“Buyers Have More Advantage In This Market”
The Voice of San Diego reports from California. “The number of San Diego County homes in some level of foreclosure activity reached 1,150 last month, according to RealtyTrac. That’s up 20 percent from January 2006 and up more than 240 percent from the first month of 2005. But even as the market has slowed, the popularity of risky loans has spread. New data for San Diego County reveals that 67 percent of loans made in the first 11 months of 2006 were interest-only or negatively amortized.”
“Of that 67 percent, 30 percent were negative-amortization loans, a threefold increase since January 2004 and 30-fold jump since January 2003, according to FirstAmerican Loan Performance.”
“Last week, a San Diego-based subprime lender, Accredited Home Lenders, joined the ranks of companies vowing to tighten standards after reports of significant losses last quarter. Rick Sharga of RealtyTrac said he’s noticed the link between the lenders’ stricter regulations and the rate of foreclosure activity. ‘I think the two go hand-in-hand,’ Sharga said.”
“Now, home values have stopped appreciating and pricing in some areas has leveled or even declined. Last month, the median sale price for a home in San Diego County was 5.6 percent lower, nearly $30,000, than the $500,000 price logged in January 2006, according to DataQuick.”
“In a report published in December, the Center for Responsible Lending stated that the default rate for subprime loans made between 1998 and 2001 was 3.2 percent in San Diego County. But for the nearly 5,000 such loans originating in 2006, the center predicts that 21.4 percent are headed for default.”
“‘There are some fundamental flaws in the underwriting process that are coming back to haunt lenders,’ the centers’ Paul Leonard said. ‘The lenders seemed to count on appreciation rather than the people’s actual income.’”
“Since 2001, according to the San Diego Association of Governments, local population rose 6.7 percent while the housing stock grew by 6.1 percent. This is hardly crisis material to begin with, but the numbers are even less alarming when you consider that virtually all the disparity between population and housing supply occurred from 2001 to 2002.”
“Between 2002 and 2006, population and housing supply both grew by the same amount, 4.8 percent. During this same period San Diego single family home prices rose 74 percent.”
The Union Tribune. “Mortgage professionals who are struggling with a national spike in residential foreclosure rates were warned yesterday to expect more of the same in 2007. ‘I personally think we are at the beginning of this cycle, mortgage attorney Daniel D. Phelan said. ‘It is going to get worse before it gets better.’”
“Diane Mitchell, an attorney from Salt Lake City who spoke at the conference, said numerous foreclosure filings come from loans that were originated in 2006, when home prices had peaked in many markets. Some borrowers now find that their properties are worth less than they paid for them.”
“‘They got in at the top of the deal and didn’t get out quick enough,’ Mitchell said.”
The San Diego Daily Transcript. “Real-estate analysts, economists and housing industry leaders agree the market is down. The decline in sales of 10 or more units intended for condo conversion was precipitous: 26 sales in 2006, a 75 percent decrease from the 102 sales in 2005 intended for condo conversion.”
“In the second half of 2006, there were only four reported sales of apartment properties (10 or more units) intended for condo conversion, compared with 47 sales in the second half of 2005. The average price paid per condo-conversion unit peaked in the first quarter 2006 at $210,000, and plummeted 37 percent during the rest of the year down to $133,000 in the fourth quarter.”
“There is so much stagnant converted inventory already that the premium for condo-mapped apartments is gone unless they are exceptionally desirable from a retail-marketing standpoint. Developers who entered the fray late in the season prepared to reap their share of profits are now scrambling to stay afloat.”
The Sacramento Bee. “Born during the Great Depression, the 20 percent down payment traditionally used to buy a house has now joined $1.50 gasoline as ancient history. More than 1 in 5 California homebuyers now finance every cent of their home purchase, says the California Association of Realtors. Seven years ago it was 4.5 percent.”
“‘Frankly, I didn’t realize it was that easy to do,’ says Doug Self, who used 100 percent financing last year to buy a house in Citrus Heights.”
“‘Realistically, if a typical house is going for $400,000, just to do a 10 percent payment is $40,000,’ he says. ‘How many people are going to scrape together $40,000 in a reasonable amount of time? That’s three years of socking away a grand a month and not having anything go wrong. That’s just not realistic.’”
From Bloomberg. “Luxury home prices in California fell for the first time in two years as potential buyers waited for prices to fall and fewer sellers received multiple offers, according to a survey by San Francisco-based First Republic Bank.”
“‘The decline in values is due to concerns among buyers about the direction of the market,’ Katherine August-deWilde, chief operating officer of First Republic.”
“Maxine Golden, a broker in Newport Beach, said a client last year listed her three-bedroom Irvine townhouse for $1.25 million. The woman received several offers below the asking price before taking the home off the market in November. She listed it again last month for $950,000 and the property sold within a week, Golden said.”
“‘Buyers stayed away and sellers pulled their homes and said they’d put them out in the spring,’ Golden said.”
“Bill McKeon, a Marin County real estate agent, noted that potential home buyers are ‘pickier because they have more advantage in this market. It’s been a year of correction anyway, and I believe that November and December were two of the slowest months we had all year,’ he said.”
“‘North of $12 million to $15 million, there are many houses that sit on the market for two years and end up selling for 30 percent less than the asking price,’ said Steven Grothelf, a real estate broker in San Francisco.”
From Inman News. “Leslie Appleton-Young, chief economist for the California Association of Realtors, said many buyers in Los Angeles County ‘were underwater’ with their loan payments in 1992 but managed to find a way to stay in the home. Last year, when home prices softened, many potential buyers lost the ‘psychological impetus’ to get into the market.”
“‘During the boom, houses in some neighborhoods were going up 20 percent,’ Appleton-Young said. ‘Consumers could not afford not to buy. But when that that appreciation factor goes away, psychologically they are not in the same place.’”
“New data for San Diego County reveals that 67 percent of loans made in the first 11 months of 2006 were interest-only or negatively amortized. Of that 67 percent, 30 percent were negative-amortization loans, a threefold increase since January 2004 and 30-fold jump since January 2003, according to FirstAmerican Loan Performance.”
Ahem…
What amazes me is that, now that all of this is front-page news and no longer confined to bear blogs, there are still clowns offering no-doc, no-money-down loans everywhere. Who’s still funding these people? And when does the big top come down?
This is what always happens at the end of cheap-credit fueled speculative manias: even as it becomes obvious that the end is near, lending standards go completely out the window (the opposite of what responsible people would do). This is because a subprime lender that doesn’t lend is out of business –just like a home builder that doesn’t build. They will do anything –inclusing sell to illegals– to postpone the inevitable for as long as possible.
I think your observation explains why the bottom end in the areas I watch, is still alive. The amount of $150k-$275k garbage (trailers anyone?) that is still selling is amazing. There is no way in hell I would even live in most of those places, let alone be on the hook for the note. I suspect it is the poorest, and most uneducated jumping in at the very end. The “price compression” as someone referred to it before, is really starting to show.
I agree. At lunch today I overheard a table of people next to me talking about what a great time to buy it was because prices weren’t going up anymore and there’s a lot of inventory. I’m not a Rhodes scholar, and hate to generalize, but from the look/sound of them, I’d wager they weren’t exactly PhD candidates. Bottom line: the concept that prices can fall dramatically has still not entered mainstream American consciousness. Nor has the notion that the loan environment 6-12 months from now will be markedly different.
I met a woman yesterday that just moved to LA from Houston. She is a mtg. broker and is filled with the kool-aid.Optimism beyond belief. There is always someone to buy a home…business is great…yada yada….Doesn’t seem to get that the boom is over. She’s going to start looking for work next week…she may do ok…she seems properly full of sh!t.
Yes! If you remember the S&L crisis nothing was done until it really hit the fan and they went out of business. Also after the fact they were saying people would never be able to get these easy to get , non recourse loans again. Wow, if they could only see whats going on now.
So in a few years when alot of these lenders go bust and there is a bailout(yes, there will be one I regret to say) then standards will be tough again for a while ,so I imagine that it will be very hard to get a mortgage for a few years after this thing plays out. Should make for some tough times for over leveraged home owners but some good deals for us patient ones.
I was just thinking that when you reason and think it through like this, the scenario I outlined above it really the only possible outcome but in the midst of a mania the end is hard to see. It kind of reminds me of when I used to gamble alot, when you are in a winning streak you think it will never end even though the odds are against you, but by the time you have lost every thing back plus some of your own stake(kind of sneaks up on you) it is too late, just a thought.
Yes,
Some forget that the mania’s manifestations when measured against the past are completely out of whack… yet the psychological aspect of the opportunity overwhelmes the rational mind.
In other words, you keep on making money as long as you don’t stop. Or, as one astute SoCal observer stated… prices keep going up until they don’t anymore.
Chuck Ponzi
http://www.socalbubble.com
I remember the S&L crisis as well. I naively believed that kind of mania would not happen again. In fact, I was still thinking this would not turn into a full blown bubble as late as 2003. Then when I saw interest-only and neg-am enter the scene and be embraced by all, I knew we were in trouble.
“when that appreciation factor goes away, psychologically they [buyers] are not in the same place.” - Leslie A-Y
“psychological aspect … overwhelms the rational mind” - C.Ponzi
Chuck is more right than Leslie. The nut cases who bought in the past couple of years are probably still delusional. The rational minds that didn’t buy in the past couple of years are probably still rational, though perhaps growing impatient with the delusional wannabe sellers.
At times I have felt overwhelmed… I think everyone has.
Ever bid too much for something on Ebay?
The difference is that I’m sitting all alone in my den with my computer, not at a closing table with 5 people all getting checks after I sign some papers. My family will not go hungry or without college educations because I bid for too much on a hair dryer. That’s the difference.
The sad part is, you probably have more recourse against an Ebay deal gone bad than a real estate deal gone bad.
“Since 2001, according to the San Diego Association of Governments, local population rose 6.7 percent while the housing stock grew by 6.1 percent. This is hardly crisis material to begin with, but the numbers are even less alarming when you consider that virtually all the disparity between population and housing supply occurred from 2001 to 2002.”
“Between 2002 and 2006, population and housing supply both grew by the same amount, 4.8 percent. During this same period San Diego single family home prices rose 74 percent.”
Hmmm, so there would be no problem if every single person bought a house. Houses are bought by Households which usually consist of 2.1 persons, so if 100,000 houses were built, and 100,000 people moved in than that would mean 47,619 housholds moved in and assuming ALL houshold bought a home, you still have 53,000 or so to many. But non of these figures are rational.
In reality, it’s not possible to draw any conclusions from this statement, positive or negative because the writer does not give us a starting point. If there was 1 house in 2001 there would be 6.1 houses at the end of the year. If there were 10,000 people there would be 10,670 individuals at the end of the year.
That statement is useless without beginning data and it is phrased in a very misleading way. In fact, statistically the numbers are meaningless.
It sounds like everything is A-O-K in San Diego and we’re all stupid for not buying RIGHT NOW!!! WHAT ARE YOU WAITIN FOR????
Why did a vision of Wily Coyotes legs spinning uselessly in the air near the edge of a cliff just pop into my head?
Oh… I have that image…
But Wilie Coyote isn’t near the cliff edge, he’s half way over the grand canyon and the road runner just stuck out his tongue and made him look down.
We’re still waiting for him to raise his sign.
And the fall… is going to be a long one.
I always loved how the impact sound was so faint and muted due to the distance…
Got popcorn?
Neil
–
People keep forgetting that the Crooks-In-Chief are Greenspan and Bernanke led Fed during 2002-06. The number one job for the Fed is control and supervision of the private credit and not lecturing the Congress about the budget deficits.
Jas
“Who’s still funding these people?”
Barney Aldridge from Benchmark lending…for one.
“We specialize in poor credit”….”There is no selling here”….”And guess what? We’re nice people too”…LOL
They play his spot every day during the morning and evening commute hours…
Yesterday I heard this commercial on CNBC for “Flexpoint Funding”. It was fairly typical for newspaper ads in it’s “lending flexibility” but unusual for TV.
Among the benefits of securing a loan through Flexpoint?
- no credit score
- no job (!!!) (apparently lying about income is no longer necessary?)!
and of course a long list of other “advantages”. Helocs, home loans, whatever your little heart desires. And, oh yeah, a “1% start rate”.
I’m thinking the no FICO score plus no job is as low as we can go? Is there anything else they could take out of the equation to make it easier to get a loan? Anything?
On the radio yesterday, I heard an ad for a loa program where you would pay $20 for every $100,000 for 5 (FIVE) years. That’s $200 a month for a million dollar house! It was advertised as a “no gimmick” loan!!! WTF?
I was in the car and didn’t catch the name and couldn’t write the ph# down. What is this world coming to?
I mean…sh!t…it actually sounded GOOD to me…and I’m a permabear.
Hmmmm…. $200/mo. for a million dollar home..that *does* sound pretty good (smirk).. but, Hang on there LILLLL, by the time you paid that puppy back, you’d be in the hole for about 10 million bucks- assuming the end of the world didn’t come first of course.
No pulse?
No monthly payments at all, indefinitely, would definitely be the easiest loan to afford!
Oh wait a minute, but what if THEY pay you monthly, forever and ever, then it would be even better…
I saw the same ad
I think it went:
-no credit score
-no job
-no pulse
Where do I find who keeps these stats for Sonoma County?
What kind of info are you looking for? If it’s just prices, Dataquick tracks all of California by county, even by zip code if you’re willing to sift through old data.
http://www.dqnews.com
I want the percentage of IO loans and the percentage of negam for years 2000 to present
I’d like to see that for the Bay Area as well. Anyone?
Bay Area is very high. Businessweek did a cover story on Toxic Loans go to web site and dow search “Toxic Loans”
Anyway, we rank #1 in San Jose with Toxic Loans —-
In the whole NATION. OH LETS SEE SPRING - SUMMER ROLE AROUND!
Any numbers you see on IO loans and negam loans are going to be estimates or percentages based on samples.
I have seen the basic information on Sonoma County for 2003, 2004, 2005 but would love a more granular breakdown. If anyone hears of a source that has those stats please email me: sonomahousingbubble@yahoo.com
“‘There are some fundamental flaws in the underwriting process that are coming back to haunt lenders,’ the centers’ Paul Leonard said. ‘The lenders seemed to count on appreciation rather than the people’s actual income.’”
These flaws and a massive industry-wide effort to back away from them are about to start haunting sellers who will learn the hard way that 2005 market values are a fading memory.
‘The lenders seemed to count on appreciation rather than the people’s actual income.’”
So did the buyers. And the appraisers. And the regulators. And….
Lenders seemed to count on appreciation rather than actual income…..wonder if lenders counted more on “commissions,fees, bonus on toxie loans” more than income from home buyers? Lenders have for the last few years were all smiles as they bought/leased their Bmw,MB along with their expensive suits, handbags etc. My question is what are these worth now on the open market? Not to many want used handbags now especially from lenders,realtors who all profited big time.
Giving a bonus for bringing on a toxic loan seems counter intuitive to me. Shouldn’t a bonus be paid for bringing in a stable 30yr fixed with a 20% down payment customer?
This type of loan would be “worth” more to people looking to buy it.
Or maybe my thinking is all wrong. I keep using a calculator to add up my numbers.
the fact of the matter is that one way or another, subprime loans will be phased out. This in turn is the quiet monster in the corner that is and will continue to break the camel’s back.
If you just look at the stats- even in so called safe-havens like San Francisco, more than 60% of all the homes sold in the last few years have been of the ARM, IO variety.
In 2003 there was a slight slowdown in home sales. The promotion of exotic loans shortly after is what clearly kept the party going for 2 more years.
I highly suspect that prices are heading towards 2003 and prior levels ( with inflation thrown in of course) simply because in 2003, that was truly the real end of the boom when using economic fundamentals. Take away the dope people have been smoking to get into homes and the bottom will fall out rapidly.
I would argue 2003 was what should have been the top of this bubble. Prices detached from fundamentals before 2000. If the market had topped in 2003/2004, we might have had an early 90’s kind of decline. Now…it is going to be a catastrophe.
I agree, Irvine. About 1997 levels, when money wasn’t free and debt was somewhat feared.
IrvineRenter has it right. Already in 2003, I was living in a CA house whose likely asking price would’ve been more than 25 times the annual rent. We all agree that the traditional multiple is 8-9 times annual rent, and that very low interest rates might justify paying 15 times annual rent. Not 25-30x.
In this morning’s Florida thread there was an example where a $970/mo ($11,640/yr) tenant was evicted to make way for a $400K+ condo conversion (33x rent), admittedly with possible renovations. Unpaid subcontractors etc killed the project.
I just ran the calculation on the house that I rent in San Francisco and the house would sell for 39.68 times annual rent - No bubble here
To find a near-specific date for the top of the market, it may be helpful to put the value of the US Dollar into the equation. The US Dollar Index topped in 2001 at ~123 and has moved steadily downhill since. It’s now sitting at ~85, right about where it began appreciating in 1994, so the US dollar has lost about 30% of its value since its top in 2001… and it’ll probably go even lower.
Lost value in the dollar appears as inflation (more dollars to buy less house is a good example… if we could say the housing bubble began in 2001, then it would be an almost perfect example), so housing had to appreciate in order to offset the inflationary impact of depreciating dollars.
So for a time housing was clearly moving in conjunction with the value of the dollar in the early stages of dollar demise and the housing bubble. However, housing is now depreciating with the dollar, so it’s overcorrecting a valuation issue between the two markets… returning fair value. Regardless, the point at which housing statrted to move in unison with the falling dollar may potentially be called the top of the housing bubble.
The speed of housing depreciation after decoupling from the dollar would by necessity increase in order to realign with dollar valuation and catch up (or down, as the case may be) with current dollar value after housing went off on its own, so to speak, and expanded its own bubble in contradiction to the direction of the dollar. But when the depreciation starts to slow, as I’m sure we all know, then we may be nearing the bottom. There will be times when we see the depreciation slowing and appearing to stagnate, but those could be false bottoms if the dollar doesn’t validate the situation over a period of at least 6-12 months… catching the exact bottom is for geniuses and incredibly fortunate stumblers.
Sad to say, the flushing-out process of this bubble should be a real monster because the housing market is just so enormous and there were far too many abuses during the building-up process… it might make the bear market in equities that began in 2000 seem like a walk in the park.
The pain might not stop until complete numbness sets in.
Get some gold… and remember 1979… history doesn’t repeat, but it does rhyme.
“These flaws and a massive industry-wide effort to back away from them are about to start haunting sellers who will learn the hard way that 2005 market values are a fading memory.”
This is a point I have been trying to make to a friend who is trying unsuccessfully to sell. The number of “qualified” buyers for a $550k house is shrinking by the minute. A lot of the people, perhaps most, who bought in that price range over the past several years were NOT qualified in the true sense, as the term “qualified buyer” was a horrendous overstatement given their financial position. I hope we get back to where it actually means what it implies.
The Center for Responsible Lending was doing nothing in 2002 when this exploded! They are parasites living on the collapse of the bubble bursting.
I get really skeptical and cynical, whenever I see anything that begins with, “The Center for…”.
Ditto for me when I read anything including “lawmakers…”
Timing is everything. Someone’s gonna get rich from this:
Rampant Inflation
John Succo
Feb 22, 2007 1:45 pm
The Fed members must understand the real problem. The problem is dire.
Why would the Federal Reserve minutes show concern for inflation? Consumer prices certainly seem under control (although I can argue that the BLS measure of that is flawed). The reason is most people have a misconception of what inflation is. The Fed members must understand the real problem. The problem is dire.
Inflation is the growth in money and credit and it is growing like a weed. The Fed stopped publishing M3, the broadest measure of this money, so most don’t even talk about this troublesome statistic. It’s clearly growing much faster than nominal GDP and illustrates the devastating nature of the Fed’s policies.
If you reconstruct M3 it is currently growing at around 12-13%, a level which has rarely been seen, a level way above average and one that is ultimately deflationary (at some point it will get so large that it must be paid back or defaulted on).
The U.S. saw a total of $4 trillion in new credit created last year. All that money you see out there has been borrowed.
Normally all that money would go to bid up consumer prices. It is not because of the U.S.’ sickness.
All that free money (first fostered by Japan’s ridiculously low interest rates, a rate that was just raised yesterday because it is clearly causing malinvestment) combined with globalization has created overcapacity. The latest capacity numbers show it now falling from already below average numbers. The U.S. has too much production in the world so producers can’t increase prices. The U.S. has too many houses so the prices are beginning to fall. The U.S. has too much commercial real estate so REIT stocks are showing severe weakness. The U.S. made too many risky loans so the subprime mortgage market is falling apart. The U.S. has too many strip malls so the countryside is getting ugly.
All that borrowed money is now going into speculation because there is nothing left to build. It is going into stock prices, gold, commodities as the last flushes before the market says “we can’t take anymore debt.” Total U.S. debt is 3.5 times GDP, a level never seen before. The second highest level was 2.9 times in 1929. Total U.S. financial debt (excludes consumer debt) is 2.1 times GDP, the highest ever and up from one time in 1987.
The timing is uncertain, but logic tells us that this must end.
Now I finally understand the case for gold.
And the shovel to bury it in the backyard…oh, and bury the paper trail of the transaction with it, because it might become illegal to own the yellow stuff like it was in that other infamous time in our history.
Were’s that damn popcorn Neil!!!
“because it might become illegal to own the yellow stuff like it was in that other infamous time in our history”
please elaborate
http://en.wikipedia.org/wiki/Executive_Order_6102
1934 January 30th, Gold Reserve Act passed
Establishes Exchange Stabilization Fund
Allows the U. S. Treasury to seize all gold held by Federal Reserve banks
Private possession of gold made illegal except for “legitimate” purposes (jewelry, artwork, and industrial and scientific uses)
Executive order 6102, issued By Franklin Roosevelt in April 1933 ordered all citizens to give all their gold to the Federal Reserve by May 1933. It wasn’t until 1975 that Americans had full rights to own any amount of gold we felt like.
http://www.the-privateer.com/1933-gold-confiscation.html
What a sad commentary on our educational system.
To not know of FDR’s Draconian gold grab shows financial and cultural illiteracy.
This is not a slam on Pen; how was Pen to know? The gold grab went right down the memory hole.
krazy bill, you are right. I had absolutely not the foggiest, slightest, dimmest idea that this had happened. Unbelievable.
Now I understand my mother’s seemingly moronic compulsion to trade in her cash in favor of gold jewelry. She was 19 in 1933.
The gold grab was NEVER mentioned in my history classes. I think that kind of large scale violation of people rights gets over looked in the uberliberal education enviroment that loves FDR and the new deal. We talked about many other aspects.
I really thank everyone on the blog for mentioning it as I would have never known.
You know what Napoleon would have said about this kind of thing… lies we chose to remember
It wasn’t exactly illegeal to own it. It was illegeal to transact it. So people went under ground or turned in their gold. What would you do?
Oh by the way,… there was an exception (not just jewlery, etc), it was pre-1933 gold and silver leagal tender coins. This is what money used to be around the turn of the last century. Real money!
You all have to prove that I own gold before I give up my gold. Where is my address located? What’s my social security number? 1933 U.S. population was well under 120,000,000. 2007 population is 300,000,000. If you think the same government that cannot do anything about 14,000,000 people being here illegally (illegal aliens untaxed, etc) can either confiscate or completely watch for ANY gold transaction, I have a bridge for sale (and 10 acres prime Florida property). I’ll keep accumulating gold, thank you. You cannot scare me.
Next subject.
Were’s that damn popcorn Neil!!!
Due to demand, I’ve had to go out and buy a couple of those movie theater poppers. You know, the big oil ones in a glass box…
Got popcorn?
Neil
We shop at Whole Foods and there is this bagged popcorn called Ya-Yas…it is HIGHLY addictive!!!
It gets better, FDR authorized the gold grab and purchased all gold from US citizens at $20 per ounce. After the collection was complete he devalued the currency by 43% relative to gold by setting a new gold price at $35 per ounce. A price by the way that some Central Banks still use for inter-bank transactions.
I suggest Money Masters on video.google.com and “Creature from Jekyll Island” for those seeking more information.
For your viewing pleasure I dug up some of my gold (after admiring my gun collection and apocalypse shed). That’s about $340 worth of gold with “$25″ printed on it. Gold isn’t getting more valuable, the dollar is just dying a slow death.
Check it out
My yellow relic is beating the stock market for now. And I imagine it’ll do well as long as the fed beats up on the dollar.
While we’re on the topic of things that matter that nobody knows about… the Federal Reserve’s Ben Bernanke on the Great Depression
It’s right there at the end of the speech. Not sure if he’s trying to be funny. Anybody?
No, he isn’t trying to be funny. As far as I can tell, he actually believes that wild printing of money would have prevented the Great Depression.
Looks like he’ll get a chance to try this theory out pretty soon. Any bets on how it turns out?
“Any bets on how it turns out?”
I will bet on the spread — either fire (hyperinflation) or ice (deflation):
Fire and Ice
Some say the world will end in fire,
Some say in ice.
From what I’ve tasted of desire
I hold with those who favor fire.
But if it had to perish twice,
I think I know enough of hate
To say that for destruction ice
Is also great
And would suffice.
Robert Frost
You are right, Kirk.
IMO, this is the only rationale for thinking we will experience (are currently experiencing) very inflationary pressures. With the rising stock market, high bond prices, high commodity prices (including gold), and lack of risk aversion, I’d say we are definitely living in inflationary times. It’s much, much higher than the CPI numbers, as we all know, as well.
Without massive money inflows from (???), we would likely be experiencing deflation right now (and probably since 2000, if not 1982).
Difficult to know what to do with one’s money because, at some point, things will likely turn the other way, IMHO.
I don’t think you can discount the effect of technology on the outcome of this credit bubble. The fact that big flat panel TVs and other items are dropping in price so rapidly due to Moore’s Law masks inflation but also makes it more likely that the fed will end up pushing on that string. Technology is analogous to exotic mortgages in my opinion - it let the fed get away with the credit craze longer than would otherwise have been possible.
If anything the IRS is going to have to step in and massively redistribute wealth because the Fed will be impotent. This is the part where they come and try to take my gold
Should make for a good popcorn eating action movie sequence.
That’s about $340 worth of gold with “$25″ printed on it.
The nominal value of that gold went up 3.6% annually from 1933 to today. What was the total return of the Dow over the same period?
Get an idea of why the government didn’t want people putting all their wealth in gold? It’s a dead asset.
You’re probably not even reading this anymore, but why don’t you tell us how many companies are represented in the Dow today that were in the Dow in 1933?
FYI, the only company left from the original twelve companies that comprised the Dow is GE.
Now do you understand why your point makes no sense?
No of couse he/she dosn’t! He/she doesn’t understand what money is.
Gold has beat the Dow the last three years running. The Dow doesn’t even keep up with inflation.
Whatever man, just keep your assests in fiat paper.
Good luck to you!
“The U.S. has too many strip malls so the countryside is getting ugly.”
It’s fascinating to watch as real estate capital shapes the places we live in, but are how many are prepared to live amidst the blight that will shortly follow?
You can actually still see the remnants of the 80s RE/shopping center binge in places like Plano, McKinney, Allen, TX. Buildings abandoned years ago which were never used again. Lovin’ the REIT shorts, no doubt.
REIT stocks are rather strong still. I can’t believe it, but they haven’t collapsed yet. Macklowe just bought a couple of buildings in Manhattan at a cap rate of……..3.6%. Yep, that is less than cash! Have to assume a lot of rent increases to make up for that cap rate. When Wall Street goes down, Manhattan RE will finally fall.
The U.S. has too many strip malls so the countryside is getting ugly.”
Valencia, if somebody can name a city that has more strip centers, excuse me in Valencia they are Markets, Promenades, Villages, etc., just built or under construction let me know.
Houston is one big strip mall nightmare….
“Valencia, if somebody can name a city that has more strip centers, excuse me in Valencia they are Markets, Promenades, Villages, etc., just built or under construction let me know.”
The economics of whether a city or community decides to put up a strip/shopping mall or housing tract might have to do with which provides the quickest revenue stream for a city. Putting up sprawling ugly malls seems cheaper to developers and city planners. They are just small or large simply-built empty commercial spaces/boxes till a tenant moves in. That is why even in the face of this Scal RE bubble implosion one can still witness more new commercial bldgs and developments still going up while ‘for lease’ signs sprout up everywhere in already established commercial parks.
I see this type of of rampant commercial over development and massive increase in shopping/strip malls all over the IE. Its always the same well known chain operations such as CVS, auto zone,99c,msdonalds,Carls jrs,wal-mart,best buy, ect which sprout like weeds in these new shopping centers.
Particularly ugly spots for shopping center sprawl in the IE are fontana, Rancho cucamonga, Rialto,South corona, Victorville and Redlands, but all the IE has the infection.
Vegas
There must be a shortage of strip malls and tilt ups, thier buliding them everywhere!
Total U.S. debt is 3.5 times GDP, a level never seen before. The second highest level was 2.9 times in 1929. Total U.S. financial debt (excludes consumer debt) is 2.1 times GDP, the highest ever and up from one time in 1987.
We all know what happened in 1929, and to a lesser extent, 1987. Now would be a good time to exit stocks for a while…
Exit! The dumb money is just starting to get in!
elaborate txchick. How much higher do you see the markets rising before a reversal?
Well you never know, but putting a trailing stop on all your stocks would do fairly good job of getting out at the right time.
Just make sure it’s a stop market order. Dem gaps’s bitches.
“Fed’s Inflation Analysis Ranks With Zimbabwe’s”
Caroline Baum
Bloomberg Feb 21
“….But excess money creation is the cause of inflation, and it would be better if the Fed could make the public understand that the rise in the price level is not a result of higher commodity prices, aggressive labor union demands for wage increases or greedy businessmen trying to milk the public.
It may not sell in Zimbabwe, where anyone trying to explain the roots of inflation might be arrested on the spot. But in the U.S., with inflation running at about 2.5 percent, the public can handle the truth….”
http://tinyurl.com/2agvmn
“…Total U.S. debt is 3.5 times GDP, a level never seen before. The second highest level was 2.9 times in 1929. ”
Add this one to the growing, “this level was last achieved in 1929″, list.
How many more of these before it’s a guarantee that we revisit 1929?
Feds statements during/after creating the housing bubble:
Greenspan (when interest rate was lowest) : Americans should use ARMs.
Susan Bies: I am shocked (subprimes crashes).
Yellen: I am sleeping well.
…
If you reconstruct M3 it is currently growing at around 12-13%, a level which has rarely been seen, a level way above average and one that is ultimately deflationary (at some point it will get so large that it must be paid back or defaulted on).
——————————————————————————
This could go on for some time though, I expect a bad end to the middle east war will bring on either inflation then deflation or maybe just straight to deflation.
He, he, he, Tx. Very timely post. Pulling out of US stocks as I write. When old pigs like ABCX and CSTBX are in the money then the end is near.
“‘Realistically, if a typical house is going for $400,000, just to do a 10 percent payment is $40,000,’ he says. ‘How many people are going to scrape together $40,000 in a reasonable amount of time? That’s three years of socking away a grand a month and not having anything go wrong. That’s just not realistic.’”
Tell me about it. My wife and I are saving big bucks for our future home. We save more than anyone I know. We’ve managed $40,000, and the more we save the more reticent we are to plop it down on a house because we recognize how long it took to earn. We make at least 2x the family median and have no children–can’t imagine that there are that many people out there who can do what we do. No wonder true affordability is like 1%. Our hope is that in 3-4 years when we do buy a modest home, we’ll simply be able to buy it outright. Of course, $400,000 shitboxes in the Inland Empire are going to have to drop to their mid-90s values of around $125,000.
And when you get around to buying that modest home, you won’t want to give up your money for the crap box it buys. Trust me on that one, been there, done that.
I kind of agree. Once you have that money, you want to hang onto it.
BM,
I don’t know about it being so “unrealistic” to expect people to save up for a down-payment. After all, this WAS the standard for our parents, and grandparents’ generations. And if house prices were back in line with rents and incomes, it really wouldn’t be that much of a stretch for most people, assuming (and here’s the rub) that they are LIVING WITHIN THEIR MEANS.
You and I are definitely the exceptions today, but that doesn’t mean it was always so. It’s just our f**ked up “debt = wealth” economic system today that makes it SEEM like we’re oddities. The inmates are running the asylum.
What’s unrealistic to me is the notion that it’s a great idea to go out and lend mond-boggling amounts of money to irresponsible, greedy, lying spendthrifts who have no skin in the game (think Casey Serin) and expect to be paid back someday. Equally crazy is the idea that a house is somwhow supposed to pay for your retirement, bills, vacations, plasmas, SUVs, bling, etc. and you never have to actually EARN anything at a real job or be expected to repay your debts.
Harm,
You just summed up the sorry-as$ explanation of this country and its economy in three, yes three, paragraphs. Bravo, my friend. Amazing how we all see this, but everyone thinks we are the doomsayers or don’t know what we are talking about.
No excuse for saving up $40k. Absolutely none.
I’m doing a ~quarterly update on my blog for a goal to save $32k in one year above and beyound a reasonable savings rate (me and my fiancee).
http://recomments.blogspot.com/
If people are not disciplined enough to save up even $40k, they aren’t disciplined enough to have a mortgage. Yes, $40k is a lot for a kid in their first job. But a young couple should be able to save at least 20% of their takehome (after 401k too) and thus we’re talking two years, three tops (for a couple).
Heck, the delta between a mortgage and rent is more than $1k/month (post tax)…
Ok, I’m going to go take breath before I continue ranting.
But oh… I just lost my last vestige of sympathy for the morons who did the option arms… unrealistic my left…
Got popcorn?
Neil
No excuse for saving up $40k. Absolutely none.
Many excuses, especially if a young couple lives in California- Rent, Car Insurance, Gas, etc. all at premium prices here in the Once Golden State. Lets see how the young couple can save once they start a family and go to one income or worse-childcare. I almost don’t blame young couples getting these toxic loans, it is the really the only option they have. And young couples want to buy a house and start a family- that is the American Dream. It just plain sucks for honest, young and old, hard working people.
Many excuses, especially if a young couple lives in California- Rent, Car Insurance, Gas, etc. all at premium prices here in the Once Golden State. Lets see how the young couple can save once they start a family and go to one income or worse-childcare.
I saved 10% of my grad school stipend (TAship, RAship).
Most of the other grad students over-spent their stipend by 10% to 20% every month. In California. During that time I purchased a car new.
So I stand by my “no excuses.” You just have to be willing to do without. I still don’t live to my income. Do I live well? Yes. Heck, my grandparents never lived at their income either.
I’ve sat down with dozens of people who claimed they couldn’t save… Only two, due to medical reasons, weren’t wasting a good chunk of change.
Spend one month religiously putting every expense into Quicken. Tell me it doesn’t show high discretionary expenses… Do note, I cut my grad school spending when I saw the cost of eating out on my quicken. Side benefit: I became a good cook.
Got popcorn?
Neil
2800$ per month… They claim that is 10% of the net income per month… 28000 per month 300K (after taxes).
Yeah. They can save 40K pretty easy.
“it is the really the only option they have.”
So, toxic mortgages are the effect? Sorry to break it to ya, they’re the cause.
What truely sucks, though, is that it’s the money of the people saving which is being lent to the losers. The banks don’t care, the president collects a salary until the day the FDIC kicks him out.
My mom’s credit union just got taken over by the NCUIC or whatever the federal insurance program for credit unions is. They were wasting her money on stupid loans. And, only a year or so ago they were rated 4 stars by the “rating” companies.
Yes, it does make gold look more attractive. At least gold you can bury in the back yard and the worms won’t eat it.
Climber, was that credit union Huron River Area CU? (MI) They were just taken over by the NCUA late last week
and it will be worth something a thousand years from now, but if you go senile and forget where you buried it it is not worth anything to you. I know a person at work whose brother died with a fortune in PM and no one is able to find it.
Hey his name isn’t Ben is it? My cousin dig up the entire backyard trying to find where his Dad buried his gold.
No, it may be more common then we thought. I am going out to buy a metal detector. I wonder if I could show up to a few open houses built prior to 1933 with it?
You can’t “print or make gold” out of thin air. Try printing green backs. It’s that simple.
I’m not arguing the concept of requiring downpayments, I’m just saying a 20% savings on a 400k home is really, really hard to do for most people.
I can agree with that. Of course, the real problem here is not just saving, but having to save 20% of a ridiculously inflated PRICE, isn’t it? And this becomes a vicious cycle:
Unqualified reckless buyers take on $0-down, neg-am liar-loans for unGodly amounts, thus driving up prices for those few responsible buyers left. This makes the 20% mark ratchet ever-upwards, higher and higher, thereby pricing out more and more responsible buyers and attracting more price-insensitive idiots and speculators.
This country really needs a return to sanity –inlcuding such supposedly “obsolete” lending practices.
True, but things go so crazy that even if you had the money saved up for a downpayment on an overpriced house, the irresponsible borrowers would still outbid you.
“Equally crazy is the idea that a house is somwhow supposed to pay for your retirement, bills, vacations, plasmas, SUVs, bling, etc.”
herein lies the problem..given the “must have it big, fancy and now” attitude that has become the norm, people are “prevented” from saving. Past generations sacrificed, the current one doesn’t want to go without. Past generations lived a much simplier economic life..no cable, cellphone, PDAs, internet, 401k, IRA, cruises, multiple vehicles, lattes, ATMs, credit/debit cards, long term care insurance, disability insurance, BIG student loans, frequent dining out, Wholefoods Mkts, etc., etc.
Basically, they went to work, earned a paycheck and the “corporation” funded most of their retirement, health insurance, disability insurance, etc. This was back in the days, long before excessive executive compensation. I am not saying that all companies did this, but many, many did. The worker just had to take care of the house/food/one car and a smaller set of other basic bills. Now, workers have to fund more of their retirement, health care, there are many more “self” created bills (cellphone, cable, etc.). I think people think of these extras as a necessity, but they could save a bundle by cutting them out. BUT..that being said..cutting two or three grand per year, isn’t really going to help save for a six figure down payment to put 20% down on a $500,000 stucco box, now is it?
My father is one who didn’t work for “the corporation” that funded most of his retirement. In fact, his two pension checks, from defined benefit plans, add up to around $200 a month.
Needless to say, he doesn’t depend on those checks to live on. Nor is he leaning on my mother’s pension from her teaching career. Nope. Dad’s in his 80s and still works.
Holy toledo, that is kinda tough having to work in your 80’s unless you enjoy it.
“herein lies the problem..given the “must have it big, fancy and now” attitude that has become the norm, people are “prevented” from saving.”
YOU NAILED IT RIGHT ON THE HEAD, Pen. Great line !
Something I was reading another day in a stupid Realty site, which was celebrating 50 years of accomplishments in housing. Well, they are not considering the little apartments and shitboxes we see around. Nevertheless, it seems that everything is getting bigger, including our arses.
* In 1949, the nation’s ownership rate was a mere 55 percent. Now, it’s a record 67 percent and climbing.
Today, only 1 percent of the country’s 119 million housing units lack complete plumbing facilities. Fifty years ago, 35 percent of the 43 million units did not have plumbing.
* A half-a-century ago, houses weren’t nearly as large or as full of goodies as they are now.
In 1949, the average size house was less than 1,000 square feet, and it had just two bedrooms and one bath. The typical house back then also had no basement, no fireplace, no garage or carport and no air conditioning.
Today, 2,000 square feet is average, and three or more bedrooms, 2 baths, fireplace, double garage and a/c are pretty much standard.
* Today’s houses aren’t nearly as crowded, either. Just 5 percent have more than one person per room as opposed to 16 percent a half-a-century ago.
* And they’re built better and faster. In 1950, it took an average of 70 days to build the standard one-level house. Now it takes 40 percent less time to produce a house that’s twice as big.
I’m a teacher. In the past 6 years, I’ve:
- Paid for my own wedding
- Paid for my first car
– Saved about $50k toward downpayment.
People need to stop living beyond their means. I don’t buy a new mp3 player or video game console every time a new one pops up. I don’t go out to eat every night. I don’t buy new clothes with every change of the season. And I’m still having fun. Unfortunately, the majority of the population feels that they aren’t cool enough if they don’t “keep up with the Joneses”. They won’t have much to show for it soon. And people wonder why they aren’t saving any money?
Why should they save? Everyone else is borrowing without the down payment and you couldn’t save fast enough back in 2003-2006 anyway. Inflation = borrow as much money as you can because its cheaper to pay it back down the road. You are expected to pay it back however. That will cause deflation. Unless you get a big raise in pay………. hahaha
I have that much money and more sitting in a bank account at the moment. Would $1000 bills work ?
See, we’ve been living all WRONG. We’ve been renting. Cheaply. Every month we sock away cash into investments. We must be doing something wrong ! Everything is a paid for, we own all our own stuff ! I don’t even have a credit card ! I guess I have to get one though, because it sure is hard to get hotel rooms and rent cars without one !
Sheesh… can’t come up with $40K. That makes me laugh. Its called SAVING ! Oh, and we own a 2004 car and a 1999 truck. Nothing fancy, but they are both practical and, wait for it… PAID FOR !
Sure, they might be paid for, but do they have?..
GPS/Navigation, Satelite radio, plasma TVs in the headrests, Kicker Subs, OnStar, backup video, granite dashboards and are they rollin’ on stainless steel 20’s….
“granite dashboards”
That probably affects mpg.
“granite dashboards”
“That probably affects mpg.”
And reshapes the cranium in collisions…
The strategy here is never going to a car dealer. Another day I took one of those new 2007 Acura MDX for a test drive, just for fun. I’m depressed since then. What a spaceship! Check them out at the Acura site. However, I’m sticking to my frugal life and love to see my net worth increasing, good emergency fund, without any debt.
The problem is you are a minority by putting $40,000 down. If the stadards were the same as 10 years ago you would get a really nice home with that kind of down payment since home values are a reflection of how many can afford to buy the house. Today, a french fry cook at the local fast food can buy the same house with nothing down as you can with your $40,000 down. The best advise is to hold on to your money and buy with nothing down if you must buy now (you will receive a better return on investment), or better yet wait until lending standards get back to reality and one must bring money to the closing table. There will be a lot fewer people you are competing against and the home you will be purchasing will be a lot nicer!! The supply of people with $40,000 in their bank account is a much smaller pool of potential buyers then the current no money down pool of potential buyers.
BM, i am sitting on some 7-figure amount (not counting the “cents” digits) because it so obvious that renting is cheaper than buying. Taxes bother me a bit, but if I bought, the property taxes would eat me up too. Your strategy (buying your home outright) is the sanest one. If you then need or want to sell the home, you will have the huge advantage of being able to offer owner-financing. I have sold a number of houses in my life, and always got out really REALLY fast because I was willing to take paper as part of the proceeds.
Great advice, thanks. How has holding that paper worked out for you? I imagine in sane markets it works okay since you can always foreclose! That’s a great stream of income over a long haul.
Our strategy might work very well. We did the $40k in one year. So by 09 we could have $120, and finance the last 5k LOL. I think the lender would not believe it that anyone could save it up. I drool at all the interest that I won’t be paying to a bank.
In the past, there was an advantage in financing because it would give a better return due to deductions. The same thing that corporations do when they leverage a bit for greater return on net income. But this market is crazy now and paying cash seems more reasonable.
heh, you nailed the pricing exactly. My sister bought in Corona in 2003 for $300,000, Zillow says it’s worth $400+ now, but the house was sold in 1997 for $127.
Just your average SFH. Nothing spiffy, nothing (that) crappy.
Ahhhhhhhhhhhhhh. Deflation!
“‘Realistically, if a typical house is going for $400,000, just to do a 10 percent payment is $40,000,’ he says. ‘How many people are going to scrape together $40,000 in a reasonable amount of time?”
According to CAR assumptions* for measuring the percent of first-time buyers who could buy a home in 2006Q3, 24% of first-time California buyers can come up with a downpayment of $47,871.
*First-time buyer purchasing 85% of median-priced home w/ I/O loan and 10% downpayment
http://www.car.org/index.php?id=MzY3OTE=
I am sure they only look at the debt service compared to the income distribution. They probably simply assume away the down payment.
“They probably simply assume away the down payment.”
The point I was trying to make is the CAR has defined its “first-time buyer” affordability measure to fit a straw man first-time buyer who does not exist in the real world.
Well, they exist long enough to take the cash back money and possibly skim some rent money.
Yes, and we all know how CAR revised its “formula” for the affordability index last year, when it was in real danger of dropping to single digits –for the first time in history.
Torture the data long enough and it’ll confess to anything.
They learned that from the FED
NAHB/Wells Fargo still uses the old metric. OC at 3.8% affordability.
Yee haw!
This guy was saying, in so many words, “Downpayments are for suckers”.
Actually, in a purely logical sense, what I am suggesting they mean is:
“IF buyers have the downpayment, THEN we calculate affordability to be X.”
I suggest they don’t do any predictions about how many people have that sort of savings already.
Any thoughts on what the index value needs to be, in order to have a truly healthy RE mkt (assuming reasonable downpaymnet and loan terms)?
Just a guess that approximately half of families should be able to afford the median-priced home.
Not true. Half of all families that can afford a home should be able to afford the median priced home. The US is far from having 100% of families in their own home.
I could be wrong on this, but I think I recall that Cagan’s analysis of the LA Basin market during the last downturn (early 90’s) showed affordability went as low as the low teens (% wise) at the peak of prices (1990)…. and then slowly went back up to around 50% over the next five years or so (by ‘96).
I guess it depends on your definition of “a truly healthy RE mkt”.
In any case, with regard to affordability, that sort of change over time will happen again.
Not the study that I was referring to, but I did find this from Cagan below.
A quick look shows really great info… with an interesting “Likely Scenario” on slide 28 for number of defaults and income impact in LA and OC. Also, take a look at the various Appendix slides for info on the type of mortgages in OC in 2004-2005 - and the trouble people are going to be in without equity:
“Rising Mortgage Interest Rates
The Impact on Southern California Real Estate”
Christopher L. Cagan, Ph.D.
Director of Research and Analytics
First American Real Estate Solutions
http://www.firstamtrust.com/pdf/TrustPreso.pdf
Here it is!
Someone posted this here probably more than a year ago. Look at the changes in colors in the maps - highlighting price changes throughout southern California during the last boom-bust. It’s undergoing the beginnings of this again today:
[NOTE: pdf ]
http://www.firstamres.com/pdf/Cagan_FireBurn_1104.pdf
Note pdf page 46:
“CAR Affordability Index, Los Angeles County”
It’s for the years 1984 to August 2004. I like his “box” on the slide: “This can’t go much farther!”
You are correct. CAR reported first-time buyer affordability hit 14% in May-June, 1989 (http://realtytimes.com/rtapages/20050107_recordyear.htm), the previous low-point. It reached the 14% mark again in December of 2005, at which point CAR decided to suspend publishing that number (LOL) while they tortured their “affordability” index until it gave them the (higher) numbers they wanted.
As SunsetBeachGuy pointed out, the unmodified NAHB/WF index shows affordability now in the low single-digits for L.A. & Orange Counties.
DOes that mean that in CA the demand supports these low single digit afforability rates or is it that in CA there are a lot of HUGE greedy risk takers willing to take insane loans on ridiculous terms without regard for the bust and the aftermath?
It means there was a housing bubble/mania.
There is a foreclosure short sale in Mission Valley for a one bedroom/one bath condo that was reduced in price to $150k over the weekend. My buddy bought a similar condo under a mile away for $235k about 18 months ago. That is a 36%+ price drop in 18 months! There goes $85k down the drain…flush!
That is a big hit, condos will get hit the hardest. This is in SD?
Actually, that sounds right for San Diego.
In a Del Mar Heights condo development (built in 1978), one bedroom/1 bath (800 sq.ft.) went as high as $425 K about 1-1 1/2 years ago.
Similar condos in this complex were offered in 2006 for comparable prices, but none of them were selling after being on the market for 6-8 months.
Now, in January 2007, a 1 bd/1bath condo sold for $272 K, having in offered in late 2006 at $299 K. This works out at a ~36% decline in pricing from the top. Remarkably similar to the Mission Valley price declines noted by Markmax33.
Where I would disagree, though, is with Norcal Ray - I think the blood will be running in the streets with condos and single family homes. Both have had huge run-ups in the last few years in San Diego, and are poised for major downturns.
But… isn’t the $235K one so much more upscale? That’s what it’s all about you know, feeling upscale and bragging about how brilliant of a move buying RE is.
Gonna be a lot of formerly brilliant BK cases in the next couple of years…
I have a friend that bought a one bedroom/one bath condo in Mission Valley last year for $275K. It’s awful too. It looks just like that crappy cheap apartment you lived in when you first moved out of parents house.
Frankly, I didn’t realize it was that easy to do,’ says Doug Self, who used 100 percent financing last year to buy a house in Citrus Heights.”
“‘Realistically, if a typical house is going for $400,000, just to do a 10 percent payment is $40,000,’ he says. ‘How many people are going to scrape together $40,000 in a reasonable amount of time? That’s three years of socking away a grand a month and not having anything go wrong. That’s just not realistic.’”
Saving money is hard, getting a 100% loan used to be easy. Hmm, no wonder a lot of buyers took the latter route. Going forward, both are going to be hard.
Combine high prices in relation to HH income and the blowups in the subprime market, it looks like there will less and less buyers till prices come down at least 20 to 30%. Not many new buyers have $ 50K to $150K to put down. The starter home segment is toast and this will move up to hit the higher priced homes.
“The starter home segment is toast and this will move up to hit the higher priced homes.”
Yep. And they are the grease for the rest of the wheel. No one gets to trade up, trade over or trade out without first time buyers.
I’d make that 35-50% off, at least, in the bubble markets.
Things were out of whack in 2001, here in So Cal. I expect prices will get to pre-2001 levels, inflation-adjusted.
From the wacky world of New Orleans:
http://neworleans.craigslist.org/rfs/282629764.html
Ad says it didn’t flood but was gutted anyway…..so, I suppose It’s gutted so it will comp with all the other buildings
I saw a craigslist ad yesterday in the New Orleans “wanted” section from a spoiled bratty 20 something from Anaheim begging for money to pay off her 25K credit card debts. Now how sick is that. Someone in Orange County, CA begging for money from people in New Orleans?
I am sure she was offering some sort of “service” in return.
No doubt, it’s a bull market for sugar daddys these days.
“‘During the boom, houses in some neighborhoods were going up 20 percent,’ Appleton-Young said. ‘Consumers could not afford not to buy. But when that that appreciation factor goes away, psychologically they are not in the same place.’”
No, Leslie, financially they’re not in the same place. Who wants to feed 50%+ of net income to interest payments on a flat or declining asset? No one can afford to pay these prices now that they’ve stopped going up.
“Consumers could not afford not to buy.”
That is how the kool-aid is dispensed. When you come to believe you must buy because prices are going up, you are emotionally committed. All the people who bought into this myth will be destroyed in the collapse that follows.
BINGO! Moody’s is preparing to downgrade five subprime lenders:
“Moody’s Investors Service said late Wednesday that it had placed five of the nation’s largest subprime servicers — Ameriquest, Specialized Loan Servicing, New Century, Accredited, and NovaStar — on review for a possible servicer ratings downgrade.”
http://www.housingwire.com/2007/02/22/moodys-five-subprime-servicers-face-ratings-downgrade/
First major crack in the ice-dam. Prepare for icy flood.
First major crack in the ice-dam. Prepare for icy flood.
Most excellent analogy. This downgrade, why long overdue, will put a big chill on their ability to fund mortgages. Combined with the ABX market (anyone notice how the bottom has fallen out? Oh yea, lots of us here, but man it amazes me that the old “stops” are gone. Completely gone).
Its game over but its going to take 90 days for people to realize it. Totally game over .
And yet the idiots still want to hold their party below the ice dam. Come join me up on the hillside for coco, hot toddies, and popcorn. If its going to happen anyway, one might as well enjoy the view.
Got popcorn?
Neil
For some bizarre reason, I remembered Pam Anderson when you mentioned “hot toddies.”
I’ll join you for popcorn and hot toddies!
It’s great to finally see what so many of us have been predicting for so long — too long. Amazing it didn’t happen a couple of years ago. Shows how much the PTB wanted to keep this corpse alive.
What’s the worst case scenario this housing bust can have on the general economy? Could all these loose lenders and greedy flippers put the general economy into a serious long term recession or worse? What if the source of all this liquidity (China?, Japan?) suddenly dried up?
worst case scenario…
RE +/- 1% over the next six weeks and then straight to the moon from there. (NAR Statistic)
Down hits 50,000 (Cramer/Kudlow)
down - DOW
Best joke on the blog today! Even though I would not make doodoo on such a move, that would be a lot better for the overall economy than the 90% that will be hurt by a 40% housing price drop.
Worst case?
Breadlines.
Most likely, people are going to spend 2 to 3 years wishing they could get credit. Credit is going to tighten.
The only question is how much? I’m seeing evidence that my predictions of a quick return to a 20% down payment… might have not been restrictive enough. The first 40% of a mortgage is getting costly to sell off.
Got popcorn?
Neil
No… 20% is plenty
All the sudden no buyers=price drops then the dollars are reasonable
Actually the problem is far worse as it goes far beyond these buyers not able or not willing to save up the 10% or 20% down for the underlying property
Once for example people after saving years for the down payment - would actually be happy with old or used furniture for 5 to 10 years as they felt happy just to be able to buy the home - now they often go out and buy fancy furniture on credit
As for buying a house with an old kitchen- well that’s not good enough, as many just rip it out using more debt
How many people with the 20% of much smaller prices in the future, will really decide to park it in a non-liquid (very non-liquid at that point) “obviously bad” investment (as agreed by “all” by then)?
No worries, all our soldiers will prop up the bottom with their 0-down VA loans. Could be a good case for reinstituting the Draft… Uncle Sam Wants You to Buy a Condo…
LOL!!!!!
Or, if they happen to get killed, Congress raised the death benefits up to $250,000.00, so their survivors will continue to support the economy. I’m sorry to mention that, but it’s another reason why our political leadership has no intention of ending the wars.
“‘Realistically, if a typical house is going for $400,000, just to do a 10 percent payment is $40,000,’ he says. ‘How many people are going to scrape together $40,000 in a reasonable amount of time? That’s three years of socking away a grand a month and not having anything go wrong. That’s just not realistic.’”
Wow. You sound like a great credit risk. Here’s $400,000.00.
“‘Realistically, if a typical house is going for $400,000, just to do a 10 percent payment is $40,000,’ he says. ‘How many people are going to scrape together $40,000 in a reasonable amount of time? That’s three years of socking away a grand a month and not having anything go wrong. That’s just not realistic.’”
Unbelievable. Just a short time ago, the idea that someone who didn’t have enough disposable income to save $12,000/yr would be buying a $400K house would have been unthinkable.
excellent point
In the mid 90’s, when we got preapproved for a loan, we had excellent credit, two stable jobs well above median, money for a downpayment and 6 months worth of savings. Guess how much we qualified for? 400K
Is there a “tipping point” at which it makes better sense to take a toxic loan you know you can service vs being locked out by traditional lending standards? I’m picturing $750k houses falling to $400k but only being approved for $300k (we have $100k combined income). Are we damned if we do and damned if we don’t?
I think repaying a 750K loan on a 400K house is pretty disastrous under any circumstances.
why not buy the $600k house that fell to $300K?
I have no idea where Jasmine lives, but near here you can’t buy the worst house for miles around for $600K.
Well, OK, maybe you could. But then you’d need bulletproof windows, armed guards and an armored vehicle. And your kids… well, better not have any kids.
And besides, you’d have to put up with the political “leadership” as exemplified by our Board of Supervisors.
In the end, even for $300K, it’s probably not worth it.
Your post shows why it is stupid to buy in SF right now, no matter how much money you have. I don’t care what I can afford, I want value. I want to buy the nice house at the nice price, like many did twenty years ago. Those days will come back. If not, why buy? It is asinine to pay these prices. Even the wealthy who could afford it are foolish. Look at Agassi. I love the guys tennis, but what a stupid waste of money it was, to overpay for that SF pad. He lost what, 5 mil not including carrying costs? This stuff is nonsense. Value should always be considered no matter what the purchase. It’s something that was lost in the last 10 years in SF, and countless other places.
Because I don’t want to live in Compton?
It’s not a matter of paying $750k for a $400k asset but determining whether there is a tipping point at which one should pounce on a toxic loan KNOWING YOU CAN HANDLE THE PAYMENTS in order to secure a home that would be blocked to you under a traditional lending standards. For example taking the $50k hit in valuation to nab a house $100k above traditional lending standards. I’m not talking about today, but about the hypothetical point where the two options intersect.
Jasmine,
If a buyer has a low FICO score (and wouldn’t be bothered by a hit to his/her credit), low/medium income, no down-payment, etc…you are right, it’s better to buy now, as credit will likely be restricted in the future — if only for a time.
However, if you actually have something to lose, the ONLY time to buy is when you are competing with people whose financial situation is similar to yours.
Bottom line, compete with buyers who are most similar to you, financially-speaking.
Lenders gave out 100% loans because they believed that real estate only goes up. They never dreamed of the day that prices would decline. Never!
Un-freaking believable. Now the investers and stockholders of lending institutions are going to eat a big fat crap sandwich. Merrill Lynch and the others can try to dump these turds from their client’s portfolios but they ain’t going to get two steps before everyone else gets the same bright idea. Nice going Pinstripe!
Someone commented on their Mom’s credit union being taken over. This is one of my biggest concerns…. I worry about my money in any USA bank. I have been thinking of opening an account in Europe and transfering half of our money there. I feel we will be screwed if we have inflation like we did before and my money will be worth peanuts. I also don’t trust banks because of all the exotic loans… today a financial instution might have a great rating, tomorrow their closing their doors. I am sorry but when they say FDIC insured…. many people are under the impression that they will get all their money back up to the amount insured…. sorry you might get half if you are very lucky!
What are some of you doing??? What are some of you investing in, where are some of you keeping your assets that you feel are safe? Besides under your mattress! hahaha
It was my mom’s CU. My brother had money in 2 institutions that also went belly up( One FDIC, the other not). My brother said it took him 2 years to get his money back from the FDIC one, they paid him interest on only 1 year, so he lost 1 year’s worth of interest and 2 year’s use of the money. The second institution was his employer’s 401k provider. So far he’s gotten about 25% of the money back from that one. They first told him to expect 90%.
From what I can see FDIC sucks. If I have to make mortgage payments the bank isn’t going to wait for 2 years while the FDIC fools are sitting on my money making promises.
Well, I’m in a very fortunate situation, as I have dual New Zealand - US citizenship. I currently have all our cash in an NZ bank drawing 7.5% on a six month deposit account. I don’t think that option is open to you unless you are a citizen, although I could be wrong. I also own a house in NZ and rent in the Seattle area. Will be selling the NZ house in the latter part of this year. My wife is talking buying again, but that doesn’t look like the right choice right now. We sold our Seattle home in the middle of 2004. I was convinced the market had a year at most, and have been surprised at the strength of the Seattle market.
US citizens CAN, however, buy NZ govt bonds yielding about 6% in NZ dollars. Of course, the bonds will be in the custody of Merrill Lynch or Fidelity’s “National Financial Services” or some other US custodian. Custody accounts are typically insured up to $1M. Got more than a mil? Open extra accounts.
Or you can buy an Everbank NZD CD yielding 6.14% as of today.
If you’re worried about inflation, buy physical gold. If you want a safe place to store dollars, open a Treasury Direct account. They’re about as liquid as it gets.
OT, but are realtors routinely posing with their dogs in advertisements outside of LA??
…And has anyone ever heard of this one (new to me): “Gift wrapping room”?
F*****g Ridiculous Gift wrapping room.
HEY I want a room for only farting in….. perfect for husbands!
I think txchick had mentioned the gift wrapping room. Here in LA, we have media rooms and yoga rooms.
I used to have one of those. We referred to it as the “semi-enclosed patio”. It had a great breeze to clear the not so great breeze that would have otherwise stagnated there.
It was a joke (or at least I thought it was) in an old episode of Frasier. While trying to convince his brother to downsize, Frazier gets ‘lost’ in his brother’s house…..Frazier (by yelling) describes the room he is in and the brother replies “oh, that’s the gift wrapping room” to much audience laughter.
We have one lady that poses with her dog & horse…. tacky if you ask me!
There is a broker in MASS that is posing on the helm of his sailboat. PP..pretentios pr!ck
The only way I want to see a realtor is in a McDonalds cap serving me some fries! hahahaha! OR maybe on a tile floor scrubbing the grout!
Here in Santa Barbara there’s a female realtor that poses playing a cello. Her slogan is “In real estate, like music, timing is key”. She’s had the same saying for 5 years. Same picture to.
Yeah, most of them have these dated pics so when you see them in person you’re like Jesus they look horrible/old, etc.
Walked into a house and the realtor noted the old picture was still there as she just didn’t have any other good pictures of her.
Boy did my fiancee give me nasty looks. She knew what was going through my mind.
Got popcorn?
Neil
Reminds me of some old neighbors I used to have. They would cruise their monstrous yacht to Hawaii, Alaska, etc. during which time they would snap pictures of themselves, turn them into postcards, and send them to friends, family, and anyone they could think of including me. I used to happily toss them into the wood burning stove, with horrible imaginations of a disaster at sea.
I’ve seen a few in Portland that do this.
Saw one in Idaho posed with her Hummer. Nothing says “Real Estate Bubble of the 2000s” like a realtor posing next to her H1.
“Flanagan’s research revealed that 10 percent to 15 percent of all new loans originated in the fourth quarter of 2005 and all of 2006 were subprime loans — mortgages that typically carry higher interest rates due to greater borrower risk. And, if capital market players like JP Morgan find mortgage securities no longer attractive, the result could be higher mortgage interest rates.
The amount of money at stake could be $200 billion, with as many as 500,000 to 1 million consumers in potential jeopardy. Many of the loans were “stated income” or low-documentation loans, which involved a relatively low-interest-rate first mortgage and a simultaneous, or “silent second,” mortgage, which together equaled the entire value of the property. In the mortgage business, this is known as a 100 percent loan-to-value-ratio loan.”
Burn baby Burn!
George Bush is responsible for this mess 9/2004 speech:
http://everything2.com/index.pl?node_id=1673952
Thanks to our policies, homeownership in America is at an all-time high. Tonight we set a new goal: seven million more affordable homes in the next 10 years so more American families will be able to open the door and say welcome to my home.
9/2004?
And the housing market topped about 10/05. World record response to leadership, no?
And exactly where did Bush say “lie about your income, finance at 100%, don’t read the reset, prepayment penalty or other details, buy any POS you can (in fact, like Casey Serin, buy multiple POS’s), listen to lying realtors about how RE “never goes down”, ignore the history of the 90s experience….do I really need to go on?
If Bush is an idiot then NO ONE would listen to him, would they (even if he did tell people to do all of the above)? The media has constantly portrayed EVERYTHING he’s done as wrong, right?
So why in the world would the American public LISTEN to Bush on this ONE item? One that involved HUGE risks for them?
The bubble was caused by easy money. Easy money was created by Fed policy to offset the 9/11 economic fear (rightly or wrongly) . Lending policies of no doc, no downpayment etc were PRIVATE BUSINESS DECISIONS. No one put a gun to subprime lenders’ heads to loan stupidly, no one put a gun to the head of “sophisticated” buyers of these securitized toxic loans, Bush didn’t create securitized mortgages and, finally, no one put a gun to any home BUYERS head to BUY, bid up properties or finance them idiotically!
Hate Bush as much as you want but you sound like an idiot when you constantly try to hang EVERY woe in the world around his neck. Bush no more created this bubble than CLINTON created the dotcom bubble.
INDIVIDUALS, making FREE DECISIONS bought stupidly. This has only happened THROUGHOUT HUMAN HISTORY.
What was the old Clinton mantra? MOVE ON? Try it rentor, this stuff is getting way too old.
time for another exciting round of Spot the Republican!!
lol, you’re on a roll today
And also the Democrat!
You know, he just reads what they hand him. Do you actually think he even thinks about or understand what the hell he’s reading? Imagine hearing Bush read a speech he ACTUALLY wrote.
Gov. is complicit in this bubble:
In 2004 the economy was shaky at best and it would have gone into a recession if housing had stalled instead they allowed spigots of free money to be turned on. A bit like the Japanese but before the event.
http://www.marketwatch.com/news/story/white-house-hedge-fund-study/story.aspx?guid=%7BB6DDB04E%2DD9D5%2D438C%2DB696%2D06DA1FE188F2%7D&dist=morenews
WASHINGTON (MarketWatch) — A group of the most powerful U.S. regulators proposed no new hedge fund rules on Thursday, leaving it up to investors and the market to monitor and control risks in the $1.4 trillion industry.
Limiting investment in hedge funds to “more sophisticated” investors will help address concerns about risks, the U.S. Treasury, the Federal Reserve, the Securities and Exchange Commission and other agencies said in a six-page report.
Those investors should make sure that they have enough information on hedge funds’ strategies, terms and conditions and risk management to make informed decisions, the group said. Read the statement.
Brokers that provide services to hedge funds and other firms that trade with them should closely monitor the risks of doing business with them. If they don’t have enough information about the value of hedge funds’ assets, their performance, credit exposure and liquidity, creditors and counterparties should reduce the amount of money and stock they’re willing to lend, the group explained.
Hedge funds have grown rapidly and now have about $1.4 trillion under management. With public pension funds and more retail asset management firms investing, regulators have become concerned that any financial crisis in the industry could end up hurting ordinary people, not just financial market professionals.
The guidelines were criticized by some regulators who have called for more hedge fund regulation in the past. The hedge fund industry itself responded positively. Others in the industry said most of the recommendations are already standard procedure.
“These guidelines offer very little,” Connecticut Attorney General Richard Blumenthal, an outspoken proponent of more hedge fund regulation, said in an appearance on CNBC. He said the report lacked teeth and needed to be more specific.
The Coalition of Private Investment Companies, a lobbying group for the hedge fund industry set up last year by short seller Jim Chanos, welcomed the report.
“These guidelines represent a cohesive roadmap for examining an appropriate balance of oversight while preserving the critical benefits that hedge funds provide to the U.S. capital markets,” Chanos said in a statement.
The report is a welcome change for the industry, which has fought off attempts by the SEC in recent years to increase regulation. The agency introduced a rule that required managers to register as investment advisors, but the effort was blocked in court last year.
“The hedge fund industry breathes a sigh of relief any time regulators come out with official statements that don’t explicitly require more regulation,” said Jennifer Spiegel, a lawyer at Debevoise & Plimpton LLP, who represents hedge fund firms including Tudor Investment, Ramius Capital and Alstra Capital.
In December, the SEC tried another tack, proposing that would-be hedge fund investors have at least $2.5 million in assets excluding their homes. That’s an increase from the current $1 million in net worth, which includes real estate, or earnings of at least $200,000 a year.
Spiegel noted that the President’s Working Group was careful not to comment specifically on the SEC’s latest proposed rules.
“Given what has transpired over the past year, the unison of regulators is important for financial markets,” she said. “They also left room for the suggestion that regulators certainly play a role and they can exercise their current authority. The existing authority of regulators is being respected.”
While proposing no new rules, the guidelines did focus on credit derivatives as an area of concern.
Like hedge funds, those instruments have ballooned in popularity in recent years, sparking concern that regulatory and back office systems and procedures haven’t kept up with market developments.
The working group said on Thursday that firms which lend to and trade with hedge funds should strengthen processing, clearing and settlement arrangements for credit derivatives and other over-the-counter derivatives. The group also recommended hedge fund managers do the same.
“These guidelines should serve as a foundation to enhance vigilance and market discipline further, which will strengthen investor protection and guard against systemic risk,” Treasury Secretary Henry Paulson said in a statement.
SEC Chairman Christopher Cox told CNBC that the guidelines will help each regulator pursue their own hedge fund goals, adding that maintaining market discipline and providing enough disclosure for investors are important.
“If we don’t know what’s going on, something might be amiss,” Cox said. “But a lot of liquidity is being provided by well-run hedge funds.”
“We want to maximize the benefits of these private pools of capital and minimize any downside,” he added. “Investors obviously know what they’re doing, but it’s important for them to have the tools they need.”
House Financial Services Committee Chairman Barney Frank, D-Mass., called the guidelines a “first step” for addressing questions about hedge funds and said in a statement he wants to call members of the presidential group to testify at hedge-fund hearings this spring. End of Story
Robert Schroeder is a reporter for MarketWatch in Washington.
Alistair Barr is a reporter for MarketWatch in San Francisco.
“We want to maximize the benefits of these private pools of capital and minimize any downside,”
Leno needs to book this guy or hire him as a joke writer.
New Thread Idea: Leno material
Actually, he is an idiot and no one listens to him. Did you hear the spin on the Brits pulling out of Iraq?
read the community banking bill- then vote
“Luxury home prices in California fell for the first time in two years as potential buyers waited for prices to fall and fewer sellers received multiple offers, according to a survey by San Francisco-based First Republic Bank.”
LOL! Again we second party confirmation that there few if any multiple offers. In a different article from Yahoo some realtors claim multiple offers are still very common.
What they mean to say there are plenty of ‘Fake Multiple Offers’ designed to make buyers over bid. Oldest trick in the Book.
Which is why I plan to write any offer I make null and void upon being informed of a competing offer.
Either that, or my “best and final offer” will be 5 to 10% below my previous offer. If they even respond to that… you know there wasn’t another offer.
Got popcorn?
Neil
Late Mortgage Payments Surge
http://money.cnn.com/2007/02/22/real_estate/mortgage.reut/index.htm?postversion=2007022214
Heres an excerpt “”We know for certain that more than three quarters of the mortgages held by all FDIC-insured institutions are prime loans,” Brown said. “The actual percentage is certainly higher - perhaps as high as 85-90 percent.”
Yeah right, who are they kidding.
Depends on your definition of prime. Primed to erupt like a volcano.
What does Kudlow have to say about this, I was working out at the gym at lunch and he had a Joe Pagalia talk about gold.
Prime shmime. All my borrowers are subprime, none of them is in default. Why? Because they all have big fat down payments to protect, that’s why.
az_lender:
“Prime shmime. All my borrowers are subprime, none of them is in default. Why? Because they all have big fat down payments to protect, that’s why.”
Have they experienced their interest rate resets yet? Even with a 20% fat down payment to protect, many will default once the real (non-variable teaser) rates set in. Be patient.
What if house value decrease 11 % from time of purchase the 20 % down won’t protect you.
I was saving someone from buying today and using the 1986 tax law change as an example of how some speculation was removed early in the last boom/bust
deprecaition went from any method you chose to 29.5 years - they also gave you an escape clause on recovery- does anyone remember the terms?
tia
“…If a typical house is going for 400K, a ten % downpayment would be 40K….realistically, how many people can do that?…”
No sh#t Sherlock. That’s why prices could be coming down more than you think. And try making that 10% into a 20% or 80K downpayment…..
I didn’t know that the 20% downpayment came about during the Depression. I’ve been praying they’d come back. That bit of info makes it seem more likely than ever that they will. For the same reason they introduced them the last time of course.
concur
“Leslie Appleton-Young, chief economist for the California Association of Realtors, said many buyers in Los Angeles County ‘were underwater’ with their loan payments in 1992 but managed to find a way to stay in the home. ”
What she failed to say was that during the crash of the early 1990’s in CA even the “more desireable” coastal areas (e.g. Huntington Beach) fell in price by 25 to 40 percent. Guess that detail was not worth mentioning…..
She also doesn’t mention that interest rates were going down, so homeowners could refi into lower rates — and their monthly payments would go lower.
Also failed to mention that most homeowners at that time had some skin in the game, and had put 10-20% down on their purchases.
Also failed to mention that most owners didn’t have “exotic” loans which bumped monthly payments up by 25-100%+.
No bubble here. It’s a soft landing. Matter of fact, it looks like we’re bottoming out right now. [sarcasm]
‘Consumers could not afford not to buy. But when that that appreciation factor goes away, psychologically they are not in the same place.’”
Yeah, they chose the blue pill you schlep
“Last week, a San Diego-based subprime lender, Accredited Home Lenders, joined the ranks of companies vowing to tighten standards after reports of significant losses last quarter. Rick Sharga of RealtyTrac said he’s noticed the link between the lenders’ stricter regulations and the rate of foreclosure activity. ‘I think the two go hand-in-hand,’ Sharga said.”
ROTLMAO. Gee, where did you get that idea?
H&R Block announces big (>$100M) subprime mortgage losses. Funny, they want to sell that part of their business, for $1.3B. Who the heck would want it ?
http://www.bloomberg.com/apps/news?pid=20601103&sid=az1v1SluE9Oc&refer=us
AWARD FOR MOST IDIOT REAL ESTATE CABLE SHOW, and it even exceeds FLIP THAT HOUSE and similar shows
The show is : MY HOUSE IS WORTH WHAT?
this description from HGTV site
“My House is Worth What? is a new series that began airing on HGTV in August 2006. Each show tells homeowners across the country what their current home is worth, where they should renovate if they are planning to or just how much equity is available to fulfill a life long dream (child’s college, wedding, trip around the world, etc.).
Here’s the problem: The local appraiser/real estate expert is assigned a certain property, generally one of 3 in each show and values them more or less - as is - maybe suggests a minor change such as a coat of paint, minor renovation here and there. The owner awaits breathlessly (nearly invariably they are trading up and need to absolutely get a very high price). Then he announces the price like they have won a huge prize, usually a price way way high and then the owner(s) hugs him or her and proclaims the wonder of the prospect of soon getting all that cash
The show acts like the appraised price can automatically be sold at that price, and it appears to be dealing with markets from 2004/05 and is clearly not adjusting for the current situation
This show is pathetic
I’ve seen that show. I always felt like it was ending too early by accident, like, when do we get to see the sale??
“The local appraiser/real estate expert is assigned a certain property…The owner awaits breathlessly…he announces the price like they have won a huge prize…then the owner(s) hugs him…”
I just threw up in my mouth.
As pathetic as the way they calculate profit in “Flip That House.” They just pick the amount paid, renovation cost, and a hypothetical sale in a future unknown. They never consider sales commission, the flippers personal labor cost into it, opportunity costs, etc, or if the house was ever sold and how long it took to sell it. It’s funny when some flippers think that they are sophisticated and start making crazy stuff like putting a jacuzzi in the middle of the bedroom…it’s hilarious.
“‘Frankly, I didn’t realize it was that easy to do,’ says Doug Self, who used 100 percent financing last year to buy a house in Citrus Heights.”
It’s not supposed to be easy. If you didn’t write one of the biggest checks of your life when you bought the house, chances are you will be forced to write it when you sell the house. Except in that case you won’t have the house anymore.
Other than requiring people to put skin in the game, I don’t see the point of downpayments. Lenders would be better served requiring 3-5% to be maintained in escrow accounts.
Actually those new loan products that combine automatic-deposit checking & HELOC mortgage processing (each paycheck is applied to the loan balance on payday, with subsequent checks acting like HELOC withdrawals) should be the way to go.
And in which direction do you think the balance would go?
I certainly hope you are joking about this.
—————————–
BTW, yes, lenders SHOULD want borrowers to have “skin in the game”. You’ll soon find out why.
Additionally, the 20% downpayment protects the lenders from the first 20% loss. You’ll soon find out why that’s a good idea, as well.
“‘They got in at the top of the deal and didn’t get out quick enough,’ Mitchell said.”
By definition, you can’t have a market peak without some lucky chump buying at the top. He’s like the guy who finishes last at the circle jerk and has to eat the cookie.
San Diego foreclosures 1,855 today, about 100 increase in 2 days:
http://www.foreclosure.com/search.html?st=CA&cno=073&z=&tab=f
The REALLY interesting thing about looking at those is to look at the Zestimate “1 week change numbers”. I don’t know if they bounce around, but there are lots of them with -$5K to -$10K per week next to them !
http://www.foreclosure.com/listingdetails.html?st=CA&tab=f&cno=073&z=&pg=9&listingid=5862889
Foreclosures…… 100% increase in 2 days………..
The magic leading indicator……..
This elevator is going down, and don’t…..I repeat don’t……buy before we reach the basement.
More pop-corn please Neil
What’s interesting is, when looking up some of these addresses, they are not on the MLS. Anyone know why (other than to suppress the inventory numbers)?
“‘Realistically, if a typical house is going for $400,000, just to do a 10 percent payment is $40,000,’ he says. ‘How many people are going to scrape together $40,000 in a reasonable amount of time? That’s three years of socking away a grand a month and not having anything go wrong. That’s just not realistic.’”
You want realistic? Realistically, if you can’t afford to sock away a thousand bucks a month and more, how the hell do you think you are going to afford a house? Even during times of “ordinary” fundamentals, once you include property tax, insurance, maintenance and so forth, owning is at least $1k per month more expensive than renting, probably more.
the way I figure it, a condo’s overheads basically wipe out the mortgage interest deduction. My $1320 rent in Sunnyvale translates into a $180K condo purchase, but such a beast hasn’t existed around here since the dotcom money flowed in.
Even during times of “ordinary” fundamentals, once you include property tax, insurance, maintenance and so forth, owning is at least $1k per month more expensive than renting, probably more.
————————–
That may be; however, many people (including myself) have bought when the PITI payments are LESS than rent.
It will happen again. Patience…
Yeah, when I did the numbers back in the mid ’90s in SoCal I calculated it would cost slightly more to buy, but that was for a house versus the apartment I was renting. I didn’t pull the trigger because I wasn’t sure I would stay for 7-10 years (buyers these days don’t seem to care about such conventional wisdom). I’m looking forward to a second chance at that decision!
Listening to this morning’s podcast of KPCC’s “Air Talk.” Legislative budget analysts estimate a $2 billion shortfall for FY 2007 in California compared with Schwarzenegger’s revenue estimates. Main reason for shortfall: lower than expected capital gains quarterly tax payments last quarter, lower than expected property tax revenues. They are recommending spending cuts in education and elsewhere.
LA times had it today’s edition:
http://news.google.com/news/url?sa=t&ct=us/68-0&fp=45de4a19c86e4599&ei=OYHeRfGBB4fQqQOr0NEW&url=http%3A//www.latimes.com/news/printedition/california/la-me-budget22feb22%2C1%2C637284.story%3Fcoll%3Dla-headlines-pe-california&cid=1113840676&sig2=RHGtpNxnAmdfLYAz_JzEgQ
here’s the summary:
L.A. Times news for tomorrow’s print edition, up on their web site now:
http://www.latimes.com/business/la-fi-homes23feb23,1,5120913.story?coll=la-headlines-business
“Sales of vacation homes slide 37%”
Look at the awesome jump in Los Angeles inventory over the last week.
http://www.housingtracker.net/old_housingtracker/location/California/LosAngeles/
I’m lovin it.
This must be the post-Super Bowl party they have been promising!
I was taking the trash out today and saw a trash barrel full of Centruy21 signs. I guess the lady 3 doors down is finally quitting after 15 years. She has been trying to sell her own townhome for over 6 months with no takers.
You should take a picture of that! Great visual sign of the times.
The standstill between sellers and buyers need to be broken so that the housing market in California will start moving. Buyers should start lowballing their house bids and make sellers realize that times have changed and this is reality. House prices are too high and that their houses are not worth what they think. Low bidding will push house prices down, no doubt about it. Spring is coming and house inventories are outrageous with their outrageous prices. If sellers won’t drop their prices substantially, be prepared to see a lot more inventory of unsold homes and foreclosures. The RE in southern CA does not look good and things will change as soon as the greedy sellers let go.
The problem is that houses need to drop by about half in order to become reasonably priced again compared with renting. Yes, we can spend our weekends making 50% bids, but what’s the point?
No one is going to accept such a bid yet. The market has to work its way down to that point, and that’s going to take years.
Most of the people who will buy between now and then are going to get screwed - even if they can afford the price, they’re going to have a depreciating asset on their hands that would be much cheaper to rent. Let those chumps drive the market down for the rest of us while we sit back, munch popcorn, and enjoy the show!