“It’s Like The Wild, Wild West Out There”
The Rocky Mountain News reports from Colorado. “It’s official. A record number of real estate foreclosures have been filed in the Denver area this year. In the first 11 months of 2006, public trustees in the seven-county metro area opened 17,782 foreclosures. That’s 3.85 percent higher than the record set in 1988, during the oil industry bust.”
“Experts say other parts of the country that recently had hot real estate markets need only look to Denver to see what’s in store for them.”
“A large percentage of filings are concentrated in the ‘foreclosure belts’ of Adams and Weld counties, north Aurora, and northeastern Denver neighborhoods such as Montbello and Green Valley Ranch.”
“Today’s foreclosure crisis is increasingly taking its toll on homeowners, especially with scams and fraud on the rise. ‘It’s like the wild, wild West out there,’ said Zach Urban, a housing counseling manager for (a) nonprofit.”
“Mark A. Murphy is trying to sell his house in Aurora before the lender takes it back. He has fallen four months behind on his mortgage after losing his job. When he bought his home two years ago, other comparable homes in his neighborhood were selling for $235,000, he said, about $50,000 more than he paid. The home is on the market for $205,000.”
“Ironically, Murphy bought his home out of foreclosure. ‘I believe this property has been in foreclosure four times,’ Murphy said.”
“Urban said he is seeing an increasing number of mortgage-fraud schemes. In some cases, people are offered more than the house is worth in exchange for a ‘gift’ donation. The phony buyer collects the gift and never makes a mortgage payment.”
“In other cases, homeowners who think they are refinancing their mortgage really are signing quitclaim deeds, so the person becomes a renter in their own home.”
“The biggest culprits in the rising mortgage tide are a flat housing market and overbuilding in certain areas, such as north Interstate 25, said Boulder lender Lou Barnes. ‘Our housing market went flat in early 2001, and since then, foreclosures have been rising in the foreclosure belts about 50 percent a year,’ Barnes said.”
“Despite what some think, foreclosures aren’t being driven 100 percent by financing, he said. He noted that the Veterans Administration has been providing zero-down loans for decades, and Federal Housing Administration-insured loans only require a 3 percent down payment.”
“But it’s never been easier to qualify for a loan, so many people who would have been unable to buy a home previously can now buy one, he said. Despite rising foreclosures, Barnes said there has been no move to tighten borrowing requirements because the federal government wants to encourage homeownership.”
“Previously hot markets such as the West Coast, Phoenix and Las Vegas now are softening. Said Barnes: ‘If the national lag in these ‘bubble zones’ is anything like the lag we saw after the technology crash,’ he predicts other cities will see an increase in the foreclosure rate similar to Denver’s.”
“‘I think (the metro area’s record foreclosures) are very significant for the rest of the country,’ he said.”
The Arizona Republic. “Hundreds of homes and lots left unfinished in Pinal County by bankrupt home builder Turner-Dunn may be auctioned to clear tens of millions of dollars in debt and finally complete some homes two years after buyers signed sales contracts.”
“However, buyers still will be locked into higher prices from two years ago. Pinal County’s cooling housing market has forced a reduction in prices for big new homes this year by tens of thousands of dollars to the low $200,000s.”
“After finding a new home from a different builder in the same neighborhood, Tony Tellez said he no longer wants the $262,000 house in Maricopa that he signed for two years ago. He won’t pay the now higher price and losing $2,500 in earnest money is almost worth having Turner-Dunn out of his life, he said.”
“‘I’d basically be buying a money pit,’ Tellez said. ‘I’d get a $262,000 home that wouldn’t even appraise at that price.’”
“Gerald and Barbara McCurdy of Caledonia, Ill., paid $28,000 in earnest money on a $277,000, 3,300-square-foot house in Casa Grande because Turner-Dunn considered them investors and charged a premium. They planned to rent it out until retirement in a few years and can’t afford to walk away.”
“Half-finished homes have sat for most of the year deteriorating in heat and storms since Turner-Dunn, owned by Marc Dunn, walked away from construction and contracts early this year.”
The East Valley Tribune from Arizona. “The first seven floors of Elevation Chandler, a planned 10-story high-rise with condominiums, luxury hotel and health club rose out of the ground in less than four months. Then nothing.”
“‘It’s a very obvious site, and I do get questions from citizens,’ said Chandler Mayor Boyd Dunn. A timeline on when the project will be finished is unknown. Developer Jeff Cline managed to hold off foreclosure proceedings scheduled for February with a $25 million bridge loan Friday. It’s not enough to complete the $250 million project.”
“And there’s little Chandler officials can do to move the project along, said Doug Ballard, Chandler planning and development director. Ballard said he’s also received complaints from people ‘concerned about the eyesore nature of it.’”
“Chandler resident Tom Stokes said construction projects are tolerable when progress is being made, but that’s apparently not the case here. ‘You don’t want something that’s been abandoned next to your nice new mall,’ Stokes said.”
“In other cases, homeowners who think they are refinancing their mortgage really are signing quitclaim deeds, so the person becomes a renter in their own home.”
This also effectively describes anyone who has taken out an IO/”payment option” loan, as well.
No kidding. I love people who constantly parrot the “throwing your money away on rent” meme. Unless you paid cash for your house or have it completely paid off, you are –by definition– a renter. Either you are renting money from the actual title-holder/owner (mtg. lender) for the right to live in the house, or you are renting the house directly (with a lot less risk).
Most of us are renters, yet very few people can make that mental connection and insist that “owning” is always better –and worth a 300% premium. Even when they can rent an identical cookie-cutter McMansion in the very same development for a fraction of the monthly carrying costs.
Welcome to Mental Accounting 101 for Sheeple. Pre-requisites: (a) inability to use a calculator, (b) persistent state of cognitive dissonance, (c) irrational desire to join “ownership society” at any cost, (d) reckless disregard for risk, (e) religious belief in “it only goes up” bordering on fanaticism.
Keep preaching it, Harm. Amen to what you have just said! People don’t get. Unless you put down at least 20% and buy within the 3X annual income, it is doubtful you will ever beat the renter. I am not saying you will never, but it is tough.
Consider a 500K McMansion with nothing down. That 30 year loan will cost you 1.5 million with prin. and interest (once for the prin. and twice for the interest). Tack another 150K in taxes for 30 years. Add in another 75K in HOA over that 30 years. Right now you are at 1.725 million. Lastly, we’ll add in a very conservative 150,000 for maintenance and repairs and remodeling for 30 years and an additional 30,000 for insurance. Final total for that beautiful 500K house is 1.905 million. You will NEVER EVER recoup that amount. Let alone, how will you ever pay that amount. Even at 100K a year, it would take 20 years of nothing, but paying the bill to make that number work!
On the other hand, take 1.9 million and divide by 360 months. What do you get? 5,278.00 per month. Even with inflation, I know I will beat that amount. I currently rent a 3-bedroom apartment in South Orance County for 2K. Even if the rent went up 100/year, it would take another 32 years to get to that 5,200 a month mark. By then I am retired and left state.
One other thing you can’t put a cost on is the worry with a home. Forget just the upkeep worries. Will I be able sell? When I sell what will the market be like? With a rental, I can walk anytime. I may pay a one month penalty, but that is okay.
The one difference is that if you finally pay off the house and sell, you get a nice big check, hopefully. With renting, I better have saved that money. But if I have I should still be able to walk with at least 500K, if I socked away even 1K a month for 30 years with nominal interest.
For most people they see the benefit of a fixed payment and a fixed place to live. However, if you don’t like the debt for 30 years, can save, and like the freedom, renting is the way to go in this current market.
Keep preaching Harm! You’ll make some converts, yet!
Hey that’s a very good, basic analysis that most sheeple, err, people can understand.
“Unless you put down at least 20% and buy within the 3X annual income, it is doubtful you will ever beat the renter.”
Not clear what the advantage of 20% down on a depreciating McMansion would be. For instance, suppose I bought a fancier-than-average SD McMansion for $1m. Unfortunately, due to a long list of reasons frequently covered here, I learn 1 year later that the value is now only $900K. Now suppose I could instead have bought a federally guaranteed 1-year CD with that $200K at a yield of 5%; then I would have had an investment return of $10K at the end of the year. Instead, I lost $100K on the $200K investment (50% loss) — such is the effect of leverage on the value of real estate investments.
