Bits Bucket And Craigslist Finds For September 17, 2006
Please post off-topic ideas, links and Craigslist finds here!
The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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Name:Ben Jones
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the new business week cover story is a real killer!
“What’s Really Propping Up The Economy”
spectacular graphs! and stats! worth reading
http://immobilienblasen.blogspot.com/2006/09/whats-really-propping-up-economy.html
wanted to add that this rivals the qulity of the “nightmare mortages” plus when you see these too topics togetehr you really wonder what is the future for the us.
it looks not very promising
An economy based on selling each other houses and caring for each other when we’re sick? When GW talks about the 100,000 new jobs added every month, where are they?
read this
http://immobilienblasen.blogspot.com/2006/08/us-arbeitsmarktstatistik-oder-enron.html
they “create” /”estimate” it vir the “birth/death” model
in 2006 71% of all jobs “createt” vere only estimates via the birth death adjustment.
how many actual working taxpayers does it take to support a gov worker ?
It is extremely unsettling that our country, as a supposed world leader, exploits and preys upon the sick and the poor by profiting as much as possible from their unfortunate and painful situations.
I think Bono summed it up perfectly when he sang “…the rich stay healthy and the sick stay poor.”
Es schaut schlecht, obwohl es auf Deutsch geschrieben wird und ich nicht Deutschen lesen kann!
i agree
i stimme zu
Ich bin ein Berliner!
You’re a jelly doughnut?
-
Myth
http://urbanlegends.about.com/cs/historical/a/jfk_berliner.htm
Aber, Sie konnen Deutch schrieben?
*schreiben* nicht *schrieben*, oder?
Ja, und “Deutsch” not “Deutch”. Ich kann nicht gut Deutsch. Es más fácil Español. Or, oh yeah - English will work.
Azo! Mein Deutsch ist nein gut und ich muss mehr studieren oder mehr artikel auf Englisch!
We’re going to have a hard time paying back our debt by exporting health care.
i think the problems will explode when this will com into play!
http://globaleconomicanalysis.blogspot.com/2006/07/medical-tourism.html
more from the brilliant mish
http://globaleconomicanalysis.blogspot.com/2006/08/healthcare-fiasco.html
sorry to post this piece by piece but the other efforts have failed
http://globaleconomicanalysis.blogspot.com/2006/08/healthcare-fiasco-continued.html
“After going overseas to outsource everything from manufacturing to customer services, American businesses — pressed by rising healthcare costs — are looking offshore for medical benefits as well.
A growing number of employers that fund their own health insurance plans are looking into sending ailing employees abroad for surgeries that in the U.S. cost tens of thousands of dollars more.”
Amazing! We are even outsourcing surgery. I wonder how liability concerns are covered on US worker surgeries which are outsourced to India?
Although most expatriates in Russia give birth abroad in their respective home countries both of my children were born in Moscow. I paid about $3,500 per child in probably the finest maternity hospital in Moscow. My wife had about five days to recuperate in a private room with shower, refrigerator, window, annd tv before coming home. Great care. Excellent attention.
On the other end of the spectrum my cousin’s husband who is in the military paid about $1.20 for the birth of his son when he was stationed in Cornwall, England. I think the low price was a combination of being in the military, socialized medical industry in England, and exchange rates at the time.
I worked for a self insured company in MA when I had my two children. In the early 90s, I had all the “luxuries” mentioned above although only a 48 hour stay. I gave birth at Brigham & Women’s Hospital in Boston, had multiple sonograms, amnios, all with one of the most coveted obgyn’s in Boston at the time.
I only paid $5 for each child (the co-pay). Healthcare has deteriorated very rapidly in the past 10 years!
Houses are difficult to export as well, although I suppose Chinese investors can repatriate their $US and become American landlords if they choose to do so.
Good information . Looks like health care and real estate has been the engine of the economy . United States needs to create different types of jobs and be productive in more ways .
The article you posted makes you wonder if it isn’t true that everyone is now catering to the baby boomers .
After reading this article I can see why the young people might of been vunerable to the flipping game in Real Estate .
Thanks for the post .
IMHO, Health care is the only industry that has pricing power, at least until medical tourism takes off. It can also absorb a lot of mid-skilled workers. Most other industries have to compete globally.
and it fits that in the us inflation calculation the cost for the whole medcomplex makes only a very small portion of the real living cost in the us.
