth,’ in the January 2017 StreetEasy Market Reports. All others experienced month-over-month declines, with only Upper Manhattan, South Brooklyn and East Brooklyn median rents continuing to rise. The report also showed both Manhattan and Brooklyn starting the year off with declining monthly median rent for the first time since 2010, according to StreetEasy data.”
“‘Manhattan and Brooklyn renters could finally be catching a break in 2017,’ said StreetEasy economist Krishna Rao. ‘Over almost a decade, rents in both boroughs have had strong growth and consistently hit new highs time and time again. Over the last few months the landscape has shifted. The luxury decline seems to be affecting the market in a big way, as the most expensive areas see the greatest rent declines.’”
From Arizona Public Media. “Data from the U.S. Census Bureau show Tucson has the 10th highest year-round vacancy rate of the country’s 75 largest metropolitan areas. It estimates 12.5 percent of the homes in Tucson had no resident for the entire year. One explanation may be that the empty homes sat vacant through the worst days of the housing bubble burst, and during that time they deteriorated.”
“‘I suspect many of these are in such disrepair, it’s just not economical for an investor to take them over and put the money in it they need to make it livable and make a profit,’ said Michael Bond, who teaches real estate finance at the University of Arizona’s Eller College of Management.”
“Tucson’s vacancy rate has stayed at 12.5 percent or higher since 2009 with one exception. It dipped to 8.4 percent in 2015.”
‘Last Sunday, one of my neighbors stopped me to comment on my last column on the return of loans for riskier borrowers. ‘So, subprime is back,’ my neighbor said. ‘Pretty much,’ I answered.’
Grilling crow wafts across California.
A sure sign that the end of the bubble is approaching.
within 2 or 3 years……maybe
Ben, while you are in TX looking for an internet connection, I’ll be in Miami Beach and will report back on the condo tower mess there. Should be fun.
“I remember widely originated subprime loans being the topper inflection point of the last mortgage meltdown. Haunting.”
When originators start feeding on the 500-plus FICOs the gig is about over.
So what if Subprime is back? Doesn’t Ben like to say that most of the defaults from the last bubble were Prime?
Perhaps Prime/Subprime isn’t the best indicator of default.
Donk…. Inflated prices are the best indicator of default. Given the fact that prices have been a record levels for a decade and a half, there’s going to be some defaulting on the horizon. And it’s already happening.
HA says: “prices have been a record levels for a decade and a half,”
Really? You think for 15 years prices have been at record levels? I think you missed a few points after 2002….Like 2005 high, 2010 low and now a 2017 high. At least you were right twice….just like a broken clock! HA!
I say it because the idea that the housing bubble was caused by subprime isn’t true. What is significant about ever easing loan standards is why? They do it because they have exhausted the existing pool of buyers and creep into ever more risky loans. It’s greed. This has been going on for years.
And saying the bubble was contained to subprime was as wrong as you saying it’s contained to luxury.
Not caused by subprime, though greatly enabled and exacerbated thereby…
You’re right, Ben. I’ve said before that Prime and Subprime were lousy labels to begin with. And they have *definitely* exhausted the pool of buyers. A more detailed version is that they exhausted the pool of strong buyers and had to relax standards to bring in weak buyers. Heck, they even got buyers to “buy” again, in the form of cash-out refi. That inflated the bubble. It was when they ran out of buyers entirely in mid-2007 that the bubble popped.
Is the current bubble contained to luxury? It’s not so simple. I would say that luxury — NY apts, Miami condoze, and celebrity mansions — is in a big bubble and popping. Middle grade — shacks in San Fran, Austin, Denver, Seattle — is in a medium bubble and hasn’t popped yet but will. Low end — crime hoods, rural deteriorating crap in boonie towns like Pennsauken — hasn’t bubbled at all. Those will continue to die along with the town.
‘ Low end — crime hoods, rural deteriorating crap in boonie towns like Pennsauken — hasn’t bubbled at all’
http://www.realtor.com/realestateandhomes-search/Compton_CA
http://www.realtor.com/realestateandhomes-detail/712-W-Caldwell-St-Apt-A_Compton_CA_90220_M21718-23839
712 W Caldwell St Apt A $519,900
Year built: 1948
Price/Sq Ft: $371
https://www.youtube.com/watch?v=zke1Zbmgb6s
“Low end — crime hoods, rural deteriorating crap in boonie towns like Pennsauken — hasn’t bubbled at all.”
Wrong. This is EXACTLY where subprime rubber meets the road.
Redfin Estimate
$367,145
−$38K since sold in 2004
3422 Sunleaf Way Richmond, CA 94806
3 Beds
2 Baths
1,432 Sq. Ft.
$256 / Sq. Ft.
Sold Dec 6, 2004: $405,000
Built: 1984
“Wrong. This is EXACTLY where subprime rubber meets the road.”
Yup, pound for pound Riviera Beach Fl. had the highest price houses in 2005 - 2006 that I saw in SE Region IV.
One I know of sold for over $350k that was never worth more than $30k before or after that time period.
I remember stories of Mortgage Brokers using Homeless people and Stated Income Liar Loans to pull that sh#t off.
“Wrong. This is EXACTLY where subprime rubber meets the road.”
…….. and rolled right over Donk….. again.
A_Compton_CA_90220_M21718-23839
Beavis: [Watching a Snoop Dogg video] I’m a G. I’m a straight G.
Butt-head: Yeah, you’re a G for ‘Gonad’. Uhuhuhuh.
Beavis: Shut up Butt-head. You might get smoked if you keep that up. Hehe. Watch your back homey. Hehe.
Butt-head: Uhuhuhuh.
Beavis: Hey Butthead. Did you know I’m from Compton? Hehe, yeah.
Butt-head: Damn it Beavis, shut up. You’re not from Compton.
Beavis: No way, Butt-head! I’m serious. I was kickin’ it on the street. Hehe. It was hard times. Hehe yeah. I used to drink gin and juice, it was cool.
Butt-head: Beavis, you’re a white wussy from right here.
Beavis: No way Butt-head, you don’t know, you weren’t around then. Me and Snoop, we used to go to the Compton swap meet together. Ehehehe.
Butt-head: Beavis, you used to go to the flea market with your mom.
Beavis: No way Butt-head. I wear this shirt see, because these are my colors. Hehehe, yep. I’m a straight G.
Butt-head: Beavis, shut up.
Beavis: Yep, going down to the Compton swap meet with Snoop, you know, sometimes I used to kick it with Dre. Yeah. Hehe.
Butt-head: Beavis, shut up. You’ve never been to Compton, you’re never gonna go to Compton, you’re gonna be here for the rest of your life, you’re stupid, you don’t have any money, and you’re never gonna score.
Beavis: Umm, oh yeah. Hehe.
http://www.imdb.com/title/tt0861852/quotes
“Is the current bubble contained to luxury? It’s not so simple. I would say that luxury — NY apts, Miami condoze, and celebrity mansions — is in a big bubble and popping. Middle grade — shacks in San Fran, Austin, Denver, Seattle — is in a medium bubble and hasn’t popped yet but will. Low end — crime hoods, rural deteriorating crap in boonie towns like Pennsauken — hasn’t bubbled at all. Those will continue to die along with the town.”
This is a false assumption. When “luxury” bubbles in any area, it affects all prices. “A rising tide lifts all boats” if you will. The bubble is in ALL real estate.
Still waiting for housing starts to move higher…crow still defrosting.
Subprime is here and bigger than ever my friend.
‘The Mortgage Bankers Association recently announced for the fourth quarter of 2016 California’s mortgage delinquency rate weighed in at 3.2 percent. The national rate was worse at 4.8 percent. And, the national delinquency rate was up 28 basis points from the previous quarter.’
‘According to the Mortgage Bankers Association, the loan origination market index (purchase and origination applications) is down 28.8 percent year over year. The refinance index is down by a staggering 45.9 percent year over year.’
‘My lender friends are nervous right now with this tremendous slowdown in both purchase and refinance volume.’
For context, a 3% rate is atrocious. The detail is the bulk of the increase is FHA loans (subprime) made since 2014. That’s after FHA made it’s big easy in early 2015. Now the new buyers drop out, leaving it more difficult for the post 2014 loan-owners to bail. These FHA loans are not luxury.
“For context, a 3% rate is atrocious.”
Beyond atrocious. It’s stunning. Long term rate is less than 1%.
“The bulk of the increase is FHA loans (subprime) made since 2014.”
And, at least where I am, the market would have absolutely crashed in late ‘14/early ‘15 without those FHA loans. I watched so many small “starter” condos sit for 6-8 months with multiple price reductions and zero buyer interest in late 2014. Then, out of the blue, the frenzy started again. A realtor at an open house told me she had “a finance guy who can work miracles,” and the people in attendance looked like they needed one.
3% is NOT atrocious.
Part of this is foreclosures, which, according to CoreLogic is approximately 0.3%–among the lowest in the country. Admittedly, this can be masked by a strong housing market–if you run into problems, you can sell in a strong housing market.
However, a significant part of the 3% is short term delinquencies–people who are late on a payment or two. And for this data, I turn to the NY Fed.
