“No Offer Is Ridiculous”
A housing report from the Christian Science Monitor. “Six months ago, the 1920s-era Southern bungalow in Atlanta’s Kirkwood neighborhood probably would have sold at its full price asking price of $325,000. But after playing hardball with the seller in the past few months, Phil Hagedorn and his fiancée got the price down by $25,000. And the seller paid the closing costs.”
“‘I had a gut feeling that [the price drop] was going to happen,’ said Mr. Hagedorn.”
“To make houses more affordable, developers are agreeing to upgrade kitchens free of charge, make the first year of mortgage payments, and pay closing costs. Incentives and deals vary around the nation, says Michael Lerner, president a national builder based in Chicago.”
“‘In Sarasota, buyers are looking for the best price. In Miami, it’s upgrades to the kitchen and bathroom and help on closing costs. In Phoenix, prices have been rolled back to 2002 levels to clear out inventory,’ he says.”
“Even in some of the hottest markets, such as New York, prices are falling. They’re now at the same level as 1-1/2 years ago, estimates real estate broker Christopher Mathieson, a principal at JC DeNiro & Associates.”
“On the other hand, the market has turned quite difficult for people who bought homes to renovate and resell, or ‘flip.’ ‘You see a lot of houses where they do renovations that are the least expensive: They use builder-grade everything, and then they find out they can’t sell them because they’re not what people are looking for,’ says Sara Jane Klingaman, part owner of Ten Fingers Unique Restoration in Atlanta. ‘So the houses sit and sit and sit until the price drops enough that somebody’s willing to buy it despite the renovation.’”
“‘No offer is ridiculous. There are a lot of ‘For Sale’ signs along with a lot of new construction, and we think that’s … making sellers nervous,’ says Maria Azuri in Atlanta. ‘So we’re seeing sellers doing more to make it possible to sell, including lowering the price, and even offering to do a 1 percent buy-down on the mortgage interest.’”
“‘There are now deals where, if people qualify for a 6 percent loan, they get a little freebie because the seller comes to the party and brings in some extra money to supplement the buyer’s payments for the first two years,’ says John Baen, a real estate expert at the University of North Texas. ‘For the buyer right now, it’s win, win, win all over the place.’”
“However, even falling prices may not be enough to stabilize some markets that have seen skyrocketing appreciation and development. For example, in Palm Beach County, Fla., the median home price has appreciated 148 percent since 2000.”
“But the biggest damper on the Palm Beach market, Jack McCabe says, is a 47-month supply of houses based on the current selling rate. ‘It’s the highest level in our history,’ he says.”
The New York Times. “Credit counselors are finding that mortgage debt is playing a bigger role in the deteriorating financial health of consumers contemplating bankruptcy.” “‘Consumers are upside down financially,’ said Susan C. Keating, chief executive of the National Foundation for Credit Counseling. ‘Those who are considering bankruptcy have unsecured debt well in excess of their annual income.’”
“She said many counselors reported that their clients were delinquent on their mortgages, with some reporting that 100 percent of their clients were delinquent.”
“The organization’s counselors had reported a brisk increase in the number of clients who are concerned about the rising costs of their adjustable-rate mortgages in particular, she said. Rates have climbed in recent years, leaving borrowers with ARM loans vulnerable to sharply higher monthly mortgage payments.”
“‘Mortgage debt is coming out as much more significant than we expected,’ Keating said. ‘Pull this all together with the other unsecured debt people have, and this is really problematic.’”
“‘People have literally picked up their house at the foundations and shook it upside down like a piggy bank,’ said Ed Smith, CEO of a a mortgage brokerage firm in La Mesa, Calif.”
“Since January 1999, according to figures compiled by Alan Greenspan and James Kennedy, a Fed staff economist, more than $2.62 trillion has been extracted by homeowners through refinancing and home equity loans.”
“But as rates have gone up, the extraction has continued. In the first six months of this year, even with interest rates rising, more than $511 billion was extracted from homes through cash-out refinancing and home equity loans, and that was more than the amount taken out for all of 2005, a record year for mortgage equity extraction.”
“There is another change in the market that could block a homeowner’s desire to borrow against the increased value of the home. ‘Lenders are being very cautious today as they do appraisals,’ said Patty McGill, president of a mortgage brokerage in Frederick, Md. ‘They are scrutinizing appraisals so they are not lending on phantom equity.’”
