“If It Was A Bubble It’s Less So Now”
Friday desk clearing time for this blogger. “Economist Irwin Kellner on Friday said Long Island’s financial outlook is the same as the nation’s: It’s good, but factors that could sour it loom on the horizon. ‘Long Island in one of the real bubble markets,’ he said. And the number of unsold homes on Long Island is 86 percent greater than last year. Normally, that number gains 5 percent a year.”
“‘It would take 16-and-a-half months to exhaust inventory, the highest since 1991,’ he said.”
From New Jersey. “The numbers do appear staggering: In September 2005 in New Jersey, there were 967 filings of lis pendens, the first stage of foreclosure. This September, there were almost 1,650 filings, a whopping 71 percent increase. ‘In some cases, these monthly payments are doubling,’ economist Celia Chen said. ‘A good share of these buyers were barely qualified for a mortgage even at those lower interest rates.’”
From Ohio. “It’s probably not surprising that over the last 12 months housing values have been plummeting. ‘It is a real weird thing,’ said real estate broker and developer John Hoty. ‘You get a lot of people in a certain price range who can’t sell their home, and that one leaps to another segment, and so on.’”
From Georgia. “Hundreds of Georgians lost their homes Tuesday. The houses, taken from debt-laden homeowners, were sold to bidders on courthouse steps statewide. ‘About 40 percent of the people we talk to have a mortgage with an adjustable rate,’ credit counselor Susan Hunt said. ‘And that is true across the board. We have people who live in Alpharetta in great big mansions. Their adjustable rate escalates, too.’”
From Mississippi. “After the foreclosure of several homes purchased through an investor brought to light a problem with mortgage flipping scams, one local realtor is warning buyers to beware. ‘There are so many people who get caught up in mortgage companies that may be deceptive in their fee structure, and I think the public needs to be aware,’ Mary Tucker said.”
“The fraud is also causing lack of trust even in well-respected realtors. ‘This is my living, and I don’t want people to mistrust realtors. It’s not true of all realtors,’ Tucker said.”
From Iowa. “Veldon King has 51 years of experience in real estate sales. He said the difference from last year at the Ottumwa office he works from is significant. ‘I don’t know what’s happened. A year ago the last quarter we couldn’t keep up. This year it’s the opposite,’ King said.”
From Nevada. “USA Capital controlled $962 million in assets for investors when it filed for Chapter 11 bankruptcy court protection in April. Compass Partners made the apparent highest and best bid of $67 million Thursday for the assets.”
From Canada. “If there ever was a housing price bubble, the air is now coming out. Real estates sales slowed further in November in Greater Vancouver, the latest statistics from area realtors show, while active listings are way up from a year ago. The price of a typical Greater Vancouver detached house edged down again in November to $647,500, down about $12,000 from September.”
“‘I don’t think it was a bubble,’ economist Helmut Pastrick said. ‘For for those who did or still do, the trend in the last six to 12 months of declining sales and increasing listings suggest if it was a bubble it’s probably less so now that market conditions are easing.’”
From California. “It’s a nail-biter to see if (the Orange County) price will fall below the year-ago level for the first time since 1997. What’s clear is that November will be the 13th straight month that total sales can’t keep pace with the previous year’s pace.”
From San Francisco. “When Laurian Rhodes and her husband Sluggo bought their house 2 1/2 years ago, the couple did what had become the new norm: They went out and bought a house before they put their old home on the market.”
“Laurian and her real estate agent settled on a list price of $715,000. But as soon as the property hit the market, it became apparent that something was wrong. ‘Nobody was coming to see it. Hardly anyone was showing up at the open houses,’ she says. They lowered the price repeatedly, from $715,000 to $695,000, then to $675,000.”
“‘Since we’d refinanced at $635,000, we couldn’t afford to sell it for $650,000 and still pay the realtors,’ says Laurian. Since then, the couple has pulled the home from the market and decided to rent it to some friends for a year.”
“Laurian seems philosophical about her new financial conundrum: the month-to-month double mortgage. ‘Savings? Who has savings? We live month to month. Someday maybe we can retire by selling our house and moving to an even more podunk place. We’ll be in Montana pitching a tent. But we’re artists. It’s never been my goal to be rich.’”
Another great week! My thanks to those who keep the server running. Please check back this weekend for news, your market observations and topics.
“‘I don’t think it was a bubble,’ economist Helmut Pastrick said. ‘For for those who did or still do, the trend in the last six to 12 months of declining sales and increasing listings suggest if it was a bubble it’s probably less so now that market conditions are easing.’”
this guy is an economist? factors leading to bubbles will need to play out in economic terms; hence business cycles. just because these factors are less now than a year ago, it does not mean that the forces pushing the market in certain direction are suddenly absent and the market is now a healthy market again.
Margaret Thatcher’s statement about the passing of Milton Friedman sums Economics / economists up quite nicely:
“Never was there a less dismal practitioner of ‘the dismal science’ (economics),” Thatcher said in a statement.
He’s an economist for a credit union whose primary business is selling residential mortgages. Helmut is well known here in Vancouver as a mouthpiece for banking interests.
This is a notice for the UCLA economics school and all other economists who hide behind the “ivy curtain” and shill for the highest bidder. Bureau of Labor Statistics report…..
…….> Construction employment fell sharply for the second
month in a row. The November decline (-29,000) was
widespread across the component industries. Since peaking
in February of this year, residential specialty trades
employment has fallen by 109,000. Nonresidential specialty
trades added jobs during the first 10 months of the year,
but employment in the industry edged down in November.
No kidding. Reading the list of sponsors for these think tanks makes me sick. Can you say, conflict of interest? Same thing with reports coming from the investment banks. Unfortunately, most people believe what is stated because it comes from places held in high esteem. Honestly, I think you can find better analysis here on the blog. Guys on Wall St. make big bucks reporting useless garbage, and it never changes. What a country.
