Bits Bucket And Craigslist Finds For February 11, 2007
Please post off-topic ideas, liinks and Craigslist finds here.
The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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For the people saying that the bubble hasn’t hit them (like me, I live outside of Philadelphia, looking to buy a nice, small place because property taxes are high here and we get raped by the AMT) I’m curious to see what happens when banks have to start writing off their loses from California and other bubble areas. I think of it as a credit “cold” because nationally I believe it will be more difficult to get financing.
There will be a bail out for the lenders and people will have to start working harder and saving up for downpayments.
“…looking to buy a nice, small place…”
If the bubble price mania affected Roumanian housing prices, do you think yours outside of Philadelphia might have also possibly been a tad affected?
I personally would not buy this year no matter what corner of the US I lived in, unless it was a lateral move from a bubble market to a cheaper one which gave me a means of cashing out my bubble equity horde before it deflates.
You’re right. What I should have written is that prices didn’t go up as high as CA and aren’t going down. Everything is still selling, prices aren’t going down. And we’re between a rock and a hard place because the LL wants to jack the rent by 200 a month, we have to move in June (because we don’t think the 200 jack is really worth it) and starting next year we’re hitting the AMT (yea end of fellowship, boo AMT!).
Dude, the point of the AMT is that deductions, like the mortgage interest deduction, no longer help! If you hit the AMT it doesn’t matter if you own or rent. Deductions are only for the shrinking number of people between the AMT and standard deduction.
I don’t think I mentioned the AMT in such a way as to suggest that it would bring down our tax obligation.
We’re already screwed there:)
But I don’t think housing prices are going anywhere here, not up not down.
PoodlePoodle - what part of the Philly burbs are you in? I’m in the Hatboro/Horsham/Willow Grove/etc. area. I agree that prices seem to be sitting flat right now. In fact, I’ve seen some go up a bit (there are a bunch of townhouses for sale in one complex that just had their listing prices upped each by $2,000 - like that’s going to help sell them).
Anyway, I’ve struggled with the “will-prices-ever-go-down-around-here” thinking and I’ve come to the conclusion that, yes, I think they will. I think we may have to be more patient than the obvious markets such as CA, FL, etc. We always seem to lag.
If I were you, I’d find another rental for now. Or, if you do buy, be prepared to stay put for a while. If you find you need to sell in the next couple of years, you may end up wishing you just paid the extra $200/month in rent rather than buying.
We live in Philadelphia proper right now and we want to buy in Narberth.
We’re looking for other rentals just to get out of Phila, our area was nicer when we moved here 2 years ago and has gone downhill in recent months. More breakins more muggings, more rapes, murders etc. Which is why we don’t want to pay more rent.
I’d check out rentals in Narbeth.
I hear ya’ about the crime. Even in my area (which is fairly far out of the city limits) it’s creeping in. Which is why I don’t understand people saying to me that prices are what they are around here because “the area is so nice.” Pretty soon it may be past tense…USED to be so nice.
Hahah. We say that all the time in West Philadelphia. I’m always struck by how beautiful the houses were.
Short story: Prior to moving here I’d never lived in a city. Never. First week here I get lost in North Philadelphia.
I used to live in Malvern and ocassionly wandered into the city of Brotherly Love. Two things I can tell you - wait for prices to drop - because they will. Most of SE PA did not appreciate in the mid 90′S, but since them prices have doubled and tripled in a few locations. Another thing don’t get lost in North Philly - that could have bad consequences!
In in Chester county pa and prices are flat. Still the same as last years prices. Sellers aren’t budging and the inventory is high for this time of year especially for townhouse which are everywhere!
I’m hoping that come late summer if things are still sitting there might be some price cuts but i don ‘t see us buying this year. We still can’t afford what we want.
Prior to moving here I’d never lived in a city. Never. First week here I get lost in North Philadelphia.
Hahahaha…hilarious! Your guardian angel must have been working overtime that day. Props to him/her!
For future reference:
If ever you get lost in North Philly again - driving, of course, since if you got there via the subway all you have to do is run back down the steps and take the next train going south -
Do the following: -
1) roll down your windows and blast NWA out your car speakers as loud as possible. You will blend right in and become invisible. Do not make eye contact with anyone.
2) If you do happen to make eye contact with anyone, look at them as if you intend to first slit their throat from ear to ear and then shoot them bullet by bullet starting with their feet, then proceeding up to their kneecaps, their groin, their chest, you get the idea. If you have never looked at anyone in this manner, practice.
Although something tells me you won’t be able to pull this off.
3) This is one of those times when those in-car directional GPS thingies comes in really handy. Keep going around the block until your GPS thingie tells you that you are headed SOUTH. Continue to proceed SOUTH.
4) If any of the above steps have failed because you are either - a) crying so hard you can’t see, or b) you have soiled yourself and are concerned about getting the stains off the leather seats, pray to aforementioned guardian angel - pray hard! S/he hasn’t let you down so far…!
If you thought North Philly was bad, howTF did you end up living in West Philly? Don’t tell me - somebody told you it was “gentrifying”, or it was an “up and coming neighborhood”. It sounds like there were some flip attempts there that are now failing. The ‘hood is reclaiming its territory. Oh well.
Crash from out west, are you reading this?
North Philadelphia isn’t that bad. I went to Temple U. in North Philadelphia via subway, bus or bicycle back in the 1970’s when the murder rate in Philly was higher than today.
While my block (4800 N Broad) had three muders in the three years I lived there, two of the murders were in the tough bar across the street. A bar that I entered only once and left quickly.
I never had a problem except for the local kids who kept sneaking into the employee lunchroom to remove the cookies and Tastykakes from our bags. I worked the night shift at Paley Library and took the Broad Street subway norht at 23:00.
I admire your spirit, Jay, you’re one of a diminishing group who doesn’t get put off by an urban environment.
For someone like Poodle2, who was never in any city, and got lost in N. Phila, you’ve got to admit it had to be somewhat intimidating.
We don’t know where s/he got lost, either. I recall going to do some work at a church a few blocks west of Broad and north of Girard. Parked my car, got out, per usual. At the time I was a diehard city girl and not easily rattled. I walked about a block or so and suddenly felt really, well…exposed.
I was just attempting to impart some survival skills in the event that Poodle got lost again.
Now I’m going to walk onto my suburban lawn and throw out some bird seed or something.
PP,
Do you have family you could bunk up with for a period of time?
If you can handle doing 4 months-1yr at your parents or your in-laws, it’s just about the best in the world way to save money.
Imagine waking up and sitting down to one of your mother-in-law’s famous omelettes while Philly homeowners wake up and think about their declining home values.
That’s a good omelette.
Two words:
Death First.
They’re nice people but it would take Armageddon for me to move in with them.
Renting an other year or two won’t be so bad; I would hate to have to do it. As we’re getting older we’re getting more and more crap so moving it is getting more difficult.
I think posting encourages us to put out extremes; we’re not hell bent on buying. We’re buying if we find the right house; in the right area for what we feel is a good price.
For example, we like this house: # 4889732
But it isn’t worth 499,000 to us. It’s worth 350,000 (to me, don’t know what it would be worth to you). So in a few month if it is still for sale we’ll offer 350,000 the owner can take it or not. And if we can’t find what we want we’ll move to a rental.
We’ll offer the woman who owns this house 2000 a month:
http://philadelphia.craigslist.org/apa/276186790.html
(she bought it for 900,000 back in 2005)
BTW anyone looking for houses in the area can search the tax and property records here: http://propertyrecords.montcopa.org/Main/home.aspx
Huh. I had a long response to this and it has yet to post.
Crux of the post: Death First!
Hahah. Seriously though, if we can’t find a house for the price we want we’ll rent. I’m not going to buy because Suzanna did the research.
Anyway. I need to shower and get cooking.
The homeownership interest deduction is not affected by AMT. It excludes things like dependant deductions, state tax deductions, non-reimbursed business deductions for employees, and depreciation and amortization for sole proprietors and landlords.
Paladin, that’s essentially correct. However, if you work through the instructions for form 6251, you’ll see that interest related to cash-out refinancing gets lumped back into AMT with the other tax preference items. HELOC’s are automatically added back to alternative minimum taxable income. Ouch! I’ll bet A LOT of folks don’t do their returns correctly.
