A ‘Temporary Setback’ In California
A trio of reports on the borrowers situation in California. “Orange County’s foreclosures nearly doubled in June, rising to 65 property sales from 35 in May. Overall, foreclosure activity, including default warnings to delinquent homeowners, was up 60 percent last month, the report shows. The county had 639 new foreclosure filings last month, up from 399 in May.”
“Riverside County had one new foreclosure filing for every 438 households, the area’s highest ratio and the third-highest in California.”
“About 3,350 homes in Riverside County, representing one in 175 of its households, were in foreclosure proceedings at some point in the second quarter, according to the firm. The U.S. Federal Reserve Bank has implemented 17 quarter-point raises in the so-called Federal Funds Rate since late 2004. The result has been that even initial payments on fixed-rate and adjustable-rate mortgages are considerably higher than they were a couple of years ago.”
“‘They haven’t gotten 18 pay raises,’ said Victoria Johnson, president of the North San Diego County chapter of the California Association of Mortgage Brokers.”
“The increase in foreclosures was just as dramatic in San Diego County. About 2,600 homes were in foreclosure proceedings at some point between April and June, compared with 945 in the same period last year.”
The Sacramento Bee. “After tapping their home values for $22 billion in consumer spending during the recent housing boom, Sacramento-area residents have slowed their use of home-equity borrowing at twice the rate of Californians as a whole.”
“The use of home-equity loans or home-equity lines of credit fell by about 10 percent from January through April compared to the same period last year, reported DataQuick.”
“It comes after a runup of home-equity borrowing in El Dorado, Placer, Sacramento and Yolo counties that began at $3 billion in 2002 and more than doubled to $7.6 billion by 2005. Statewide, home-equity borrowing fell 5.2 percent during the first four months of 2006, to $39.6 billion. Analysts blame the decline on stagnating home values and rising interest rates.”
“‘Keep an eye out. It’s going to get worse and worse,’ said Christopher Thornberg, senior economist of UCLA’s Anderson Forecast. Describing most potential borrowers, especially in regions like Sacramento, Thornberg said: ‘Their home appreciation has gone to zero.’”
“Despite the drop, more than 27,000 homeowners in the eight-county area borrowed nearly $2.5 billion against their home values from January through April. Mortgage strategist Angela Talent said she has received more, not fewer, requests for home equity loans in recent months. Many applicants, she said, are financially stressed and need to rein in credit card and other debt.”
“Even amid rising interest rates, home-equity loans are still far cheaper than credit cards, and interest rates are often deductible from federal taxes.”
“That’s why (banker) Andrew Mastorakis believes the loans will prevail, even reaching into 40 percent to 50 percent of households within five to 10 years. Currently, about one-fourth of households use home equity lines of credit or loans, he said. ‘I think it’s a temporary setback,’ he said of the decline.”
Woohoo! California houses for everyone!!!
Please someone tell these poor fools HELLOCs are secured debt, credit cards, medical bills, etc. are not. There is a darn good reason interest rate on a helloc is less than on unsecured debt. Where the heck are all the great public financial gurus on TV?? If you are in trouble and behind on your bills, the last thing you should do is put your house in jeopardy by hocking it.
Speaking of which, here’s more coverage of San Diego’s bubble-bust:
http://news.yahoo.com/s/nm/20060717/us_nm/property_sandiego_dc
Interesting how much coverage this one market is getting.
Heres more great news out of California: “Sacramento, Placer and Amador counties now join San Diego County as proud owners of lower median home prices vs. 2005!!”
article at http://www.realestatedecline.com
But that Shill George Chamberlin said on KOGO 600 this morning “he is always trying to be fair about the housing market” and then says he went to lookup the foreclosures in San Diego, and there are none. WTF is this guy smoking, on my street in San Diego there is a foreclosed condo that has been sitting for mothes. Not to mention my significant other gets the foreclosure reports for San Diego weekly so her sub prime lendar firm can contact the owners to see if they want to refinance.
I’ve lost all respect for this clown.
Amen Mike. All we can hope for is that Chamberlin is highly
leveraged to RE and will lose a bundle, along with his job as a
shill for leading the sheep to slaughter.
San Diego has 425 foreclosures and 4419 pre-foreclosures.
Where did you find those stats, I would like to monitor that info as well. If you can provide a link I would greatly appreciate the info.
“Riverside County had one new foreclosure filing for every 438 households”
Wow…..wow….. To think that this is going to get even worse is truly scary. It’s coming folks.
The IE/riverside folks must be literally squeezing themselves into financial meltdown with the gas costs for commuting. They could be spending 100-150 a week/400-600 a month just for fuel expenditures. This could be contributing to the sharp rise in foreclosure filings for riverside county.
I talked to a lady who works for a Spanish mortgage company in OC. She’s the only American citizen. She said that business was dropping significantly. Maybe Santa Ana we’ll see a lot of foreclosures?
She’s the only American citizen.
You mean… *gasp* there are still AMERICANS left in Sanata Ana???
Santa Ana. The joke works better when you get the spelleing right.
Jeez, I can’t believe I did that twice. I’m done.
HARM,
I recognize you as one of the “regulars” from Patrick’s site. Have you subscribed for access to his links? How is that working out anyway? I’d pop over from time to time to check them out but, of course, I realized last month that he sorta shut it down for the “drive-by” folks.
BayQT~
Yes, I believe most of the moderators are suscribed for now. The decision to make the links subscription-only was not popular, but Patrick has to do something to keep the lights on, I suppose. We’ve also taken quite a hit on the readership stats since then, oh well…
Ok. Thanks for the reply. I was just wondering.
BayQT~
I don’t have a problem with paying $10 for 50 days. Besides, his general blurb on why housing in the bay area is overpriced is alone worth at least $10.
“‘Keep an eye out. It’s going to get worse and worse,’ said Christopher Thornberg”
Thanks for the warning, but no thanks really. How about keep an eye on every single bubble market, huh?!!
“‘Keep an eye out. It’s going to get worse and worse,’ said Christopher Thornberg, senior economist of UCLA’s Anderson Forecast. Describing most potential borrowers, especially in regions like Sacramento, Thornberg said: ‘Their home appreciation has gone to zero.’”