“We’ll be in Montana pitching a tent. But we’re artists. It’s never been my goal to be rich.’”
Ya goof. Has it been your goal to be poor?
Reminds me of the guy who tried resolutely to be grizzly-bear food and finally succeeded. He was just crazy — his girlfriend was stupid.
But it (Grizzly Man) made for one of the best shows on TV.
Discovery Channel
Oh you just don’t understand! Those cuddly bears are just misunderstood!
(and they had to identify one of the bears bowl of porridge from his car keys)
I didn’t see it, but Ameriquest has been put on some ongoing credit watch by Fitch.
Any link? This isn’t a trivial thing… All it takes is one major purchaser of MBS’s to back out at this point…
I had quite a few thoughts on this in the morning, so I blogged it.
http://recomments.blogspot.com/2006/12/death-of-subprime-and-easy-credit.html#links
Neil
it was on CNBC when the money honey was on.
Fitch Places AMC Mortgage Services’ Resi Servicer Ratings On Rating Watch Evolving
http://home.businesswire.com/portal/site/google/index.jsp?ndmViewId=news_view&newsId=20061207005795&newsLang=en
Great blog about it Neil. So much came out on this topic this week. Someone needs to write it all up. I’ve been writing about it everywhere on this blog.
I agree that if sub prime blows up the whole game is over. I don’t see how sub prime can continue to exist ! I figure we will have a severe melt down in the next month.
Tweedle-dee….Yep , it had to happen . How could those lenders exist without real estate going up ?They either have to change their lending format quick or go down .
Of course the question becomes how much is the market demand going down with the sub-prime lenders out of the game ,or changing their game . If the secondary market doesn’t want to buy the packages anymore ,it’s over .
I saw the secondary market do this backing off in about 1979 or 1980 and than again at around 1989 .
“They either have to change their lending format quick or go down.”
Depends who “they” is. If figure that the MBS buyer community will get spooked and the game might already be over as far as anything but traditional mortgages goes. There is billions and billions of this stuff floating around out there, just waiting to blow up. If it doesn’t blow up this year, what about next ? Now that the MBS community sees house prices declining, they know their loans aren’t backed by 100% collateral anymore.
I figure the whole non traditional mortgage game is over, or will be very soon. All we need is a a further increase in the default swaps and maybe a failed MBS sale or two and a lawsuit or two and its over.
“Of course the question becomes how much is the market demand going down with the sub-prime lenders out of the game ,or changing their game.”
I’d say that 50% of the deals were zero down, I/O, ARM or sub prime. The no doc and low fico loans are probably done too. What does that leave ? I’d say it wipes out 50% of the potential purchasers.
What will THAT do to the market ? I’d say kill it !
And when that happens the foreclosures will escalate.
Its really a whole house of cards. The house stood up this long because the mortgage people were throwing around (other people’s) money and house appreciation masked everything. Now those factors are going to be gone.
People are right when they say the bubble hasn’t burst. It hasn’t. We’ve had a mild, slow correction thus far. However, when the mortgage credit tightens up, the bottom will fall out.
Now I wonder how many of the economists factored the tightening of non traditional financing into their “soft landing” scenario ? It doesn’t matter if the GFs don’t lose their job. When the non traditional financing is gone they don’t have nearly enough cash flow to support the current prices. Not even close.
This is going to be extremely interesting to watch - as a renter !
Much better to watch as a renter . I tend to agree with you also that there has been no factoring of sub-prime lending out of the picture by the economists .
It will be interesting .
thanks for the compliment.
With fitch putting AMC (Ameriquest’s parent) on “watch”, we might be done with thsi subprime mess soon. (Soon being in months… I hold no false allusions.)
Neil
Note the paragraph on how many real estate related jobs are classified as “independant contractors” and not reported in the unemployment numbers.
40% of the jobs created within the last 5 years were real estate related.
LMAO…The US could be lapsing into a depression and no one would have a clue via the government numbers.
‘The housing market, a particularly volatile industry on Long Island, could wreak havoc on our economic status, Kellner said.
“Long Island in one of the real bubble markets,” he said. And the number of unsold homes on Long Island is 86 percent greater than last year. Normally, that number gains 5 percent a year.
“It would take 16-and-a-half months to exhaust inventory, the highest since 1991.”
The problems list includes a stale tech market, where no new applications are really driving the market, soft automobile sales and the fact that less people are saving money.
“The last time we had a negative savings rate for this long was in 1933, the bottom of the great depression.”’
Please ignore all of the above coincidences with historical periods of recession or worse, and keep faith in the experts’ mantra: “It’s a soft landing.”
Back then the so called experts were singing the same song.
long island is absolutely a major bubble market
evryone with 2 suv’s and running out for all the consumer
goods heloc money can buy
and those taxes on long island are ridiculous
btw nassau county is one of the most corrupt
places taxwise on the east coast
It has been my hope that Long Island would be destroyed by Tsunami. Most depraved place on earth.
“If there ever was a housing price bubble, the air is now coming out.”
For clarification purposes, let me rephrase that sentence:
“There may never have been a housing bubble, but the air is now coming out regardless.”
“You know that bubble that we said never existed in the first place? Well, it’s starting to pop, and eventually it will be completely gone, at which point it will be like before the bubble never happened in the first place. So we might of well have been right.”
“You know that bubble that we said never existed in the first place? Well, it’s starting to pop, and soon it will be completely gone, at which point it will be like before the bubble ever started. So we might as well have been right.”
fixed grammer [sic]
Sluggo. LOL. His dad must have been a baseball fan.
HA! That made me LOL when I read that name in the article. Surely that cannot be a given name. When I read further and discovered that they are artists then it all made sense, especially coming from SF.
