“In The Shadow Of The Prosperous Market”
A housing report from the Arizona Republic. “One set of victims bought a house as an investment, only to realize that it belonged to someone else. Another had a lender knock on the door and immediately foreclose on the home, leaving the family on the street. They’re just a few examples of how a Valley mortgage-fraud ring with ties to a former Goodyear real estate agent left seven families in the lurch.”
“This notion of stealing someone’s house and borrowing money against it, something this blatant is new to me,’ said Ted Noyes, who prosecuted the case for the Arizona Attorney General’s Office.”
“‘This mortgage-fraud case had a lot of impact on a lot of families,’ said James Todak, a special agent for HUD. ‘They were defrauded, and we investigated the suspects aggressively.’”
“With the cooling real estate market in the Valley, Todak expects that HUD will get slammed with more bank- and mortgage-fraud cases. Technically, a crime doesn’t occur until a bank suffers a loss. In the hot housing market, people could turn around and sell their properties for a profit to pay off loans. But in the shadow of the prosperous market, that option isn’t as readily available, and banks end up foreclosing.”
“And that’s when cases of fraud start bubbling to the surface. ‘We expect losses to go through the roof,’ Todak said of cases in the dwindling market.”
“‘The best thing a person can do is be proactive and monitor their holdings with the Recorder’s Office,’ he said. ‘Oftentimes, these crimes prey upon people who are already in financial trouble. But when something sounds too good to be true, it usually is.’”
The Denver Post from Colorado. “To understand what’s happening to the mortgage industry, take a look at Douglas County. One of the country’s most prosperous communities now has a foreclosure rate approaching what its former public trustee calls a ‘tipping point.’”
“In 2006, foreclosures as a percentage of population were higher than any other year since 1991, said Jack Arrowsmith, Douglas’ former public trustee and its current clerk and recorder.”
“At a recent foreclosure sale, Douglas officials offered 32 residential properties for auction. According to Arrowsmith, nobody bid on 31 of them. That’s why mortgage companies making risky loans are now closing by the hundreds.”
“So on Tuesday, when a Federal Reserve governor expressed shock at the quick national collapse of the risky lending market, she sounded vaguely like Capt. Reneau in ‘Casablanca.’”
“The explanation for crazy lending has always been crazy. ‘It is no longer community banks making mortgage loans,’ Englewood lawyer Robert Hopp told a recent foreclosure seminar at the Colorado Bar Association. Out-of-town lenders provide mortgage money for a fee. Risky loans are quickly packaged with other mortgages and sold as securities for a fee. Investors buy the mortgage-backed securities expecting a fat return.”
“Everybody gets paid. Risks get diluted in big loan portfolios. Those who can’t afford houses suddenly can. It all sounds too good to be true because it is. Now, the only people capable of stopping the madness, the money grubbers, are getting a clue.”
“Arrowsmith lived through the real estate bust of 1988, when home values actually declined. It was ugly. ‘It’s a positive thing that lenders are starting to review the process,’ Arrowsmith said of the risky-loan meltdown. ‘But it’s going to take time. In the long term, lenders are going to require borrowers to put some money into their property.’”
“Sure, that thins the homebuying herd, but it forces folks back to the reality, and responsibility, of homeownership.”
“The risky-lending boom of the early 21st century was a Ponzi scheme. It depended on constant growth in real estate values. For lenders, growth meant collateral would always be worth more than the money tied up in it.”
“According to Hopp and Arrowsmith, some lenders made loans worth up to 20 percent more than the assessed value of homes. These lenders believed appreciation would make up for negative equity. When the market stagnated and borrowers couldn’t keep up with mortgage payments, negative equity and zero-down lenders ended up with a bunch of houses worth less than the amount of money owed on them.”
“When that happens, you get foreclosure auctions where only one house in 32 is worth a bid.”
