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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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I think this is going to be one angle that the politicians use to try to pass some type of FB bailout.
“These are people who want to partake of the American dream, who have every right to, who really with a bit more work and a bit more financial planning could get there in a safe way, but who are lured - even seduced - by many of these lenders to go ahead and make this commitment too early, at a point before they’re ready,” he said.
http://www.baltimoresun.com/business/realestate/bal-te.bz.minority29sep29,0,2680447.story?coll=bal-home-headlines
Here’s another quote from the article:
“But housing counselors said they fear that some of the lending changes in recent years that have opened the door to more minority homeownership are double-edged. They said looser financial standards - and “exotic” products such as interest-only, no-money-down loans - have created a pool of buyers at greater risk of defaulting.”
We can all agree there should be no bailout.
There is still the question of who should bear the most brunt of the damage:
1. The ignoramus borrower who is blinded by stupidity.
2. The conniving lender who is plotting with cupidity.
Put the 2 quotes from the article together, and there is at least a strong argument that the damage should be borne at least as much by #2 as #1.
Thanks for the link!
Haven’t you heard of the American Dream Housing Debt Payment Assistance Act of 2008?
“I think this is going to be one angle that the politicians use to try to pass some type of FB bailout.”
GREAT topic. Include thoughts on likelihood, precedent, possible mechanisms for doing so, and probable ways of preventing such an event from occurring.
Absolutely agree this is THE main concern for most of us. Will the FBs or lenders get bailed out, how and at whose expense (think we know the answer to that one)?
I’m with bakabeikokujin. The lenders (and our pension/mutual/bond funds?) should be the main ones who get hosed. They **KNEW** better, whereas the FBs are often just completely ignorant and stupid. The lenders preyed on the FBs. Speculators (and those who purchased more than one home in the past few years) should also not get a single cent in a bailout.
AND HOW CAN WE PREVENT IT?
We can’t. The same well-heeled folks who brought you this bubble can buy the influence on Capitol Hill to steal the money from Joe Soccer Mom needed to keep it going.
I completely agree. This is one of THE topics to be hashed out.
Here are my criteria and thoughts:
1. No bail out for anyone. Whether you are lender or a borrower, you made your choice to lend or borrow, now deal with it. This will drive home the reality that you reap what you sow and you need to understand what it is you are doing.
2. If a loan was made to a borrower with insufficient income to meet the payments for a 30 year fixed interest version in that amount at that time, then the lender should be fined the amount of the loan. This is because the loan was predatory. All monies collected go into the Social Security general fund. The borrower still has to deal with honoring the agreement so they do not get off scott free for being stupid.
3. If a borrower is found to have misrepresented their income on a no doc loan, then they are guilty of fraud and should be prosecuted for fraud. In addition, said borrowers are banned from borrowing using no doc for life. “fool me once, shame on you. Fool me twice, shame on me”
4. If an appraisal value exceeded the comps for that house and then there was a cash back situation, then all of the “professionals” and the borrower should be investigated for fraud. Agents, Lenders, Brokers, Appraisers, everyone.
I believe in the Golden Rule and I believe that if I lied, or cheated, took advantage of anyone that I should be punished in some way. Many of the players in the pyramid will be punished with default, bk, and financial losses. But there are some who have been sly and wiley and have slithered away into the night with their ill found gains. Thems the ones who must be tracked down and stripped of their stolen treasures.
I realize that much of what I list here is simply not going to happen, but by putting it down it makes me think about it and maybe engage in some dialog with others on the pros and cons of it all.
Ed,
I really like your rule #2. Kills two birds with one stone. Nice.
Were you surprised or outraged by any of the reports you read this past week?
Personally, I was outraged by the gov’t artfully contrived headline for the new homes sales report. Honestly, it was the only positive turd bobbing up and down in the rising tide of despair. Mocking market reality. Taunting it. I was so outraged, I may have angered some folks by making inappropriate posts; for that, I apologize.
In addition, I was surprised by the guy who thought a 2% increase in his ARM equalled a 2% increase in his pmt. I was also surprised and outraged by the mind blowing report from California where the couple’s income equalled $2,700 and their mortgage equalled $4,000 yet at the closing table the RE agent said, “‘Don’t worry about it, we’re gonna immediately refinance it.’” Finally, I was surprised by the 30% price cuts offered by DR. Horton; If you missed it, here is the link: http://tinyurl.com/rzpnz
I think it’s normal to be outraged.
I think a lot of us are.
We just had too much of Alan Greedspam in the past!
It won’t help. Nothing will at this point. They can’t control everything.
