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The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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Down sizing?
http://www.mercurynews.com/realestatenews/ci_5349031
Will RE/Mortgage business behaviour improve or deteriorate in a bear market?
Personally, I believe it will improve incredibly but not by their doing. The market will dictate that they don’t run amok because there will be so little activity. The past few years they hid behind their massive numbers.
“If 100,000 houses are selling, how will anybody catch me if I fudge the numbers on 2?” That will change to, “with only 1,000 houses selling I better not fudge on anything.”
“If we are making $30 billion in subprime loans who is going to notice my $6 million portion of this madness?” That will change to, “there are so few loans being made that I better do everything by the book.”
Reversion to reality will be “the new paradigm” for the shysters.
On the other hand, we may see a tendency to screw every last cent out of each individual deal, on the basis that the next deal could be a long way away.
I’m thinking there will be some very hungry Realtors and Mortgage Brokers in a few months.
Desperate times bring desperate measures. This, I assure you, is already happening. Fraud and deception will increase in the months ahead, no question about it.
nnvmtgbrkr;…..Whats with the ex- ???
I had a horrible thought the other night that I want to dismiss the stuff of cheap horror movies on the part of my sub-consious, but I can’t quite kill it.
As the toxic loans solds as MBS explode, the buyers of those securities will be looking to the original sellers to buy them back for not performing. Would some of those original sellers, in desperation, look to any ‘good’ loans that they still have around (I’m thinking most of those would have been sold as MBS too) to see if they have a demand clause, and if so, exercise the demand clause upon people in an last gasp attempt to raise cash? I know that 98%+ of the people targeted would not have the cash on hand to suddenly pay off thier mortgages in full, and the lenders would know that, but instead their real hope would be to force them to take out new loans (at higher rates most likely + fees) to pay off their old ones.
Ok, Start laughing at me and passing the tin-foil hats. Tell me that desperate lenders, who are dropping like flys, would never do that even if they could.
They can “call in” early, Good, being paid on time 30 year fixed mortgages? How so….
Draconian demand clause in the loan docs. There was a some brief discussion of them here a few days ago. Not all loans would have such, but I would imagine some do (perhaps next to the insane prepayment penalities)…
As I said, I don’t think it a seuious possibility, but I wouldn’t mind someone who knows more about the subject to explain the deatils of such a thing better.
NYC-
You’re kidding yourself
March Madness and global liquidity
Here is a link to a very interesting and informative
article describing the orgins of global liquidity:
http://www.wachoviasec.com
It really helped me to understand some of underpinings
of the credit bubble as discussed many times on this blog.
Some excerpts: (italics are article text extracts
and bolding is my emphasis)
Most people think liquidity simply refers to the
growth rate of the money supply or the availability
of credit.
But liquidity is much more than that. Liquidity is
anything that allows you to trade one asset for
another while minimizing the loss in value.
Money certainly plays a large role in providing
liquidity but so do financial innovations such as
Mortgage Backed Securities, credit
default swaps, subprime loans, and 1031 tax-free
exchanges of commercial real estate.
Financial innovations, including the
growth and maturity of the derivatives market,
a plethora of new mortgage products, the
deepening of the loan syndication market,
increased international capital flows, and the
growing popularity of 1031 exchanges
are other important key sources of liquidity.
Just as the case often was back in college,
when you have too much liquidity sloshing
around for too long, people tend to do some
very foolish things. Apparently that
includes loaning money to folks with spotty
credit histories to purchase homes not
only to live in but also to speculate on.
Speculation of all types tends to increase
when there is plenty of liquidity, including
commodities, real estate,
and emerging market stocks.
What was the result of all of this liquidity?
As noted earlier, the drop in long-term interest
rates associated with the Fed’s unusually
accommodative monetary policy helped set off
the housing boom.
During the eight years prior to the Fed’s rate
cuts in 1998, housing prices increased a total
of 26.6 percent. During the eight years after,
housing prices increased more than three times
as much, climbing a total of 88.6 percent.
Author also addresses issues surrounding mortgage
fraud. IMHO, he severely underestimates the impact
of fraud and the [housing price collapse] domino effect.
Nevertheless, I think article was a good read
and a worthwhile worthwhile weekend discussion topic.
Here is the link:
(didn’t pass thru correctly on previous post)
http://www.wachoviasec.com/wachoviasec/
WSICommentary/03-06-07_indicator4.pdf
Yes, should the FED be abolished? Or maybe not abolished, since they are a private banking organization. Maybe just fired. I know many of you think the government would do a lot worse, but I don’t know about that. There are a lot of decent people in government who work very hard and the idiots they work with give them a bad name. If government were forbidden to work with business lobbies (which is how we got the FED in the first place), I think it would work out OK.
I’ve been reading a lot about government outsourcing these days and it seems to me it is far worse than when the government did things. Having private business groups write policy is not a good idea. Just read the Vanity Fair article about the government contractor SAIC. We might as well just submit our IRS checks directly to them.