And the opportunity cost of investing 20% in a downpayment instead of the CD was $10K — I could have at least offset $10K of my $100K home equity loss if I had bought the $1m home with no downpayment.
Of course, the above examples might be pure fiction, as I wonder whether anyone buys a McMansion with a $200K downpayment…
There is this little problem called income tax, esp in Calif. I agree w/ everyone here that the current insane price-to-rent ratio implies renting is the better choice. But the income-tax deductibility of mortgage interest and income tax do make a difference in these calculations. Of course right now, tax policy favors buyers’ strike, due to non-deductibility of capital loss on principal residence.
actaully, EVERYONE is a renter, even if the house is paid for.
disagree with me? don’t pay your property taxes for awhile, and see how much you truly own.
In fact, between insurance and property taxes, you are “paying rent” of approximately 4% in many jurisdictions, minus lost oppertunity on the cash.
owners are fools, unless real estate goes up 10% a year, better to rent and be content
Excellent point, esp. with the first installments here in CA due on the 10th.
And even if you do pay your taxes, good luck keeping your house if the government thinks your living room would be a good place to run Interstate 805 through or if Pfizer thinks it would make a swell research lab (the latter a reference to Kelo vs. New Haven).
“actaully, EVERYONE is a renter, even if the house is paid for.
disagree with me? don’t pay your property taxes for awhile, and see how much you truly own.”
I would much rather pay my rent to a landlord or corporation than to a snotty socialist government, which encourages social situations I highly disapprove of (California is a major example).
BTW, didn’t see this mentioned anywhere else here. Guess what today is the 10th anniversary of.
I’m going to go out on a limb and say it’s the 10th anniversary of Alan Greenspan’s “Irrational Exuberance” speech.
“But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?”
December 5, 1996. Given the time frame he noted, an appropriate anniversary, too.
I was working on the trading floor of the Merc back then. What a wild day that was. His speech was at night, and the unemployment number came out the next morning — most important number of the month, and nobody cared about it!
passthebubbly,
CME or New York?
Chicago Mercantile Exchange. Those two floors (upper and lower) are gonna make some fine raquetball courts once they move everything to Board of Trade. That or storage hangars for unsold 747s (Boeing is across the river).
passthebubbly,
No kidding. My buddy Frankie worked there about that time and said it was pretty wild! We’ve both sinced moved to OR where the fun never stops. Yea! (Or is that the rain never stops?)
Whoa, I knew a Frankie down there… does his last name begin with M and end with A?
I wouldn’t mind moving to Oregon. Went there twice this year to hike/photograph stuff. Weather wouldn’t be a problem, as Chicago has 5-6 months of writeoff weather too.
passthebubbly,
Uh, yeah!
Ha ha, he finally got out! We’re just one big happy family at the Merc. (Don’t get me wrong; it’s just funny how it seems there’s never more than one or two degrees of separation between anyone who’s ever worked there.)
passthebubbly,
When I first meet Frankie I was a “new hire” and he’d only been at this bank for about a week. He said, “D u d e, you’re from Chicago ain’t ya? I said, Yeah. He says, well then I gotta talk to ya, but you know….. outside? I said sure, what do you got for me? He said, D u d e, run while you still can! This place is a sh@t-hole! Can you still get your old job back? I said, not after the way I told my old boss off! Frankie said, D u d e, it’s too late then, I’m Frankie and after you’ve been here for two weeks you’re gonna wish you had killed yourself.
So that’s how “I” met Frankie. Your turn.
passthebubbly,
I have so more funny Frankie stories than you can shake a stick at! I invited him over for Thanksgiving but b/c he knew we’d tippin’ a few he thought better of it. But he still comes out from time to time and always get a kick out of the guy. I guess his sister lives in HI now. He’s doing well with some tech co. I can’t even pronounce let alone describe what they do?
I clerked for a few guys in the S&P options pit and we put our futures orders through him. So did most of the other smaller local groups in the S&P options at the time.
He was pretty good in fast markets. I don’t ever remember him screwing up an order, mine or someone else’s (I do have stories of six-figure mistakes of other clerks, but not him.) I probably caused him more headaches than anyone else.
One day he wasn’t in his customary spot on the top step of the futures pit… turned out his firm decided to give up the spot becuase they weren’t getting enough biz. He got a job a couple days later with another group, but the options pit sure was less fun after he left. (Not to give the impression it was “fun” work to begin with, you realize.)
passthebubbly,
Even though I’m from Cicero, Frankie and I didn’t know each other back in Chicago. We met out here in OR but we knew so many people and places in common it was a lot like we really had known each other. He just has a brand of candor that’s altogether too lacking out here on the west coast! Oh and for what it’s worth, his one word description for the housing bubble?
F A N T A SY!!!!
Only you have to say it like it was a smoker’s last dyin’ breath! “It’s a F A N T A S Y!!!!”
Would you expect less from a guy LIKE that?
Well, the floor is very intolerant of pretence or stupidity, and everyone thinks everyone else is the moron. Only a certain strain of people last longer than a summer internship. See, now you know why I post here.
That’s the nice thing about Chicago; people are by and large honest and let you know how they feel without getting too full of themselves (the latter unlike NY). I’ll miss that if I ever move to some place like SF.
Are we still in the same bubble which AG spotted in 96?
Before that timeframe the level of speculation was not that much, since, then it’s been one bubble after another. One fiasco after another.
“Mark A. Murphy is trying to sell his house in Aurora before the lender takes it back. He has fallen four months behind on his mortgage after losing his job. When he bought his home two years ago, other comparable homes in his neighborhood were selling for $235,000, he said, about $50,000 more than he paid. The home is on the market for $205,000.”
“Ironically, Murphy bought his home out of foreclosure. ‘I believe this property has been in foreclosure four times,’ Murphy said.”
Better make that 5 times in foreclosure.
That place should be burned down. Obviously someone did a human sacrifice on the spot 500 years ago.
Anyone seen Apocalpyto?
So he paid 185k. I notice Mark is still in the “But I can’t lose money on the deal” club.
I do hope he sells, so he can brag about the great investment and that real estate always goes up. That sounds so much better than foreclosure…..
lefantome,
Well that and the fact that after TWO years he didn’t have ONE extra mortgage payment set aside? Getting laid off in today’s America is just about guaranteed but I guess with all the “hit and run” mortgage sales guys out there they can’t be bothered with these details!
I’ll bet he’s driving a nice shiny new BMW 330Heloc though.
Right DinOR. Even though we don’t know everything about Mark, we clearly know he saved nothing for a rainy day. We read a lot of stories about young kids in trouble, but this guy is 42, and bought a foreclosure-fixer. Then chose to remodel the entire place. Don’t know if he actually had the money to do the repairs, or financed that too ….
Probably attended one of those foreclosure seminars, and decides to become an investor with no finances. They kids are naive, Mark should know better.
It is pretty interesting how one’s life experiences tempers things.
My wife and I are still young in our careers. But during that time, the longest either one of us has been with one company is about 2.5 years. We either changed jobs, got laid off (in another case, a false alarm layoff), or the company went under. We’ve both had stints of 4+ months of unemployment with one bad spot where we were both unemployed (luckily grad school teaches you to live on Saltines and tap water)
Our career prospects are far stronger now than in those tough early days. But it was good to go through all of that nonsense early in our career years to get us used to career volatility. It stressed the value of saving for a rainy day (because egads it rained a lot back then)
“need only look to Denver to see what’s in store for them”
3.85% higher than the 1988 Oil Bust? Oh that’s ugly.
I just wish Lou Barnes comment would’ve surfaced earlier. It’s not 100% loans that are at the root cause of all of this. He’s right, it’s really not. In fact if I ever DO buy a house again it will be through the VA. Nothing wrong with that. Where problems come in is when buyers that aren’t “qualified” are put into a home they clearly cannot afford and in all reality do not belong in! The prospects for a “spring turn-around” grow ever dimmer.