“No Offer Is Ridiculous”
Except one at full asking price.
LOL!
Hey, any thoughts about the likely election outcome’s affect on the RE bubble?
I’m thinking: A deeply divided congress will have the capacity to get NOTHING done - PERIOD. There will be no agreement on anything, which might slow spending for a change, but any $$$$$ or programs to bail out FBs will be met with certain paralysis.
COuld be a perfect storm.
WHOOHOO. Best thing short of leaving the seats unoccupied for a while.
We can only hope………
mad posted ” Except one at full asking price. ”
No…Better No offer, period.
It’s not just flippers putting cheap junk in their renos. I see plenty of $500K and up houses with cheap windows, Kenmore appliances, cheap light fixtures and Home Depot faucets, etc. If the stuff you can see is cheap junk, god only knows what you CAN’T see.
You mean white Kenmore appliances and particle board cabinets with fake granite counters aren’t the in style?
I always cringe to walk into my friends’ house in the McMansion subdivision that has designer furniture and all the latest flooring trends but have the cheapest white cabinets with gaudy gold handles and a stove that would look cheap in an efficieny apartment.
Anytime I see a listing that says “newly remodeled” I stay far, far away.
I spent years accumulating really good stuff to put in whatever house I end up with and got it very cheap from bankruptcy estates, high end plumbing supply places going belly up, etc. Got a $25K 60″ LaCornue range (check those puppies out on the web) for $11K in cash from a kitchen showroom that was going out of business that needed money. The thing sat on their floor for 2 years, never used. Of course I’ve given back all the savings in storage costs since I never seem to be able to pull the trigger. It’s amazing to me what people value in a house. Huge volumes of unusable space over quality contruction and materials.
txchick57,
You seem to have excellent ideas but why buy appliances when you don’t even have a house? You don’t even intend to buy one in the near future?
For awhile, I was on a house kick. I wanted one of those stoves forever and the deal was too good to pass up. So she says as she pays $75/month to store the beast.
One thing I’ve often thought of was signing a longer term lease with that would facilitate leasehold improvments (probably with an agreement to protect the tenant’s investment at the end of the lease). I know they are common in the business world, and I’m surprised that they don’t exist in the rental world too. Would be nice to be able to invest in efficient appliances rather than having the landlord buy somenting on the cheap but inefficient end of the spectrum (because they won’t be able to capture the savings and are exposed to more potential loss to a poor tenant).
Kept them in our garage. Cooktop at 50% off. Stainless microwave at 1/3rd off (dent on a side that woudn’t show), and cabinets and Corian counter and German sink for about 80% off when Home Base closed nearby. After 4 years, we finally had them installed. Wondeful result -
““To make houses more affordable, developers are agreeing to upgrade kitchens free of charge.”
Sure, they’ll upgrade it with THEIR crap, and then “overprice” the crap so that the $50K that they didn’t from drop the price will cost them ~$30K.
If the developers hadn’t bought and parceled all the buildable land so that I would be forced to choose from their crap portfolio, I’d rather choose to build from scratch myself.
You obviously haven’t tried this yet. In many localities it’s become almost impossible for the owner builder to pull permits. The major HBs have lobbied the individual out of the system.
It’s the American Way! With both parties against small business and individual rights and choice, you have no options but to bow before your new corporate masters.
The reason for this disconnect is that these are actually $200,000 houses. Everybody knows it even if they don’t admit it. People are choosing the proper quality of accessories for the true value of the property.
If crappy $3,000 used cars suddenly started selling for $10,000 after some minor cosmetic work people would not question it - they would just start adding the fuzzy dice and tweety carpet covers to their clunker. Then they would put up the $10,000 for sale sign and wait for the big bucks to come rolling in.
I drive around and marvel at the cheap and shoddy new construction. Substandard soil compaction, OSB floor joists, cheap siding, cheap windows, cheap roofing, cheap doors, cheap everything. Until you look at the price tag of course. I wouldn’t buy anything built within the last 5 years. I actually like old farmhouses though.
Have you heard the reports from South Reno about mold problems in some of the new Double Diamond homes? Built on marshlands in the middle of a wet winter…what’d they expect to happen?