People living month to month and buying $700K homes? WTF? And what is with all these people buying a new place before they even list the old one, let alone sell it? Jesus, cry me a river. I am sure that only a very small portion of the population can actually afford to do this, and an even smaller number of artists! People have completely lost touch with prudence.
“‘Since we’d refinanced at $635,000, we couldn’t afford to sell it for $650,000 and still pay the realtors,’ says Laurian. Since then, the couple has pulled the home from the market and decided to rent it to some friends for a year.”
I love it when folks really think their POS is worth what they owe on the pig. “We refi’d, so we can’t afford to sell it for less.”
The level of intelligence in this country is simply in the toilet.
I especially like the bohemian attitude at the end:
“But we’re artists. It’s never been my goal to be rich.”
Right. When you refinanced, what did you do with the big wad of cash you took out, feed the hungry? No, you blew it on consuming things you want. Those things will still cost money in the future, even living in a Montana campground. I heard this phrase years ago, and it’s still one of my favorites ….
“Money isn’t everything, but it sure beats what comes second”.
LMAO!
What does come second? If it’s sex I’m not sure.
Second place is no money.
Sex is a lease/rental option.
This is my favorite…they gave up a big rent-controlled apartment to be the proud owners of two mortgages, plus two sets of property taxes, two utility bills, two sets of maintenance and insurance costs…for this pair of aging punk rockers, the party is over.
From the article:
“We’d lived in a big, rent-controlled apartment in Noe Valley for 10 years, but I thought, ‘We have to get into the market!’” she recalls. “There was this sense of urgency. It seemed like the smart thing to do.”
HA - if you read the article, you would see this gem
“For the first couple of years, the house seemed to fulfill its promise of financial security. Laurian and Sluggo were able to refinance and extract $20,000 in equity.”
EXTRACTED - wow. Buy a house, extract equity. Imagine that. A house just creates equity, which you then extract. How easy is that?
Yeah, imagine having a rent controlled pad in Noe Valley–secure future with Gavin limiting your future rent increases to a pittance, freeing up the rest of your money to save…with a couple of decent salaries they could have saved up enough money to do just about anything they wanted and lived in a great ‘hood all that time–oh well, stupidity.
This was just the perfect story for my San Francisco renter’s Friday.
Run the numbers and you see rent covers around half of mortgage. Total cash drain,
“And what is with all these people buying a new place before they even list the old one, let alone sell it?”
Yesterday I wrote to an Atlanta landlord about a house that interested me, to lease for 1-4 years before building or buying. In the very pleasant reply, they told me that the rental is only short-term, less than a year, because this is their retirement house and they still have the previous one to sell. I didn’t ask and don’t care where that first house is, but they are far less risk-averse than I. I sold first and am very patient about buying. I get the feeling that there are more of “them” than there are of “me.” That could turn out quite profitable.
Sluggo? Isn’t he the guy who beats up Mr. Bill?
Oh, nooo!
Going even further back, Sluggo was Nancy’s boyfriend.
But we’re artists. It’s never been my goal to be rich.’”
Jesus Christ on a popsicle stick!
I thought only rich people had 600K houses!
In the old days (circa 1995) this was the case. Clearly, we have finally entered the new paradigm!
I noticed they mentioned a refi at $635K. Must have needed some extra income to support their careers as artists! I think this refi craze will wind up trapping alot of people on the way down. Again, back in the old days people would only pull money out of their house for emergencies or necessary repairs (roof caving in!).
That’s a “starter home” here in San Francisco. And no, I’m not joking or being sarcastic. If you want more than 2 bedrooms and want to be in a good neighborhood, you’re looking at $2 million.
More accurately, there are no starter homes in San Francisco, except for trust fund babies and tech startup millionaires. All of the rest of the folks starting households ought to look for a cheaper city.
Yeah, they did and they came to Sacramento and raised our prices. lol Now we can’t afford to buy in our own town. And no I am not a bitter renter cause i sold at the peak
Yep, and when Sac got too expensive they came to Reno, and we’re in the same boat.
Agreed, with SF costs, but this is a fairly recent phenomenon. 10 years ago your dollar went alot further in SF. Come to think of it, your dollar went further everywhere 10 years ago! Thanks Alan Greenspan! Seriously though, the run up of the past 5-6 years is just unprecedented and irrational. SF will drop too. Simply put, there aren’t enough people making the $ necessary to support prices anywhere near present levels.
Latter-day conundrum: In order to inflate wages fast enough to support housing prices in bubbly zones, we would have to meanwhile learn to cope with much higher mortgage rates, which would tend to result in home prices falling more quickly than they are currently falling.
Mortgage rates are tied to the bond market, and when the bond market smells inflation, interest rates jump higher in response (like they did today!)…
http://www.bloomberg.com/markets/rates/index.html
I went to school in SF from 87 to 90 and prices were high then but it’s seriously out of hand now. Does having a MFA mean I can afford a 1.1 million home? Nope, it just means that I look for better light in a rental - sheesh >; )
What gets me is that these people moved out of a rent controlled apt in SF! Are you nuts?
Cities with rent control have the most unafforable homes/apartments. Unless you are in the rent control club already. Satan Monica, Berkley, SF, NY - no one will build new rental units due to rent control. So supply is way way low.
Its funny the red states are the most affordable and best places to live for ‘the poor’ or ‘the working man’ and yet the blue states pretend to be the people who care about poor/working class.
Pretty much the defining issue of this era is affordable housing and the liberals run around passing rent control laws/ no growth initiatives/ buying land to ‘conserve’ it which removes housing stock. And how eqalitarian is prop 13 in CA????
Are all CA liberals elitist rich snobs and trust fund bohemians?
“the defining issue of this era is affordable housing and the liberals run around passing rent control laws…”
Not necessarily so. Boston eliminated rent control laws some years ago, and in NYC, rent control itself dates from 1947.