REAL ESTATE
Condo slowdown trips up bulk buyers
BY MATTHEW HAGGMAN
mhaggman@MiamiHerald.com
The three men behind The Formula, which bought condos in bulk and flipped them, turned hefty profits when the market was good. When it fell, they turned against each other.
Back when condos were still hot, mom-and-pop investors all over South Florida waited overnight in lines that snaked around the streets just for a chance to buy in.
Not the men behind The Formula, a company that bought condos in bulk directly from developers and flipped them. These three — a paralegal with a taste for fancy cars and the heirs to a Dunkin’ Donuts fortune — made millions until the market turned, and they turned against each other.
The story of The Formula offers a glimpse into the billion-dollar game of large-scale condo speculating that played out from South Florida and the Caribbean to Las Vegas, waged in the shadows of the condo frenzy far from the eyes of ordinary buyers. It also raises questions about how much of the condo market is built on the greed of gamblers — and how deep and long the downturn will go because of it.
The owners of The Formula say they simply meet the needs of developers, bankers and investors — even in a down market. But real estate analysts say speculation, which accounted for 40 to 80 percent of the condo boom by some estimates, fosters a herd mentality that sends investors fleeing the market as quickly as they stampeded in.
Speculators made it look like there was a real demand for condos and paved the way for buildings that never would have gone up otherwise, some say. Now, the danger is they will leave empty condos and tanking prices in their wake.
”You just can’t build so many tomorrows of supply and generate these tremendous price appreciation levels and not pay the piper,” says veteran real estate analyst Lew Goodkin. He predicts the market will soften enough by next summer to offer opportunities for bargain-hunting buyers.
Five years ago, The Formula’s leaders — Brian Neiman, Farhan Naseer and Kashif Shaukat — were the best of friends. Cousins Naseer and Shaukat took over a slew of Dunkin’ Donuts franchises from their families, according to court documents. They claimed the stores brought in some $120 million in revenues over two decades before they were sold.
Jmf posted “What’s Really Propping Up The Economy”
Informative article, but it said later in the article the U.S. will probably dodge the recession because of growth in health care, and “do we want an unbalanced economy?” 1.7 million new jobs in health care versus 940,000 in construction. Let’s say 500,000 construction jobs and such disappear. It will mean 0.5 to 1.0 percent drop in employment. Hardly a recession-making thing. Yes, the article should be combined with the previous one and then I will say we are in dire straits. Combine 500,000 job cuts with a significant drop in consumption by HELOC’d people with larger house payments and it’s bad. Or if Helicopter Ben drops the rates, he will chase foreigners from treasuries and precious metals will continue their boom. Hence the catch phrase “cunundrum.” BB has to choose between inflation and causing the dollar to devalue and gold to skyrocket or a severe recession (500,000 jobs lost, combined with no consumer spending).
Interestingly the IT area lost 1.1 million jobs in the last 5 years and continue to lose more. Nice article.
No wonder health care is so expensive. Unless “medical tourism” catches on in a big way, health care providers (and certainly insurance companies as well) have a captive market, which allows them to operate wastefully and still generate large profits.
But I have to wonder where all of those jobs really are, since many surgeries have been moved to outpatient clinics, doctors are paid by how many patients they can shuffle through in a day as their practices become less profitable, and some specialists are changing careers to get out of medicine.
Meanwhile, the medical payment system is mess. In California, some insurance companies are being sued for retroactively dumping families that have large medical bills. Maybe they are counting the people whose job is to deny claims as health care workers.
In a related note, today’s “career builder” section of the LATimes lists the top six Southern California jobs on the rise. They are:
1. Medical Assistant
2. Dental Hygienist
3. Dental Assistant
4. EMT/Paramedic
5. Real Estate Broker!!!
6. Motercycle Mechanic
They predict that RE Broker jobs are “expected to jump a substantial 46.7 percent in the coming years”. Now if anyone on this board believes that prediction, I’ll be surprised. In fact, it makes me wonder if they are wrong about the medical jobs as well.
Taken together, maybe medicine as a prop to the economy is doomed, just another bubble. Not because of overbuilding or overemployment per se, but because ability to pay cannot keep rising forever without ruining the rest of the economy.