(Sorry if this double-posts. My reply may have been gobbled up by the cyber hamster.)
“The homeownership interest deduction is not affected by AMT.”
Paladin, this essentially correct, with one important exception: Interest on cash-out refinancing is added to alternative minimum taxable income and subject to the AMT calculation. Therefore, HELOC’s are automatically added back. My guess is that most taxpayers to which this rule applies don’t get it right on their returns.
Paladin,
Yes, but it sure takes a progressive chunk of the property tax deduction away the more money you make.
I can’t deduct any of my property taxes on my residence.
Poodle,
If your rent goes up by $200/month, you are only “out” $2400 at the end of 12 months. Let’s say there is a mild “cooling” in your local market and a house you purchased today dips $10,000. Not bad compared to some markets, but you are still $7600 behind at the end of 12 months. That doesn’t include all of the fees associated with getting a mortgage. Waiting a year to see what your local market does won’t hurt you. Buying too soon will.
Just want to weigh in that I doubt that Narberth will really drop too much - but even if it does, it’s hard to buy there. When we bought our first house during the “buyers’ market” in 95/96 we tried Narberth and if you don’t know someone, forget it. Your realtor/you reading listings just isn’t going to cut it, even in buyers’ market. I know it’s hard to believe. We saw I think one tiny new construction house there. We looked for over 6 months at that time, and ended up buying in Manayunk, which was the best thing we could have done (our house tripled in value between when we bought it in 97 and when we sold in 02 with no improvements!).
Narberth is a killer. Sometimes around here there are certain very desireable locations (maybe I’m wrong but this is my experience from previous buyers’ market) that just are tough to buy into no matter what.
If I were you I’d hang on and rent something nice in Manayunk or Roxboro - its’ really easy to get in town, and really safe (all the cops live there!). It’s also pretty convenient to other great places - KoP, MontCo, ChesCo, the Turnpike . . . we loved it there (except for parking!!!!).
Good luck! Sorry your rent got raised - you might still look in Philly too (I’d stick with Logan or Fitler Squares but that’s just me).
Before you look at deductions–look at pre-tax contribution programs. Max out all pre-tax contribution programs and it may keep you off the AMT. My wife and I will make it this year due to medical savings accounts. I have only two years to go to 50 which means I can then up my 401k and other contributions so I can “catch up”, I don’t have much catching up to do–but I will take the tax break. I think the AMT may disappear soon–which is another reason to rent for a bit.
Then use the money you save from the mortgage and put it in a Roth, protect yourself from future taxes–they are going up.
A lot of people in the NY area are cashing out and heading to smaller homes in smaller cost markets.
I’ve seen alot of that over the last few years, ( both my parents move south a couple years ago). I’m still a lot of stories about young people moving out of state, because of the cost of living. Newsday recently had a story about increasing numbers of new college graduates leaving right after graduation, their calling it “Brain drain”. I also hear alot of business people commenting that they can’t hire talent from out of state, because of the high cost of living, people don’t want to come hear and have a reduced quality of life. The pool of fools is shrinking around here.
People in Texas were saying the same thing. What is happening is the locust are making their way to places that have not been runup too high compared to their markets. From the west, Cal, to Nev, to Arizona, to Texas, to Utah etc. and of course some skipped to Florida and NW Arkansas. The places where the Real Estate train was slow the prices did not go up as much due to the flippers that got stuck with the wishing price. As more flippers get stuck, the train will stop running. It is currently running half full to Philly, and Utah, but as more flippers get stuck, the schedule will be canceled. Only then can Philly and Utah prices go back to normal.
Thank you for your patience.
Signed by,
A Cal Equity Locust that got off the train in Texas and decided to rent.
I hope the new bankruptcy laws turn these flippers into slaves of the banks.
Here is a couple of observations from my trip from Las Vegas up to Durango, CO via the Grand Canyon last week.
We turned up north from Williams, AZ which is on HWY 40. There was a field in a valley that was mainly commercial buildings near the hwy but had a couple of multi-family blds in the distance. There were a few cookie cutter type homes in the middle of the field that looked like about 1800sqft slab on grade with two car attached garage built back to back. The sign said “available from the 300’s”. I don’t know what folks do in Williams, AZ (about 30 miles west of Flagstaff) but this seemed a bit excessive, IMO.
Secondly, I drove around the northern area of Durango CO, out in the area of the Durango Mountain Resort and the valley area to the south towards Durango. I can report that this area is still living in the “RE only goes up” past.
I toured a golf resort called “glacier club” just off of rte 550. There were several million+ homes being constructed there to the point of clogging streets with workers cars/trucks. I pulled up the MLS for that area just because I was astounded at the level of building and found lots in the club in the 500K and up to million range. I also viewed several other subdivisions in the area. The lots were in the same range although some had small non-view, harder access lots in the 200K and up range. We went up through the acreage areas and they were all in the 750K and up to 2 million range (there were a couple in the 500K range but they were the exception not the rule and usually there was a good reason for the discounted price).
There were dozens and dozens of parcels for sale and the homes for sale were all 500K and up to multi-millions (the 500k ones were for the most part a joke).
So, in conclusion, I would summarize that area of the nation as totally immersed in a bubble. The re-location guide for Durango is touting the per capita income as 28K or so. How can this area support those prices?
Is there anyone out in bloggersville who is from, or lives, in this area who can offer further insight into this area of the country? I saw lots of building and inventory issues aside, lots of very high prices that surprised me. We have some ways to go before this bubble gets deflated, at least in this area of the country.
Don’t believe the “no bubble here” hype regarding the Philly area. I live in Philly and there is certainly a bubble in this area. Perhaps the bubble isn’t as bad around here as it is in California and Florida — but prices in and around Philly are still overpriced. Perhaps the area where you live has yet to show price reductions, but it’s just a matter of time.
I believe there are two reasons why Philly people think that there is no bubble in the Philly area. First, consider that the two main newspapers in Philly were purchased by Bruce Toll last year. Do you really think that you’re going to read the truth about the RE market here when one of the Toll brothers owns the papers?
Second, Philly never gets the attention that NYC, Boston, or DC do. And that’s for any topic. Philly tends to get lost in the discussions of big cities on the NE corridor. So the bubble here gets overlooked — just like so much else about Philly gets overlooked.
Nothing could make me buy in Philadelphia:) It’s a neat city but it just has too much wrong with it. We’re looking at the Main Line.
Narberth, to be exact and believe me when I say there is nothing on the market.
Narberth is very nice. I’ve actually met a lot of people in the city who have moved from the Main Line, btw.
As for buying in Narberth, do you know what has been the price appreciation there since 2000? I don’t know for sure. One way to figure it out: take a home that is selling today for, say, $500K. How much would that same home have sold for in 2000? If the apprecition is greater than 5%/year, Narberth is most likely over-priced.
Yep, it’s over priced. Average price in Narberth was about 150,000 way back when. But really tell me our options here. Live in my rented apt for the next 10 years until prices revert to the mean (I figure that’s how long it will take)? In that time I’ll have paid out almost 200,000 in rent. I’m not ahead if 10 years from now I pay 300,000 for a house and 200,000 in rent.
Why are the only options: A) stay where you are or B) buy? Why not consider C) a different rental?
BTW, people always make it seem like if they buy, not a penny of their monthly mortgage payment is a “waste” but if they rent, all of it is. Ridiculous.
“But really tell me our options here.”
1) Eat a rent increase.
2) Note what comparable properties in your area are renting for, and figure out your BATNA.
(Read this book for info on BATNA and much more:
http://www.amazon.com/Getting-Yes-Negotiating-Agreement-Without/dp/0140157352 )
3) Negotiate on principle with your landlord that it will hurt both of you if you move away to a more-reasonably-priced rental.
4) Move to a more reasonably priced rental (if there is one).
5) Buy a home and risk catching a falling knife (but if you buy small, the knife may not fall very far or could even rise if other wealthy buyers buy small for the same reason).
Would you need a loan to buy the house today? I’d say THAT will tell you whether to buy now or in ten years (when you most certainly would have enough saved to pay cash). Remember, half mil. with a 30 year mortgage is closer to 1.2 mil. in total payments.
In the ten years you rent, you actually have interest working for you - not against. Every after-tax-deduction-but-above-standard-deduction penny you pay in interest is money thrown away. Rent actually provides you something.