By the way, the blue states pay more than their share of federal taxes, and subsidize the people in the red states. Last I checked, there wasn’t a single red state that pulled it’s own weight in paying federal taxes. So it is absolutely true that we generous and hard working folks in the blue states care deeply about “poor/working class” folks in the red states…we send them out tax dollars to keep them afloat.
No, just the Bay Aryans.
Even funnier, all the poor, working class stiff in the red states keep voting for the Republicans who give us blue state liberals huge tax breaks! Ha! I love it!
” no one will build new rental units due to rent control”
New rental units don’t come under rent control in most, if not all, CA cities with rent control.
And they’re definitely still building. Our board of supes here in SF has approved more housing in the last 2 years than in the 20 before. Literally thousands of new units are scheduled to hit the market in the next 2 years. That’s not saying it all gets built, as developers bought land at the peak and now the market is soft. Not to mention cost of construction is very high here - you have to drill down to bedrock to make it earthquake resistant.
Been There — “New rental units don’t come under rent control in most, if not all, CA cities with rent control.”
That is very interesting to me. I’m a Southerner and have never visited a place with rent control, to my knowledge, except passing through at the airport. If what you say is true, why do the owners of rent-controlled buildings not convert them to commercial use, or condos, and with the proceeds build a new apartment building that is not rent-controlled?
Satan Monica, Berkley, SF, NY - no one will build new rental units due to rent control.
Sure they do. They’re called “condos”.
Last I checked, there wasn’t a single red state that pulled it’s own weight in paying federal taxes. So it is absolutely true that we generous and hard working folks in the blue states care deeply about “poor/working class” folks in the red states…we send them out tax dollars to keep them afloat.
WTF? Check again bud, what’s this “pulled it own weight” BS.
Here you go. GFE
http://www.sustainablemiddleclass.com/Subsidized-Red-Donor-Blue.html
“Are all CA liberals elitist rich snobs”
Actually many native californians are conservatives. We had more republican governors than demo’s. Also many libs i meet are from the east coast. They call them self californians after being here 6 months. The accent is easy to spot.
One good earthquake will also drop those prices in SF
Ummm…you’re wrong…they have TWO $600K houses
But they are still “poor starving artists”. Or will be soon.
here in nyc 600k is a starter
everyone works on wall street
and makes multiple 6 figures
keep on spending it’s the american way
now days the price in SF is 1000 sq ft….
oddly enough as i recall that up from around 110-120 sq ft 8-10 years back.
Didn’t Sluggo use to beat up Mr. Bill? Who would have thought he would have married an artist.
Sluggo has successfully transformed himself from a SNL doughboy bully into a starving artiste.
In the 70s (and probably earlier) Sluggo used to hang out with a strange looking girl by the name of “Nancy” in the Sunday paper.
CarrieAnn — that’s the Sluggo I remember. That strip and “Henry,” neither of which were my favorites — I liked Lil’ Abner.
“But we’re artists. It’s never been my goal to be rich.’”
Was it ever her goal to be poor? Because buying a home worth over $500K on two artists’ salaries sounds like a good start on that goal.
I can’t wait until they spend that first Montana winter in the tent.
Hey, good luck on Sunday.
Thanks - I’m running the half w/ my wife. I finally got her interested in running, so this is a big deal for her. She’s been training for a couple of months, so it’s fun to see her get excited and nervous about her first big run.
But we’re artists. It’s never been my goal to be rich.’”
Reminds me of all the lawyers and their clients sueing over some spilled coffee “It’s not about the money”
BS. It’s always about the money
“”BS. It’s always about the money”"
All day everyday
After the foreclosure & BK proceedings they will be sandwich artists at Subways!
LOL! The first thing that went through my mind was this poster.
http://www.povertysucks.net/povsucks.html
Substitute two destitute hippies living in a tent in Montana for the 21st century version.
“It’s a nail-biter to see if (the Orange County) price will fall below the year-ago level for the first time since 1997. What’s clear is that November will be the 13th straight month that total sales can’t keep pace with the previous year’s pace.”
Realtors who have been around the block will tell you that big drops in sales normally presage lower prices. Sorry, Gary Watts, but it is starting to look very much as though price declines are in the bag for The OC.
Go to the linked OC Lansner blog.
the bears posted a pretty good analysis.
If you look at the absolute peak, the depreciation has exceeded the cost of a new Honda Accord and is approaching BMW territory.
One of the bears there posts an interesting analog.
For the depreciation amount he calculates
How many Del Taco tacos, OC Register papers, a couple of hot tubs, a 4 carat ring, etc.
“It’s never been my goal to be rich.”
Congratulations - you’re well on your way to not achieving the goal you never had.
well carrying two 600k homes will get you to the poor status
you so richly deserve
“Laurian seems philosophical about her new financial conundrum: the month-to-month double mortgage. ‘Savings? Who has savings? We live month to month. Someday maybe we can retire by selling our house and moving to an even more podunk place. We’ll be in Montana pitching a tent. But we’re artists. It’s never been my goal to be rich.’”
—————————————————————————
I am sure it was never her goal to be poor but there’s a good chance they will lose both houses and end up in debt. I wonder just how many double mortgage payers/neg cash flow rental neg-am I/O FBs (just waiting to refi after the moved out of house sells) there are out there?
“never her goal to be poor”
—————————————–
Ishoulda known GS would beat me to that one
“I am sure it was never her goal to be poor but there’s a good chance they will lose both houses and end up in debt.”
You mean end up “in collections”. They are already “in debt” in fact they are up to the gazoo in debt.
Well, we can count on 1 industry that will have a hay day in the next year coming. The collection industry will be feasting on this.
““Laurian seems philosophical about her new financial conundrum: the month-to-month double mortgage. ‘Savings? Who has savings?”