No, I hadn’t heard that. It is not surprising though. I hope to make it to Reno soon to take a look around. Here in Washington, some builders allow the OSB sheathing to get completely rainsoaked, and then promptly cover it up with moisture barrier and then siding. I cannot imagine how this would not encourage mold growth.
txchick57,
Right on! Look, if someone says “We really are new at this so we just wanted to get the “process” down pat before we moved up to the high dollar stuff”. Hey, as long as it’s priced accordingly, I got no problems. It’s just that when we look at people that have never even hung wallpaper before working w/very expensive materials expecting to make a killing on their FIRST and every deal you know you’re dealing w/unrealistic people!
I HAVE seen numerous “rennovations” and plenty of last minute “curb appeal” jobs that s t a r t e d out nice enough but after blowing money on everything from jet-skis to ahem “elective proceedures” they were hastily finished up with whatever was on sale. In some cases a different style of ceiling fan in e v e r y room. Yeah, believe it.
“‘People have literally picked up their house at the foundations and shook it upside down like a piggy bank,’ said Ed Smith, CEO of a a mortgage brokerage firm in La Mesa, Calif.”
Ummm… yea. And don’t expect me to pay for that loan. I don’t care what was bought with the money. It has nothing to do with the value of the house.
Neil
Literally, Ed? That must have been something.
To keep others from feeling the need to read the whole story, I am sorry to report that he does not literally mean “literally”.
I had gotten excited someone did have a live ATM installed in his house.
The brand new Residential ATM machine — spits out home equity in $20 bills.
Just please pay no attention to that pesky “negative” sign in front of the balance figure on your receipt.
My wife uses the word “literally” to mean “figuratively a lot.” Drives me nuts.
How ironic.
“And don’t expect me to pay for that loan.”
If you are an American FDIC saver, you underwrote the loan. Moreover, you are also the first and last pawn in the greatest taxpayer underwritten circular ponzi scheme.
Neil,
Well I can’t imagine where they learned that stuff from? Who would have given them such an idea? Shocking!
This is just another attempt on the part of these guys to distance themselves from what promises to be a real mess. We’re not going to let them get away w/that right? My pals in the “industry” tell me real (and real painful) reforms are in the pipeline. They contend it won’t be long before they are almost as highly regulated as those of us that work under the NASD. It’ll take time but it’s coming. What an arrogant statement! “It’s like they picked their house up from the foundations” what an a$$clown!
DinOr:
I hope you are correct on the mortgage reforms. I consider myself to be fairly libertarian, so I’m usually not happy about additional government controls, but this is necessary IMO. Of course, the horses left the barn long ago, but still. I think you are right. I too see alot of subtle CYA comments lately. The question is, how can we punish these ba$tards without bringing additional strain on our justice system? Public tar and feathering? Floggings? All male mortgage brokers under the age of 40 are drafted and sent to serve in Iraq pro-bono?
> All male mortgage brokers under the age of 40 are drafted and sent to serve in Iraq pro-bono?
Send the females, too. Gender discrimination is out.
Unless they’re hot. Then send them to me.
I’ve been blabbing to friends forever about this now - that the government needs to regulate real estate transactions the same way they do securities. Would be very glad to finally see it happen, if it does.
CA Guy,
LOL! Yeah, that might work. (Certainly would keep ME on the straight and narrow!). When the SEC and NASD started making reforms everybody just sat back and laughed. Even though I knew many of them were necessary reforms I just kept my nose clean and plowed ahead.
Well, I’ve got to admit, it feels like one of those “28 Days” cold turkey deals (even though it was more than 28 months) but now virtually every transaction is looked at and scrutinized! Any time a broker/planner takes someone out of one investment and into another you had best be prepared to justify your actions. Frequently explanations are requested in WRITING! It wasn’t fun. Remember; the majority of complaints were generated by people that weren’t even registered (so that made it a double pain) but please don’t tell me it can’t be done!
What makes MB’s so slimey (in many cases) is that they aren’t working with 3rd generation trust fund recipients, they’re working w/guys that work on loading docks etc. There’s a level of fiduciary trust that’s been totally abused.
I too hope the mortgage reforms come through.