“Despite the drop, more than 27,000 homeowners in the eight-county area borrowed nearly $2.5 billion against their home values from January through April. Mortgage strategist Angela Talent said she has received more, not fewer, requests for home equity loans in recent months. Many applicants, she said, are financially stressed and need to rein in credit card and other debt.”
The debt addiction has only begun, for many mortgagors are obviously jonesing for more.
I think there’s a way to go before the debt-peak is reached, maybe 18-24 months out. The lenders are the holding the wide-open fire hose of liquidity and it’s aimed directly into the mouths of the mortgagors’ who will ultimately drown.
In the meantime, boom times for lenders!
how does this foreclosure # compare to 1990’s
now folks will have 30 year car loans
Many times I see folks in their 20-30’s driving BMW and MB to work and in debt up to their eyeballs. I just smile knowing my only debt, credit card, is around 200-400 per month which i pay off 100% each month. The rest is all gravy in my MM account earning interest. No Ego wanted or needed!
Same here. I live well below my means and drive an economy car (paid for, well built - Toyota, of course). Maybe all these big spenders are depressed and just have to buy something to make them feel some sense of self-worth! One 20-something at work leases a Lexus! My excess money goes to T-Bills, municipal bonds, and savings bonds, and occasionally stocks and gold.
Living below ones means is a good plan for the future. Personally, I like to enjoy life in the present (the future is not guaranteed), while young and healthy, so I do spoil myself with some finer things rather than socking everything away in order to live like a king for 10 or 15 years after retirement. That being said, I do look towards the future and prepare myself for it. I just think there is a happy medium. It is incorrect to assume just because a 20 something is driving a Beemer or a Benz, that they are living above their means. They could be a trust fund kid. Or, maybe they decided that since they spend many hours a day in their vehicle, as many of us do, that they would rather lease the BMW, than buy the Toyota, and forego the daily latte and keep the eating out to a bare minimum. It might be a decision that works well for them and their pocketbook. Furthermore, image means something like it or not. I happen to have purchased a brand new $40k truck. I am in high end garden design and though a beater would work just fine personally, rolling into a multi million dollar estate in said beater would not be in my best interests in terms of drumming up new clients. My well kept appearance only goes so far. Maybe some of these young folks driving these vehicles need to “play the part” in order to succeed. Image, like it or not, is a lot in this country.
It is incorrect to assume just because a 20 something is driving a Beemer or a Benz, that they are living above their means.
True, there are exceptions, but the 20 something is more likely to get in over his head buying a shiny new toy than someone with a little more life experience. I listen to the Dave Ramsey show every now and then, and nine times out of ten, if there’s a caller whose car debt is way out of line with their income (i.e., $35,000 car financed on a $40,000 income), it’s typically a 26 year old male, or so.
My own take is that people who look for happiness in material things are going to not find what they’re looking for. Be content with what you have and remember that things like family and friends are far more important in the grand scheme of things than toys and cars and that ‘dream home.’
All of those people in their 20s driving a BMW are leasing it, paying too much in rent for an oversized apartment they don’t need, and basically scooting around month-to-month spending just as much as they take in, with absolutely no capital assets to show for their lives.
20 yo’s have always been willing to take out credit beyond their means, so that is nothing new… just the amount people seem to be able to borrow now… and also the bankrupty laws are new. What’s also new is more and more people in their 30s, 40s, 50s, 60s, probably 70s and 80s too have been doing he exact same thing. It’s madness.
My friend is visiting the Ukraine right now. He says there everyone is driving BMWs and Lexus’, and wages are considerably lower than in the U.S.
Most of these were stolen in Western Europe and driven to the Ukraine. In the seventies MB were stolen enmass and ended up as taxis in Iran. The make of the car and the country has nothing to do with the wealth.
The great majority of people in Ukraine do not have cars, period. No way can they afford even the gas.
No, the boom times are over. Sure, we’re still doing HELOC’s, but it only the desperate ones trying to stay afloat that we see these days. Gone are the days when the mindset was that HELOC’s were basically free money. Many borrowers are crying ouch these days. Yeah, HELOC rates are still pretty low, but not in comparison to where they were 18 months ago. Borrowers are finding that payments and rates have more than doubled. Now just making the minimum I/O payment is tough, let alone trying to reduce the principle. We’re getting refi’s these days where were combining the first and second (usually a HELOC) so the borrower can get the payment back down. The sad part is they’re usually losing a great rate on the first to do it.
No, it’s just the desperados and the complete idiots looking for MEW these days.
When I mention idiots, I have to add this experience just to show how far some peoples heads are still stuck up their asses. One of my LO’s recently did a purchase where the borrower needed 100% financing. I overheard a conversation in the office between my LO and the borrower, and the borrower was saying she didn’t like the interior of the home, so they were just going to gut the house, put everything on credit cards, and that they’d be back in 6 months for a line of credit to consolidate the debt since they will have surely gained 40K-60K equity by then. What makes this hilarious is that this is in a neighborhood that has been crashing for the last 8 months. It’s lost about 10%-15% from it’s top, and is continuing its downward trend. I passsed the house recently and, sure enough, it’s being gutted. Talk about rude awakenings.
Oh, I must add this. My LO did mention to the borrower that the market was experiencing a change. The borrowers reply was that her realtor told her it was a temporary glich in the market, and short term gains would surely be reaped on the particular property she was looking at. Nice! People believe what they want to believe.
What ever happened to the old adage, live in the house for a while before you do any “Improvements”.
Those “Pojama People” will be singing “Can’t Afford No Shoes” before too long.
This has to be one of the most god-awful horror stories I’ve heard. Un-freaking-believable how stupid your average person is. That house is going to bury those people financially speaking without a doubt.
i talked to a coworker about housing gping down. he said that his house in golden valley went up $10,000 in the last 6 months. i asked how he knew that. the responce was that he bought 6 months ago and he just applied for a heloc and they appraised his home for $10,000 more than he paid 6 months ago. boy that shut me up, i didnt want to look bad in front of my coworkers who think that homes are going up as usual. there all getting equity rich, while i am renting and throwing my money down the rent sewer pipe. we will see who is right. the ones renting and saving or the heloc rich people that are borrowing there way to riches.
1st of all, why is he doing a HELOC after only 6 months of ownership ? Exactly how much is a $10K gain in percentage terms ? Not much is my guess.