If you live in the SF Bay Area and are a savers (like myself) and not a addictive consumer (as many are) you going to do very well. Problem is there are a few of us around. So many are dead broke, but dress well….
LOL! Mortgage+Car+Alimony+Expenses… LOL !
Louie: I hope you are right! I used to wonder (naively) how everyone around me could afford to buy so much of the latest and greatest. Beamers, designer jeans and bags (for the women), etc. I didn’t want all that junk, but I wanted to be making the $ to afford it. That way I could be saving and investing more (I am quite concerned about the later stages of life, 30 years out from today). Lo and behold, it is all smoke and mirrors, as that article shows so well. As many people here have mentioned, Steve Martin’s “Don’t buy stuff you can’t afford” skit is all too real.
Reminds me of the new Spanish language TV show advertised on the back of all MTA buses now, “Repo”. The ad is printed across a picture some tough-looking repo workers in leather jackets, arms crossed across their chests: No compra si no puede pagar (don’t buy it if you can’t pay for it). Must have some resonance now amongst the Spanish-speaking viewers, LOL.
Agree. We rent a nice place on the border of Los Altos for not much money compared to our salaries. It’s an awesome position to be in if you are a saver. I cannot believe how well we have done over the last two+ years.
I used to say that it was all about what you looked like and not who you were in southern CA. SF seemed to be opposite to me
after growing up in OC. I really sounds like it’s changed although it’s always been pricey but you could be a starving student and save money in the city.
I will say that the LA/Bay area mentality of living beyond your means has been exported to Davis (and Sacramento) too which is really sad. sadly, it’s just one more reason to move out of this state.
Gwynster,
I grew up in the SF/Bay Area (Mtn. View aka Googleland to be exact). I left for about 9 years and when I returned I could not believe how much the place (and people) had changed. And not for the better.
Same here but I am from Sunnyvale. As I see it many are gambling on another dot.com style boom. So no matter how much they spend, they believe the next boom will bail them out. Ofter here from new transplants “It will come back or we booming again”… Total crack up since many old timers dont buy into the BS.
Of coarse they talk about Google IPO. But who ever heard of Google in 2000 to 2003 and who ever wanted to go work them after the bust of 2000-01. I wont even get into the incompetence of these people. Most what has been down in SV has been done. There are very few IPOs in the pipline and their not that great. In fact more IPO outside of US per CNBC.
So very true. Sometimes it’s daunting, being surrounded by so much “wealth.” When I start feeling that twinge of envy (over expensive cars, incredible clothes, fine dining every night of the week), I remember my bank balance (and zero debt!) and wonder what the “rich” folks’ spreadsheets look like…
Quote from one of the articles Ben linked to:-
“The taking of homes — generally because the owner hasn’t been making mortgage payments — has always been brisk here because state laws are written for speed. Georgia is one of three states in which lenders can foreclose on houses in as few as 37 days.”
Anybody know where the other 2 are ? (I am guessing TX and CO)Does this simply mean there will be a shock wave following in the states that have longer periods ?
“But we’re artists. It’s never been my goal to be rich.’” ”
“I thought only rich people had 60K houses!”
I forget who said this but they said: “what’s great about America is that you can go from rags to riches and then back to rags and back to riches…”
I think it was George Foreman.
One illness and if you’re not properly insured, you become poor very, very quick– even if you have lots of $$$$, etc….
With houses, that woman has two sets of property taxes to pay, etc… She should have taken a loss since the overhead will eat hear up. I can’t see 2007/2008 being better years to sell. By then, people will stop believing that buying a home is an investment and will stay put… maybe…
Another weekend question : Is it good financial sense for someone to take out a reverse mortgage at peak of the market ?
Assuming properties go down considerably from cashes out day and when the person dies, then that would leave the financial lender holding the bag especially if the estate is less that what was the reverse mortgage was for.
What are they going to do - foresclose on your bones for soup ?
I have a friend who just took out a reverse mortgage. I can’t help thinking that somehow, she’ll outlive the reverse — she’s a pretty healthy old lady. Or that she’ll need to sell, and will end up owing the lender.
Are my fears justified? There’s just something about these reverse mortgages that activate my skunk smell-o-meter.
Or that she’ll need to sell, and will end up owing the lender.
Not an expert, but from what I’ve read on these things, you cannot end up owing more than the property is worth. In a reverse mortgage, the property is regularly reappraised (to protect the lender, which will capture dropping values), and before your equity drops to zero, they will pull the plug.
“…before your equity drops to zero, they will pull the plug.”
Which is exactly what should have been happening with HELOCs.
As long as she lives at the house, she never has to pay the loan back. The worst case scenario with a reverse mortgage is that at some point in the future, the loan balance outgrows the property value. If that happens when she lives at the property, she still doesn’t have to pay back the loan. If it’s time to sell the home and there is a negative balance on an FHA reverse mortgage, then FHA will pay back the balance, not the borrower or her estate. Before anyone complains about the taxpayer being on the hook for reverse mortgages that go under, keep in mind FHA collects mortgage insurance premiums on a upfront and monthly basis. The FHA mortgage insurance pool should have plenty of money available to pay potential reverse mortgage claims.
If anything, it would make the most sense to take out a RM at the peak as long as the person has no doesn’t want to sell. It allows them to access the equity they have in their home without having to take out a regular mortgage or not having to sell. Most of the time, unless there is a big mortgage to pay off, RM borrowers do not take out the full loan amount they are entitled to.
FHA will pay back the balance, not the borrower or her estate. Before anyone complains about the taxpayer being on the hook for reverse mortgages that go under, keep in mind FHA collects mortgage insurance premiums on a upfront and monthly basis. The FHA mortgage insurance pool should have plenty of money available to pay potential reverse mortgage claims.
HUD/FHA couldn’t manage a bag lunch.
