“New England Looks Like The Roughest Area”
The Republican reports from Massachusetts. “New home construction for 2006 more than halved the 100-home- a-year average seen here for more than a half-century. The Building Department issued 49 building permits for new single-family dwellings in 2006. Westfield, geographically one of the largest cities in the commonwealth with 47.33 square miles, has been averaging about 100 new homes a year for more than a half-century, city officials have said.”
“‘There is no question there is still a lot of inventory left over from previous years,’ said Community Development Director James M. Boardman. ‘I think there is a sense that everything has settled down and I don’t think anyone has moved into optimistic mode. What has plummeted is sales,’ Boardman said.”
The Boston Globe. “Banking regulators in Massachusetts and eight other states yesterday ordered Mortgage Lenders Network USA Inc. to cease its lending activity after the Connecticut company failed to fund mortgages that had been approved or even closed.” “Such cease and desist orders are the strongest regulatory tools state governments can use to control or stop mortgage companies and other lenders.”
“Company officials have blamed Mortgage Lenders’ problems on increased defaults and the faltering housing market. Subprime borrowers had a delinquency rate of 12.5 percent in the third quarter of 2006, the highest in more than three years, the Mortgage Bankers Association reported last month.”
From The Day in Connecticut. “Banking regulators in several states took action Friday that could result in tens of millions of dollars in fines against a troubled Connecticut-based mortgage lender that works primarily with people with poor credit. New York and Michigan officials were also expected to take action.”
“The privately held company, which bills itself as one of the country’s top subprime mortgage lenders, has a portfolio of $17.8 billion. Subprime borrowers had a delinquency rate of 12.5 percent in the third quarter of 2006, the highest in more than three years, the Mortgage Bankers Association reported last month.”
“Several subprime lenders have fallen victim within the past year as housing prices dropped, mortgage amounts exceeded home values, loan volume declined and foreclosures and delinquencies increased, said David Olson, president of Columbia, Md.-based Wholesale Access Mortgage Research & Consulting.”
“‘The subprime continues to have a lot of problems,’ said Olson, whose firm tracks the mortgage industry. ‘I think it’s difficult times for the next year, and we’ll see consolidation at the larger firms.’”
The Providence Journal from Rhode Island. “Ronald Danis thought he got a good deal when he bought a $252,000 house with no down payment. Danis was living with his family of three in a two-bedroom apartment in West Warwick. The rent was $800 a month. So, when his wife became pregnant again, they began looking at houses. ‘We felt, why waste the money on rent?’ Danis recalled.”
“He bought a three-bedroom ranch in a cul-de-sac in a blue-collar neighborhood in Coventry in April 2004. The price was $252,000. The mortgage lender financed 100 percent of the price, plus fees and closing costs. Danis even got back his $2,000 deposit at the closing.”
“‘They told me this was the best mortgage for [me],’ he recalled. ‘I took their word for it.’”
“But a year later, Danis decided it was not such a great deal. He ran into trouble paying his $2,000-a-month mortgage and eventually the lender threatened to foreclose.”
“After years of rising home prices, Rhode Island is now experiencing a run-up in home-loan delinquencies. More than 5,600 home loans made in Rhode Island were delinquent during the third quarter of last year, an increase of 46 percent from the same period in 2005, according to the latest survey by the Mortgage Bankers Association.”
“‘New England looks like the roughest area of the country after the Midwest,’ said Karl Case, a housing economist at Wellesley College. ‘It’s expensive up here, [home] prices are high, there are a lot of exotic mortgages and people are stretching themselves.’”
“The shift has been particularly dramatic in Rhode Island, which in 2004 ranked first in the nation for house-price appreciation. As prices climbed out of reach, prospective buyers stretched their household budgets and lenders offered new, riskier mortgages to allow borrowers to buy houses that they otherwise could not afford.”
“‘Lenders turned more aggressive,’ said economist Mark Zandi, ‘because borrowers wouldn’t have qualified for loans otherwise.’”
“Ron Danis knew his credit score was low because he’d gotten into trouble with credit cards in his 20s. But for the last 10 years, he’d had a steady job. He said a friend who was a real estate agent recommended a mortgage broker who suggested an 80-20, or ‘piggyback’ loan, which would allow Danis to borrow more money by splitting the mortgage into two: 80 percent based upon the prime lending rate and a second, 20-percent loan at a higher, ’subprime’ rate.”