Sorry to go so far off topic, but this *is* the bit bucket
Maybe this discussion would be more appropriate for a general economics blog or a medical economy blog… But a normalization of the medical business would certainly have an impact on RE.
According to Ben Book 6 Chapter 9 Verse 17:
And the fifth seal was broken and a two headed beast was unleashed on Paradise. Upon the first head was a crown and on the crown was written “Property Taxes”. Upon the second head was a crown and on the crown was written “Insurance Premiums”. The people of Paradise pulled at their hair and beat their chests…
Excellent article with local color about the rise in property insurance premiums in Pensacola, Florida:
“The 83-year-old Midway resident knew — as virtually everyone does by now — that the hurricanes of the past two years have driven up insurance premiums.
What was shocking was how much.
Her annual hurricane coverage from State Farm jumped from $1,100 to $5,600 a year — a 409 percent increase.”
http://www.pensacolanewsjournal.com/apps/pbcs.dll/article?AID=/20060917/NEWS01/609170331/1006
An editorial about rising property taxes:
“Anyone who hasn’t figured out that property taxes loom as the next big fight across Florida — not just the Pensacola Bay Area — hasn’t been paying attention.”
http://www.pensacolanewsjournal.com/apps/pbcs.dll/article?AID=/20060917/OPINION/609170301/1020
lol — the Book of Revelation satired to the Housing Bubble.
Gotta love this Realty Times on excuses sellers are using to justify their prices…I’m appreciating some of the newfound honesty…
“What sellers say: “I need X-number of dollars from the sale of my house.”
The truth is: With all due respect, it doesn’t matter how much you “need.” The market determines the sales price of a house. I just saw a home that has now been on the market for 328 days in Loudoun County, Virginia — the sales price has dropped $150,000. That seller understands it doesn’t matter how much he “needs,” however, he would probably have sold it earlier if he would have dropped the price quicker. ”
“What sellers say: “There’s one special buyer out there … .”
The truth is: While this may be true in some instances, for most properties, there are several buyers — if you have the house in the right condition and price. Overpricing a property and waiting for a stupid buyer is a waste of everyone’s time.”
Wow, another reference to “stupid” buyers as the purchasers paying list price now…and the gloves come off!
Whoa, sorry about the whole tagged post…it’’s all from one link.
Sort of related (re: excuses people use as to what will sell a home). There’s a home that’s been for sale for a long, long time near my mom’s house. We drove by it yesterday. It’s had a “price reduced” sign for a long, long time as well. My mom said, “You know - I think if they’d lighten up this house it’d sell.” I asked what she meant by that. She said, “If they painted the exterior a brighter color (note it’s a brown brick with brown and slate blue accent paint - frankly I find it quite attractive) - it’d have more curb appeal and would sell.” I told her she’s been brainwashed by HGTV. The only reason the home’s not selling is that it’s too expensive. She said they’d already reduced it by $40K. I looked it up. It’s currently listed at $350K. Think they need to drop below $300K to get any interest at this point.
This house is also advertised as being a “custom home”. Yeah, custom to the person who built it ~30 years ago. Oh, and who no longer lives there so it’s custom to no one at this point.
What would happen to the housing market if lenders started requiring 20% down payment and only offered fixed thirty year mortgages? In other words, exactly like the world worked prior to 1985? How many people can make a $60,000 cash downpayment, plus bring an additional $4200 in closing costs to the closing? Then they can carry a $240,000 30-year mortgage and pay the property taxes and insurance? You wouldn’t be able to sell a home in America for more than $120,000 if you went back to “normal” financing.
You’re right, and that’s why I wonder how much teeth the new lending guidance will have. Just qualifying buyers by the fully amortizing payment, as is suggested, instead of using the IO payment, as it stands now, is going to drive prices down a significant amount, IMO. That’s if that even happens.
I am, dorkily enough, looking forward to Wednesday’s congressional hearings on mortgages in relation to the housing bubble. I am curious to see if and how the MBA, etc. argue against these sensible changes to standards, including allowing a borrower to borrow only what he can afford to pay back using his income (gasp) instead of relying on the appreciation of his collateral to repay the loan in full.