Seems to me the FED causes massive financial problems.
I agree and when I read this comment I choked on my coffee:\
Timothy Geithner, New York Federal Reserve Bank President
“Central banks cannot realistically hold out the prospect of using monetary policy to prevent asset bubbles, conditions of ‘excess’ leverage in parts of the financial system, or other factors in markets that might lead to the types of positive feedback dynamics that were at the heart of some past crises.” – February 28, 2007
Like the federal reserve had nothing to do with the creation of this problem. Since he was asleep during the meetings, Geithner should at least read the federal reserve meeting notes where questions about monetary policy were discussed as ‘couldn’t this lead to asset bubbles’? (Greenspan responded we’ll pop them when they occur).
Abolishing the Fed would happen if Congress repealed the law of 1913 which granted them a monopoly on the dollar. If the government printed money instead of the Fed, no loans would be required; hence no interest which is a huge portion of our annual budget. The constitution vests authority to “coin money” in the Congress and the Supreme Court has held that constitutional powers can not be delegated.
Let’s just repeal the law that granted the Fed its monopoly!
I’ve been reading a lot about government outsourcing these days and it seems to me it is far worse than when the government did things. Having private business groups write policy is not a good idea.
————————
Couldn’t agree more!
There is no question that the 1031 exchange market has helped drive commercial real estate prices into the stratosphere and yields into the basement…..Unlike residential which usually has a emotional component in the purchase decision, commercial is usually driven by yield’s unless there is some value added twist to the deal…The explosion of TIC’s in the 1031 exchange investment arena now has allowed the small 1031 exchanger to piggy back into the larger deals previously reserved for the bigger dogs (REITS)….This has now introduced a “Emotional” component into the commercial purchase decision in that a small investor can drive by a large shopping center and say “I own a piece of that”….
One of my biggest concerns regarding valuations of commercial real estate is that “Tax Reform” in any significant way that curtailed 1031 would pound valuations……It could happen !!!…Those of you in the business in 1986 know this “all too well”…..When I see Buffetts comments the other day and Zell dumping his portfolio it makes me want to head for the exit….I may….
SCDave, interesting comments. One thing I have made note of, over the past, say, 36 to 48 months, is the very low cap rates in all of these commercial deals. If there is some sort of tax reform and then a more-than-mild recession (which appears in the cards already), then most of these small-time TIC players will be screwed.
I have stated it more than once on this blog, and to friends/acquaintances that are in TIC’s, there are very few properties justifying less than a 6% cap rate, and there might only be a handful of properties in our country worth a 5% cap rate (and those properties, IMHO are all in the vicinity of an investment exchange, like NYSE). There are plenty of other investments that pay a similar return, with a lot less risk.
For a rich guy to say “hey I own that mall over there” is one thing, but for a working class person to say “hey I own 1/10,000th of that mall over there” is silly, especially since they have no control over management and little voting rights.
Good points…
Dallas is scuzzier than any California city. This is just the beginning.
Eight indicted in loan scam
Authorities say group ran a mortgage fraud scheme worth $14M
12:00 AM CST on Friday, March 9, 2007
By PAMELA YIP / The Dallas Morning News
pyip@dallasnews.com
A federal grand jury has indicted eight people in a $14 million mortgage-fraud ring in the Dallas area. The defendants allegedly set up straw buyers for homes in high-end neighborhoods at elevated prices, defaulted on the loans and split the proceeds.
The 17-count indictment charges each of the defendants with conspiracy, bank fraud and wire fraud.
“The defendants ran a scheme to defraud mortgage lenders and financial institutions,” the U.S. Attorney’s Office said in a release Thursday.
Au contraire, txchick. Florida gets the top honors for sleaze and scuzz. The whole Coast Bank debacle, the third world corruption in the low income housing programs in Miami and on and on.
I hate to disappoint you, even California and Texas couldn’t begin to touch Florida when it comes to fraud. We ought to change the name of the state to Fraudida.
We’ll add up the numbers when it’s all said and done. Texas is so much bigger and the sheeple have this unique combination of stupidity and greediness, easy prey.
Texas may be larger in terms of land mass, but Fraudida has the population. And remember, Texas doesn’t have Boca Raton!
That is so true, there is a black hole of corruption in Boca…
Relaxe, txchic. Sad but true, people are the same everywhere. Texas may have the pure size advantage, but it doesn’t necessarily have the advantage is average transaction amount, or volume.
I’m sure in the end the fraud totals will be directly tied the total dolalr amounts.
So, we now have Fraudida, Clownifornia, so what’s the new name for Texas?
Takesass.