DinOR: Having served my four years active duty in the USMC, I too may just use the VA home loan program at some time. But to add to what you said, and what the Colorado did not mention, is that the VA program is much different than some a$$ clown with a 550 FICO going down and getting a $500K I/O loan on a $65K income. I believe all the veteran home programs have higher standards than market lenders do. I actually inquired about a loan with a VA lender back in fall of 2002. Let’s just say that what they would approve me for was significantly less than what I could have gotten through a mortgage broker. And my credit score has been over 720 for years, and was probably north of 750 by that point in my life. How things can change in just 4 years!
CA Guy,
Semper Fi! (Even though I was a lowly sailor)
I’ve always viewed my VA Loan as my ace in the whole b/c without having to concern myself with coming up with a down payment I can sock my investment $’s into longer term ventures and not worry about having it “at the ready” in some low paying int. acct. (A lot of people will have forgotten that it wasn’t that long ago mmkt. yields were like .38%) I wasn’t about to stand around with my thumb (well you know where) waiting with bated breath for the Fed’s next move! If I were you I would definitely “treasure” your VA loan and keep your powder dry on both fronts. Things will come around. Always do!
Both my grandfathers were Navy in WW 2, and I’ve always had a good relationship with the Navy guys! Many of my good buddies in our rifle company were the corpsmen. It’s always good to be friends with the Doc. Honestly, I was probably a bit too laid back for USMC, but I’m proud to have served. And, I was so happy to see Navy thrash Army yet again this past weekend!
I definitely am grateful for the VA loan option. Recently married, at present I’m just trying to put cash into my IRA each month and not buy useless consumer goods. I know there will be a day of reckoning for this bubble, and I plan (hope?) to be ready.
Right DinOR and Ca. Guy . A VA no- down loan isn’t bad because they qualify the people .
The adjustables or I/o low down loans were made to people who didn’t qualify . A lender getting a down payment makes the loan less of a risk for the lender and should not be done on sub-prime loans ever .
The housing market already sold to the future buyer pool ,the speculators are gone and you have excess inventory from over-building . Only option is for prices to come down to move the inventory and still I think you have a low buyer pool verses supply coming up .
Housing Wizard,
This is called “pulling your book forward” and the entire REIC has tapped it out! Look, I could have had a HUGE Christmas if I’d have gone to each and every client and told them “buy stock now or you’ll be priced out forever” but firstly (I had better be dead right) and secondly, what will I do for next month? You know what I mean? Every HUGE quarter has it’s consequences. Like the guy that takes over the old sales guy’s route and finds a decade’s worth of copier toner in the supply room! Great…..
DinOR does it again! Quote: “This is called “pulling your book forward” and the entire REIC has tapped it out!”
This is what I have tried telling everyone in my family and friends circle! The REIC keeps saying they are going to clear this inventory issue next year (just ignore the ones still under construction), but they don’t explain who is going to buy all those units! Percentage of ownership has NEVER been higher than it is presently. What is so difficult here for the average person not to understand?? The term I remember from school is borrowing from future demand, but yours seems a better fit for housing. Just who are these builders and RE agents going to call? “Hey, I know that I sold you a home 12 months ago, but I was wondering if you’d be interested in a second?” Good luck with that sales call!
I believe the call would be:
Hola Juan. Recepción a América. ¿usted tiene gusto de comprar un casa fino aquí en San Diego?
This passage bopped me over the head:
The East Valley Tribune from Arizona. “The first seven floors of Elevation Chandler, a planned 10-story high-rise with condominiums, luxury hotel and health club rose out of the ground in less than four months. Then nothing.”
What this planned high-rise reminds me of is the half-built Ryugyong Hotel in Pyongyang, North Korea. The thing DOMINATES the city, but it’s hard to get the locals to say anything about it. (They’d probably be in big trouble with the government if they did.)
Does the thing in Arizona look like Orwell’s Ministry of Love, as the Pyongyang hotel does? (The housing bubble: ownership is slavery, ignorance is strength.)
Apparently NKers don’t even acknowlege it exists. You point to it and ask one about it and it’s like they’ve never seen it before. It would be funny if all those jumped-up Arizona housing tract were like that in a couple years.
http://www.btinternet.com/~parrothouse/NHnkorearyugyonghotelpyongyang.jpg
http://images.google.com/images?hl=en&q=Ryugyong%20Hotel&btnG=Google+Search&ie=UTF-8&oe=UTF-8&sa=N&tab=wi
In Chandler? WTF is going on down there? Unless things have changed in the 5-6 years since I was down there, that is a terrible market to attempt a high rise project, let alone a “luxury” hotel. I guess this is what we get for a fast and loose monetary policy? Thanks Comrade Greenspan!
I guess the only market that only goes up is in stocks.
Yep. I noticed Toll, along with other builders, had a nice day today. Despite the fact Toll’s numbers were once again bad.
Wash, Rinse, and Repeat as usual.
Dow 36,000.
People in the Denver area are very much against individual freedom and are big supporters of the welfare state, so I enjoy stories of their world crashing down.
Most of the righty parts of Colorado (which is pretty much the rest of the state) are gonna come crashing down just as hard.
The entire SouthWest region of the McUSA is pretty well toast. Without endless importations of everything needed for survival, most folks are screwed. Huge numbers will flee to greener pastures, but I imagine those good Bible thumping conservative folks will slaughter each other in huge numbers as well.
Yeah right. It won’t be THEIR world crashing. More likely the landowner who discovers they don’t own the mineral rights to their land. Instant liberals!
you pinhead, that’s boulder you’re talking about, the rest of the state is red flyover territory,
Republicans support the welfare state as much as Democrats; a pox on both their houses; and my head is round, not pointed.
However, my car broke down once a long time ago in Rifle, CO and they were the best people I have ever met.
Maricopa, what a joke. Good call on the guy who didnt move out there.
I had a friend who had a house out there, but I never knew truly how far it was until i drove through there to get to San Diego. Only an idiot would live way out there, let alone flip.
“Despite what some think, foreclosures aren’t being driven 100 percent by financing, he said. He noted that the Veterans Administration has been providing zero-down loans for decades,”
Yeah, but unbelievably, the VA actually insists upon a ridiculous avalanche of paperwork, including such redundancies as proof of income.
winjr,
LOL! Yeah they’re just kind of funny that way! When I got my first VA loan I gave them everything *but* a DNA sample! Just having an honorable discharge from the service isn’t enough. That and their inspections include things like making sure the property has windows and gutters. You know, nit-picky stuff like that.
The little touch that got me was a handrail on at least one of the entry steps. It’s the small things that round it out.
But that’s the way you should underwrite a no-down loan . A no-down loan is a big risk so you also got to make sure the property is saleable and doesn’t violate health and safety standards ,(they have a check list of things that have to be in working order .)
I don’t know about the IO thing. When they were 2% of the market, maybe it wasn’t such a threat, but 40% and up? Remember, the last time IO loans were widely available was prior to the great depression. And many lost their homes/farms.
Ben,
Agreed. No argument there! VA only recently even offered ARM’s and to my knowledge b/c they’re basically “tax-payer backed loans” will probably never offer IO paper. I was just in agreement w/ Lou Barnes that going w/100% financing isn’t necessarily an evil in and of itself.
The other major stipulation the VA has is that their loans are ONLY available for “owner-occupied” homes. And yes they do check. Ahem, your pay-stub says you’re employed in OR but you’re buying your “primary residence” in AZ? Hmm? Helluva commute eh?
I believe that IO’s and ARM’s have never been combined until the past few years.
Ben,
Yeah, I believe the VA allowed ARM’s in the early 90’s but to my knowledge they will never be able to offer a loan product where at least “some” of the principal isn’t repaid each month. There’s even pressure among service members not to “screw this up for the rest of us”. That isn’t to say that VA doesn’t have foreclosures, they do but they’re usually driven more by macro-economics than anything. Like when the whole town goes belly up.
DinOR: I didn’t make it this far down before commenting on your earlier VA loan post. Having inquired about one for myself a few years back, indeed they do have some actual standards that are upheld, unlike 95% of the other loans out there. Imagine that, expecting the borrower to actually live in the house! Having driven through many recent subdivisions, I can guarantee that other lenders are not checking on this! I think it would be safe to assume that a significant number of those loans are listed as owner occupied!
CA Guy,
We like to call this the “primary residence wink/nod rubber stamp approval” around these parts.