What is most interesting is whether there are more people entering this level of delinquency or fewer–as it is a leading indicator of coming stress on the mortgage market.
Nationwide, the cure rates for people who are late on a payment or two is about 40% AND STILL RISING according to the NY Fed. For perspective, the cure rates were gradually falling from 2003-2006, and started to fall more steeply fall in 2006 through 2009 (fewer and fewer people bringing their defaulted loans current).
This is a leading indicator that is not showing early signs of problems currently on a nationwide basis.
For California specifically:
The percent of loans that enters the 30+ day late status in CA is lower than the nation as a whole, including IL, NJ, TX, OH, PA, FL, MI, NV, NY and AZ (the only states called out specifically in the recent NY Fed report), AND FALLING (fewer and fewer loans are reporting a missing payment).
Prior to the crash, this “transition rate” to 30+ days late stopped going down in late 2005, and started to go up rapidly by the middle of 2006. Another leading indicator that so far isn’t showing any stress.
This number of new delinquencies is the lowest that the NY Fed has reported in their 14-years of data.
Likewise, the percent of consumers in CA with a new foreclosure is the lowest reported in the 14 years of data reported by the NY Fed (also the lowest among all the states called out above).
Again, this indicator flattened in 2005, started to rise by late 2006, and was going up rapidly by early 2007. Yet another mortgage-based leading indicator that is not showing any signs of stress.
The only transition graph that could be a sign of trouble is the transition rates from 30-60 day delinquent to 90+ day delinquencies. This rate, after generally falling steadily from 2009, looks like it ticked up a hair last quarter. This rate started ticking up in early 2005, and could be an early indicator of trouble. BUT, so far, it’s only a trend of one quarter…a similar uptick happened in mid-2003, mid-2004, and more recently, mid-2015 (before resuming its decline).
You can see all of this in the recent NY Fed Household Debt and Credit report from February 2017–pages 16, 25, 26, and 27.
A 3% default rate is 600% higher than long term trend default rate.
CA has the added market distorting feature of statewide foreclosure moratoriums.
“Still waiting for housing starts to move higher…”
That’s ironic. No wonder you missed the echo bubble. Census housing starts have been moving up since 2010. I think in 2016 they exceed household formation. Add to that the blizzard of apartment buildings. What happens next is likely something else entirely.
It’s like people who are watching for inflation.
The “build your way out of a bubble” crowd are experts on supply. But the variables are supply, demand and price. And that’s just at one point in time. Time moves on. Demand is at decades lows and falling, judging by the loan numbers. Then there’s the substitution: renting apartments. A 72 year high in San Francisco construction and these people will say there’s no new supply. A 20 year supply of air boxes in Miami Beach. Empty towers loom over Manhattan. Entire floors of Portland OR apartments on airbnb. I realize the developers have built the wrong stuff. But they’ll pay the price for that. As the reporting goes from shortage to glut, the “build your way out of a bubble” chorus has a lot of ’splainin’ to do.
“Demand is at decades lows and falling, judging by the loan numbers. Then there’s the substitution: renting apartments. A 72 year high in San Francisco”
Yessireee…
San Francisco County, CA Rental Rates Crater 7% YoY
https://www.zillow.com/san-francisco-county-ca/home-values/
I didn’t miss the market–I purchased my home in early 2011.
When you say that housing starts exceeded household formation, did you remember to take into account the hundreds of thousands of obsolete structures that need to be replaced on an annual basis?
There are approximately 135 MILLION housing units in the entire US. If you assume an average lifespan of a home at 100 years, at a steady state, you need to build 1.35MM homes per year to simply replace the obsolete structures.
As of 2015, 55.23 Million housing units in this country were built 1969 or earlier (the assumed bulk of the homes that are going to be replaced come from the older stock). This includes approximately 20MM that were built before WWII.
All that said, however, we are not close to that steady state. The number of housing units that need to be replaced each year is only between 300k and 500k (depending on which source you cite).
It’s the household formation PLUS this number that gets to the 1.5MM to 1.6MM housing units per year that are needed annually.
And the housing start numbers INCLUDE multi-family (yes, rentals are included as well).
That math doesn’t work RW. There aren’t enough 100 year old houses to “need to build 1.35MM homes per year to simply replace the obsolete structures.”
Around here, most of those old ladies are in preservation districts anyway.
I was trying to put the current estimate of 300k-500k annual replacement structures into perspective, which is why I said “at a steady state” we would need 1.35MM per year with 135MM homes, and a 100 year life.
And then I said “we are not close to that steady state”, noting the current estimate of 300k to 500k of the housing starts replacing obsolete structures.
C’mon Blue. I know you’re better than that.
The deeper implication of my comment is that over time, the 300k to 500k number is going to rise as the housing stock continues to increase in average age.
If only around 10% of existing houses are over 100 years old, I don’t believe that tearing them down as useless adds up to half a million replacement houses.
What is it, 10 Million 100 year old houses? 1% of 10M is 100K. I don’t believe personally the 1% replacement rate due to complete obsolescence, but that doesn’t add up to nearly half a million.
Household formation doesn’t all go into SFH and MFH. Apartments?
I think you are way out on a limb with that $1.5M housing starts (and MFH is a significant percentage) are needed per year. I would pay attention if the numbers made sense to me, but they don’t.
Please do not forget the movement of the Millenial population. It’s no good to have 100 houses in Buffalo if all the Millenials move to Denver or Austin. Someone has to build 100 new houses for them in Denver and Austin. There’s no shortage of “housing” in the US, but there is a shortage housing where the people want to live.
The 100 year number is simply a shot from the hip to show that the steady state replacement number is likely to be pretty high.
I walk past 40-year old ranchers that have been neglected and are torn down…but at the same time, there are 100+ year old homes that are still occupied and work just fine.
In other words, the homes that are replaced today are not limited to 100+ year old houses. In some cases, the homes that are replaced are not due to obsolescence, but things like fires, tornadoes, hurricanes, earthquakes, etc.
The current replacement rate is approximately 0.2% (at about 300k per year) to 0.4% (at about 500k per year) of all housing stock. This is certainly not a steady state, as it implies the average lifespan of a home to be between 250 and 500 years old. In other words, whatever your assumption, 300k or 500k (I tend to think of the number between 300k and 400k), it’s likely to trend much higher over time.
Here is a paper from 1996 on Replacement Demand for Housing. He noted a multi-decade average of approximately 300k per year.
http://www.michaelcarliner.com/HE9612-Replacement.pdf
The housing start numbers reported by the Census includes both for-sale and for-rent SFH and MFH housing (both condos and apartments).
Here is a link to the most recent census report that breaks down whether the units are for-sale or for-lease:
https://www.census.gov/construction/nrc/pdf/quarterly_starts_completions.pdf
You’ll see that the total for 2016 includes and estimate of 782k SFH, and 393k MFH (for a total of just under 1.2MM).
The MFH is further broken down to be 29k for-sale, and 364k for-rent.
Blue, I just responded with a few links.
Long story short, you also need to figure in natural disasters and fires in terms of replacing structures. I linked a study from 1996 that estimated the replacement of units at 300k per year for many decades. I tend to think of the number as between 300k and 400k generally (although I’ve seen estimates as high as 500k).
However, even at 300k, the trend will be higher as the housing stock ages in the US, unless you expect the garbage built by public builders to last 500 years.
Also, the Census breaks down housing starts for MFH between for-sale and for-rent. For-rent MFH (apartments) are included in the 1.2MM reported estimate (and in fact, are the lion’s share of the MFH built).
As I said, a link to both the article, and the Census report is in another post.
For perspective, there were 365k reported residential fires in 2015. Of course not all resulted in complete destruction/demolition/rebuild, but whatever replacement occurred is part of the 300k overall replacement estimate.
No, I don’t think chipboard will last 100 years.
I have learned something. Census housing starts is the number of seperate living units, even if it is multiple Family or Apartment buildings. I had thought otherwise.
So, 2016 is below historical average starts. Doesn’t answer the question of whether there is a surplus or a shortage though.
“Doesn’t answer the question of whether there is a surplus or a shortage though.”
After building 1.5MM homes per year from 1959 to 2001, we then got ahead of ourselves, and built 1.9MM on average for the next 5 years…an excess supply of 2MM homes over the historical average (400k x 5).
And since then, we’ve built an average of 900k units per year for a decade (2007 through 2016)…or under the long-term average by a total of 6MM units (600k x 10).
And while this certainly points to a shortage, I agree with you, it’s not a direct answer to the question.
However, when I look at the vacancy data, combined with the fact that home prices AND rents are rising faster than inflation (and out of whack with incomes), it certainly supports the thesis.
Remember, during the bubble, rents were not out of whack with incomes–because there was plenty of housing available…and corresponding high rental vacancy rates.
Also Blue, I think now you understand why I see the “zombie foreclosures” and vacant REO (true supply being held off the market) as not likely to solve what I perceive to be a supply shortage.
The last I saw, the total number of Zombie foreclosures and vacant REO was in the range of about 65k across the country, but generally concentrated in certain judicial foreclosure states.
I compare this 65k to the 4MM theoretical undersupply noted above…even if all were available to be lived it today, it would only be a small dent in the 4MM, AND they would largely be in places like FL, MI, OH, NY, etc.