That gets a financial Darwin award!
That’s a great anecdote, thanks for posting. Chicken soup for the bear soul.
So these people with 100% financing and no savings are planning to go $40+ in debt on credit cards, with negative appreciation staring them in the face. Hel-lo, bankruptcy court. LOL.
Bear soup for the Soul.
When their ARMs adjust, and Heloc’s are going up, and they can’t make their payments, and now have a non-recourse loan, they are going to be eating some bear pie!
…or maybe dumb-bull pie!!! hahahah
The lenders are definitely hosing the mortgagors in the mouth!
This comment
“…reaching into 40 percent to 50 percent of households within five to 10 years. Currently, about one-fourth of households use home equity lines of credit or loans, he said.”
Linked to “Many applicants, she said, are financially stressed and need to rein in credit card and other debt.”
about says it all. Selling out your long-term security for short-term wants is a fool’s game…and the foreclosure rates in SoCal sure bear this out. The endgame is huge debt service, where all an ‘owner’ can do is make the minimum payment. Gee, trading one credit card for a even bigger one. Idiots.
‘I think it’s a temporary setback,’ he said of the decline.”
It’s just a flesh wound……………….. come back, I can still bite you!
10-year setback is temporary , if one has the financial backing to weather this hurricane. Unfortunately very few Californians who had purchased home(s) in the past several years using I/O loans have this luxury.
“10-year setback is temporary,…”
Methinks history will prove you wrong. Do you have any basis whatever to make this statement, or are you just claiming that this cycle will end the same way as all others since 1945, despite the apparent fact that the speculative runup was the greatest in US history?
> Do you have any basis whatever to make this statement, or are you just claiming that this cycle will end the same way as all others since 1945
Past experiences seem to be sufficient basis to me to believe that claim. A secular bear market in housing for 30 years is another possibility due to demographics, but it seems less likely to me.
> despite the apparent fact that the speculative runup was the greatest in US history?
The great runup indicate a large falldown in the coming years, not a low level forever, except in certein areas due to structural reasons (will Detroit or Buffalo ever come back again?).
Regards,
Peter
This too shall pass.
Despite the drop, more than 27,000 homeowners in the eight-county area borrowed nearly $2.5 billion against their home values from January through April.
I think (a guess) that a fair percentage of those withdrew “equity” (got more loan) for basic operational costs (mortgage, prop tax, food, gas). I personally believe that the problem is larger, deeper and more tenuous than the experts surmise.
I suspect that many of those 27,000 households will exhaust this “more credit”, then promptly hit a brick wall financially at 200 mph.
Why would 27,000 households cannibalize their homes if they were able to afford what they have?
I reminds me of corporations which shut down stores by the hundreds to reduce their financial bloodletting. They cannibalize their revenue stream to try to reduce operational expenses in a desperate attempt to stay afloat. Difference is that John Q. Homeowner can’t float bonds, goto wall street or discuss a merger / equity stake with their neighbour.
I agree with your assessment that these borrowers were taking on additional debt in an effort keep their homes. Appreciation is still going strong in some areas of SoCal, including Riverside. Yet, foreclosures are up big time, even in these still appreciating areas. The FBs are trying to hold on as long as they can, and will borrow as much as the lenders are willing to loan them in their attempts to keep their homes. But this won’t last, as evidenced by the rising foreclosures (up 60%). Granted foreclosures were very low before, but they are coming back up to more normal numbers while the economy is OK (not great, but not a recession yet).
As prices continue to flatten and drop, the MEW will dry up and the foreclosures will continue to rise. This will put additional downward price pressure on homes. So, for those economists who say that prices can’t drop without significant unemployment, they are wrong. I think that unemployment will rise in the not-to-distant future, and that will just reinforce the vicious (for FBs) cycle.
It’s been hard to be patient for the last several years waiting for this to unfold. But, I’ve got to say that I’m very encouraged by the turn of events of the last month or so. I can see that there is light at the end of the tunnel, and it’s not too far away. So, I’ll continue saving my money for a downpayment for my first home, and be able to buy at a price that is reasonable.
I agree with you. My friends have been making fun of me for not buying for so long that I want to see a crash.
Wait until people start taking loans against their 401ks and pension plans trying to keep their houses. Unfortunately there will be a lot of net worth poured down this hole before it ends.
Days of buying with monopoly money are over. Really, how many of these FBs really ever expected to be able to afford and ,heaven forbid, consider paying off a $750K loan. This was all totally insane. These chumps were clipping coupons fot 25 cents off on a loaf of bread but signing up for a $800K mortgage like it was nothing.
Payback time.
Boggles the mind doesn’t it? 750k, just repeat that number a few times and you realize that it’s three quarters of a million. I personally would never feel comfortable buying a home that is much more than 3x my annual gross income. Under such circumstances, I would have to be making around 200k to really be able to afford a 750k home. How many people make 200k even in California? People make more California, but not that much more. And the thing is 750k doesn’t buy much in any decent area.
It seems somewhere along the line a common sense test would have been applied by people. “Wait a second here, we’re buying a 750k house and our household income is 100k (median income with both spouses working), I just don’t think this is going to work.”
I’m not sure if all the doctors, lawyers and dentists in the U.S. could all move to California and still buy up all the places listed at 750k and over. What were these places prebubble? 300k? Yep prices will come down, if not enough buyers can buy at price A, price A will lower to price B or not be sold at all. It’s really that simple- high school economics (we had economics at my school).
Lots of kids in California don’t speak english, just like their parents. And some of the schools don’t care, they promote spanish or ebonics, a ghetto language. Hawaii has the same thing with pidgin. They are just developing a slave class.
This is political and not much more. Learning English is considered very important by most immigrants. Kids are better at picking up language, and typically translate for the rest of the family as has historically been the case. The schools care, they just aren’t competent and have no resources and compete with other issues like hunger for attention. The Ebonics stuff is mostly recognizing that there is this other language and reaching out to those who speak it, not the forgiveness that politicos love to imagine is there. A slave class is developing, but this is caused more by apathy and ignorance than malign intent. Your view of America is agendist crap that does not bear up under close inspection.
here here mole man….beat back the ignorant simpletons.
They are just hoping to be the kapos of the future, keep the “lesser” slaves in line.