Texas and Florida over Cali please… Cali is king of stupidity
I love this board. Seriously, I love it! Only here would you see people arguing over whose community is dumbest. I personally think people here in the O.C. are pretty goddamn stupid, but I would never think they could match the stupidity of either Florida or Texas. On the subject of real estate, I have an interesting topic to discuss. I live in a neighborhood in the O.C. where $500,000 homes were selling for $1,000,000 at the peak. Now I am seeing a lot of construction amidst the “for sale” signs. (One crazy woman down the street has had all of the drywall and plaster removed on all but the front of her house so the studs are all exposed!) In addition to fraud, ARM’s, inflated appraisals, general insolvency, etc…, what further compounding effect do you all think homeowners who took out home equity loans on the inflated values of their POS’s in order to do home improvements will have on the bubble when their homes re-adjust to pre-bubble values? Just wondering if anyone else is seeing what I am seeing here.
I think the OC is definitely in trouble. Have one BIL engineer out of work. Have one SIL who may soon be out of work if/when Resmae moves servicing.
People paid double and triple what homes were worth to have bragging rights and now they are going to be screwed. There will probably be a general economic slowdown since someone psoted yesterday that 50% of job growth in the last five years is R.E. related. Retail will be hurting and have a contraction.
The interesting thing will be to watch former r.e. and mortgage professionals try to get new jobs thay pay anywhere near what they were making. And they will all be applying at the same time, which means a lot of downard wage pressure (the hiring manager can just pick the person willing to take the least amount of money). The smart people, if there were any, got out already and have new jobs. The rest will be screwed.
As far as prices go, when 1200sqft 1950’s shacks in downtown Santa Ana are going for $600,000; I know someone has lost their mind and prices have a long way to go down before hitting bottom.
I’m in the SF Bay Area AND it is different here. Housing prices ONLY go up. Google Money, Overseas Chinese + Indian Money, Dying boomers leaving their money to their kids, and the FACT that they don’t make more land all mean that housing prices will double in the next 5 years.
Bay Area Residents have a constitutional right to appreciating real estate
How much do you think your area’s house prices will decline by the end of this year?
In SE VA, I see more inventory than ever, and it is a working class/military area. I’m predicting a -7 1/2% average decline from January 1, through December 31, 2007.
I think the Big Apple will hold steady or rise slightly. The boroughs, especially Brooklyn and Queens, will begin a serious decline. The oncoming inventory in Brooklyn looks to be stunning in number. Northern Jersey is already getting a pounding.
NYC will hold up because the “we are so darn special” attitude is so thick. Once the stock market gets nailed the decline will be fast, harsh and bloody. When you are starting out at an $1,100 per square foot plateau you have a lot of room for destruction.
Update: The 6th Ave. Taco Bell/KFC is still shut down. We went by last night. I lit a candle for the rats.
where do you see the brooklyn inventory. my in laws live in sheepshead bay and i see very little for sales signs in the area except for the new condos no one wants.
We’ve had the biggest back to back year for building permits since the mid-1960s, enough for a 2% increase in the housing stock. Not much considering how many people want to live here, but a long for a fully built-out area like NY.
Now a tax break program from the dark days — 421a — will be radically scaled back at the end of this year. This program allows new multi-family buildings in much of the city to be exempt from property taxes for years and years and years.
Builders are rushing to get foundations in to be grandfathered (hope the mafia doesn’t put too much air in the cement). This could lead to a third massive year of starts in the face of the bust, and with lower construction costs thanks to the bust elsewhere.
We aren’t Dallas or Phoenix, but supply is going to have an effect here for the first time in 40 years.
i live in queens and prices are steady or up. if anything i see manhattan go lower because it’s time for the 10 year manhattan is too expensive so lets move out cycle. last time people moved to brooklyn and now it’s happening in pockets of queens.
The sales here in my town south of Syracuse have been so strange and hard to guage. Inventory is not up (we’ll see what happens when the snow melts), foreclosures are low single numbers, large homes are selling to retired couples who laugh about how there is plenty of rooms for the cats.
One 4500 sq foot Victorian home sold to a retired brain surgeon and his young son. Guess there is lots of room for play dates. He came from TX, Txchick…said he came here for his son to play lacrosse! I hear his ex is head something or other at University Hospital so its probably not that simple. Others moving here from Long Island, Vegas, and Jersey if you believe the contacts made on the local message boards. That’s really a lot of action for a town that is as small as ours.
I still see strange stuff out there like the $100k flip. Bought for $207k few months ago, back on market for $308k….two couples only here a year have both put their homes back on the market (ones a divorce, they have 3 homes and young kids…good luck with that). I have also heard rumbles of people in BK but also that it wasn’t the first time either….serially BKers, a common poser condition I guess.
Another new family from mid west moving after less than one year because it is so unfriendly….brand new McMansion on sought after lot….we’ll watch how that sale works out.
Weekend Topic: Bounty Hunters! Coming soon!
TXChick posted this yesterday and I think it is the most telling of the pervasive fraud.
“….And here is something you should probably be aware of—interesting new businesses are cropping up. These firms are offering to help mortgage lenders recover monies lost as a result of misrepresentation in the loan file, or actual fraud. They are taking these cases on a contingency basis, meaning they get paid a percentage of what is recovered, and are going after real estate agents, loan officers, appraisers, and yes, even borrowers. In addition to this, a couple of large investors have offered to contract the services of their special investigations units for similar activities.”
