‘The Air Is Now Full Of Talk Of A Bust’
MSNBC has this report on exotic loans. “‘Joe’ is a homeowner who did not want to give his full name for this story because he’s ashamed to admit that he soon won’t be able to afford his monthly mortgage payments. In order to get the $800,000 house he bought early last year in California’s Silicon Valley, Joe got an ‘option ARM.’ The unpaid interest was tacked onto the principal, creating ‘negative amortization.’”
“He initially thought his salary would rise along with his home’s value. But when a lost deal closed the company and ‘For Sale’ signs popped up, and stayed up, in his neighborhood, a now-unemployed Joe is wondering how he will afford those higher payments when his rates adjust.”
“Joe is not an atypical homebuyer in the Bay Area or other now-bursting bubble markets across the country. Nearly half of the homebuyers and thirty percent of people refinancing mortgages in California chose interest-only loans last year.”
“Now these cheap mortgages that fueled the real-estate boom are beginning to hurt the homeowners they once helped. Higher interest rates and the end of honeymoon periods for too-good-to-be-true teaser rates are increasingly causing payment shock for borrowers.”
“‘Nationwide, approximately $400 billion of [home-purchase adjustable-rate mortgages] are scheduled to reset at some point in 2006,’ said Frank Nothaft, chief economist with Freddie Mac. ‘A significant number of homeowners will face some adjustments.’ In fact, the ARMs with scheduled payment increases this year work out to about 5 percent of all single-family debt outstanding in the country now, he said.”
The Wall Street Journal. “Looking back at past housing booms, the first sign of the end is when a goodly share of buyers stop making offers and eventually stop looking, seeming to just disappear. In the spring of 1987, during another U.S. housing-market boom that was starting to lose speed, Nora Moran, president of the Greater Boston real estate board, said ’someone blew a whistle that only dogs and buyers heard.’”
“Across America today, it is as if the whistle has again been blown. Why is this happening so suddenly? The market spoiler was in place some two years ago. At that time, we felt that the spectacular price increases could not be justified. The psychology of that time could not continue indefinitely, and indeed it has not.”
“Talk is part of what changes the mood and actions of buyers, and the air is now full of talk of a bust. The covers of the New Yorker, the Economist, The Wall Street Journal and virtually every news magazine and newspaper in America has heralded the bursting of the ‘housing bubble.’”
“New construction, initiated in response to high home prices, has reached unprecedented levels, and new houses are still hitting the market just as demand is dropping. But the housing construction boom can’t go on forever.”
“Beyond all these factors there is the simple psychology of expectations that is part of any speculative boom. These expectations can turn suddenly when alert home buyers get the sense that something might be amiss. Americans haven’t changed their basic views on housing as a great long-term investment. Not yet, at least. That won’t happen unless there is a protracted housing price decline.”
“Buyers do not want to pay prices that are significantly higher than a year ago. Buyers are waiting and low-balling. Sellers want to get a price increase of the kind they’ve observed in the recent past. The result is that fewer agreements are reached, and sales fall.”
“As always, the future is uncertain. Many of the underpinnings of the boom are still strong, and the soft-landing scenario so widely promoted by economists and industry leaders is a possibility. But that possibility is not enough to give great comfort to all those who worry today about the housing market.”
“Unfortunately, there is significant risk of a very bad period, with slow sales, slim commissions, falling prices, rising default and foreclosures, serious trouble in financial markets, and a possible recession sooner than most of us expected. Deterioration in that intangible housing market psychology is the most uncertain factor in the outlook today. Listen hard and watch out.”
Ben, love the blog. Can we get a way were people can post upcoming media coverage on housing, i.e. if dateline were going to do a special we could all be alerted in advance?
Just pay attention to this blog. Usually any upcoming coverage by any media source fails to escape faithful posters on this blog. I find it amusing that everytime I find some usually piece of bubble news, by the time I log in here someone has already posted the link or source of the information. With as many folks as there are today hooked on this blog, I doubt there is anything that slips by us these days. Just keep checking in.
Speaking of upcoming stuff, OFHEO releases quarterly House Price Index numbers on August 5. The HPI lags by six months or so, but with median price so susceptible to so many things, HPI is a good indicator. Many areas could show drops for the first time in awhile. Do any media outlets pick up HPI, or is it just us?
OFHEO
Media does track OFHEO!
Tim — did you mean Sept. 5?
That’s it, sorry.
“‘Joe’ is a homeowner who did not want to give his full name for this story because he’s ashamed to admit that he soon won’t be able to afford his monthly mortgage payments.”
Is Joe’s last name Soccer Mom?
- “Joe is not an atypical homebuyer blah blah
- Nearly half of the homebuyers in California chose interest-only loans last year.”
- ’someone blew a whistle that only dogs and buyers heard.’
WTF! He is saying that there is a ‘tweet’ in the air?
- As always, the future is uncertain. ???????? WTF!
DUH!!
Where have we heard about a ‘possible’ scenario like this playing out before???
Like I have said many times before…this is JUST the BEGINNING!!!!
Their numbers say $400 billion adjusting in 2006…well what do you think is going to happen when 1.2, 1.5 or 1.6+ TRILLION adjust next year (depends on whose numbers to use…it is a very touch statistic to compile accurately)??????????
How else can a state like CA have a median home price that needs an income of about $130k to be able to ‘afford’ it, when the median CA income is $48-53k?????? I/O and option-ARM combined with stated income…that is how.
Go get some popcorn and stretch your legs…we are barely into the opening credits of “Another F’D Borrower…the movie”.
SoCalMtgGuy
http://www.housingbubblecasualty.com
I have a couple that my wife and I have been close to for many years down there. Between the 2 of them they make about 150K a year. But when you talk with them you’d swear they were just breaking above the poverty line.
You know they say that just before a fault-line snaps leading to a massive eartquake, the enormous pressure exerted on the two opposing tetonic plates causes a high pitched squeel. I think I can hear the economic plates exerting their pressures, screaming they’re at thier snapping point. It should be audible to all, but few are listening.
That high pitched squeal you hear normally occurs just after the bulbous head of reality gets shoved past the sphincter of denial. I gather we are in the next phase of the unwinding. It sounds like the “lesson” of speculative markets has begun in earnest!
Auger Inn,
You usually have interesting posts, but have mercy.
I realize your handle makes clear your fantasies, but for me your ANALogies are wearing very thin.
Next time you feel the urge to type
“a$$ pounding”
“Ned Beatty” “Deliverence”
or “bulbous reality” “sphincter”
or some other cute keywords
just do it in Google and go have some real fun. Just spare the rest of us here.
“Fast ‘N’ Bulbous - Capt Beefheart
http://www.fastnbulbous.com/beefheart_trout.htm
how could you forget to mention the “new jobs for realtors, servicing homeless gay men in the seedier parts of town in an attempt to regain their dignity”
now THAT belongs on a bumper sticker!
>bulbous head of reality
Auger-Inn, you really REALLY need to get out more.
Admit it, you found it at least mildly amusing didn’t you?
Perhaps if you endeavored to transcend your anal phase…
What are ya saying? I’m stuck in the passt? (sorry, couldn’t resist)
What we are about to witness will pucker your anus.
Followed by the “Titanic” It’s a double feature
It is insane that the average 3 bd/1.5 bt 60 yr old stucco in your average pre-WWII built neighborhood is at the median LA $500,000 price. At least 80% or more of all LA metro areas and communities consist of 50-=60yr+ old houseing stock, mainly the 3/1.5 1200-1500 sq ft on 5000 lot located in very average or declining older burgs and neighborhoods. If you plat LA Basin into sections such as Scentral, 710 corridor, 605 corridor(Mid-cities)SF Valley, SG valley, Sbay,Lonf beach, LA dwtn and immediate areas and east East LA, you will see that every listed area consists of large sections of these older outdated suburban SFH’s built around or before WWII.
And these old-model half-century old sfh’s in such communities as Downey,hawthorne, Norwalk,Long Beach, East Torrance,whittier,Gardena, south gate, lynwood, ingelwood, montebello,Bel gardens,El Monte, East LA, (just a small sampling of selected cities), and all of which are basically aging declining older LA burgs, have featured astounding YOY increases/runups in their median prices during the SCal RE bubble
buildup.
Not to say that they will not suffer a sharp or moderate drop like in the more overpriced affuent coastal enclaves, but it is astounding the asking/listing/selling prices in these areas.
Comment by SoCalMtgGuy
2006-08-31 06:44:29
DUH!!
Where have we heard about a ‘possible’ scenario like this playing out before???
Like I have said many times before…this is JUST the BEGINNING!!!!
Their numbers say $400 billion adjusting in 2006…well what do you think is going to happen when 1.2, 1.5 or 1.6+ TRILLION adjust next year (depends on whose numbers to use…it is a very touch statistic to compile accurately)??????????
How else can a state like CA have a median home price that needs an income of about $130k to be able to ‘afford’ it, when the median CA income is $48-53k?????? I/O and option-ARM combined with stated income…that is how.
Go get some popcorn and stretch your legs…we are barely into the opening credits of “Another F’D Borrower…the movie”.