So few can now afford the 10 to 20% down for the fixed that its scary . If yearly appreciation rates go down ,why would anyone want a loan that doesn’t pay down the note?
They give you the option on these adjustable notes to pay down the loan but how many people can afford to do that ?
The fact that so many people want to sell within a short time of getting these new age mortgages tells you they are not good long term loans .
IMHO ,the lending industry was expecting constant refinancing of these products . Any lender that put a pre=payment penalty on one of these ARM products should wave it IMHO.
There were negative amortization Arms before 1985. We had one in 1983. I am not sure when they started.
What would happen to the housing market if lenders started requiring 20% down payment and only offered fixed thirty year mortgages? In other words, exactly like the world worked prior to 1985?
You wouldn’t be able to sell a home in America for more than $120,000 if you went back to “normal” financing.
By “exactly like the world worked prior to 1985″ do you mean when China was a communist country, the Berlin Wall still separated East and West Germany, the Soviet Union and USA were in a state of constant nuclear stand off, the USA only had a population of 238 million, few people had personal computers, the internet was non existent, 30 year treasuries were 11.8%, The Twin Towers dominated the New York City skyline, the Euro hadn’t been introduced and you could get 265 Yen for a dollar?
Or did you mean if everything else in the world worked as it does today, except for house prices and “normal” financing?
Hear hear!!! Let’s hear it for non-traditional lending bringing about the fall of communism!
In other words - how non-sequitor can we *possibly* get?
You have it the wrong way around packman, the fall of communism has brought about changes. Are you suggesting China has not played a part in the world economy since 1985.
The world moves on, you can’t pick and choose the things you would like to remain the same and ignore the rest. That’s life.
Actually there is one way, and I think it will happen with increasing frequency over the next many years. People can take money out of their 401-Ks, pay the taxes and 10% penalty, and have a nice down payment. It’s really not that big of a penalty to pay in the overall scheme of things and can definitely help act as something of a brake on the overall market.
But how many people actually have that kind of money in their 401Ks? You and I might, but I think we’re a small minority.
AMEN!
the best war ever / catapult the propaganda
http://www.youtube.com/watch?v=_qGAqA-muYU
warning: politics!
Great, the difference between europeans and americans is that in europe people tend to engage in more constructive dialogue with each other,discuss politics, economics etc. Even the average high schooler has some basic economic political awarenes. In america people are so conditioned to spend all their time consuming, planning to consume and seek out manufactured experiences that the skills of thought and comprehension are underdeveloped. I heard someone say that had there been a draft you would see more resistance to this war as we saw with Vietnam. From that perspective it makes sense that the admininstration, despite of manpower shortage, has resorted to any other means (including accepting criminals, drugabusers) to recruit new bodies.
WARNING OFF TOPIC MATERIAL
and they choose socialism ?
better let the stupid be ruled
“if everyone votes they’ll vote themselves circus and bread”
T Jefferson
Sadly, I’d have to agree with your statement about Americans in general. I think the reason I spend so much time on this blog is that it is such a relief to be a part of a group that not only recognizes these issues but doesn’t shy away from dissecting them.
Among my circle of friends, I sometimes wonder if I’ve been labled “Debbie Downer” (SNL character) for having brought up some of the subjects discussed here on this blog. In conversation, any comment I bring up usually doesn’t last long before the subject is soon changed to a more suitably upbeat comment…how someone’s vacation went, or how the dance or tennis lessons are going. I support people bettering themselves. But I can’t help but think that denial and avoidance run deep in our culture. At least locally, many cling to that “Brady Bunch/Stepford Wife” mask even though very few of us ever really lived it.
In order for a con game to continue, everyone must ‘think positive, ignore the negative.’
Another problem is that people think of dance and tennis lessons as ‘bettering themselves.’
All you can do is bring the subject up. As they are left swinging in the wind when TSHTF, at least you have done your moral duty and can then watch them strangle without guilt.
-
yeah, but 8 years of Klinton sure set us up good for 9-11.
http://www.infowars.com/saved%20pages/Prior_Knowledge/Clinton_let_bin_laden.htm
http://pathto911.abc.com/index.html
BTW, even ABC admits that most of that movie was made up. The facts (check the 9/11 report) directly contradict the sequences in that movie.