“The broker arranged for the loans with Option One Mortgage, the dominant subprime home mortgage lender in Rhode Island. The Jacksonville, Fla.-based lender originated 3,239 loans for single-family houses in Rhode Island in 2005, according to data from the Mortgage Bankers Association.”
“The interest rate on Danis’ first mortgage was 8.44 percent. The rate on the second mortgage was 11.25 percent. Together, the payments on the two mortgages came to $2,000 per month. The bigger of the two mortgages allowed Danis to pay ‘interest only’ for the first two years of the loan.”
“‘We didn’t know any better,’ said Mary Danis. ‘Now, we’re just kicking ourselves.’”
“Shortly after he bought the house, Mary Danis, who was having a difficult pregnancy, stopped working and their income dipped. He fell behind on his mortgage payments. He didn’t want to sell the house, but even if he did, it wouldn’t have gotten him out of the hole. In 2005, his house was appraised at $225,000, almost $27,000 less than his mortgage.”
“On Nov. 6, 2006, a legal notice ran in The Providence Journal stating that the Danis family’s house ‘will be sold at public auction on November 20, 2006 at 4:00 PM.’ It was among dozens of foreclosure notices that filled the newspaper’s classified ads almost daily. The lion’s share of the foreclosures appear to be in Providence, where the mandatory legal notices that ran in The Journal last year jumped nearly 300 percent, according to a Journal analysis.”
“‘I see 25 families a week, easily,’ said Christopher Lefebvre, a bankruptcy lawyer in Pawtucket. ‘To be a homeowner today — to be able to afford that privilege — is a very costly thing. The fact of the matter is, the average family of four, even those making $75,000 or $80,000 a year … can’t afford the homes they want to buy.’”
“On Dec. 4, Lefebvre filed a Chapter 13 bankruptcy petition for Danis. At the time he filed, the balance on Danis’ two mortgages had climbed to $260,678, according to court documents. Under the Chapter 13 bankruptcy plan, Danis agreed to pay, over time, the arrearages on his mortgage and all of his other debts.”
“If he sticks to the plan, Lefebvre said, Danis will be able to get out of Chapter 13 in just under three years. ‘As long as I make my mortgage payments,’ Danis said, ‘the house is still mine.’”
New Hampshire:
‘Sellers are asking too much for houses, which is contributing to a market slowdown, an economist told House tax writers Wednesday. Thibeault said sales began slowing in April. To try to attract buyers, sellers began dropping prices in August, he said. Prices have dropped roughly 5 percent over the past year, he said.’
‘Some sellers pulled their properties off the market to wait for a more favorable time, Thibeault said. Thibeault said the conditions that created the slowdown are unusual since unemployment andjobs. Normally, a recession or high interest rates are a key to a downturn in the housing market, he said. ‘This downturn is driven by prices outstripping incomes,’ he said.’
New Jersey:
‘The bubble finally burst,’ said county Municipal Utilities Authority (MUA) Solid Waste manager John Baron. In a report to MUA commissioners Jan. 10, Baron said construction and demolition (C&D) waste was down 23 percent in 2006 and down 50 percent for the last two months. ‘We knew the construction boom had to peak sometime,’ he said.’
If not for you, all these little battle reports would be printed and lost from sight and not be part of the puzzle pieces.
I still cannot fathom the event that would send the message out big time, some date like black Fri that people look back on and use as a timeline.
No, I believe the thing is going to play more like a Damned Lake that every day losses more water, no one cares until it is really low. Unlike if the Damn broke, everyone would hear of it.
the results are the same for both, no water in the lake.
I think your right on both points. First about Ben’s much valued witness and record, and second about the steady stream that’s draining the lake.
I think the Fed are counting on the endless trickles, first here, then over there, which they can mention as “regional weakness” but no national collapse, hence no need for rate reductions.
It’s a useful cover, as they have a more important agenda IMHO, which precludes any rate reductions, and likely includes more hikes.
I think they know the bubble is imploding, but by the time it’s a truly national phenomena, it will be a fait accompli.
“In a report to MUA commissioners Jan. 10, Baron said construction and demolition (C&D) waste was down 23 percent in 2006 and down 50 percent for the last two months.”