The professional responsibility for not lending other people’s (i.e., bank depositors, MBS buyers, etc) money to people who can’t pay it back lies with the banks and mortgage brokerages. I doubt that even half the population is capable of truly understanding the mathematics underlying mortgage lending — if a supposed expert (and would the average person not expect a mortgage broker to be an expert?) tells someone of average or lower intelligence that they qualify for a loan, why would they not believe it? Why would they suspect a broker or bank loan officer of intending to defraud MBS buyers or bank depositors (to get comissions/bonuses) by giving them a loan they won’t be able to repay? Most people probably think of even the brokers as bankers, and don’t expect them to be crooks.
I agree with you ,but I think a borrower knows it when they inflate their income by 75% on a loan application . Alot of these people just felt that they would be priced out of the market or they wanted to get in on the frenzy of the big housing appreciation boom .Also ,what business did the real estate people have in showing people properties that the payments exceeded even their gross monthly income .These are the people that set the deal up to begin with ,and I’m sure they knew which mortgage brokers to go to to get the deal thru .
Its clear that the real estate sales people discovered that you could get anybody on any loan so they were going to take advantage of it and make a wade of money .
Right now in almost all areas you have people paying excess property taxes because of this excess run up in property values .
When you create demand for housing by unqualified buyers and speculators ,you are creating a false market that is not stable .This correction is going to be ugly .
Actually, the math involved is pretty simple - especially if you paid attention back in 8th Grade - basic arithmetic, percentages and compound interest. Nothing that someone with a GED and a calculator couldn’t do.
But…..shhhh! Don’t tell anyone!!
It gets a bit harder when you have to factor in the probability that prices will go up or down, or that politicians will intervene in some way to make the FBs keep on looking like financial geniuses and the savers keep looking like fools, or that global events like the collapse of the symbiosis / conundrum will take the bailout option off the table. Let us all know how to do this when you have it figured out.
I’m waiting for the day when the collective conciousness of this board expresses outrage towards our government and especially our monetary system. The housing bubble/implosion being just one example of a defective system. When will the public start questioning the existence (not to mention the intelligence) of a private banking cartel issuing our currency, or the all encompassing power of the federal gov’t?
It is painfully obvious that our government is lying to us and manipulating data on a daily basis. Both parties appear to be onboard with the deceit and manipulation. From the war to our sense of economic well-being, we are being “managed” by select news media coverage and “bread & circuses” type television programming. One has only to watch an overseas news channel to be convinced of this. Our monetary system appears to be set up for imminent failure, an event apparently baked in the cake from it’s first day of inception in 1913 but successfully delayed, for now, through manipulation by the FED over the intervening decades.
While the sheeple have been calmly grazing on successive tranches of MEW and American Idol, the highest paying jobs have been gutted and sent overseas, the signing of presidential orders (PO’s) waiving most civil rights in a declared emergency have occurred, the right of the president to unilaterally declare an emergency or wage war has been upheld (through a “no-challenge” congress), KBR (Haliburton) has received a no-bid contract for construction of large containment facilities in the U.S. (prisons), the implantation of radio I.D. chips in passports is slated to start in early 07′, all cattle & pigs being raised for sale or personal consumption will face mandatory implantation (assuming that legislation passes), National I.D’s implanted with RF chips has been gaining momentum in congress, wells on private land are being metered (or attempting to be). Archer-Daniels, Cargill, et al, have introduced genetically altered seeds which will not reproduce hence future food production will be reliant on attaining seeds from a central distribution point, borders have effectively been opened to the south causing a slow deterioration of the quality of life in many towns and cities from the influx of so many poor people needing services and increasing crime. The SPP legislation with vague reference to a “north american union” is being implemented behind closed doors. I could go on and on but the reader should get the point that the “herd” is being slowly directed towards an unknown destination.
Those of us who have had the temerity to express outrage at this systemic gutting of our liberties/constitution have been labeled “gloom and doomers”, “Tin foil hatters” or “anti-american” among other names. Given the ability of the administration to indefinitely incarcerate someone labeled a terrorist I suppose we should be grateful we haven’t been called that (yet). By the time the average american dolt awakens from his consumption induced slumber to realize the extent the constitution has been gutted and he has been “corralled”, I fear that the ability to resist will have been co-opted by debt obligations. That is to say, I believe the average american will gladly trade off liberties he no longer has anyway for debt forgiveness legislation, not realizing that the “money” he owes likely did not exist at the time he first thought to borrow it.
The outrageousness and scope of this swindle is too large to contemplate at times.
Now as I watch Bloomberg out of the corner of my eye I see that the house voted to authorize domestic wiretaps without a warrant. Nice.
There is probably no escaping the carnage likely to be visited upon the U.S. citizenry but as someone who took the same oath as the president and congress to defend the constitution, I’m outraged at the prospect of being forced to leave the country to secure freedom (both financial and personal) for my family.
(rant off)
Auger,
Agree with you on most of this…but what is that about pigs and cattle being implanted with RFIDs?