As long as you aren’t on the bottom you get to delude yourself that you are on top.
Keep in mind that a $750k home in Los Angeles is either pretty far inland, or is an absolute shack. Double your figure and you have a “normal”-sized house in Santa Monica, Venice, South Bay, etc.
“100k (median income with both spouses working)”
I believe the US Census has the California median HOUSEHOLD income at 50k-ish. This makes the 750k house look even nuttier, yes?
Aside from doctors, lawyers, business owners and people in mid-to-upper management, I think the only way a lot of people make anywhere close to six-figure-and-beyond income is to have both the husband and wife working CRAZY hours to afford their lifestyle.
And then, of course, because they work so hard and neglect so much of what is really important, they feel entitled to “treat” themselves (to a car, a cruise, a remodel) for all their sacrifices. It’s really a painfully-obvious, vicious cycle that’s so hard for me to watch I have to literally bite my tongue at times, when I hear my friends dish.
I’m in my late 20’s and it makes me SO SAD to see my peers BUSTING their butts to afford a cheezy condo they paid $500k to own. All I can think about are the “what if’s?”
What if one of them gets laid off?
What if the wife gets pregnant and need to take maternity leave for reduced pay?
What if someone gets really ill or injured? Or they get into a situation where disaster happens and they’re underinsured?
I can see it all over their faces, the stress and toil of trying to hold it together for just ONE MORE MONTH without losing everything (or their minds).
My husband and I purposely made the decision to live below our means for the rest of our lives. While our friends have chided us for still renting (the whole “throwing money away thing”) we now have a $20k cash cushion that is totally liquid and earning 5%. We have sworn to NEVER touch this fund unless we have a medical emergency or unexpected layoff. So it should just keep growing if or until (God forbid) we really need it.
Now that the cash cushion is saved, we are saving up for a downpayment. We are hoping to be ready with $$ by 2008 to hopefully buy, but we will continue to rent if the price ridculous-ness has not yet evaporated. I told my husband it is much more important to me that we are happy, healthy and enjoy our time in stress-free bliss - than it is to own the “shelter” where I lay my head at night. Plus, we love to travel, so we need room in our budget for that!
On another note - and this is probably a uniquely female concern - I wonder how many marriages and families will beak apart because of the coming financial stress? IMO, there are devastations ahead beyond the financial for a lot of people. When people feel that accute level of panic, they will want OUT in more ways than one.
ERin - you are wise beyond your years I think. Living below ones means is like compound interest - the longer ya do it, the better it gets.
Yeah, one has greatly sacrificed life options by assuming such debt. You can’t take any chances or risk losing that tenuous hold on financial solvency. Want to start your own business? Too bad… no way you could acept that kind of risk. Want to go back to school, or start a family. Any little mishap throws of the budget. No savings to fall on.
Life will be just walking the tightrope from here to retirement.
Financial reasons are the #1 reported reason for divorce in America.
The BIG THREE things every engaged couple should be in line with before saying “I do” is: finances, family, and religion (in that order).
The U.S. Federal Reserve Bank has implemented 17 quarter-point raises in the so-called Federal Funds Rate since late 2004. The result has been that even initial payments on fixed-rate and adjustable-rate mortgages are considerably higher than they were a couple of years ago.”
“‘They haven’t gotten 18 pay raises,’ said Victoria Johnson, president of the North San Diego County chapter of the California Association of Mortgage Brokers.”
And the blame game continues. Its the Feds fault for raising rates. But we won’t mention the Fed fueling the boom with lots of liquidity and extremely low rates. Comments like this reak of such ignorance.
This is how effed up things have gotten. Even the experts consider it as normal to count home appreciation and equity withdrawal as part of people’s income. Have these people never heard of living within their means? Oh boo hoo hoo, my house ATM is out of cash and I need a refi bad. Idiots.
I predict that this thread will get the highest number of comments to date on this blog.
I don’t think so. We have been struggling to break 150 on most posts.
If you go into the archives there were some 250+ posts.
Jeez, do I really spend that much time here?
I thought the YOY Median price decline in San Diego thread a couple of days ago was going to be a record breaker.
You could make your prediction come true txchick if you just posted a few hundered random thoughts.
Since I’ve been a member that San Diego 1% YOY Decline was the most popular. I think that was the day the bubble officially popped, it will just take some time for the ripples to move out across the country.
I’m waiting for the December 2008 UT Article “San Diego REO listings reach record” or “The Sun has Set on San Diego Real Estate” thrown in a picture of a FB carting around his plasma tv in a shopping cart…
“That’s why (banker) Andrew Mastorakis believes the loans will prevail, even reaching into 40 percent to 50 percent of households within five to 10 years”
I sure wish I had a crystal ball like that! I’m not at all certain what the next year or two will bring much less 10 years out. Plus I’m a little confused how these loans can prevail if the underlying asset doesn’t(?) short of ever-increasing appraisal fraud.
I agree. You can’t increase your “equity” loan when you have no equity!!
Consider that many people have lots of equity in their homes. These folks can take out a HELOC and use it to consolidate credit card debt and benefit from reduced monthly payments. This especially now that CC’s are forcing minimum payment of at least 1% of the balance plus interest.
I owe $15,000 on a credit card at a 4% fixed rate and my payment is nearly $300 a month. If I transferred that to a HELOC at prime my interest only payment would drop to $100. If my problem is cash flow the answer is to use the HELOC and to hell with the fact that it costs twice as much in interest.
These numbers are actually for a worst case since not many people have CC’s with a prime rate. Usually it’s 15% or more. That makes the HELOC alternative even more attractive.
For many with remaining equity it’s all about monthly payments and the HELOC will look very attractive.
…with the added bonus of now having freed up credit on those CCs, just in time for the sale at Nordstroms!
The problem I see with the re-fi situation is as follows: Most people bought houses they really couldn’t afford the last few years. Affordability numbers prove this beyond doubt. Therefore, the only way for these people to remain solvent (sort of) is to make all essential purchases on the CC’s because that crushing mortgage takes up to 70% of disposable income in some cases. The idea being that they simply re-fi every 6 months or so, pay of CC’s, and restart the cycle all over again.
