‘The Downturn Is Here’ For California
The Press Enterprise has this update from California. “Inland home builders accustomed to years of unfettered growth are reassessing their expansion plans, slowing construction, discarding options to buy new land and trying to unload lots they already own. They are also making a major push with sales incentives to eliminate their current backlog.”
“‘The downturn is here. I don’t know what kind of landing it is. But it is a downturn for sure,’ said Gary Teeters, owner of Coldwell Banker Kivett-Teeters, who has seen sales drop by 38 percent in the past year at his real-estate offices in Hemet, Beaumont, Yucaipa, Highland and Rancho Cucamonga.”
“Javier Valencia, a cabinet installer, said he was taken by surprise recently when his employer in Chino, laid him off. ‘I didn’t see it coming,’ Valencia said. The cabinet manufacturer let go 20 people, or about 10 percent of the company’s work force.”
“‘A lot of builders got very badly burned in the early 1990s when they were building on speculation and the market turned very rapidly and they were stuck with half-finished housing tracts. Now they are trying to be more sensitive to the whims of the market,’ said Jack Kyser, chief economist for the Los Angeles County Economic Development Corp.”
“Land brokers say that when home sales in the spring failed to rebound from the typical winter lull, builders started listing land for sale, something unheard of when land was quickly being converted to subdivisions.”
“‘Six months ago it was very difficult to find lots to purchase,’ said Craig Atkins, CEO of a land broker based in Irvine with offices in the Coachella Valley and Victorville. But he said now there are hundreds of lots for sale, discounted an average of 15 percent from last year’s prices.”
“Major public home builders have quietly begun to dismiss employees. Among the first to downsize in the Inland Empire was KB Home, which this year laid off 39 employees in the region, or about 10 percent of its staff. ‘Virtually all the big builders are cutting back head count. All are cutting costs and the easiest thing to cut unfortunately are people,’ said analyst Stephen East.”
“Fewer home sales means less business for mortgage, escrow and realty companies, many of which had opened or expanded during the boom years. Escrow companies have been paring staff and work hours, said Irene Genders, manager of Ontario and San Bernardino offices and the president of the California Escrow Association, an industry education organization.”
“During the peak home sales activity, escrow officers worked seven days a week and into the evening, she said. ‘We are getting weekends off now,’ she said. ‘Overtime will be nonexistent.’”
The LA Times. “Investors bailed out of stocks of mortgage companies catering to high-risk borrowers Friday, a day after an Irvine lender reported higher default rates. Some analysts say the selling wave could foreshadow more trouble for the industry.”
“H&R Block Inc., parent of Option One Mortgage Corp. in Irvine, said late Thursday that it would take a $102-million charge when it reports earnings next week. H&R said it was being forced to buy back Option One loans from big investors.”
“As home prices shot up in recent years, the industry turned to riskier loans to keep business going. With housing now slowing sharply, mortgage companies have been firing thousands of employees and putting themselves up for sale.”
“Option One caters to riskier borrowers who must pay higher interest rates and fees because their credit is flawed or their income and equity levels aren’t high enough. The company and other so-called sub-prime lenders transfer the risks by selling loans or mortgage-backed securities to other firms and investors. But if the loans quickly fall into default, or if they have been misrepresented to borrowers or investors, the originators can be forced to repurchase them.”
“Several sub-prime lenders in addition to Option One have reported having to repurchase higher quantities of loans, Friedman, Billings, Ramsey Group Inc. analyst Scott Valentin noted in a recent report.”
“H&R’s statement indicated problems of another kind: borrowers failing to make even the first few payments. In addition to ‘an increase in early-payment delinquencies,’ it said loan buyers were becoming less tolerant of problems and quicker to demand repayment when something goes amiss, noted analyst Kelly Flynn at financial services firm UBS.”
“Many mortgage lenders, including Countrywide Financial Corp. and Seattle-based Washington Mutual Inc., have announced cuts in recent months to save money. The sub-prime industry is also consolidating.”
Thanks to the reader who sent in this link. This comment was included:
‘In much of the Inland Empire, housing IS the economy. Note the comment in the article on housing lot prices going down.’
“H&R said it was being forced to buy back Option One loans from big investors.”
This is only the begining. Pretty soon these “big investors” will have no choice but to take losses. Did anyone say $1,000,000,000,000 worth of ARMs will reset next year?
So the great global pool of liquidity begins to dry up.
The critical factor here is whether the originators of the loans and the secondary market buyers finally get a clue and start to jack up the interest rates to accurately reflect the risk.
Unfortunately, we live in a political environment where profit is privatized and risk is socialized.
Guess who gets the bill?
As I love to repost: borrow a few trillion and it becomes OUR [taxpayer's] problem.
Sigh.
I don’t understand what you mean by this. Aren’t the oompanies that repackage mortgages into MBS and resell them to investors private companies? How does the taxpayer get included among individuals at risk, especially when high level government officials have made public statements to repudiate the urban legend that Fannie Mae has a government guarantee of its debt?
But when the mortgages defaults hit in the trillions (or near one trillion), the politicians will come out of the wood work with “we need to do something (i.e., fleece the taxpayers).”
9/11 and Katrina fleecing will be small potatoes compared to the coming RE bailouts, in my opinion.
“Did anyone say $1,000,000,000,000 worth of ARMs will reset next year?”
I was under the impression that roughly $2.6T will reset in 2007. Of that, I’m not sure how much of this is high risk 100%-IO v. HELOC where family equity is at risk. It’ll be painful to watch as yet more of the middleclass dies away, slowly.
Warren Buffett owns a pretty big chunk of H&R through Berkshire Hathaway. Wonder if he saw this one coming. He’s also been adding to his position in Wells Fargo which has a lot of exposure to CA real estate loans. Either he knows something the rest of the world doesn’t (which given his track record could be likely) or even the big boys have underestimated the fallout. Time will tell.
I cant understand Buffet on Wells Fargo or American Standard… He must know something I dont because I have puts on both of them!
Historically Buffett has made some of his biggest killings by buying into solid companies in trouble, and being prepared to wait many years for the recovery. And he’s a very big fan of ‘household names’.
I have a book written in the 1970’s, when Buffett was virtually unknown, which has half a chapter on him. It talks a bit about when he was a private money manager (I.e. pre-Berkshire Hathaway), and bought into American Express and collected about an 8-fer over 10 years.