Mortgages, right now, are for people who can’t do algebra.
I believe I wrote above that we’re also looking at other rentals but from what we’ve seen so far there isn’t much on the market where we’d want to live. Yes we could live in Port Richmond for 800 a month but I’d rather not get mugged on a daily basis, thanks.
For your other questions:
Well let’s see here.
We currently live in the city and 1800-2000 seems to buy a 1-2 bdrm apartment (ours has parking others may not). We need cars since public transit isn’t really an option at 3 in the morning (when we sometimes have to go to work) this also means we have to live in a safe enough area to walk to our cars at 3 in the morning. When it comes to housing it also means that we have to live close enough to our work that we can get to it in a timely manner when we’re paged at 3 in the morning. And since we sometimes sleep in the day we’d also like a place that’s quiet, not inhabited by Euro Trash, party throwing, college kids. We’re in our late 20’s early 30’s; we don’t like noise, going out at night, large parties or other people:)
Unlike many people I don’t think buying a home is a pathway to wealth. Money, in general performs better in markets (overseas or here at home) the best you can hope for in a home is that it will do 1% a year better than inflation. As I wrote above I’ve “saved” nothing if 10 years from now I buy a house for 300,000 (that sold for 150,000 in 2000) after paying out 200,0000 in rent. I would have been better off paying 300,000 in today’s dollars for that same house and avoiding the 200,000 in rent (no I don’t think I “saved” myself 200,000 in expenses) but I also didn’t have to move every few years, find LL willing to accept dogs or get mugged.
BUT, in those ten years you are making (ballpark) 420k in payments, plus 50k upkeep (they say 1% a year), on a “500k” house, MOST of which goes toward interest (thrown away), and you’ll still pay upwards of 800k over the next 20 years to the bank! Total cost over first ten years: 470k. Still owe: 800k.
Yes, there are tax issues to mention - but I don’t think you’ve given due thought to what happens with your money when you are NOT wasting it on bad decisions. The 2,000-2,500 A MONTH that you are NOT hemorrhaging on interest, prop taxes, & upkeep is invested at 6% easily grows to $300-400k - and you buy the house outright. Total cost over ten years: 200k in rent + 300k purchase = 500k. You now own a house FREE AND CLEAR.
As I wrote above, if it is the case that you are thinking about a long term mortgage, you need to brush up on your algebra, doc.
Narberth is now the main line? Used to be St. Davids, Villanova, and Paoli.
Narberth is red hot. Just really conveniently located and has a nice walkable town aspect that you don’t find around here (except in West Chester but who would want to live out here? lol).
Poodle I feel you - Narberth is tough to get into. Try Merion Station! It’s often overlooked and it’s right nearby and very convenient to town (and has the same small-town feel, just no nice dining or entertainment like Narberth). Or like I suggest above - rent a nice house in the ‘Yunk or the ‘Boro - and while you’re renting, scope things out and wait for something good to come up in Narberth (or maybe you’ll find somewhere else you love!). Manayunk and Roxy are safe, nice neighborhoods (mostly), with surprisingly decent schools.
“As I wrote above I’ve “saved” nothing if 10 years from now I buy a house for 300,000 (that sold for 150,000 in 2000) after paying out 200,0000 in rent. I would have been better off paying 300,000 in today’s dollars for that same house and avoiding the 200,000 in rent (no I don’t think I “saved” myself 200,000 in expenses) but I also didn’t have to move every few years, find LL willing to accept dogs or get mugged.”
It sounds like you have it all figured out. The choice is be robbed at gunpoint, risk losing your dog, move every third Tuesday, and throw away $200K OR buy, buy, buy.
Narberth is now the main line? Used to be St. Davids, Villanova, and Paoli.
In the “biblical” sense of the term, the Main Line refers to the towns along the rail line that parallels the old Lincoln Highway - route 30. Wiki has a write-up…I guess it’s as good as wiki can get:
the Main Line
Traditionally, when referring to the elite suburban corridor, it stopped at Paoli. Now it can be said to end at Malvern. I’ll give them that, though the folks in Malvern are a lot nicer and laid back that the nouveau Main Line-o-philes.
However, I can confirm what wiki states, that Exton, D’town, and Thorndale are now somewhat included in the Main Line designation. No and heck no. Who do we have to thank for that bit of linguistic manipulation? - why the local REIC of course! They are using it as a marketing ploy to sell homes in Ex, D, and Thorn. So then the FB can be really impressed with herself that she just bought a house on the whoopdee-whoo-woo Main Line.
If the local REIC could get away with presenting homes in Lancaster and Hbg. as the Main Line, they would.
thatthan the nouveau Main Line-o-philes.From Tampa, article on deceptive practices of real estate agents.
“…Some agents were somewhat deceptive and massaged the numbers so it would look like they sold the property in two days,”
http://www.tbo.com/news/money/MGB4RXXDZXE.html?imw=Y
“somewhat deceptive and massaged”…..??
Let’s call them what they are: “fraudulent liars.”
What a confidence builder that turned into. In my Tampa Bay area neighborhood, there’s ivy growing on the for sale signs. We’re talking years. That’s what happens when your try to sell an 1100 sq. ft. crackerbox for $725k. Taxes-about 10k, insurance-about 4k, mortgage payment-no clue but it’s gotta suck.
Predatory lending perilous for Maine homeowners
Jo Janiszcak owned his Richmond home for 30 years before he lost it to foreclosure, an agonizing process he believes resulted from a lender who charged him high fees and intentionally loaned him more money than he could afford to repay…
http://kennebecjournal.mainetoday.com/news/local/3606798.html
I don’t care if it is a 276 page document. There are several pages that I will read completely. The note is where all of the payment terms are and buyers need to really read this part. If people cannot spend a few minutes to read this part maybe they are so stupid that they do not belong owning a mortgage. And 65K of debt - WTF.
I finally got through the Thursday Feb. 8 WSJ piece on HSBC’s subsiding US subprime business. Given that they are a British bank, will our top economic policy makers shrug or even laugh when they take a subprime ass whompin?
HSBC is (I believe) the largest bank in the world and the Subprime part of their business only accounts for 2%. And yes our policy makers will ignore it.
I’m sorry I was wrong, it’s the 5th.
From the front-page WSJ article (Thurs, Feb 8):
“London-based HSBC, the world’s third-largest bank by market value and one of the biggest subprime lenders in the U.S., is one of several lenders to stumble in its dealings with low-end borrowers. Subprime mortgage lending surged over the past several years, and these days, subprime mortgages comprise about 12% of the roughly $8.4 trillion U.S. mortgage market, up from 7.5% of the market in late 2001, according to First American Loan-Performance, a San Francisco research firm.”
I’m wondering how that number 3 ranking by market value will withstand HSBC’s recent blunder into the subprime market just before the bubble popped?
Oops, I meant Feb 8
Yea I realized I was wrong yet again and rather than continue to compound my mistake I gave up while I was behind.
HSBC is the # 3 bank in the world in terms of assets. The US is one of its largest & expanding markets. I have accounts there and love the service. They got caught up in the sub-prime feeding frenzy, but they can handle it. I did think it odd to go to the local branch to make a deposit and have the teller ask me if I needed a mortgage like fast food clerk asks if I want to supersize my meal. I guess now HSBC is seeing the light. Pure sub-prime shops w/o the financial depth of banks like HSBC will be gone one way or another this year and all the players will tighten lending standards. This process can only be a good thing for the industry, the economy and the markets.
The HSBC warning was a shot across the bow for the Chinese financial ministers. I’m sure they are burning the midnight oil studying their US bonds for MBS problems. If they start taking corrective measures watch out below.
http://tinyurl.com/32367j
Banks warn Chinese against using mortgage loans for “investing” in stocks markets.
The questions from the tellers each time I go in Wells Fargo have driven me to use. the drive up window almost exclusively. I ran into a former employee who told me she left as they “had to make”, a number of sales of other products each month. I have forgotton the actual figure ,but it was astounding. So when you see the teller spending lots of time on the computer while you stand there thy are looking ot see if there is anything they can “hawk”. Wells Fargo is the #1 subprime lender which is scarry. I only have checking there now.
Thanks DesertFox, I do recall the teller looking at his screen rather intensely and there being a pregnant pause. Now I know. You just cannot get away from the huckster dynamic anymore in this modern age.