Another great post/comment SoCalMtgGuy! By your screen name I take it you know something about lending etc? After the S&L mess in the 1980’s et all. Weren’t any reforms passed into law? Shouldn’t a person that lends a banks money be in jail for lending to a person,or many people, that by your own comments are nearly $100,000 short on income to service the debt?….ON DAY ONE?
SoCal - Would you indulge me for a moment? How long before this stuff starts to show up on financial instituions’ balance statements? Let’s say I know this guy, who heard about a bank in SoCal (tee-hee), whose mortgage portfolio is 98% option-ARMs, and that less than 25 of this bank’s mortgage originations require income verification. Let’s say I pulled the bank’s filings and confirmed this.
How long before the bank’s stock craters? This fall? Next year? Thanks for any insight.
Oh, and the bank’s lending is limited to Cali.
Was the bank able to bundle those mortgages off into securities? If so, what kind of covenants exist with those securities? Will the bank have to repurchase if defaults spike?
In short, is all that liability still really on their books, or someone else’s?
fiat lux …..Depends on the deal the lender had with the secondary market . Some deals state that if the buyer defaults within the first year the original lender has to buy back the loan . Some of them have PMI insurance on them . Some carry risk premiums therefore they have to be discounted for the risk when sold . There will be alot of bagholders on different levels .
Also, typically, the secondary-market contracts have provisions that state if there was fraud in the documentation of the loan, the lender can be forced to repurchase.
(BTW, does anyone have an online source for an example of such a contract? I’m trying to put together an article for a legal trade magazine.)
Since a recent study by a lender found that something like 95 of a sample of 100 stated-income loans exaggerated the borrower’s income by 5% or more, and almost 60% exaggerated income by 60% or more, there ought to be some serious ammunition for MBS buyers to use against lenders.
If a lender went with stated income and did not use due diligence to verify statements by borrowers they could be in for a shock. The next shock will come when in the foreclosure proceedings the lender requires 1099 or tax returns and it is found that the borrower had inflated the income numbers even though they signed that this was accurate.
Can anyone spell “Bank Fraud” with a capital FBI?
This will play out for a long time to come and the new regulations will make it impossible to borrow enough money to buy the median priced house without 20% down and documentation equivalent to a rectal exam
Screw the lenders! I don’t care if they loose their asses. The stock holders better watch out, but in my experience they are really sheep to the slaughter.
Is that DSL?
FED
Great idea. Just made myself a big bowl of popcorn to munch on while reading today’s comments.
>> Is Joe’s last name Soccer Mom?
SixPack I believe…
>> Is Joe’s last name Soccer Mom?
Joe FB
Joe Howmuchamonth
Joe can get a job driving Uhaul trucks back to California for more people to use to move out of state.
“Is Joe’s last name Soccer Mom?”
Nope. It’s “Lieberman”
Sheesh, when will people learn? If you’re one failed business deal from foreclosing on your house, then you can’t afford your house.
This quote is key: “the simple psychology of expectations that is part of any speculative boom”
I have argued this with people over and over, but some just didn’t get it. As long as people were “expecting” to get rich they did the riskiest thing imaginable and leveraged themselves ‘balls to the wall’ to buy an overpriced albatross.
Now, that “expectation” is changing, prices don’t even have to drop (but they are) to really wreak havoc. Psychology is everything, and now IT IS ON OUR SIDE!
Greed on the way up turns to panic on the way down. Guess which one is stronger and faster?
I have a little more sympathy for a guy that lost his job ,but that is the very reason why one should be conserative in buying a house and have a year or two of income for emergency . If I was this guy I would call the bank/lender and see if they can give him a break so he can find employment ,but he has got to call right away . Don’t ever buy a house betting your going to get a raise .IMHO buy a house based on a 25% or less of income housing nut .
Sorry about the lecture but it really alarms me how the real estate industry was pushing people into buying the max house they could get into .It’s like a kid in a candy store going for the biggest piece of candy and than it rots your teeth .
A year or two income for emergency is a lot to have stashed away. I’ve always heard that having a 6 month cushion is a good plan - but even that’s very difficult for a lot of folk.
I do agree, however, about buying conservatively. Like if you lose your current job, you can take something beneath what your salary was and still swing the mortgage payments. (Not saying engineering salary to McDonald’s salary - but you get the gist.)
3-6 mo income is infinitely better than most, with a zero or negative net savings rate.
I blame the banks just as much as the buyer. I’ve heard of loans up to fifty percent “stated income” It’s like driving a bank robber to the bank, then saying I thought he was just going to make a withdrawl.
LOL - good analogy.
I posted something related to this in another thread yesterday and I think what you have pointed out is a key contributing factor to the frenzied buying that has occured over the past few years.
People have made financial commitments to the tune of hundreds of thousands of dollars based on the incomes they made the previous year or two. All this with little/no downpayment, stated income and NO RESERVES!!!!
I agree with the poster who advocates 2 YEARS of living expenses tucked away as an emergency fund. Yes, that IS a hefty sum. Why do I feel I know I would only feel comfortable with that much? My industry is highly cyclical and we are about to hit a severe slowdown in business. That is the nature of the biz. I hate worrying about money….. cannot stand the feeling of financial uncretainly. yet so many people just throw caution to the wind and impulse buy without blinking.
You have to ask yourself: “If I lost my job tomorrow and i did not have the money necessary to live comfortably for the next two years do I really need to own a house? If so, why????? What is sooooo wonderful about having this huge monthly nut hanging over my head that I am constantly praying I can afford?” it just makes no sense.
To the guy in the article’s defense: At least he didn’t say “Nobody told me that this loan would blah, blah, blah”. he made a serious booboo counting on a future pay increase though.
How many of us in this forum are SURE we’ll be employed by the same company in 3 years (if you’re not self-employed) let alone be assured of a pay increase?
I know I keep babbling on about having a backup plan but I just cannot understand how shortsighted so many people seem to be nowadays.
Including Alan Greenspan!
Remember Chevy Chase in Christmas Vacation ? He was going to put a pool in with his xmas bonus (and signed the contract) but never got the bonus. Cousin Eddie kidnapped the scrouge like boss, but you know the plot and story.
Absolutely. The psychology of the bubble has not been given its due importance in the MSM. Economists are reluctant to leave their objective data-based anaylsis and explore other causes which we all know were significant contributors to the rediculous increase in prices. gordo nyc
None of these fat head economists want to say anything for fear of losing their jobs. They know where their bread is buttered. Sadly, they also don’t want to say anything because I think many of them in their heart of hearts know the truth is that you can’t run an economy on debt forever, but to say that would mean facing the truth and possibly causing panic in the markets.
I’m finding it hard to watch any of the financial news stations like Bloomberg, CNBC and the like. I’m going to break a TV if I do ’cause I find myself throwing things at the idiots on the screen who spout their nonsense predictions. It’s a spin-fest, with much of it just outright lies over our current economic situation.
Just remember what their true job is, not what it seems. Their job is to keep the markets calm so that the big players make money, and the small fish don’t. We are small fish.
I am a “fat head economist”. Been telling some of my colleagues for a few years about the housing bubble and its potential aftermath, the danger of a credit based boom and fiat-based monetary system. It does not make me very popular and often the object of derision, so I shut up and let the mess unfold itself. Looking forward to rub it in the face of those supply siders.
Nnvmtgbrkr-
Those guys are in big time denial. Was watching CNN last week and they were doing their morning market update. The reporter was trying to report on the bubble the inventory aspect if I remember correctly. The lead anchor got pissed and cut her off. The other reporter seemed to know she was threading on thin ice because as she reported the story she got very uneasy. It was a very weird moment. When the leader anchor came back into focus she had a icy glare. I took it she was a bag holder in the Atlanta area and didn’t particularly want to hear any bad news. I also came away thinking she was a pretty powerful gal to be able to cut another reporter off like that. I wonder how many are holding the bag and won’t report on it.
mrincome-
I’ve witnessed a few moments like that. The best was about a week ago when Bloomberg interviewed Peter Schiff. I about dropped out of my seat when I heard them announce their next interview ’cause I knew where Schiff stood on the issue, and Bloomberg always parades rah-rah “experts” especially after some bad report comes out. Well, Peter comes on after several “experts” down-played some just released bad housing reports and just lays into it. I mean the dude goes off! Hard landing, RE crash, forth coming recession, you name it. The interviewer’s jaw just hit the desk. I think she too would have aborted the interview had she had not been rendered parilyzed with shock. It was a great moment!
If you don’t know where Schiff stands, here’s some of his stuff:
http://financialsense.com/fsu/editorials/schiff/2006/0825.html
Clip or link, please!
I’m memorizing this analogy!! This is no mere aphorism — it’s the LAW!
It’s also reminds me of the parable of the fox (greed) and the rabbit (panic). One’s running for his dinner, the other is running for his life. Gotta put my money on the rabbit!
Here’s how homebuilders can make some sales: Build smaller houses. I’m in the DC-Balt area. I haven’t looked in a while, but it seems every single-family house built is a Mcmansion, priced at 500K or higher. While sales have slown to a crawl, and inventories have stacked up, there’s been hardly any downward movement in prices.
Build some 3 br, 1.5 bath ranches on small lots, save some money by leaving out the granite ct and ss appliances, price them so people can afford them without a suicide loan, and just maybe you’ll get some buyers again.
They don’t want this, for the same reason automaker like to build luxury SUVs. Profit margins are higher on McMansions.