Too late though. We’ll be paying via a huge taxpayer bailout of the banks and mortgage firms as others have noted.
so here’s a question, what percentage of homeowners now have 0 equity in their house?
we often see stats on the number of 0% down mortgages made in a year, but there’s the untold story of how many people have spent their equity with Helocs, and are now becoming underwater.
Another good question would also be, how many people with 0% equity end up losing thier house
“‘Mortgage debt is coming out as much more significant than we expected,’ Keating said.
Ha, ha! Yeah, right. So unexpected. It does not take a mathematician to deduce that a $65K income will not be able to actually buy a $700K crap-box. The lenders and counselors are amazed, the FBs are amazed, everyone is amazed by this. Everyone except for those reading Ben’s blog. Let’s get the foreclosures rolling already.
And this is all coming before the Great ARM Reset Of 2007. Whoa boy.
Honestly, I am amazed at how quickly these toxic loans are going sour. So many people are living on a financial precipice. There is a commercial I always found humorous, the one where the guy is riding his mower and asking for help because he is in debt “up to his eyeballs.” Obviously that is not an exaggeration. Big house, new car(s), country club membership, designer clothing and accessories, all on a middle class salary. Who could have seen this coming?
How could you be surprised about these toxic loans. It wouldnt have mattered if interest rates had gone down, these ARM payments were meant to go UP eventually.
I mean, my wife and I make enough to put us at the 10% income level (90% of the people make less). We could ‘afford’ and 800K house (30 yr. loan only), only if we could extract sufficient equity from our house, about 350K. But since prices are going down, so will our target range of house price.
But the example stands, if us, making plenty of money, cannot afford a house w/o downpayment that is over 500K (and that is cutting our expenses to nothing), the people who did are toast.
Hey, I’ve seen that one too. I always thought: I can’t believe The Powers That Be actually let this on the air. You would think They’d want to keep it a secret…
Hey! That’s not “just some guy”! O.K! His name is Stanley Johnson and he posts here from time to time. Stanley has seen the error of his ways. He dumped the house on a short sale after 19 months of delinquent payments and dropped the cars and riding lawmower off at the dealerships. He’s let his memebership at “the club” lapse and you know what? He’s never been happier! Welcome to Ben’s Blog, my name is Stanley.
Big house, new car(s), country club membership, designer clothing and accessories,”
This was the lifestyle of the doctors and lawyers twenty years ago. I am not sure about the doctors anymore, with their $10k+/mo malpractice insurance, but the lawyers will have plenty of BK work to have this lifestyle if they want it.
The incredulity from all bubble participants is killing me….
‘Lenders are being very cautious today as they do appraisals,’ said Patty McGill, president of a mortgage brokerage in Frederick, Md. ‘They are scrutinizing appraisals so they are not lending on phantom equity.’”
Huh~~??? Since when ?? Have I missed something??
Calling Ghostbusters. No more lending on phantom equity!
Mortgage broker friend here told me yesteday that paper work is greatly increased over last year. 55 homes sold on the Big Island last month compared to 77 in Ocotober 2005. He was pleased to have handled the financing for 5 of them, i.e. he is still busy.
The wifes boss owns a second home/investment/condo downtown San Diego. They had a difficult time refi’ing it and only owed 200k. They said it’s getting harder to get a loan in downtown San Diego.
* I’m not sure if the boss is house ATMing but I am starting to hear the same thing from more and more people.
Yeah,
I don’t believe this either. I’m still getting plenty of SPAM mail telling me to refinance (I’m a renter). And radio and TV spots are still going strong.
Palm Beach has a 47-month supply at the current pace! Sweet Jesus. Anyone here think they will hit triple digits? From what I have read, they are still building down there, and buyers are on strike. That will only serve to further slow pace of sales. Final boarding call for the Hindenburg.
Put another way:
ATTENTION PALM BEACH SELLERS: If you are trying to sell you house, it will take, on average, four years. This assumes sales will stay at their current pace without decreasing, and inventory will stay at current levels, without anyone putting one more house on the market. Oh, and that they want to pay your price.
Four years. Hope you’re okay with that. Caution, could be higher.
Not exactly: on the average it will take four years if the inventory is replaced at the same rate that it is sold, and that it is sold at the current pace. You overdid it in saying “without anyone putting one more house on the market”.
