A Lot Of Unrealistic Sellers Trying To Make A Killing
Money Magazine reports from California. “Bo and Ana Apostolache loved their three-bedroom home on a cul-de-sac near Irvine, Calif. when they bought it six years ago. Best of all, they could easily cover the $1,400 monthly payments on their $175,000 mortgage. Over the next few years, as interest rates dropped and their home price tripled in value, the couple refinanced several times and tapped $200,000 worth of equity to pay for home improvements, and a Barbados vacation.”
“By 2005, although they had doubled their loan balance, their payments had increased by only $400 a month. A year later, their rate adjusted up, adding another $400 in monthly payments, and Bo lost his job as a mortgage broker. Out of desperation, the Apostolaches took a $200,000 home-equity line of credit, in part to help cover the payments, but then quickly realized they were in over their heads.”
“‘It worked fine at first,’ says Bo. ‘Borrowing that much was the biggest mistake of my life,’ Bo admits. ‘I guess I just got caught up in the real estate frenzy.’”
“The Apostolaches sold their home last year, pocketing $35,000 after expenses. Bo, now working at his father’s electronics company, says he thinks they’ll be able to buy another home within a year or so. And the couple insist they have learned their lesson.”
“Says Bo: ‘The new place won’t be as impressive as the last house, but it will be one that we can afford.’”
From Reuters. “During the housing boom, adjustable-rate mortgages allowed subprime borrowers to buy homes out of their reach with conventional mortgages. As low initial interest rates expired and significantly higher rates kicked in, mortgage payments jumped to levels many borrowers could not afford.”
“Homeowners like Lupe Perez say they went neglected. Perez said she faces an imminent foreclosure on her Sacramento, California, home after falling behind on mortgage payments.”
“‘I feel conned,’ Perez said, noting she agreed to the loan’s adjustable rate only after her loan officer assured her she would be able refinance later. But with her neighborhood’s home prices down, lenders will not refinance, she said.”
“The 28-year-old state worker said she cannot afford her mortgage because its interest rate is at 11 percent, up from a 5 percent rate that expired late last year. She said losing the three-bedroom house will mark a personal defeat as she put $40,000 from the sale of an inherited house as a down payment.”
“‘I’m tapped out,’ Perez said. ‘There’s no hope.’”
The Sacramento Bee. “Judy Thompson sees it when clients realize what their home loan really is. A Stockton-based housing counseling specialist for the nonprofit group By Design Financial Solutions, Thompson calls it the ‘Oh-my-God look. My loan officer didn’t tell me that.’”
“There are many stories now. An Antelope man loses a $50,000 government contract one month after buying his house and immediately can’t afford it. An Arden Arcade woman refinances the entire value of the house she’s owned nine years and can’t make the payments. A Sacramento-area dad takes a 1.5 percent ‘teaser rate’ loan and sinks when the family’s house payment doubles in the first year.”
“Antelope resident Elizabeth Tufts faced two choices when, following a divorce, she found herself with a home worth less than what she and her former husband paid for it in 2004. ‘In my case, it was either a short sale or have the house go into foreclosure,’ Tufts said.”
“Eventually…Derek Kirk, an Elk Grove-based real estate agent who specializes in short sales, persuaded the bank to accept less than it was owed due to Tuft’s hardship.”
“But Kirk said too many people have a misconception they’ll be approved automatically for a short sale. ‘It’s got to be something that involuntarily happened to the person to put them into a worse financial position,’ he said.”
The Modesto Bee. “As she held an open house Sunday in Riverbank, Realtor Linda Kemppainen said that prices are down from a few years ago and a savvy buyer can find an affordable home.”
“‘The whole 100 percent financing thing is mostly out, and that’s a good thing,’ Kemppainen said, speaking of lending practices in recent years that helped many people buy homes they couldn’t afford.”
“With a rise in interest rates, that has led to foreclosures and a glut of homes for sale that many analysts say helps account for the decline in prices. ‘Now is the time to buy for fair market value, not speculation,’ said Kemppainen, who’s spent 20 years in real estate. ‘It’s become more realistic.’”
“As she looked at the house Kemppainen showed, Attilia McNutt of Modesto said she likes shopping for homes and not feeling that she has to act quickly. ‘It seems a lot more attainable now,’ said McNutt. ‘And there’s a lot more to pick from.’”