And at this point in the builders game, the margin (for land, development, construction) only works if the house is massive.
I would love to see that around my neck of the woods, but builders have such a long lead time, and the approval process for a subdivision is so daunting, that to change a Mc Mansionville sub for a postwar era sub would entail starting over.
It would entirely be a good business approach, but with the house prices taking a nose dive, it will be very hard to compete with older houses. The bottom line is that they are stuck with expensive land that will only pencil out with larger, more square footage houses with amenities. Think about the total cost of granite counters, and tile bathrooms vs. the total amount of the house, and it is a very small percentage. Same with building a larger den, or bedroom. The added cost is minimal, but the asking price can be raised quite a bit.
The builders have painted themselves into a corner, and there is no easy way out. They either sell the land (I am seeing a lot of lots in subs for sale) or they build a monstrosity and make some money. Either way, the market turned on them, and now they do not know what to do.
“…(I am seeing a lot of lots in subs for sale)…”
Heh, yeah. I just heard an ad on the radio when I was driving into work where some guy is desperately trying to sell lakefront lots near Richmond. In one breath he says he’s had to knock 25% off the asking prices, and in the next he’s saying “It’s a buyer’s market, which means right now is a great time to buy!”
I had a good laugh at that. I’m sure people are lining up to buy these undeveloped properties that are “only 90 minutes from D.C.”
Only 90 minutes from D.C., if you commute between 10 p.m. and 4 a.m.
That’s just crazy talk.
Family Guy?
I think you have a long wait. My friend live in Howard County (south). This is new community and obviously builder don’t want to upset the previous buyers so builders are adding more incentives. They already droped 40k since last year which I’m sure upset lot of recent buyers. They are having special where granite counter top, molding, upgraded carpet are included in one base price. But its still 460k for townhome.
sc3,
Doesn’t “giving away” free upgrades essentially drop the prices of the surronding houses? If I bought a base model with no upgrades, let’s just say it cost $400,000, and six months later the builder sells a place with $40,000 worth of upgrades to my new neighbor for $400,000 isn’t mine now worth $360,000?
Ken , IMHO ,if the builder has to give 40K in upgrades to sell the house ,the houses that do not have the upgrades have a lower value . I don’t know how the builders are getting away with giving 40K in incentives without affecting the effective sales price which would lower the loan amount the lender could lend . If the lenders are ignoring this they are giving over 100% loan to value loans on these properties . You better believe the builder is going to credit himself the upgrades at full retail value on the taxes,(even if it only cost the builder 50% for the upgrades .
You got realtors out there trying to get buyers by promising 100k kickbacks if they buy the house by upping the appraisal .Incentives …..kickbacks ..there is no difference .
“If I bought a base model with no upgrades, let’s just say it cost $400,000, and six months later the builder sells a place with $40,000 worth of upgrades to my new neighbor for $400,000 isn’t mine now worth $360,000? ”
Yes. But you VASTLY overestimate the intelligence of man. If the price is lowered $40k, everybody in the neighborhood realizes their homes are worth $40k less.
If you give incentives, the neighbors don’t dig that deep… they just see that prices are the same this year vs last. And since their homes are “special” compared to the new homes, in their minds their homes are actually worth 10% more than the newer homes.
Gotta love humanity.
clouseau.
And I thought the only person whose intelligence I over estimated was my own.
sc3,
Yeah, I do hear you but here’s the reality. Let’s say I’m a stockbroker for instance and I tell all my clients to buy XYZ at $100 a share. No sooner do I hang up the phone than the stock goes to $75! Great, now what? Quit the business? Some do, but survivors will just call new prospects at the new lower price! Even if the “stock” only goes to $85 the guys a hero! Will his older clients be happy? Will they overwhelm him with gushing referrals? Probably not. But that was yesterday. If he wants to stay in business he can’t lay awake nights worrying about it. He (like the builders) simply have to move forward. Builders will claim (in the end) that what you paid at the time was fair market value.
Dinor,
I’ll do you one better.. Back in the day,, brokers would call 100 people about GM He would tell 50 to sell because it was going down and 50 to buy because it ws going up. No matter what happened he looked like a genius to 50% of the prospects. This practice was done in many wirehouses in the 70’s and 80’s. Same here with the homebuilders except they never tell anyone to sell.
As I have posted before, DEMAND is not part of the equation for the homebuilders. They will continue to build until they run our of :1. Money, or 2. Land.
Dinor,
I’ll do you one better.. Back in the day,, brokers would call 100 people about GM He would tell 50 to sell because it was going down and 50 to buy because it ws going up. No matter what happened he looked like a genius to 50% of the prospects. This practice was done in many wirehouses in the 70’s and 80’s. Same here with the homebuilders except they never tell anyone to sell.
As I have posted before, DEMAND is not part of the equation for the homebuilders. They will continue to build until they run our of :1. Money, or 2. Land.
One problem is that the profit margin is much greater on larger sized home. The large homes really need to be hammered before the builders change.
Yeah, this has blown my mind for the past 5 years. Just build something people can actually use. But then again, McMansions go along with the cultural mindset of the past 15 years, “Give me want I want, not what I need.” Could it be that smaller homes in the inner-suburbs will actually hold their value somewhat? I live in a 3bed, 2bath Cape Cod in Gloucester Twp NJ (about 12 miles to downtoen Philly). I bought in ‘96 for $93k. My neighbor just sold for $210k. Realistically the house should be worth about $138k. But if the costs of driving to McMansionville go up along with no one buying those places, could I be spared the drop back to $138k and maybe see my house settle down to $150k? It would be nice for me. Even so, I have a nice equity cushion as I refinanced into a 15 year at 5.75% 4 years ago and owe about $68k on the property.
Andy,
I have lots of family in that area, and imho, its one of the most “undiscovered” areas in RE right now. Its right next to Philly, prices were crazy low for a long time (even 210 for a 12 mile drive to a MAJOR city is not bad).
Anyway, if I was looking to buy right now (yeah, right) that’s a place I would really look.
Yeah. I don’t get the mentality of it all. Buy a huge home and leverage yourself to the hilt. Husband and wife both work to pay the mortgage, insurance, property tax and maintenance. High heating cost, more rooms to clean, more furniture to buy and probably a nasty commute to boot. All that with probably three people living in the obnoxious eye sore. No doubt bought to impress someone. Doesn’t impress me one bit. Within a few years these places will be as dated as the gas hog, land barge cars that were made in the early seventies.
The thought process behind those cars isn’t outdated. They simply were repackaged as Escalades, Suburbans and Hummers. I very much agree with the rest of your post, though.
Land Costs. The land costs are the same whether one builds a huge mansion or a two bedroom bungalow.
If you can hold out long enough, the Mcmansions won’t cost much more than the three bedroom ranches. High utility costs and taxes, combined with retiring baby boomers looking to downsize, will kill the market for that type of home.
Exactly. If offered home for free, I’d take the ranch over the McM. I don’t need that much space, and I sure don’t want to pay to heat and cool it.
If the price ever comes close to equalizing, builders will improve their margins by building the smaller homes.
Exactly - McMansions will be as undesirable as big cars during the OPEC oil embargo. I remember second-hand Buicks going for a song because the purchase price had to offset the running costs.
I disagree, to a certain extent. In the bubble markets, the land value constitutes by far the greatest percentage of the appraised value, and these McMansions today are often plopped down on lots that are the same size or only slightly larger than the Beaver Cleaver homes of the past. Essentially, eterior space in the yard has been traded for greater interior space.
In other words, all of that interior space and granite/stainless steel is a relatively insignificant reason why the homes appreciated to bubblicious levels. And as such those McMansions will not be as expensive in the future as you might think, other than to heat and cool, of course.
ChrisO,
I couldn’t agree more! I realize some will agrue (as have I) that in the end a 2 X 4 costs what a 2 X 4 costs, and to a degree that’s true. In one of our posh neighborhoods outside of Portland, OR lots had more than doubled in less than 3 years! In addition the city felt no reservations in upping their fees as well! As much as 25% in ONE year! Well, where’s the value there? These schmucks were into it for over 100K and still hadn’t poured a foundation. Uh, it wasn’t that long ago you you could buy the whole damn house for that much in OR!
DinOR, I know well what it’s been like in Portland, since I grew up in the Beaverton area (Sunset High School grad). In all of the places I’ve lived, I don’t think I’ve ever seen anyplace that compared to W. Portland area for the number of McMansions shoehorned onto tiny lots. And it happened so fast. When I grew up, the suburbs pretty much ended west of NW 185th Ave. and north of West Union Rd. Now when I go to visit my folks, I often get lost in a sea of new subdivisions that didn’t exist at all only a couple of years early. And they are all crappy lookalike McMansions on tiny lots where you’d probably walk into the wrong house if you came home drunk. Makes me angry what happened to such a formerly beautiful place, actually.
i actually want a small house, though not a la 1950’s. i think there will be greater demand for them as boomers age and energy costs stay high/go higher. having sold my house in september, i’m waiting for an unrenovated cape cod or ranch house to come on the market for about $250k so i can rip most of it down. btw, i’m in the dc/metro area. don’t know if they’ll get that lever, but one can hopel.