- 1 “Option One caters to riskier borrowers
- 2 who must pay higher interest rates and fees
- 3 because their credit is flawed
- 4 or their income and equity levels aren’t high enough.
Four Strikes And You Are OUT!!
The Inland Empire is Toast. The majority of home buyers out there are not qualified to buy without the suicide loan. My co worker put a deposit down for a new home out there over a year ago. When it was time to close escrow the builder switched loans to ARM from the agreed to fixed. Mercifully, he walked from the deposit.
If the terms changed he should have been able to keep the deposit.
We refer to it as Last Option One. This past week I know I talked to an Option One FB who is on their way to losing their home.
What’s a FB? I’ve been trying to figure this out for some time now. I did a search in google. The only thing I thought might fit is: “Fart Burner”?
Go to google, search for “f borrower”.
A fixed loan is much more valuable than an ARM (in the secondary market). It makes no sense for a lender to sell an ARM if a fixed will get the customer in the house. What am I missing?
A fixed rate loan is a commodity, and the price is readily known. For originaotors selling the loans, they can make much more money from ARMs by increasing the margins, rate caps, adding a prepayment penalty. None of this is readily apparent to the borrower because the initial rate and payment stay the same. Later on, the borrower becomes aware of these items. For example, I recently saw an OptionARM loan (made Dec 05) where the rate was adjusting monthly and was at almost 8% becasue of a unfarily large margin. The broker made about 2 extra points on this loan becaues of the excess margin.
I used to do apprasials for Opt 1, The underwriters were brutal on the reports. They still funded the loan, I don’t want anyone to get confused, they always gave me the line. “We need this or that for are file so we feel comfortable”. Well don’t fund the loan. I came close a couple of times but bit my tounge and provided the additional work with no compansation. All sub-prime lenders sould be looked into by the regulating agencies but lets go easy on the appraisers (please)
Red Sox are done.
only 75,000 more until 11/23/06 T Day in about 3 months to hit 1 million
mid may was 799,000
6/10/06 was 836,471
6/14/06 was 840,935
6/17/06 was 846,120
6/20/06 was 850,317
6/22/06 was 855,892
6/24/06 was 860,647
6/29/06 was 866,037
7/01/06 was 858,675
7/09/06 was 870,854
7/11/06 was 882,239
7/13/06 was 886,055
7/14/06 was 890,896
7/18/06 was 895,022
7/21/06 was 900,000
7/25/06 was 905,170
7/28/06 was 910,001
8/01/06 was 903,718
8/12/06 was 915,336
8/19/06 was 920,755
8/26/06 today 925,176
http://www.ziprealty.com/maps/index.jsp?usage=search&cKey=74rbwvlk
Going into Fall with this much inventory is just nightmarish.
Also, I noticed the inventory growth on ZIP was slowing there for a bit, but seems to have picked up again in the last week with all the bad news.
nightmarish??
its a wonderful thing …. so much to choose and prices to still take a nose dive,…..
The only “nightmarish” thing today is the idea of taking on 30 years of pain by purchasing a house today from someone who made A HUGE MISTAKE and would like YOU to rescue them.
The numbers are way past 1mil, zip only includes numbers for the below metro areas. NY and HI are not even on the list!
Arizona
Phoenix and Surrounding Areas
California
Northern
Southern
Florida
Miami/Ft. Lauderdale
Orlando
Tampa
Georgia
Atlanta and Surrounding Areas
Illinois
Chicago and Surrounding Areas
Massachusetts
Boston and Surrounding Areas
Maryland
Baltimore and Surrounding Areas
Minnesota
Minneapolis/St. Paul and Surrounding Areas
Nevada
Las Vegas and Surrounding Areas
Texas
Austin and Surrounding Areas
Dallas and Surrounding Areas
Fort Worth and Surrounding Areas
Houston and Surrounding Areas
Virginia
Northern Virginia
Washington
Seattle and Surrounding Areas
Washington D.C. Area
DC, Virg
That inventory level is truly mind numbing………..and it keeps building
Forget zip’s extremely unrepresentative figure. The NAR just reported used-home inventory at somewhere north of 3.5 million. Check out the Housing Inventory slide on David Lereah’s own powerpoint presentation “Reality Check,” which you can get right here:
http://www.realtor.org/Research.nsf/pages/presentations_use?OpenDocument
I used to work in Option One’s loan sales department a year and half ago, trust me this is probably going to get a lot worse - I couldn’t believe some of crumby loans we were originating - not to mention the insane terms we agreed to when the loans were sold on the secondary market. They were funding $100M every business day when I was there. I’m amazed this little $102M sting hit the stock hard, considering there is so much farther to fall.
My wife and both worked there. She was in collections and I was in internal audit. My job was to audit the loan files for bait and switch and predatory lending violations from the wholesale brokers. H&R block knew that Option One was risky, but they never fully understood how risky. They neve listened to me, so now they get what they deserve. H&R is a fraudulent co anyway. I am tax manager now for a CPA firm and whenever I see a tax return from them, it is always poorly done. They make most of their money from the Refund Anticipation Loans, which are at a usury rate, which is supposedly illegal in most states but not enforced.
Jackson-Hewitt even more than H&R operates essentially as a cash advance operation. They also make tons of dough off figuring the earned income credit and child tax care credit which the IRS will of course figure for you anyway. BTW, people talk about minimum wage not increasing - there has actually been a big increase in the minimum wage, and from a policy standpoint it makes more economic sense than interfering directly in the labor market - it’s called the EIC and the Child Tax Credit.
The EIC is indeed a massive cash infusion from the US treasury dept into the pockets of below poverty level folks during tax filing season. I would estimate that each household/family who takes the EIC gets back on average between $1500 and 3000 each year.
Downturn = back to 6% YoY, right?
Back to? I thought normal yoy was more like 3 or 4%? At least that’s what it *used* to be.
BayQT~
price 1-2% over inflation. Thats around 4%
Cool. Thanks. Then I was about right. 6% is too high.
BayQT~
You’re assuming inflation is only 4%.
the shi*t is hitting the fan from all direction and the economic odor will stink up american.
here is an anecdote close to home. my friend bought two homes in arizona last year. he worked day and night to fix up one home and recently sold. he took a hit of more than 20K, not accounting for his labor. he still has the other house to sell. poor guy.