I really like the idea of giving a no down loan to a guy or gal that served the Country . I have not noticed abuse in this area of VA loans ,(at least when I was in the business before the boom ).Giving no-down loans to people who don’t really qualify with inflated appraisals is the worst lending you could do.The people will walk .
They use to have hard money lenders that would loan to people who didn’t really qualify or had credit problems but they would only lend up to 60 to 75 % of loan to value and they made damn sure the value was there because they knew there was high risk of foreclosure .
Either the secondary market doesn’t really understand the risk involved with these loans , or they thought real estate would go up ,or they are being deceived by the risk disclosed by the original lender that sells to MBS’s ,or the original lender is being victimized by RE agents with buyers and sellers with appraisers in on it ,or all of the above .
If you rated these loans by risk of going into foreclosure within 1 to 5 years you would get a better idea of what junk they are .
Here’s an email I got from a friend’s significant other, about why California prices aren’t about to burst anytime soon. I tried to use cheap money and toxic loans as reasons for the run-up and resetting ARMs as a reason for the burst, but I’d like those who are more knowledgeable than I to poke as many holes as possible in his assertions. So, here goes…
Well, I agree that certain parties might have a vested interest in maintaining a positive image for the housing market, but I think there are things that you may have missed and might want to consider. People have been claiming there has been a housing bubble for at least ~24 months, but it still hasn’t busted. Part of the problem is that the mechanism to “burst” just isn’t there.
Defaulting on a house is vastly different than, say, trading on the stock market. Stocks can and do “burst,” as trades can be facilitated in a matter of seconds. This allows for prices to vary radically in a very short period of time. Houses, on the other hand, just don’t work that way.
Your comments below lead me to believe that the primary rational you have for the housing market to “burst” is related to people entering into “unwise” financing options. Many people may have engaged in such unwise (or, as you put it, “exotic”) financing loans. The problem, however, is that it takes the financor (say, a bank) literally months and months to get someone out of the house (maybe longer if they are even remotely savvy on real estate laws), to say nothing about actually selling the home at a fraction of the cost (for if the bank sold it greater than/at fair market value, there would be no market correction). Therein lies the problem—a process like this generally takes a long time; it wouldn’t happen in a month–hell, it wouldn’t happen in 3 months. I’m not sure that fits the definition of “bursting a bubble.”
Also, the numbers (sales of homes) are what they are for Southern California. DataQuick Information Systems has little, if any, vested interest in showing a better picture than reality. The numbers clearly show what the median home price was, the number of units sold, etc. The numbers show that the median price of a home in So Cal has INCREASED in October of ‘06 as compared to the prior year. There *HAVE BEEN* exotic loans that have adjusted over the past 24 months (some adjusted after 6 months!). If what you are saying is true, then I’d expect the median home price to certainly adjust down. That hasn’t happened though. Most people have been able to keep up with their mortgage payments, as specifically stated in the LA Times article, which is in direct conflict with the sentiment expressed below.
Another thing to consider is that “exotic” financing is NOT necessarily a bad thing. While I’m not 100% sure what your definition of “exotic” is, I can tell you that an astute investor has a VERY good case for entering into an interest-only home mortgage and investing his money in the stock market, which can easily return far more than the typical mortgage interest rate. And if you want to argue that a 5/1, 7/1, or 10/1 ARM is an “exotic” loan, I believe you and I need to sit down and play with some numbers (I have a extremely detailed mortgage loan schedule that I generated myself that works to the dollar) because that is a TERRIFIC loan option to choose the majority of the time.
That leads me to perhaps the *BIGGEST* mistake in the entire argument presented: ARMs are going to adjust, people are immediately not going to be able to make the payments and will be forced to fire-sell their homes. Please explain to me why this is such a guaranteed disaster. Fire-sale of homes generally only takes place when a significant number of people become unemployed, not interest rate adjustments. Interest rate increases are mostly going to be a frustration for most people (akin to gas price increases), not force them to lose tens of thousands of dollars selling their homes as unwilling sellers.
I had a conversation with my uncle’s significant other on Thanksgiving. She is a mortgage broker. She was telling me that banks are currently loaning not only *over* the value of the home in most parts of Southern California, but also that they are allowing >80% loan-to-value WITHOUT CHARGING PMI!! There is really only ONE condition in which they would allow that to happen and it’s when they believe that homes are going to INCREASE IN VALUE. Keep in mind, these are the BANKS “talking”–the people with the dough—not the parties that wish to show a rosy picture.
There is one other massively significant item that you may want to consider: There are TOO MANY PEOPLE in Southern California and the population continues to increase. At the end of the day, these people need houses to live in. In this case, it’s simple supply and demand.
Your comment below tells me that you believe that the bubble will burst next year based on the timing of these ARMs. Is that correct?
If you are waiting for the Southern California market to crash, don’t hold your breath. It may take a long time, as the indicators don’t exist at this time.
Rats, my attempt at quoting didn’t work out. The material to be refuted is everything after the first paragraph, which is mine…
She sounds like a highly motivated moron. Denial running on all cylinders.
“Massively significant” amounts of denial it seems.
“Highly motivated moron” — I love that turn of phrase. And, Lord knows, we’ve got plenty of ‘em in our grand republic. Spot on.
And, as far as the HMM’s email goes - she misses the point. It’s not so much a bubble bursting and everyone losing large slices of value overnight — I agree that won’t happen. Rather, it’s going to be like a multi-year drought — it’s going to be uncomfortable and painful for some folks over a long period of time.
Yeah really, where do you start. I found it’s a better use of time against someone like this to just make a small bet - in this case that her house will be worth less this time next year - and let them wake up in their own time.
I agree, don’t waste your time trying to reason with them. You can’t argue with someone who won’t listen to logic. They obviously already have their mind made up so there is not much you are going to be able to say to change it. My advice is to point them to a few of the hundreds of very credible web sites that explain whats going on and then wash your hands of it. They’ll know how right you are in a few months or maybe a year.
I have one of those hanging fire to mature in 07/07…. $20 that a co-worker, who paid 424K for a home in ‘05 will not be able to sell it, as he intends, for that or more in ‘07.
Are you sure he’s going to have $20 in 07? I might request escrow…
Yeah, but here’s the deal. It’s called ‘the marginal case’. It doesn’t hit everyone at the same time, so no gigantic “POP” to be heard. Just the sound of someone driving a steamroller over bubblewrap. But they’re all just as flat at the end, it just takes longer. Tell the guy, ‘Hey, you might be right’, and walk away.
Is he buying in San Diego? Thats well published to be down. I’m in LA and just recently starting to see comp crushing sales. For example an REO just sold for 180k below asking than this one house on my street. They are asking 899, comp sold for 720k - And the sold house is larger, newer, better, remodeled… there are others but not a lot of them due to very few sales now. This guy listing his house paid 670k in 04 and its probably worth about that now but he would never agree of course- still listed at 899k. woodland hills area - its ok.
In spring we will have lots of ‘comp crushers’ from winter for buyers to skewer the army of sellers with - thus creating more lower comps and then the snowball rolls downhill….
This guy listing his house paid 670k in 04 and its probably worth about that now
In LA? No way. It’s worth closer to a third to a half of that.
This has to be a troll.
The poster is quoting someone else.
Indeed, not a troll, just quoting a friend’s sig. other. Those are NOT my thoughts/opinions/etc. This was an email I got from them this morning.
You should tell your friend to dump this significant other. Obviously they have taken all their arguments straight from the NAR. This is the type of husband or wife that eventually winds up losing the family fortune. Their definition of a bubble is a moot point. Second, the other main flaw is their assertion that banks believe prices are going to continue upwards. The vast majority of loans today are sold off to the secondary market (mortgage backed securities) and the original lender therefore bears no risk. They could care less if it defaults! They are making their money by churning loans as fast as they can and only keeping the good ones, e.g. those with stellar credit and significant amounts of equity. But, most of the posters here have it right, it is no use arguing with these fools. And again, your friend might be wise to dump this Kool Aid drinking significant other.
Also this person still fails to figure in that the prices have capped because of affordability . Also I don’t think this person knows just how many people will go into foreclosure , how many speculators and and unqualified buyers were buying and driving up the market,the over suppy of home problem ,overbuilding , etc. etc. etc.
i think alot of people assume that real estate must be ok because the lenders are lending 100% on it ,but they do not realize how much the lenders have failed in their duty to offer low risk loans to the secondary .