My mother lived in Vienna during WWII (and most of her friends lived through that as well), you have to hear the stories about how some were trying to warn other and being called “crazy” until it was too late. That’s part of the agenda. Label those who do not go with the program as dangerous and/or crazy, and allow the govt to do as they wish with them.
There is pending legislation, I believe through the NAIS(?)(some agriculture subset of the gov’t) that will require this implanting under the guise of controlling mad-cow or some other such orchestrated worry. I am currently in southern MO. The cattle ranchers around here are scheduling townhall meetings to try to cut this off at the pass so it has been in the papers quite a bit. This legislation, like most others, will be implemented by “hook or crook” if the PTB so deem it.
Augur-inn,
I live in NYC,never heard of this before, do you have a local news source so I can read more about this…the NYTimes hasn’t mentioned it in this neck of the woods.
Thanks.
Wow, great post, you really packed a lot of polyevents into a central theme.
“..genetically altered seeds which will not reproduce hence future food production will be reliant on attaining seeds from a central distribution point…”
And don’t forget Monsanto, patenting seeds, so that when
the seeds from one farm blow onto their neighbors land and grow the farmer has a choice of ripping out the corn or paying royalties.
Good to hear news from the “Show Me”, state, where there is a conscousness of the idea of true land ownership.
http://animalid.aphis.usda.gov/nais/index.shtml
I don’t know if this link will work because I could not copy/paste it from this web site. Nothing will copy/paste out of this site, has anyone any idea why this is?
Regardless, go to USDA and research NAIS which apparently stands for national animal ID system. It is already implemented and they want to “register” ALL private premises. The site says that so far they have registered over 314K “premises”. The noose tightens.
Damn Auger, that was a good rant. I don’t think you’ll find safe haven in another country though. Read Buchanan’s new book. National ID cards are coming in 2008.
I hear you Auger.
How about when you call BS on some of the “big plans” (say wire tapping) and the fellow next to you shoots off, “What’s the matter? You got something to hide?”
I mean WTF? People just don’t get “it”.
Nice post. While reading your post, I could not help but imagine what my reaction would have been if I had read something like this in the 80’s (outlining our times). Many of the problems you describe appear to be straight out of a science fiction novel aimed at outlining catastrophes that could surface in the next millennium. Problem is, all these problems now exist and we are faced solving them today—the cold war seemed easy compared to this!
I also agree that this housing bubble is really just a symptom of much more severe problems faced by our country.
Auger,
Nice post. I find that I agree with most of what you say and yet at the same time can only hope that an alternative exists. I’m still looking.
Vert
Vert
It’s reasons like this that put firearms at the top of my Christmas wish list. BTW, auger, have you seen “V”? It’s set in England, but they make references to the “ongoing civil war” in the U.S. Somewhat prescient??
TJ, I’ve not seen or heard of that. Where would I find it?
TJ,
You are correct. A government which seeks to disarm its people seeks to control its people. As to my referencing friends and family who lived through WWII, when asked why they didn’t “do something” about the atrocities (personal stories about families having to hide their children in holes in the woods at night so the soldiers couldn’t rape them, etc.), they said they had turned in their guns before it all came about. They were told it was “for their own good” to disarm. Sound familiar?
This weekend marks the end of September.
How did September compare to August for;
1. Existing home sales, prices and inventory?
2. New home sales, prices, inventory and incentives?
What can we expect the September numbers to look like?
1) Existing home sales down, prices down, and inventory slightly down from August. The reason for the inventory decline is withdrawals and expired listings that don’t get relisted. There have been more listings than sales for quite some time.
2) I don’t have stats on the new homes, but from anecdotal evidence I would say that prices are down and inventory and incentives are up.
new homes sell when you through in hookers and a free garage
resales can’t quite compete
Anyone using ‘housingtracker.com’ knows the end of the month numbers drop slightly, probably for the reasons you note. They pickup with the next week’s report.
Market Maven said:”In addition, I was surprised by the guy who thought a 2% increase in his ARM equalled a 2% increase in his pmt. I was also surprised and outraged by the mind blowing report from California where the couple’s income equalled $2,700 and their mortgage equalled $4,000 yet at the closing table the RE agent said, “‘Don’t worry about it, we’re gonna immediately refinance it.’”
Yes, I agree that everyone should be entitled to the American dream, however,FB’s need to accept personal responsibility here…
Now really, who is going to believe their payment will only go up 20 bucks on a adjustable? If that were true, everyone would be doing it. Everyone has the capacity to do RE market research, and should know there are troughs and peaks in RE. They should know based on their income how much house they can afford, instead of letting an agent tell them what they can afford.
All I can say is- buyer beware.
No offense buy your universal assumption “everyone has the capacity” is a bit flawed; if that were true, there would’nt be so many FBs. I would agree, however, everyone has the opportunity not necessarily the capacity.