More BS from the article
Abnormal Trend
Most economists contend the housing market is simply returning to “normal” from the abnormally frenzied pace of the past several years. Because the Inland economy remains strong, they say, the downturn will not be as severe as during the 1990s, when a real-estate depression was triggered by job losses at the end of the Cold War.
Unemployment in the Inland region is the lowest it has been in several decades, so those who lose jobs in real estate are likely to be rehired, said Inland economist John Husing.
For instance, construction workers no longer needed to build houses could build commercial buildings and public projects or become warehouse workers and truck drivers, he said.
- Everything is fine in the Inland Empire. These unemployed workers will become warehouse workers and truck drivers!!!
Here are a few more choice career opportunities:
- Walmart greeter
- Fastfood cashier
- Tollbooth collector
- Bathroom attendant
- Honeydipper
- Poultry plant worker
And my pick, because of the potential for long term employment:
Bill Collector
Any others?
Toll Collector is a great job. Last I heard, $20/hour to start, typical senior collector makes $80K/year including modest overtime, fabulous benefits including non-contributory pension. (Golden Gate Bridge).
Yeah, great.
Fabulous benefits, including free Brain Numbing and Ass Widening, and all the Carbon Monoxide you can eat!
You forgot. Sign Twirler - plenty of opportunities - every for sale sign is an opportunity for a Sign Twirler… I wonder if there are any publically traded sign twirler companies. Thats where the money is…
Just remember - “normal” means 2001 prices.
If you look at a 100 year chart adjusted for inflation, house size and build quality, “normal” was last seen in 1996.
The best way to determine what the price of any house should be is to go back to 1996 (precisely how far back Zillow goes) and assume 4% increase up to now. THAT is what the house should sell for. And 4% is “generous”.
Examples (based on 4% appreciation schedule):
100K in 1996 worth 148K 2006.
150K in 1996 worth 222K 2006.
200K in 1996 worth 296K 2006.
250K in 1996 worth 370K 2006.
300K in 1996 worth 444K 2006.
350K in 1996 worth 518K 2006.
400K in 1996 worth 592K 2006.
450K in 1996 worth 666K 2006. (yikes, bad number)
500K in 1996 worth 740K 2006.
Use this as a realistic pricing guide but start your asking prices based on a 3% increase schedule and you won’t go wrong.
Given that some places have see house prices double or triple since 1996 you can see just how INSANE prices became.
Do NOT support insanity. 4% per year is very fair. Pay no more than that.
The above numbers prove that price corrections of up to 70% will be what it takes to get back to “normal” in the more bubbly areas.
Seattle Moose-
If I remember correctly, you’re not from Seattle originally. So here’s an FYI:
In 1996, homes in the most desirable area of the Ravenna neighborhood were 150 -180K. Now on the market for @ 800K.
Seattle’s best neighborhoods have a ways to fall if they’re going to get in line with the 4% appreciation schedule.
It would be a dream come true if buyers actually held out, or were forced to hold out through loan tightening, for that return to 220-250 K on those homes.
I don’t doubt that the insanely overpriced median home price of today won’t drop back into its true economic worth over time - after all, capitalism works. The only problem is that we might not see this 70% drop in real dollars, but rather a very stagnant or slowly declining market with little turnover for a decade or more…
This would be bad news for those of us who refuse to grossly overpay… I guess we’ll just have to rent for the next decade…
“Everything is fine in the Inland Empire. These unemployed workers will become warehouse workers and truck drivers!!!”
All they have to do is paying $3000.00 to go to class A truck driving school, and pass all state,federal requirements, which are fairly rigorius, to obatin a class A license for driving an 80′ freightliner. Anyhow, most trucking companies want experienced class A drivers. They do thorough background checks as well. i wonder how many of those recent immigrant(green card, illegal, or whatnot) construction workers can get a class A truck driving job. Most would not make it past the prelimnary screening interview.
They might get to drive a boxtruck, bobtail or stakebed, which often do not require a class A or B but again companies want experienced operators. At the very least 1-2 years. Most of these construction labors probably are not very literate and could not read the thomas guide. They might be able to do local simple hauling jobs, hauling autoparts,ect but these jobs pay very cheap.
Warehouse jobs are plentiful all over LA/IE but pay averages $9.00-10.00/hr for forklifters, packagers, simple assembly work. Warehouse operators run very tight as far as keeping labor costs down and pay as littel as they can get away with, while maximizing productivity. The pay for lower-level warehouse jobs will of course be just barely over the state minimun wage, since these tpye of jobs require little or no experience. HA! Ha! that would be a shock for construction workers used to making $15-30/hr to work in a warehouse for just over minimun wage. Welcome to the new SCal diversified economy!
John Husing is a complete Moron!
The NAFTA exclusion on Mexican trucks is in the process of being negotiated out of existence. Trucking jobs will soon be gone.
I’m wondering if Wachovia’s acquisition of GoldenWest may be derailed as the bad news from Calif. keeps trickling out. There must be some sweaty brows on both sides of that one…
Finally….. It seems like it has taken forever for the idiots to get a clue! I even noticed that an overpriced POS condo near me in Valencia has went back on the market. For about 2 wks it had a ’sale pending’ sign on it, today the sign was removed (Ave Scott & McBean). Couldn’t the borrower qualify for a suicide loan?? Hilarious! Maybe the lenders are starting to get a clue! Batten down the hatches this is going to be rough!!! I can’t wait!!!
larenter,
I am renting a townhouse in Valencia Creekside (corner of McBean and Newhall Ranch). Tons of open houses, there is even a house in Bridgeport that’s been for sale for about a year. Beazer Homes’ Montage development in Santa Clarita is offering to pay your mortgage for six months - as long as you put down ~40% of the $720,000 sale price. Yup, as if people have ~$300K sitting in the bank.
Valencia is drinking the kool-aid.
I used to teach drums there. One of the parents brags about how her house made her rich. She re-fied with a suicide loan, paying for her kids college. Says the nrighbor across the street just sold way below comps, but “it’s ok, it was a divorce, they had to sell.”
Guess what, that is the new comp!
“Guess what, that is the new comp!”
Absolutely! And her comment showed exactly how stupid and clueless she is. Her house made her rich? Her house is about to make her poor in a minute.
BayQT~
A realtor who has been in the market 20 years in Santa Clarita told my husband last week that we should be able to easily get a 2500 sq. ft. house in Bridgeport for in the $500,000’s within the next few years. Now they are selling for $800k and up. Who knows maybe we could get one in the $400,000’s??? No where to go but down!!