Your average person is not aware of the appraisal fraud that have gone on and even the reasons behind the housing mania and why its doomed to crash .
I agree with CA Guy - your friend should dump the ho. And when he doesn’t, you should get a new friend. Don’t watse your time on idiots.
How long after this person moved to SoCal did s/he decide it got too crowded?
Hah! Good question.
That leads me to perhaps the *BIGGEST* mistake in the entire argument presented: ARMs are going to adjust, people are immediately not going to be able to make the payments and will be forced to fire-sell their homes. Please explain to me why this is such a guaranteed disaster. Fire-sale of homes generally only takes place when a significant number of people become unemployed, not interest rate adjustments. Interest rate increases are mostly going to be a frustration for most people (akin to gas price increases), not force them to lose tens of thousands of dollars selling their homes as unwilling sellers.
I’ll just take this paragraph for now. (1) The dollar amount of ARM resets will be several hundreds, if not thousands, per month. For many people this DOES equal tens of thousands per year! (2) OTOH a $1 increase in gas works out to less than $100/mo for most poeple (3) it is much easier to adjust one’s behavior in response to higher gas (get a prius, carpool, forego long trips) than higher mortgage payments (4) there WILL be fire sales of flipper properties because it is easiest to sell the house you yourself aren’t living in (5) there WILL be higher unemployment as RE-related jobs vanish, hence more fire sales… what did I miss?
I would add:
1) the bubble won’t literally “pop,” it’ll deflate slowly. Real estate moves in long cycles and if it took 3-5 years to get here, it’ll take years to get us out.
2) banks will make stupid loans until secondary market liquidity gets tight and they can no longer sell them. Watch lending standards adjust dramatically (or mortgage rates rise) then. I’ve heard this is already happening to 2nd mortgages.
3) Check the demographics and see where the bulk of Cali’s population growth is coming from. It ain’t people who can afford $700K homes.
Keep in mind, these are the BANKS “talking”–the people with the dough—not the parties that wish to show a rosy picture.
Actually this is the MBS market “talking”, or perhaps even the CDS market. Those folks are starting to clam up a bit, though, as Option One and others tell it.
“at the end of the day”
This phrase makes me cringe. Virutally guaranteed any person caught uttering those words lack sufficient evidence to prove what ever is said next. It’s like all the shysters read the same “power words” motivational book. Seriously: certain politicos, RE pushers, MSM talking heads, sales guys at the luxury car dealer
Took the words right out of my mouth! I hhhhate that line!
Absolutely agree. When I absolutely can’t avoid using something like that phrase, I just say “In the end…”
” Please explain to me why this is such a guaranteed disaster. Fire-sale of homes generally only takes place when a significant number of people become unemployed, not interest rate adjustments”.
Apparently this guy hasn’t seen the foreclosure stats moving ever upward. This, in a “full employment” economy (at least by most economic thinking
“She was telling me that banks are currently loaning not only *over* the value of the home in most parts of Southern California, but also that they are allowing >80% loan-to-value WITHOUT CHARGING PMI!! There is really only ONE condition in which they would allow that to happen and it’s when they believe that homes are going to INCREASE IN VALUE.”
I can think of TWO reasons a bank would make such a loan. The SECOND one is that the bank can still package the loan into and MBS and unload it on an investor starved enough for yield to ignore the risk. Since MBS’s typically “season” in six months to a year (that is, the buyer generally can’t compel repurchase if a default does not occur within that time), and since the minimum payment on an exotic loan — i.e. all a borrower has to do to avoid defaulting — is often lower than the cost of rent, the bank is largely insulated from the risk of default. The bank, in other words, doesn’t give a flying [fornication] about whether the property will INCREASE IN VALUE.
“At the end of the day, these people need houses to live in. In this case, it’s simple supply and demand.”
Repeat after me: Demand is not “I wanna house.” It’s “I wanna house, and I have the wherewithal to pay for one.”
Good post Thomas
Thank you, everyone, for your ever-helpful and informative posts. Between your thoughts and my own, I crafted a reply that counters each of his points. (I even included the 1890-normalized historical home price graph.) If he doesn’t waver at all after this, I’ll concede the argument, safe in the knowledge that, “at the end of the day”, things will happen pretty much as I told him.
I know it’s late and many others have given their advice, but I just couldn’t resist on this one. I hope I’m not too late. Anyhow, here’s my two cents:
Does he think that the Nasdaq was a bursting bubble? Because that took about 2-3 years to hit bottom, despite the fact that stocks can be sold much more quickly than homes. So, a bursting bubble isn’t about whether the price declines in a matter of one or two or three months, or three years. To me, the Japanese real estate market was a bubble, and it took (is still taking?) over 15 years to unwind. But to say that it was not a bubble because it didn’t crash quickly seems disingenuous. And, if he wants to argue over semantics, then fine – the Japanese real estate market tanked, and the real estate market in the US will do the same.
He admits that it takes awhile for a bank to repossess a house and then get it sold (he says maybe 3 months – reality is more like 120 days just for the foreclosure, plus the time it takes to resell the house, so easily looking at 6 months on average from date FB first defaults to time of resale by the bank). He then states that ARMs have been adjusting over the past 24 months, so he expects prices should have gone down by now if your argument is true. Of course, the reality is that not many ARMs adjusted in 2005. More adjusted in 2006, and foreclosures are up dramatically. But, as noted, it takes about 6 months for the REO sale to show up. So, it’s going to take a little more time for those REOs to push comps down. And we’re looking at well over $1 trillion of ARMs adjusting in 2007 (total mortgage debt outstanding is, IIRC, around $11 trillion). That will add a lot of pressure on prices.
True, exotic loans are not necessarily a bad thing (although he is missing/ignoring the worst of the exotic loans – the negative amortization and teaser rate loans). They have been around for quite some time. But they were only recently marketed to the masses. Before, they were reserved for high-income individuals with some investment sophistication. Now they’re being marketed to high school dropouts. They can work for those people who can and actually do take the extra money and invest it wisely. But in the past few years they have been used to allow people to “afford” a home that they could not otherwise buy. These people will end up in foreclosure.
Ask him to explain why foreclosures are up three-fold in California over the last two years. Have large numbers of people become unemployed? No. So, his argument that foreclosures only happen after massive job losses is just wrong. Rich Toscano looked at this in his evaluation of the last bust in California real estate.
Finally, regarding his supply and demand argument – he ignores several factors. First, there is housing elasticity (as housing costs increase, more people live together to cut expenses, and thus reduce demand for total housing units). Second, supply and demand don’t live in a vacuum, they are correlated to prices. Basic economics shows that the higher the price, the lower the demand for that good as fewer people are able and willing to pay for it. So, the fact that people need a place to live is irrelevant to what the actual demand is. Third, people do not have to buy a house to meet their need for housing. People do rent. Finally, when exactly did we pass the just enough people and move into the TOO MANY PEOPLE demographic in Southern California? Just curious on that last one.
I think it was one of Rich Toscano’s pieces that dealt fairly well with the population-increase issue. Pointed out that the population increase over past 5 (?) years had exceeded the increase in number of housing units, by about 2% (two percent). If just two percent of people moved in with Aunt Harriet or something, there would’ve been no demographic reason for prices to increase AT ALL, never mind double-digit % every year.
What does this person think about the decline in value of LA property in the early 90’s? Certainly the population wasn’t decreasing then either. Challenge this person to show that buying a house now as a rental property can generate a positive cash flow. If it can’t, one is better off being a tenant.
OK, record foreclosures in CO. Answer me this: who holds the mortgage and how is it affecting them ? Someone, somewhere has to be affected financially when a homeowner walks away from a house and leaves the mortgage holder holding the bag. Someone somewhere just got burnt ! Who is it ?
The present mortgage system is like a fountain of money. People everywhere are getting these fraudulent mortgages for outrageous sums of money and now they are defaulting on them and yet the fountain continues to sponsor more bad mortgages ! Nobody ever talks about who is holding these mortgages !
> Nobody ever talks about who is holding these mortgages !
Your 401(k)?