For example, in the Q3 2016 report, they noted about 3,500 “zombies” in NY/Newark market, and 112 in Los Angeles.
I like 1982 as a time when the credit bubble really started to take off.
Since 1982 we have 34MM more “Households”.
Since 1982 we have started about 48MM private housing units. Subtract the burned/razed to the ground and it is 44MM more housing units. Not to mention the millions of things people live in that are not Census “houses” (like trailers).
That looks to me like an easy 10MM excess houses added in these few short years. Yet official vacancy rates are down and rents and prices are crazy. I think it’s a bubble, hiding in plain sight.
Statistics can make you crazy.
We’ll go back and forth for days on this, but the one thing I would point out is that from 1980 to 2016, the total number of housing units grew by 55%, but the number of vacant housing units grew by 114%.
That is the crux of your “excess in plain sight” argument. Seasonal units increased by 106%, Those held off the market increased by 139%, including for occasional use by 157%, URE (usual residence elsewhere) by 154%, etc.
In other words, overall, our propensity to consume housing that we are not living in full time is growing faster than our population. A fair bit of your calculated excess is not located in the right places, or likely to be available for someone to move to from their mom’s basement, because it’s someone’s vacation home, or apartment they are “keeping” in a City because they want it for the occasional trip.
Statistics ARE fun!
My last point is a simple one…not all markets are created equal. There are some markets where I wouldn’t dream of saying there is a shortage (Dallas, Houston, Detroit and Cleveland for different reasons, etc.). And on the other side, there are markets where it will take years of excess development to catch up to population growth (many CA markets).
There is nothing to argue. The data is right there in plain sight for anyone willing to look at.
https://www.census.gov/housing/hvs/data/histtabs.html
“We’ll go back and forth for days on this”
Maybe not.
In other words, overall, our propensity to consume housing that we are not living in full time is growing faster than our population. A fair bit of your calculated excess is not located in the right places, or likely to be available for someone to move to from their mom’s basement, because it’s someone’s vacation home, or apartment they are “keeping” in a City because they want it for the occasional trip.
But why is there such an appetite for vacation homes and apartments in the city? I think the reason most of us are here is because we suspect it’s mostly about assumed appreciation rather than the utility of occasional use. If we’re right…then what happens when that assumption of appreciation goes away?
assumed appreciation…
Gently put. Without which there would be no mania. Debt will make me rich and all that.
Rental Watch, what do you think the triggers were for the last house price deflation, 2008-2011-ish?
But why is there such an appetite for vacation homes and apartments in the city? I think the reason most of us are here is because we suspect it’s mostly about assumed appreciation rather than the utility of occasional use. If we’re right…then what happens when that assumption of appreciation goes away?
Seeking profit is one reason. So is the rise of timeshares (and ability for people to own such units). So is demographics. So is wealth inequality (plenty of ego of owning property to go with $).
“Keeping” an apartment does not always mean buying one…a friend in his younger years “kept” an apartment in SF, but ultimately gave up the rental because he wasn’t using it enough.
If the assumed appreciation goes away, some, but not all the demand will go away. The “URE” (Usual Residence Elsewhere) line item barely blipped down despite home prices crashing post 2008–and in fact rose each year from 2007-2010…dipped in 2011, back up in 2012.
Rental Watch, what do you think the triggers were for the last house price deflation, 2008-2011-ish?
I think it was a combination of a few things. First, we were building too many homes, in large part driven by incredibly loose credit (NINJA loans, Liar Loans, Option ARMs). That drove prices WAAAAY high, despite there being massive supply being added (far ahead of household formation). People were buying multiple homes for speculation (Casey Serin, etc.), not homes to live in. A mania, effectively.
But that’s the run-up…your question is what triggered the deflation. I honestly think the bubble just collapsed on itself…like any unsustainable trend, eventually it will end.
What made it unsustainable? While many people bought on terms they COULD afford (if they wanted to continue to make payments). There were large numbers of people borrowing money en masse on terms that they could not afford. The most popular loan even in the SF Bay Area was an Option ARM–that should say something. Eventually the market ran out of greater fools (since all the fools had already purchased homes). Once that occurred, those borrowing using Option ARMs, NINJA loans, etc. could no longer sell the home to repay their loan, or sell one of their excess homes to generate cash, or refinance into a new loan…they were faced with the harsh reality of actually making the payment…and they couldn’t.
Thus the rise of delinquencies, defaults, and foreclosures starting in late 2006, as I noted before…a precursor to the price deflation.
Then you got forced selling, and voluntary walk-aways from people who could still make the payment but decided that they would rather walk away from their paltry down payment than throw good money after bad.
So, the logical question is how today differs from the precursor to the crash.
1. Prices are not as high as they were generally, especially when you adjust for inflation;
2. Despite a few articles here and there, ARMs, etc. are not nearly as prevalent as before–people still seem to be exhibiting restraint when it comes to cash out refi’s, and people choosing shorter amortization schedules as opposed to interest-only loans (effectively an infinite amortization schedule);
3. Supply has generally been in check (except in certain markets).
My fear is that combined with restrained supply, we will get credit markets loosening too quickly, re-igniting a true mania, then driving a burst in supply with unrealistic price expectations.
If supply comes before truly loose credit markets, prices will moderate, and we will have a traditional real estate cycle before a mania re-emerges.
Underlying these cycles is the psychology of the market…the “animal spirits”…some here thinks the “animal spirits” with respect to housing are already loose…I think if they are, they are much more restrained than the 2005-2007 run-up.
What inflation are you talking about? Wages today are lower than stage one of this global housing bubble, hence prices are higher today than ever before.
Rental Watch: Once that occurred, those borrowing using Option ARMs, NINJA loans, etc. could no longer sell the home to repay their loan, or sell one of their excess homes to generate cash, or refinance into a new loan…they were faced with the harsh reality of actually making the payment…and they couldn’t.
[...]
2. Despite a few articles here and there, ARMs, etc. are not nearly as prevalent as before–people still seem to be exhibiting restraint when it comes to cash out refi’s, and people choosing shorter amortization schedules as opposed to interest-only loans (effectively an infinite amortization schedule);”
I posted a study recently stating that the mortgage default crisis was primarily a prime event (article links to study): http://fortune.com/2015/06/17/subprime-mortgage-recession/
From the article: “While subprime borrowers default at a higher rate than prime borrowers, Fierra said in an interview with Fortune that the data shown above suggest that the foreclosure crisis would have happened even in the absence of such risky lending.”
Thoughts? I think you responded once before suggesting that Fierra incorrectly categorized his prime loans.
I do appreciate this site because of both hearing from housing bears and housing bulls. Perhaps somewhere in there, the reality of the situation can be teased out.
I’ll tell you what my growing sense is: bond market and regulatory changes led to updrafts in prices, luring in investors/speculators. Combined with lowering interest rates, rising house prices provided a favorable return. This created a “virtuous cycle”, luring in more investors, driving prices up. But then “something” happened during the financial crisis, leading to house price deflation.
If it’s true that “prime” loans were the larger phenomenon than subprime, that’s an important data point. Perhaps subprime was the foundation that imploded, and those with prime loans panicked and were unwilling to pay for a depreciating asset.
Another factor I’m noticing now is that looking at Zillow in central Maryland and Northern Virginia zip codes, I’m seeing startling numbers of distressed inventory as percentages of the whole. I don’t know if that’s a result of a difference in how Zillow is displaying data, or if there’s been no change and there are simply that many distressed properties being placed on the market. This is another potential data point.
IF there is a lot of speculative/investor demand, it suggests a soft market. But the demand is hybrid - people want to consume (use) the house, but are willing to be house poor if it is going to continue to go up. If not… then they are willing to walk away. In the simplest mania, tulips or Beanie Babies, “something” happens at the top to change investor psychology. Understanding the nature of that something will provide a clearer understanding of what’s went on during the first house price peak, and what’s going on now, as house prices again rise at a similar pace.
Ack, I botched the italics/quoting - Rental Watch’s quoted portion is the first two paragraphs. The rest is my response.
I think you responded once before suggesting that Fierra incorrectly categorized his prime loans.
I think the way he categorized them, a lot of riskier borrowers and riskier loans were included in “Prime”. He categorized “subprime” as people who borrowed from certain lenders, carved out certain government backed loans, and called everything else “prime”.
In any event, the key point is that people were borrowing money in ways that they could not afford, and they did so to speculate on housing (not just to buy shelter), and once it started to unravel, there were no buyers willing to do so until it made sense on a rental basis without debt.
The question right now is whether people are pulling forward demand (ie. buying a lot of homes that are not needed), and doing so in ways that are unsustainable (ie. they cannot afford the payments given the debt structure).
And point of fact, home prices were rising at more than 10% per year leading into the crash (and did so for a couple of years). Home prices are going up now by about 5% per year.
On a real basis, ~8% per year vs. 3% per year…neither are sustainable, but one is batsh*t crazy. In other words, I do not agree that home prices are rising “at a similar pace.”
It is worth noting that home prices were growing faster than today from before 2000 all the way to the peak.
Again, neither trends are sustainable, but one is insane.