‘Pima County homeowners next week will begin receiving property assessment notices, the basis for property taxes. They can expect valuation increases of up to 25 percent, Assessor Bill Staples says. It’s a lingering hangover from the red-hot real estate market of a year or two ago.’
‘Staples said seniors can get some relief from the escalating values - and taxes - on their homes by applying for a freeze on the full cash value of their homes through his office. The program allows for valuation freezes for three years. Staples urged that seniors who are applying for a freeze make sure to check to see that the 2008 value is greater than the 2007 value.’
‘If that is not the case, he continued, senior homeowners could inadvertently freeze their home’s value at the higher value of those years.’
“So on Tuesday, when a Federal Reserve governor expressed shock at the quick national collapse of the risky lending market, she sounded vaguely like Capt. Reneau in ‘Casablanca.’”
Got blog?
I’m sure they’re all shocked, shocked!.. at what’s happening.
Didn’t Capt. Reneau also say, ” I”ll pick up my winnings at the door?”
no no…
He said “I’m shocked, shocked, to find gambling in this establishment.”
Waiter: “Your winnings sir.”
Capt. Reneau: “Thank you” (pockets envelope while waving hands to signal his minions to shut the place down).
The gig is almost up… not quite.
Zzzzzz
I’ll wait for June before expecting real change.
Got popcorn?
Neil
Susan Bies is covered under my “Don’t take advice from anyone who looks like they can’t win a test of wills against a donut” rule.
A real grazer, huh?
Lots of junk in the trunk. What my husband calls, “a bikini whale.”
That’s part of the problem these days. Most people show things they shouldn’t.
waahoo -
is she covered under your other rule about not taking advice?
you knowwhat i’m talkinabout
Normally I don’t apply that rule to women as, judging from the type of guys I hang around, not getting laid is a credit to them.
Very good.
(want to LMAO but can’t cause i’m at work)
That is so funny, I like that.
We on this blog have pilloried the establishment with this very scene from Casablanca for a few years now. I am amazed at how closely this whole train wreck is playing out against the predictions of so many wise folks on this blog. Jolly Good Job lads and lasses!!!!
David Lereah has been shot! … Round up the usual suspects. (us)
— nah, no such luck.
Torches and Pitchforks!
Two houses for sale near me in the 300+ range here on West coast of FLA. One had a realtors® sign in front for about six months now replaced with a “For Sale By Owner” sign. A block and a half down the street, the FISBO sign (up for about 3 months) has been replaced by a realtor’s® sign.
What is the market trying to tell us here?
It’s nearly impossible to sell, and break even.
Also telling us that the MLS is underreporting.
“Arrowsmith lived through the real estate bust of 1988, when home values actually declined.”
What?!!!! I thought homes never went down!!!!!!!
I love that usage “actually declined,” as if it were something rare. By my estimation, house values “actually declined” for 5 to 7 years in a row not once but twice in the past 25 years, at least in SoCal. Which is to say, somewhere between 40% and 60% of each of the past 25 years had a housing price decline. More if you count real declines as opposed to nominal.
that HUD will get slammed ”
you mean the taxpayer will get slammed
HUD’s f*cked.
They turned over underwriting to the mortgage companies and they same time the dissolved the fee panel rotational appraiser system.
Throw in the hand picked rubber stamper appraisers to fudge the value and physical qualification certification sheet and you got
taxpayers on the hook for billions of $$$ backed by run down depreciated, functional obsolete POS houses for collateral.
An H-bomb ready to go!
“Technically, a crime doesn’t occur until a bank suffers a loss.”
Classic.
“Out-of-town lenders provide mortgage money for a fee. Risky loans are quickly packaged with other mortgages and sold as securities for a fee. Investors buy the mortgage-backed securities expecting a fat return.””
Well, actually admitting the problem existed is the first step. So I am glad to read that.
And we are now seeing mortgage companies cease to exist. So that is “good” too.