What’s more, the problem with manias is a surprising percentage of people detach themselves from reality and reason; they get caught up in the moment and simply stop thinking about the consequences if things don’t work out like they assumed or expected.
David ‘Are you missing the Boom’ Lereah is a perfect example mania detachment. He’s got egg all over his smug twisted face. DL was so sure of his expectations he wrote a book about it and as a result has lost credibility and opened himself up to torturous ridicule.
On Amazon the first two reviews (ie most helpful) of Lereah’s “Missing the Boom” give it one star. I’ve never before seen that on Amazon.
http://www.amazon.com/Real-Estate-Boom-Will-Bust/dp/0385514352
If the ranks of the FB’s grow big enough, and the screams grow loud enough, it is politically inevitable that governments at all levels will “do something”.
What would be the best “something”?
What would be the most likely “something”?
In Australia the Federal Government has a scheme whereby First Home buyers get a straight out gift, currently $7K I think. The stated aim is quite openly to promote home ownership, which is seen as a social good. This scheme has bipartisan support, and it would be absolute political suicide for anyone propose abolition.
Needless to say the grant has gotten factored in to house prices.
Now when the GST (a VAT) was introduced in Australia, there was a lot of concern over its impact on the house building market. The government in response temporarily doubled the grant if a new dwelling was purchased. (And yes, rather to some commentators surprise, this extra grant did get progressively removed and no longer exists.)
I would not be too surprised to see some sort of mechanism like that at least proposed in the US if the housing market really tanks.
Likely: There will be a moratorium on lenders forcing evictions after foreclosures (in the event of a hard recession/depression or systemic financial collapse).
Yes, I believe there will be some sort of bailout at taxpayer (future generations) expense, to the benefit of primary lenders.
To reduce jingle-mail and extend the timeframe of the impact to lenders, it will possibly a scheme that includes a tax deduction for individual homeowners, in the form of a ten-year schedule, as long as the buyer remains in the home for a certain period of time.
Has this been discussed anywhere here?
a bailout at future generations expense?? Isn’t that how we’re financing the war (s)?? How many future generations are we crippling??
I’m beginning to hate my own country. Am I the only one that believes in saving money and not living in debt? I work 2 jobs from 6am untill 8pm every day of the week and have a 3rd job that I do on weekends. It seems that people like myself are few and far between. People are just looking for the next get rich quick scheme. Which when it fails I’ll have to bail out with my tax money.
And BTW I have 3 jobs, but am still priced out of the San Diego SFR market.
These days if you are saving money, you are outright weird.
i think you need to make 300k/yr to afford a sfr in san diego
I make a decent amount of $$$ and so does my wife. We are both young professionals.
Right now I’m considering buying a house in a different market for the tax benifits, renting it out and paying it off in about 2-5 years.
I can’t believe SD has come to a point were people working their asses off can’t afford a place to live.
I’m with you on this. I no longer feel that there is much integrity personal or societal in America–I feel trapped in a rigged dice game.
Count at least two of us out of debt and saving–and without a mega salary. Hold the borrowers responsible–they abandoned honesty and common sense when greed and a sense of entitlement took hold. Were they scammed by brokers and realtors–quite probably, but so what. They volunteered, with greed dancing in their little eyes. These folks vote, drive, reproduce and presumably have jobs–reality is not an alien concept to them. So they screwed themselves financially because they were greedy–so what–take the consequences and shut up.
I am in the same boat (3 jobs, + my wife’s income, priced out in SD). And I, too, am a foolish saver, even though I have to climb a wall of worry in order to save.
You are completely wrong! Why would you hate your country? You should love it as there is plenty of work for you to have as many jobs as you can handle. I suppose you never lived anywhere else to see how hard is when there are no opportunities. Just rent for now, save big (allocate all the earnings from job #2 and 3 to a big downpayment), wait a couple of years, and you’ll get your dream SD home. Oh wait, you might need to work those jobs anyway to keep up with maintenance, propoerty taxes and the rest.
In honor of Gary “it’s in the bag” Watts, I’m curious what other readers can say is in the bag. For example:
1) Continued price declines simply due to the physics of prices aren’t going up, so if they stay the same, and last year at this time were creeping up, YOY has to go down!
2) Builder incentives appear to be giving way to price cuts. This will start to appear in upcoming data.
3) If according to NAR we’re going to level off, with $1 trillion resetting next year (and $300M already), there will be more sellers, higher inventory, etc…
4) Bad loan buy-backs and upcoming lending standards will tighten the money supply, even a little will do harm to the REIC.
Negative YOY appreciation in The OC for 2006 (not sure it will be -15%, but that is not out of the question).