Some have called it the house ATM and I don’t disagree, but there is a larger group that uses CC’s just to live. Obviously, this only works in an enviornment of ever-increasing asset values and ever-declining interest rates. Otherwise, as nnvmtgbrkr has pointed out, the FB will sacrifice a good 1st mortgage rate and REALLY be a FB.
There’s really only one outcome for FB’s in this situation and that is BK or some other flavor of insolvency. The long-term solution is simple though: MUCH lower house prices solves all of these problems, as the high house price was the cause of the original problem in the first place.
I know your typical mortgage is a non-recourse loan, and he HELOC is a recourse loan, but it you get a HELOC, does he whole mortgage change to a recourse loan, or just the HELOC part of it, or is there any difference? Thx.
SF Mechanist:
I think that it varies by state. In California, only the HELOC is recourse (it does not make the original mortgage recourse). The problem a lot of folks are going to run into, though, is that only a purchase-money loan on a 1-4 unit residential property qualifies as non-recourse. So, if people re-finance, then their new loan is no longer purchase money, and it is now recourse. The only saving grace for them is that in California a lender must choose how it wants to foreclose (judicial foreclosure or non-judicial foreclosure - i.e., power of sale in the deed of trust). If it chooses the non-judicial foreclosure option (which is much faster - generally around 120 days), it cannot get a deficiency judgment (which, in essence, makes the loan non-recourse). The lender can only get a deficiency judgment (assuming the loan is recourse) if it chooses the judicial foreclosure option (much longer - approximately one year - and much more expensive as the lender has to fork over attorneys fees to process the case and has to get an expert witness to value the property; it can usually recover these fees as part of its deficiency judgment). This is rather cursory, and there are certain exceptions, but hopefully that gives you an idea of the process in California.
That clarifies a lot… thank you WaitinginOC!
“Despite the drop, more than 27,000 homeowners in the eight-county area borrowed nearly $2.5 billion against their home values from January through April. Mortgage strategist Angela Talent said she has received more, not fewer, requests for home equity loans in recent months. Many applicants, she said, are financially stressed and need to rein in credit card and other debt.”
Is that not $92,000 per house? I’m sure some of these loans are being used to pay off credit cards, but I’m sure alot of money is being used on cars, boats, campers, plasma TVs, vacations, etc.- the type of consumption that has propped up the economy.
I fear what will happen to the economy when the easy money dries up.
When I first calculated the $92,000/household I thought that might be a misprint. Wowsa. $92,000 per household is some serious shekels. And its floating debt.
That is just an insane amount of consumption. How bad at math are these people. Financial literacy/understand need to be improved in the general population.
You gotta love our public education system!
Ain’t the system - it’s the culture (read: lack of good parenting)
Japanese kids are lectured to by teachers (ala college professors) since 1st grade. No babying. No song and dance to motivate. No dog and pony show to keep attention. Yet they learn. They kick the snot out of our kids in math and science. EVERY child learns (and most learn relatively well) geometry & intermediate algebra by the end of 9th grade. By LECTURES. Here is how it works: teacher walks in, students stand and bow in unison, teacher talks with back to class for 50 minutes, students write, students stand and bow again, teacher leaves, kids take test, scores humiliate those of American kids. If you see a 9th grader at that level in San Diego, you’re likely looking at the future valedictorian.
You don’t need “better trained teachers” for learning to take place. You need desire to learn. You need a culture of learning at home. You need parents who care.
YOU can learn from a book. Unfortunately, your CHILD cannot. Who’s to blame for this? It begins well before they ever hit a classroom.
Whether or not YOU or your CHILD learns in school or life is completely up to YOU.
Hardly any Nobel Prizes ever go to Japan because the kids learn from this and other treatments obedience and going along with the crowd. Responsibility is important, but giving up on American adventurism entirely would be a huge mistake. Imagine if all the crazy inventors and industrialists who built this nation thought only of humbleness and savings–we would be nothing!
So is your argument that lax American public schools produce Nobel Prize winners? I don’t think so.
Some important points:
1. Japan is ethnically nearly 100% Japanese, with the peak of their IQ bell curve at around 104 (vs. 100 for caucasian Americans). So on average their inborn intelligence level is higher. I suspect that because they have been relatively isolated genetically for at least 1500 years, their gene pool is relatively less diverse than that of mainland Eurasia, making their bell curve less broad — a standard deviation just slightly less than that of the caucasian American curve, combined with the smaller population and the nearly zero rate of immigration by foreign-born intellectuals, easily explains the dearth of Nobel prize winners (but this is just reasoning from first principles — I know of no direct experimental evidence to this effect).
2. Much of the learning in Japan takes place in the for-profit after-hours (“juku” schools.
3. Japanese students spend about 60 days more a year in school.
4. Although relatively egalitarian through the 9th grade, the school system in Japan is thereafter highly stratified and limits entrance to high schools through competitive entrance examinations. Rather than attending a neighborhood school, students travel long distances by public transportation to attend the best high school they can get into. Parents of students who can’t get into a public high school at the level they aspire to must send them to private schools. The classroom atmosphere in a mediocre private school differs enormously from that in a high-ranking public school — while the teacher lectures, the kids at the back of the class pay no attention, sleep, and pass notes (nowadays probably text-message each other on their cellphones), etc.; if they learn enough to pass the course, it’s because they learned it after school in a juku.
Despite the much higher scores of Japanese students on standardized international tests, if you compare the objective standards of living of Americans and Japanese of equal innate ability, the American living standard is higher.
It reminds me of a person who is in a hole and keep digging, digging and digging.
Crux of the problem is that most people can not say NO to themselves and want instantaneous gratifications and on top of that they have no financial descipline. I agree with previous posts, it is much worse and will get much worse.
Let’s spend our way to prosperity!!
Unfortunately this is a metaphor for the entire US economy. Now that we’ve farmed out the bulk of our manufacturing base, as well as our R&D and tech services sectors, we’ve got a bunch of low paying service jobs, illegal alien underclass for manual labor, and financial services. Oh yeah, I almost forgot - we’ve got a bunch of Realtors!
Seriously though, without tons of asset inflation the peeps would have figured out long ago that this whole globalization thingy was a bill of goods sold to them by a corrupt government/corporate complex and will only lead to a reduction in standard of living and a shrinking middle class. End Rant.
Don’t forget the red hot San Diego tourism sector!