Neil?
I rent in Creekside in the KB (Kracker Box) disaster. Do you want to meet at Panera and then go to some open houses on Sunday?
Sounds interesting!! What time?
Was looking on realtor.com this morning. Asking price for 2078 Roscomare in zip 90077 is $995K. The house was purchased in 2004 for $1.2M according to zillow. Ouch.
I’ve been keeping track of the Westside as well since I work at UCLA. That house is bank-owned. Still, it should lower the comps.
“Several sub-prime lenders in addition to Option One have reported having to repurchase higher quantities of loans, Friedman, Billings, Ramsey Group Inc. analyst Scott Valentin noted in a recent report.”
OK, so where are these originators going to get the capital to buy back more of these loans? By selling the ones they have already bought back? No way, because they will have to either resell those at a loss or capitalize and hold them. Seems to me their only choice will be to sell out or go under. And who will buy a company that loses money on every buyback but is obligated to keep buying?
It’s as if Webvan had signed long-term contracts to deliver groceries to the public at a loss - for the next 20 years.
Surely they only have to buy back the most recent ones - those that are still in the seasoning period?
Regards,
Loafer
I don’t know - how long is the seasoning period, if any? Is there any any obligation after that? it seems that the buyers/repackagers would have protected themselves for as long as possible.
The issue will be the fraud in the loan files. What generally happens is that if borrowers default within the first 12 months or so, then the lender has to buy back the loan. But sometimes this opens up an investigation by either the investors, FHA, FHLMC, FNMA etc. What FHA would do is to go out to the residence and question the borrowers as to why they defualted so early. The investigator will verify paystubs, etc. Since the borrowers are afraid of either going to jail or being deported, they will usually “sing like a canary”. Usually the loan officer “persuaded” them to add extra income (paystubs), etc. so they could “qualify”. In the case of FHA, then the investigator will pull all the loans from that lender and/or loan officer, find a pattern of defaults and/or fraud, and everybody will be going to jail.
So there is a possibility that as this gets ugly, there will be some ramifications. However, the higher up they are on the totem pole (say executive level), the less likely they are to have an issue because those people can deny they knew that the lending guidelines were not being adhered to. An example would be the leaders of most S&L’s taken over by the RTC. Very few were ever convicted, even though they engineered the whole fiasco by paying appraisers to sign off on very exagerrated feasability studies on new home developments and new condo developments, etc. That time it was due to deregulation of the S&L’s (they had to have lower reserves vs. deposits loaned out). And this time the loan defaults are due to very low underwriting standards, loan fraud and the Federal Reserve purposely turning a blind eye to the whole thing.
We shoudl realize that most of the subprime stuff is sold to the secondary market and is privately insured, so there may not be any sort of investigation. I dont know what will happen in those cases. But for Alt-A type paper (FNMA, FHLMC) and FHA loans, there will be investigations because those entities have to “bail out” the lenders and eat the loans. Especially if those loans should have been sub-prime.
I don’t care if a company has to buy back loans ,(they should have to buy them back ). If your underwriting is so bad and your loan agents are such crooks that your borrowers can’t even make the first few payments than you deserve what you get .If you micky up a loan your a creep . I really question loans in which not one payment was made . It reeks of foul play.
“Seems to me their only choice will be to sell out or go under.”
Actually, the best way to survive this goat-f*** is to IPO Option One and take what they can get from those stupid enough to buy. It is sinking ship and will take the whole company with it if they don’t do something soon.
“But if … loans … have been misrepresented to borrowers or investors …”
There will be a TON of litigation on this issue in the years to come. Equity investors thinking banks are safe from defaults ’cause they offloaded their loans to other markets, are in for a big surprise.
the BIG question that i have for this board is WHERE are these bad loans going to go. the mortgage reits and players like option one are not capitalized enough to cover the coming losses (well neither are fannie or freddie), alot will fall on the warehouse lenders, but the mbs buyers are not real estate servicers, so WHO will the tidal wave of defaulted flow to? any ideas.
No one on this board has ever been able to answer this question convincingly.
Well, let’s see…
After the S&L Debacle in the 80’s, the FSLIC was officially broke. It was propped up with huge infusions of taxpayer money ($15bil in 1986 and $10.75bil in 1987) and STILL got shut down.
This monster RE SCAM is many, many times worse.
Garsh, I wonder who will pay for this mess?
Maybe Chuck Keating? Neil Bush?
I know — Bruce Karatz!
Note to Sheeple: I do not think you will be enjoying the REAPING quite as much as the SOWING. But don’t worry: our FEARLESS LEADERS will find a way out of this…
http://tinyurl.com/qactp
oh. well, never mind, then.
Would it be unfair to point out that it’s not our problem on this board to answer that question?
I, for one, am pleased to point out that it’s not my problem unless the debacle is nationalized, in which case it’s everyone’s problem. We (those of us on this board) should simply make sure that is doesn’t become our problem, either through political action, or whatever means become necessary.
This is why I’m reading up on currency trading. Political action is off topic on this blog, and I don’t think it would be effective anyway. So I’m looking for shelter offshore. But it’s hard to find shelter from the storm we all see coming.
Unfortunately, for everyone on this blog, the Housing bubble was facilitated by Fannie Mae and Freddie Mac, the two government sponsored agencies that has guaranteed trillions of dollars in “dud” loans. The American taxpayer is already on the hook for trillions. Profits have been privatized, and costs have been socialized to the taxpayer.
And the answer is….
Hedge Funds.
Other posters are right that the mechanics are dealt with by trustee companies and servicers, but the loss is down to the holder of the securities and this is the space in which Hedge Funds “play”.