When the courts take over a estate in probate there are so many rules ,and the courts have to approve everything ,that its not likely that the lender won’t be able to charge the estate ,and the estate would owe taxes .
But if someoone wanted to take out a reverse mortgage they could get a higher amount while property values are higher .Lenders might start figuring in possible declines in the market now that the market is changing and be tigher on the loan amounts .
Harm , I didn’t see your post . I didn’t know that they checked the loan to value ,so it wouldn’t go over on the Reverse Mortgage ever . Actually , why wouldn’t the lenders do it that way as well as put insurance on them .
A friend in England just got a reverse mortgage for her mother on a very nice property - SFH in a commercial zoned area. They would only give her 40% of the current value.
RM are made such that as you grow older, the amount of equity you can access grow larger, ie at 62 you get very limited access. Also if you have a current forward mortgage, it need to be paid off with the proceeds of the RM. There is a maximum amount that can be access with either a cash lump sum or a reverse HELOCs. Either way as you exhaust your yearly amount, you must wait until next year to get more of your equity. There is a movement to increase the maximum amount for the RM because of the amount of people who have high worth home but also have high balance forward mortgage. Also if you are no longer living in your house, then the RM is callable. Most likely you will sell or your heir can have the option to get a forward mortgage to pay for the reverse mortgage. Like forward mortgage, RM also have interest rate so the balance you carry from the RM will accrued interest. The best scenario is to outlive your RM + interest but the actuary have already calculated the odds and they are stacked against you.
Cheers
Mike
Wait till all these sob stories become ho-hum. Folks are going to realize they’ve got a huge albatross strapped around their necks and not much to show for it, other than that huge monthly outlay.
Wait till all these sob stories become ho-hum. Folks are going to realize they’ve got a huge albatross strapped around their necks and not much to show for it, other than that huge monthly outlay.
i am waiting for the sob stories of financially responsible people
with good credtit, no debt,good jobs, and a real downpayment
who still cannot afford a home with a 30yr fixed 20% down
nobody was crying when they were getting 20% yoy appreciation
let em crash and burn
“Someday maybe we can retire by selling our house and moving to an even more podunk place.”
This lady lives in S.F. and she is calling it a podunk place. What, did they kick here out of Paris before? Sounds like she might be inhaling too much paint.
Says she left the city for the East Bay.
$650K for a house IS the podunk section of San Francisco
Housing bubble haiku:
Prices went up for no reason
now in slow season
look out below
Prices went up for no reason
now in slow season
look out below …
my son
From Mississippi. “After the foreclosure of several homes purchased through an investor brought to light a problem with mortgage flipping scams, one local realtor is warning buyers to beware. ‘There are so many people who get caught up in mortgage companies that may be deceptive in their fee structure, and I think the public needs to be aware,’ Mary Tucker said.”
“The fraud is also causing lack of trust even in well-respected realtors. ‘This is my living, and I don’t want people to mistrust realtors. It’s not true of all realtors,’ Tucker said.”
Good luck with the damage control. Realtors are used house salespeople… I know many on here know that…
I was once adviced there are four people in a home transaction: Buyer, seller, buyer’s agent, seller’s agent. Three of them against the buyer.
Although I approve of blamming the flippers for this problem.
This could become a very interesting game of finger pointing. Realtors aren’t to blame, its the flippers… but wait, most flippers are realtors or mortgage brokers… Well… its not our fault! 
Ok, I like Jim the realtor in San Diego. I even know a few realtors who are ok. I’m not going to pity most of them in unemployment. Oh wait, they’re independent contractors and thus don’t show up on the statistics… as our mortgage borkers. As are most construction workers… my, how interesting!
Neil
This just in from Tucson:
http://www.azstarnet.com/sn/hourlyupdate/159527
I attended this event. At one point, an audience poll was taken to gauge the timetable for the bottoming out of the real estate market. Mid-2007 was the overwhelming favorite. Mine was one of the few hands that was raised for the “beyond 2007″ choice.
But what wasn’t asked was most interesting to me: How long will we keep riding along that bottom before things turn up again? That ride could last for YEARS.
Interesting. Another forecaster in the slowdown but no local recession camp. What a surprise. Did you ever bust out laughing or coughing “bull$hit” during the presentation? Who was in the audience? I hope you didn’t pay to attend. I find most of these “luncheons” to be mindless cheerleading or hand holding for whatever group is in attendance.
I did pay to attend. It’s one of those events that attracts some of the local movers and shakers, and for business reasons, I do need to connect with such people. So, call it a business expense.
As for the “BS” question, I did mumble such things under my breath. TTYTT, I did quite a bit of mumbling, and not all of it was under my breath.
Unlike previous luncheons, which tended to have an over-representation from the local REIC, this one seemed to be very heavy on accountants, financial advisors, and private bankers for the wealthy. And, of course, on the local movers and shakers.
And that’s the Economic Outlook Luncheon report, Arizona Slim signing off.
More like at what point do things have significant velocity and when do we see an inflexion point (declining acceleration).
2006 Sales collapsing, inventory rising, rich people getting cash for 2008
2007 Prices collapsing but rate of collapse slows late in year. Deflation ensues, intrest rates rise.
2008 Prices still falling but only slowly
2009-2010 Slightly smarter boomers dump property
2010-2015 Boomers die in large quantity leaving population dearth
2015-2018 Market begins recovery and Spanish declared national language.
I’m pretty sure I’m having a heart attack in the middle of that span if not earlier (and I’m not a boomer)
This seems like the worst thing I have ever seen in my lifetime ahead. Allowing housing to become an investment game will cause so much suffering it is beyong comprehension.
James ,try not to let it get to you . Maybe it will turn out a little better than the worst case you posted . Don’t have a heart attack over it .