But how come we don’t hear from the major Wall Street banks on their involvement ? And what of the bond buyers ? Not a peep. Hmmm…
For instance, I think Lehman was behind MLN. Now MLN ceases to exit, but Lehman doesn’t take a hit ? I don’t get it !
The chain goes like this. Home owner -> mortgage co -> securitizing bank -> bondholder.
We’ve heard all about the home owner and the mortgage Co, but nothing about the banks that bundled the mortgage and sold them to the bondholder, nor the bondholders. I guess we heard about GMAC and HSBC, but surely the WALL STREET banks are involved in this somehow ?
I think there are some big shoes left to drop before this story is done. After all, there was just about no spread between the Fed rate and the mortgage rates and now the defaults are rolling in, so SOMEONE SOMEWHERE must be taking a big hit ! After all, the investment chain is going after the mortgage cos for losses. But as we see the mortgage cos have no assets ! So sooner or later the investment banks are going to get dragged into this.
I think this is just the tip of the iceberg. As we’ve seen, the economists and country leaders are VERY VERY poor at understanding/forecasting this situation and the standard action is to deny, deny, deny.
The credit tightening is going to kill the resale market too. Nobody talks about that either. Its like they think they can tighten credit and not affect the current prices. When you remove 20-30% of the buyers, especially the first time and speculative buyers form the market, it will drive the prices down even further.
I predict house prices will be down 20% by the end of 2007 and that won’t be the end of it, it will keep cascading lower and lower. Tight credit -> lower prices -> job losses -> more defaults -> more inventory -> lower prices -> greater bank losses -> tighter credit, wash, rinse, repeat.
I figure the mortgage rate needs to be fed rate + 4% to have enough risk premium and return for the players. That would put the mortgage rate at 9.25%. Add to that 25% down, because in all falling market, that ain’t nothing for a deposit, full doc, 20 years max term and houses will be worth HALF what they are before this is all done.
teewdle: excellent post
Good points.
Thanks !
Seconded!
“When you remove 20-30% of the buyers, especially the first time and speculative buyers form the market, it will drive the prices down even further.”
Not only will the pool of buyers be smaller, but so will what they will be able to pay to purchase a home under tighter guidelines and higher interest rates.
Bring it on.
Here is the hidden second story of the subprime debacle -the simple question I’ve yet to see answered: Who is going to buy all of these houses?
Subprime homeowners have driven up houses by taking on risky loans - so cautious/prudent buyers are out.
Investors dont’ see any good profit/ flip potential -so they are out.
Subprime mortgage holders themselves likely can’t afford to buy another home (and may not for the rest of their debt-saddled lives) - so they are out.
So really, now, who is buying?
“So really, now, who is buying?”
Those who still believe “real estate always goes up”. Talk to Diane, she’ll give you the skinny.
Not me. It’s bad enough that there are thousands of overpriced houses that will take years to fill. But they just had to be butt-ugly to look at and poorly built on top of it. And the less said about “attached product” the better. All the hallmarks of being profit machines rather than homes.
Nice post. Brought to mind a question, though. I know that the Wall Street banks (Merrill, GS, et al.) can force the mortgage companies to buy back loans if there are early payment defaults. But who is holding the bag if the mortgage company is BK (a al Ownit)? Are the bondholders out? Or can the bondholders force the Wall Street bank to buy these back? Is there some CDS that is supposed to pick up the loss (and, of course, if so, then that brings in the possibility of the CDS issuer going BK). Does anyone know? I’m just curious. TIA.
“Or can the bondholders force the Wall Street bank to buy these back? Is there some CDS that is supposed to pick up the loss (and, of course, if so, then that brings in the possibility of the CDS issuer going BK). Does anyone know? I’m just curious. TIA.”
I’m very curious too ! How can the banks that wrapped these things up and sold them (for a fee) not be involved somehow ? And yet, not a word from Wall Street. Hmmm…
I think Wall Street saw this coming. Thats why Lehman used small companies to sell the mortgages and pass the profit back to them. Pass just the profits and not the liabilities, or so they hope.