Regards,
Loafer
it used to be that mortgages were insured be Re, one of Warren Buffet’s companies or some other insurance company like PMI. Now they sell mortgage derivative paper. You have to google and search but from what i remember you pay someone to take on the risk of default. if no one defaults you paid money for nothing. if people default then the paper holder pays you.
google things like mortgage derivatives and hedge funds since they bought up a lot of this stuff. forgot exactly how it works.
like all derivatives it hasn’t been tested and next year we will see exactly how it’s going to work. for all the bubble talk, this year is just a reversion to the mean and not a bubble popping. if we are really in a bubble and it will really pop then watch for fireworks starting around may 2007. give or take a few months. reason for may is that march is when the homebuying starts so around may or june the first payments are due and this is when the first mortgage resets should shock people.
p.s.
reason banks are going derivative rather than regular insurance is it’s cheaper. this is why the spread between the 10 year t-bill and 30 year fixed mortgage is so thin.
last big derivative meltdown was around 15 years ago. 1998 we had LTCM, but that was avoided.
and we aren’t seeing a bubble popping yet. this is just spoiled people complaining that they can’t sell in a week when the average is months. even NYC is 4 months on average and now people are panicking that they can’t sell in a month.
if this thing pops like I think it will you will have people begging to buy their home.
“the BIG question that i have for this board is WHERE are these bad loans going to go. the mortgage reits and players like option one are not capitalized enough to cover the coming losses (well neither are fannie or freddie), alot will fall on the warehouse lenders, but the mbs buyers are not real estate servicers, so WHO will the tidal wave of defaulted flow to? any ideas.”
When loans are packaged into a security, the owner retains the servicing or sells it to another “servicer.” Servicers are large companies that also usually originate loans such as Countrywide and large banks. Loan servicing is the collecting of payments and passing through the yield and principal to the seccurity owners. It is also making sure taxes are paid, and taking care of the foreclosure process.
When a loan goes bad, the servicer determines the best action such as a short sale, or foreclosure. When the house is ultimately sold, the servicer passes throught the proceeds to the security owner. At this time if the proceeds are less than the amount owed, the security owner takes his loss.
As a just former 10-year resident of the IE, I can’t believe what I have seen. When we bought you couldn’t pay people to live out there. But ever so slowly it started. Now you can’t seem to keep the people away. Anyhow with what I saw in the last 1-3 years, I will predict a heavy fall for those. My brother in law and his wife who bought our house are so happy that their home increased 10K in the 5 months sense they bought. Yeah, but that is assuming someone will buy it and you can hold on to the loan. Considering the loan he is I could only smile when he told me he wants to put a pool in for 25K. All the time I am thinking, Are you ever going to pay for this house, or are you going to leave it to the kids to pay off. He tells me about how he is going to pay off this loan, this from a guy who put little down and has HELOCitis. I know these aren’t the only families in trouble. Just before we sold and got out, my neighbor’s wife had to start working again to keep the house economy in order and my other neighbor wanted to sell because the upkeep was killing him with all the overtime he was working. BTW, his wife was working too. Don’t get me wrong, I am not against working women. However, when both work and one is working massive OT, and the HELOC is dried up, there is no more wiggle room. The IE is like this all over the place. It is going to get ugly. Either that, or there will be a lot of angry people just working and communting the rest of their lives to pay off the house and then hope some greater fool comes along to pay for their retirement home in 40 years. Good luck. That is real sound retirement advice. How about a savings plan. Ever hear of one? How about less time in the car or at work. Ever hear of quality of life? Sorry for the rant, but I am sick of the spend, debt, spend more, more debt, spend everything, go bankrupt mentality that has afflicted out country for so long. Anyway, the IE is going to look like a war zone when it is all said and done.
Those poor idiots who used HELOCs!! I bet they don’t know the difference between recourse and non-recourse loans! They should read the bankruptcy law passed last year for an education! They will have collectors running after them for years!! No more just “walking away” baby! Even on Cavuto this morning (I can’t stand him, but i still watch) the older man on the show mentioned that in California they will be “mailing the keys back to the bank”! All the other panelists on the show made fun of him of course, but I remember a couple months ago when they were pushing real estate! You can’t trust anyone!!
Read this on another board…. keys mailed back to the bank is called jingle mail.
Coming soon to a neighborhood near you….
OUTSTANDING … JINGLE MAIL FOR CHRISTMAS!
“Anyway, the IE is going to look like a war zone when it is all said and done”
It will certainly look worse than it did 10 years ago. I cannot believe what people are paying to live in Fontana or Corona. Insanity.
Fontana is called ‘Fon-tucky’ … as in hillbillys from Ken-tuck.
This is why everyone loves coastal Californian so much. Everything east of the coastal mountains is hillbilly? Give me a break. Well Minnesota was the only state that did not fall for Reagan’s schtick and look at the SAT scores coming out of the upper midwest and compare those to Cali.
Coastal California’s self-satisfied stupidity (Forget the smog, traffic and crime!, Anaheim is going to go up from $700k to 1M!! everywhere else is full of inbred hillbillies!!) is one of the factors fueling this bubble in half the U.S. right now. Californians (and Floridians,Beltway types, and New Yorkers) are not looking too smart these days.
Come on, Fester. We’re just paying up as best we can. $35K per year for private school. Thank God our kids are on their own now. Number one son and wife are pulling in about $160K combined now (both in their late twenties). Too bad they wouldn’t take my advice to stay the fsck out of real estate, cuz they’re gonna take a bath.
Oh, well, the old man is an idiot, until he isn’t.
Heh.
“Coastal California’s self-satisfied stupidity (Forget the smog, traffic and crime!, Anaheim is going to go up from $700k to 1M!! everywhere else is full of inbred hillbillies!!) is one of the factors fueling this bubble in half the U.S. right now. Californians (and Floridians,Beltway types, and New Yorkers) are not looking too smart these days.”
REPORT FROM ANAHEIM, CA:
I was out in Anaheim on statecollege blvd a couple miles north of Anaheim stadium. this corner and this part of Anaheim is what I call a transition zone, where A large influx of recent Hispanic immigrants(including illegals) is intruding into a neighborhood which is /or was, a formerly middle class, mostly white neighborhood.
Anaheim is a fairly large city so it is hard to generalize but There appears to be a trend toward Hispanization throughout the older central and western areas of the city, and in the lower industral zones . This process not as far along as in most of LA : the middle class long time residents haven’t fled en mass AS OF YET, but the process is inexorable. We all know what has occured in Santa Ana, which has become a run-down illegal immigrant ghetto in large parts of the city.
There is however EAST ANAHEIM, which starts just past the 57 fwy and runs eastward following the 91 fwy all way into the Santa Ana canyon and hills, which is an area of $700,000 and up homes. This part of Anahein, called ANAHEIM HILLS, is more like the south OC. So there are two Anaheims, each with distinct sharp class and income levels.