Cool! The bursting housing bubble is good for the environment. Also use less fossil fuel (behold the sinking oil price…).
“Company officials have blamed Mortgage Lenders’ problems on increased defaults and the faltering housing market. Subprime borrowers had a delinquency rate of 12.5 percent in the third quarter of 2006, the highest in more than three years, the Mortgage Bankers Association reported last month.”
This is Funny,
I wonder how long Toyota or the Big Three would be in business if the first 12 cars of every 100 off the line got shredded ?
Pesonally, Iike the use of the words “blame” and “victim” describing the situation of these subprime lenders.
You must have missed it, the new “Checks and Balance” is “blame” and “victim”
The houses are not getting shredded — they are simply coming back on the market at an REO price, which tends to severely undercut the value of new construction.
Good point, make it first 12 sell without wheel and tires.
GetStucco,
Anecdotally, REO’s are out of their mind deranged here in OC. I have seen some priced as much as 20% above comparable homes on the MLS. It seems many of the banks are still in denail about the losses they are about to take.
It will take some time for the federal regulator to step in and require the banks to take the “non performing asset” off the books by selling - at any price. But, that time, alas, is still a ways off. I’d say at least a year more of this hopin’ and wishin’ in Socal.
John Doe
The banks in my hood (92127) are far from insane — in fact, they have posted the lowest comp prices I have seen ($235/sq ft or lower where clueless used home sellers price at $300/sq ft or above) and the homes they list have a way of quickly disappearing from the MLS sheet, due to quick sale. It is the used home sellers who have kept the same weather-beaten sign sitting out on their front lawns for over six months now and who keep the same listing price who make me wonder…
…insanity is recognized in twelve-step recovery groups as “repeating the same mistakes and expecting different results”.
http://en.wikipedia.org/wiki/Insanity
Wow, these sub-prime loans have high interest rates . All this creative financing just to throw the people into foreclosure .I think the greatest lure was the no down payment to get into a house . This brought every Tom ,Dick and Harry into the housing game .
Stupid Lenders = made loans based on real estate going up .
Wizard –
Did the lenders make the zero-downpayment loans in full knowledge that this would increase the risk of future foreclosure, by making it easier for GFs to purchase homes they can’t afford? Or was this done in ignorance?
I would think the answer to the above could have legal implications once the foreclosed buyers get their class action suits organized against the lenders who sold them down the river.
As for knowledge or ignorance, I think the truth is closer to the subprime lenders using the same business model as a used car lot.
Which one? Fly-by-night? Take the money and run? What-they-don’t-know-won’t-hurt-them?
I think it is “find some idiots on Wall Street and screw them.”
I get the sense there was a Kool-Aid that went around, and a bunch of Real Estate people decided to drink it rather than thinking. They still seem to be around in my neck o’ the woods.
During the pre-Spring lull “no news is good news” and the RE industry is still trying to wish the impending crash away with sound bytes and marketing.
This spring the air coming out of the bubble will go from a slow leak to a whooshing sound.
You’ve got it all wrong. These creative loan products were meant to help lower income people achieve the American Dream of home ownership. These subprime lenders are only interested in helping the less fortunate members of society. The negative amortization and resetting ARMs are only a minor development arising out of these subprime loans. Bless their hearts.
Really quick apropos to earlier discussion: E-beggars all over Craigslist today! I guess they all watched 20/20. They’re getting flagged off quickly too, nobody wants to hear it.
Really quick apropos to earlier discussion: E-beggars all over Craigslist today! I guess they all watched 20/20. They’re getting flagged off quickly too, nobody wants to hear it.
‘As long as I make my mortgage payments,’ Danis said, ‘the house is still mine.’
I read the whole story. Nothing changed for this guy with Chapter 13. How is he going to make his mortgage payments?
He gets the arreages plus other unsecured debt, such as credit cards, rolled into the 13 plan, probably greatly reduced (as to the cc debt) and high interest eliminated. Theoretically, that enable him to manage it all on their income, otherwise, the plan would not have been confirmable.
txchick,
if he pays it off in three years, is it credit ok, or is it still trashed?
I understand that he gets a break on the arrears and the credit cards but the mortgage(s) is/are still there, right? If the interest rate(s) haven’t fallen, he’s still on the hook for two grand a month, which he could not afford before and I would guess cannot afford now.