I’m really upset about this mess also, but people endure regardless of circumstances .Sometimes alot of positive comes out of hard times where you least expect it . I am also not looking forward to the pain and suffering that will result from this bogus housing run-up ,but its going to do what it’s going to do .
I expect a 40% decline, and I don’t think it will that bad.
2006-2010: bubble collapse.
2010 until next bubble: your kids can afford to buy a house.
I think the worst of the *declines* will be in the second half of 2007. We’ll hit bottom in 2009, sit there for awhile, and start a slow climb out in 2011-2012. We might get YOY *real* price appreciation in 2015.
I have noticed that ‘next year’ is a very popular choice for ‘the crash’. Every year its always next year.
Hopefully in 2008 it wil be ‘last year’.
From Nevada. “USA Capital controlled $962 million in assets for investors when it filed for Chapter 11 bankruptcy court protection in April. Compass Partners made the apparent highest and best bid of $67 million Thursday for the assets.”
I don’t get this at all. They bought 962 million dollars worth of assets for $67M ?
I don’t know the facts in this instance but remember that debt is considered an asset. It’s just that in this case, perhaps, that the total amount deemed recoverable is a fraction of the original 962 million.
My math may be a little fuzzy but it looks like someone just bought 962m dollars worth of mortgages for 14 cents on the dollar. Which means the guy who invested a million bucks and was 6 mo’s away from a cardboard box that Ben posted an article about either yesterday or the day before just lost 760k+ attorney and servicing fees. He’ll be lucky to see 100k. Expect to see more of that as this plays out.
Nah, more likely that’s all it’s worth after all liabilities have been accounted for. Even that may be too much
I think $962M is the notional value of the collateral (underlying asset). The $67M offer was effectively for the present value of the future interest payments on the loans that USA lended out.
Kinda like a futures contract. The underlying value of a bond future is $100K, but you’re trading the interest on that, not the actual underlying $100K bond.
That’s not how these work. The successful bidder bid on the servicing and the assets. The assets in this case were mortgages and maybe a piece of land or structure here and there. They just purchased the position of the investors and USA Capital for 14 cents on the dollar. Actually I’m surprised it went that high. But probably because some of the notes were performing. The only thing that could be more brutal than what happened in that court is prison rape by 10 convicts while you had a picture of Cindy Crawford taped to your back.
Actually, I agree that’s what they bought. They only have a claim on the “assets” if the payer defaults, then they have to go through all the legal hoops and all with asset seizure, and sell the “assets” at market value, whatever that is.
They may have an underlying claim on assets valued “currently” (ie, higher of cost or market ha ha) at $962M, whatever that really means.
Jesus Christ! You left out the face shoved into the toilet!
Can’t we be civil and go back to our simple rounds of ass-poundings?
“The fraud is also causing lack of trust even in well-respected realtors. ‘This is my living, and I don’t want people to mistrust realtors. It’s not true of all realtors,’ Tucker said.”
Too late. But the growing mistrust of realtors is a healthy sign.
Too funny… in the Accounting profession they took care of that by creating Sarbes Oxley… The penalties are do harsh many are leaving the field.
I forgot to ask now why oh why would realtors be saying all this about their profession… Oh you mean to tell us we had fraud in real estate all this time… hum! would that be
1 Fake multiple bidders
2 Fake apprasials
3 Easy no doc loans
4 Kick backs- cash rebates
5 false advertising - real estate always goes up…
6 all the above.
did i miss anything ?
NO…THANK YOU BEN!! I love your site. I just wish i had more time to read everything. Honestly, i am so into your site that i have to print it out and take it home with me and read it while the kids mess up the house. lol
Happy friday to all!!
I guess somehow we’re supposed to feel bad for people who create their own havoc….I don’t think so. If you drink the kool-aid and can’t wash off the moustache, maybe you should have thought about the consequences before you picked up the cup.
Houses are consumable assets and people forgot that for awhile. Reality has a way of making people remember these things. It costs money to own a home, every day, every month, every year a person owns it. If you don’t pay now, you will pay later.
It’s just too bad it got so out of control….declining sales in a declining interest rate environment should be all the indication a person needs to know the markets health is not good.
“The fraud is also causing lack of trust even in well-respected realtors. ‘This is my living, and I don’t want people to mistrust realtors. It’s not true of all realtors,’ Tucker said.”
———————————————————————————
Sorry Tucker! Your industry’s failure to police it’ s own abuses results in everyone being lumped into the same category. That’s the way it works! Something to highlight at the next NAR convention.
And here’s one for the funnybone
Fear Not the Sub-Prime Lenders
By Jim Cramer
RealMoney.com Columnist
12/8/2006 3:59 PM EST
URL: http://www.thestreet.com/p/rmoney/jimcramerblog/10326882.html
Yep, I guess I have to be as petrified as everyone else about sub-prime lending — except for one reason: Some of these guys in this business actually know what they are doing.
They actually have models, and the models are based on years of experience. And they are not flashing red yet.
They aren’t because defaults are not related to housing values as much as they are related to employment and interest rates. If employment tanks or interest rates spike, then you must be concerned and the stocks of these sub-prime lenders deserve to be clobbered.
But if those are the levers and the levers are actually verifiable — employment is strong, we know that from today, and rates, well, I mean, we see them every day — then why panic? Why not look at the multiples? They are darned cheap! They take into account a massive shortfall and a decline in the reserves that has not happened.
I will be frightened when the data say to be frightened or even point in that direction. But it isn’t happening. It just isn’t.
So let’s move on.
ahhhhhhhhhhhhhhhhh no no no make him go away must change channel must find judge judy or simpsons rerun ahhhhhhhhhhhhhhhhhh
cramer says he called the bottom on hb stocks
i am all in on monday!!!
that guy is such a windbag
Ho ho ho. He should have been reading this blog in July when I did. I remember Cote said I was nuts.