I think there are more differences today than similarities from 2005-2007. The biggest two being the types of loans people are using to buy homes, and the amount of new housing supply that is being added.
I’ve said for a long time now that I don’t think the next downturn is going to look like the last one. I think you need to look at prior cycles for analogous situations.
It’s the same bubble, same fraud, same subprime.
Also, with respect to the Wharton paper, you should look at Figure 2 in addition to Figure 1.
Figure 1 shows the total number of foreclosures. And prime loans look to track subprime, but there were a lot more prime loans, so the rate at which subprime loans went bad must have been much higher.
http://www.nber.org/papers/w21261.pdf
You asked for the trigger…if you look at Figure 2, it looks at “unconditional distress probabilities (Foreclosures + Short Sales)” by loan type.
Subprime distress begins in late 2006. And the probability of distress peaks in 2008 at about 2%.
Prime distress really begins to ramp up by mid-2007, and the probability of distress peaks at about 0.8% in 2010.
From a volume perspective, Prime had more defaults, but mainly in the context of prices that crashed (people refusing to put in more money after bad).
Subprime defaults began in earnest while prices were still rising, which really only happens in the context of negative amortizing loans, low down payment loans, unsustainable payment structures, etc.
BTW Neuro, one interesting ongoing stat that I’ve seen over and over again is the probability of default by amount of equity in the home.
The more underwater you are, the more likely that you are to default. This is perfectly logical.
I think the defaults started because people were given loans they simply could not service, and then defaults ramped up as people simply walked away from a lost cause.
That is pretty simple. The likelihood of default is the price paid by leveraged specuvestors rich and poor. Has little to do with ability to service except timing.
Depends on what part of the cycle you are in.
If prices are flat or rising, defaults are more closely tied to people being unable to make payments (medical bills, lost jobs, mortgage fraud, terrible underwriting, etc.).
If prices are falling/have fallen, defaults are more frequently tied to how far underwater you are (and just decide to walk away).
My read of the crash is that it started in the first category above (subprime starting to default in late 2006), but moved to the second category (prime borrowers walking away through 2010/2011).
You’re confusing a cycle with a mania. Cycles don’t occur when prices are 300% higher than long term trend which also explains why housing demand is at 20 year lows.
All post peak price. Greed turned into fear, despair and default. And here we are again.
Rental Watch: I think the defaults started because people were given loans they simply could not service, and then defaults ramped up as people simply walked away from a lost cause.
Interesting, thanks for the observations.
Regarding the loans, it makes sense that with less “skin in the game”, borrowers are going to be quicker to walk away once whatever conditions are important to them appear unfavorable.
I think these GSE 3% down loans are interesting. Fannie and Freddie are sometimes referred to as F&F; I call these F&F loans: Flip or Foreclose.
3% down is typically 5 months of PITI payments. If someone can only come up with 3% (or less), they’re going to have a hard time servicing the mortgage (foreclose). If they’re only willing to come up with 3% (or less), they’re probably not in it for the long haul (flip).
I want to post a few links, but I don’t know if they’ll get through with Ben on the road, but they’re available through Google:
1) Worth looking at again: the Case Shiller data, on Shiller’s Yale site, and pondering what prompted the up and down lurches on the graph.
2) Also, the Wikipedia link on the Case Shiller Index, which has an accurate image of the chart as the first link.
3) Finally a paper by Stephen Roth, called “The Wild Ride of Mortgage Backed Securities”. More observations on triggers both up and down.
Thanks Neuro.
When I have time, I want to update my own inflation-adjusted Shiller data (I make a small adjustment of up to approximately 0.5% annually pre/post Boskin Report–as that gets us closest to an apples-apples inflation number).
The last time I did this, we were at approximately an inflation-adjusted peak. I suspect we are now up to about 10% above a “typical” inflation-adjusted peak (ie. the two peaks prior to the bubble run-up).
What I want to look at specifically is the housing start numbers leading up to the non-bubble year corrections.
In general terms, it looks like the 1980-1981 correction was immediately preceded by strong housing start numbers in 77-79 (2MM, 2MM, and 1.7MM). There seems to be a less clear correlation for the next downturn, which show housing starts strong from 83-87 (above 1.6MM each year) but slowing already by the latter part of the 80’s (in advance of the home price declines in the early 90’s).
hmmmm i have an A+ credit score, cash, a great paying job and having trouble getting a conventional 30 year fixed. NY. So, how is this possible?????
“Loose credit” doesn’t mean what it meant in 2005-2007.
“hmmmm i have an A+ credit score, cash, a great paying job and having trouble getting a conventional 30 year fixed.”
Strange, but in the revolving credit world a “deadbeat” is someone who pays-off their balance every month. There are likely fewer fees to charge borrowers in a conventional 30 year fixed. Hence the reluctance to sell fixed mortgages.
“Hence the reluctance to sell fixed mortgages.”
Which is why the 30-year mortgage is almost uniquely a US construct.
But that doesn’t explain the situations, since the 30-year fixed rate mortgage is among the most common in the US…curious.
So I should wait to buy a $900K house in San Diego?
You should read this OCR column first.
Believe me, I want to wait until the market bottoms out to drop $180K down on a house, but my wife is so antsy to own and get out of our rental. I’m a long-time reader of your blog and appreciate the insights, but can this housing crash get moving already?
It did crash, just a few years ago.
“It did crash, just a few years ago.”
That does seem to get overlooked.
Prices in San Diego don’t seem to show that there was a crash a few years ago. Prices have been rising since 2010/2011. Where is the crash?
Not trying to be a smart@ss but could you tell me what happened to house prices in San Diego from 2005/2006 - 2009/2010?
In SE Region IV that is where the crash was.
Now it looks like it may happen again but so far that is where it was.
Ben - you said the crash was a few years ago. Is that 2009 you are referring to or 2015?? If 2015, what location?
“but my wife is so antsy to own and get out of our rental”
“Suzanne Researched This” ad for Century 21 made in 2006.
https://www.youtube.com/watch?v=20n-cD8ERgs
The clear turning points on the crash included the advents of QE1 (March 2009) and the Fed’s explicit housing market reflation program (January 2012).
Who knew that backstopping home prices was part of the Fed’s mandate?
“QE1 (March 2009)”
Slammed the brakes on those price declines didn’t it.
Wasn’t it about then the Robo-signing mortgage-backed security sliced tranches I want my house for free because I am a Victim came to light?
I might be misunderstanding it, but the lines in that graph do not appear to show that San Diego is crashing. The lines appear to have a definite positive slope. If I try to imagine how the line might reach a maximum and begin a trend down, it looks more like it could be 2019 or even 2020 before it starts downward. What am I missing?
Remove the Degenerate Gambler Glasses before reviewing data.
The graph is also not adjusted for inflation. To reach an “inflation adjusted” peak, prices on lower-end homes would need to rise by another +/- 40-50%.
I’m NOT saying prices are low…far from it, prices today are consistent with a cyclical peak–I just fear that without the addition of supply, they will go even higher, exacerbating the pain in the next down-cycle.
On a real basis, prices are not as high as the bubble years.
On a real basis, prices ARE as high as prior market cycle peaks.
Yet current prices are 300% higher than long term trend in spite of the fact there are 25 million excess, empty and defaulted housing units out there.
@phonyscandal - regarding your smart ass comment, Ben said a crash happened “a few years ago” in San Diego. “A few” means 3 in my book. Of course I know about the crash that began in 2007 through 2010, but that was 7-10 years ago.
I said “Not trying to be a smart@s” and I wasn’t, I don’t know the San Diego real estate market so I asked you.
I live in Palm Beach County Fl. and what I posted was about the timeline for the crash here. I grew up in Greenwich Connecticut and prices there from what I can see didn’t drop much if at all during that same period.
Now if you want a smat@ss we can look at Ben’s chart and see that prices were still bumping along the bottom at the end of 2013 and that WAS a few years ago.
Beginning of 2013 not the end.
Sorry, I wasn’t saying that your comment as a smart-ass one, but that I was referring to the comment you made when you said “smart ass” in it. My reply came off as, well, smart-ass…wasn’t my intent.
“…but my wife is so antsy to own and get out of our rental.”
Emotion has sunk many a rational ship.
You must have a really good job if you have $180K in cash and can still afford the payments on the other $720K. Why don’t you stay in the rental another year or two, save up even more cash, and go Oil City instead? If you’re a long-time reader of the blog, you should know what that is. (I know I know, the wife won’t hear of it.)
I do have a very well paying job, but nothing is ever 100% secure. I guess I highly exaggerated that I am a long-term reader of this blog…maybe 2 years. I just don’t post a lot. What is Oil City? Investing in oil?
‘ What is Oil City? Investing in oil?’
https://en.wikipedia.org/wiki/Oil_City,_Pennsylvania
Cheap place to buy a house, that will not be overrun with equity locusts. A generic term now.
Throbert, the “Oil City” phrase came out of the comments of a long-gone poster who, years ago, was longing to leave her house in Florida to move to Oil City, PA.