Leave it to private industry to find another way to make a buck of this mess. Of course they are doing what the underfunded feds should have been doing all along. Mortgage fraud is no longer going without consequences, now that Wall Street wants to get repaid all their money.
This would make one heck of a reality TV show!
Halliburton will no doubt get the clean up contract.
Dog the mortgage fraud hunter?
“Law and Order-Special Flippers Unit”
Maybe they will hire MS-13 as “recovery specialists”…..THAT would be ugly.
The kicker is that the MS-13 gangsters are most
certainly involved in much mortgage fraud themselves.
Could make for one those “must see” TV moments.
Set your TIVO’s and lay in some popcorn, the 2007 Fall
season premiere is going to be like no other!
a “me no sub prime” review
are the immortal immunes getting hit ?
GE closed several locations in Japan
will GE Capital get hit
WM. Wells Fargo
–Weekend Topic–
Is the credit crunching subprime meltdown thingy over OR are we just getting started?
I like the idea of discussing the subprime meltdown, the effects of all that easy money, the madness that it has induced, etc. I think we’re just getting started and it is going to get worse before it gets better. A lot worse.
It depends on whether someone with $$$ thinks they can hedge their way around it. They’re probably working on that as we speak. The “returns” are very enticing and institutional investors have high expectations. So many hedge funds depend on this. My guess is a fix will be forthcoming that will ultimately fail too.
“My guess is a fix will be forthcoming that will ultimately fail too.”
Oh, that’s practically a given! It just postpones the pain and makes it worse in the long run by putting it off.
Like putting a little Neosporin and a Band-Aid on a gangrenous sore.
This is clearly the topic of the day. We might explore how far the rings go out from the Sub-prime implosion. Clearly the “investors” who buy the mortgages and package them into MBS and sell them are affected. The buyers of the MBS are clearly affected particularly since defunct lenders can’t honor their obligations to re-purchase loans previously sold when they default early. What does the holder of an MBS do when loans default and the originator can’t buy them back? Foreclose on them himself? Does the organizer/packager of the loan pool have an obligation there? How about the pension funds who hold MBS? They are already seriously underfunded in many cases. How about realtors? People who had inadequate income were buying homes. But the lenders are tightening the rules and that will shrink the pool of potential buyers of homes. The surviving lenders will be hit two ways - their originations will decrease with the tighter rules and they are experiencing cash drains as they repurchase the early defaults they sold previously. So even if they somehow survive business ain’t going to be good. I am sure these are just a few of the considerations of what the subprime meltdown means, so let’s discuss it and see what others know about the situation. It truly is the key issue of the day, it seems to me.
Will the “subprime meltdown” begin to affect the BIG banks and financial institutions who are involved with securitizations and derivative insurance? If so, are they “too big to fail” and how would they be bailed out? At whose expense?
Anyone think there will be some major lawsuits against the ratings agencies?
–Weekend Topic–
I would like to hear from the lurkers out there. You know who I’m talking ’bout. The ones who read this blog regularly but never post. Did you make it out before the crash? Are you still trying to get out OR are you buckling down and preparing yourself to ride out the storm?
That’s along the lines of what something I thought about. Many of us here on the blog have stories of people we know personally making boneheaded decisions to buy during the boom. crisrose had a really interesting one at the end of yesterday’s Cali thread. I’d like to hear anecdotes from bloggers about people they know who have gotten into trouble and how they got into trouble. It would give us an idea of the pain ahead. It’s not that I want to hear about pain and trouble, it just might be interesting to have a few cautionary tales and to examine what could have been done differently, like crisrose advised the friend (who didn’t take the advice).
Palmetto, I like the personal story angle. Perhaps it could be broadened to include people who have been affected in any way by the bubble, not merely those who have made unwise financial decisions. After living much of my life in LA, I’m packing up the family and moving to Seattle, where I can afford to rent a decent house, etc. The move is a direct result of the absurd affordability issues here.
Good story, Lionel. One of my family members just left LA for Washington, too, they went to Kirkland. But they decided to buy and I thought the price they paid ($400,000s) was way too high for what they got. It’s a nice enough house, nothing special, in Florida pre-bubble would have been worth about $150,000, post bubble MAYBE high 200,000s. I wish they’d waited. I suppose it’s all relative to the area you’re in. I know I’ve asked this before, but is that a good price for Kirkland? 4 Bedrooms?
I don’t know. I’ve been reading every line of this blog since I stumbled upon it in December, and I’m not buying any time soon. I’ve just rented a 3 bedroom craftsman in Ravenna, which is a pretty part of town, for just under 1700. Just seems a much wiser way to go. If you weren’t so particular about aesthetics, you could do even better. We had someone trying to track us down to rent a house in Montlake for 1050. Montlake’s nice, just farther away from UW, where I’ll be.