P.S. I have to say that I truly love this article, which has to be one of the best on the bubble situation the WSJ has published to date (kudos to Carrick Mollenkamp!). Maybe there should be a blogosphere press award for best MSM housing bubble journalism? This piece really deserves wider recognition.
Here is a choice excerpt:
“HSBC, a 142-year-old bank with operations in 76 countries and territories, got into the U.S. consumer-finance business in 2003 with its $14 billion purchase of Household International, Inc. Household, a big subprime lender based in Propsect Heights, Ill., had been criticized for allegedly predatory lending practices and, shortly before the HSBC deal, had reached a $484 million settlement with state regulators. HSBC saw Household as a way to diversify beyond Europe and Asia, and viewed subprime mortgage lending as a far less competitive business than lending to more credit-worthy customers.
After the deal was announced, Household’s then-chief executive, William Aldinger, bragged that Houshold employed 150 Ph.D.s skilled at modeling credit risk. Household had developed a system of assessing consumer-lending risk — called the Worldwide Household International Revolving Lending System, or Whirl — which it used to underwite credit-card debt and to collect from consumers in the U.S., United Kingdom, Middle East and Mexico.”
http://users2.wsj.com/lmda/do/checkLogin?mg=wsj-users2&url=http%3A%2F%2Fonline.wsj.com%2Farticle%2FSB117088245754201362.html%3Fmod%3Dhome_whats_news_us
Why do I suspect that none of those 150 Phuds ever bothered reading this book? This should be mandatory reading for Phuds who undertake risk modeling exercises…
http://www.amazon.com/Fooled-Randomness-Hidden-Chance-Markets/dp/1587990717
Hey GS, you are this blogs “Professor” to me. So I went and looked at the book .. even read an exerpt and some reviews. Did you remember some of us have zero econ background? What is your recommended reading for four steps before this level?
I suggest “The Economic Way of Thinking” by Paul Heyne for a readable and insightful introduction to neoclassical economics:
http://www.gmu.edu/departments/economics/pboettke/ewot.html
and “Economics in One Lesson” for a concise, hard-hitting introduction to von Mises (it looks like you can read it all online at this link!):
http://www.jim.com/econ/contents.html
Don’t miss the chapter which describes the War on Saving that top US economic policymakers are currently prosecuting:
http://www.jim.com/econ/chap24p1.html
At the end of the day, I believe von Mises and the Austrians (with some help along the way from principles set forth by Charles Darwin) will outsurvive the neoclassical orthodoxy, though the latter group has the upper hand for the short term thanks to Samuelson and government research subsidies which help their ranks maintain their academic hegemony. The problem is the neoclassical school of thinking produces some absurd logic which anyone with an ounce or two of common sense has to laugh at in its starkest form — even some of its leading practitioners. See this piece, for example:
http://www.haokets.org/Files/summerseconomist.doc
“Another counter to the market meltdown theory is that boomers may use their houses to finance retirement through such instruments as reverse mortgages, good idea or not. Houses, not stocks and bonds, are generally our biggest assets”.
http://tinyurl.com/3dsdye
inventory moving up in 22151
how about your hood?
it’s post super bowl !
“inventory moving up in 22151
how about your hood?
it’s post super bowl !”
Inventory on SFH’s in greater Portland Maine seems to be moving down. I see a lot less new construction - builders seem to be taking a breather.
Homes that couldn’t sell last year and which were price-cut and then rested for the holidays have recently come back onto the market at their original 2006 asking prices.
We should know more in about a month.
186 9/6/2005
223 9/19/2005
224 9/29/2005
248 11/3/2005
241 12/5/2005
210 1/3/2006
212 2/2/2006
204 3/3/2006
180 4/4/2006
194 6/4/2006
220 7/22/2006
237 9/9/2006
223 11/5/2006
187 12/15/2006
166 12/30/2006
131 2/2/2007
Doug Kass, the anti-Cramer:
Ratings Are Subprime’s Dirty Secret
Originally published on 2/9/2007 9:30 a.m. EST
The little-known secret in the subprime market is that the ratings agencies have been lax in their downgrades of subprime paper. The recalcitrant agencies — Moody’s (MCO - Cramer’s Take - Stockpickr), Fitch and Standard & Poor’s — have quietly abetted (blessed) the mushrooming of very aggressive subprime lending that has allowed the Wall Street firms selling these mortgage products to prosper.
According to Jim Grant, the number of downgrades at Moody’s, for example, were even with upgrades in 2005. Last year, the downgrades/upgrades ratio rose slightly to 1.19:1. The problem is that the historical downgrade/upgrade ratio stands at 2.5:1!
Up to now, lenders (and borrowers) have greased the subprime market — making it the swiftest-growing portion of residential real estate lending from 2001 to 2007. Lenders relied on the candor of the borrowers — as nearly half of the subprime mortgages originated last year were low or undocumented.
Here is an example of the relaxed behavior of the agencies. This week’s Grants Interest Rate Observer calls attention to a 13-month-old, $350 million asset-backed pool of mortgages, MABS 2006-FRE1. Foreclosures now stand at 9%, delinquencies at 10.5% and real estate owned at 3.5%. In other words, about 23% of the loans are problematic — and neither Fitch nor S&P has downgraded the issue. No doubt investors in MABS 2006-FRE1 (hedge funds, brokerages, institutions, etc.) mark the issuance to par (since it has not been downgraded).
But what will happen when the ratings agencies finally downgrade MABS 2006-FRE1? (Which seems inevitable, but late!) Answer: Investors will sell.
Anyone for a 60-bid?
The subprime fungus has only recently been uncovered, and the seriousness of the problem for the sector of housing that has stirred the drink of the residential real estate market has only recently been uncovered in the “see no evil, hear no evil” capital markets of 2007. (Indeed, over on RealMoney, Jim “El Capitan” Cramer argues that the subprime woes are a good thing, because the carnage will contribute to a Fed rate cut. I view this as highly unlikely but consistent with the Cramerica psyche that has inundated the investment community — good news and bad news are both treated favorably.)
What is astonishing to this observer is the almost universal view that the prime market is in good shape and that the weakness in subprime will be contained.
It will not be isolated, as nearly as half of all the mortgages made over the last 12 months — even to prime customers — are nontraditional, creative loans (interest-only, adjustable option ARMS, negative amortization, etc.). These, too, are vulnerable. At the very least, today’s lemmings (a.k.a. mortgage lenders) will begin to restrict lending and will dramatically tighten standards. And Katie bar the door if this economy doesn’t perform in a Goldilocks fashion.
The subprime mortgage news this week is the first shot across the bow of a boat called Market Optimism. Throughout the balance of 2007 and into 2008, mortgage defaults will accelerate into the prime market (as a result of a moderating economy, too-leveraged mortgage instruments, rising interest rates and ARM resets).
Credit is about to be less plentiful.
Another dirty little secret is that Prime Lending standards also eroded during the bubble. Many people who would not qualify at all for a Prime standards loan pre-bubble, all of a sudden qualifying for prime loans. I.e. unqualified became sub-prime and sub-prime became prime. Thus we have a lot of low quality, high risk loans out there that is much greater than the labels we’ve affixed to them indicate. The toxic loan aspect noted in the article will just have an added/magnifying affect.
I say: Hoorah for Fitch & Moody’s. Their failure to properly rate these MBS issues lured lazy overseas buyers and the like into grossly mispricing the true value of these securities. What we need now is a violent unwinding of those positions, something that spins so quickly that it splatters mud all over Goldilocks’ face.
And TxChick, I completely share your contempt for Cramer.
“Credit is about to be less plentiful.”
I think I can hear a giant sucking sound of tightening loan underwriting standards. It sounds like a twister.
“What is astonishing to this observer is the almost universal view that the prime market is in good shape and that the weakness in subprime will be contained.
It will not be isolated, as nearly as half of all the mortgages made over the last 12 months — even to prime customers — are nontraditional, creative loans (interest-only, adjustable option ARMS, negative amortization, etc.).”
TxChick — thanks for posting this excellent piece.