The Oil City concept is this: why slave away at a high-paying stressful job only to spend it all on high-cost mortgage payment and expenses and debt? If you run the financial numbers, you might actually better off buying a house in a rural or small town outright and working at Wal-Mart! Shorter hours, less stress, lower taxes, grow your own veg. This pencils out if you have a nice starter pile of cash, for example $250K. It also works well if you can work as an individual professional, like a small town lawyer or insurance agent.
It doesn’t have to be Oil City, PA, of course. It could be any one of several thousand towns in the US.
Got it. Thank you.
Oil city logic is something that I’ve thought about before, but I’m not sure I could stomach taking some dead-end job in a rural, low-cost-of-living location just to have my finances be sound. It would probably be nice for a year or two, but then I’d crave coming back to sunny San Diego.
California equity locusts sometimes complain that locals aren’t very friendly. I think this is why. Kinda like army guys in Vietnam…why put a lot of effort into getting to know the new guy if he’ll probably be gone soon anyway. Wait a little while and see if he survives first :-).
Have your wife read this blog, or at least explain to her why now is a historically bad time to buy.
She understands what I’m saying, but she sees everyone else owning a home and it eats away at her. We’re both 40 and feel like we should be in a nicer castle with our 2 kids enjoying life in more of a “home”. That may sound bogus, but it’s inevitably the way we feel.
On the flip side, I do NOT want to lose my shirt (i.e., downpayment) on the purchase of a house.
“On the flip side, I do NOT want to lose my shirt (i.e., downpayment) on the purchase of a house.”
I guess you could plan on being a squatter for a period of time if you get stuck upside-down. I have a security clearance to protect, so I was forced to move to a lower cost area with long cold winters.
We’re both 40 and feel like we should be in a nicer castle with our 2 kids enjoying life in more of a “home”. That may sound bogus, but it’s inevitably the way we feel.
It’s a common feeling. Can be very dangerous at certain moments in history though.
Throbert…if you can’t buy a place where you are supremely confident you will spend the next 15+ years of your life, now is not a good time to buy.
My wife and I rented for years, watching prices go up and up and up. I was teased for years by folks I associate with on a regular basis because I am effectively a real estate investor professionally, and I didn’t own my own home. It ate at me too, but I held my ground and waited.
I’m very glad I did. My wife and I had a much larger down payment saved, and had done enough research that when prices were more reasonable (even though I would never call them “low” in the SF Bay Area), we were able to act quickly with conviction.
We still ended up purchasing a house that would work for us pretty much indefinitely, but we waited for our pitch.
The only thing I can say right at this moment is that home prices are at a cyclical high. They will come down. I just don’t know when.
Look at the Case Shiller Index Wikipedia page (referenced by Neuromance above), the top right graph shows the raw data from Shiller. Pay attention to the past few peaks. This is NOT inflation-adjusted, but even if you were going to adjust for inflation, it would show that we are at a peak similar to the peaks in the late 70s and late 80’s.
It could keep going up…sure, but if history is any guide, there will be a dip lower than today’s level at some point within the next 3-7 years.
I’m not going to give you a recommendation, but when I was in your shoes, I saved my money, built up a bigger down payment, and invested in your kids in other ways (college savings, etc.).
Is average family income 1/3 of local prices?
Are you planning to pay more than the cost of construction ($55/sqft for lot labor, materials and profit) for a 20+ year old house?
“My lender friends are nervous right now with this tremendous slowdown in both purchase and refinance volume. My mortgage brokerage shop was busy for five straight years. Since the first of this year, our loan volume is down dramatically.”
To paraphrase, “It’s the yield curve, stupid.”
Here’s a link to the Treasury website. The 10 year treasury rate moved up quite a bit since the November 2016 election.
https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/Historic-LongTerm-Rate-Data-Visualization.aspx
‘Within the region, Zillow counts Pennsauken, Waterford, Pennsville Township, West Deptford Township and Deptford Township as the five best buyers’ markets. There, listings range from 131-173 days on the market and between 17.5 and 22 percent include price cuts’
Well lookie lookie Oxide, yet another non-luxury market’s down.
Location location location, I suppose. Pennsauken is near Allentown (boonies). Waterford is close to Erie (boonies). Pennsville and Deptford are on the Jersey side and a pretty long way from job centers. Lots of Oil City type decaying houses. Short sales and foreclosures all over. So I wouldn’t use this to predict a crater in the “vibrant” cities. However, it does indicate that hedgies and infestors aren’t rushing to buy houses, any houses, to fix up and rent. It’s not worth it to spend $35K to fix up a $90K house where there are few people and fewer jobs. And I guess the Chinese aren’t interested in establishing homesteading colonies in flyover American just yet.
Also, if I understand correctly, prices are not being reduced by 22 percent. Instead, 22 percent of the houses are reducing prices. Does this mean that 80% of the houses are being sold at the list price? That would be very good even for Oil City.
This is a subscription article from Massachusetts:
Chasm Grows Between Tower Purchase Prices And Rents - Banker …
http://www.bankerandtradesman.com/2017/02/chasm-grows-tower-purchase-prices-rents/
13 hours ago - Commercial Interests. Chasm Grows Between Tower Purchase Prices And Rents. Record-Breaking Buys Aren’t Supported By Office Rents.
So the Federal Reserve just has to step in and save us all from eating gruel, right? Tell it to these widows:
‘The teamsters logo, two horses over a carriage wheel, once dominated the facade of Local 707’s glass Long Island headquarters. Now the union rents space on the building’s third floor. Only a small poster in the window tells visitors they’re at Local 707’s official home. “We used to own the building, the pension fund did,” said Kevin McCaffrey, 62, a teamster who heads the union pension fund. “We sold that, because of this crisis.”
‘McCaffrey has watched Local 707’s pension fund sink deeper into debt over the past 20 years — until the 2008 stock market crash sent it into a death spiral.’
‘Like many union shops in the private sector — especially trucking, the teamsters bread-and-butter — Local 707 is a victim of bad timing and industry deregulation, experts say. The New York State Teamsters pension fund and the Central States Pension Fund are also teetering on the brink of insolvency.’
‘In 1999, Local 707 was 100% funded. The tech bubble — followed by 9/11 — ruined that. The trust lost 30% of its assets. And companies started going out of business. Three of Local 707’s largest employers merged in 2004 — purchased by Yellow Freight, which borrowed cash to buy two competitors. When the 2008 crash came, Yellow Roadway Carrier couldn’t make its payments. The bank told it to force concessions from the unions or face liquidation, McCaffrey said. It employed 35,000 teamsters — 1,600 from Local 707. Employees took a 15% pay cut and gave up vacation time and other benefits.’
‘Yellow Roadway was allowed to skip its pension contributions for 18 months. When the company started paying again, it was at 25% of the previous rate. The fund began to topple, with roughly 700 workers paying into a fund supporting more than 4,000 retirees. Local 707’s fund pays out $48 million a year — and takes in $7.5 million in contributions, McCaffrey said.’
“I’ve been lobbying Congress and asking anybody I can find for help for the last five years,” he said. “The really horrible thing is, even though we saw this coming, we couldn’t do a thing to change it — because by law, we can’t touch pensions.”
‘McCaffrey has had to explain the new reality to his members. The worst calls are from the widows. “They say, ‘We’re sure it’ll all work out, Mr. McCaffrey, because my husband told me, before he died, not to worry about anything because the union would always take care of me,’ ” he said. “I wish to God we could.”
“The fund ran out of cash this month, throwing its retirees on the mercy of insurance payouts, about a third of what their pensions were.”
And what happens when an insurance company goes under? They’re affected by the same forces as the pension funds.
There were times when I lamented not having a defined benefit pension.
Now I’m grateful that I have self-funded IRA and 401k retirement accounts.
Nice to have control over your own funds…my wife and I have been maxxing out her 401k and both IRAs for ~20 years…converted all to Roth over time. No more retirement assets in traditional retirement accounts for us.
Of course people say that the government will confiscate…but with the retirement crisis looming, I think that’s a long shot. Remember Obama’s rhetoric about taking away the tax break from 529s? Lasted about a week before the national uproar reversed his course.
Last I saw, there were just over 12MM 529s nationwide with $258 Billion in them.
At about the same time, there was about $7.6 Trillion in IRAs. What kind of political third rail do you think it is to start taking IRA money?
Lobbying Congress = give us other people’s money.
The reality is that this insane union pension was was a ponzi scheme fully supported by democrats to buy union votes.
The unsustainability of the union pension has been known for the last 25 years. Everyone on the left just kicked the can to keep and maintain power.
There is no more road.
Tell that to the widows.
In 1999, Local 707 was 100% funded. The tech bubble — followed by 9/11 — ruined that. The trust lost 30% of its assets…M’cCaffrey has watched Local 707’s pension fund sink deeper into debt over the past 20 years — until the 2008 stock market crash sent it into a death spiral”
100% funded…in tech stocks.
In the year 1999. The top of the tech bubble.
Cherry picking….?
In fake stocks that went up 10× in a few years before the crash.
I will be a steak dinner that pension was around 50% funded in 1995. And with plenty of reports stating how bad it was going to get.
Pensions used to invest in boring investments.
But then you can’t promise your membership 90% salaries after 25 years of working with free medical…
With 700 workers for 4000 retired…
You’re missing my point. The Fed can’t do anything about this. Heck, they were largely responsible for it.
huge wealth inequality has never been good for any country.