To get back to the first anaheim, I was on corner of ball and State college and was walking thru a small strip mall when i noticed the Sahara Club. No signs, no indication of what type of club but I knew it was a strip club. This was in a decent middle class(though heavily infiltrated by recent immigration)neighborhood section of anaheim in a regular CORNER STRIP MALL. This indicates how fast this part of Anaheim was degenerating, perhaps in process of turning into another Santa Ana.
Sure, we all do what we can do. I sure can see how folks would love the coast. Not for me though, never has been. Hate all that good weather….. Home is just what it is-a personal thing, and folks east of I-5 aren’t the only ones with brow ridges and hairy palms.
OT, but your comment made me think. Many folks here in Oregon seem to be into home schooling, but our public schools are excellent. I just don’t think I am qualified to do it myself. Is that (HS) a big thing down there, or is it private school?
Intruding? nice.
How does the discussion around here always go like this:
A) House prices are too high, don’t you agree?
B) Why yes I do. Additionally, I hate Mexicans.
A) Well played sir. I too hate Mexicans.
This crap never ceases to amaze me.
then:
B) I especcialy hate them Mexican Republikans. Their the wurst.
a) Your right of course their just as bad I also hate when you have a Mexican REpublikan TEACHER. Its all they’re fault for people (not me of coures) being stupid.
Sadly.. true. Lots of xenophobia is wrapped up in this bubble thing. think the conversation would go…
“… I do. Additionally I *fear* Mexicans.”
Actually all those mega housing tracts frontier, lennar threw up in the hi-desert outland regions of Victorville,Adelanto,ect is where the fun begins. Has anyone been out to victorville? Talk about section 8 , innor LA city folks moving out here. This area will resemble a scene right out of a Kirt-Russel post acopalyptic flick, with mean-tattoed LA Gang expatriates lurking in the ruins.
The only sector which will prosper out in the IE hi-desert will be Government Social Services/welfare handout agencies.
Man Victorville is mind-blowing. That mall, the houses, the boarded up buildings in Adelanto. Some people refuse to see the obvious. Then there’s the traffic. There is an amazing amount of traffic on Bear Valley Road (or whatever the cutoff for Lucerne is).
I’ve driven thru Paldale and Lancaster and the traffic is equally nuts out there as well. The thing is, where do they drive to! i am not talking about the long distance commuters but the local traffic. There is nothing in these outback boonie towns but shopping centers, tracts homes, and more shopping centers. I am convinced that the hot desert temps and desert bordom drives these folks nuts and they have to get in their cars and drive around in aimless little trips to the corner strip mall.
I worked with a guy who bought a new house in Adelanto in ‘04. Two weeks after moving in, they discovered they had a major pipe leak in the walls of the house. Eventually flooded one of the downstairs rooms. The backlog for fixing these types of problems was so large, it took the builder over a month to fix it before they could move back in to the house. Two weeks later, they had a similar leak in another part of the house. It’s bad enough to have to live in Adelanto, but add to it the fact they live in a POS and it makes you wonder what that area has in store.
“My brother in law and his wife who bought our house…”
Dude, you ripped off your sister?
That’s what I was thinking….ha, ha, ha.
The way that’s written I think it’s more likely the OCDan’s wife ripped off her brother.
The rising cost of gas and the increasing traffic jams are another reason the IE will tank. There is really no local economy except housing.
The area will not be a magnet for high paying jobs anytime soon since the education level is quite low. The only jobs are in housing/real estate, warehousing, and cars/motorsports. It’s the stereotypical American exurb. “Talladega Nights” is a good analogy for what people in the IE call “success”.
Hey, don’t they require a forklift license or something to work in the warehouses? That’s kinda like education. And it’s different there. SoCal is built out. Fontana is attracting baby boomer retirees. Rubidoux and Yucaipa are developer’s dreams. And don’t forget Colton… The revenue from billboard advertising has got to be huge. They aren’t making any more airspace for billboards. All those eyeballs driving past on their commute or on the way to the Morongo casino tower have got to be worth something.
The IE does not even have a single hi-tech park anywhere. No Areo-defense, no bio-tech, nada. Only these humongous behemoth warehouses which truck in all the imported crap coming from China and retruck them out again. The average warehouse job pays slightly over the minimum wage, and requires littel or no experience. how’s that for providing a hi-paying jobs sector to support the IE median(and soon to be dropping)$400,000 IE SFH prices.
All those overbuilt mega-home tracts put up by Lennar, frontier, ect out in the IE will soon be half-emptied tracts, inhabited by section 8 lowlife. Foreclosed abandoned, weedstrewn lots will be a common sight, and be prepared for a post-apocalytic wasteland,”road warrior” experience.
Most of the people that I know (former co-workers most of them) that moved to the IE now commute back into the OC for decent jobs everyday. The 91 and 15 freeways are now bumper to bumper all day long. It takes one acquaintence 3 hours to get to work everyday, when, without traffic, it would be maybe 25 minutes. Imagine that - 5 hours a day at least sitting in traffic. I’d rather rent for the rest of my life than go through that. Most of them would too - I just saw an SUV out in the IE with a sticker of a cartoon kid peeing on a 91 freeway sign.
Wow, wow, wow!!! What a week this has been. Everything is heading down at the same time. Fannie is supposed to give their report late this year…. is this when all hell breaks loose?
Did you notice that they’re quietly reporting layoffs, reduced houses etc? Everything is peachy…. well it is if your head has been in the sand for the last few years.
I watched Oprah the other day and it was on the middle class… stating we are so materialistic…. that we consume more than we take in. Will the level headed be punished for this? I sure hope not.
Maybe the level headed only get a few more months of eating cat food before starvation
That’s my fear.
“Land brokers say that when home sales in the spring failed to rebound from the typical winter lull, builders started listing land for sale, something unheard of when land was quickly being converted to subdivisions.”
“‘Six months ago it was very difficult to find lots to purchase,’ said Craig Atkins, CEO of a land broker based in Irvine with offices in the Coachella Valley and Victorville. But he said now there are hundreds of lots for sale, discounted an average of 15 percent from last year’s prices.”
But, they are not making any more land anymore.
So the argument goes….
I think most here will enjoy the way Peter Schiff tells it like it is in his latest editorial…
http://financialsense.com/fsu/editorials/schiff/2006/0825.html
Good quote from the article:
“The real estate market will not land soft or hard, it will crash and burn. Those who did not have the foresight to bail out may be faced with a distinct shortage of parachutes.”