Exactly. The giant sucking sound the lunatic Ross Perot was clammering about in the early ’90s. If it came from some person other than a nut case it might have gotten some attention. Even his latest company is into outsourcing up to its eyeballs. Goes to show - Just because something you do is gonna kill you, doesn’t ultimately mean you won’t do it.
Perot was wrong actually. He was talking specifically about NAFTA leading to a large loss of jobs to Mexico. It didn’t happen, because China is much more competitive in manufcturing, and India more competitive in services, even through they don’t have free trade agreements with the US.
China doesn’t have a free trade agreement with the U.S.? Hmmm… Do they have at least freer trade than they had in 1993?
Seriously though, without tons of asset inflation the peeps would have figured out long ago that this whole globalization thingy was
a bill of goods sold to them by a corrupt government/corporate complexinevitable and will only lead to a reduction in standard of living and a shrinking middle class.Fixed that for ya.
Being anti-globalization (for job reasons) is no different than being anti-immigration (for job reasons). And in the long-term just as pointless.
Toll– your post reminds me (once again) about the first chapter from “Snow Crash”, arguably the greatest non-sci-fi sci-fi book ever written.
I quote:
“Why is the Deliverator so equipped? Because people rely on him. He is a roll model. This is America. People do whatever the f— they feel like doing, you got a problem with that? Because they have a right to. And because they have guns and no one can f—ing stop them. As a result, this country has one of the worst economies in the world. When it gets down to it–talking trade balances here– once we’ve brain-drained all our technology into other countries, once things have evened out, they’re making cars in Bolivia and microwave ovens in Tadzhikistan and selling them here– once our edge in natural resources has been made irrelevant by giant Hong Kong ships and dirigibles that can ship North Dakota all the way to New Zealand for a nickel– once the Invisible Hand has taken all those historical inequities and smeared them out into a broad global layer of what a Pakistani brickmaker would consider to be prosperity– y’know what? There’s only four things we do better than anyone else:
music
movies
microcode (software)
high-speed pizza delivery”
Movies and microcode are increasingly being done overseas, and I’m not sure being a musician in the MP3 era is a great business plan either. But if we can build an economy on flipping condos to each other, why not flipping pizzas? At least you can eat pizzas.
“That’s why (banker) Andrew Mastorakis believes the loans will prevail, even reaching into 40 percent to 50 percent of households within five to 10 years. Currently, about one-fourth of households use home equity lines of credit or loans, he said. ‘I think it’s a temporary setback,’ he said of the decline.”
Predator.
How exactly will HELOCs work when people start realizing they have negative equity in their homes? Lenders’ll start blaming the appraisers who’ll blame the realtors who’ll blame the Fed who’ll blame the consumer - who’s not used to being accountable for their actions.
Re car loans - article in NY Post yesterday : RepoMania - it’s the increasing cost of gas that is pushing record number of new car buyers into repoland!. It’s Exxon’s fault that I have $100 in the bank but I can’t afford my $60,000 Beamer. No it’s those Arabs that are to blame.
Sorry for the link, but for some reason I was reminded of this Steve Martin Skit.
http://danwho.net/mp/index.php?id=snl_dontbuystuff
Seems to fit the way people are borrowing and spending.
That’s a great piece. (We had it on this blog many times though.)
So awesome! That sketch is too funny and appropriate. When was this on the air?
Hey maybe GMAC and Exxon could team up start offering some kind of HEL-secured prepaid gas cards or something? Whatya think?
Apologies if this has already been posted:
http://bigpicture.typepad.com/comments/2006/07/interest_only_m.html
OMG - that chart says it all. CA is in for a financial clobbering like no one has ever witnessed.
They great thing about that link is that there are commentors from outside the bubble-blogs, and you can see how they’re still coming up with excuses why IO/ARMs aren’t bad. The credit bubble outside the housing bubble will come to end with standard tightening. All those fantasizing and endless stream of credit deserve exactly what’s coming to them.
There are also a large number of comentators over there who are making the housing bear case, and it’s interesting to read their arguments as well. Nothing you don’t know if you read this blog, but presented differently since they do not seem to be the same folks that you all know (and love) from here. Worth a scan.
Dear God, Atlanta is the highest on the map at 32%. Worse than Naples or anywhere in California! Georgia is in for some serious hurt.
Check Ben’s Foreclosure report, Atlanta is represented many times.
OCBear
Barry is great. I was going to comment there earlier but this is a better spot. Squint at the map. The 5 swaths of credit insanity are:
San Andreas Fault
Tornado Alley
Hurricane Alley
New Madrid Fault
Nor-easter Storm Track
Toll is geting hammered today. Which economist was it that said that when Toll drops below $20 it will mark the housing bubble as being burst? Well, we’re getting close.
LOL. Yes, TOL is getting hammered daily. Nice to see.
How many headlines have we now seen on this blog containing the phrase “temporary setback”?
I personally view the entire housing bubble as a temporary setback, soon to be corrected.
Just a little anecdotal evidence of the beginning of the mood shift here in OC. There is a company called “Out of BK” that has been running radio ads here for several months. However, I noticed that in their newest ad, they included a comment about “home prices dropping.” That was never part of their ad before. The more that the info gets out about home prices dropping, the quicker the herd mentality will change. While I find the company’s ads annoying, at least now they are doing some good by talking about falling prices.
(It’s Exxon’s fault that I have $100 in the bank but I can’t afford my $60,000 Beamer. )
Only if you are a Democrat. If your are a Republican, it’s the environmentalists fault. Otherwise, we could all use an unlimited amount of energy at a cheap price with no consequences. Our leaders told us this.
ROFL!
That is way too true!
Americans are whiners. I wonder if this is how it was at the end of the Roman Empire, or the British Empire? Did the populace become so enamored with themselves that they felt they deserved everything immediately without any work?
Did they too lose all personal culpability and responsibility?
We have rapidly become some of the whiniest, laziest, stupidest populace on the planet. Our downfall is all but assured. we might as well keep dumbing ourselves down, so that in the end we’re too stupid to realize the downfall.
oops, already happening… where did that M3 go again? I mean… what’s an M3? I mean… uh… duh. (I lose the ability for spoken language as snot drivels down my face, too bad I’m too stupid and lazy to remove it)
clouseau
You forgot ‘fat’. Us americans are also fat. Maybe with all the BK coming people will have less money to spend on food and get in better shape.