The FED took the risk out of stocks an enriched a lot of people for basically just buying pieces of paper.
Good jobs are hard to come by. There are lots of service jobs available where u go nowhere fast.
“The FED took the risk out of stocks…”
That’s completely opposite the object lesson.
The Fed has blown the biggest, most dangerous Ponzi markets and asset bubbles in human history.
Social Security is a ponzi scheme. Private pensions are not.
Read the Simpson Bowles chapter on their proposed Social Security fix. It doesn’t take much to make Social Security solvent for the next 50+ years. Additionally, SS has the backing of the US Government and would be politically impossible to end support for it.
Private pensions do not such backing.
Just ask my friend’s father, who was a pilot for Delta…his pension from Delta slashed in their BK.
Ponzi schemes cannot be fixed. Their proposed changes just stall the inevitable. Raising the retirement age, etc. is the beginning of the default. It won’t end there. The essential nature of the scheme is that people who got in first are being paid by the people currently paying into it.
Rome is burning: http://www.newsmax.com/Finance/StreetTalk/Kotlikoff-GDP-debt-deficit/2015/03/10/id/629314/
Social Security/Medicare/Medicaid will only be “fixed” when they end, when the federal government defaults on its obligations (which it will).
That is correct, which is why the problem will grow and grow until the government either sends out checks that are nearly worthless or stops sending them at all.
You are like one of the widows in the story of the Teamsters union: “But my husband told me, before he died, not to worry about anything because the union would always take care of me.” Substitute the word “government” for the word union.
Social Security isn’t the problem.
Medicare IS the problem.
Social Security is easily fixed so that money going in supports the money going out indefinitely.
People pay in something like 25-30% of what they get out of Medicare…THAT’s the crux of the Medicare problem.
“Lobbying Congress = give us other people’s money.”
lobbyist
noun
a person who tries to influence legislation on behalf of a special interest;
http://www.dictionary.com/browse/lobbyist
How is this legal?
Willow predicts Philly up 3.5
Lazy and contradicting their own articles
A world drowning in debt.
http://uk.reuters.com/article/uk-markets-debt-global-idUKKBN1631WC
Italy’s banking sector is still un-fixed and capital flight is underway.
http://wolfstreet.com/2017/02/25/desperation-over-europe-banking-system-senior-non-preferred-bonds/
This is not going to end well: a world $44 trillion in debt.
http://www.scmp.com/business/global-economy/article/2073883/china-us-and-japan-top-borrowers-global-official-debt-hits
Interesting article I saw on LinkedIn that compares the state sponsored overinvestment in real estate in China versus the American way of motivating private entities to do it.
https://www.linkedin.com/pulse/chinas-zombie-factories-unborn-cities-john-d-evans-cfa-%E7%BA%A6%E7%BF%B0-%E5%9F%83%E6%96%87%E6%96%AF
That was an interesting read, and I can better understand why the Chinese are salting away their money in real estate in the modern countries despite the bubbles.
Santa Barbara County, CA Rental Rates Crater 8% YoY
https://www.zillow.com/santa-barbara-county-ca/home-values/
Sacramento foothills housing price trends up 7% YoY………
http://www.zillow.com/placer-county-ca/home-values/
FWIW, 7% YoY is quite a bit faster than median household income growth. However places like Folsom and Shingle Springs are idyllic when the valley floor is buried in fog or sweltering. I have friends in both places, and they are both nice living.
The median household income in these areas is over $80,000/year (2015) and the population is growing at just over 1%/year (2010-2015). I don’t know the rate of income growth, but clearly it is an upwardly mobile population. It is a beautiful place to live.
With so much opaqueness in the Chinese financial sector, who really knows the true state of affairs?
http://www.scmp.com/news/china/economy/article/2074330/hundreds-arrested-china-crackdown-underground-banks
What happens to our consumerist economy if millions of people begin embracing a minimalist lifestyle?
http://www.marketwatch.com/story/this-man-lives-with-his-five-young-children-in-a-1050-square-foot-condo-2017-01-31
Lots of good ideas its amazing what a good well designed apartment can store..higher ceilings double sized deep closets one can be made into a fully functioning office, bed risers for storage under bed, all add up to more open spaces.
This is presented as if it is something “new”. When I wuz a pup, we had three kids and two parents in a two bedroom apartment in NYC. Although after four years of that, we moved to the burbs and rented a house in a really great area for kids. The house was old and my father was always fixing the furnace, but the kids were all doubled up, two to a room. Nobody had their own bedroom except for my grandmother.
“with his five kids who range in age from 5 to 10 years old.”
and now he’s a minimalist!
And coastal people laugh derisively at hillbillies. Most people in Appalachia live better than this guy and his five kids.
Perhaps a cage at a Vancouver zoo might be a better option?
“And coastal people laugh derisively at hillbillies.”
Lotta “coastal” people move to Appalachia and drive up prices, unfortunately.
And the non-coastal people sneer at the coastal “elitists”.
You expect them to kiss the keisters of those who hate them?
How many years of gains have you missed now?
None. I bought one house in 2008 still on the way down in value, but the rest were bought at or close to the bottom in 2009 & 10. All have been cash flowing since day one and all are worth about $900,000 more than I paid (less $100,000 in selling costs). Buying houses after the bubble busted has been a life changing investment.
I’m thinking of selling it all and moving to San Diego to retire in 2018. I will rent for a year or two and look to buy a distressed condo in 2020 for cash. It could be a dream come true.
‘I’m thinking of selling it all’
‘My lender friends are nervous right now with this tremendous slowdown in both purchase and refinance volume. My mortgage brokerage shop was busy for five straight years. Since the first of this year, our loan volume is down dramatically’
Don’t get caught at the exit.
“Don’t get caught at the exit”.
That is why I have been reading this blog continuously since 2005. I got into the market correctly thanks to you and now I will exit in an orderly fashion, in part based on your insight.
I don’t see the market resetting deeply in this cycle, but more likely it will slow heading into 2018 and 2019. Clearly another recession is eminent, but without a cratering housing market, it will not be as severe as 2006.
In the area where I offer houses for rent, there are 5 houses available today with 4 or more bedrooms in an area with 50,000 people. The market is very tight.
Jingle,
I’m planning on doing what you did a decade ago in the next four years
You will likely do well SW. Be patient. I was so anxious to get into my first deal, I overpaid at the time. Know that housing prices are sticky on the way down. I bought my first foreclosure to live in it and overpaid at the time. The others I bought at 10 to 12 times annual gross rent and at $85-90/SF, far below reproduction cost in CA. It is hard to lose at those metrics. I do all my own management and maintenance.
I invested less than $300,000 in has become $1,200,000 in equity (assuming the world doesn’t melt down. The rents bring in about $25,000/year, although in 2016 I had $6,500 in extraordinary expenses (leaks, dry rot, etc.). I am reducing debt by over $15,000/year.
I purchased housing that was laying fallow and cleaned it up and provided people with a good product to occupy. My average tenancy is over 4 years in duration, because I never raise the rent on residents. Some families have been with me since 2009 and their rent is $200/month below market. It is worth it to me for them to be happy and stay for as long as they like. It has been a great move.
This question is for anyone:
Do you think rent/home prices will reach 2010/2011 bottom levels again? If so, when?
Thanks.
Why wouldn’t they? What’s so magical about 2010?
On an inflation-adjusted basis, yes.
The “when” is harder to say. For many folks on this board, it’s been imminent for years.
I tend to believe we won’t see a meaningful move down in home prices until we’ve seen development of more than 1.5-1.6MM housing units for a time OR there is a non-housing based external shock that pushes our economy into recession.
It could be within 3 years, or within 7. If I had to guess, I’d say it’s right in the middle of those two.
So, my guess is that we’ll get to within about 20% of the 2010/2011 nominal bottom, but that will be the next bottom.
Do you think rent/home prices will reach 2010/2011 bottom levels again? If so, when?
Unfortunately, I think it totally depends on policy. Fed policy about buying up distressed assets to artificially support price, FASB rule changes to artificially support prices, etc.
IMO there’s nothing magic about 2010-2011 prices. They would have gone a lot lower without govt interference. So the answer to your question is that it depends on if they can control it as well again, and if they choose to. If TPTB really hate Trump they might decide to let it get a little worse this time just to make a point. Or they could totally lose control. Who knows? All I know for sure is that a lot of people with a lot of power don’t seem to want to let the market decide.
The downturn from 2006 to 2010 was 50% in my market.
The downturn from 1990 to 1995 was 30%. I know because I got caught in that correction, which is part of why I understand Ben’s blog, when I found it in 2005.
You can easily predict there will be cycles and corrections. What is much harder is predicting timing and depth.
Here is the one common trait: Once the market turns, it takes 4-5 years to reach the bottom. The market has not turned yet and I don’t think it will in 2017.
Are you ready for the end of Hopium? Beware the Ides of March.
The minions have to work for the folks who got rich buying pieces of paper on the FEDS cue.