Yes, but Clinton knew at the time that Bin Laden was only a puppet of Saddam Hussein.
He was unable to marshall the Republican lead Congress to go along with his planned invasion of Iraq, Iran and Saudi Arabia to bring about Democracy to these countries.
“Yes, but Clinton knew at the time that Bin Laden was only a puppet of Saddam Hussein.”
That statement is patently false. Cheers.
“Yes, but Clinton knew at the time that Bin Laden was only a puppet of Saddam Hussein.”
Why are you trying to spread lies so egregious that even the MSM refutes them?
What language is that, I recognize the meaning but can’t make out any logic or sense out of it. I don’t know if I should laugh or cry….
And now from Cleveland,
“One in five house-purchase loans made last year by Cleveland’s top mortgage lender have already gone into foreclosure…”
http://www.cleveland.com/fraud/plaindealer/index.ssf?/base/cuyahoga/1158482126226180.xml&coll=2
But … ut … but… there’s no bubble in flyover country! Isn’t that what the “experts” are telling us?
Just want to keep the stream of links going. This editorial may have already been poated. Certainly worth a look.
http://www.financialsense.com/editorials/daily/2006/0915b.html
Great article. The following excerpt means this latest drop in gold is probably an amazing opportunity to load up on metal before the hyperinflation hits: “The fact is that the credit expansion has sharply accelerated during these two years of rate hikes instead of decelerating. During 2004, when the Fed started its rate hike cycle, total credit, financial and nonfinancial, expanded by $2,800.8 billion. In the first quarter of 2006, it expanded at an annual rate of $4,392.8 billion.”
It isn’t accelerating enough. Enough new debt has to be created to not only service (pay the interest on) previously created debt, but to pay for the cost of current existence.
The hyperinflation has already happened, the helicopters have already dropped their loads - it went into housing. As housing collapses, there is NOTHING to take its place for debt creation.
A debt implosion is on deck. Get ready for Great Depression Part II.
As housing collapses, there is NOTHING to take its place for debt creation.
Except maybe an endless war.
http://www.europac.net/media/Schiff-Bloomberg-9-8-06_lg.wmv
Peter Schiff represents all bubble bloggers in the first segment of this video.
That’s a great video. Thanks for the link.
WOW. He sounds *exactly* like one of us. OK, fess up, which one of you is Peter Schiff?
I like the the Bloomberg anchor person’s responses…”but everything is great, everyone has a job, the economy is growing, wages may be rising soon, how could we be facing a recession?”
More reporters need to read this thehousingbubbleblog.
Great link! Way to go Peter!
Front page Denver Post this morning. “No money down, a high risk gamble”. My two favorite stories were the carpet layer with a family of four and $30,000/year income that qualified for a house, only to find out he couldn’t make the payments, and the guy that could only show $809/mo. in tip income and some disability payments that bought a house with no money down and an extra $33,000 for renovations thrown in. The city condemned it because it was unsafe. Now he lives in a portable trailer.
Does the fun ever end?
Here is a link:
http://www.denverpost.com/business/ci_4347686
Idiots. Great advertisements for birth control. And the first FB is having another kid while their home is being sold out from under them. Perfect.
“Anthony, an independent carpet installer, met a real estate agent who assured the couple that shaky credit and lack of cash for a down payment were no longer barriers to homeownership. They ended up signing a loan that required them to pay off a $44,000 second mortgage in 14 months.
Once rare in the mortgage industry, nothing-down loans have become wildly popular in Colorado, where home prices rose rapidly during the late 1990s. And according to a computer-assisted Denver Post analysis, they are a leading cause of the state’s foreclosure epidemic.”
‘”The bottom line is, people in Colorado are borrowing too much money on their homes,” said Stuart Feldstein, president of SMR Research Corp., which tracks lending-industry trends.
“Seventy percent of the people who come in here got the wrong loan,” said Zachary Urban, a counselor with Denver- based Brothers Redevelopment Inc., which helps people keep their homes.
“There are very few people who have 5 or 10 or 20 percent cash to put down. Or if they do, who want to,” said Colorado Mortgage Lenders Association president Chris Holbert. “If you want 100 percent financing, and you qualify, can they turn you down because it’s not a good idea?”‘
Demand-side affordable housing programs have the unintended side effect of decoupling household purchase budgets from long-term affordability, and resulted in a paradox where homes kept selling at ever-spiraling prices despite analyses showing affordability below 10%.