Good article, but I have my doubts about Gold due to a lack of experience. I’d feel safer investing in a high-end collectable stainless steel handgun, and keeping it stored away in an unused state. At least if things turn ugly, the handgun has intrinsic value.
Oh the denial! IE absolutely depends on construction and warehouse jobs. The part in the P-E article that mentioned other companies being able to absorb those being laid off while they themselves were also cutting jobs was amusing. Nice logic. Who’s going to want be buying all these houses or able to afford all this remodelling they’re rambling about when the stability of your job is in question?
Not too long ago, I had to endure the lunatic ravings of someone who has to sell out from under a crappy neg am I/O out in the deep IE. No choice. She had stars in her eyes as she mentioned what the house had appraised for “a few months ago” and ideas of asking for even more.
I restrained myself as long as I could.
I finally told her flatly that the market was heading down and that her very old house in great need of repair was going to have to compete with a record number of homes on the market IN ADDITION to the glut of new homes for sale which are already being discounted. I might as well have been speaking Cantonese. She refuses to even see the other 8 houses for sale just on the same street and states that her realtor will brilliantly overcome it all.
Uh huh.
Just casually looking around out there in the IE it’s hard NOT to see that something is very wrong with the market, but few choose to even look.
“She refuses to even see the other 8 houses for sale just on the same street and states that her realtor will brilliantly overcome it all.
Amazing. And does she realize that this same RE agent who will brilliantly overcome it all is probably the same one who got her in the crappy I/O loan that she’s trying to get out from under?
Probably not. Clearly a member of the head-in-sand-thought-she-was-smart-but-really-isn’t group.
BayQT~
Actually BayQT…
The realtor in question DID arrange the brilliant financing.
The smallish house has been equity mined for about $225K.
Yet another proud card carrying member of the head-in-sand-thought-she-was-smart-but-really-isn’t group.
This is a personal story which demonstrates consequences of “Greed & Poor Judgments”. I try to be short and to the point. Me ex-girlfriend who makes $120K did the followings:
- July 2001 bought a SFR in Temecula, CA for $240K.
- Through Dec. 2004 she withdraw $200K from House ATM. Spending money on new Mercedes, new Toyota SUV, expensive vacations, frequent shoppings at Nordstrom/Victoria Secret and frequently going to $500 per visit SPA ( Yes, it is not a typo!), and constant competition with family members & etc.
- Oct. 2005 (despite my advice) she rented her first house and bought another SFR in Murrieta Plus $90K builder’s up-grade, I do not know how much she paid but probably she paid top dollar for it considering the time of purchase.
- After three month of renting, one of her ex-neighbors called her and said “Do you know how many families are living in your house ?!!!). She went and checked to find out that the original renter (a Mexican family) was renting two rooms to two different families and collecting rent. Basically three family with who knows how many kids were living there (house was trashed). She evicted the tenant and spent $10K to clean the house. Put the house in market 7 month ago with asking price of $500K for 1850 sq-ft house. I told her that she was asking too much but did not listen to me. Price is reduced to $450K and if she really wants to sell IMO she should reduce the price to $380K. But she can not do it because the House ATM is on red.
Bottom line is that she is in big trouble, paying two mortgages and already up-side down.
Through out the time that I was dating her, She was ridiculing and laughing at me that why I do not up-grade my house, why do I save and etc. Guess who is laughing now.
T
hey wawawa -
Don’t be to hard on the girl. A girl has to feel good about herself.
I hope the sex was good because her personality leaves much to be desired. Sounds like real catch alright.
She has two kids (two strikes against her) and she is good looking but was terrible in bed (third strike).
LMAO!
Two trophies and she sucked in the sack? Wonder how she won those?
The mind-boggling thing to me is the not so much the behavior, it’s the $120K. How could such an idiot be worth $120K to anybody, except other idiots? Where I come from the only people making $120K are long-time management/exec types, salespeople, and the self-employed. OK, so what was she selling? Bet she’s not making $120k now since it’s hard to sell when you can’t sleep at night.
Her annual income is $120K, she is a doctor.
Well that explains it, you can’t tell doctors anything. They already know it all.
Where’s this at, becasue I never want to go to this “doctor”…
Actually, she’s going to be quite a catch, if she AND her kids learn the lesson and lower their expectations. I wouldn’t mind a sugar-momma, if she compensated me enough for raising her “trophies”. My goodness, that term is new to me, but oh so delicious.
the only good thing is she shopped at victoria secret.the rest she really blew the money.
That is so common here in the Temecula area. I can’t believe the number of lifted new 4wd trucks, BMWs, Mercedes, etc. running around here. You would think that everyone in the are makes over $100k per year and has access to a trust fund. When I moved here in 97, the area was very middle class, with most people living within their means.
I have a good friend who’s wife is an anesthetician and he is an IT guy for and aerospace company. Their combined income is over $400K per year, and yet and his wife both drive Toyota Corollas. They spend their money on things that mater to them, and don’t worry about keeping up appearances. It’s good to have friends like that since they help you keep things in perspective.
gotta love it. One of the ads on the side of the blog was for…..OptionOne. YES you too can become a mortgage broker. Click here for application. HAHAHAHHA.
How bad is the larceny of subprime loans when some of the people can’t even make the initial payments? What happens then? If this winds up in the taxpayer’s lap, it’s like asking us to cover loan sharks - where is organized crime when you need it? Someone needs to break a few kneecaps; the regulators are asleep at the switch.
I figure it is flippers who are closing with 100% financing to get their deposit back, and then taking a hike.
Still ANOTHER Housing Bubble article in the NYTimes!
Ben — it may be necessary to change the name of this blog to the Housing Bust rather than the Housing Bubble. “Bubble” is so, so, so 2005!
NYTimes
Read Between All Those For-Sale Signs
By DAVID LEONHARDT and VIKAS BAJAJ
Published: August 27, 2006
REAL bubbles pop. They are fully formed one moment and gone the next. Financial bubbles rarely meet with such a definitive end, which has always been the biggest problem with the metaphor. They let out their air in unpredictable bursts, and it’s usually impossible to figure out whether they have finished deflating or are just starting to.
I think this is the interim stage; some areas are passing into the bust and others are still in the bubble. Hopefully next year most or all areas will be entering into the bust stage, and then maybe this can be The Housing Bust Blog.