Good healthy food is expensive. Top Roman is cheap.
Actually, at a university that I used to work at in Texas, one of the history faculty pointed out to me that there is an awful lot of parallels between the US and the fall of the Spanish empire (unfortunately, he has never published this, so I cannot give you a reference). Like us, they outsourced all their production and became a center of luxury services. This is part of what led to their financial collapse.
like the spanish in the 16th century, conspicous consumption and too much unearned money (from housing wealth) and wars and inflationary currency…hmm I hope we don’t go the way of Spain, but fortunately we have the Chinese to help float our currency at least
The Spanish had something which is impossible in our time - inflation under a gold standard! This is because of the huge amount of gold which they stole from the Aztecs and Incas and brought back to Spain. So Cortes and Pizzaro were the Greenspans of their day.
well said.
OT Breaking News:
The July index from the National Association of Home Builders just came out. This is the index that measures current sales, buyer traffic and expectations for future market activity. All components plunged AGAIN. At 39, the index has now taken out its lows from the 94-95 rate hiking cycle, and is at the lowest level since December 1991 — more than 14 years ago. Ugly. Ugly. Ugly. And remember, this is a JULY number, so it’s very up to date.
san diego price “dip” makes yahoo marquee
Bob McCormick was on KNX 1070 (SoCal Radio) this morning talking this precise subject and quoting these numbers. He is also now claiming to have predicted this six months ago. I must have missed that show… or it only aired in his mind.
Everybody predicted it 6 months ago…Liareah will be saying that soon, too. Just like the tech bubble guys all swear to this day that they predicted the NAS collapse.
Actually Bob is big shill for real estate industry. He always gave air time to RE agents and preface any of his remarks on RE saying ” nothing has happened as bears were predicting for last three years ….”
Yes he was. But.
Clearly you were not listening to his show this AM. From what I heard on my five minute commute, he has turned away from the dark side.
Of course, I could be cynical and call him an opportunist. But maybe he had some revelation with his latte this morning.
OT…
ECONOMIC REPORT
Home builders index falls to 15-year low
By Rex Nutting, MarketWatch
Last Update: 1:16 PM ET Jul 18, 2006
http://www.marketwatch.com/news/story/story.aspx?guid=%7BDB6583B8-0609-41C2-8600-EB4E26E5545B%7D
You know what bothers me more than anything about all this loose money? My neighbor keeps pulling more and more money out of her house to doll it up like an Architectural Digest cover home, and then bothers me on a daily basis to paint the exterior of my home, fix the stucco that’s chipping off, landscape it better, etc., all to raise HER home value so she can keep getting it appraised for higher and higher values to keep the process going.
Tell her she’s welcome to do any of the improvements herself with her money as long as you approve the changes.
My neighboors - young couple - just repainted their 3 year old home - with the same color. 3000 sq ft single story. Cost…. $8,000 - FOOLS !!!
Thats probably because the builder built it so cheap, that they didnt use a primer and only put on 1 coat to save them money.
You know what bothers me more than anything about all this loose money? My neighbor keeps pulling more and more money out of her house to doll it up like an Architectural Digest cover home, and then bothers me on a daily basis to paint the exterior of my home, fix the stucco that’s chipping off, landscape it better, etc., all to raise HER home value so she can keep getting it appraised for higher and higher values to keep the process going.
Does anybody care to comment about the fact, that for all intents and purposes, homebuilder stocks are essentially crashing. If it were tech stocks, news stories would be flowing everywhere.
QUIT
LOOKING
BEHIND
THE
CURTAIN!
Ignore the current repricementation which is in a temporarily permanent plateauing negative appreciation curve.
It will be short lived as now is the best time to buy homebuilder stocks. It may, in fact, be the last time you’re ever able to buy them again. If you don’t buy them now, you’ll be priced out forever.
clouseau
Is it true that they’re not making them any more?
Too funny.
Class, pure class.
The homebuilding stocks tend to be leading indicators of the economy in general. Pretty interesting that no one has talked about the shellacking.
Um, it’s tech stocks too! However, I don’t think the “experts” realize the deep profundity that a housing crash will have on the rest of the stock market though. Time will tell.
Unless this crash is dramaitcally more deep and severe than the ‘90-’94 RE downturn & RTC bailout, I don’t see a lot of historic evidence from that period that would indicate a stock market meltdown. Tell me if I’m missing something.
I’ve been reading Mises’ Human Action lately, and he often makes the point that in economics, history is at best an interesting curiosity any not a reliable indicator of anything. And forecasting is forecasting. What matters in economics is the “right now.”
So one might guess equity markets, including stocks, are in more trouble than usual right now because of the ease of credit availability used to build them, recent consumer reliance on credit to make purchases and sustain businesses, and fraudulent accounting practices prevalent throughout the industry, which might not have been as true in times past.
But given that so much important data is concealed by industry it is impossible to speak with certainty, and Mises repeatedly also make the point that the future is *never* certain.
NAHB
Builders Survey Plunges
By Tony Crescenzi
RealMoney.com Contributor
7/18/2006 1:24 PM EDT
URL: http://www.thestreet.com/p/rmoney/tcrescenziblog/10297498.html
Further reason for the Fed to pause at its Aug. 8 FOMC meeting was just delivered by the National Association of Home Builders, which released its monthly Housing Market Index for July. The index fell to 39 from 42 in June to its lowest level since December 1991, a walloping decline from a year ago when it stood at 70.
The decline highlights one of the key risks to the economy, which the Federal Reserve has recognized recently in its policy statements. This weakening of the housing sector, combined with other data suggesting a weakening in the U.S. economy, provide ample justification for a Fed pause.
Is the housing market as bad as these data suggest?
A few weeks ago Jim Cramer touted WCI as a great buy at 19.50 after a steep selloff. The stock fell a buck and the few days later he mumbles about 18-19 , the stock’s a great buy. As I write this it just traded down to 15.25. This guy needs to get off the air.
Cramer is an idiot. He is a perma-bull who looks good when things are going up. HB”S TANKING TODAY!!!
Truly a horrendous call. 6/12/06. Cramer says WCI bottoming, the stock will go no lower. Stock at $20. http://tinyurl.com/h82fr
July 18, 2006 - WCI currently at $15.60.