Eliminating prudent lending standards like income verification and a downpayment have enabled low income families to borrow more money than they will ever be able to repay, and thus to buy more expensive homes than they can afford. Anyone who is interested in purchasing a home they can actually afford to buy (over the long run) would be well-advised to sit on the sidelines until the extensive margin of soon-to-be-disqualified borrowers who helped drive prices out of reach is out of the game.
LOL. First time I’ve seen this advocated in print:
http://www.itulip.com/forums/showthread.php?t=434
Who should be imprisoned — subprime borrowers, subprime lenders, subprime MBS investors, or all-of-the-above?
‘A Modest Proposal: The Free Market Solution to the US Household Debt Problem–Debtors’ Prisons
By Jane Burns
September 17, 2006
As the real estate bubble deflates and credit card interest inflates, it’s time to consider a dynamic new engine for America’s service economy—debtors’ prisons, the next logical step in a free-market economy in which easy credit has freed more us from the burden of saving and allowed us to experience “the good life.” But unfortunately many of us have failed to take responsibility for our financial choices. We borrowed too much and then declared bankruptcy, blithely erasing our obligations and leaving our lenders holding the bag.’
Our prisons are already letting offenders off early to make way for the newly convicted due to our present overcrowding. Let’s let out some more sex offenders/murderers to make room for the debtors…that’ll make life better.
The US has the largest prison population in the world in terms of both the number of individuals in prison and as a percentage of the population. What’s the deal? Are Americans just naturally more pre-disposed to criminal activity than other people of the World or are they just more stupid and get caught?
http://news.bbc.co.uk/1/hi/world/2925973.stm
Just out of idle curiosity, I called up the Kitco chart for 1979, when I bought my first house, and converted the price I paid into ounces of gold.
Somewhere around 80 ounces, and at the absolute peak you could have bought it with 40 ounces.
Blimey!!!
I’m no goldbug, but that calculation makes me consider whether I should get a few kilos of gold and silver “just in case”.
Bakerfield.com has some news on the jobs SLOWWWWdown from construction!!
http://www.bakersfield.com
3 articles and they are splashed across the front page. The REIC is not going to like this!
Comrade, do not worry. The thought police have been notified.
Prices only go up!
Oh, I used the greater than and lesser than comments above to highlight sarcasm… apparently that signals the server to remove text.
Oh… this is going to be a bad downturn.
Has anyone seen any cuts in the housing development signs yet.
Any starting froms going down yet?
Funny you should mention this. I have been watching a KBH billboard on the I-10 East, just after the 215 interchange and before Redlands, which once had “from the $X00,000″ posted (I forget X). A few months back they put a little star bubble on the top of the billboard that simply advertised a payment per month of around $1400. Now they have removed that and there is no pricing information whatsoever.
Here is an article which features an interesting debate on who is “suitable” for toxic mortgages. Not mentioned: Many of the MBS, whose originations helped screw up the incentives for prudent underwriting standards by taking default risk off the lenders’ balance sheets, are likely to end up sinking to the bottom of pension fund managers’ asset portfolios. At the end of the day, bankrupt subprime borrowers, blindsided pensioners and taxpayers at large will likely eat a disproportionate share of the cleanup costs for the toxic lending binge.
——————————————————————————————–
Nontraditional mortgages: Who’s suitable?
By Holden Lewis
BANKRATE.COM
September 17, 2006
Imagine that mortgages were automobiles, and you had the power to witness every sale. Every day, you would watch, dumbfounded, as pizza deliverers passed up Priuses and bought Hummers instead. You would cringe as 16-year-olds screeched off the lot in souped-up cars, destined to die young.
If mortgages were cars, you would see people making these mistakes all the time. Too often, consumers get home loans that are inappropriate or too risky.
Regulators are wrestling with the question of what to do about it. Whose job is it to decide that a particular loan is unsuitable for a specific customer?
“Who am I to tell you that you’re eligible for this kind of loan, but you’re not suitable for it?” banker Robert Broeksmit asked at a recent Federal Trade Commission workshop.