But as I say Bubble Blog and Bust Blog I am afraid that Bust Blog just doesn’t have the same ring to it and it is harder to say.
Bust Blog sounds like a breast-fetish site…
Vikas used to be with the Dallas Morning Snooze business section. He used to call me about another matter I was involved in. I’m sure he’ll enjoy seeing the Dallas bust too. And there IS one in progress, no doubt.
Came back to CA. Driving down Tassajara Bl (in Dublin) to the 580. For sale signs all the way down in the rural part of this drive (about 8 miles). Still building houses all over the place in the East Bay. It is a blood bath waiting to happen. So many of these new homes just a few feet away from the freeways. Gotta love that constant truck noise on a hot summer day. But, enjoy your $1M payment on a now worth $250K house.
Same is true with in across the bridge and southbay ….Palo Alto to Gilroy 2x inventory over last year and days to sell skyrocketing…
Sales are down… new construction in once restricted areas…
still dumb buyers committing to 500K on POS condo and $1M on SFH
More construction going on in SF city
Employment is flat… mear 4.5% increase in headcount but most is in other states or China/India
“He tells me about how he is going to pay off this loan, this from a guy who put little down and has HELOCitis.”
It’s sort of like listening to an morbidly obese person with a bad smoker’s cough talking about retirement planning.
“The downturn in the US housing market will force businesses to slash 73,000 jobs a month in the new year”
http://www.buzzle.com/editorials/8-26-2006-106701.asp
Great article… thanks for sharing. Totally agree with most on the site.
For the last 5 or so years, I wondered how all of my co-workers were buying new cars, new homes, fancy vacations, etc here in the Bay area. I was making the same amount of money, and the numbers didn’t work for me. Stayed renting, driving older car, living frugally, etc. Got made fun of because didn’t buy into the bubble. Now, thanks to Ben, it is clear they were HELOC’ing etc. Now, I have escaped the clutches of a horrible employers (won’t mention name, but big co) that made me miserable, moved to NM which is much more family friendly than Bay area, have savings, will get paid for a long time by said horrible company, and figured out how to make good money on the internet from home. Still living frugally, but have the nice house for a fraction of what Bay area would be, time to enjoy things, no commute, beautiful mountains to look at and go into. Will have no sympathy for those HELOCed to death in the Bay area in a depreciating tomb of their own making. And said employer is now firing lots of people who are up to their neck in fecal matter debt. Thanks Ben, for the education and support that I wasn’t a lone lunatic in the Bay area.
What about people like me? In 1998 at age 32 my wife and I bought a house in Columbus for $120K with a fixed 30 year mortgage and plan to live in this house for the rest of my life. I have no idea what the house is worth and don’t care what other houses are worth. My neighborhood has parks, school, library, supermarket etc. within walking distance. Commute to work is 4 miles, an annoyingly long 17 minutes during rush hour. I don’t understand this whole housing bubble thing, but my mortgage payment is less than a lot of people pay to rent condo-style apartments in Columbus. Why don’t people just buy a house they want to live in and then stay there. Thats what everyone did when I was growing up.
What about people like me? In 1998
No effect on you. Your not in a bubble hot region…
You wont be effected by the price declines. so why worry…
George,
I think a lot of people are like you until they lose a job; get a great new job opportunity; get sick or injured; want to move out of a changing neighborhood; a new highway comes through; your house get hit by a natural disaster (fire, mudslide, hurricane, flood, etc.); need a bigger house for more kids or when mom needs to move back it; downsize to a more manageable house when the kids move out; (should I go on?)…
Life is not always as simple as we would like it to be.
Enjoy you situation, and consider yourself fortunate.
George,
Sorry, but I forgot a major reason people sell homes - divorce.
The need to sell homes is not always something we can control.
Again, you are fortunate…
“Why don’t people just buy a house they want to live in and then stay there. Thats what everyone did when I was growing up.”
Globalism and a huge trade deficit has trashed stability for many folks.
nailed it, rms.
When *I* was growing up, Mom didn’t have to work…
…and Dad only worked One Job! Sounds crazy, I know.
We live off of one income. One parent stays home with the kids, the other works. You don’t need all that material crap to be happy. Happiness is achieved by maximizing the time you AREN’T working. My T.V. is nine years old, both my cars are high mileage, but I haven’t made a car payment since the 1990’s. We’ve never taken a vacation to Disneyland, but we love renting a cabin at the state park with our family. Once you unplug your brain from the materialism treadmill, you will discover true enlightenment. How many people are actually working for their car, or their oversized house, or just to pay their McMansion’s local taxes? I would sell my soul for NONE of those reasons. Less is more, less is happiness. This is obvious.
Less is more, less is happiness. This is obvious.
Yeah, but try explaining that to the bling-bling cubicle monkeys.
‘What about people like me? In 1998 at age 32 my wife and I bought a house in Columbus for $120K with a fixed 30 year mortgage and plan to live in this house for the rest of my life.’
I’m like you and grew up in the Midwest, but now live in California. I just helped my mother sell her 3-bedroom house in a city where there are lots of $55K jobs for $78K. In California, employers can’t get people to stay for $90K jobs in areas where the median house costs $850K. People who are willing to live with such absurd debt levels are like those described by posters here, basically irresponsible. They collect a lot of shiny things and make derisive comments about those of us who live within our means. I think that’s why some of us feel disdain for them. Personally, I feel they are incredibly ignorant and wasteful and want my kids to see another way of living.
Yo, as a long time CA expat,
welcome to NM! This may be
the place to be, as the gulf moisture
has shifted to us from TX.
-Maha
“‘A lot of builders got very badly burned in the early 1990s when they were building on speculation and the market turned very rapidly and they were stuck with half-finished housing tracts.
But we were told builders this time around were well prepared for any kind of downturn and it would not happen.
Oh well…
The builders are fully prepared, like generals, for the last war.
George C, like you, I plan to stay where I am for the rest of my life. I can’t stand moving. Also, close by parks, shopping, activities for children, etc. One end of town to the other - 30 min. From the freeway crossing (I 25 and I 40), drive any direction 20 min and you are out in no mans country. Gotta love that. Try finding that in any CA metro area.
And the news just keeps spreading.
http://observer.guardian.co.uk/business/story/0,,1859024,00.html
The Grim Reaper is going to have a real harvest on the Real Estate Pumpkin Truck for the next few years !