Yeah, you’re right. Four years clears ALL the inventory. Two years under my scenario, I guess. And my assumptions were, of course, wishful the sellers.
I live in Palm Beach County and the market is in full implosion. I’ll rehash some recent statistics for you. Not only do we have a 4 year supply of homes, but the median price is down 9% YOY and 13.3% from the peak (11/05). This is all with an unemployment rate of about 4%. Job loss is not the culprit here, rampant speculation and suicide lending are the culprits. You can’t walk 10 feet without tripping over a For Sale or For Rent sign. The builders are still building. We have 3 completed (and virtually empty) luxuary condo towers downtown with another 5 under construction (that will be virtually empty). 2 such towers have been scrapped. There are SFH subdivisions that are basically all spec as well. Rent to own ratios are totally out of whack as it can cost twice as much (or more on higher end properties) to own as opposed to renting a property. Add this to the tax and home insurance issues (recent hurricanes) and we have a complete catastrophe on our hands. The entire Florida real estate market is going to get crucified and there is nothing to stop it. I know prices are insane in CA, but FL might be Ground Zero when all is said and done.
I have high confidence in Californian’s ability to kick the sh$t out of Floridians when it comes to pure stupidity. We have the highest concentration of illegal aliens, and the worst schools. Take that Florida!
You’re forgetting the Palm Beach folks were the ones who couldn’t figure out the butterfly ballot.
Ha ha! I’ll agree with that one.
Although, there is a much higher concentration of rednecks in Florida. Atleast our idiots are doing ridiculous things in the name of “class” and “style”.
sarcasm off.
I used to live in Palm Beach. I liked it back then. (Its very different now.) But 4 years… that’s death. I think it could hit triple digits by the fall of next year. Think about that… a home market that is so gone sales could not correct it for approaching a decade.
As to California beating Florida in the race to abject poverty… Not happening. As much as I belive Cali is going to crash, it hasn’t priced itself completely out of its niche in the global economy like Florida has. Florida in the last 3 years has lost:
1. In migration of midwest retirees.
2. In migration of worker due to it being a “low cost state”
3. Our migration of population due to living costs
and its much more dependent on construction jobs than California. I’m not saying California won’t be spanked. But Florida is screwed.
Neil
Don’t forget the snowbirds/specuvestors coming down now that will be facing massive increases in their property taxes, insurance, and HOA fees. In March of 07, they lose their homestead and their insurance rates will skyrocket.
But I forgot…. they are now going to allow illegal aliens to buy homes with no social security numbers, fico scores, or credit ratings. Talk about scraping the bottom of the barrel. Look up the word “desparation” and there is a picture of the NAR next to it.
Maybe the governor of Florida can blame the Palm Beach housing market on Clinton. The Teflon Bushes days are numbered!!!
Final boarding call for the Hindenburg.
____________________________________________
YES! This area is GROUND ZERO!
I’m new to Palm Beach County - Just landed here after finishing school and getting that first job. A few observations:
Everyone here takes themselves to be a brilliant real estate guru. It’s utterly bizarre. I’m used to conversations about the weather or football. But having a conversation with the checkout guy at Winn Dixie about his investment condo was strange.
Everything is for sale all over. It wasn’t an exaggeration that you trip over the for-sale signs. On some corners, there’s a “battle-of-the-signs” going on for prominant road space. I should post pictures of some of them. perhaps I will. My favorite around my neighborhood reads “For Sale By Owner. Appraised 799k. Will Sell for 450k”. Whoever it is, s/he is aggressive, as those same signs are being planted in an increasingly larger radius.
I made the mistake of callinng two realtors to say that I’d like to look at properties. I now have messages daily. I’d bet if I looked out my front yard, I’d see them parachuting into my lawn.
Moreover, there is just too much appearance of money here. Just too much. Perhaps I’m in for a rude awakening, but I just don’t believe what I see. You can’t have a stable society in which everyone has every need and most wants satisfied. It’s just not possible.
You are about to enter a new dimension, a dimension where need and desire meet at the crossroads of main street America, where every hamlet and every home conspire to provide for every whimsical idea anybody can think of:
Welcome to the Twilight Zone, FL style
“A housing report from the Christian Science Monitor. “Six months ago, the 1920s-era Southern bungalow in Atlanta’s Kirkwood neighborhood probably would have sold at its full price asking price of $325,000. But after playing hardball with the seller in the past few months, Phil Hagedorn and his fiancée got the price down by $25,000. And the seller paid the closing costs.”