To add to this: how about quality over quantity as a concept? Smaller homes that incorporate passive solar design? How about compact flourescent bulbs throughout, solar panels (partially off-grid), solar water heating, and even water catchment? Some architectural originality would be nice, too.
Here’s a wild idea for builders: create some raised bed gardening areas around the house for “not-so-handy” homeowners who might want to raise vegetables/herbs to supplement the family diet? If the economy does contract — as I believe it will — these are the types of homes that will be “keepers”.
Worst case: if things get REALLY bad, we may see communal-style cluster housing that utilize common areas for cooking, recreation, etc. with shared gardens and playgrounds. [Not just for "woo-woos" anymore]. The sterile, exuburban lifestyle [where one waves to the neighbors as they back out of the garage and zoom away for their hour-long commute] is headed for extinction.
Check out the The Not So Big House by Ms. Susanka if you haven’t already. I think that is going to be the next trend in RE.
Good lead! Thanx!
My thought for the day inspired by this story:
Economic Reality tests Economic Theory to destruction.
Destruction testing is FUN!
Particularly when one is prepared and conscious.
Which pretty much guarantees Joe Sixpack ain’t gonna have much fun over the next couple of years.
Interestingly almost every real job I ever held involved breaking things. Unfortunately, now I just get to shatter virtual things and dreams.
I had a heated discussion by the shores of Lake Tahoe’s Emerald Bay with my wife that the Summer of 2004 was the time to sell. I was unable to sway her view. With much drama, we finally sold on the backside of the curve for 54K more than we could have possibly gotten on 04. 2 of my best friends refuse to socialize with me since the sale. 10 month ago it was because I was so foolish, and now it’s because I was so right and they are afraid I will rub their face in the dirt. That’s something I wouldn’t do physically, but I’m sure thinkin’ it.
I had a number of friends that tried to talk me out of selling in mid 2005 . I remember thinking that the interest rates were pretty low and if I was going to make a move-down retirement move I better do it now. I wasn’t really paying attention to the market for a number of years so I fell off my chair when I saw the comps the realtor showed me ,(which I had to double check of course ). After I moved I found this blog
and found out in detail what was fueling the frenzy .I consider myself lucky that I sold when I did because the media at the time was all rah rah on real estate .
On housing finance from Case and Shiller:
‘If the housing market were like the bond market and all houses for sale were auctioned every day, prices would indeed fall precipitously. But they are not. The aggregate indexes based on repeat sales have decelerated markedly but are not yet falling.
The U.S. now has a futures market based on home prices. The market that opened in May at the Chicago Mercantile Exchange is now showing backwardation in all 10 metropolitan areas trading. The backwardation can be expressed as implying a rate of decline of 5% a year for the S&P/Case-Shiller Composite Index by May 2007. Since the margin requirement is only about 2.5%, an investor who is sure that prices cannot actually fall by next May has, on that assumption, a sure return of at least 200% from buying a futures contract, and even more if prices rise at all. But there can’t really be so much “money on the table.” It must be that people really no longer see it as a sure thing that prices won’t start falling across the metro areas.’
I have several comments to add:
1) Their comment about the difference between the housing market and the bond market suffers from at least two flaws. First off, not all bonds are auctioned on any given day, as they suggest; if I do not like the price my bond will sell for today, I can wait until the price is more attractive if I choose to do so, same as a homeowner can wait out a downturn.
2) With foreclosures and increases in REO, I am anticipating a steady rise in the number of homes sold at auction, or otherwise sold quickly to get them off a lender’s books. The rising wave of foreclosures could thus result in the housing market behaving far more like the bond market or the stock market than in normal times, with homes sold quickly by auction (English or Dutch) rather than by setting a high price and trolling for buyers. This, in turn, could trigger precipitous price declines, as the true market value is revealed very quickly in an auction, and the realization that market values have dropped by far more than many realized could result in further buyer hesitation (i.e., a further drop in demand and prices).
3) Their housing futures market evidence shows that the smart money is virtually certain that prices will fall by next spring, while their polling results show the dumb money still believes prices are headed higher. If I had to gamble on this, I would bet with the smart money…
I have a question about houses sold in foreclosure and/or via auction. Are these lower sale prices calculated into the “median” home values?
Regarding #1: Although the bonds aren’t auctioned on a given day, they are sold every day (minute, or sec), which sets the price and makes them a liquid investment. That was the liquidity that they implied.
Hence, if you choose not to sell, it doesn’t really affect the liquidity. If JPM decides not to sell, well, then there’s a problem.
But housing has no JPMs, so therein lies the problem: There is no way to determine the instantaneous asset price like bonds.
More foreclosure auctions will help get the asset price closer to instantaneous…
The housing futures market also provides an excellent outlet for bullish speculators. No need for a real estate broker, no need for a mortgage brokers, no carrying costs. If you think housing prices will just hold their value over the next year you can double your investment in the futures maket. Not good for speculators stuck with houses that they now have to carry….
Based on their comments, I am willing to even put a little gambling money in there, just in case real estate prices really do always go up
My thoughts exactly! I went to the futures pages - to check out real time quotes, market size, strike prices - checked with a friend on the floor about the liquidity and if size was possible yet. As opposed to others, when I decide to take a position I do not flip in and out (I think Warren Buffet said in 1998 that the total earnings for all the listed stocks was 436 Billion and that the commissions paid to brokers, money managers etc was 350 billion - I do not like to pay a usage tax). I think housing is due for a substantial drop, but I do not know when. The months at the current time go out to August, 2007 if they extended to August, 2009 they would be more attractive to me.
And as you stated above this would be gambling money.
Thanks for your insights as always, hoz. Come to think of it, I will wait until the RE market has tanked for a few years before I dabble in these. I have a feeling the market is right about next spring, given all the anecdotal evidence we have read here that suggests prices have already fallen by over 5%, and the rate of decline is likely to increase once this comes to light. And it will come to light, as the CSW Index lags market conditions. If I were smarter or more motivated, I would try to work out an investment strategy based on this lag…
- Re: The U.S. now has a futures market based on home prices.
What is the daily volume of contracts. How much is controlled by institutions vs day traders / spec?
What is the margin? What is the RSI - over bought or over sold?
http://www.cme.com/trading/prd/overview_HNG18558.html
I checked it a few months back and it didn’t seem very liquid however its a new product. Trade began in late April/early May 2006.
All the info on the housing futures market should be available on http://www.cme.com/housing
The markets are currently pricing in ~7.5% drop in the housing index in most markets. Note that the Aug07 contract is actually on the index value representing Apr/May/Jun07 sales, so that’s an expectation of 7.5% in 9 months, or ~10%/yr rate.
Jon
…from Silicon Valley? Yeah, I believe it!
We have a card from last Christmas still on the refrigerator from a young family who had recently purchased a worn out home in a marginal SJ neighborhood. I still find it hard to believe that “professionals” will lure young families to the closing table, and ruin their lives. Hell is going to be crowded place.
What suddenly happened was the price rise stopped. The only thing motivating people to pay these ridiculous prices was, “so what if the price is high, if it goes up in value what do I care?”. Speculators were buying and selling as the prices rose. Now there is no profit to be had and the estimated 30% of properties that were bought purely for speculation have to be sold and no one wants them. Most unfortunate, though I find it hard to muster any sympathy.
Now that the rush is over, the mechanism is working in reverse with buyers, “Why should I buy now when I’ll be able to get it for 50,000 less next month?”
It’s all goin’ down.
Agreed Wally
- By the time the trend is recognized and is hot …. it is on the decline and time to hunker down.
- Sadly, the majority of the public have taken the ‘Mark of the Beast’ which is the media.
-There is NO BUYING OR SELLING without there imprint on the herd.
We’ve been smelling smoke around here for some time. By the time that you can see flames licking across the ceiling it’s simply too late for everyone to get out of the exits without being burned. Human nature doesn’t change.
With some 30% of the houses bought out of pure speculation, I wonder what percentage of the remainder was bought out of at least partial speculation; i.e., as you mention, “so what if the price is high, we need a place to live, and if the job goes south (or west really, to China or India), we can always sell for a profit. In other words, I wonder how many so-called normal would-be homebuyers bought in recent years based on fear of being priced-out and/or expectations that even if they can’t afford it, at least their POS will always go up in value and thus is a good investment. In a normal market, how many of these same people would have opted for renting?
This is a great point. I also wonder about other potential “quasi-speculation” categories, such as parents buying a condo for their kids fresh out of college (I’ve heard quite a few of these stories now), and also parents buying a place for their kids instead of paying for a dorm during college. This isn’t pure speculation b/c there is utility to the owner other than purely collecting rent from a stranger.
However, I doubt that many people would have made these purchases for their kids were it not for the greed factor that the parents could make some profits off of the real estate.
“In a normal market, how many of these same people would have opted for renting?”
Good point, as is its corollary: In a normal market, how many people who are now renting would be owners? Granted, the number of people in this group is significantly smaller. But c’est moi. I’m in my second year of renting, for the first time ever, and although I look here and there at cherry-picked homes to lowball, I have little to no incentive to leave this very comfortable rental property except to buy a place I really like at a price close to what it would have been five or so years ago. Rent is the same as it was then (actually, slightly lower now and declining here).