Although I don’t know much about Kirkland, I’ve also been an avid reader of the Seattle bubble blog, and the information seems to confirm that the whole market up there is in for a big correction. Very similar to the Bay Area and West LA, lots of yuppie white people (uh, like myself) who can’t believe that something bad would happen to them.
Bought a fixer-upper in a transitional neighborhood in Philly for ‘95 for $32K, sold for $250K for what I thought was the top in 2003. It sold in 2005 for $375K.
In the Philly ‘burbs now, looking to step up to a larger place. Seeing a vast divide between the formerly $450K+ market, which is showing big inventory and declining prices, and the $500K+ market in which prices are still being pumped up into the stratosphere. Resales of bigger homes in already developed areas (where “they aren’t making any more land”) are still commanding their prices. Typical supply/demand stuff: there are plenty of big-$ buyers relative to the number of available big homes. It’s the lower end stuff that’s taking the hit. I don’t see that changing much - seems to be a lot of people with a lot of money. The second-home market out here are mainly vacation homes in Jersey; lots of ‘em bought for cash, not worried about renting.
Rich are getting richer, lots richer.
listed my house on Monday. Neighbors think I’m to low. I think I’m priced right. Showed the house on Thursday. They’re coming back on Saturday and they have asked for disclosure. I’m the cheapest per sq foot in my area. Funny thing is I don’t have a garage which could be a problem but no hoa and they have boats.We’ll see what happens.
If you do sell, your ex-neighbors will not be able to utter your name without an expletive in front of it for quite a while!
This is true but I don’t care. After 17 years if I get my price I’ll be happy to make about 140k. I wanted to sell 2 years ago but waited for my youngest to graduate. Also, my husband thought it was low but he doesn’t read this blog.
Oh, I wasn’t saying you should care. Your neighbors certainly would do the same thing if the tables were turned and they weren’t undoubtedly over their heads in debt.
Your husband should thank his lucky stars he married a financially-savvy person such as yourself.
I’m a lurker, I read, but never post. My husband and I thought about buying a condo
conversion in Tampa in Dec. 2005. We ran the
numbers on a $250,000, 2/2 , estimated the cost per month around $2200, but learned you
can rent for about $850 down the road, just didn’t make sense. We are currently watching
friends in Fort Myers trying to sell a condo and
a house so they can move to a house they
are building , so far they have dropped the price $90,000 beween the two and have
no luck. It’s a big mess out there.
Welcome, Beachgirl! Are you in the Tampa area now? Hope to see you on the Florida thread. Glad you didn’t buy that condo, you would have bought at the peak. Always happy to hear escape stories.
Thanks for the welcome, palmentto…
Yes, I do live in Tampa, have some relator,
builder and investor friends and get the news from them. I watch the 33618 zip code, many houses in my subdivision were built in the $350,000- $500,000 range in 2000- 2002, now some for sale in the $750,000 - $850,000 range, no takers.
But getting back to your original idea, mrkt, a “Come out, come out, wherever you are, Lurkers” thread would be fun. I’m seeing more and more posters admitting to being newbies. We should welcome them and hear what they have to say.
And by the way, fellow bloggers, how about some manners? One newbie posted yesterday, introducing themselves, thanking Ben and validating our posts. Last I looked, I was the only one who gave a welcoming reply. Least we can do is say hello, even if you don’t want to comment on the post.
I agree. We should all be respectful and polite to the lurkers.
“Least we can do is say hello, even if you don’t want to comment on the post.”
I’d like to welcome all lurkers and urge them to join in. I may not comment but it doesn’t mean I didn’t find value in what was said.
Then I’d like to say, I’ve taken to calling myself “the thread killer”. No return comments….often the last post before subject is changed. Is it something I said?
No — probably just your timing.
CarrieAnn, I like your posts, it’s just that sometimes there is nothing to add, you’ve said it all.
As for the lurkers, I suggest a general welcome from Ben to them all. If we start posting too many “hellos” and “welcomes”, the thread will become ridiculously long.
I used to post a lot more, but with the number of posts these days, try not to post as much. Oftentimes, I see a post I’d like to respond to, but don’t for the sake of the thread (too cumbersome).
I enjoy your posts as well, Carrie Ann!
In the summer of 05 I had the choice of selling my house in So Cal of 20 years(because of a divorce)or re-fiancing my ex out and keeping the house.Thanks to this blog and all the great insight here,I sold and pocketed a bundel.I’m a content renter on the sidelines now,patiently waiting for the bottom to fall out…Thanks to all of you!
Hi, peter, my story is very similar to yours, only in Florida. And then I found this blog.
However, I will admit I am a very unhappy renter. I’m only renting because of the bubble. It has been a very destabilizing experience. You’re at the mercy of landlords and/or other tenants.
I agree, a lurker thread would be good (I happen to be one of them). All that usually gets discussed here are the main bubble markets - Cali, Florida, AZ, DC area. I think a lurker thread would draw out discussion of many other areas.
I’m in Austin, TX, and would certainly be curious to see what others in this area observe, and what their thoughts are regarding the direction of this market (I know there’s one Austin poster here - Roger H I believe).