Like I said, I think there is a lot more coming on this topic.
tweedle
I’ve saying the same thing for the last 6 mos - that the true rates if all the risk that’s out there is built in would be a 30 year fixed at 8-10%. I think all those on the sidelines should take this into account. Trying to time the exact bottom is difficult. When the music stops it will not take the mortgage industry long to feed on the carcasses of the dead and start charging rates that will make them money. Renters who are contemplating buying need to ask themselves:
Would I rather buy a $500k house for $400k and pay $1,700 per month interest and ride out a possible $100k loss
or would I like to wait and buy right at the bottom and get a $500k house for $300k and pay $2,500 interest risking the chance that I will pay $400k for the house and $3,300 a month interest?
I’m definitely not bullish on housing but someone who bought now at a 20% discount at a fixed 6.5% rate and is planning to stay 10 years could look pretty good if somehow housing levels off and rate begin to reflect the risk premium.
And lo the question again — who is going to buy these houses? If interest rates go up (and that is a fairly huge ‘if’ the way the fed is behaving)- that will dry the buying pool into a dustbowl–I think prices will come down to more than compensate for any rate increases. If you can buy for longterm you can refi when rates go down. A ridiculously high price is forever.
Where the heck are you getting these numbers? I won’t even bother to challenge them. What I will say is what every banker worth a bucket of warm spit knows: a mortgage for a PRIMARY residence with a 20% cash downpayment and monthly PITI within long-established income ratios of 1/3 or less is THE SAFEST LOAN anyone can make. The “risk premium” need not be high. It’s all the garbage loans that are the problem, not the traditionally underwritten stuff that goes south.
Besides, with house prices so out of fundamental whack, an interest rate spike will likely aggravate over-correction in sales prices — they will tank evern further than is justified.
Sounds to me like you’re saying, “Buy now, or…”
Wrong crowd, Buster Brown.
I am NOT saying buy now or be priced out.
9.25% ? I get that from 4% on top of the fed rate. Why 4% ? Because the mortgage company has to make something and after the all the upfront kickbacks are eliminated due to the bad load practices it incites, they will get a cut of the backend payments, thus giving them incentive to sell to good credit risks. The banks need to make something. And the bondholders need to make something. That is a lot of parties.
What skews all this is how cheap money has been for the last 8 years and how comfortable everyone has become with risk ! Nobody even realizes it anymore. The homeowner is paying 6.5% interest. The current Fed rate is 5.25%. That is only a 125 basis point spread ! Man, that isn’t much. One recession with some job losses and the bond holders are wiped out !
I would rather pay a lower price and higher interest than the other way around.
You can always refi when the rates drop - you can be sure they will drop because of the recession that will come out of this
You can’t change the price of a house once you have already bought it if you overpaid for it.
Excellent comment. years ago I read a paper on the coming real estate bubble which outlined the entire scenario. The address is
http://realestate.wharton.upenn.edu/newsletter/bubbles.pdf
Well right. Jocularly I refer to myself on this blog as a Real Lender, but of course 9.25% is just about what I charge. Yesterday I agreed to make a new loan to a previous customer, and figured I would make the customer happy by charging 9.6% instead of the 10% I charged that same customer before. The customer asked for 8%, I said no. The customer asked why, I said I could get 8% on publicly traded securities (ok, I exaggerated: i’m not likely to buy any such) …I said 9.3%, the customer said 9%, I said OK because the customer always had a perfect payment record. I am just writing in support of tweedle’s idea.
OT… paladin… how’s the site coming along?
“Sure, that thins the homebuying herd, but it forces folks back to the reality, and responsibility, of homeownership.”
It will also probably force home values back in line with income if people actually have to be able to afford their home.