A contrarian perspective here, but worth a thought:
In honor of the esteemed Mr. Watts, we may indeed have an “inverted” year as far as YOY sales numbers go. Since the market significantly slowed in the fall of 2005, the YOY comparisons so far have compared a relatively strong period (first half of 2005 — strong) with a very weak period (first half of 2006 — “silent spring” and “summer bummer” — tx Robert C.). These YOY sales volume drops have been very dramatic so far (20% to 50%+ in formerly hot areas), but will likely be less dramatic (sales volumes off 5%-15% or so, YOY) as we begin to compare slow market to slow market. To those who are not aware of what’s been going on, these numbers can (and will) be spun to show how the housing market is “stabilizing” and getting ready to take off in spring 2007. I think spring 2007 will be our first significant DCB (dead cat bounce).
Of course, the DCB will be very short and shallow, and will occur against a backdrop of rising foreclosures and the “official” start of the recession (which really began in 2000 but was masked by the credit bubble).
I think we will continue to see prices tumble in fits and starts well into 2010, if not well beyond that.
Just MHO.
RENTS :
are they increasing
not in my hood ,and there is 0 new housing or condos here in 20 years- how about yours ?
Good topic. Rental myths, historic trends and future predictions.
I believe if you review the commentary from the REIC lately, it will become obvious that they are trying to create fear in the mind of the renters, that renters should buy now or pay higher rents. This will help to alleviate the burden on investors and speculators, increases rent-to-value ratios and strengthens prices.
Rents in our neighborhood are up 40%+ from 2004 prices and they are renting out very quickly.
How about that we promote ONE criteria, and this one only that is the basis of whether one should be given a home loan or not. That simple criteria is, can this person be reasonably assumed to make the payments back over the lifetime of the loan? No government quota, no racial or any other BS, no ‘trying to make the numbers work’ lying, etc. If one has the money, go for it. Otherwise, there is no shame in renting.
I have a question regarding mortgage rates. How are they set and why are they going down?
Mortgage rates are not “set” by anyone except the individual organizations that directly make the loans. They borrow the funds in open markets, either as banks borrowing money from depositors (your checking and savings accounts are loans from you to your bank) or in financial markets, or as mortgage lending companies selling mortgage-backed securities. They borrow at some interest rate of X%, lend it out in mortgages that they predict will (net of defaults) yield X+D%, and book the difference D% (less costs) as profit (this is a an oversimplification, but captures the essence of the business).
The real reason rates are so low is that the Chinese and Japanese governments subsidize their export industries by selling bonds to their citizens and using the money to buy bonds in the US. In essence, they lend us the money to buy their export manufacturers’ stuff, and book the extra export income (above what they’d get without this stealth subsidy) as profit. Because we can never repay that borrowed money with anything of value equal to the stuff we bought with it, this is basically a fraud by the Asian government’s upon their citizens, just as the loose lending by the mortgage brokers and banks is a fraud upon the MBS holders (who are, now, often the Asians, making them doubly defrauded).
Correct me if I am wrong but mortgage rates generally follow the 10 yr note; lately it’s been trending down.
They track the 10YR only because the MBS’s avg interest rate is close to the 10 yer T Bond rate. Which IMHO is stupid. Who wants to assume the risk of mortgage holders paying their notes? In fact the whole bond market risk/reward ratio is so out of skew - US 10 yr Tbonds APR 4.62% , Venezuela 10 yr T Bonds 5.73% Que Pasa? That ia skew when the “safest economy” in the world and one of the riskiest are only one hundred basis points apart.
Some who post here have expressed doubts about the recent return of irrational exuberance in stock prices. It may be comforting to know some professional traders are as doubtful as some of us are. From the right column lead article on p1 of today’s WSJ:
————————————————————————————————-
Riding the Beast
———————
As Stocks Near a High, Pressure Builds for a Professional Investor
—————————————————————————————
Market Throws Many Curves At Jon Brorson as He Strives To Fathom Its Dynamics
————————————————————————————————-
Tense Days, Sleepless Nights
—————————————-
By E.S. Browning
———————–
As the Dow Jones Industrial Average flirts with a record high, Jon Brorson is sitting at the base of what professional investors call “a wall of worry.”
Mr. Brorson, a chicago money manager with $2.3 billion under his supervision, is one of many doubters who stayed on the sidelines as the market marched ahead this summer. Now the Dow is up 9% in just over two months, within five points of its record closing high of 11722.98 after briefly crossing it yesterday. Investors like Mr. Brorson figure others are driving it too high, setting it up for a fall. They’ve been expecting a slowing economy to shrink corporate profits and lead to a pullback.
Oddly, these doubters are part of the dynamic that has led the market to do well.
————————————————————————————————–
Akuna matata, dude — the market has clearly achieved a permanently high plateau!
When did this term “wall of worry” enter the lexicon? I have seen the phrase used quite often over the past couple months but do not remember it being so prevalent when I lived in the States. Is this something new?