J
Hello, drumminj and welcome. I think you’ll find some great Texans here to keep you company.
Here’s a humorous topic — will we see “foreclosure parties” echoing the “rent parties” of the Great Depression.
In the latter, those down on their luck hosted parties in their homes to raise money for their rent. Perhaps a foreclosure party would feature those who lost their jobs and defaulted on their mortgage having a big blow out in their large homes before being kicked to the curb. There is an aspect to human personality that parties in the face of disaster.
One shudders to think what the state of the foreclosure would be after the party. I imagine the hosts wouldn’t be too concerned about the odd ‘accident’.
I forecast a rise of creation of websites and blogs for the purpose of cyber-begging, complete with sob stories, pictures of rugrats, etc. It worked for one chick years ago with her credit cards, why not.
I saw one yesterday on DC Craigslist where someone was panhandling for tuitution to her kid’s private school. I’d repost it but it was flagged down. Incredible.
This sounds like a great idea for a new multi-level marketing, home party business model! The new Tupperware for FBs.
I’m a lurker… I’ve been reading this blog religiously, but I gave up on NYC (Manhattan) prices ever coming down. I decided not to postpone buying any longer. My biggest concern is that the interest rates will go up, but prices stay the same, while dollar loses value…
NYchk,
Try to slow down long enough to read the archived real estate section of the Times, in 90-2. Plenty of articles on what to do when what renters you can find won’t cover the costs on the apt. you bought in 89, in fear of being priced out of the market forever. With the subprime meltdown underway, Wall Street is vulnerable. If you’re a NYer, you know that employment on the street can turn on a dime. And it’s financial employment, not foreigners, that drive residential RE in NY.
I know only too well about financial services employment. I was laid off in 2001, and missed my boat on buying. There were no jobs for a while, but RE kept rising. It seemed impossible to catch up with rising prices…
For the first time in years, I’m actually in position where I could buy something. I’m afraid to miss this chance. True, I could lose my job. But I’ll always find a job at half current income, and I’m used to living well below my means. If mortgage rates rise (as credit deteriorates) and dollar devalues, buying in Manhattan might once again become an impossible dream.
I just feel like I’m between the rock and the hard place. Eventually there may very well be layoffs, but in that case I may also lose my job and won’t be able to get a morgage or acceptable rate. I’m convinced Brooklyn and Queens will fall, but I want to live in Manhattan (renting very cheaply in Queens now, and sick and tired of it).
Question to the board:
In a downturn, which apartments fall first and/or further: coop vs. condo? studio vs. 1 br?
My guess would be the lower end falls first and furthest as the higher end becomes more affordable. In my area, condo prices are down 12 pct while single family homes (SFHs) are down 5 pct.
If mortgage rates rise (as credit deteriorates) and dollar devalues, buying in Manhattan might once again become an impossible dream.
You’ve got it entirely backward, NYchk. If those things happen, housing will become MORE affordable, not less. Buying now only ensures you’ll be in debt forever.
“If those things happen, housing will become MORE affordable, not less.”
Why would RE prices come down if dollar loses, say, half its value? In devaluation, it would require twice as many dollars to buy the same goods. I just don’t see nominal RE prices coming down if dollar devalues (rents on the other hand will likely go up).
I get paid in “nominal” dollars, in devaluation, no one’s going to raise my salary back to “real dollars” value any time soon… So if nominal prices stay the same while the interest rates rise, housing for me once again will become unaffordable.
As for being in debt forever, that wouldn’t be so bad if that debt is in nominal dollars, while dollar keeps losing its value…
In Boston and suburb areas - real estate situation is growing increasing dire, with many layoffs and downsizing already occuring in with homebuilders.
I personally know of one case in a premium community 15 miles from downtown Boston where the builder built a million dollar McMansion on a small lot and near a high truck-traffic street- couldn’t sell it after being on the market for 1.5 years, and was forced to move-in himself and make it his primary residence
Another case I am personally aware of is an established home improvement builder (additions etc), excellent reputation and so forth who is now down to himself and 2 guys - having before had generally between 6 to 10 going strong for almost a decade, and often had to turn away business during the boom. Having gone through the early 1990 mess in Mass, in his case he happens to be well prepared to weather anything, as he’s running debt-free, and can put the business in near-limbo if need be, however the point being: the buiding industry in Mass is taking a major hit
This weeken it will be interesting to see how long Rick Shaffer (I believe he s/b back from vacation) (96.9 FM Boston) “Best Money Show” (real estate lawyer) host of this weekend show -will remain in near total denial that the Boston and metro area is 1. “not in a bubble” 2. and “there will be not any significant drops in prices short of a massive spike in interest rates”
Nice post HarryD….
I personally know of one case in a premium community 15 miles from downtown Boston where the builder built a million dollar McMansion on a small lot and near a high truck-traffic street- couldn’t sell it after being on the market for 1.5 years, and was forced to move-in himself and make it his primary residence
That’s what I call eating your own dog food.