HA ! Not MY 401K. I made sure of that !
the loans are securitized into tranches of risk. the originating investor ie; novastar, option one, new century usually holds the most risky tranches in the case of default. the remaining mbs holders get their payments from the loans in the portfolio unless of course your default rate rises from 1.5% to 8% in 12 months (current scenario) whereby those that thought they were buying a treasury will be unpleasantly surprised when they not only do not receive interest payments but their tranch took a 15% haircut. it will be ugly, as most of the “aaa” paper is insured by hedge funds. you are just starting to see the unravel of this house of cards.
Derivatives bombs. Good luck collecting your risk insurance from hedge funds, who have leveraged everything everywhere to the nth degree. Why wouldn’t they? It was a perfect system; sell insurance that has never been used, and use the proceeds to spin more derivatives, and sell more risk insuance, etc. etc. What’s the total notional value now; 700 trillion?
The thing is… Her logic flies with the 87% of modern Americans who have underdeveloped critical thinking skills. This is why the mortgage/housing bubble developed and why homebuilder stocks have soared today. Welcome to the Brave New World.
No, as I mentioned above I think it’s more like 1984. Ownership is slavery, ignorance is strength.
By coincidence, around 87% of Americans belong to a political party
Oh really? Only 40% of people old enough vote.
Do some math for her. Show her how much it costs to rent vs. buy a like kind property.
If you own property in San Diego, sell it and rent. Then email her once a month and tell her how much money you saved by renting (actually save that money).
Pick a couple of condo developments and do a monthly tax record search to see what they are selling for so you can tell her that you put $X,XXX money in the bank this month and the price of the condos went down X% or $X,XXX so the net diffirence to your monthly cash situation is $X,XXX.
Also, keep track of what market rents are because they will likely decrease over time, and you can use that in your guzinta’s.
I don’t know if it was posted elsewhere in a different thread, but the Wall Street Journal had a great story about how new subprime mortgages securitized in 2006 are going sour at a record pace. Almost 4% were being paid at least 60 days late, making this one of the worst years yet for loan performance. That’s twice as high as the DQ rate a year ago. They might as well give one of these loans to my dog. And it’s not just the subprime DQ rates that are climbing. Fed stats show 1.72% of residential real estate loans across the banking industry were at least 30-days late in Q3, the highest since Q4 2003. More details at my blog.
http://interestrateroundup.blogspot.com/
My overall take: These aren’t the kinds of numbers that are going to make banks fail or anything. But I get the sense the market is whistling past the graveyard in terms of the potential for decent-sized increases in loan losses.
“My overall take: These aren’t the kinds of numbers that are going to make banks fail or anything. But I get the sense the market is whistling past the graveyard in terms of the potential for decent-sized increases in loan losses.”
I think its too early to tell. Mortgage debt is gigantic ! And once the failure cycle starts, jobs will be lost, housing prices will fall and it will snowball. The only question is who is left holding the bag ! I keep asking, who is getting hit when Joe homeowner defaults ? That is what I want to know !
The thing to remember is that the margin on these load products was razor thin. Its not like they were a fat 20% junk bond. The end purchasers were counting on a secure 5% investment. It doesn’t take much damage to wipe out 5%.
Here is another thing… a lot of people said that Asian banks bought the MBSs. Well, if that is so, the drop of the US dollar last week had to hurt them and sooner or later they are going to have to add a few percent to the loans to counter the risk of currency corrections.
I’ll go out on a limb here and say that the days of ARMs and sub primes and no documentation loans are done ! When that financing dries up, it will severely affect the housing market.
“The only question is who is left holding the bag ! I keep asking, who is getting hit when Joe homeowner defaults ?”
It’ll likely be the pension funds who take the biggest hit, so if you have a pension plan you need to assess the exposure your nest egg. The MBS products have been sold far and wide, and as you mentioned above it doesn’t take much to upset an anticipated 5% return.
Lots of people want to know who will take the hit. I think the answer is that nobody is really sure. The risks have been spread around to many players, but in complex ways that no one can accurately predict. For instance, the banks sell their loans as MBS, but they retain part of the risk and the MBS holder takes part of the risk. But then there are the credit default swaps that attempt to insure against some (but not all) of that risk. Then the credit default swaps get derivatives to hedge their risk. So, in theory, risk is all over the place but has been reduced for each participant. But what happens if a few of the participants (say a few hedge funds) go under and some player that thought they had hedged their risk now has more risk than they bargained for?
I know people here have been trying to figure out who the bagholders are going to be, but nobody really knows at this point because there are just too many players out there doing deals that we don’t know the details of.
Mike,
Are the banks really the bag holders here? The risk now belongs to the MBS holders and their associated insurers, right?
Who are the MBS holders ? What happens to their returns when 5% of the properties are foreclosed on ?
Exactly. Moreover, who are the issuers/holders of the Credit Default Swaps that apparently insure the MBS?
FYI, banks are some of the largest holders of MBS!
Just a couple of quick thoughts for the poster passing on a Calif. message:
- Economic bubbles grew and burst long before the technology existed for near-instantaneous volume trading. Sure, a housing bubble burst may look glacial as compared to the stock market, yet still be a fait accompli, simply requiring TIME for failed refinance efforts, attempted workout, more failed payments, eventual foreclosure, REO potentially sitting around, eventual bank capitulation on price in a glutted market, etc. It’s still a crash if the end result is property that won’t be sellable for more than (1/2, 1/3, some fraction) of its prior market value for a period that well exceeds that of the runnup.
- Resets are a disaster because borrowers have taken on “suicide loans” - loans that are only tenable for their finances in an UP UP UP market where it will be easy to refi or sell before facing the consequences of that reset. The now-fading sense of urgency to get into the market before “being priced out forever” motivated many not-so-normally-idiotic people to take a terrible chance, and again drove prices up past what was in any sense affordable (past that short term “teaser” period) to quite a few buyers. Lenders have been complicit in encouraging these bad decisions with their “innovative” no-documentation loans. Contrary to your friend’s SO’s claims, the lenders largely don’t give a crap about how sound the loan is, just whether they can repackage and sell it off in short order. In the end, the hurt gets passed on to foreign investors, US pension funds, and I’m betting 99% of everyone with a 401K.
- People don’t need houses to live in. They need shelter. That can be an apartment, a room in someone else’s home, a shared living arangement not relished but bourne of economic necessity, a MacMansion chop-jobbed into 6 crappy units…get the picture? In the end, people won’t do what they can’t pay or keep borrowing in order to do. That, too, is supply and demand.
Bridges, cardboard boxes and tents work too. People survived in caves and mud huts long before houses were invented.
OT:
I love my house but hate the payments and upkeep!
“I own a house I love. It’s an old bungalow with a huge southern porch. In most ways, it suits me to a T, and it’s also likely a good investment since my formerly edgy neighborhood is being gentrified left and right and nearby rundown warehouses turned into condos and retail space.[...]
“However, my old house, while charming, requires a lot of maintenance and upkeep. I’m single and not particularly handy, so I’ve taken out a home equity loan for various projects. This has added to my debt, which, while not unmanageable, is increasingly causing me worry.
“At the same time, I’ve become bored with my job specifically and my work in general. I’m also not optimistic about my long-term job security. I long to do something more fun, more creative and less stressful — which will also mean less money. So, I’ve begun thinking that I should sell my home, use the profits to pay off my home equity loan, and buy an inexpensive condo.”
[...]
“Dear To Downscale or Not,[...]
“I think the smart thing to do — and you probably agree in principle — is to hold onto the house for the next 10 to 15 years. If you get restless, rent it out and move somewhere. See how you like living somewhere else. But hold on to the house.
“That is the smart thing. But the smart thing is not always the easy thing.
“I don’t even love my house that much, or my neighborhood. But I’ve sunk so much money into it — all from the home equity loan, of course — and put my wife through so much hell that it’s like our own private Iraq now: All those sacrifices have to mean something! So damn it, we’re staying the course!”
Donning the Career Counselor hat, Arizona Slim says:
If say that you’re not particularly handy and that you are also bored with your job, then learn to become handy. Take classes at your local community college. Or find a trade school. Or apprentice yourself to a handy-guy or gal.
Just do something. Why? Because handy-skills are in demand. It doesn’t sound as though your current job is in demand. So, listen to that knocking sound. It’s opportunity, and it’s for you.