“Climbing a wall of worry” is the expression Wall Street traders have traditionally used to describe a bull run in the stock market. I am using it in a new sense here to reflect the fact that a traditionally conservative financial move of saving more money than a household earns is suddenly fraught with risk when the savings rate is negative. The problem is that politicians tend to favor policies which will win them a voting majority, even when such policies create incentives for collectively destructive behavior, such as spending the country into bottomless pit of debt.
Thanks GS.
I kind of understood how it was used and caught your new application of the phrase. I didn’t understand if it was an old phrase which had been around for fifty years or a relatively new phrase coined in the last last fifteen years or so I have been overseas.
Topic: “What a difference a year makes”.
Where we are now vs. a year ago. Sentiment change in the general populace, the *very* rapid slowdown (faster than most of us would have predicted), anecdotes from then vs. now., changes in sentiment by the “experts”.
Holy moly! If true, KABOOM! POP!
http://yahoo.reuters.com/news/articlehybrid.aspx?storyID=urn:newsml:reuters.com:20060929:MTFH01526_2006-09-29_14-57-39_NYE000044&type=comktNews&rpc=44
“kept intact a proposal that says banks must qualify borrowers for popular payment-option and interest-only loans at a “fully-indexed” rate — the highest rate that they could incur over the life of the loan”
I have heard this new rule mentioned a few times, but I had no idea how strict the proposal would be! Unfortunately, there will probably be many loopholes to get around this rule.
For example, the borrow could state they plan to refinance the loan in a year; therefore, they only need qualify for the teaser rate. What, you didn’t you read the fine print? Life of loan is equal to the amount of time the borrower foresees the loan being active, not the number of years specified by the original loan. Everyone refinances after all (being sarcastic of course).
I understand this board’s general skepticism of the new OCC lending guidelines, but please, read the darn things first before saying things like, “there will probably be many loopholes to get around this rule.” (Don’t mean to pick on you in particular, VR — as this attitude seems to be the knee-jerk reaction of most posters here).
The amazing thing about the guidelines is that they address almost every loophole you can think of. It’s good stuff. Read it.
I wouldn’t doubt these guidelines came from this blog, as they are identical to some of the suggestions posted here on Ben’s blog.
If you ever had any notion that the banks/lenders are less adept at screwing with logic than the NAR:
The “biggest US lenders”, according to the article, are against the rules because they will make homes “LESS affordable” for people- lol!
The big lenders are on your side , little guy!
I think everyone knows that, in the real world, the best way to make housing affordable is to put in place the strictest lending rules possible. And get rid of all the government “help” with buying homes. The price of homes would crash overnight.
“I think everyone knows that, in the real world, the best way to make housing affordable is to put in place the strictest lending rules possible.”
———————–
Absolutely 100% correct!!!
What happened to listening to your gut instinct or the old saying if it is too good to be true it is (can’t quite remember quote)? To quote a First Lady “Just say No.”
I will admit that there has been many times when I have felt the need for greed. However, my gut instinct and good family advice has kept me from becoming a FB.
I’ve always been just short of being able to buy a house. I believe strongly in saving for the down payment (at least 20% so I don’t have to pay PMI) and getting a 15 or 30 year loan. Now that I’m 50 and can put 20% down or more, I don’t know if I want to buy a house even if the prices come way down.
I was born in San Francisco and was raised in San Mateo County. I can remember in the 60’s signs advertising 99.00 down, 99.00 a month for a new house in San Jose. Of course I remember the orchards before Silicon Valley took over. I also know what houses were worth at one time. I do understand that housing has gone up. However, here in San Mateo County, it is just insane paying an 800,000 or more for a house that sits under the airplane route.
I have wondered over the past few years how people in the Bay Area can afford to buy a house. Now I know, thanks to this blog and everyone who posts.
BTW, I’m a renter and have a landlord that just wants good tenants and has kept the rent below market level.
Sorry for the length of this.
From p. C3 of yesterday’s WSJ:
SEC and CFTC Pursue Suspicious Treasury Trading
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Washington — In a warning shot to the nation’s massive bond market, a Treasury Department official said the SEC and CFTC are pursuing cases related to questionable trading practices in the market for U.S. Treasury securities.
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Questionable trading practices??? I am shocked and appalled…
I’m shocked that there is gambling in Casablanca
Do you remember the older Dean Witter Commercial “We earn money the old fashioned way, we steal it.”
Ben, I’d still like to see a weekend topic on our favorite guy, Casey.
http://iamfacingforeclosure.com/
I’d vote the other way. I don’t think the kid needs any more attention, it’s not having the right effect.
“Hey everybody! Look! I’m a criminal!”