“Kemppainen said much of the hand-wringing among sellers and people in the real estate industry doesn’t take history into account. When home prices soared earlier this decade, they were fueled by speculative buying and a raft of subprime loans, Kemppainen said.”
“‘You had a lot of unrealistic sellers trying to make a killing in the market,’ she said.”
The Orange County Register. “The United States likely will see 1.1 million foreclosures during the next six to seven years on adjustable-rate mortgages issued when home prices were at or near the peak of the market, a study released today by First American Corp. of Santa Ana says.”
“Orange County likely will have 21,000 to 22,000 adjustable-rate loans go into foreclosure during the next five to six years, said study author Christopher Cagen estimates, resulting in about $4.8 billion to $5 billion in losses, not enough to be more than a drag on the economy.”
“The study assumes that home prices remain unchanged over the next six to seven years. A hypothetical 10 percent price drop, for example, would result in 1.9 million foreclosures, vs. 1.1 million, or 22 percent of the adjustable loans issued in the 2004-06 period.”
The Mercury News “‘The housing market needs some energy to move forward,’ said Edward E. Leamer, director of the University of California-Los Angeles Anderson Forecast. ‘A lot of that energy came from new buyers of starter homes financed with subprime and other loans. If you remove that energy from the market, it inevitably will weaken.’”
“As long as home prices kept climbing, lenders had little fear of losing money if they had to foreclose. ‘Homes were only affordable with very creative financing and the expectation that prices would go up. Neither of those is true now,’ said economist Stephen Levy., director of the Center for the Continuing Study of the California Economy in Palo Alto.”
The Voice of San Diego. “The subprime storm has not subsided, and analysts say it will not be contained in just one portion of the stock market, or even in the stock market itself. This is not just a Wall Street problem; this is a Main Street problem, they say.”
“‘A lot of people were buying homes they shouldn’t have, driving prices upward, and now that part of the market’s starting to implode,’ economist Chris Thornberg said. ‘The question is, how did we expect this wasn’t going to happen?’”
“Now, as prices slip, their homes take on a slightly more realistic luster, and those thousands of dollars in their ‘home ATM’ don’t look so appealing, or bona fide.”
“‘The big issue is, what’s going to happen to these people?’ Thornberg said. ‘The market has finally got it that these aren’t good bets. With that kind of pulling back action, that’s going to contribute to a period of slowing, whether it’s a recession or a mild slowdown. With either one, income and jobs are going to take a hit.’”
“An economic hit can already be seen locally, according to one index released last week. January marked the 10th consecutive month of declines in the economic index compiled by University of San Diego economist Alan Gin. Weakness in help-wanted advertising and building permits and an uptick in the number of people applying for unemployment insurance led the index’s decline.”
“Gin found there were significant losses in construction and real estate-related jobs. Retail employment took a 2,500-job hit, ‘as spending is reduced by job and income losses,’ he said in the report. Gin said he expects weakness in the local economy at least until June.”
“‘It’s not a totally unsolvable problem,’ said Dave McDonald, president-elect of the San Diego chapter of the California Association of Mortgage Brokers. ‘But I don’t think we’ve seen the worst yet.’”
“But new underwriting guidelines in response to market pressures will tighten the pool of both first-time homebuyers and those hoping to refinance to avoid higher payments on their mortgages down the road. People in that circumstance may just walk away, Thornberg said.”
“‘If you can’t hang onto your home and you know it, you’re not going to give up your TV and all of that,’ Thornberg said. ‘You’re just going to say … I’m moving into an apartment.’”
‘For five San Diego County school districts, the slowing real estate market is really hitting home. Last month, the districts learned that they would receive a combined $1.3 million less in local property taxes than county officials had estimated just three months earlier.’
So the school boards were speculating on Gary (its in the bag) Watts 15% appreciation? Doh
Charming… the good times they ain’t rolling. When will those assholes try to attack prop 21?
Also I expect them to get really anal about the 200,000 people who live in RVs (some of them real houses!!!) and pay no real estate taxes etc…
When I look at http://www.airstream.com I do think real freedom might lie in an RV now… top notch ISO 9000+ manufacturing, freedom from taxes and ability to be where no house can (parks etc…). Also unbelievable mobility in case you need a new job and also doing a good service for the environment (less energy used, more alternatives like solar, composting toilets)
Considering how gasoline is taxed, I wouldn’t call an RV tax free. Not to mention the annual registration fees. Moving to an area with low taxes such as the dull and boring midwest would probably be more economical.