Good job, a Greater Fool Diploma will be included in the sale.
“‘I had a gut feeling that [the price drop] was going to happen,’ said Mr. Hagedorn, a professional knife-catcher.”
I have a gut feeling that Mr. Hagedorn will be less self-congratulatory when he discovers how little his 86-yr old bungalow is worth in another 6 months.
I live near this neighborhood and have been watching the homes sit or prices slowly declining, in some cases up to $65K in asking prices. The Kirkwood area has been rampant with flippers and speculators creating a mixture of new and poorly renovated homes.
I even have an acquaintance who recently purchased a forclosure home not too far from the Kirkwood neighborhood. She offered and paid asking price. Apparently, the guys who bought the home had their ARM reset and could no longer afford the payment. They are just one of the 40% of IO loans made over the past few years.
It’s interesting to see to see this decline published in writing considering most people in Atlanta are clueless or in denial about home prices dropping unless they’re selling or losing their house. Our local rag, the AJC, rarely publishes a negative housing story. Our current (Republican) governor is pro land development which will only worsen the housing situation here and is creating urban sprawl that will continue to gridlock the city highways. Atlanta has lost a lot of good paying jobs (Delta, Ford, GM) and only about 14% of the jobs that are being added are above $45K.
This is just the beginning….
“But the biggest damper on the Palm Beach market, Jack McCabe says, is a 47-month supply of houses based on the current selling rate. ‘It’s the highest level in our history,’ he says.”
Un-freaking-believable!………a lot of these sellers will die before they sell their house……..sounds like the marriage vow…..”until death us do part”
“It is very difficult to definitively identify a bubble until after the fact — that is, when its bursting confirmed its existence,” Greenspan said.
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2002/08/31/BU229125.DTL
“It is very difficult to definitively identify a bubble until after the fact — that is, when its bursting confirmed its existence,” Greenspan said.
Sure, I agree—-but only if you are a total “”MORAN”".
Otherwise, any remotely sensible person could have started to notice the “how to get rich in day trading” seminars, the “new era” and of course P/E and valuations going haywire along with investment banking activity, and IPO flipping. No, no sirree, no “definitive” bubble evidence there.
And now, with people quitting their jobs to flip properties, hoards of mortgage liquidity and false appraisals, “buy now or be priced out forever” propaganda, once again historically unprecedentedly inflated valuations (price to rent) and a massive deterioration in underwriting standards (”liar loans” doesn’t give it away?)?
No definitive evidence of a bubble while it happened? Oh please, cry me a river, MORAN.
Simple fact: Greenscam struck out on the two most important at-bats of his life.
And no, raising interest rates is NOT the only way the Fed could have returned things to normalcy. In 1999 the correct action would have been to significantly increase the reserve necessary for margin lending. That would have stopped the hot air of the stock bubble quickly without nailing the whole economy.
And recently the correct action the Fed should have done is to enforce much stronger underwriting standards on mortgages held by banks in the federal reserve system.
Both of these precisely attack the source of bubbles: hot, borrowed money, and a mania psychology.
Increase lending standards? Terrorist!
Hey, this is worthy:
Anarchy in the UK
Minyanville Staff
Nov 06, 2006 11:00 am
What makes this UK credit bust so chilling is that the British have had it relatively easy.
Editor’s Note: The following article was written by Minyan Stephanie Pomboy of Macro Mavens.
Remember the argument that the US housing bubble’s deflation wouldn’t hurt a bit…’cuz we were sure to follow the UK analogue? If not, don’t feel bad. Even the folks who promulgated this view seem to have forgotten. Either that or they’re still wiping the egg from their faces.
How else to explain the deafening silence surrounding news last week that personal bankruptcies in the UK had soared to an all-time record and were now up 55% from the year before? Towel, please!
What makes this UK credit bust so chilling is that the British have had it relatively easy. In contrast to US consumers, for the British, home equity withdrawal was a serendipitous supplement to wages, whereas here it has been a substitute for it. REAL wage growth in the UK has been solid whereas, here in the US, it only recently turned positive… and that due to declining energy prices. On top of which, the Brits have a fluffy savings cushion to fall back on (6% versus NEGATIVE -0.2% in the US).