Local comment from a “posh” area in the East Bay (East Bay = the area east of San Francisco, includes Oakland, Berkeley, Orinda, Lafayette, Moraga, Walnut Creek. Lots of terrible areas, particularly in Oakland, but many many areas with $1 million + houses).
On our street, a 1910 “shack” — with granite countertops — sold for 1.5 million in September 2006. House probably sold for ~ 400K in the mid 90s albeit it probably had only 1 story then. So 400K house in the 90s + (maybe) 150K in rehab = 1.5 million in 2006. Yikes.
Story is some rich mom bought her “Chef” (LOL) son the house a few months ago but Chef-boy now want to do something else. House is on the market again … for 1.35 million. Me thinks the loss on this mis-adventure is around 300K (50K a month! Thanks Mom!). That is if it sells. Nothing is moving right now, only known sale is one where they cut 20% (!) off the wishing price. Oh yeah, inventory is increasing both from existing homes and from a glut of speedily-built condos.
I read a blog linked from hb yesterday about a couple that worked for NEW. Apparently, it was a sleezy environment. one of the things that surprise me was the amount of $s that account execs made - $200k a year. During the boom - what did folks in the mortgage biz make?
A buddy of mine has a friend in the mortgage biz who made over a million in commissons last year by July 4th. I’ll bet they were all 30 year, 20% down. Yuck.
Couldn’t believe it, but heard of an old acquaintance who was making $80K PER MONTH!!! She was running the company under another mortgage brokers license, I believe, so not just selling loans herself. Very unscrupulous and dishonest person.
Unbelievable.
There are at least two types of people here. Those who are looking for the timing of housing price collapses so they can buy without getting burned, and those who have other assets that they want to protect in a general market downturn/recession.
My question is this:
What do y’all see for the relative timing for a BIG decline in both house prices and markets? I’m thinking everybody here expects a general meltdown, but when? Next month? Six months? 2008? or even later?
I think the easiest answer to your question will be from those readers in the banking/mortgage/securities business. They (myself included, as I’m in the securities biz out here in Asia) will likely immediately see the so-called “liquidity” dry up - whether in the stock markets, personal loan markets, housing market, credit spreads, credit swaps, etc.
Need more comments from bank officers and what they are seeing, like some that posted in other threads today about company announcements of tightening credit standards. So far, in Asia at then end of our trading week, we had regained ALL of the big drops that happened across our mkts on Monday. There’s almost a spooky, eery kind of atmosphere to how these mkts are now trading.
I think the big RE meltdown will be a few years later, like 2011. Until then we’ll see 5% to 7% annual price drops nationwide. The storm will be a severe one. Batten down.
I think the prices will plummet before year end. Sellers have been able to stand pat for the most part but there will come a time when they can no longer do so. That time will come in a few months, I suspect. Then we will see a downward spiral that will drop prices substantially. The erosion of prices will continue at a slower pace over several years before hitting bottom. IMHO.
I agree. Think that the biggest declines will happen from 2007 through 2009, and drop more slowly after that.
It’s possible we may never see these peak prices again in our lifetimes (inflation-adjusted), IMHO.
Maybe we should have a topic on what all of these real estate agents will do for work. Last night I was listening to the radio and it went to a commercial that talked about how home sales were going down. The upshot was that this radio station was looking for new sales people and trying to mine soon to be out of work real estate agents.
Personally, I thought most of these real estate agents wouldn’t be able to get a job at McDonald’s much less sales for a radio station.
Will the MSM and the government committee hearings only focus on the true sob stories in this crash (the retired elderly couple who got screwed by some swindler and now can afford their medication)? Or will they admit that most of these people had dollar signs in their eyes and deserve no sympathy what so ever?
…that should be “can’t” afford their medication
That depends on which group contains more votes.
I like the idea of the lurker/personal stories, but also would like to hear what the long time bloggers have to say about thier “uh oh, housing moment” and the crap they have had to put with from family and friends, I have just been doing this for a year and am astounded at some of the reactions I get
My parents are all over me to buy. I just got a new job making 25% more and they believe it’s stupid for me to keep renting. They just can’t comprehend my thinking. To them a house is an investment, their biggest investment. I keep telling them it’s a neutral asset at best. I will buy eventually but not until 2009 or 2010.
Ken
Don’t listen to your parents. I made that same mistake in 1990. I just got a fat raise at that time, 16%, but it was me, not my parents, who thought I should buy a house. My parents thought I made a terrible mistake, and they are right. The RE crash started months before I bought and reached bottom 8 years later in 1998 in my part of California. Your parents have good intentions, but they are brainwashed to be cheerleaders for RE. Sad thing how the generations have reversed. You are not the only one I read about who have been cajoled by parents into buying RE. Wishing for a new hole in the head is a better idea than to wish for buying a house these days (and for the next 5 years).