Airstream’s are awesome, and I share your dream, however the nightly fee at parks is outrageous. If you could purchase some small lots in places that you enjoy, it would be the life…
You can still get nice monthly lots down here in Florida for less than $ 500.00 a month…..
RVs in San Diego park nightly guerilla style… police rarely gives out ticket and if you’re quiet and wake up early you can get away with staying for free. Countless shopping malls also allow you to park there… and no one can really tow one of those babies away.
So you can spend
“By 2005, although they had doubled their loan balance, their payments had increased by only $400 a month. A year later, their rate adjusted up, adding another $400 in monthly payments, and Bo lost his job as a mortgage broker. Out of desperation, the Apostolaches took a $200,000 home-equity line of credit, in part to help cover the payments, but then quickly realized they were in over their heads.”
I will venture to guess that the group who cashed out all their home equity and is now in at 100% LTV at 200% of the 2000 home price is large. Where do these guys fall in the lending industry’s risk classification scheme? Alt-A, or something else (like Alt-DD for dumb and dumber, maybe)?
Alt-Screw*d
Alt-F4
or perhaps Ctrl-Alt-Delete
Alt-FU
You’re right, GetStucco, this is an aspect we don’t talk as much about. For example my uncle - I thought a very conservative man financially - has done tons of improvements to his badly-located older ranch (on a pretty busy highway) using home equity. In fact he just did an office addition and had to wait a year to “build up enough equity” to take out the loan. Here’s a self-employed guy in his early 60s who has been in the home for many many years - should have the damn thing paid off. Instead he’s waiting to suck out more equity to make more improvements to a house that - in a normal let alone buyers’ market - will be very hard to sell. And, seriously, I would consider him relatively financially conservative (compared to the rest of my family!).
very ugly indeed.
Someone over on another blog posted this comment, and I thought it summed it up nicely:
“It seems in Southern California now you need three breadwinners: husband, wife, and house. Unfortunately, the house isn’t making money like it used to.”
This is the only way these folks have been able to maintain their lifestyles, by yearly, sometimes bi-annually, withdrawing the equity on their homes to make ends meet. It’s not just the Hummers, the swimming pools, and lavish vacations. For a lot of these folks equity extraction was the only way they were gonna make it. That’s why even if the market stays flat it’s end of story, ’cause the house ain’t workin’ for you no more.
Great post NNV. You don’t need 3 bread winners. You just need 3 bread winners if you want to keep up with the Joneses. Screw the Joneses. No offense, Ben!
“Something is happening here
And you don’t know what it is
Do you, Mr. Jones?”
The Joneses and their neighbors are all clueless.
Exempting Ben, of course.
Don’t forget about all the “move up” buyers. Many of these people took equity from the sale of their former home to finance renovations to their “new” place before moving in.
There were people in my neighborhood who paid over $1M for homes (which, incidentally, sold in the high $200s to low $300s in the mid ’90s), then did very expensive remodels before moving in. I saw no end of granite, slate, marble, etc. being carted into these places. Meanwhile, I’m here with the same old stinky carpeting that was in the place when we bought it… but I also have a very small mortgage which is nearly paid off!
Good, dd, next year the contractors will be begging you to let them redo your floors. Tile or hardwood?
That’s just what we’ve been waiting for. Will all be paid for in cash. Seems like we’ve been waiting a long, long time. Nice to see a light at the end of the tunnel.
That’s where we are, paid off our mortgage. Now we have cash, we paid for a car, new furniture, doing remodeling one step at a time, all cash. I love it!
“…has done tons of improvements to his badly-located older ranch (on a pretty busy highway) using home equity.”
Nope. You can’t USE equity until you cash it out - by SELLING. He did tons of improvements by…
TAKING OUT A 30 YEAR LOAN. (brilliant!)
2007 is going to suck.
-Rent
What kills me is that everyone fancies themselves a homebuilder/architect/interior designer. I want an old house in a good neighborhood with NOT $0.01 of recent improvements. I can do that myself to my OWN taste. Even if it’s not pretty, it’s MY not pretty.