I believe the folly of assuming the prime market can stay in good shape while the subprime segment implodes may stem from several factors:
1) A belief engenered by top economic policymakers that they have quarantine procedures in the ready to snuff out any epidemics which aflict the global economy;
2) Ignorance of basic economics (in this case, substitution effects across closely-related markets);
3) A belief, engendered by only classifying loans to borrowers with credit history problems (e.g. low FICO scores) as subprime, that loans to non-subprime customers are not risky, when it is the nature of the loans themselves which encourage buyers to purchase more house than they can afford, and prospectively turn them into high-risk borrowers (regardless of credit history).
4) A failure to understand the endogenous correlation between the housing bubble’s final parabolic price blowout and the role of the subprime (and other exotic lending) bid in pushing it to ever-less-sustainable heights.
5) A failure to grasp the role of housing price inflation in masking subprime lending risk.
6) A lack of awareness of financial history, which suggests that credit bubbles always end the same ugly way (so much has been written on this subject here that I will not even bother mentioning the references again…).
I HOPE A FEW OF HOUSEHOLD’S PHUD GENIUS RISK MODELERS ARE READING THIS!
“engendered”
Dialog from the RMS Real Estate
First Mate Get Stucko:Captain! There’s cold water coming in down in Engineering and the 3rd class cabins!
Captain Lereah: Have an announcement made that that 1st and 2nd class perfectly dry and that there’s nothing to worry about.
So far as I am aware, all passengers on board the titanic who did not manage to get onto a lifeboat before the final plunge went down with the vessel, regardless of class. Of course, the 1st and 2nd class passengers had first rights to get onto the lifeboats…
Do not forget deteriiorating credit quality,just because someone had a 720 plus score when they bought a home they could not afford with an ARM or i/o loan does not mean they still have that score…with qualifying DTI ratios as high as 56% for 100% financing(i think it was first franklin) even without buyig a plasma tv or a new bedroom set these buyers were in trouble…a wild asse guess (nonscientific WAG) is that one in five no longer has that score within 6 months of their purchase.
Good point. Not only will the “FICO and not ability to pay is all that matters” idea dying, but there will simply be fewer people with good FICOs out there. And I suspect that the ratio of FBs who have seen their FICOs decline significantly will be far larger than 1 in 5.
This is why I advise any friends who have a good credit rating and are thinking about buying to wait, as going forward, a good FICO score will be a highly prized asset. My sister and husband, who have a good FICO score, were unable to listen to my sage advice, and instead bought a home last December instead of waiting until next summer (my suggestion). Now they own two homes, and will have the pleasure of trying to find a buyer for the one they are moving from this summer against the backdrop of a credit market implosion.
Sun Tzu’s art of investing
http://atimes.com/atimes/China_Business/IB10Cb04.html
….any slowdown in the US economy such as being indicated by the decline in employment growth in the January payrolls will cause fewer dollars to flow into the coffers of developing countries. In turn, this will cause their purchases of US securities to fall, thereby pushing up US bond yields. This is a new “conundrum” for financial markets, when an economy heading into a recession sees its bond yields rising.
….As its own domestic demand increases, China will need the rest of the world less. That is why I believe that, using US pressure as an excuse, China will let its currency rise against the US dollar sharply this year, perhaps as soon as April. This will produce high costs initially for China’s exporters and banks, [3] but eventually will provide a stronger basis for China to dominate foreign policy around the world.
“….any slowdown in the US economy such as being indicated by the decline in employment growth in the January payrolls will cause fewer dollars to flow into the coffers of developing countries.”
I disagree that January’s payroll numbers indicate a decline in employment growth. Does anybody doubt that this number will be later revised significantly upward? — that was the 2006 BLS BS modus operendi. Anyhow, since when does employment control outflow? We can spend like crazy, jobs or not. Having a job doesn’t seem to rank high on the list of our ability to get credit.
“….As its own domestic demand increases, China will need the rest of the world less.”
No doubt about that. China is bleeding our consumption dry to someday support it’s own.
“That is why I believe that, using US pressure as an excuse, China will let its currency rise against the US dollar sharply this year, perhaps as soon as April.”
No friggin’ way. China consumption isn’t anywhere near being able to support it’s capacity. They’ll eventually get there, but it won’t be as soon as April.
a rise in the yuan will make the chinese consumer have more buying power.
Right, John, but it will kill their exports. My belief is that exports are more important to the Chinese now, than encouraging internal consumption.
“but it will kill their exports”
how? they can practically increase their currency by 20% and it will only increase their trade surplus. at this point it is only japan and the us that have the manufacturing capacity to replace china, but cannot because of production cost. your argument is reminiscent of the devalue the dollar to decrease trade deficit argument. in fact the opposite effect happened because imports became more expensive and export demand did not increase that much to offset the devaluation.
Why has China’s involvment in Africa gone pretty much unnoticed? It’s a significant move and has serious economic consequences….why so little attention in the press?
Well they are busy reporting more important stuff like Anna Nichole Smith’s death. Gotta have priorities.
No, the diaper-wearing astronautette! That’s what’s important!
The MSM in America is the perfect propoganda machine. I’ve live here now for 10 years and am astounded at how little Joe Sixpack knows about what is going on in the world and even in their own back yard. Ask them if Brittany was wearing panties over the weekend, however, and they will know what color they were (assuming she was wearing any).
I always find it humorous when the MSM has stories about other countries “propoganda machines.” No one in the world even comes close to FOX,ABC,NBC,CNN etc….
N.B. I went to High School with her. Sometimes it’s a small and exceedingly weird world.
What was she like back then? I’m surprised that a Navy O-6 would end up like this.
Most men will tell you that they’ve done some truly, spectacularly stupid things for “love.” I guess it’s not exclusively a male condition, eh?
Can’t honestly say that I recall, but there she is on the yearbook page facing mine. Of course a cursory glance at my picture will explain why I wasn’t going to motivate her to drive 900 miles in a diaper to assault/kidnap/murder my girlfriend.
I wrote a few months ago that China is pushing hard for its citizens to consume. A lot of people on this blog didn’t (and probably still don’t) agree with me that when 300 million American consumers stop spending and start saving, it won’t have a significant impact on China’s economy.
While Americans are addicted to fame, movie stars, sports stars, and get rich quick schemes, the Chinese have been more interested in becoming significant. Chinese are more serious about education these days. Americans just want to watch sports and honor the latest druggie sports star.
Fame or significance? Looks like the quest for fame is our downfall.
On a related subject, I got a good stake in the T Rowe Price New Asia fund, but found the Vanguard Emerging Markets international index fund has a lower expense ratio and performs just slightly better than New Asia in the long run. So I’m getting into that ASAP.
Methinks we should learn Mandarin.
Bill -
I’m gonna dive into the asian markets too. But I think timing is the issue here. My opinion is that fallout from this credit crunch will have a huge impact on emerging markets.. Wait until the crash and then jump into solid asian stocks when they are trading for a fraction of what they cost now..
“…when 300 million American consumers stop spending and start saving, it won’t have a significant impact on China’s economy.”
————————
Bill,
On this, we definitely agree. However, I agree with Krazy that timing is important. I know you “average in” and all, but the potential recession/depression will likely hit everyone.
After that time, I also anticipate investing in the emerging markets, and also think China will rise up — after the initial global recession — to become (the?) world power.
“still don’t”
Si segnor…
It is a weird point of view but they modernized their country on our debt. It might say a trillion dollars face value but it is actually only probably worth $1000 of ink and paper. So they modernized a country on a thousand dollars of real wealth. Pretty good huh
The other side of the coin is “How much means of production did we give up in the process and/or is that so important in the “Information age”? If we are entering a temporary Malthusian period it may be tougher than we thought.
Wow, apparently things are getting so bad in FL that the Palm Beach paper wants the Gov to put a moratorium on foreclosures:
http://tinyurl.com/22vhyj
Wow! 100 Year Mortgage?
In this crisis, the governor and the Legislature need to slow down the foreclosure process, eliminate or limit prepayment penalties and protect the consumer by slowing down the real-estate closing process. These steps need to be taken:
Z Declare a one-year moratorium on foreclosures in order to allow people more time to refinance or work out other arrangements. In this, the governor and legislators again would have to stand up to a powerful lobby.