These people will be financially impaired forever–even with negotiated reductions–too large a chunk of their earned wealth will go to paying down this stupid debt they incured. The house, the mortgage bonds, and the FB’s future earnings are all impaired. But it will spread the pain around and may avoid handing the bill to the taxpayers.
If this is the model going forward–is this the best of a terrible situation for the country as a whole?
“Company officials have blamed Mortgage Lenders’ problems on increased defaults and the faltering housing market. Subprime borrowers had a delinquency rate of 12.5 percent in the third quarter of 2006, the highest in more than three years, the Mortgage Bankers Association reported last month.”
Some educated hunches:
1) The subprime delinquency rate has been historically low in recent years (goes hand-in-hand with record high real appreciation);
2) A 12.5% delinquency rate is not out of line with historic norms;
3) The rapid increase in the market share of subprime lending during the hyperbolic blowout phase of the bubble is historically unprecedented.
If the above are roughly correct, the overall share of subprime in the overall pool of home loans may be at a record high compared to previous busts, which sets the stage for a record correction, as subprime subsidence collapses bid support for bubble prices.
no doubt the credit bubble sustained the upwards momentum and the inevitable unwinding of the credit bubble - will push it down just as fast
Here in souther NH it’s slowing but homes still sell by looking at the list of transactions in the nashua telegraph. Prices have gone down roughly ten percent(moe on the high end/less on the lower end). I don’t think its a crash at all though. The late 80’s? Now that was a crash-quick and painful. Perhaps now its worse, a slower death that’s still tapping over stretched new home buyers. I can see that some houses have been listed for 6 months or more. Homeswith unique issues such as land leases, 400+ condo fees, or dumpy neigborhoods are really out of luck. Even those sold a year ago.
I have started looking to buy in the Southern Maine area since last year. What I have seen is that houses will sell if they are priced right based on price per square foot and they are close to the tax assessed value. Most towns in this area have been reasssed in 2005 and are 95% of fair market value. If the seller is willing to take more than 5% reduction off the listing price and close to the tax assessed rate they sell. Seen this with comparable comps. If the seller doesn’t they remain on the market for months. The houses that do sell are priced right good location and are unique compared to the featureless spec house with a terrible lot.
But most of the homes are overpriced POS with little attraction. You can see that little effort was made in building them by fiberglass inserts lack of trim or lousy floor plan layout and they still want half a million . The houses stay empty for four months with 1 to 2 percent price reduction but it should be priced 20% less than that . I could get a similar house in PA with all the bells and whistles, tile hardwood and builtins with unique windows..
We have seen 3 houses out of hundreds that were priced right put offers with no financing contingency and the seller won’t budge, hoping for a better offer. I am discouraged as I face increased inventory this spring with Sellers wishing prices . Looks like I will have to wait this one out until next fall.
What gives ? I still don’t understand the wacky prices of 10 times the average income ratio. The housing correction has not reached Maine yet and Sellers are still holding onto the mantra
real estate is a great investment.
If there was a hedge fund for the housing market here I would buy.
“‘New England looks like the roughest area of the country after the Midwest,’ said Karl Case, a housing economist at Wellesley College. ‘It’s expensive up here, [home] prices are high, there are a lot of exotic mortgages and people are stretching themselves.’”
Worse than Vegas? Worse than LA, where the median home-price to median income ratio exceeds 10? I find this nearly implausible, but I guess the bubble is indeed serious all over.
GetStucco,
This is the new “its different here.” Instead of buyers wanting to live here because of blaa blaa blaa… we have “its the roughest area,” send in federal dollars.
Oh wait… is that how the helicopter drop is going to work?
Got popcorn?
Neil
Case needs to get away from the Wellesley College campus a big more
Hello America
Welcome to the result of our president’s speech on creating an ownership society. What a great idea…put the bottom of society in over priced houses they can’t afford. Now you OWN it.
Well if you hold the mortgage , you own it and are screwed. If you bought the house, you own it and are screwed. Ownership is permanently attached to responsibility. If your retirement plan bought those MBSs, you own it and are screwed.
Of course Bush is the only one who gets out of the responsibility that goes with ownership. President Bush Owns two wars and his children don’t have to go.