BTW: I’m suspecting your parents are in my generation, late 40s or older. I hope they did not smoke pot in their youth. Many of my contemporaries did, and took other drugs, including cocaine, when it was popular for “white” people to do so in the early 1980s. It addled their brains. Hence a lot of addle-brained 40 somethings and 50 somethings are pushing mortgage slavery and ruined credit ratings on their offspring. Oy vey!
I (like many others) tried tried to convince family and friends from buying over the last few years (since late 2004). I was flogged and burnt at the ceremonial stake. I watched as they bought 2nd homes in the UP for 200K - that were worth 100K. I enjoyed going to Florida at the condo builders expense (listening to a 12 hour sales pitch) etc.
Last night at a local tavern, enjoying the games and beer, an acquaintance asked my opinion of the real estate market (he is trying to sell his farmette). I advised him to lower the price by 10% to get it below other comps in the area. Although he is not in need of cash and mortgage payments are not threatening his lifestyle, I received the look that indicated I was to be hog tied and butchered. I shut up for a minute. Cassandra did not receive half the kicking that has been expended on this body.
Keeping a brave face on this I went thru the economic numbers of selling in 6 weeks vs selling in 10 months. A modicum of success! The acquaintance said ” I don’t want to talk about this anymore, I am to depressed.”
This from a well off individual. I suspect that he will change his current position within a week.
I suspect that he will change his current position within a week.
———————-
I’ll bet he does. Please keep us posted. It’s good to hear of a success story every once in awhile.
Well, the stories of fraud prosecution’s are ramping up…after the guilty pleas are rendered…the conditions of probation for these folks should be min. 9 months of weekend construction work for Habitat for Humanity
Two examples of New Century’s company-sponsored nationwide volunteer programs include, but are not limited to:
Habitat for Humanity International - New Century has sponsored and will help build homes throughout the United States in the following communities:
o Santa Ana, CA
o Westchester, NY
o Tampa, FL
o Plano, TX
http://www.ncen.com/about_new_century/community_involvement/associate_volunteer_programs.html
Here is a statistic to ponder from the GE article in the Wall Street and Washington thread, “About 59 percent of outstanding home loans are “prime,” about 27 percent are Alt A and about 14 percent are subprime, according to a Feb. 27 report by Banc of America Securities LLC.”
How about: better titles for David Lereah’s soon to be released new book “All Real Estate Is Local,” given that the cover image appears to be a dead end street, which is a fitting image in my opinion.
http://www.amazon.com/gp/product/0385519222/ref=pe_pe_5400_4948460_pe_snp_222
His next book is probably going to be “How to Profit from the New Ethanol Economy” or “Nuclear Riches: The Boom That Will Not Bust”
DL will probably be done with RE/NAR by this time next year.
Maybe we should have a weekend topic on “Predicting David Lereah’s Next Career Move”
My topic suggestion: let’s brainstorm different scenarios for the major bubble markets for the next year or so. In general terms, we have the posters who believe in a long, japanese style decline over many years, and then we have those who think the wave of foreclosures will bring a major correction quite soon. That said, to paraphrase Rumsfeld, we have the known unknowns (where interest rates will go, policy decisions, etc) and the unknown unknowns (whatever else you can think of). I have learned a lot since I’ve been reading this blog, but I am still a little confused by all the variables (algebra, anyone?). GetStucco, Neil, Palmetto, nhz, clearview, aladinsane et al. have all posted their ideas at different times, but I don’t think we have them all in one thread. I think this relates to what Sad But True said, whether you are trying to time the market or protect your assets, this is something we are all interested in.
For me, I prefer to protect my assets and I could do without being a homeowner for the next ten years. And I’m one of those who thinks this will be a long Japanese style decline (the RE bubble). There are some incredible apartment communities in large cities. I’ve lived in large complexes off and on for ten years and have worked with great management, some not so great. I found that you get what you pay for. It’s hard to trade this carefree, very convenient, lifestyle so that you can say “I’m a homeowner.”
Great book: Barry C. Lynn The End of the Line
The book is about manufacturing and globalization. It isn’t a political screed; rather, it’s a fairly technical book about the evolution of the corporation and manufacturing in the last twenty years, but with an economist’s sort of bent instead of the sort of wall street rah rah cheerleading that characterizes books in this category. It is also one of the most fact-rich, informative books I’ve read in a long time. It answered a lot of questions I didn’t know I had about the sudden explosion in logistics and supply-chain management as careers.
It’s about 250 pp long, and I’m very busy so it’s taken me about a week to read, but it’s so worth your while. It’s a good companion to iTulip. iTulip looks as the bubble from a finance perspective; Barry C. Lynn has explained what’s going on from the producer side of the economy. For you bears out there, he also predicts a catastrophic crash. His main argument is that the supply chain is so efficient–and therefore so fragile–that any sort of bad event could foul up the whole line of production and cause real economic pain … in physics terms, it’s a system in astable equilibrium, like a grape atop an inverted bowl. Shake the table, and the grape comes rolling down.
In the short term, makes me want to buy more gold. I wanted the price to come down, but now I’m thinking it might be cheap at that price.