Z With the foreclosure moratorium, the state would mandate that lenders offer distressed homeowners temporary - two- to five-year - straight-interest balloon mortgages amortized over 40, 75, or 100 years. These mortgages would allow people to pay close to what they are now paying on their mortgages and for real-estate values to stabilize. It would be a healthy alternative to foreclosure for both lenders and borrowers. Tax breaks could entice lenders to offer such mortgages.
Z Prohibit prepayment penalties. A number of states already don’t allow them. They are predatory in nature. In the alternative, mandate no prepayments for borrowers in foreclosure, seniors, soldiers and veterans, government workers, and couples with combined incomes below $50,000.
• Right of Rescission. Florida law mandates a three-day right of rescission - letting the customer cancel the deal - only for refinances on homesteaded residences. Such protection should be extended to all types of refinances, including purchases and second homes. This would slow down the purchase process and allow people to examine the mortgage papers they receive at closing in greater detail.
Z Explanation of Terms and Conditions. Many homeowners in trouble with their mortgages did not understand the product they were purchasing. I would propose that a “Terms/Conditions Sheet” be provided stating the amount of the mortgage, the interest rate, the escrow amounts - if any, the monthly payment, the first payment date, the term of the mortgage, the type of mortgage it is and the actual interest rate. It would have to be signed off by the borrowers after a specific review with a mortgage broker.
The closing would not take place for 24 hours until after receipt of the borrower’s confirmation by fax or e-mail by the broker. This would guarantee that the borrowers would know what mortgage they are getting.
Gov. Crist and the Florida Legislature showed fortitude in immediately addressing the insurance and tax issues. But serious action to stop foreclosures and help Florida homeowners when they finance their homes also is needed.
This will bankrupt the Florida mortgage lenders faster than anything else.
Not to mention force up down-payments.
Although I do like the steps to give the borrower time to read the paper.
But there is a problem here… people cannot afford straight intest. They need the payments of a neg-am. And what interest rate?
There is no way the mortgage companies could resell this paper at brake even. Will the state purchase it? If so… watch your taxes.
Others predicted this…
Got popcorn?
Neil
Well. There goes my income to bail out the guys with inflated assets.
I’m quiting and becoming a welfare cheat. No real point in working.
Seriously. Why wouldn’t everybody just stop paying mortgages? They would be stupid not to, no matter how much they could afford payments.
They could always start paying again after all the free parking time was up, 2-3 years later, and without penalty.
If the lenders are offered tax incentive to rewrite loans ,and keep owner-occupied buyers from going into foreclosure ,that is a form of tax bailout . I can understand why the lenders would want to rewrite the loans rather than have a foreclosure (because they have to many foreclosures).
If a pre-payment penalty waved can mean the difference between a borrower going into foreclosure or not ,I don’t know why the lender would not want to wave the penalty .
Why would the lenders rewrite the loans for specuators/flippers . These investors aren’t even close to being cash flow positive on the property and a bail out for speculators is just a waste of money .
There are only so many people that you can save from foreclosure because the very nature of the speculation purchase was based on real estate going up . These speculators never considered holding the property long term and the lenders didn’t make sure that the properties had a positive rental cash flow .
Any way you look at it the bailouts are coming out of the tax payers pocket in one form or another .
“This will bankrupt the Florida mortgage lenders faster than anything else.
Not to mention force up down-payments. ”
Your right what lender would want to lend money in Florida if they can’t foreclose? This move would collapse the Florida RE market. Bring it on!
You guys in Florida should write you papers and politictians explaining that such a move will drive out mortgage lending in Florida and make the problem worse.
Yep. Told everyone this would be one of the first, and worst, moves by the politicians because it was tried in the Great Depression. It *sounds* great for the voters, but the banks will simply cease lending to Florida. Full stop.
Those who do not learn from history are doomed to repeat it.
“Want of foresight, unwillingness to act when action would be simple and effective, lack of clear thinking, confusion of counsel until the emergency comes, until self-preservation strikes its jarring gong - these are the features which constitute the endless repetition of history.” Winston Churchill, House of Commons, May 2, 1935.
“What has once happened, will invariably happen again, when the same circumstances which combined to produce it, shall again combine the same way.” Abraham Lincoln December 26, 1839.
” (P)eople and governments never have learned anything from history, or acted on principles deduced from it.” Georg Hegel The Philosophy of History 1899.
“Human history becomes more and more a race between education and catastrophe.” H.G. Wells The Outline of History, 1921.
Told you guys we’d see this one coming.
Let’s just hope (crossing fingers and toes, of course) that the govt does not do something stupid like this.
Oh please, please, please don’t tell the me the guberment is going bail out the FB’s!!! Bad enough that big guber will rescue the big boys … but any level of guberment rescues the stupid FB’s be are all in big trouble. Where they gonna bet the $$ .. from you and me! No, no, Mr. Custer … I don’t wanna go there.
Moving companies disagree on exodus from San Diego area
By Lori Weisberg
STAFF WRITER
February 11, 2007
Moving company stats are often a good barometer of how popular an area is as a place to live, but in San Diego’s case the answer seems to depend on who’s moving your belongings.
By one measure, San Diego County is losing more people than it is attracting, while yet another set of records suggests that the county is gaining stature as a destination of choice.
A recent study of its customers by United Van Lines revealed there were more than 3,300 shipments out of the county last year compared to over 2,900 coming into the county.
http://www.signonsandiego.com/uniontrib/20070211/news_1h11moving.html
San Diego will always be a popular destination. But the stat I want to see is how many left there and would love to move back but can’t. I lived there for three decades in my youth. Still miss it but priced out (possibly forever) now.
but priced out (possibly forever) now.
——————–
Hogwash! (and I mean that in the nicest way)
We rent a very nice 4/2 SFH for just over $2K in a nice neighborhood. While it’s NOT cheap, it’s still relatively affordable.
OTOH, we’re thinking of getting out of here as well. Both Native (LA), but sick & tired of what So Cal has become — and housing prices are certainly a big part of that, along with lack of good & affordable neighborhoods.
Nevada had second highest foreclosure rate in U.S. in December
ASSOCIATED PRESS
February 11, 2007
RENO, Nev. – A new report by a California tracking firm said Nevada had the second highest foreclosure rate in the nation in December.
The report by RealtyTrac Inc. found that there was one foreclosure for every 392 households in the Silver State, second only behind Colorado. The national average was one in 1,055 homes, the report said.
In Nevada, the report also found a wide disparity between northern and southern Nevada.
According to the report, Washoe County had 32 homes, one for every 4,498 households, in some point of the foreclosure process in December, about four times better than the national average for that month.
By contrast, Clark County had 2,163 homes, one in 277 households, in the foreclosure process in December.
http://www.signonsandiego.com/uniontrib/20070211/news_1h11nevada.html
Wahoe County is Reno
Clark County is LV
Interesting.
Reno will likely never be as high as Vegas when it comes to foreclosures since the speculation was not quite as rampant and there were more equity locusts looking to actually live in the area long term. That said, speculation was a huge part of the price run-up (fraud as well), and I anticipate foreclosures in Reno to really start ramping up this year. Flippers are barely hanging on, and I have already seen some foreclosures in new developments. As prices continue to decline, more people will lose their homes. The reason being, many could not afford what they bought, and used ARM’s and the like. It is very tough to attract a buyer in Reno right now as there is lots of competition. It looks as though listings might reach an all time high this year. At current absorption rates, there is over 2 years worth of inventory in the $500k-$1000k range and we’ve not reached spring.
When a home wasn’t as much of a castle
By Adrian Higgins
THE WASHINGTON POST
February 11, 2007
I vont to be alone.
Greta Garbo said she didn’t actually speak that line as such, but the sentiment well reflects the nature of how we live in the 21st century. We want to be alone, or at least to have a zone of personal space unknown to earlier Americans.
Historian Jack Larkin has an image in his mind of a childless couple with two dogs living in a McMansion where each human and hound “has a couple of thousand square feet of space.” Compare that, he says, “to a family of 10 living in 450 square feet clustered around a chimney.
http://www.signonsandiego.com/uniontrib/20070211/news_1h11housea.html
China adds new tax to decelerate rising costs
ASSOCIATED PRESS
February 11, 2007
BEIJING – China’s government has imposed a tax on new real estate developments, adding to efforts to restrain a rapid rise in housing costs.
The tax, which takes effect Feb. 1, will be equivalent to 30 percent to 60 percent of developers’ net gain on a real estate deal, the Xinhua News Agency said. It did not give details of what types of property would be affected or how the tax would be calculated.