The play book said go out demonic lenders and find only the “bottom of Society ?”
I did not know this.
“The road to perdition is paved with good intentions.”
http://www.whitehouse.gov/news/releases/2003/12/20031216-7.html
Seems this is one White House fatwah that made its numbers.
“OWN it.”
No, Ownit…
http://www.ibtimes.com/articles/20070102/ownit-mortgage-bankruptcy.htm
Yep, House ownership at the top means it owns you.
There’s nothing wrong with buying a home as long as you can afford it. Apparently people lost their minds and those in charge took the payoffs to look the other way. This thing failed at many levels: local, state and federal. Don’t be a dunce and try to blame it all on one person.
It’s Bush’s fault.
No it’s Easy Al’s fault. When the Nasdaq bubble imploded, that stupid idiot should had the stupid and corrupt banks get it on the chin. Instead of that the moron made a even bigger mega monstruous bubble. The real estate bubble is what ? 20 times ? 50 times ? bigger than the Nasdaq bubble.
“‘New England looks like the roughest area of the country after the Midwest,’ said Karl Case, a housing economist at Wellesley College. ‘It’s expensive up here, [home] prices are high, there are a lot of exotic mortgages and people are stretching themselves.’”
Yeah. It’s different in New England. Take a ticket and SitTF down.
Yep, why pay rent when you can be up to your eyeballs in debt….Anyone see the 20/20 episode last night on debt. The couple had a McMansion, two cars, those deal sealing granite countertops, and a home theatre room, and they had a total net worth of $3000.00 (if they get there inflated “value” of the Mc home, a rental property(investment), and two, count them two(2) vacation timeshares (1 bought for $100K for investment purposes). I had a total net worth of $3000.00 when I was 20…..Geez
The net worth might rise a little if you sell off the family.
Considering the wife it would have to be a short sell of far more than the $3000 he has left.
Yeah. Don’t forget the baby grand piano, too. Did you see the look in the wife’s face when reality slapped her silly? I think the husband was all for it so he didn’t have to worry about it anymore (How much to software engineers make in a year $100k-$110k if they are considered “senior?”). You know that there are many, many people here in southern California living like them. I’ve met more than my fair share.
It’s expensive up here, [home] prices are high, there are a lot of exotic mortgages and people are stretching themselves.’”
This is an understatement.
The only people makin’ it in New England at the moment are the Greatest Gen crowd; older boomers (who can stay out of divorce court); and old money.
The politico’s crow about “affordable housing”, but the job center remains Boston, and a lot of the land within commutable distance was deeded out centuries ago.
If you read David McCullough’s book “1776″ he notes that as the Battle of Trenton was about to take place many of the enlistments for his army were about to expire.
As an inducement for them to stay, Washington offered land grants of 100 acres to be awarded immediately after the war.
Most of his army at this time consisted of New Englanders, primarily from Massachusetts.
Needless to say these 100 acres gave everybody a grub stake against which to prosper.
So when you talk about “old money” in MA, you’re going back to the formation of the country.
It is against this historical dowage that all the politico’s think, they are going to secure the land for “affordable housing”…
Just ain’t goin’ to fookin’ happen.
And with the generational chain of home ownership now broken,
this region will lapse into an imitation of what is transpiring in old Europe, meaning an elderly populace straining the social welfare network.
So when you talk about “old money” in MA, you’re going back to the formation of the country.
Same in these parts. A few parcels of land remain unspoiled, one belonging to a family whose mill provided the paper for Continental currency. The old man hasn’t sold off any ground, but who knows how long the heirs will be able to resist the siren song of Bob Toll et al.
“Danis was living with his family of three in a two-bedroom apartment in West Warwick. The rent was $800 a month. So, when his wife became pregnant again, they began looking at houses. ‘We felt, why waste the money on rent?’ Danis recalled.”
- Danis had NO business buying a house when his wife was pregnant!!
WTF!!!
He should of ‘Battened Down the Hatches’ and took care of his family first. He thinks that he will emerge from bankruptcy unharmed - I doubt it.
I totally agree. These ‘renting is throwing away money’ people should read this fellows situation and reconsider their mantra. He was paying $800/month in rent and goes to an I/O $2,000/month with resets. Yeah, just throwing it away.