You could fill a book with calls like that made by Cramer!
And does he always need to shout? That guy drives me bonkers, and even when there might be someone/something else interesting on the same show, I have to switch it off when they get to that howling, screaming madman.
C’mon, anybody who makes important investment descisions based on someone as manifestly idiotic as Cramer deserves anything they get.
Tech definitely in a correction, but wouldn’t call it a crash yet. Homebuilders are crashing by any metric you chose to look at!
This willingness to pile on extra dept is why I believe Christmas 2006 will be ok.
Note: I expect fewer “luxury package” vacations. (Good luck renting out that vacation home this Winter Holiday season.)
People won’t want to disapoint the kiddies either.
Maybe “big ticket” items will hurt (Plasma screens? Fancy cars?).
But in 2007, those debt payments will be on everyone’s mind…
Neil
Well, one of my former co-workers that I still keep in touch with has HELOC’d himself up to the full value of his house over the years. What did they do with it? Home improvements, bought a modest car and take a 2 week vacation to the south pacific every christmas. They are nice folks, but I fear they are screwed.
Oh yeah, Christmas 06? Back to the South Pacific!
November housing tax installment may put a big Kibosh on Xmas spending for many.
Good point… As a renter I forgot about that.
That’s ‘cuz you’re paying it on the installment plan.
Please keep that in mind at the next election when the pols ask you to vote for “bridge to nowhere” bonds.
the dataquick numbers for SoCal are out, sales down 17.5% in June (they were down 11.7% the previous month). That puts June sales at a seven year low, that’s June 1999 people (I think I’ll put on some Prince). Median price ticked up, but the 6% increase was the smallest since may 2000.
Here’s the LA Times article.
Home Prices Struggle to New High
June figures reflect the most sluggish pace in more than six years as Southern California sales tumble.
http://tinyurl.com/g6t3f
In Bubbleworld the so called “Peter principle works beautifully”. How is it a guy like imbecile like Jim Cramer have a top rated show on stock picking. Any analyst worth his salt would know that a low price/earnings ratio on a cyclical stock group like homebuilders is not a buy signal. To the contrary, a low p/e signals that the prime earning season(s) for the group is at or near the end!!
You didn’t read his book. He emphatically states exactly what you just said in exactly the same tone. As much as I’m entertained by Cramer, his value is showing you where to look and to make your own decisions, even though his interpretations and picks can be way off sometimes. And besides that, besides Buffet and Soros, do you know anyone any better pickers than Cramer?
Remember that DataQuick reports (often cited in newspaper articles) generally use year-over-year data on median home prices.
YOY data show trends, not current activity.
look at the 1:30 sales volume of toll stock today. some one dumped a pot load of toll stock. the price is plunging the last 2 days
Take a look at the % institutional ownership of some of the HB stocks sometime - it’s large, very large.
Sitting in Santa Barbara county now…30% I/O! So many immigrants and illegals here with 4th grade educations, they don’t stand a chance. Knew something was off when I saw tiny little Mexican/Indian women crusing in Tahoes, but DAMN!
Yeah I was a little surprised too, guess I started believing the propaganda that everyone here must be part of the martini-sipping elite. So it seems like a good number are just wannabes.
Or the help.
Just remember that with paper money the “Dollar” can be made to depreciate faster than houses.
I’m not a housing bull by any means, but it still remains to be seen whether money in the bank will outperform housing. The odds seem good, but the game isn’t over yet.
I’m hedging my bets, I own a house with a modest fixed rate mortgage and have money in the bank. I don’t know how this will play out, but I doubt most of us will be happy with the final results. Every one of those HELOCd folks gets to vote at least once.
If the dollar does depreciate, money in the bank will not be a good idea. Home prices may stay high in nominal terms but we could have a situtation where prices for everything else, home energy, food bills, gas, etc could double or triple in cost. Then where the hell are we?
Not possible. Everything else triples because inflation is out of control. Inflation out of control would cause interest rates to skyrocket. Interest rates skyrocketing destroy the ability to borrow. Home prices drop.
Home prices drop in either a recessionary or an inflationary scenario.
Inflation is out of control IMHO. Not radically, but probably running close to 6-7%, not this bogus 2.4% the gov’t claims. The public has fallen for the Fed proganda so deep theyre not willing to look at what reality is telling them. Next year will likely add higher food costs into the mix and people will start to get the picture.
So I don’t think the FED has the nerve to raise rates because if they did they would have already. They will try to keep nominal prices high for as long as they can. The basement printing presses will continue to run. They will ultimately fail though because at some point overleveraged borrowers will be forced to sell.
I firmly believe nominal home prices will fall, but i also believe the Fed will do whatever it can to maintain the ILLUSION of prosperity as long as it can. In essence the Fed is fighting for its own life, because it isn’t hard to imagine that in the not to distant future, central banking disappears. It was a failed experiment!!
And UNCONSTITIONAL, i might add…
> In essence the Fed is fighting for its own life, because it isn’t hard to imagine that in the not to distant future, central banking disappears. It was a failed experiment!!
I assume that the FED will keep some value of the dollar, because otherwise it would loose all its power. If, however, the FED fails in this and slides to the status of the Argentinian central bank, then other central banks will take over, the Japanese and Chinese e.g. are already now the US’ biggest foreign creditors. Don’t expect them to abolish their central banks only because the FED failed - the word is larger than you seem to presume. Such development would mean a big loss of wealth for Americans, because their dollars wouldn’t be hoarded anymore by foreign owners who give the US in this way essentially a free credit.
Theres an article from the WSJ that someone put up in our breakroom. Talks about prices falling. If someone could find it with a WSJ subscription.
Erm, don’t see it. Date, headline?
“‘They haven’t gotten 18 pay raises,’ said Victoria Johnson, president of the North San Diego County chapter of the California Association of Mortgage Brokers.””
Actually, that’s next. That how inflation happens. It’s a lagging effect.
Wow. If houses have been selling at 30,000 per month in So Cal, and for the last year prices haven’t risen enough to cover the purchase costs, that makes about 360,000 households who are going to be in the hole and virtually bankrupt in a few months. And that number will double, triple and quadruple as the values drop below what they paid for them.
This is not recession stuff, it’s a depression.
I’m off to buy Krugerands.