A consumer advocate retorted in an interview, “It can be boiled down to this: Don’t offer things that people can’t pay and really are rip-offs.”
…
Consumer advocates said lenders should subject applicants for nontraditional mortgages to a suitability test – “some duty to the borrower to make sure they’re not put in a loan that’s not appropriate,” says Stella Adams, executive director of the North Carolina Fair Housing Center. A suitability standard would be applied subjectively in a lot of cases. It would screen out egregiously risky loans.
Adams imagines a trade group coming up “with a general script that explains the differences between the products and is uniformly applied, so that people can hear an explanation. I tell you, three-page disclosures with ‘wherefores’ and ‘therefores’ don’t cut it.”
A suitability standard “would put some obligation on some part of mortgage lenders and mortgage brokers to not squeeze people into loans where they have no reasonable prospect of being able to repay them,” says Allen Fishbein, director of housing and credit policy for the Consumer Federation of America.
Adams and Fishbein spoke in favor of suitability tests at the FTC workshop. Bankers countered that the lending industry has built-in suitability standards. Riskier borrowers pay higher interest rates and sometimes must buy mortgage insurance. Mortgages are bundled together and sold on the secondary market to investors, who have powerful analytical tools to gauge just how risky a particular pool of loans is.
“If loans are being underwritten that will inevitably fail, there will be no buyers for those loans on the secondary market,” says Robert McKew, general counsel for the American Financial Services Association. “The secondary market acts as a regulator in addition to government regulation.”
But consumer advocates argue that the secondary market allows the mortgage industry to view foreclosures as just another cost of doing business. One foreclosure in a package of hundreds of loans is a blip on an investor’s computer screen, but it’s long-lasting trauma to the family that loses a house.
http://www.signonsandiego.com/uniontrib/20060917/news_1h17wrong.html
OT-report from Northern Indiana. This is a “nonbubble area” with little price appreciation during the past few years. The economy seems ok. Permits and starts have dropped sharply in the last month, with permits now down 50% since last August. By the end of second quarter our home price over 12 months is already down 2%.
I took a look at the Sunday RE section. About 60 homes sold last week. 20 of the sales were by banks, lenders and in one case, the Sheriff. About 10 sales from from estates that presumably offered very good prices and another 10 involved family members, in some of these the owner was apprently selling to himself and another family member–just an adjustment in the deed I guess. New listings are about twice as high as the sales and I guess that the average price is also twice as high as the avereage price of sold homes. Around here, a good quality 2,000 sq ft home might go for 180-220k. Not many Maybe one or two) of these or the bigger homes 500k to 1.2 million sold.
Looks like a long fall, winter and probably spring for people want to sell RE
Link for anyone interested in reading about Florida homeowners insurance problems:
http://news.tbo.com/reports/insurance/index.shtml
“Citizens Property Insurance Corp. approved a new one-year, 2 percent surcharge Thursday for all Florida homeowners, but another assessment of longer duration may be on the way next month.
The 2 percent surcharge will last a year, but if Citizens approves another 1 percent surcharge next month, the assessment will be applied to homeowner policies for 10 years. “
Link on Florida property tax situation:
http://www.sptimes.com/2006/09/17/Hernando/Beneath_anger_are_des.shtml
“Beneath anger are desperate residents”.
“..emotional residents some near tears.”
“The naked desperation was hard to ignore.”
“..she had to decide between buying a loaf of bread or paying property taxes”.
“Trouble in gated Tampa Paradise.” “…growing number of renters.”
http://www.sptimes.com/2006/09/17/Hillsborough/Trouble_in_gated_Tamp.shtml
Moving here from the midwest, where I had never seen a gated community before, I have found these gates as a nuisance and a little comical. One friend lives in a gated community where they leave the gates wide open during the day, when all the mostly 2 income houses are vacant and then close them at 6pm when everyone is home.
My son and I were in another gated area visiting another friend and I scolded him for leaving his window down. He said, “But Mom there is a gate here and no one can get in to bother our car”. I had a heck of a time explaining to him that it is the people inside the gates that I was worried about.
I rent in an area where there are no gates. It has a very culturally mixed population, interestingly enough, when I researched the crime tracker statistics, my area has virtually zero crime, and a lot less than any of the gated areas.