“On Dec. 4, Lefebvre filed a Chapter 13 bankruptcy petition for Danis. At the time he filed, the balance on Danis’ two mortgages had climbed to $260,678″
I don’t understand how paying an interest only first mortgage at 2 1/2 times his rent is not throwing money away. The article said he owed more then his orginal loan. He is throwing away 2 1/2 times quicker then rent plus another 30-40,000 or so he now owes. Smart choice.
and the house is depreciating - now he’s throwing away some serious cash.
But he is an owner.
Very funny stuff. What can you do ? He problably doesn’t even understand the notion of depreciation, like most of the morons in real estate today. Real estate is most of the time a crappy asset. These fools are about to learn the hard way. “Buy low.” Too late for these suckers.
Call me stupid, but I can’t help feeling sorry for working guy like this. All their life they learned that a bank wouldn’t give you a loan EVER unless the bank was sure you could pay it back. Who would?
There are plenty of regular joes who really DO depend on the “smart guys” “the suits” to dole out to them what they’re allowed to “have”.
It’s a shame that loan process turned into a turn and burn scheme, with no accountability and no regulation, get any loan through and get it sold via MBS. A lot of people are gonna suffer, and for a long time.
Your right, he had NO business buying a house given his situation. The wife probably wanted it, he probably wanted his own garage etc., but there ARE a lot of people who see bankers and loan officers, even realtors, as authority figures to GUIDE you to a correct decision. It’s sickening what has happened.
We are talking about West Warwick. Many of the apartments are extremly old and run down. Most people are living there not by choice. The last apartment in West Warwick I was in (3yrs ago) I found myself wiping my feet after I left.
The guy was trying to move to Coventry ,which has a decent school system ,and trying to better himself and family. Remembering a couple of years ago “Buy now or be priced out of the market”.
Imploder, you are absoluelty correct that the most culpable are the ones who simply profited from the least educated consumers…..the system was set up to profiteer on any loan via the MBS removal of risk. The forthcoming pain, while widespread, will no doubt be especially hard on the low income end of our new “ownership” society. How is it possible for so called “respectable” credit card companies to charge anyone in this country 30% interest? That would be loan sharking if you or I did it, but for CHASE, JP, Etc well, that’s just good business & they can write and re-write the rules and alter such minor things as our bankruptcy laws.
Agreed. These people are not apparently blaming anyone, they are saying they made the wrong decision. Especially, they are not blaming Bush.
This open-eyed acceptance and willingness to work toward making things whole is true wisdom.
It’s a shame that loan process turned into a turn and burn scheme, with no accountability and no regulation, get any loan through and get it sold via MBS. A lot of people are gonna suffer, and for a long time.
Your right, he had NO business buying a house given his situation. The wife probably wanted it, he probably wanted his own garage etc., but there ARE a lot of people who see bankers and loan officers, even realtors, as authority figures to GUIDE you to a correct decision. It’s sickening what has happened.
Pretty damn good synopsis of the situation there, imploder…
The real tragedy of the Ron and Mary Danis saga is that they continue to spawn more mouth-breathing cretins like themselves.
you just know this bk clown drives a big, fat, almost new SUV! i have noticed lately that even in the crummiest parts of town, everyone drives brand new, pimped out SUV’s, it’s sick. starting to look more and more like the description you read about pre-1929!
Funny cause I’ve read analysis as to the whys of 1929 that took it all back to the invention of the “installment payment plan” after WWI. Everyone started buying on “payments”. Poorer people could suddenly “buy” more stuff. This ramped up production, which ramped up jobs and eventually the stock market, etc.
Then the consumer hit the wall. Everyone “had” all they needed or could afford to “debt service”. Consumption dried up, manufacturing shuttered, causing layoffs, causing even less consumption, causing more lay offs, etc. a reverse cycle. “The Depression”.
Sounds very similar to what we see today, only today the borrowing is on steriods…. and the last three years of subprime madness is like “super steriods” on top of that.
Yeah, but, when’s it all going to “hit the wall” is what I want to know.
Tomorrow morning.
Simple. Credit is not real money. Real money is made up of savings. Nothing has been learned.
Everyone “had” all they needed or could afford to “debt service”.