First cracks in the Portland, OR. facade (remember, it’s different here):
http://www.oregonlive.com/business/oregonian/index.ssf?/base/business/1172031917260190.xml&coll=7
Similar here in Ashland, OR. Feels like we’re about a year behind California, but starting the slow downward slide with our first YOY median price decline in January. Many people here still believe it’s different here. My guess is that tune will change by fall.
AshlandRenter,
I am glad to hear it! I am hoping to move to Ashland sometime in 2008, I see lots of places sitting on the MLS, small price reductions, but the prices are still insane given local income levels. I think the out-of-state money is slowing down, so the Spring selling season should be interesting.
I saw that in the paper today. In Tualatin, things are selling but for several percent less than asking. That is progress. I agree that we are about a year behind the rest of the west coast around here.
But when something sounds too good to be true, it usually is.
Yes, things like double-digit appreciation for 5-6 years without a sharp correction afterward.
This is a riot. Someone wants lenders to lend to people with bad or no credit, no income, no assets. WTF?????
http://dallas.craigslist.org/wan/282369242.html
Don’t you just have a visual of this clown?
I do.
Eugene Levy from “Best in Show”
As a realtor here in the valley, I can say upfront that the market has a long way to go down. I keep seeing new listing come up and they are priced like it is still 2005. With the subprime lenders biting the dust, we have literally taken the little guy and most investors out of the game. This leaves normal home buyers that can not afford these prices.
I just listed a home at over 800k for 2600 ft. It is 50k under the nearest listing in the same neighborhood and in my opinion, 100k still too high. When will these sellers get it?
Even $700K for 2600sf is too high. About $200K is the most I would pay for a house on my salary of $65K. I think I am above the median salary
But should someone on a median income expect to live in a 2,600 sq ft house?
I am curious, because a median income person in the UK might expect a house of half that size or less if they have a family or less than 1/3rd of the size if they are buying a city centre condo .
No asset/no income/no credit loans are best supplied by no brains/no morals lenders.
HIC
That clown is a little late to the party. The real travesty is that lenders were actually making NINA loans to people with bad credit.
just dil 1800 cashcall
Hi Txchick,
I clicked on link and that posting has been flagged on Craigslist now. I guess that means that it was deemed inappropriate. What did it say?
TxChick,
Please cut & paste these gems, as they’re almost always flagged and removed before most of us get to see them.
Douglas County is my neighborhood, and I can report that real estate is very ugly here. Our local paper lists the foreclosures weekly, and the public notice section is now ten(!) pages long. There are three houses in some stage of foreclosure on my street alone. It’s depressing to live here. Yes, there are some deals to be had, but they are few and far between, just as the article suggests.
I am at a total loss for what to do about purchasing a house. We are renting and have the cash to buy. We plan to stay for the long haul, but we need a stable neighborhood in which to plant roots, something sorely lacking in Douglas County right now.
Just wait, that is my recommendation. This is really going to get ugly.
Any of you Colorado folks can comment on the Durango area and what is happening with the RE market there? Thanks in advance
Not familiar with Durango. Sorry. Anybody else?
I’m just north of you redhead. My suggestion . . . get in touch with a title company and ask for the weekly foreclosure and notice of default lists. They can provide it in an e-mail. It takes some work, gotta weed through the POS properties, but you can find a deal that way in pretty much any price range. Buy it from a bank - no emotional attachment. Up here, except for the big builders, sellers are still stubborn and not lowering prices. Discounts through a bank are about 25% or more right now. Since we haven’t had the big run-up like the coasts, you would buy at less than cost. Not great appreciation opportunity in short run, but can find a decent home. Good luck!
You have to wait. The simple fact that 31 of 32 homes did not even get a bid (much less get sold) will put the nitwits on notice that the REO market can’t overprice homes, either. Even if the performance is 1000% better at the next auction, owners (aka banks and MBS holders) of these propereties will start to panic.