I think this is exactly right. Partly folks buying extra properties, but mostly folks “trading up” too far and buying something that was really more than they could comfortably afford. They thought they would be priced out forever if they didn’t, and they thought that if it just got to be too tight of a pinch they could sell at a healthy profit, so what the heck, we’ll stretch it and eat out less often for a while. *This* is what led to the stupid bidding wars, as much as or more so than speculator demand.
All that was bearable while the perception was that prices only go up. It will become decidedly not bearable once the expectation changes. Americans are simply not going to pay 40-50% of their income for housing, long-term. They like the other things in life too much.
So I expect prices to fall back to the historical mean, or close to it. The vast majority of Americans are not directly exposed on the price drop but they are, in the long run, the ones who have to support the prices. They won’t, not without that expectation of a windfall. So prices will fall, back to what incomes will comfortably support.
Martin Wolf had a column in FT a few months back on overpaying for housing. People will realize they overpaid for their “housing”, as the investment part fails to materialize.
The “investment” part of the housing expense is really an retirement fund or college fund, and it will come out empty.
In essence, they overpaid for housing, at the cost of retirement or necessities.
Wolf of course did not talk about it like that - it was a macro column. He simply said recessionary times are in the pipeline, because
(1)either prices come down drastically and the “investors” will reduce spending
(2)or prices stay where they are - the current generation who are buying homes now pay a good share of their income for housing, at the cost of curtailing their other spending
And this has nothing, NOTHING to do with flippers. This was all about people who are NOT going to lose their homes, as they can keep paying for it. It was about their effects on the economy
‘The “investment” part of the housing expense is really an retirement fund or college fund, and it will come out empty.’
For many, the “investment” part will morph into a financial quagmire.
Appraiser Miller Samuel blames the spike in housing bubble coverage on a slow period for news rather than a shift in fundamentals or psycology.
See http://matrix.millersamuel.com/?p=827. Slow News Cycle = More Housing Coverage = More Confusion
probably true. few years back there was a supposed epidemic of child abductions and amber alerts when it was really more news coverage.
What we have this year is just a reversion to the mean days on market, etc. Too bad there are a lot of people in positions where they can’t afford to wait the average DOM to sell a home. If there is a bubble and it does pop instead of a soft landing it’s going to be next year.
“ ……What we have this year is just a reversion to the mean days on market”.
And when it doesn’t sell before hitting that magical ‘mean’ date, simply hit refresh and set the date back to zero. “NEW HOT LISTING”!!! Data is so hard to sift through in a Ponzi world.
“……Too bad there are a lot of people in positions where they can’t afford to wait the average DOM to sell a home….”
That is a shame ….. but hey, C’est la vie right? Won’t really be any winners and losers in this game, just a price reversion to the mean. Sellers never really ‘HAD’ money in their homes, only a permission to borrow more money using it as collateral. Now when the price returns to the homes true value, buyers will get nothing more than a fair deal! All is calm once again.
(well ….. except for owners that thought this was real and borrowed A LOT of money. Ouch, hope none are posting here …..)
Jonathan Miller should run for public office, what he says always takes a middle ground. I really find it hard to figure out what that guy is trying to say.
Does it matter why it’s happening as long as it’s happening? The MSM will only accelerate the psychological shift.
There’s that damned media again stirring things up and causing prices to stagnate and building inventory.
“I…concluded that the housing market coverage seemed to be over blown relative to what change actually occurred, especially in the last few weeks.”
If the media were a completely uncontrolled environment with no pressure to report anything particular nor to slant anything, this would be true. The blogs are the uncontrolled environment. Only therein, I believe, will you find the unbridled truth.
I think we all need to remember that the “psychology” that helped push these prices well past fundamentals can and mostly likely will work in reverse as well.
Here in Chicago I remember thinking that prices were slightly overvalued in ‘02. They were really starting to get out of hand in ‘03 and at that point I felt a correction was in order for ‘04 and beyond. However, the “psychology” of the market pushed the start of that correction back two years. I think it will take until ‘08 for the prices to be back in line but that doesn’t mean that’s the bottom. That may not come until ‘10 or later depending on the individual market.
I couldn’t agree with Rally Monkey any more. Around the DC/NoVa area you are limited to McMansions or McTownHouses all starting at 400K to 500K. In boom times people seem to want to get the largest house they can in order maximize the “return on their investment”. I just want a place to live. And more importantly a place to live that I can afford. Small houses aren’t too bad if you have plenty of parks and open space. I think that we’ve turned into a society that wants to stay inside and plugged in. Never mind that the house is blotting out the sky and 3 inches from my neighbor. I guess I’ll have to just keep renting my 4 bedroom on a acre at 1500/month. No Problem
It’s like internet stocks versus berkshire hathaway. People wanted riskier and riskier stocks because they had higher growth potential and ignored an old company that worked on increasing cash flows.
My mother taught me an important lesson. Don’t ever count money until it’s in your pocket. Don’t ever make plans with money that isn’t yours yet.
All these wacky stories I’ve read in the last few years of people buying more house than they can afford TODAY, a lot of people will learn a painful lesson soon.
Don’t count your chickens before they hatch.
A bird in the hand is worth two in the bush.
Why don’t we teach these anymore?
Because it would hurt their self-esteem.
LOL. That’s so true.
You, your Mom and people like me are from the old school of financial philosophy.
Most people only have learned one thing “instantaneous gratification”. People want to have everything NOW, not next year, not next month, NOW. And they have been able to have it NOW, thanks to easy credit. BUT party is over, time is for reality check. Many people who over-indudge themselves druing last five year will be suffering.
This story about Joe in Silicon Valley is not atypical. I wonder what happened to people the last 9 years or so? Did millions of people find bottles of stupid pills and take them? In 2002 the cry was about outsourcing. Yet dumb dumbs exaggerated their incomes and took out ARMs. WTF is wrong with Americans? Get brains!
We are now seeing the results of flouridation!
Another “great idea” (promoted by “experts”) goes down in flames…..
I am a paralegal and got a call that a bankruptcy atty needs help. His business recently took off. Even with the new bankruptcy law in effect, people are throwing in the towel. Any practitioners who left BL may want to consider re-entry.
This is the deal: people who took out exotic loans are now saying they were lied to or that the contract was not fully explained to them. Guess who may pick up the tab on this????
That’s why we have the Truth in Lending Act. Most of those FBs will end up paying the bank’s costs of defense of a frivilous lawsuit.
google ACRIS, it’s the NYC online property system
go find something expensive that was bought in 2004 or 2005 in the summertime. They will have the scanned images of the actuall mortgage paperwork accessible to anyone. Look until you find an ARM loan. It’s easy because there is a big check box on the first or second page that says ARM Rider attached and it’s checked.
Yes…. and then look for their SIGNATURE at the bottom of the page. If it is indeed their signature they thereby stated they understood the terms and conditions set forth by the agreement between themselves and the lender, i.e the note.
Definitely a growth industry of the future is in bankruptcy counseling, law, etc.
I wish I could buy stock on bankruptcy lawyers.
Tough shit. Unless the contract was written in a language they don’t understand, that argument won’t fly.
How many “latinos” that have bought a house relied on their mortgage broker and realtor to explain the contract to them, as their grasp of the language was tenuous at best? I wonder if we will see a reverse migration back to Mexico. After all most of the people involved in construction in the last couple of years either are illegals, or people with no other skills.
Oh, well that whole foreigner thing is a another complete issue that was not a factor in the last bust. Not just Latinos, people from every third world country you can think of. Nobody’s factoring in that as far as I can tell. Let’s imagine the bunch of them stripping the places down, leaving the country and sending in their jingle mail, if they even bother. It’s gonna happen and good luck trying to even find them, much less make them pay.
“Oh, well that whole foreigner thing is a another complete issue that was not a factor in the last bust. Not just Latinos, people from every third world country you can think of. Nobody’s factoring in that as far as I can tell. Let’s imagine the bunch of them stripping the places down, leaving the country and sending in their jingle mail, if they even bother. It’s gonna happen and good luck trying to even find them, much less make them pay”
RE documents are dificult even for most of your average american citizen Joe-six pack to comprehende(comprende). Imagine your average recent immigrant family just in this country a few years being asked to sign for a house, being explained and prodded step by step thru the process by a first generation slick bilingual Latino Realtor. There is in fact a huge amt of selling going on in LA?Scal to first time immigrant families, and a burgeoning Latino RE Market. Probably 90% + using the usual 100 %financing, no doc, stated income, neg am, i/o. Many of these buyers will no doubt end up in foreclosure/BK and just walk out.
The consequences for their credit rating, IRS 1099’s, will fall only to the single Signee, who would very likely flee across the border and come back and get a complete new identity(fradulent ducuments, fake green card, SS) and escape IRS consequences.
The problem of massive usage of fake identity’s in the immigrant community is astounding, and has been gong on in Scal for more that 2 decades. Their use in Re transactions would be on par.
The Latino Realtors siging first time immigrant families are if anything less caring about the ability of their clients to handle the mort payments.
No reverse mirgration but we will get a spike in crime.