And that, in turn, is a great moniker for the problem of subprime lending, which drives a large, but not unlimited, wedge between household incomes and home purchase budgets. There are several problems with replacing the antiquated system of only lending money to those who are rather likely to repay it with the consequences of recent financial innovation, which was to hand out loans to anyone who could breath.
1) The initial introduction of zero-down, no doc, piggyback, I/O option ARMs (etc etc) was to send of a wave of home price appreciation due to the impulse (rather like the way the Indian Ocean earthquake on 12/26/04 provided the initial impulse to trigger a tsunami).
2) The wave of appreciation leads those who don’t think much about economics (like, apparently, many LA-area homowners) to believe that double-digit real home equity gains could and would continue forever, resulting in a strong desire for homeowners, investors, flippers, etc. to purchase the largest, most expensive homes their accumulated equity wealth would allow them to finance.
3) Since the degree to which subprime can extend incomes to purchase more expensive homes has a finite limit, and incomes went up far more slowly than home prices, eventually the market’s subprime Ponzi scheme developed a severe shortage of new entrants who could stretch to get into homes priced at over 10X their annual household income.
Which roughly brings us to the present, where there are no bids forthcoming at the sellers’ bloated estimates of current market value.
With no bid at current price levels, sellers have to either give up on trying to sell, or else conduct a Dutch auction, dropping their price at regular intervals until a bid is located.
I have never checked this, but I strongly suspect the Dutch auction was invented to cope with imploding tulip bulb prices.
I read the source linked below; interesting, but it makes no explicit mention of whether Dutch auctions were designed to find the bid when tulip bulb prices were crashing the way that home prices are currently crashing. Does anyone know?
http://en.wikisource.org/wiki/The_Tulip_Mania
To be a homeowner today — to be able to afford that privilege — is a very costly thing.
How is someone who can’t pay their bills, is losing money, will wind up with destroyed credit, gets little sleep and/or physically ill over all the financial stress, etc. more “privileged” than I am as a lowly renter (with zero debt, excellent FICO, $$ in the bank and retirement funds, etc.)?… It’s because of this “you’re-a-better-person-if-you-buy-a-house” mentality that so many people are in trouble. Kool-aid indeed.
(“‘New England looks like the roughest area of the country after the Midwest,’ said Karl Case, a housing economist at Wellesley College. ‘It’s expensive up here, [home] prices are high, there are a lot of exotic mortgages and people are stretching themselves.’”)
Get the story straight. Are sky high prices good or bad? They are bad. Are falling prices good or bad? If they were OK to begin with and are going down with the economy, as in the Midwest, it is bad. But if they were too high to begin with, and were choking the economy, falling prices are good.
I would say that New England is one of the areas that is recovering fastest!
I would say that New England is one of the areas that is recovering fastest!
How so?
A quarter of a million people are leaving the region every year.
The southern section has a crap quality of life and the the northern part of the region is in an economic shambles with reliance on a tourist based economy now severely compromised a by the diminishment of the ski and snowmobile industries due to the lack of snow for 2 successive years.
You drive around, and save for the clusters of second home ownership in noted retirement communities, you can see and smell the insidious financial rot.
The region is destined to simply become a playground for the rich, with interspersed with urban and rural ghettos for those of limited financial means as the young move away to more affordable areas.
‘As long as I make my mortgage payments,’ Danis said, ‘the house is still mine.’”
Oh, no, son, nonononono! As long as you make your mortgage payments, the house is still the bank’s, but you’ll be allowed to live there.
I’m wondering about your rosy presumptions about the Midwest, having read hypotheses here and elsewhere that the bubble was more visible on the coasts, but it held *up* prices in areas of the country that would otherwise have been fated to experience some very nasty depreciation due to a generally depressed labor economy and stagnant wages.
Another consideration here is that general population trends are sending more pre-retirement Northerners southward each year. It seems to me that places where the “correction” is quickest and most severe could also be the most vulnerable to extreme - erm - inability, on the part of the government to continue to provide services (from entitlement programs to pothole filling and law enforcement); also vulnerable to real social dislocations, civil unrest, etc., creating a vicious circle. Murder rates are already way up over a year or two ago in many urban areas.
I live in a pi$$hole part of the country but it could end up being a pi$$hole with less post-bubble baggage, which may in itself ultimately count as a leg up. Devil’s advocate, here.