Wait, wait, then wait some more. If you can’t buy the house you want with 20% down and at a price 2x to 3.5x (some 3x) MAX, you are probably overpaying. If you wait long enough and look hard enough you can probably even do better.
Those were the rules for a long time. The debt load is still the debt load. Just because you can get the home with a toxic loan doen not mean you should. It’s not really different this time.
Who cares if you have the cash to buy now? Wait and rent until the market stabilizes along the bottom. Over those next 3 to 5 years while you are waiting, put that money in a safe, liquid investment and only pull it out when buying is justified. The downside risk is too great to purchase a house now, especially when renting is relatively cheap.
If you want a stable neighborhood, rent a home in an area with a lot of horses.
“If you want a stable neighborhood, rent a home in an area with a lot of horses.”
Very funny, and quite possible out here, but that’s not my chosen lifestyle.
There are two types of people here in Douglas county: the first says, “If I wanted to know my neighbors, I’d live in the city” and the second would likes to have a relationship with the people next door.
I have small children, a gregarious personality, and a strong desire to feel rooted. Before you start knocking that female drive for a home, please understand that my husband and I have more than enough money to meet our needs. I don’t need to park our funds in a CD, because they’re already there. We have an entirely sufficient retirement fund, college expenses for the kids, jobs we love, and enough cash to buy a house outright. We also plan to stay for the long-haul because we relocated to be near family.
Our rental agreement expires later this year, and the owner is not willing to renew, meaning more upheaval for our family. We are in a great position to purchase a house, and that’s what we would like to do. Unfortunately, I don’t feel comfortable buying in a place where people are moving in and out all the time because of the foreclosure crisis. It’s unnerving & depressing.
AH….That’s a different story. This has less to do with prices than stability. I can see how it would be unnerving.
This is where a good real estate agent would help. If you buy in a more settled area there would be less turn over. Buying in a new development could be very risky as the amount of turn over will be high. When all this settles down the people who buy at the bottom will be the investors, anbd that could indicate renters in your future.
A realtor could find a neighborhood where turn over has not been so high. This could mean that future turnover will also be low.
Don’t bet on it. This idiocy has been everywhere. And realtors are only interested in one thing - and that’s not your future peace and quiet.
Really, nobody has any idea how bad things can get in any given area. Given that, what’s the point of buying now? Wait for the dust to settle. It’s a lot easier to move out of a bad neighborhood when you are just renting.
If you have more money than you need, buy a house for cash and if the neighborhood turns to crap, sell for a 25%-40% loss. If you can’t do that, you don’t have more money than you need, and you need to come back to earth.
Right here on earth with you, anachronist. I wasn’t exaggerating. Are we rich? No. Very comfortable? Yes. We live well within our means and always have. And, the fact is, we could take a loss of that magnitude, but I don’t want to because it means up-rooting my family again.
I think that sometimes the people on this blog tend to focus only on the financial aspect of the housing debacle, while neglecting to address the emotional component of so much instability in the communities wracked by foreclosures.
It is not pleasant living in a place where your neighbors are moving in and out all the time. It’s emotionally wrenching to watch your child’s new best friend pack up her stuff because her parents have simply given up trying to hang onto their house.
You can make light of it all you like, but the fact is that it’s miserable for people on both side of the crisis.
Okay, even I think I sound whiny. Sorry. Get on with the movie.
I hear what you’re saying, Redhead. I grew up in the same house, in a great neighborhood, with the same people, basically, from the time we were infants. Lots of stability and a sense of place. Neighbors who really knew each other and acted like neighbors. That has been disappearing for years, given our rootless, mobile lifestyles and people hunkering down in front of their TV or PC. I would like for my kids to have the same kinds of childhood experiences that I did. You’re right, the financial impact of the bubble is only one consequence, and not by any means the most profound.