“migration”
I doubt if you will see a reverse migration. Most would prefer to live on the streets here before they go back to their countries and as much problems and complaints that they create, there is always a “smart guy” somewhere to willing to hire an illegal. From what I have been told particularly in the Latino case is that they are provided a copy of the documents in their language and then are required to sign a english version. I also have been informed that there are additional documents they are required to sign to re-inforce that they understand. The I didn’t understand what I was signing argument from a immigrant legal or illegal doesn’t stand up in court from what I have been told. The lenders do a fairly thorough job protecting themselves against instances like this.
Whoever is lending money to an illegal, is going to get burned really bad. Most Illegals use fake Socials to work, and fake documents. They have no problem “changing” social security numbers every time that they buy, strip and ship all the fixtures south. A lot of people south of the border will pay for a working toilet, or faucets.
I can’t see how Latinos would be greatly affected by this. I’m sure there are some, but aren’t the majority of Mexican immigrants in CA work more with cash and less on credit?
Although, as a linguistic nonprescriptivist, I affirm the semantic correctness of a native speaker of english using “illegal” as a noun, I find that it makes one sound like an asshat.
Seriously, do I have to follow you around and remind you of this crap?
HTH
“I wonder if we will see a reverse migration back to Mexico.”
Estimates of the number of people that have illegally entered the United States range from 12 to 29 million. At this time, many are afforded a wide range of free services, including emergency health services, welfare, food stamps etc. In addition, many business in the United States willingly violate the law by hiring them.
In spite of the coming real estate crash and recession, they have no reason to return voluntarily to their homeland. On the contrary, many view the southwest United States as their homeland (google Aztlan Plot) and have no desire to assimilate into American society.
How does this relate to the Housing Bubble? California is currently experiencing “white flight” as 500,000 whites have left the state in the last 5 years, millions of indigents as well as criminals from South America have immigrated to the state. This will continue to exacerbate the effect of the housing bubble in California as well as other border states.
“Estimates of the number of people that have illegally entered the United States range from 12 to 29 million. At this time, many are afforded a wide range of free services, including emergency health services, welfare, food stamps etc. In addition, many business in the United States willingly violate the law by hiring them.”
30% of all illegal/green card immigrants in California are receiving Medi-cal(from an La Times article).
in 2003, LA county had to foot the bill for 380 million in unreimbursed medical expenses from treating illegals without health insurance.
Freeman Memorial Hospital in inglewood may shut down their ER, making 11 ER’s facilities in Scal which have shut down due to treating to many uninsured illegals.
The region of Los angeles is popping up little Tijuana’s all over the place. You do not need to fly to Mexico for a vacation: it is right here on your doorstep. To get a good feel for the culture, stroll thru Huntington Park, Maywood, Alvarado st.,
Rampart,El Sereno, Boyle hts, Santa Ana, ect.Put on a serape.
Viva Mexico!! Viva America!!
Note:back in the bad o day’s of the 80’s and 90’s MacAarthur Park was the center for all kinds of illegal immgrant transactions,e.g, phony doc mills,ect. Have passed thru there recently and it is now amazingly empty of illigrants. Probably outmigrated to the bustling IE and desert regions.
I’ll kindly thank you to STFU and stay on topic. Thanks.
Also, I’m sure that no benefits accrue to society from the cheap (albeit gov’t subsidized) labor that immirants bring. I imagine that you all can trace your family trees back w/o finding an immigrant. No? Then see above.
What part of ILLEGAL don’t you understand Bruin? Do live in Greenwich with your mommy, are you a profiteer, or perhaps, tu stupidus es?
“Also, I’m sure that no benefits accrue to society from the cheap (albeit gov’t subsidized) labor that immirants bring.” Cheap labor is the only societal benefit you can indentify? You sound like the labor profiteers that threaten Americans with $20 heads of lettuce if we send them back to Mexico.
Peter, every weekend the city park in my hood is literally full of spanish-speaking indigents blaring mariachi music. The garbage is everywhere on Monday morning.
Oh Bruin, maybe you can tell us how many AMERICANS have been rapped, robbed and murdered by illegals in the last 5 years?? The graffiti is on the walls, maybe not in your neighborhood, but everywhere in mine.
RAPED! Need to get more coffee!
BTW, I’m outta here.
PS. I’m a law-abiding American. This is MY country. I’m going hiking and fishing in the Sierra’s this weekend and I have to go get my hiking and fishing permits. WTF is wrong with this picture?
Your lack of reading comprehension skills are baffling. I was implying that benefits accrue from the cheap labor, not that cheap labor was the benefit. Additionally, mentioning one benefit does not imply that it is the only benefit. If you were capable of this type of logic, it is unlikely that you would hold the positions that you do. Here is a great example of your wonderful logic:
“Oh Bruin, maybe you can tell us how many AMERICANS have been rapped, robbed and murdered by illegals in the last 5 years??”
“RAPED! Need to get more coffee!”
Is rape a good thing or a bad thing for you? I suppose it depends on the color of the skin of the victim. Perhaps you can show me why it is that I should care about AMERICANS (your caps not mine) more than others. Nationalism is a cancer that in minor forms leads to a quasi-benign jingoism and passive support for a hawkish foreign policy. However, in its more extreme, naziesque form it tends to lead to points of view like yours.
BTW, you cannot insert the word “illegal” used as a noun for Mexican and feign patriotism when you are arguing from the criteria of race and not immigration status. Incidentally, if you reread your post you will see that this is what you have done. Your racist point of view is completely without merit, and is pitiable.
QED, roma locuta est, STFU (Notice that I don’t claim to have sexually assaulted you.)
-are baffling.
+is baffling.
Sexually Assaulted!!
I’m going to drink water.
This is MY country… blah blah blah
Wow, after rereading your post, it seems that my reading comprehension skills are almost as bad as yours. I misunderstood your use of “RAPED!” in your second post, and took a correspondingly harsh tone. Mea culpa.
Comment by Fred Hooper
2006-09-01 05:28:59
RAPED! Need to get more coffee!
BTW, I’m outta here.
“PS. I’m a law-abiding American. This is MY country. I’m going hiking and fishing in the Sierra’s this weekend and I have to go get my hiking and fishing permits. WTF is wrong with this picture”
Will attempt to get out to the sierras as well: will hike in in the Bishop lakes basin in the fabulous Eastern Side Sierras. Need to escape from LA::
I’m a former lawyer (”recovering lawyer” as I prefer to put it), and it was explained to me in law school during my course on advanced real estate law that smart RE lawyers ride the cycle: they are RE/finance lawyers on the upside and bankruptcy lawyers on the downside. That way, they never totally run out of work. Of course, most RE lawyers deal with commercial RE, since the deals on that side of the business are a lot more complex and require more legal advice. And with commercial RE, the money involved on a single deal is so much greater, such that the bankruptcy side of the practice involves bail-outs, work-outs, etc., since the lender has more at risk and is better by seeing the project through somehow. Residential RE is incredibly simple, by comparison. Which means that the average FB has far fewer options, being no more an annoying ‘little fish’ to the lender with little to bring to the table for a work-out.
I suspect the smart RE lawyers started making the shift around the end of last year, and I’m sure they’re not lacking for work.
“Many of the underpinnings of the boom are still strong,…”
And these are?…
“…and the soft-landing scenario so widely promoted by economists and industry leaders is a possibility.”
Are these un-named economists possibly working for the housing industry?…
Joe is a homeowner…
Stop right there. Joe is definitely not a homeowner. Extreme debtor, yes. Greater fool, of course. The msm should really get with the lingo. Let me rewrite:
“Joe is a GF and an FB, soon to be foreclosed upon because he had his head in his nether regions. Joe has no hope, and the lenders are sure to lose money on Joe’s house because he had no skin in the game and the bottom is falling out of the real estate market.”
anyone have an opinion on when we’ll see 2003 pricing?
I’m getting close in 22151
In real terms, I’d say within a year
Flat,
I checked out your zip. I really like this gem in Edsall park on .25 acres. If my house looked like this I’d shave my dog’s a$$ and make her walk backwards (well, you know what I mean…)
http://www.realtor.com/FindHome/HomeListing.asp?snum=93&locallnk=yes&frm=byzip&mnbed=0&mnbath=0&mnprice=0&mxprice=99999999&js=off&fid=so&stype=&mnsqft=&mls=xmls&areaid=22151&poe=realtor&zp=22151&sbint=&vtsort=&sorttype=&typ=1&typ=2&typ=4&x=56&y=8&sid=072F99BF4EE7C&pgnum=10&snumxlid=1060724710&lnksrc=00002
Damn, that thing looks like it’s built out of Legos!
You are so right!!!
That house didn’t originally look like that, I guarantee you. I rented in that area off Edsall Rd. a few years ago. It’s almost entirely late ’50s starter homes (3br/1ba) built on nice big lots. Frankly, one of the nicest neighborhoods in the DC area for young families. The entire second story of that house looks like it was added on quite recently. By a blind architect.
We’re already seeing 2004 pricing in 20152. In think we’ll see 2003 by next summer. If we’re lucky, it’ll flatten out after that, but it could also overshoot*.
* [assumes that COLA has caught up with 2003 prices, so that they are now in line with the historic trend]
although it could be awhile, I do think 2003 pricing will return far before year 22151.
“‘Nationwide, approximately $400 billion of [home-purchase adjustable-rate mortgages] are scheduled to reset at some point in 2006,’ said Frank Nothaft, chief economist with Freddie Mac.