Yep, I recall he gave you a pretty hard time over a couple of days.
Well done
Cramer is very funny.
And blind !
Didn’t he see the articles about the sub prime lenders being in trouble ? Didn’t he see a few of them cease to exist this week ?
How can the sub prime MBS default swaps get more costly and yet he can say there is nothing to worry about ? Are the people that buy default swaps stupid ? Are they buying them for no reason ?
BEN: Could we have a post dedicated to the whole topic of MBSes and sub prime lenders ? There is a ton of information on these topics this week, but its scattered between about 4 topics now.
They aren’t because defaults are not related to housing values as much as they are related to employment and interest rates.
Interest rates? Just wait until the 1% teaser rates expire and them subprimers are stuck with paying LIBOR + 4. Oh crap, that’s already happening.
Marginal low down buyers that were funded by the sub-prime lenders are not going to be able to take payment increases . Come on ,everybody went on those loans based on real estate always goes up and borrowers figured they would sell or get another loan .
Maybe I’m wrong but the foreclosures are already starting to increase everywhere .
What kind of a nutcase designed a loan at a 1% teaser qualifying rate , that could go to 8 or 9% effective interest rate in a short time ,and thinks there isn’t a disconnect in logic here regarding underwriting a loan .
You would of thought the borrowers would of balked ,but short term gain and the fear of being priced out forever makes people do weird things .
I just can’t help but think that people had short term investment logic with RE because I have never seen so many people go on adjustables when low fixed rates were available .
Instead of it being less of a bubble now, there is actually more risk of the problems caused by a bubble. With the price drops already experienced (10% down from peak in SoCalif this year) it will cause more people to be unable to refinance out of their problems, stuck with huge payment increases and unable to afford the payment. This causes more houses to hit the market, dropping prices further. I am already seeing short sales/short pay wording on listings. Foreclosures have not been significant yet, and we may have to get through all of them, with resulting further price drops.
Of course, it may not worsen, but the risk is greater now than earlier this year.
I totally agree. What we saw so far has been mild. The risk of something big happening increases as we go forward.
ON MONDAY DECEMBER 11TH 2006
TAXES are due…….Who will be in DEFAULT?
THE TAX MAN COMETH!!!!!! ouch!!
If I may be so impertinent as to correct Dr. Kellner’s observation, ““It would take 16-and-a-half months to exhaust inventory, the highest since 1991.”
He omitted out the final, critical phrase, “at todays asking prices.”
Dr. K, I’m not a professor and have only an MBA, but I can tell you with certainty that, at the right price, you folks could clear that entire inventory in 30 days.
LOl……So true Chip …I don’t know how people can even endure long listing times on the market . Strangers coming into my house get on my nerves . Big disconnect between pricing and wish price .
“I can tell you with certainty that, at the right price, you folks could clear that entire inventory in 30 days.”
I don’t know about that, actually. Or the price would have to be dam low.
The problem is that everyone has a house already and most won’t be able to buy another one without selling theirs first. And if the price dropped enough to clear that inventory in 30 days the present owners would be so far under water that they wouldn’t qualify for another mortgage.
Furthermore, if the price fell that much most buyers would get very scared. They’d see that RE isn’t a sure thing at all. I doubt that they would bite. I think that is why RE UNDERSHOOTS its median value on the way down.
I guess the price could be like $100 a house and then it would clear. But then the market would be flooded with thousands of other homes ! You can’t drop price on those homes and not bring more homes on the market !
Its the reverse of the bubble run up ! When the bubble was running people saw price increases and it made them buy because they wanted the profits. Now when people see price drops it will drive them to sell to limit losses !
Right ,it could reach a point where there are few buyers ,and nobody wants to buy that the market is just dead no matter what you do . At that point the cost to own would have to go below cost to rent ,but thats assuming the buyer could qualify in a tight money market and have the down payment .
A St. Petersburg Times examination of documents recorded in Nashville shows the fictional names Carter and Holcomb were used to acquire 23 properties and to sign for 15 fraudulent mortgage loans totaling more than $1.47-million. The Times also found forged property records.
http://www.sptimes.com/2006/12/08/Tampabay/From_Tampa__to_Nashvi.shtml
Back from the basement:
http://bakersfieldbubble.blogspot.com
A St. Petersburg Times examination of documents recorded in Nashville shows the fictional names Carter and Holcomb were used to acquire 23 properties and to sign for 15 fraudulent mortgage loans totaling more than $1.47-million. The Times also found forged property records.
http://www.sptimes.com/2006/12/08/Tampabay/From_Tampa__to_Nashvi.shtml
http://www.sptimes.com/2006/12/08/Tampabay/From_Tampa__to_Nashvi.shtml
Fraud Abounds
That’s a news twist — if as the aerticle implies, he traveled into Italy under an assumed name/alias, then he must have obtained a forged/fraudulent passport. That ups the stakes and, these days, is much harder to pull off than it used to be.
C’,mon Ben, Can’t you even leave one state without a bubble? I had heard that all RE markets were local. You have proven that this bubble goes nationally, even Mississippi, Alaska, and Wyoming. Can you leave nothing untouched?
You know this is all your fault for uncovering the fraud, propaganda, boosterism, greed, avarice, and ignorance that is the housing bubble. If you had not gone looking under these rocks, everything would have been fine and the trees would have grown to the skies, ;).
yes if it wasn’t for those meddling bubble bloggers i would have gotten away it!
I have been lurking here for quite some time and have found this blog to be of tremendous value. I have been a mortgage broker in the Boston are for about 12 years, I am also a real estate investor (HI, AZ, TX, FL, all purchased in the 90’s and most recently Turks & Caicos). I suspect we are getting close to the end of the first leg down, with a “quit period” before spring 07, then the “big drop” will transpire.
Welcome, industry insider notes are particularly valuable.