My sister and I live in a gated apartment complex. Gates are a joke unless they are guarded 24/7. We agree about the statistics. People tailgate to get in all the time. Who knows if they are crooks or not? Gates are left open all day Saturday. I have been to communities with guarded gates and they are seriously a lot safer than no gates and unmanned gates. I will never buy a condominium with unguarded gates. I’ll never park an expensive car where there are no guarded gates. Why bother having material wealth if you get burglarized. I was burglarized 2 years ago in Scottsdale by one dumb loser - the next door neighbor. He broke through the wall. He had less than two months of freedom because he was jailed 5 to 8 weeks after that crime. It was not a gated community. The more wealthy one appears, the more likely he will be a crime victim.
In addition to guarded gates, you also need patrols. In fact, patrols probably do as much or more good than gates do, if you are in an area where you need that sort of security.
Regarding the content of the following article, all I have to say (in the words of the late, great Herbert Stein) is, “Anything which cannot go on forever will stop.”
—————————————————————————————————
State’s middle class is relocating inland
By Jim Christie
REUTERS
September 17, 2006
OAKLAND – Father Mark Wiesner has grown accustomed to wishing parishioners bon voyage as they flee the San Francisco area’s high housing costs for California’s Central Valley, where developers are increasingly transforming farms and ranches into a new suburbia.
“So many young couples I marry have to go to Modesto or Tracy to start their married lives,” said Wiesner, a Catholic priest in Oakland. “They simply can’t afford to stay here in the Bay area and to buy a single-family dwelling.”
Tracy and Modesto are 50 and 80 miles east of Oakland respectively. Both have seen blistering growth in recent years amid a middle-class exodus from California’s famed coastal urban centers in search of affordable housing.
http://www.signonsandiego.com/uniontrib/20060917/news_1h17calhomes.html
Ford Motor Company and the macroeconomy: An article buried on p. A10 of yesterday’s Wall Street Journal is entitled “Ford Family’s Cash Faucet Goes Dry,” and discusses the fact that they are suspending dividends for the fourth quarter for only the first time since 1982. Which brings me back to the question I keep asking: Are we already in a recession?
I am taking Ford’s woes as a sign that they are not able to compete with Japanese automobile companies. The Japanese are planning to expand production in North America. It is not clear that the US automobile market has shrunk but has rather shifted from one company to another.
http://news.yahoo.com/s/ap/20060917/ap_on_bi_ge/japan_ambitious_toyota
Ford only builds three products that customer want to buy: the F-150 truck, the Explorer SUV, and the Mustang. At this point, probably only the Mustang is still selling well. Coupled with their pension legacy and labor problems, I am amazed that they are still in business.
At least they are finally facing the music. I sure hope their soon-to-be-ex employees have their mortgages paid off, or there are going to be a lot of REO properties near Ford plants over the next few years as the buyout money drains away. Coupled with the fallout effect on service businesses in local communities where plants are located, this is really bad news for flyover country.
If we’re not already in a recession, it’s things like this that will put us there.
I highly recommend that everyone read through the IMF Bubble Report that GS posted. I originally downloaded and gave the report a cursory read back in May but after GS’s most recent flurry of posting I printed it out and gave it a proper read. The report is excellent and covers a number of issues that many Posters have repeatedly pondered:
1.Length of time of a housing bust - four years as measured from
peak to trough;
2.Output losses related to a housing bust - 8% of GDP;
3.Probability of a housing bust – 40% chance after boom;
4.Housing price correction after bust – 30%;
5.Probability of equity crash accompanying housing bust – 50%;
6.Timing of output slowdown accompanying housing bust –
concurrent;
7.Timing of equity correction accompanying a housing bust –
concurrent to 2 quarters before housing bust;
8. Magnitude of equity correction following housing bust – 30%;
There are a number of excellent charts and particularly recommend figure 2.3 and 2.4.
A housing bust was defined as a price correction exceeding 14 percent. The key from the standpoint of making money is accurately predicting ahead of time when the “Bust” (as minimum a decline of 14%) will take place and be known to a larger audience. Since as GS has rightly stated that we have witnessed the “mother of all bubbles” than the corollary is we should soon see the “mother of all busts” and therefore substantial attention should be focused on predicting the “Bust”. Thanks for sharing the report GS.