Well…in a Barrons article 2 weeks ago, an analyst cited the amount of the ARMs to be reset in 2006-2007 as $2.7 Trillion ….Yes as in “Trillion”
I assumed the $400 billion referred to the rest of ‘06 with the big acceleration due in in ‘07 and ‘08.
Yeah, the numbers are all over the place (I’ve seen anywhere from $1 trillion to $2.7 trillion for 2007). One reason appears to be that some are only using the amount of the first loan, while others are including the value of second loans (in an 80/20 scenario). Plus, I don’t think that any of these publications have hard data on all loans, so there is some extrapolition going on. But let’s just split the baby and call it $1.85 trillion in 2007 plus the $400 billion in 2006, gives us approximately $2.25 trillion adjusting in the next 16 months. That’s going to cause a lot of foreclosures.
“Now these cheap mortgages that fueled the real-estate boom are beginning to hurt the homeowners they once helped.”
These kind of statements really torque me. These loans never helped any homeowners, maybe a few speculators got out ahead with them, but not homeowners. What a load of crap. Those loans were bad news from the start.
I was at the gym this morning and this loan officer guy was saying that there’s a record number of forclosures. He was saying that a lot of people are not able to pay since the ARM’s are adjusting on their 1st 2nd and 3rd mortages. He said he’s never seen anything like it, and he looked like a seasoned professional. If this is the beginning I fear for the what the end is going to look like.
Good Lord! Who in their right mind would ever have a third mortgage on a place. A second is bad enough for most of these people since all it did was move debt around, but a third. Good mother of pearl!
Even funnier, I’ve heard radio ads where you can get twenty percent or more return on your money by investing in second or third postion mortgages. You have a better chance of seeing Elvis at the grocery store than getting that kind of return, if any. That’s if you don’t lose your total investment.
Dr Ray Stantz: My parents left me that house. I was born there.
Dr. Peter Venkman: You’re not gonna lose the house, everybody has three mortgages nowadays.
Chuckle.
Soon we’ll be hearing bums choking out: “Mister, can ya spare a mortgage payment?”
Here in Southern Cal, it seems the prices jumped a bit. I notice price reductions, but they are 50,000 off 600k tract homes. Couple of points I want to make. I live in a rented townhouse. My edison bill is 400 dollars. How in the hell are people running air conditioning in these huge houses? Also, had 2 co-workers buy last year, one in Goodyear, AZ, the other in Chino Hills, Ca. Goodyear has been on the market for 250 days, and Chino Hills paid 750k. Chino now wants to sell, but guess what? HE CAN’T. House is now worth less than when he bought. I warned him, but in a nice way. (Wow, you want to buy a house now?) And both on IO loans. And to top it all off, his aunt is the realtor who got him in. What a deal……
Yo - your gas/electricity bill is $400?! I live in NoCal, I have 4 kids, 3 are teens, a pool and hottub, and my PG&E bill is never more than $400. You might want to check for rogue electrical cords leading to your neighbor’s house.
I talked to my neighbors, their bills are running the same. Where are you in NoCal? looking to buy in Placerville when this is all said and done.
I have 3000 sqft in Arroyo Grande - $80/month all year round.
AG? Yeah, but I bet your WATER bills are heinous. I guess all of the minerals in the water here cost extra…
>>And to top it all off, his aunt is the realtor who got him in
Hrm … the rest of my comment got cut off. I was going to add, I bet that the Thanksgiving table conversation for that family will be a hoot this year.
I live in South Ventura and have not turned on the AC this summer! When I lived in Simi Valley I would never turn it off! 200-300 dollar bills in the summer were common (per Month)
I beleive Chino will be ground zero for housing hell in the greater So Cal area. It will be a slaughter house. Your buddie should take his hit now….it only will get worse out there. My ex-boss has a 4000 sqf house in Chino near the Prison and a huge Dairy crap land field….very ripe in the summer! Last year he was bragging about how much it was worth about 750,000.
The Goodyear house is probably worth much less also. It is a terrible drive into Phoenix.
” Listen hard and watch out.”
You can listen, but can you hear ???
Whole economy headed down the rectal sluice! Let’s put away all the happy talk!
Yep, I’m glad I work in a hospital.
Poor “Joe”. But at least he’s lucky. If his house is really in Silicon Valley (and not on the East Bay or out in Pleaston, etc.), it probabably will never lose more than, say, half its value! It’s still a nice place to live–weather, schools, etc.
If he had a house somewhere in Idaho, Arizona, Nevada, etc, it could go down to ZERO!
(I live in Silicon Valley–Sunnyvale–and don’t care one bit what my house is “worth”. Why? Because I never planned on it to be an “investment” or an “ATM”)
And the game goes on! Last evening when walking I saw a young couple (estimate in early twenties with small 2 yr old child) walking up to a 1300 sq.ft home (for sale at $649K) to check it out. They were just so happy when the RE agent drove up to me them. And guess what? Because of the affordable housing program and exotic loans they’ll probably be moving in within the month. This house has only been on the market 3 weeks.
Only $500 a sq ft…what a steal!
What a steal is right. That home couldn’t cost much more than $100/sq. ft. even with the materials costs. Ripped off is more like it. Sad that couple will be slaves for the rest of their life to a home they will never make a dime on.
I think, however, for many of these people who do hang on the theory is that if they can ever, and I use that loosely, pay off the house and sell even marginally, then they will have a giant windfall of money. Case in point, I buy an everpriced pos at $600K, if I can pay that damned thing off and sell it, even at $750K, then I have a huge amount in my pocket. I think that’s the way some of these non specuvestors are thinking. My brother in law is one them. However, there are too many ifs and they don’t account for all the money spent on the house while living in it for 30 years, i.e. upkeep, taxes, INTEREST ON LOAN, etc. etc.
“…and they don’t account for all the money spent on the house while living in it for 30 years, i.e. upkeep, taxes, INTEREST ON LOAN, etc. etc.”
Nor do they consider the opportunity cost of not having put into savings the difference between their total cost of ownership and the rent they would pay for a similar place.
More from the MSNBC article:
“The average life of a loan is less than five years, so why get a 30-year fixed-rate loan which locks you into higher payments?” says Teresa O’Dette, owner of O’Dette Mortgage Group in Tahoe City, Calif. “People are not buying homes to stay in them forever.”
O’Dette could afford a 30-year fixed mortgage on a home in the upscale Lake Tahoe area she lives in but instead chose a negative amortization loan with fixed monthly payments but an adjustable rate, currently at 7 percent. “So far, I’ve added $12,000 to my $900,000 loan, but the value on my home has gone up $300,000 since I took on the loan. If someone offered me $1.5 million on my house, that $12,000 extra is not much of an issue.”
Still, not all homeowners can expect to use rising house prices as a cushion these days.
Ms. Odette’s an idiot. She should have her license pulled. And how did she get $900k + $300k = $1.5m?
The value of my house has gone up $300K. BS. It isn’t 300K more until you have a buyer’s (bank’s) electronic deposit on YOUR account. That 300K is false equity as I like to call it. I like how all these peopl live in a dream world, maybe that is why debt is now considered wealth and being a debt-free saver and conservative fiscally is considered dumb by these same people.
I also like on the flipper shows they remodel the home. Dump about 50k into it. Then they have a Real Estate person come by and said this house would sell for $5 million dollars, even though they bought it for 100k and slapped some lipstick on it.
You haven’t MADE ANY MONEY UNTIL YOU SELL IT! These fools keep playing musical chairs. I bet she loses.
Her house has gone up anything until she sells it. What an idiot.
Because of the appreciation.
I sold a house in Lake Tahoe the summer of 04′, I zillowed it last week only to find that zillow estimated a $55,000 DEPRECIATION in ONE WEEK (it’s DOWN about 300K from when I sold it)! This is Incline Village so you can do the math on the rest of the areas up there. This gal is toast.
It’s not “Incline” Village anymore, I’d say.
I believe she meant she paid $1.2 million for her home, took out a $900k option ARM to pay for it. She says it’s worth owing $912k because it’s worth $1.5 million.
As has been stated before, when the money is in your bank account, then you know you have a profit. She is paying 7% now. She could have given herself a 5% 30 year fixed rate. Her rate is most likely going up. By my calculations, when she neg ams 15% and has to pay back principal, her payment will go up $4,400. Also, 7% sounds a little low to me for an Option ARM, unless she, being the owner of a mortgage company, gave herself the lowest margin possible. I wonder what the difference between the margin she is paying and the ones her clients pay?
What she’s spouting is textbook “sell an ARM no matter what” bs that most lenders/ broker shops tell their employees to say in order to overcome a borrower’s objections to getting anything other than a fixed rate mortgage.
What is really scary is that this doofus actually believes that hogwash and got one of those crappy loans for herself!!
I certainly hope we can check in on her 6-18 months down the line once her office has closed up shop, the value on her home has dropped, and she hasn’t funded a loan for 3 months.
This is an FB supreme.
Suzie Orman didn’t get the news about a Full Bust in housing…
http://finance.yahoo.com/columnist/article/moneymatters/8931
“Using home equity as an open checking account is bad for your finances, to say nothing of the stress it adds to a relationship. Oh, sure, you only intend to use it to live off for a year. But don’t kid yourself; more and more people — especially men — who leave the workforce choose to stay out, so they just keep draining the home equity.