Redhead,
We’re in a similar boat. We’re content to rent for now, and like our house (owned by a CA “invester” who bought at the peak of the market here in Colorado Springs) and neighbors. I’d prefer to live in an older, established neighborhood with long-term, stable, sociable residents and plenty of families with kids (decent, preferably).
Our lease ends in July, and I’m not sure what the owners intentions are - if he’ll want to sell, or will want another year-long lease. We’ve already had one rental sold out from underneath us, and are really hoping to stay in this one until we’re ready to buy. My wife has been remarkably patient so far, but will not be too keen on moving to yet another rental. Like you, though, I am anxious to see how all of this is going to play out - there could be dramatic changes for the worse in many neighborhoods due to foreclosures, rentals, and trying times that bring out the worst in people. I want to have a good sense of how stable and liveable that neighborhood is going to be, before I pull the trigger and buy (at some point in late 2007 or 2008, ideally).
Wow. You’re right down the road from us, Sammy.
I’m glad you understand what I was trying to get across despite my whiny tone. Right now, we’re in Castle Rock, and we need to stay here because of my spouse’s commute; he splits his time between the Springs & Denver. I like Castle Rock, but it’s not a particularly stable community. There’s too much new construction from builders who were willing to give money to unqualified buyers. I feel like we live in the middle of foreclosure central.
None of our neighbors seem to be in it for the long haul, and worse, they don’t appear to want or need to develop social ties. It’s sad and not at all the kind of childhood I had in the midwest. I always felt connected to my neighbors. We were a very tight-knit group, and I wanted that for my kids, too.
I also wait anxiously to see what will happen. My kids are growing fast, and I worry that they’re suffering because I’m hesitant to settle into long-term housing. The upheaval of moving to another rental, only to relocate again after prices stabilize wouldn’t be good for any of us. And, so I feel stuck between a rock and hard place. But, now that you’ve spoken up, at least I know I’m not along in my quandary.
“The risky-lending boom of the early 21st century was a Ponzi scheme. It depended on constant growth in real estate values.”
About sums the last 5 years up. And that’s describing the lenders - those that presumably know better than to expect AND BET ON appreciation. Except, what it really meant was not only did they have to count on appreciation but they had to make stupid-ass loans faster, cheaper and even riskier than the next lender or they would go belly-up.
Does anyone know anything about the European RE markets? Prices there are just as insane in many places, if not more so. How are those prices sustained? We have relatives in Bucharest, Romania and many decent apartments there can cost anywhere from 80-500k euros. The average Romanian household makes less than $500/month. They live in depressing communist era shoe boxes that they bought back in the early 90’s when RE was dirt cheap.
How are those prices sustained?
Idiot buyers from Western Europe, especially the British. Don’t worry, they are going to take it in the shorts just as they are taking it right now in Florida.
End result is that Brits are going to lose their retirement nest eggs creating construction jobs and lining local pockets in Florida, Romania, etc.
Absolutely correct.
Regards,
Loafer (a Brit)
I was wondering because those prices almost made California look cheap when you compare cost of living and what-not. Is there talk anywhere in Europe of a bubble?
nhz eloquently puts forward the Netherlands position on this board.
The UK one is more confused, but prices are crazy. I hope they stay that way for another 3 weeks, by which time I will have sold my house and moved into rented!
France and Spain are decellerating rapidly. Eastern Europe has no foundations.
Loafer
“These lenders believed appreciation would make up for negative equity. When the market stagnated and borrowers couldn’t keep up with mortgage payments, negative equity and zero-down lenders ended up with a bunch of houses worth less than the amount of money owed on them…At a recent foreclosure sale, Douglas officials offered 32 residential properties for auction. According to Arrowsmith, nobody bid on 31 of them.”
HA, Serves these greedy b@astards right! They could have cared less about their “clients”. All they cared about was squeezing every last penny out of every FB they could. I hope these banks get cornholed bigtime. And NO TAXPAYER BAILOUTS FOR THESE PIGS! I will write letters until my fingers are raw.