The tax was approved by parliament in 1993 but was not collected until now due to a recession in real estate development, according to Xinhua.
Beijing has imposed a series of measures in an effort to cool a boom in construction and bank lending that Chinese leaders worry could spark inflation or a debt crisis.
http://www.signonsandiego.com/uniontrib/20070211/news_1h11chinatax.html
“Beijing has imposed a series of measures in an effort to cool a boom in construction and bank lending that Chinese leaders worry could spark inflation or a debt crisis.”
I wonder if this plan came up during a recent visit from top US economic policymakers?
This is an indication that China has no interest in becoming the pure capitalist system that I wish it would become. Anytime government steps in to interfere with the market, unintended bad consequences follow suit. This is why I would not invest in any one country and why I also buy gold bullion.
A “pure capatalist system” is a pipe dream… Never existed and never will… There will always be market manipulators, look at the performance of the home builders over the last year for an example of manipulation here. How about the mortgage interest tax deduction?
But oligarchic market manipulation is an integral part of the “pure capitalist system,” in the way that government regulation to ensure free markets isn’t.
china has always maintained that they do not want a purely capitalist system. their goal is to have a system much like singapore where the govt has lots of control over everything.
Actually I have a lot of respect for Singapore. So maybe I’m not a pure Capitalist. Ever since that smarta$$ American youth was caned for vandalizing cars, I’m like “right on Singapore!” And to think there was a great deal of anger from moms and dads all over America. Well moms and dads, “reality bites, don’t it?” If you can’t take the punishment don’t do the crime. Sheesh!
I live in New York on the Upper West Side.
Just received a “coupon” in the mail.
Buy a condo, and get $25,000 off!
Hoo boy, Manhattan’s going down, and it’s gonna go down hard.
I’m going to have to get the goddamn thing framed!
Looks like you just detected a crack in the foundation.
HOUSING SCENE LEW SICHELMAN
U.S. mortgage system is unmatched by rest of the world
February 11, 2007
WASHINGTON – It may come as a surprise to learn that America’s homeownership rate is not nearly as high as in some other countries. Although our citizens are regarded as the “best housed” in the world, the percentage of folks owning their residences is greater in Norway, Iceland and Ireland, just to name a few.
The term “best housed” refers not to numbers or percentages but to the quality of our dwellings. The United States also has a mortgage system that is second to none. Indeed, our system of mostly fixed-rate loans funded at extremely low rates is widely envied but rarely emulated.
The main difference is that the primary U.S. mortgage market is backed by a sophisticated, well-developed secondary market in which investors throughout the globe keep our local lenders awash with cash.
http://www.signonsandiego.com/uniontrib/20070211/news_1h11sichel.html
“genius is before the fall”
My wife’s company held a retirement ceremony for a retiring long time employee. In attendance was a former employee who quit about a year and a half ago to become a RE agent and was there passing out her business card. She approached my wife and stated that her firm was going to have a seminar on how to buy foreclosed property, a big turn around for a community where property here will never go down, flat maybe, but never down. If she has the seminar I’ll be there to see to observe the spin.
Just got back from a week in Chicago (yes, I vacationed during the coldest week this winter by far out there). Anyway, some observations.
It’s condo mania for sure. I was staying in Rogers Park with a friend. TONS of condo conversions. So many for sale. But an ever growing number being put up for rent instead of sale.
Also, I could not believe the condo mania downtown. Specifically by the Navy Pier area. There used to be a golf course right downtown by Lake Shore Drive/the Chicago River. Gone. Up in it’s place? Condos for sale, sale, sale. It’s unreal.
Also, there seemed to me to be a lot of apartments for rent all over. It used to be that there were two times a year when rentals were prevalent - May and September. If you wanted to move any other times of the year, you oftentimes had a bit of a search to do. Not anymore. Take your pick! So much for rent. So much for sale. Crazy.
Oh, and, friends of mine who bought within the past few years are now struggling with higher property tax bills. One guy could absolutely not afford his home if he did not have a roommate. A sign of the times and of things to come.
For a lot of Chicago condos,
assesments+tax >= cost of renting comparable apartment.
One more roommate = one less person needing to rent or buy a property.
I thought that strange when I helped my cousin move from one apartment to another in Chicago. It seemed that nobody moved except for 2 certin times of the year, after that you are not allowed to move. Quite stange to me also, they all came with a refrig. My cousin laughed when I said in Cal we take the refrig with us.
I’m from the East Coast, and I found it strange that I had to go out and buy a refrigerator when I rented a place in LA.
I’ve lived in Rogers Park for about 10 years, and the change that has taken place over the past 3 years is surreal. I moved here so I could afford a house (vs. a condo), but the neighborhood was basically a ghetto. Suddenly, all of those apartments that couldn’t be rented for $500/mo on public aid have been converted to “luxury” condos. Now, as you said, they’re mostly all for rent, or else sitting for sale. So, here you have an apartment that could hardly be rented for $500, suddenly for rent as a “luxury residence” for $2K/mo?
People should be very careful about buying any condos in Chicago. Several of these buildings that have gone “rental” did so after some units were sold and people moved in.
One funny story. There’s this converted apartment building kitty-corner from me. It’s on Greenleaf Ave., so we’ve always referred to it as Cabrini Greenleaf (back when they were selling drugs out the 1st floor window). It converted to condos about 2 years or so ago. The realtor selling them has this pearly white Jag. When they first started selling, he told me “I’ve done VERY well”, referring to my house. I laughed. Now, 2 years later, several units are still for sale, and Jaguar Man still shows up every Sunday for the open houses.
My friend lives on Greenleaf. Sounds like the complex directly across from her. I remember when she first moved in how we’d be on the floor peeking out the window watching drug deals and loud arguments. Hoo boy! She’s very glad they’re now “luxury”…and vacant!!
Condos for sale (condos for sale)
Condos to buy (condos to buy)
For yuppies in the sky
Downpayments are “dated and quaint”
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NATION’S HOUSING KENNETH HARNEY
Zero down, zero equity a gamble in iffy market
February 11, 2007
WASHINGTON – Does anybody remember the old days when home buyers actually made sizable down payments – often 20 percent or more – when they bought their first house?
New national survey research reveals just how dated and quaint that concept has become in today’s market, thanks to rocketing home prices that have far eclipsed buyers’ incomes and savings.
From mid-2005 to mid-2006, according to a statistical sampling of a representative group of 7,548 purchasers, nearly half of all first-time buyers financed the entire transaction, obtaining mortgages in the full amount of the home price. Some 30 percent put down 10 percent or less, and 20 percent put down 5 percent or less.
The research was conducted by the National Association of Realtors, using information on home transactions supplied by Experian, a major credit and realty data firm. The median down payment of first-time purchasers, according to the study, was just 2 percent. In other words, the median-sized mortgage for first-timers represented 98 percent of the home purchase price.
The highest loan-to-value ratios for first-time buyers were in the South, where the median mortgage amount was 100 percent of the sale price. In the West, the median was 99 percent; in the Midwest, 98 percent; and in the East, 96 percent.
http://www.signonsandiego.com/uniontrib/20070211/news_1h11harney.html
I bought my first home in ‘89. I got a VA loan which allowed me to buy with nothing down.
“The highest loan-to-value ratios for first-time buyers were in the South, where the median mortgage amount was 100 percent of the sale price.”
100% was the median. Incredible.
Master Card revenue up 17%…..wow…..any correlation to the drop in MEW????? you betcha.
http://news.yahoo.com/s/ap/20070210/ap_on_bi_ge/earns_mastercard;_ylt=AkbYcHCYDGD5sIrceeEKpwmyBhIF
By JOE BEL BRUNO, AP Business Writer
Sat Feb 10, 12:27 AM ET
NEW YORK - MasterCard Inc. said Friday its fourth-quarter profit topped Wall Street expectations as consumer spending spiked, but the credit-card company warned margin growth may slow this year. The stock tumbled nearly 10 percent after hitting an all-time high in early trading.
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The Purchase-based company, which went public in May 2006, posted quarterly profit of $41 million, or 30 cents per share, compared with a loss of $53 million, or 39 cents per share, a year earlier. Excluding the impact of litigation settlements, MasterCard reported a profit of $41 million, or 31 cents per share, in the latest period.