The problem is that you can’t bank on the notion that the tap will never run dry. Unless you’ve had your head in the sand all year, you’re aware that we’re in an official real estate cool-down mode. Home prices are moderating, and even falling a bit, in some of the markets that were the hottest just a year ago. That means slower equity buildup.”
Just got back from the bank where I had to go to make a wire transfer, which gave me a chance to talk to the customer service/loan officer guy helping me. Bank seemed awfully quiet - asked him how the loan business was. Said business was good.
Took me awhile to get out of him that first mortgage business is dead but HELOC business is still strong. Top credits can get fixed-rate HELOCs for 6% (+ some fees) and it all still seems to be based on how good your credit is, not the general condition of the local housing market, which anyone can see is bubbly. Banks are behind the curve as always; there’s obviously something structural and fundamental about the banking business which forces them to play the game right until the end. Loan guy was very defensive about the general health of the RE loan making business and even got a little upset when I suggested that some of these guys (taking out HELOCs based on speculating on the never-ending appreciation of their property, obviously) were going to end up in the poorhouse.
What bank? They are going to go broke for sure.
At my main bank, there is are people apparently working for commission-only or close to it, who make mortgage loans. A different person, a regular salaried employee of the bank who probably makes a small bonus, handles HELOCs. A HELOC (at the time, anyway) would be totally fee-free, including the appraisal; a mortgage would involve the thousands of dollars in fees, junk fees and other closing costs that we are familiar with. Nowadays, they seem to be sliding into letting you convert your HELOC into a fixed-rate HE loan without the onerous fees associated with a mortgage. I’m wondering if that is the bank’s way of thinning out the ranks of commission-based mortgage loan officers.
One thing nobody is talking about is when sales are slow there are very limited comparable sales for appraisers to use in the appraisal reports. People might say well go back up to a year in sales but those sales do not reflect the current situation and are not really comparable. The whole system is ready to collapse due to people unwilling to catch a falling knife. Who could blame them. These exotic loans which the greedy loan originators pushed are causing a huge ripple effect.
statius,
What an excellent point! You may have missed your calling. As much spirited debate as there’s been regarding the futures I’m surprised this hasn’t come up before? Now there may be some “friction” or transaction expense but that pales when compared to keeping realtors and mortgage brokers fed.
This is so dumb. This article acts like the end of the bubble is all psychology. Wrong. The end of the bubble is simply that, with higher rates, and stagnant wages people no longer have enough money to make the monthly payment. It’s as simple as that.
I think it has a lot to do with psychology. If the general consensus was that RE prices were going to continue going up speculators would still be buying.
Nothing this big — as big as this housing bubble — is ever simple.
A lot of psychology in Silicon Valley. Many new arrivals, some since 1997) still think that SV will have a major Boom like that of 1999, therefore they purchased these homes using ARMs thinking they will one day work for a hot start up (like Google) with boat loads of stock options and become mega-rich. Given that stock options are dead and economy is so-so we are no where near the go-go 90’s. By the time you see the next Google like in 2004, its already too late. You should have been there in 2001.
Fact is the hot tech locations are in India and China! Thats where all the investment dollars are going.
What happened here in late 90’s does not have the chance of ever happening again.
“Mothers dont let your sons be programmers”! LOL
We are going to see a nasty drop in prices in Silly Valley, mark my words. If a recession comes… another 50-100,000 positions will be elimated.
Bob Schiller talks a lot about psychology driving most peoples investment decisions, not analysis, facts, reality or cost! Why would any idiot pay 500k for a house that is worth mayb 200k, same idiot that bought NT stock at $125 (it went to $1). I think a lot of this bubble has been driven by people trying to regain there “manhood” after getting wiped out in aformentioned NT stock. Investor Psychology/behavior is the driver here. Secondly, these bubbles we see are (as an investment professional in Toronto) I think driven by the un/conscious need by the baby-boomers to retire in style, the only problem is that they DON’T HAVE ANY MEANINGFUL SAVINGS. In my line of work you see these lucky ass boomer who’s been spoon fed all their life, by way of winning the demographic lottery; sacrifice or discipline is passe. They say, “hey we’ll just knock out a couple of ten-baggers and boom, we got the 1-3million ya need to sail away into the sunset”. I can’t tell you how many people I see and hear about; of folks who have been working for 20yrs, earn (family income) 150k and have saved about 150k in tax sheltered investments. They know they’re F*** so they say, “we’ll I need to make a coupple million in the next 10yrs…..um not at 8 -10% your not. This whole freedom 55 is a joke, north american’s have a negative savings rate. I just don’t understand this.
The result - a staggering bubble in RE. Why couldn’t the boomers have just been half the men and women there parents were. We Xer’s are going to have to work our friggin Asses off to clean up this mess, the only good thing I can authoritatively state is that having looked at a lot of portfolio’s across this country is that most boomers will have to work until they drop…….Though I’m gonna enjoy the schadenfreunde that the RE bubble is going to offer and maybe buy a home…..
I have that problem at home. We’re not boomers, but close, and I can’t convince my wife that reitrement savings is worth more than a big fancy house. She just wants the house.
I have another friend who’s only savings is home equity. He did buy the house 9 years ago, but he’s been living hand to mouth the whole time.
Bleh - what may appear to your wife as luxury living really means more work and expense for maintenance, heating/cooling, tax. I’ve been fortunate, our home isn’t very big, but its sufficient for our family. We’ve done some upgrades (garage, interior renos) but thankfully my wife hasn’t had the desire for a big house. The local bubble has jacked prices up here, but fortunately the assessed value hasn’t gone up as fast, and we were lucky to purchase our home pre-bubble, or at least before things got totally out of hand.
Someone mentioned NT - one guy got a second mortgage on his house and bought NT with it. That ended badly. Wasn’t there some kind of class action suit against them?
And yeah, it’s probably a good idea to have some savings just in case you need them. Two years of after tax salary seems like a lot for an emergency fund, but I’m sure having that much savings gives a certain peace of mind.
Two years of after tax salary also allows you to negotiate very aggressively on salary raises.
Once you make it clear that you’re not endebted to them, they cave in every single time.
Fear cuts both ways.
Tell her “LIFE IS NOT A FASHION SHOW, TRY TO GROW UP”
Heck, if my wife would work to support me and I could stay home and keep house, I’d stay out of the way re: her buying that house.
That is your situation, right?
“and I could stay home and keep house”
You make it sound like a picnic…it ain’t (if you have young kids).
arroyo,
Good for you for staying home to take care of your family! Unfortunately, not many understand what it entails (I do!!!). People seem to think it’s all Oprah and bon-bons. I’ve never been a big fan of TV, but watch way less now (with kids) than I ever did when “working” full-time (out of the house) and childless. What I do now (SAHM) is far more demanding than anything I’ve ever done before. I’m sure your experience is the same.
Taking care of kids is often a thankless job, but realize the only ones who “put you down” are those who have never done it, and have no idea what a tremendous amount of work you have to do.
Best of luck to you, and know that there are many of us who truly value what you do.
P.S.: tell the wife to back off on the house, already!
Read how realtors and other bulls are taking the news of a bust. There is no argument factual or well-reasoned to penetrate their logic.
My father-in-law bought an apartment unit in Tokyo in 1990 at the height of real estate boom. The tiny apartment (less than 700 square feet) cost US$1 million. In 2003, he bought another apartment unit of of same size in the same building and paid only US$300,000. Back in 1990, the real estate bull said that there was no space in Tokyo to build more houses and that the increasing population (more than 10 million now) would tip the supply/demand balance indefinitely and perpetuate the housing boom forever. Sound familiar?
Gotta hand it to the mainstream media. They’re really on top of things… wait a minute… this just in on my New York Times feed… John F. Kennedy shot in Dallas! More to come!!! Stay tuned for details!!!
ha ha, perfect.
Misstrail said….This is the deal: people who took out exotic loans are now saying they were lied to or that the contract was not fully explained to them. Guess who may pick up the tab on this????
——————————————————————————-
I just finished doing a stint of jury duty in Irvine, Ca (OC) and was reminded once again of why it’s not good to assume anything regarding the outcome of legal matters. I thought this case was going to be a slam dunk case of “street racing” - eye witness account by the cop, witnesses testifying about sqealing tires, burning smell and a long straight road that gets frequented by “drifters”. Yet, our jury deadlocked because some of my brethern could not believe that the nice young man in the sport jacket could be street racing with a souped up Escalade at 2:30 in the morning.
So, my point is this. Even with the new bankruptcy laws in effect, once these FB cases get to court and the FB’s sad story is told (”Ididn’t understand the loan” or “My loan officer made an unsually large fee”, I’m wondering how many judgements will be made in the defendants favor by juries? This could get interesting!
With the number of FBs out there, it could be a problem to put together a huge number of impartial juries.
“Do you have any particular opinions about mortgage lenders…?”
It’s called a directed verdict. I sat on a jury once that involved a real estate deal that had gone bad. Contract was clear - we didn’t even get to deliberate - the judge ORDERED us to come back for the plaintiff.
Ladies and Gentlemen, welcome to your soft landing!
…soft as quicksand.
Quicksand………..now that’s the word I’ve been looking for.
How well that word describes the slow painful slide in real estate values in a downturn