“….learn to become handy”.
This is very true. I remodeled a small (1250sq/ft) cottage home from 2001-2003, and then sold it. I’m still tired from working on that place, but to own an older home requires you being able to do at least some of the maintenance yourself. If you can’t, then this type of home does not “Suit you to a T”.
My advice comes from the fact that once a month I have to remind my mother-in-law that we saved $3,000 by renting instead of buying, AND property values decreased.
I give her examples of sales to which she usually replies, “that was a good deal, you should have bought that” to which I reply, “something nicer will be cheaper next year”.
She’s old school and a great lady, but she will never get it.
I don’t know about anyone else, but several thousand a year in interest + another several thousand saved by renting is much better than paying out $3K a month for something that is losing as much as 10% per year for the next 3-5 years.
“something nicer will be cheaper next year”
I have this as a “macro” in my brain that I play back whenever my wife starts getting figitty about buying again…
When we were looking at move-up homes this past spring, my wife and I would say “No thanks, we’ll wait for the bank to sell it to us.”
“…said Boulder lender Lou Barnes. ‘Our housing market went flat in early 2001, and since then, foreclosures have been rising in the foreclosure belts about 50 percent a year…”
Does anyone have information on Boulder? I was looking at some listings around there (for fun) and was shocked by the prices. Real POS’s with price tags of $300-$400k. Seems anything even decent is over $500k. Maybe I was on the wrong site but that place seems horribly overpriced. How are these areas prices holding up with all of these foreclosures??
Renting is cheap; you can find decent 1BRs in the $600s or so, 2BRs in the $800. This for stuff a well-adjusted adult wouldn’t be embarassed to live in (you can go cheaper and get squalor; after all, it’s a college town). And there are decent jobs there.
I find it interesting that the Boulder market went flat in 2001. The timeline coincides nicely with the tech bust, and the property market apparently imploded as a result. This is what SHOULD have happened everywhere had Greenspan not injected the system with so much liquidity. So my question is this, why did what should have happened everywhere, happen only in Boulder? Why didn’t the injection of almost-free money have the same impact there that it did everywhere else? Why is Boulder special? Why is it different there?
Boulder limits growth which results in tight supply. Moreover, Boulder is an attractive, smaller community with a great quality of life and a university feel. As a result, there is strong demand and a tight supply of houses which cause high prices. Kind of Southern CA beach townish in a way.
IOW, everyone wants to live there.
See. Boulder is different…
And special!
Well, Boulder, IS different from the rest of Colorado. It is way overpriced. It’s set in a beautiful backdrop, true. But much of the housing stock is utterly overpriced CRAP. The City of Denver is a much better value, with a better variety of housing that is not POS crap, like Boulder.
This is kind of interesting…
1-in-2 chance seen for housing-led recession
Interesting fresh analysis from American Enterprise Institute …
“A weak housing sector has accompanied every American recession since 1965, but not every episode of housing weakness has accompanied a recession. An annual drop in the growth rate of residential investment (a good measure of homebuilding activity) of more than 10 percent has coincided with a recession five of the seven times it has occurred since 1965. (In 1967 and in 1995, declines in residential investment occurred without a recession.) A significant drop in residential investment therefore appears to be a necessary condition, but not a sufficient condition, for a U.S. recession.
“Housing slowdowns tend to lead recessions rather than result from them. During the second quarter of 2006, fixed residential investment fell at an 11.1 percent annual rate, followed by a 17.4 percent rate of decline in the third quarter. The intensity of the fall in U.S. residential investment during the middle two quarters of 2006 is approaching potential recession territory. The year-over-year drop reached nearly 8 percent during the third quarter. Moreover, moving into the fourth quarter, the housing slowdown is intensifying. Housing starts, another important measure, fell by nearly 15 percent during October, bringing the three-month (August through October) annualized rate of decline to nearly 50 percent.
If a decline in housing starts of 50% isn’t enough to trigger a recession, what on earth is?
The deceleration of investment which accompanies a 50% decline in housing starts is.
1967 - Vietnam War - boost in aggregate demand
1995 - start of dot-com boom - boost in investment
So where’s the boost going to come from this time? And don’t say “War with Iran” - $100+ oil will just take things down faster.
> Despite rising foreclosures, Barnes said there has been no move to tighten borrowing requirements because the federal government wants to encourage homeownership.
What is this madness?
In a related story: liquor companies also want to encourage social drinking. Left unregulated they’d create a nation of alcoholics.
The buzz is wearing off and the housing hangover is about to begin.
That’s pretty funny.
Peter I will tell you what it is. It is exactly what Passthebubbly said earlier: ownership is slavery. You see, Bush and his crownies want everyone in debt up to their eyeballs. It keeps the natives from ever questioning because you don’t have a choice, you have to pay the bills.
I said this about a week ago in a different thread on this blog. I truly believe we have reached the final stage of capitalism for the masses: perpetual debt. For some on here we call them the howmuchamonths Harry’s. That sums it up.
Considering most Americans are past the tipping point or have reached their own “Peak Debt,” I don’t think you can turn the ship around. However, I think big business and banksters planned this for awhile. Since the garbage they make is just that, how about pushing people into debt to buy that crap.
If Americans used any amount of critial thinking skills, half the sh!t-making companies in this country would be out of business. But no, I still want to shop at the stuffmart, even if I have to HELOC my home twice and cash out the 401K. What crap!
Meanwhile we all walk around telling each other we are fine and everything is good. Just look at Wall Street. But underneath it all is a stressed out, overworked, overworried middle class that is tittering on a precipice and just about past the point of pulling back.
Anyway, Peter, what do you expect from banksters? They have to keep the ball rolling. They have to keep the product moving. Tragically, this country has mostly morphed into not just a bastion of greed, but a palace of bigger numbers, larger profits, more products to fit any situation.
Sadly, there are times where I wish that we could all just be farmers and feed, house, clothe, and educate everyone in this country. I know I am being sentimental and unrealistic, but the agrarian society has a certain appeal to me.
So it’s kind of like the Pol Pot agrarian utopia without all those icky killing fields? I’ll do it only if I get to be field boss
LOL. Holiday in Cambodia still gets me.
Santacruz, I am by no means thinking along those lines. Rather, a much smaller federal government with self sufficient people really owning their own place. Think maybe something like Midwest farms with a mix of a simplier earlier time in this country when things weren’t so hectic and there was some space between neighbors. When people actually knew one another and cared about one another, rather than just thinking about themselves and how much money could be made off another person.
“…something like Midwest farms with a mix of a simplier earlier time in this country when things weren’t so hectic…”
…and the kids all died of diptheria. No thanks.
Seriously, guys, my family fit your agrarian ideal to a T, and left excellent family history records. People absolutely did know each other and care for each other much more than is the case in our fragmented postindustrial society — but you know what? In a lot of other ways, life really, really sucked. (If nothing else, lawyers actually had to *work* instead of wasting time surfing the web.)
For all the flak that “Stuffmart” gets, the reason most Americans are in debt up to their eyeballs is big-ticket items — housing, cars, education, medical bills — all of which have become dramatically more expensive lately, even as salaries are stagnating (and Stuffmart’s offerings are getting cheaper). While I do believe a return of a simpler American ethos would do us a world of good, the major problem today is not that we’ve forsaken an agrarian ideal that was dead almost before Jefferson articulated (and certainly by the time a bunch of cynical slaveowners used it to motivate Southern boys to attack and die to preserve their privilege). No, the problem is simple: A massive government-induced inflation in the effective money supply, leading to a massive misallocation of capital, which is going to get a lot of people seriously hurt.
iI agree with OCDan. If people actually were taught morals and ethics, then maybe they wouldn’t be so quick to try to enrich themselves at the expense of others. Don’t get me wrong, I’m not talking Communism or something. I’m just saying that you can make a decent profit off of someone instead of reaming them. Like the Chicago guys said “bringing your book forward”, or something to that extent, does not have to be done. Companies dont have to have increased profits every year, just so the execs can get bonuses. And you dont have to sell/lend etc things to people that they cant afford.