I removed all the names of lenders, agents, etc, from all the posts. I am not looking to BLAME nobody! I take full responsibility for whatever happens
As anyone who remembers their English classes can tell you, the bolded statement (which I believe was also bolded on the blog) is a double negative. Double negatives are positives, so either he is looking to blame someone… Or he’s an idiot. I think it might be both!
The feds just announced mortgage guidelines and restrictions. Article here: http://www.wtop.com/?nid=111&sid=918889#
A) Does anyone think this will be effective?
B) Does anyone think this is closing the barn door after the animals have all fled?
C) Does anyone think this late bit of work will accelerate the downturn?
“The new guidance was issued jointly by the Office of the Comptroller of the Currency, the Federal Reserve, the Federal Deposit Insurance Corp., the Office of Thrift Supervision and the National Credit Union Administration.”
D) Does anyone think this guidance just amounts to cheap CYA talk with no teeth?
From Phoenix
I have heard some radio commercials for a company called “Trade West Homes” It sounds like a preconstruction sales company. The “promise” a return of 25K to 50K (or more) in 9 or 10 months. The only requirement is you must have a FICA of over 700. I think the phone number is 888-440-9378. Has anyone else heard these ads? Would anyone buy a preconstruction house in this market?
I think that is a variation of the Martinsville, VA scam that has just started to get publicity.
How to combat the disinformation campaign of the REIC?
Their latest meme, is short-lived downturn.
I think that on some of the more neutral blogs, they are posting inane and insane comments to dumb down the discussion.
Good one, SSBG. And we are seeing quite a bit of the “quick downturn” theories here as well.
I may be a fool, but these exotic mortgages were layered with different “fixed” periods and a variety of terms (from one-month teasers on neg-ams to TEN YEAR I/O periods with a 30 year FRM). There needs to be a critical mass of defaults on the suicide loans in order to truly move the market toward that elusive bottom. I think the PTB will try to drag this out with various workouts, etc. We need to see a very large minority/majority of these in foreclosure before we hit bottom — not to mention REALLY TIGHT lending standards. That will take many years, IMHO.
I do hope I’m wrong, though.
How long can the MSM keep alive the disconnect between negligible reported housing price declines and rumors of a crash underway from various markets previously known as “locally frothy”? For an example of the latter, consider this post from yesterday, which suggests the LV market and several others are pretty much in a free fall (LV Landlord — care to comment?):
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Comment by surffroggy
2006-09-29 02:10:54
Vegas is in BIG TROUBLE: the median price fell $2K last week alone and median price is now $19K lower than last year!!
Other markets sinking fast are:
Phoenix price declines begin to fall faster!!
Median price drops another $4K last week!
Homes now worth $45K less than August 2005!
Orlando, Florida home prices tanking!!
Median price drops $25K since August 2005!
Sacramento median home price falls another $3,800 last week
Median price now $24K under August 2005 price!!
All info can be found at http://www.realestatedecline.com
It is no longer necessary to vote with your wallet on Wall Street. Thanks to marketwatch.com, you can now use your mouse to express your opinion of where share prices are headed:
http://tinyurl.com/fzeuw
All you End Timers out there let’s make a preemptive strike! Everybody push the red button and let’s get this crash going. Bring on the Rapture!
Don’t get too excited about this. I think the old rule still applies (money talks, bullsh!t walks).
OT
OT
OT
This morning I walked out the door to a glorious early autumn day…I hope everyone in my neck of the woods and everywhere else just take a break from all this house bubble/financial stuff and just have fun this weekend.
Remember FUN???
(and I don’t mean schaedenfreude over FB worries, either)
OK..end of PSA
…continue to talk amongst yourselves
Heading home in a few minutes and the first thing I shall do is crack a Lienie’s Creamy Dark, then off to the pond for fall fishing. Big Smile.
Glorious early spring day where I live (Canberra, Australia, now about 10pm Sarurday).
Plus this weekend is a long weekend.
Plus it’s the football grand final weekend for both main Australian codes.
I didn’t give housing a single thought for the last 8 hours . . .
The NAR definitely WROTE and CLAIMED that housing would continue to escalate. I have been racking my brain for any novel legal claims that could be used against the NAR (I am not a litigator and have no intention of ever pursuing any claims, nor am I a homeowner, so I have no personal loss) and I will post them as they occur.
I know that many on this blog are fundamentally opposed to utilizing the civil legal process against the real estate industry on principle (which I do not share) but it’s worthy of a topic. I don’t think its just for lawyers either. The lay person, intelligent and knowledgeable about this housing bubble, has an excellent chance of identifying the possible criminal/civil exposure of NAR as well as other market participants.
I agree, LaLawyer. I believe one aspect of this bubble is that many assumed they would be able to get away with fraud because “everybody’s doing it.” Nothing like a lawsuit to get the fraudsters back in line, IMHO.