All of this would seem to suggest that the exposure to home price deflation here is significantly higher than it is there. And that brings us to the real spine-tingler. This bumper crop in delinquencies in the UK has occurred even though home prices NEVER DECLINED! They simply rose at a slower pace! Sure, it was a sharp slowdown - from 27% to 1.7% - but nonetheless, incidents of ‘negative equity’ were widely averted.
Given the copious inventory the US has built (another blaring difference between the US and the UK housing bubbles), the potential for material declines here is high. Meanwhile the exposure to said declines is far greater for US consumers than it was for their British peers.
But hey, don’t take my word for it. Realty trac reported last week that foreclosures rose 17% in the 3rd quarter and are up 43% y/y. This means one in every 363 households is now in default. No wonder the mortgage finance companies are tripping over themselves to securitize this stuff STAT!!
“Since January 1999, according to figures compiled by Alan Greenspan and James Kennedy, a Fed staff economist, more than $2.62 trillion has been extracted by homeowners through refinancing and home equity loans. But as rates have gone up, the extraction has continued. In the first six months of this year, even with interest rates rising, more than $511 billion was extracted from homes through cash-out refinancing and home equity loans, and that was more than the amount taken out for all of 2005, a record year for mortgage equity extraction. There is another change in the market that could block a homeowner’s desire to borrow against the increased value of the home. ‘Lenders are being very cautious today as they do appraisals,’ said Patty McGill, president of a mortgage brokerage in Frederick, Md. ‘They are scrutinizing appraisals so they are not lending on phantom equity.’”
US home equity-cashout-ATM-financed consumer, meet brick wall.
I wish…
They’ll have another 3 to 5 months of home ATM. Then… they’ll be Willie-e-Coyote. Over the Canyon with no hope. I’ll be the road runner watching the fall.
It is not until a good 2 months after the mortgage broker cannot sell the MBS that the breaks are truly applied.
Neil
Who’s really holding the bag?
The MBS holders?
The CDS holders?
The fallout from this mess should be very interesting.
“No one expects home prices to appreciate sharply. A cautious consensus among economists is developing that prices will decline in some areas, but that the depreciation will not be sharp or prolonged. But should home values fall, a homeowner who has depleted the built-up equity risks finding himself paying a mortgage on a home that is worth less than the mortgage.”
Where does this “cautious consensus” come from? Is there any evidence to back it up, or is it just the echo effect of a bunch of idiots parroting Alan Greenpan?
Read this blog everyday. Is anyone putting in any lowball offers yet? (20% to 30% of asking price). If so, what reactions are you getting from the realtors?
Here in San Diego, it appears that (based on some research I’ve done) that 20% price cuts (sold vs asking - on average) are happening. This value is based on an average of single family detached homes in San Diego county…based on SANDICOR data for the month of September06. Makes you wonder what October brought to the table…If your interested in seeing the data, let me know - I’ll email it to you ( I couldn’t get it to post in google spreadsheets, just shows up black).
My wife and I put a contact on a townhouse last friday with a lowball bid that was under $70k the asking price. The owner which is carrying this house and the house he lives in declined our offer yesterday. He was unable to come-up with the difference he owed on the house. So I wrote to his agent last night and told her since that the property was on the market for 8 month that they may get and offer soon, or the agent can watch the property go into foreclosure and ruin his credit.
BTW he used the house as an ATM machine. LOL
For now I will wait and see this guy fall on his sword. Just like everyone else in the DC area.
I love this country!!!!
only 70k below..you are so kind!
He was luck to get that offer. Nobody except us has put a contract on that house. So let him fall.
**lucky**
“There is another change in the market that could block a homeowner’s desire to borrow against the increased value of the home”
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You know I’m seeing more and more people having problems with the HELOC balance which, in most cases, has adjusted up significantly in cost (estimated 3.5% start rate in 2005 could be up as high as 8 or 9% now in 2006). I have a couple of clients who are trying to refi an $80 k and a $ 62k balance but can’t because the new rate would actually be more. Granted, these monthly payments on a HELOC aren’t in the same neighborhood as an adjusted mortgage but can be painful nevertheless.