It will take much, much more time for prices to go back down than to go up. Plenty of psychological research shows this.
The standard example of a framing problem, for example, is the ‘lives saved, lives lost’ question, which offers a rational choice between two public-health programs proposed to deal with an epidemic that is threatening 600 lives in Florida:
Program A will save 200 lives,
Program B has 33% chance of saving all 600 lives and a 66% chance of saving none.
[ In this version, most people prefer the program that will save 200 lives]
(…) In the second version:
Program A will result in 400 deaths
Or Program B has a 66% chance of 600 deaths and a 33% chance of no deaths.
In this formulation most people prefer the gamble. If the same respondents are given the two problems on separate occasions, many give incompatible responses. When confronted with their inconsistency, people are quite embarrassed. They are also quite helpless to resolve the inconsistency, because there are no moral intuitions to guide a choice between different sizes of a surviving population.
Loss aversion is manifest in the extraordinary reluctance to accept bad news. Take the example of the owner of a bottle of old wine, who would refuse to sell it for $200 but would not pay as much as $100 to replace it if it broke… giving up is weighted more than getting it, by loss aversion. Mental accounting describes how people violate rationality by failing to maintain a comprehensive view of outcomes, and by failing to treat money as fungible or interchangeable. It’s about how people segregate their decisions into separate accounts, then struggle to keep each of these accounts in the black. Another example is the couple who drove through a blizzard to a basketball game because they had already paid for the tickets, though they would have stayed at home if the tickets had been free. Or a person who comes to the theater realizes that he has lost his ticket (in one version), or an amount of cash equal to the ticket value (in another version). People report that they would be very likely still to buy a ticket if they had lost the cash, presumably because the loss has been charged to general revenue. On the other hand, they describe themselves as quite likely to go home if they have lost an already purchased ticket, presumably because they do not want to pay twice to see the same show. Again, loss aversion strikes. All this to say that the ‘denial’ phase will last very long indeed, and especially with HUGE amounts of money involved.
Which is why most house prices in FLA, CA or NYC have hardly decreased significantly after Fall 2005. We will be in a down market for a long time to come, esp. in the 500k + real estate which has the biggest glut of all.
I agree with your analysis that people will try to avoid losses. However, the market may very well change without them. For while the average FB will do whatever they can to avoid the loss, neither the HBs nor banks are so emotionally tied (and banks have the fear of regulators haranguing them if they keep REO on their books too long). Prices are set at the margins, so only those transactions that actually close will determine what the market value is. If the FBs choose to dig their heels in, then the REO and builders will set the price with their sales. At some point, certain people are forced to sell (e.g., divorce, death, job transfer, etc.), and these people will either sell at the market price or they will hold on as long as their cash flow allows (and, when they run out of cash, then it will go to REO). Because of the number of loans that will reset to higher payments over the next several years, I think that this downturn will happen faster than the previous ones, as more folks will be forced to sell and more properties will end up REO.
I agree, Waiting. Things are already snowballing.
I wonder how the hold outs will feel paying a 700K mortgage on a property now worth 450K ? They have already lost. Will they want to lose more each month paying the larger mortgage? I bet they try and buy the 450K house and then walk from the 700K house. Thats what many did last time in Cali 1990-1995. Can they do it this time?
great post eric
Thirty-two houses in an auction and only one of them prompted a bid? Guess it wasn’t an AUCTION auction. I would’ve bid at least a dollar for any one of those 31 unwanted houses.
yeah, no kidding. although the prospect of property taxes did give me pause. covering taxes with rental income … now there’s a sign of the new millennium.
Was it that only one prompted a bid, or that there was only one bid above the reserve price? Reading about so many home auctions where little or nothing sells because the reserve prices are too high, I wonder whether we will go through a period where attendance at auctions plunges because potential buyers conclude it’s a waste of time to go?