I’m wondering what those who have a definite bottom in mind (30%, 1997 prices, what have you) think will be the bottom in areas where there has been a significant change other than housing in the local economy the last few years? For example, in an area dependent on Big Three auto manufacturing, we are probably safe in assuming a larger haircut, but how much larger? What about an area which has had a great deal of non-bubble related growth, will it actually reduce the impact or will buyers’ knee-jerk reaction be to penalize it just as much as anywhere else?
I honestly think that, while the first example will appropriately be hit harder, the second may not be protected by its better economics. I can’t justify that opinion, but many of my coworkers (Sacramento area) have become incredibly bearish in just the last couple months and I was still getting lectures on ‘throwing money away on rent’ in April and May. If they’re this down on housing after only a few months of downturn, how bad will the average person distrust real estate in even strong areas after everything has unraveled?
The PPT windowdressing effort to end the 3rd quarter today failed to make headline indexes go up. I wonder what this portends for the dangerous month of October?
http://www.marketwatch.com/tools/marketsummary/default.asp
Most folks still think real estate always goes up. How about you?
http://tinyurl.com/n8h9m
“About 76% of homeowners expect the value of their homes to increase at some rate over the next few years. Thirty percent expect their home to increase in value between 5% and 10% annually during the next few years and 16% expect their home to go up by 10% or more.
According to the survey, about 19% expect their home values will stay the same; only 6% said their home value probably decrease over the next few years.”
Table of survey results for expected rate of increase in home value over the next few years:
Annual Appreciation % of Responses
———————- —————–
Decrease 6
Stay the same 19
0-5% annual increase 29
5-10% annual increase 30
10%+ 16
That puts the median expected rate of (nominal) price increase a bit north of 4% — maybe not too wildly out of line with history given that CPI inflation is running over 3%. And not very likely given an inventory overhang approaching 5 million homes (and maybe more, given the ghost inventory represented by the cancellations which were included in new home sales statistics).
I wonder who the 16% in that 10%+ bin would be?
Gloomy News
“The department said consumer spending, after adjusting for inflation, dropped by 0.1 percent last month, the first decline since a 0.3 percent fall in September 2005, a month when business activity was disrupted by Hurricane Katrina. Income gains were anemic, rising by just 0.3 percent in August, the weakest performance in nine months.”
Did the market miss something today? The first decline in consumer spending after inflation since 500,000 people were running for their lives, a city was wiped off the map biblical style, and our Gulf hydrocarbon production and refining capacity was impaired. Market down 39 points. No biggy.
http://tinyurl.com/z7zu6
What I would like to see commented on, considering his bubble does not seem to me is not restricted to the coasts, is the question of how the lax lending standards will affect the current character of neighborhoods.
I ask this because I’ve seen posts of complaint about neighborhoods changing radically during the run up (my old one did for the worst.)
So what happens now? If you believe, as I do, that neighborhoods changed not to the liking of long-time homeowners due to lax lending standards and many of the ‘investors’ were playing the new coat of paint, new appliances and new carpet game to flip: what will previously dependable areas (safe, good schools, etc.) end up like?
I ask this for two reasons.
One, I think lax lending standards have created a sh!t storm as people that bought in x neighborhood because they had expectations of a good caliber of neighbors have found themselves angry and surprised.
Two, if that’s true, what will happen to these neighborhoods when homeowners go belly-up and homes, usually older and not really updated, sit vacant?
Are we headed for an unprecedented neighborhood earthquake? Remember that all reliable bets went off the table in the last few years. The house I am renting I would not pay more than 200K for and it needs 50k of work. Given the above mentioned two factors, how does that effect what we now expect in the quality of what we buy and how will the lax lending standards impact that?
The D.C. metro area is going to see a lot of bad affects because of what I mention above. Mark my words.
novasold
The economy
Going down?
Sep 28th 2006 | WASHINGTON, DC
From The Economist print edition
Why the housing slump may spell recession
THREE years ago Rose Hill estates was a dairy farm in Loudoun County. Now it is in the front line of America’s housing slump. The rolling fields are dotted with cut-price McMansions. The asking price for new houses, complete with gourmet kitchens and “extended libraries”, has been slashed by 20%. But business is slow. The pace of home sales in the county has halved since last year while the stock of unsold homes has doubled. “The region is glutted with new houses,” says Lenn Harley, an estate agent. “The market is dead.”
http://www.economist.com/world/na/displaystory.cfm?story_id=7971153
I would like to hear more on people’s thoughts on whether the housing bears (both the economists/pundits and the more casual observers, like those who read this and other blogs) are decidely left or right-leaning, or rather there is no clear political ideology of those who think this is a mess and will end badly w/ major reprecussions. From the commenters I see on this blog I tend to think that no one political ideology has a monopoly on the bearish outlook.
From Ben’s post “Cracks Are Emerging’ In The Housing Bubble: