The Housing Bubble

On a related note, there are hedge funds that short subprime like Lahde Capital’s U.S. Residential Real Estate Hedge V (V signifies that its leveraged by a factor of 5, and explains why it is up 50% year).

Does anyone know the equivalent that a small investor can buy into (using a discount broker like Etrade)?

Thanks in advance for any pointers.

I posted an article a few days ago about a con man who convinced a bunch of Greenwich investors that he was running high-dollar hedge funds. So… I’m not buying into any Craigslist hedge funds, thanks!

this was the immediate reaction from the market on the possible bid from kkr for txu

Credit-default swaps based on $10 million of TXU’s bonds rose $770 to $84,380 … It was the first increase since Feb. 14. A rise in the cost of the contracts, used to speculate on a company’s ability to repay debt, signals deterioration in the perception of credit quality

i hope that the final reaction will be much more brutal. the rating on txu is already junk! and they have $16 b in debt outstanding.

Well, that’s horrible advice.

I have to mention, I see everything with a “FL” view. Overpaying for your home is a disaster in FL, as your taxes are based off that inflated number for the rest of your life. Assuming we get a portability measure (I hope not!), the price will set your basis for your entire life in FL.

It is NEVER a good time to overpay for a home. Can you really afford to leverage something that costs 100’s of thousands of dollars (highly leverage) and have it be a losing investment? I can’t; I am not rich, but if I can’t afford it, statistics tell me that almost nobody else can either.

Bottom line: If you can afford to make the purchase now and you’re planning to be in the house for at least five years, “I wouldn’t be worried about buying a house today,” says Reston, Va. financial planner Patricia Houlihan.

Does anyone else agree with the 5-year timeframe? I don’t. I think it would have to be quite a bit longer (10? 15? years).

And what is with people selling every couple of years? My parents only owned 2 homes in their lifetime - starter and move-up. I plan to own only one.

ajh,

I have seen this board, developed by appraisers, for use with lenders. I have no experience with them, but applaud their efforts. I plan to download all the data I collected to this group, as well as other appropriate entities.

While I have the database entry program completed, I have decided not to move forward any further with PaladinReports.com. This is a totally volunteer effort and it takes an enormous amount time. I am unable to keep investing this time and the ongoing effort is unsustainable. I assume if people report suspicious actions to mortgagefraudwatchlist.org action will be taken. That is more than I can offer today.

When I started the concept of reporting mortgage fraud it was to bring some sanity back to the market. I could not believe the lending stupidity that just kept on going. Then, Ownit Mortgage melted down in December. What a huge and verifying moment that was in my life, since I had just looked at 2 homes in California, where their loans were foreclosed and title was taken by Deutsche Bank (funny how it seems a majority of the foreclosures seem to wind up with HSBC & Deutsche, two offshore banks). I no longer felt like I was “whistling in the wind”. I must have read the press release 4 or 5 times that fateful day.

Earlier, when I told my father I was investing money and time to create a web site, designed to change the world by reporting mortgage fraud and ending over-encumbered, idiotic sub prime lending, he flashed that loving twinkle in his eye and said, “Son, this lending world will change in due time, with or without you.” He encouraged me and still enjoys all the feedback, but he also gently reminds me to stay balanced. I have a habit of investing huge energy in making (or trying to make) things happen, when a little patience and balanced participation goes much further in the long run.

Since Implode-O-Meter has been formed and the sub prime lenders are dropping like flies, the world has awoken to the foolishness in the lending world. It is just the beginning and credit will tighten for years, as the housing market balances out. California has experienced a watershed moment in the collective consciousness of the majority of today’s buyers. Everywhere you turn, you hear a story of a foreclosed FB someone knows or a tale of a friend with a HELOC going to 9.25%, secured by mythical equity. Sometimes you hear plans like people buying a second home for $200,000 less than the one they bought a year ago, then tossing the keys to the existing home on the roof. Times have changed.

Homes that sold for $500,000 with 100% 80/20 sub prime mortgages are being taken back in pretty significant numbers, particularly in new subdivisions. Typically, the lenders are listing them at $400,000, and foregoing any recovery of the second mortgage (hello, HSBC). Ironically, the homebuilders are cutting their prices to $350,000 and throwing in $50,000 of incentives to new buyers. How silly is that? The homebuilders made buckets of money primarily because the sub prime lending existed. Now the homebuilders are undercutting the sub prime bag holders. Both parties are losing, although the homebuilders are moving some product and keeping their skeleton crews working.

I have received lots of e-mails with unbelievable amounts of questionable loans. I still have several weeks of work to catalog them all in the database. Please rest assured action is being taken and the “proper” entities are reacting. I cannot say much more at this point, for various reasons.

Bloggers here know that housing prices are sticky on the way down. In my opinion, it will take at least 3 more years to reach a true bottom (2010), though if you find a decent deal in the next couple of years, which you can afford, I encourage you to consider buying it.

Furthermore, please remember that the home building community serves a vital function to all of us. They build shelter. The easier it is to build homes, the more affordability we will have in the future. Sure, there are some builders who are cutthroat cheaters, but the vast majority are fine people. I had dinner with a Sr. V.P. of a home building company a few months ago. He told me when they entered the Stockton, CA market in 2001, they forecasted selling houses for $250,000. The fact that people stood in line and offered them $550,000 was unexpected, but why would they turn that down? Many of you on this blog did the same thing in 2005, on an individual scale. This homebuilder will continue to build homes and sell at levels that move product. They will not be profitable for a while and they have to “find the market” to survive. Right now, that looks like smaller homes, smaller lots, fewer amenities and more affordability.

I hope I made a small contribution to the world with my posts on Ben’s Blog. My favorite post was here http://thehousingbubbleblog.com/?p=2311#comments where Tathgata Gutha Roy, a United Kingdom banker was pontificating about whether HSBC had seen the worst of this mess. I kindly described 25 loans (the mojority of which were 150% over encumbered), which I had recently reviewed from submissions to the Paladin site. I showed him this was just the beginning. One of you posted his companies e-mail address, which I then cut, pasted and sent. I bet he was surprised, when he read it. We had hits on the Paladin site from the U.K.

The only reason I was able to have a forum about sub prime lending is because of The Housing Bubble Blog. I know many of you have indicated a desire to support the Paladin Reports activities when a PayPal account was established. In fact, some of you submitted PayPal donations even though I did not yet have an account. I suggest you take those good intentions and donate them to Ben today. I cannot tell you how much work he must put into his blog.

Someday, I hope Ben tells us how many hits he gets every day and break them down as best he can by nation, industry, individual posters, etc. I find this to be a fascinating time in world. If I had been able to read Ben’s blog in 1989, I would not have purchased at the top on the housing bubble in 1990. I lost 35% of the value of my home by 1994. I calculate my net worth today would be $238,000 ahead of where it is now if I had waited until 1994 to buy (though I probably would have just spent the money I lost, instead of investing it). Strangely, I almost bought again in at the top, yet for this blog and others.

Certain information will be available to me in a year or two, which will interest and fascinate all of you. I will be able to post it here and I will. Thank you all for the inspiration and support.

Paladin
Wire Paladin, San Francisco
Have Gun, Will Travel

ajh,Pam crowley at Mortgagefraudwatchlist.org has a slightly different approach than paladin,both are valuable.Pam is a appraiser who posts regularly on Appraisersforum,and last year she asked all the appraisers to fax her copies of orders from loan brokers than demanded or requested a particular value..It is a violation of law for an appraiser to seek a predetermined value.so Pam builta database of crooked brokers and skippy appraisers and started notifying lenders.any appraiser getting an order saying “i need to hit $ to make this work” is in deep doodoo if they take the job.she now has a subscription service for lenders that identifies properties by address…so broker sends the illegal order,appraiser says no and notifies pam,another appraiser takes the job,and when the loan hits underwriting it is automatically flagged for review.anyone who sees something squirrelly can report it to pam,such as the cash back deals on craigslist.I have given pam’s site to a few of the loan and real estate brokers i know who are honest,and we all have had something to report…i mean you do not have to go out of your way to see fraud in real estate,it is at least as blatant as the dealers standing on the corner in oakland.

http://www.apartmentratings.com is one that I use.

Contacting the mother ship is usually a good idea, especially if your employer is a frequent user. Better yet would be to have your employer contact them and request a partial refund. You’d be surprised at how much you can get accomplished via that route.

with the eventual blow-up, that risks had been spread sufficiently so that nobody suffered too big a hit. “

Ah yes, the holy grail . . . riskless free money. Wouldn’t we all love to have some of that. We’ll see over the short to intermediate term just how rigorous those models were and whether the Nobel Prize econonomists were worth the money.

“that risks had been spread sufficiently”

(Strike up the Lone Ranger Theme Song)

American taxpayer to the rescue!

Boy the home builders are going to be hunkering down now. I smell fear, and there is no place to hide. Wonder if Toll of Pulte will have some emergency executive meetings.

On another note, I read a blog where a guy, after getting a real estate agent’s take on buying a home, asked the agent if she had a mirror so he could see if he looked like an a$$. Now that is a great line!

Rather than backdating these guys should be shot for shoddy construction practices and defrauding the public.

Remember the story a month or so ago about the bonus baby who decided his $6M pad just didn’t cut it and went shopping for something at $20M. Blows my mind. Why not take that money, pay off the $6M place and live in Manhattan for free the rest of your life?

I owned a jewelry store for 15 years and this is typical. The $31k watch is his chit chat ice breaker for discussing his success. Think of it as a VERY expensive business card…..

In favorite customer category, they rank #2…..#1 is the guy buying for his mistress….always cash….and usually a big ticket item.

I know individuals that buy 30K+ watches because of the portability and value. A Patek is easy to carry across borders and is easily convertible. 30K is not an expensive luxury watch. There are a lot of watches over 200K

Wall Street Journal has really been piling it on this week. As has CNBC. There was a little headliner there yesterday : “Housing, From Boom to Bummer” (!)

I guess this means that the news is finally reaching those who read/watch the financial media.

Next stop: the average guy on the street.

Get that popcorn ready Neil, that’s when the fun begins.

Yes there are four other boroughs. And another besides if you count the (similar) Hudson County, NJ, which has its own subway (the PATH).

from the same nytimes article today:

“But that doesn’t mean that Mr. Maundrell thinks that every renter should run out and buy, especially if they expect to sell within less than five years. ”

“There’s too much product coming out in the next two years,” he said. “In five years, people who are buying today should see a bit of appreciation.”

it is NOT different in manhattan. buyers are already getting 10-20% more for their money than they were getting a year ago, and we’re not even into the 3rd inning yet. and even this “no appreciation for 5 years” is just the first false bottom being declared by the nytimes spin machine (and evidently the nar as well). don’t expect a bottom until 2014+.

and wishing prices have begun to fall as well: 1 year ago the only standalone mansion in manhattan, at 107 and riverside dr., was asking $31M. then $29M. then $25M. and now $20M. purchased in 1979 for $379K.

and in the last 2 weeks i’ve seen the first studios on the UWS for $199K.

prices are coming down. just wait for june for the next big ratcheting down, probably another 10%. and then the one after that….

“Of course for the NYT, in their usual myopic way, the city is only below-96th Street Manhattan and select parts of Brooklyn. They don’t mention rents/purchases anywhere else in the five boroughs.”

on the east side, 96th may be still be considered a funky line, but definitely not on the west side, where the most valuable, beautiful (and safe) residential urban architecture in the world extends north of 96th bet. riverside dr. and bway — right up to 125th st (much of which is columbia u professorville).

that’s because too many crazy people want to live in manhattan, suffer on the lex and 7th ave subway lines like it’s japan, etc. i never understood it.
long island city in queens is the next hype story where you pay manhattan prices to live a few stops from midtown in fresh direct certified buildings

you go out further from manhattan you get livable neighborhoods with much better schools. $1500 or less rent for a 1 bedroom in forest hills. buying is another $100 - $200 a month.

funniest NYC rent story i read was in the Village Voice where 3 kids were sharing a 300 square foot studio for $2100 a month. WTF is wrong with some people? do you really have to live in manhattan that bad to give all your money to an investor who is making a killing of you?

Sigh, they just can’t stop pushing people to buy, can they? Why not a study on why NYC is the least affordable place to live –both in terms of owning and renting, but how, according to the math, it is still far cheaper to rent than own here:

affordability nyc in owning:
http://money.cnn.com/2006/08/22/real_estate/most_affordable_metro_areas/index.htm?postversion=2006082217

And renting:
http://www.forbes.com/2006/08/14/expensive-homes-apartments_cx_lr_0815rental.html

Now let’s look at furman study - in 2005, median rent for NYC as a whole was $900 - whereas price to buy a condo -$400,000 — median market rent for NYC was only slightly bigger - $1000 per month (see housing vacancy survey link - 2nd from bottom).

nyc median prices to rent/own:
http://furmancenter.nyu.edu/publications/documents/SOC2005_RecentTrends_000.pdf

Now look at Manhattan - about 1,200 median rent in 2005 - (median market rent for 2Br was $2300 in 2003 — see link at bottom- assuming a hefty 10 percent hike a year-that’s only $2800 as of 2005 figures) median market rent– cost to buy condo — close to 700K:

median manhattan prices to rent/own
http://furmancenter.nyu.edu/publications/documents/SOC2005_Manhattan_000.pdf

median market rent figures (table 12)
http://www.nyc.gov/html/hpd/downloads/pdf/2005-Housing-and-vacancy-survey-initial-findings.pdf
nyt times market rent chart from 2003:
http://209.85.165.104/search?q=cache:UMiYww0UJMAJ:www.wirednewyork.com/forum/showthread.php%3Ft%3D4251+%22median+market+rent%22+AND+manhattan+AND+2005&hl=en&ct=clnk&cd=1&gl=us

One of the most important NYC housing stories of 2007-2008 (though the Times is too much a shill to RE industry to report it) will be how many folks living in rent-stabilized housing left the relative safety of their apartments for the siren song of easy money loans to buy a house.

Is this the “hop sing” from the TV show Bonanza?

–

LA County is the only Co., of the 32, in CA that is not down in price from the peak. It was flat from Dec’06 to Jan’07, but as you can see it has been more or less flat for the past eight months:

Jun 2006 $520,000
Jul 2006 $522,500
Aug 2006 $522,000
Sep 2006 $520,000
Oct 2006 $520,000
Nov2006 $520,000
Dec 2006 $525,000
Jan 2007 $525,000

The above is from DataQuick that includes SFH as well as condos, new and resales. Median decline in CA counties is 7.6% from the peak prices in various counties. San Diego was the leading edge of the bubble, followed by Orange Co. The bubble came later to LA Co. I expect 2007 to be a down year for LA county.

Jas

It’s hit or miss nowadays. Take a look at this DQ CA city price chart for Jan ‘07. Note that these numbers can be skewed due to the low number of sales for a particular city in a month. But, I’ve seen areas like the South Bay beach cities that were down YOY for a few months in a row now.

http://tinyurl.com/yvnzo7

Comment by peter m

2007-02-23 21:19:55

Lets look at some data on hi-end zips in LA county:

AREA ZIP #SFHSOLD PRICE YOY:

Agoura Hills 91301 31 $795 -3.9%

Beverly Hills 90210 19 $1,899 -17.9%

Chatsworth 91311 20 $725 22.5%

La Canada Flintridge 91011 11 $1,363 1.8%

Brentwood 90049 17 $1,479 -11.7%

Hollywood 90068 22 $1,165 8.4

Westchester 90045 24 $695 -13.1

Long Beach 90803 16 $850 -19.0%

Manhattan Beach 90266 31 $1,308 -11.6

Pacific Palisades 90272 20 $2,000 -12.7%

Pasadena 91106 13 $1,295 72.7%

Rancho P.V. 90275 31 $929 -24.2

San Marino 91108 18 $1,288 -7.5

Studio City 91604 15 $1,200 16.5%

Valley Village 91607 18 $688 -11.3%

I selected a varied sampling of hi-end or solidly middle class zips and included both neg and positive yoy’s for impartiality. 10 zips showed neg yoy and 5 positive. Attempted to only display zips with a fair amt of selling activity(15 to 31 for most zips). Data shows a mixed picture but overall a trend toward negative yoY for majority of LA pricy zips.

Studio city/pasadena/chatsworth puzzling abnormally hi yoy’s may be expained by some small group of newly-built megaexpensive villas just on the market. All over the LA expensive coastal areas/hollywood hills one will still see open available plots or teardown lots that some would be newly -minted hollywood star decided needed a $10 mil Roman palace.

“For $4,000 a month even at these stupid prices I could own a friggin home in SoCal a half mile away in Westchester.”

Probably with less airplane noise, too!!

Nice! I haven’t heard the Diabolical Biz Markie in years!

Your story is similar to my buddy’s who just got divorced and was looking to upgrade from his 1 bd 1 ba apt. to a better location in Redondo Beach just for a change of pace.

He went to look at a few apts. that were in nice locations in Redondo (one near the Village, one near the Pier) and he couldn’t believe what some of these places were charging for the $$$. One of them was in horrible condition with no garage and he asked the landlady “why he would pay $1800/month when he can live in his much nicer place up the street for $1200/month?”

She replied, “What do you think I should charge?”

LOL. I’m guessing a recent “investor” trying to make the numbers work. He finally decided to stay put…and get a new flat-screen TV to make him feel better…

You should see if you can find out what the house sold for on the county website — or at least post the addess, so that someone else can look it up. Might want to also send it to this guy:

http://bubbletracking.blogspot.com/index.html

He delights in highlighting stories like this one.

–
“This property on sutter street is in default for $649,597. 893 sq ft, 1/1 or 2/1, 1946 vintage next to railroad tracts in the tijuana slumzone known as Pacoima.”

I smell a rat.

Jas

IMO the reversion of credit standards should end this BS fairly quick.

Actually, her advice seems to be somewhat sensible this time, no? She’s making it clear that if you want to get the best price possible for your home, you’re going to need to make sure your home stands out.

Without saying so directly, she’s admitting that there is real downturn.

We warned that years of abusive mortgage lending were destined to lead to rising credit losses and debt downgrades, and we called attention to the vulnerability of subprime (the BBB-tranche of the ABX Index), which at the time was trading near par at 100.

Meanwhile, the price of the BBB- (subprime) tranche of the ABX Index steadily declined from par to the low 80s.

It’s not just the BBB- tranche that is subprime in these $1-$2 billion pools of MBS - the ENTIRE pool is often subprime. The BBB- tranche is just the first one to get eaten up (lost principal) in case of losses. The lowest tranches are the “moat” around the higher ~80% of the pool, which even though subprime, has AAA rating. That is the real trick behind making these piles of toxic garbage appear like regular bonds.

In case of a huge price decline and large scale defaults, the entire pool can blow up, including the 80% or so of it that is AAA rated.

For anyone interested in the full details of how this black magic finance works, Russ Winter has a great primer on the whole scheme of these MBS’s on his blog (look for January 16th blog post).

China has all the money and look what its citizens are doing with it………..
http://www.safehaven.com/article-6990.htm

Another bubble ?