I understand that people are generally stupid in this country, but if the people who understood (lenders/realtors, etc) explained that “this home is overpriced and you cant afford based on this criteria” or “this loan is not good for you, but maybe you should look at this program..”. Then at least some people would re-consider their decisions. Then those lenders/realtor could at least know that they tried to do the right thing by people.
Instead, right now everyone is in on the fraud: banks, realtors, mortgage brokers, Wall Street, MSM, book writers, etc. I”m not some idealist, but I do understand that at some point we are all in this together and if the majority of the people in this country are broke (depression) then everyone will suffer.
Something needs to change in this country or we are headed for some serious problems.
Long live the DK’s!
“Bush and his crownies want everyone in debt up to their eyeballs”
What abject nonsense. If you were president and wanted to “enrich” some “cronies” it would be a lot simpler, wouldn’t you agree, to announce a plan to, say, nationalize healthcare.
Of course, having told your “cronies” to buy puts on every health stock they could find.
Oh, some president already did that, didn’t they? Trust me. If a president wanted to further enrich some rich friends it would be far simpler to pull any number of economic, short term stunts. Why go to the trouble of “convincing” people to borrow recklessly (as if anyone could).
No, greed and stupidity drove people to bid up prices and take out toxic loans. Not Bush, not Cheney just the same old stuff that has bedeviled mankind forever; human nature.
There was an article a while back that analyzed the stock portfolios of our nations senators. All I can say is that they beat most professional stock index managers by a large margin.
Jag you missed my point. You are trying to say that I said something about Bush and his cronies getting rich. What I said is he and his cronies want us in debt. Don’t you see, an indebted and stupid populous never rebels. It never asks too many questions. It doesn’t have time to reflect. Why? Too busy shopping and working to try and pay off debt. Besides, Bush and his cronies have already made out like bandits with the war, see Haliburton, and oil, see Bush’s family business. Keeping people in debt is a means to an end. Ownership is slavery.
As for Thomas, I understand dying from Diptheria, but an agarian society doesn’t mean that there is no medial care. Throughout history, many of the best medical advancements came from agrarian societies. I seem to recall a group in PA that doesn’t seem to have outbreaks of anything, the Amish. What about the Menonites (not sure on this group) in Montana? They may have other problems, but I think if serious healthcare was one, we would have heard about it.
As for the whole agarian system, remember I said I was sentimental about it. Doesn’t mean I want to go back. However, my main point is this. With all the fraud and greed and lack of caring by so many in this country with the power to do something, I don’t see how this economy can keep going.
If nothing else, all the debt will finally cause the collapse. And what about the entitlements, i.e. social security, medicare? Well, you can forget about that and just what are you going to do about it? Yeah, that’s right call your congress(wo)man. Like that will get anywhere. Take up arms? That is a losing proposition.
Face it, the freedoms that our forefathers fought for or envisioned, albeit not perfect, and in some cases, as slave owners and/or Indian killers, will never be achieved in this country.
The Amish and the Mennonites both have no religious scruples with using modern healthcare. Their objections to most of modern life are based on the principle that many “labor-saving” devices distance people from one another and from God. But they have and will take full advantage of modern medicine, because they aren’t stupid.
Yes, we are ownership society. However, these folks are just now finding out the meaning of that “ownership” is not that they were to be the ownER, but rather the ownED.
That’s why the Bible states ” neither a lender or borrorwer be…”
I think you’re quoting Polonius, from Hamlet…”neither a borrower,nor a lender be, and to thy own self be true…”
In today’s materialistic, videogame, messageboard, MySpace, instant gratification culture, I think of it as the pwn3rsh1p society.
More like “teh prwned” society
Boulder:
I’m not from Boulder and have not lived there so I am not an expert, but here is my 2 cents:
IBM, IBM, IBM…
About a year or 2 ago I visited Boulder on business to see their help-desk operations. It is incredibly enormous. Imagine about 8 Sam’s Club sized buildings all huddled together in one big mass. You stand on a platform in a viewing area and for as far as the eye can see in most directions you see these people acting like monkeys huddled in little cubicles providing technical support (I.T.) to the world.
It’s the epicenter of their tech support operations for companies to outsource to them, and they are NOT screwing around. They had like 340 contracts at the time and were adding about 40 more a year, and they do it cheap. I mean about $25 a call which is a helluva lot cheaper than most companies and government entities can provide tech support for in-house.
Thank God someone is competing with Inda, but ever since that trip I’ve been warning young people against getting an I.T. degree unless they are the sharpest of the sharp. The “normal” will end up in this coal mine of an I.T. operation somewhere in the world…
That’s my 2 cents…
I posted a version of this a long time ago but I’m posting it again for the lurkers .
THE SEEDS OF THE HOUSING MANIA
(1) Low interest rates , easy loan underwriting ,low down loans
(2) Tax free gains on real estate profit,(up to 500K) every 2 years on the primary home that encouraged short term real estate investment .
(3) Massive advertising dollars from RE industry ,while not enough challenge from the main media on the real estate spin .
(4) Get rich spin from industry or be priced out . In addition, seminars pushing real estate investment 24/7 also in bed with developers to hype short term speculators into projects .
(5) Massive speculation creating short term investment demand,while real estate is more of a long term investment so it creates a false short term demand that needs to be re-sold .
(6) Baby Boomers wanting to investin RE to fund retirement because of lack of saving .
(7) Younger people wanted the RE invest to supplement wages not going up . Wages not keeping up with inflation pushed mania
(8)Greenspan leaving interest rate to low to long
(9) People getting turned off by the stock market crash in 2000 , seeking other investment in RE, possible reaction to 911 also .
(10) People wanting to use easy equity loans to fund lifestyles they couldn’t afford and people wanting to party hardy on home equity money . This created demand and jobs and consumer spending that is doomed to crash once the equity runs out .
(11) Feeling of wealth effect from real estate appreciation ,causing people to spend more and risk more ,buying more property .
(12)Builders and lenders catering to short term speculation/flipper purchases and marginal buyers causing excess building and driving up of prices .
(13) Gov. Building Departments saying yes to over-building without regard to long term demand or over-crowding or water.
(14) Mortgage fraud and inflated appraisals driving up prices .
(15) NAR/Car/realtors -given a powerful voice in the media during the boom and even now in spite of it being self-serving spin that wasn’t challenged by the main media . Example are :
“We are running out of Land ”
“Buy now or be priced out forever”
“Real estate always goes up ”
“Rates will never be lower ”
” The Baby boomers will come ”
“Buy now because there will be a appreciation surge in 2007″ .
(16) Mortgage fraud and the secondary Market not aware of true loan risk on stated loans or appraisal fraud .
(17) Original lenders and Secondary market making loans based on premise of low risk because real estate always goes up .
(18) Morgage fraud with speculators claiming owner-occupied when not .
(19) Lenders failing in duty to underwrite loan risks or check appraisals .
(20) TV shows like Flip that House and Property Ladder causing people to invest and attempt to flip a house .
(21) HGTV and other TV programs touting real estate .Constant real estate advertising on TV and internet and in newpapers .
(22) RE industry and Lenders encourging people to overspend or take out equity loans that exceed qualifying with the idea the borrower could refinance ,sell ,or get a fixed rate based on the notion that real estate always goes up .
(24) Banking regulators sleeping on the job
(25) Lack of on-site appraisals ,with no double-checking appraisals by neutral source .
(26) Currently ,incentives and kickbacks are keeping the real estate party going .
(27) Oh , I forgot one ,,,, Banks paying low yields on checking and savings accounts, causing people to look for higher yields in the last five years by investing in real estate ,(which goes back to Greenspan leaving the rate to low to long ).
The above reasons created the real estate mania housing boom that is doomed to crash .
We are running out of land in Texas. ROFLMAO
Boulder has Mountains to the West and Kansas to the East. There are building restrictions in Boulder, but not in Lafayette or Longmont, both of which are easy commutes into Boulder. In the last OFHEO report Boulder was one of the worst communities in Colorado for house price appreciation.
It’s a decent town for a college town, there is good rock climbing and kayaking within bike distance of downtown, but otherwise it’s not anything particularly special. Most of the folks in Colorado probably agree too, since they live outside Boulder (commonly called the People’s Republic of Boulder, or Little California)
Boulder has free-roaming cougars…
http://www.beastinthegarden.com/