Markets
Bond Market Is Flashing Warning Signal on Trump Reflation Trade
Rising bond market seen indicating that valuations of riskier assets may be stretched
By Min Zeng
Updated Feb. 27, 2017 8:13 a.m. ET
Stocks and bonds are again moving in tandem after diverging in recent months—a sign some investors may be losing faith in the so-called reflation trade.
…
Will the Ides of March bury the stock market?
By Mark DeCambre
Published: Feb 27, 2017 5:34 p.m. ET
Will the Ides of March bury the stock market’s record run?
AFP/Getty Images
Will the stock market’s rally be buried in March?
“I come here to bury Caesar, not to praise to him,” says Marc Antony in Act III, Scene II of William Shakespeare’s tragedy Julius Caesar. Caesar was famously murdered by a cadre of Roman senators on March 15, 44 B.C.E.
And the question for stock-market investors is, will March be the month that buries a run of records and monthly advances? or, will investors further gild the lily of equities, pushing stock indexes up in the coming month.
…
Dumb question of the day: When the housing market turns over again because prices have reached their limit to appreciate, despite the latest wave of subprime lending, will the home equity ATM machine break down again like it did in the 2007-2012 episode?
Yes.
And the Oscar goes to…, no, wait, uh-oh…Price Waterhouse Coopers done messed up! What a chit show, two of the biggest fraud industries in the US, accounting and “entertainment”, on stage for their close up!
In other news, Price Waterhouse announces they have reason to believe the Russians hacked the Oscars.
I missed this post for days.
Delray Beach, FL Housing Prices Crater 7% YoY
https://www.zillow.com/delray-beach-fl/home-values/
This story mirrors those 2003 - 04 - 05 mortgage brokers who rocketed to riches.
Buy a few of those Delray Beach shacks, start signing those kids up for Obamacare and you too could be driving a Lamborghini.
Addicts For Sale
In the rehab capital of America, addicts are bought, sold, and stolen for their insurance policies,
Cat Ferguson
posted on Mar. 19, 2016, at 10:14 a.m.
DELRAY BEACH, Florida — One early evening last October, a group of young men and women were hanging out at the Starbucks on the main drag here, Atlantic Avenue, smoking cigarettes and bullshitting. They were sitting next to a pile of suitcases, the telltale sign of an addict looking for a place to stay. Some get kicked out of their old halfway house because they relapse; others because their insurance coverage has been used up.
The people targeting them are variously called “marketers,” “body brokers,” and even “junkie hunters.” They know addicts better than anyone (and many used to be addicts themselves). They spot kids dragging suitcases along the road and ask them if they need a place to go.
“People come in, within six days, they’re counting how much money we’re making,” Jonas, the sober-home operator, told BuzzFeed News. “They get out six months later or less, and they’re opening their own [house] — they’re under 30 years old, they don’t have any real recovery time.”
And the cash rolls in. “You sit on Atlantic, you watch the Lamborghinis and the Bugattis go by,” Jonas said.
Some marketers will pay the first few Obamacare insurance premiums for addicts they pick up off the street.
https://www.buzzfeed.com/catferguson/addiction-marketplace
I lived in Delray. Great town. I used to stumble by those poor kids hanging out at Starbucks, after a good 7 Martini night. I imagine the booze on my breath could have caused a relapse as I passed by them. Crime did not come from them.
Bought my first house on Lake Eden for 279K in 98 and sold it for 525K in 2001. It went to a million + pre-crash. It is back up to a million +. It is a 2 bedroom, 2 bath, concrete block, pool, boat house. Faces West with amazing sunset views. Certain properties can change your outlook on life. That was one of them for me.
Hurricane Wilma ripped the roof of a condo I owned in Delray as well. Fun times.
Can’t beat the water and proximity to the Bahamas. Way to many New Yorkers in Delray though. After a while you learn that being rude and a huge pain in the ass is how most people from New York say hello.
Wilma wan’t supposed to be that bad by the time it got to Palm Beach County.
It was supposed to weaken as it came up from the south across land, they sure fuqed that forecast up.
even jesus cant save retail……
All 240 Family Christian Stores Are Closing
More than 3,000 employees in 36 states will be laid off in the liquidation of one of the world’s largest Christian retailers.
http://www.christianitytoday.com/gleanings/2017/february/all-family-christian-stores-closing-fcs-liquidation.html
Millennials raised by the Internet have access to facts, they dont believe Noah built an ark or Jonah lived in a “big fish.”
But the HBB will live forever in your skull…. rent free.
I think what did them in was Amazon and other online retailers.
You mean that company that still doesn’t earn a penny profit?
Support the CIA! Buy on Amazon!
If their business was mostly books, that would probably be the explanation. If they sold a lot of junk made in China, there would also be WalMart.
I suspect that most of those knick knacks are religious in nature. Can’t say I’ve seen many of those at Walmart, not even St. Joseph statues which come in so handy when selling a house.
raised by the Internet…
My condolences to them.
Wow, not even Chapter 11. Liquidation.
I think it ties more into the minimalist lifestyle. No matter what Young Millenials believe spiritually, they obviously don’t need all the tacky knick-knacks sold in such stores.
“Housing Bubbles Are Showing Signs Of Bursting All Over The World”
http://news.goldseek.com/GoldSeek/1488147891.php
Too funny.
You didn’t win, the only black people here won.
https://www.youtube.com/watch?v=8NYBoR2rRfg
I’ve never listened to one of those Oscar speeches before but one thing is for sure, white or black those people sure are full of themselves.
Best. Oscars. Ever.
“Best. Oscars. Ever.”
Oscars sensation ‘Gary from Chicago’ is attempted RAPIST:
It is unclear whether the Oscars organizers knew that they were letting a registered sex offender into the theater. He was seen kissing Halle Berry’s and Nicole Kidman’s hands.
Read more: http://www.dailymail.co.uk/news/article-4266554/Oscars-Gary-Chicago-served-20-years-prison.html#ixzz4a0d9×4s3
Follow us: @MailOnline on Twitter | DailyMail on Facebook
here’s hoping Oxide makes it through the night of the long knives that begins today.
AMF to the epa
Imagine a country where criminal bankers actually get sent to jail.
http://www.activistpost.com/2017/02/former-imf-chief-sent-jail-spain-prosecutes-65-elite-bankers-enormous-corruption-scandal.html
Bankers should have a name you can trust.
Rodrigo Rato? Not so much.
FWIW, Rato doesn’t mean “rat” in Spanish. It loosely means “a little time” or “a while”, as in he’s gonna be in jail for a while.
Yes of course.
His full name is Rodrigo de Rato y Figaredo. Figaredo is the name of a place in old Galicia. Galacia was a mix of Celtic and Germanic. The Germanic meaning of Rato is Rat.
This is my story and I’m sticking to it.
where is crowman?
Pauko, Hawaii Housing Prices Nosedive 21% YoY As International Demand Evaporates
https://www.zillow.com/puako-hi/home-values/
Did Google Kill This Donkey?
http://jalopnik.com/5976455/did-google-kill-this-donkey
Oxide, RIP.
These big azz flies just suck the blood from anything walking, so it probably feels great to “cake” the bloody bites with fine dust.
The tiny house movement: a rejection of conspicuous consumption whose time has come.
http://www.independent.co.uk/life-style/tiny-house-movement-expedition-couple-live-in-home-size-shed-300-square-foot-alexis-stephens-a7596261.html
The “forgotten people” (white males in their 50s) keep taking themselves out.
http://www.marketwatch.com/story/these-americans-are-at-the-greatest-risk-from-dying-from-drug-overdoses-2017-02-24?link=MW_latest_news
On that note, I am going to religiously avoid drugs other than caffeine and alcohol.
Greenwood Village, CO Housing Prices Crater 11% YoY
https://www.zillow.com/greenwood-village-co/home-values/
Is life so good in el cajon,Ca? Is that the poor mans san diego?
when are retail investors gonna be rinsed? Seems way overdue.
Target craters 13% cause people are frickn broke!
Yes, they are. And they admit it, now. I’m seeing it in e-commerce, people making really lowball offers for stuff and saying “I’m poor, this is all I can afford”.
“…people are frickn broke!”
Perhaps I can be of some service?
(Bahahahahahahahahahahahahahahahaha …)
Bahahahahahahahahaha …
“50% Of College Students Believe Their Student Loans Will Be Forgiven By Federal Government.”
http://www.zerohedge.com/news/2017-02-27/
Educated fools = debt slaves.
Bahahahahahahahahahahahahahahahahahaha …
Ooooooopsi …
http://www.zerohedge.com/news/2017-02-27/50-college-students-believe-their-student-loans-will-be-forgiven-federal-government
Hey, Combo, great to see you back!
Ah yes, the droll stylings of Mr. Banker enliven the HBB yet again….welcome back Brah!
The enragement is much too powerful for anyone to leave voluntarily. The only option is RageCage accommodations.
We have missed you!
And they will be proven right.
The 0 was on his way to doing that
The human tornado will blow their free shut dreams away
Generation Deadbeat.
http://www.zerohedge.com/news/2017-02-27/50-college-students-believe-their-student-loans-will-be-forgiven-federal-government
There’s a similarity between this student loan situation and illegal immigration. Expectation of amnesty encourages reckless or non-optimum behavior. The longer it carries on, the more the lack of future consequences is reinforced.
I will still suggest return your degree, and work at starcucks as your new career choice without the debt.
There are too many union, government, top end professional companies who will not hire you if you stiffed out on your loans and dont have a valid 4 year degree to hang on the wall.
And if you can get one of those jobs you’ll have no problem paying your student loan.
Meanwhile, in the real world employers are more interested in experience as opposed to credentials.
“There are too many union, government, top end professional companies who will not hire you if you stiffed out on your loans and dont have a valid 4 year degree to hang on the wall.”
I expect that the Trump administration will soon cull the federal ranks of student loan borrowers who are seriously delinquent, which will likely cut into the minority ranks.
We’ll see if the NY Fed continues its dismal track record as the most incompetent economic prognosticators in this or any other galaxy.
http://wolfstreet.com/2017/02/27/credit-boom-in-china-to-financial-crisis-but-not-yet/
Thanks to the Fed and its “No Billionaire Left Behind” monetary policies, the super-rich can demand even more excesses for their “luxury” dwellings.
http://www.scmp.com/property/international/article/2074787/technology-rules-roost-new-york-los-angeles-luxury-living
‘Muricans now hold a record $4.1 trillion in consumer debt.
http://www.mybudget360.com/americans-hold-over-4-1-trillion-in-consumer-debt/
Latest from Case-Shiller.
http://www.marketwatch.com/story/national-home-prices-hit-a-two-and-a-half-year-high-in-december-case-shiller-says-2017-02-28
The Mother of All Bubbles. Heckova job, Bernanke & Yellen.
https://www.peakprosperity.com/blog/107199/mother-all-financial-bubbles
Don’t forget Greenspam.
+1 Magoo has shown no remorse for his actions.
Looks like Greek depositors have seen the writing in the wall. In a time of universal fraud, possession is 9/10s of the law.
http://www.zerohedge.com/news/2017-02-28/greek-bank-jog-back-bank-deposits-tumble-lowest-2001
It’s like every 2 years we play this game. Greeks will get more debt to solve their debt problems for another 2 years.
Same as it ever was….
After the banking clan makes big speeches about not bailing them out and demanding more austerity measures
And the winner is,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, Raymond K Hessel
Guys, guys, I’m sorry. No. There’s been a mistake. butters, you won best poster. This is not a joke, clarified scandals, while holding up the card that proved it.
butters
BEST POSTER
Poster Mafia Blocks, who later tried to explain what had happened, seems to have been handed the envelope for Best Links, which went to Raymond K Hessel, while holding up the card that proved it.
DON’T BE A DEBT DONKEY
Takoma Park, MD Housing Prices Crater 15% YoY
http://www.movoto.com/takoma-park-md/market-trends/
Correction: Takoma Park, MD Housing Prices Craters 25% YoY
News
California News
Californians fleeing high cost of housing
By Kevin Smith, Southern California News Group |
PUBLISHED: November 14, 2016 at 6:41 am | UPDATED: November 15, 2016 at 12:25 pm
Related Articles
California’s skyrocketing housing costs, taxes prompt exodus of residents
Want affordable housing? Move to Trumpland!
Silicon Valley housing market an ‘outlier,’ according to economist
Making California housing affordable again will require new laws, more avenues to build
California’s warm weather, sunny beaches and world-class schools have lured people to the Golden State for decades, but rising home prices are turning that equation around.
Data analysis firm CoreLogic says that for every home buyer coming into California, another three are selling their homes, packing up and moving out, CNN Money reported recently.
The trend of out-migration was also noted in a separte trio of reports released earlier this year by Beacon Economics. Beacon noted that 625,000 more U.S. residents left California between 2007 and 2014 than moved into the state. The vast majority ended up in Texas, Oregon, Nevada, Arizona and Washington.
…
Professor Bear
If you were to go pick out a house that you and your wife liked in a neighborhood you both liked how much would it cost today?
A kings ransom. 3 talents of gold, 7 standions of tillable land and a donkey.
“and a donkey”
A live donkey?
https://www.youtube.com/watch?v=Ls-YVHO9Uzw
The home we comfortably inhabit Zillows out around $660K, which is about $100K above what our landlords paid for it in 2004. At the first bubble top. But it is a family sized home, which we anticipate not needing a couple of years from now when our oldest kids are out of the nest. We’ll have to see where the market is at that point in time.
$660K is a lot of damn money but so is $560K for that matter
I am assuming your rent is much lower than the cost of owning even at $560K.
The house size actually happened to us, we sold a 2/2 in 2005 because we needed a 4/2 which is what we rented until 2012 when we only needed a 3/2 which is what we purchased. In another couple of years we could go bacj to the 2/2.
Dump it while you might still find a buyer.
“Dump it while you might still find a buyer.”
I could easily right now and as you know I have been thinking about it but I am afraid those thoughts are the source of a reoccurring nightmare I keep having which is strangely close to this youtube video.
https://www.youtube.com/watch?v=Ls-YVHO9Uzw
“Data analysis firm CoreLogic says that for every home buyer coming into California, another three are selling their homes, packing up and moving out”…
and taking those fat Cali pensions with them.
California is one of five states that provides no special exclusions on relief for pension income at tax time, according to U.S. News and World Report. That means residents of the Golden State have to pay taxes on both California pension income and income from other sources, including any out-of-state pensions.
The vast majority ended up in Texas, Oregon, Nevada, Arizona and Washington.
Other than Texas I wouldn’t exactly call that Trumpland. More like just across the border where they can still get back quickly if they need to be with folks who think the same way.
On the market: Foreclosure, pre-foreclosure homes in Southwestern Conn. March 2017
Lidia Ryan Published 4:09 pm, Monday, February 27, 2017
http://www.greenwichtime.com/
Twitter to focus more on live video after losing more than $400M in 2016
BY JILLIAN STAMPHER on February 27, 2017 at 5:07 pm
Expect to see more live video in your Twitter feed. In its annual 10-K report released Monday, the company said it will focus more on its Periscope app in 2017.
The move comes as the company continues to struggle to make money, losing more than $400 million in the last year.
Going forward, Twitter plans to grow its video presence in an effort to reach new users and potential buyers. While it said in the annual report that it still isn’t making money off Periscope, the move taps into a bigger shift on social media toward video. Facebook’s Mark Zuckerberg, for example, sees video as a “megatrend.”
“In 2017, our focus is building and shipping product changes more rapidly to make Twitter safer,” the company said in the report. “We intend to invest in our core use case and in new product areas — such as live streaming video, among others — that further strengthen Twitter’s unique position as the best and fastest place to see and talk about what’s happening in the world.”
http://www.geekwire.com/2017/twitter-focus-live-video-losing-400m-2016/
Expect to see more live video in your Twitter feed.
What twitter feed? I got the appeal of Facebook right away…I could connect with family and friends and keep up with their lives. Twitter let me…follow celebrities and news organizations? I never understood the appeal. It’s sounding like more and more people are agreeing.
Kensington, MD Housing Prices Crater 22% YoY
http://www.movoto.com/md/20895/market-trends/
Kinda ot but the level of stupid just astounds me.
She asked her jailed boyfriend for some heroin advice. Then things turned deadly
http://www.miamiherald.com/news/local/crime/article135394529.html
Well this is rich. The Teamsters have for decades been prime enablers and funders of the patronage and graft racket known as the Democrat Party. Now they’re belatedly realizing that supporting political corruption in exchange for promises of a gold-plated pension isn’t going to work out so well for them.
http://www.nydailynews.com/new-york/n-y-retirees-struggle-survive-pension-fund-bottoms-article-1.2982399
Let us count the blessings of multiculturalism and open borders.
https://www.theguardian.com/world/2017/feb/28/france-teen-girls-detained-plotting-attacks
The subprime auto bust is upon us.
https://www.bloomberg.com/news/articles/2017-02-28/car-dealer-s-first-overflow-lot-in-37-years-exposes-u-s-pileup
Will the central bankers ever be prosecuted for their blatant rigging and manipulation of precious metals markets?
https://www.theburningplatform.com/2017/02/28/does-market-rigging-in-the-metals-signal-a-buying-opportunity/
Alameda, CA Housing Prices Crater 11% YoY As Bay Area Housing Inventory Skyrockets
https://www.zillow.com/alameda-ca/home-values/
WTF. How do we simultaneously afford a $54B increase in military spending, a massive fiscal stimulus, and have “massive middle class tax cuts”?
http://blogs.marketwatch.com/capitolreport/2017/02/28/president-trumps-address-to-congress-live-blog-and-video/
The Art of the Deal with It
But…but…whoever thought a pension fund could lose $320 million by “investing” in real estate?
http://www.zerohedge.com/news/2017-02-28/dallas-police-pension-wins-2mm-settlement-real-estate-fund-lost-them-roughly-320mm
“Dallas Police Pension ‘Wins’ $2mm Settlement From Real Estate Fund That Lost Them Roughly $320mm”
http://www.zerohedge.com/news/2017-02-28/dallas-police-pension-wins-2mm-settlement-real-estate-fund-lost-them-roughly-320mm
“realty fund”….. “$320 million in losses”.
Uninformed flunkies spending other peoples money….. on housing.