Revenue rose 17.2 percent to $839 million from $716 million a year ago.
Results surpassed projections for profit of 17 cents per share on revenue of $826.9 million, according to analysts polled by Thomson Financial.
“We are quite pleased with our financial performance in the fourth quarter,” said President and Chief Executive Robert Selander. “We felt really good about the year, and are really confident that we are positioned well for this one.”
Selander said during a conference call with analysts that a 3 percent improvement in 2006 operating margins — spurred by higher fees charged for cross-border purchases — might be difficult to duplicate this year.
MasterCard’s operating margin rose 2.9 percent to 19.5 percent in 2006 after adjusting for special items. The company does not expect to have any significant price increases this year.
This caused investors to unload MasterCard’s stock, which has doubled this year and reached an all-time high of $118.07 in morning trading before falling $11.14, or 9.71 percent, to close at $103.60 on the New York Stock Exchange.
The quarterly results marks the second report since MasterCard went public. The company’s $2.39 billion initial public offering was used to unwind holdings by thousands of U.S. banks that controlled the company, and it now counts hedge funds like Atticus Management LLC and mutual funds like Fidelity among its biggest investors.
MasterCard does not deal with consumers directly, but issues its brand to banks and other financial institutions and makes money from processing fees when consumers use credit or debit cards. The company also makes money from payment-related services.
It processed $532 billion in global transactions, up 14 percent from the year-ago period. The company said it issued 817 million MasterCard-branded cards as of Dec. 31, up 12 percent from the year-ago period.
Also Friday, Mastercard raised its quarterly cash dividend by 66.7 percent to 15 cents per share from 9 cents per share. The dividend is payable May 10 to shareholders of record on April 9.
The results come as stronger consumer spending has bolstered results from a number of MasterCard’s biggest rivals. American Express Co. and Morgan Stanley’s Discover card division all reported better-than-expected results from their credit card business.
Meanwhile, credit card businesses bolstered results from issuers like Bank of America Corp., JPMorgan Chase & Co. and Citigroup Inc.
Visa, which operates the biggest credit card network in the U.S., said in October it plans to sell shares to the public something this year. The company hopes to streamline its operations, and insulate its member banks from legal damages it faces over antitrust and unfair-pricing claims brought by merchants.
The IPO for MasterCard raised about $650 million to fund a war chest to protect itself from legal troubles. Selander said Friday there was nothing new to report in the way of settlements.
Alot of 20% piggyback loans will end up being total losses since the declines from loaned value (with our withoud fraud) are likely to exceed 20%. It seems likely to me that a junk market will emerge for these loans based on companies whose business model will be to prevent any short sales unless thrown a bone by the 1st lienholder? How would that affect the slope of the RE decline?
Second loan is a bagholder. They have no say in it.
Perhaps I didn’t explain myself thoroughly enough. There advantages for a bank to agree to a short sale. They don’t have to go through the foreclosure process, they don’t have to market the house, and generaly, the house isn’t a vacent money sink for as long a period of time. If the FB has few other assets for the bank to try and recover the loan ballance from, and the price that the FB can get from the knife-catcher is the same that the bank can get from the knife-catcher, there’s little reason for the bank not approve a short sale and get this crap off of theri books. For these reasons, in previous RE downturns it has not been uncommon for banks to approve short sales (where they get an amount less than the loan ballance) rather than foreclose and sell the house themselves.
However, second mortgages are much more prevalent in this RE market than has been the case heretofore. Now AFIK, since the holders of the second mortgages have a lien on the house, their approval is required for a short sale. Many of them will get NOTHING if the house is foreclosed upon, because the market price would be less than amount owed on the first mortgage. Since a short sale is generally more efficient than foreclosure for the first holder, but the second holder has to approve it, there is a chance for the 2nd to leverage their ability to say no to get a percentage of the difference between the “short price” and what the 1st holder could recover by foreclosing. Just as you can still buy bonds from companies that have been nationalized based on the hope that the tiny chance that governments can be persuaded to pay on them, I suspect that a market will emerge in defaulting 2nd mortgages. Basicly, I think that the presence of all of these second mortgage holders will make forebearance and short sales more difficult because their interests are not aligned with the 1st holders. I’d bet that some junk dealers will specialize in these toxic mortgages based upon their ability to be a PITA rather than upon their underlying value.
Your idea has a lot of merit. I agree with you Jim there may be some value to be extracted from busted seconds and if there is value to be extracted a market will develop. Seems like there should already be a market for this type of service/activity.
I am surprised you have not attracted more constructive commentary from posters who are in the business. You have an excellent idea which should be developed further although I think there should already be people doing these type of workouts/asset recovery(?).
I agree, Jim, that you might be onto something.
As I understand it, the second lien holder is able to buy out the first. If they feel the first lien holder is doing something to the detriment of the second-lien holder, they might take this action.
However, taking a second lien on, say…20% of a 100% financed house is a high-risk investment, IMHO. If they didn’t see this coming, every single one of those financial “geniuses” needs to be fired (and they can hire us, instead!).
Want to borrow up to 2 million in stated income and as low as 1 percent? Go to: http://www.print2webcorp.com/news/Honolulu/Hawaiishomes/20070128/p21.asp
I think this ad be a contender of Hall of Shame.
BTW, the mortgage brokers are very happy to include their pictures in the ad.
http://activerain.com/blogsview/41979/How-to-Sell-Your
Gotta check out uber-realtor Barbara Corcoran’s blog. Her Essence of Snake Oil has posted her latest revealed wisdom, “How to sell your house in a weekend,” which has all her NAR groupie-minions falling all over themselves to tell her what an oracle she is. Alas, much like the truthful and observant child in “The Emperor’s New Clothes,” several posters from this blog have popped in to rain all over their parade. Nothing like spreading a little tough love!
Hey Barbara! Welcome!
I’m a big fan. I’m only 5′ feet tall, so I have had to have my own variation of your “pigtails”, but it usually involves a snakeskin coat, platform shoes or some other wild clothing combination. But it works for me here in Seattle.
Well Century 21 realtrons have their gold jackets, I guess the Seattle house hucksters wear snakeskin coats and platform shoes…with nothing underneath?
Maybe she was pro down around Broad and Federal in another life. Good grief.
LOL. That picture of Barbara was hilarious. She looks like some cult leader addressing her brainwashed flock - hands raised in benediction, a beautific smile as she bids them to line up for their Kool-Aid.
Here’s a sampling of the gushing adulation the cultists heap on their guru:
Barbara,
I love your ideas and appreciate your putting them on Active Rain for us.
I love your yellow book (especially the “everybody wants what everybody wants” philosophy, which I recognize parts of in these tips). This book was the first thing my broker gave me when I got my license - I’ll never forget it. I’m from a big family, too ( the 6th child of ten ), so it really was a great read on so many different levels!
Reading your posts on a regular basis is going to be a real treat for me - you’re so creative and inspirational!
Wow! Barbara Corcoran! Now this is going to be great!
Maureen
[Forgive my loud retching noises]
“Most buyers decide if they want to purchase your home within the first 8 seconds.”
Ya learn something new every day. I had no idea. And here I thought 8 seconds was just for bull-riding. Martha, forget about bakin’ them cookies — they left their engine running.
Smells like 1990 spirit…
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US slowdown looms as groups miss targets
By Francesco Guerrera in New York
Published: February 11 2007 22:04 | Last updated: February 11 2007 22:04
The percentage of US companies failing to meet Wall Street’s earnings expectations has reached the highest level in more than two years, fuelling fears that corporate America’s record run of profit growth will come to an abrupt end.
Concerns of a slowdown in corporate profitability – one of the key reasons for the stock market’s record-breaking streak – have been heightened by companies’ increasingly bearish outlook on business prospects.
https://registration.ft.com/registration/barrier?referer=http://www.ft.com/home/us&location=http%3A//www.ft.com/cms/s/c534378c-ba00-11db-89c8-0000779e2340.html
FOX company is disturbed that CNBC is not “corporate friendly” and a “bit negative and overly bearish”; so by the end of this year they hope to launch their own financial program to compete with CNBC.
Love this take on it: http://www.minyanville.com/articles/index.php?a=12131
(scroll down to point # 5) LMAO