It’s like someone else telling you what you want for dinner. Unless you are a professional (and very good) chef, don’t be so presumptuous.
I hear you. There’s a place down the street from me that’s been on the market for months now and has been reduced several times. Outside is nice, the inside has been upgraded considerably, and there’s a lot of room. Unfortunately, the interior “improvements” are FUGLY.
“The Apostolaches sold their home last year, pocketing $35,000 after expenses. Bo, now working at his father’s electronics company, says he thinks they’ll be able to buy another home within a year or so. And the couple insist they have learned their lesson.”
The Apostolaches were lucky because they managed to get out before the subprime subsidence. It will not be so easy for those in similar positions going forward, as it sounds like there is a growing concern among lenders about only making loans that are likely to be repaid.
Lucky indeed!! Another month goes by and that 35K would be gone. Money Magazine actually found a success story with these guys, as most people will be praying to just break even.
Hey, they got close to a 1/2 million dollars out of their house, right?
We should all be so unlucky!?
LOL. That’s my thought exactly, imploder.
Let’s see $35k = 20% downpayment, they can buy a $175k house. Hey! That’s exactly what they did 6 years ago.
They bought a 3 brm in Irvine for $175,000, and they still screwed it up. The biggest runup in the shortest time in history ( I believe), and they still screwed it up. Haha, just goes to show how stupid some people really are. Geez, $35K to show for it…………
Sure is BlackBox… the same is true in Northern California. $175K home jumbs over 400% in under 10 years. Hardly think salaries went up 400%… at best maybe double…
Guy was a mortgage broker. Obviously, he was drinking the Kool Aid. He needed to follow the advice from Scarface and not use his own product.
Scarface, what a movie where Al Pachino said the F word every two sentences.
nah, blackbox. It says NEAR Irvine. Now take 175+200+200=575. The LOWEST 3br SFR in Irvine is 575k. Even in 2000 (to the best of my recollection), 175k wasn’t enough for any house here. Prob’ly didn’t wanna say “Tustin” or…SANTA ANA (OMG)
Also enough to cover their tax liability. If they haven’t bought a new BMW. LOL
I get taxed on the lousy 7 thousand interest money my CD earned last year and these clowns don’t have to pay a dime on the 35 thousand or all the equity they spent. Pisses me off to no end.
Question, why would you invest in one single CD that is obviously around 150,000, 50,000 higher than the 100,000 guarantee of insurance.
Is that not a huge risk factor considering what is currently happening?
SKB
Joint accounts for a married couple are actually covered to $200k. There might be other ways around the $100k, like a CDRS account, or some such (though I have no direct experience with CDRS stuff).
“I will venture to guess that the group who cashed out all their home equity and is now in at 100% LTV at 200% of the 2000 home price is large. Where do these guys fall in the lending industry’s risk classification scheme? Alt-A, or something else (like Alt-DD for dumb and dumber, maybe)?”
In my estimation, based upon friends and family members as well as what I’ve read, the HELOC craze is going to have an enormous hand in bringing this market to its knees. I am quite sure that a lot of the fantasy prices people are hanging on their properties right now have a lot to do with them spending away their equity. Banks grossly overvalued properties, and now many people are way upside down. I know when I got a HELOC a few years back for some repairs, B of A didn’t even run an appraisal, they simply asked for the address, and looked at what I owed on the note. I was shocked when they gave me $50k right then and there (very small house). Granted I had put 20% down a few years before, I still thought they were way too generous. In Washington, all of the HELOC info is available online through county websites (at least it used to be). When bored, I would pull up info on aquaintances, clients, etc. to get an idea of what was going on. It’s pretty frightening how overleveraged people are.
Bantering, that is so cold. Looking up info on people you know. (Wait a minute! Slim does the same thing here in Tucson!)
Slim,
Is there a way to find out mortgage amounts free online. I know you can look up sale price (affidavit of value) via county assessor’s website, and you can see, for free, that a deed of trust was recorded (if you know owner’s name, which the county assessor’s site will also give you), but as far as I know, you can’t see actual deed of trust or otherwise find out amount owed on a house without going to county recorder’s office or paying for online access. If you have ways to get more info, I’d appreciate knowing — I like to play online vouyer as well!!
Sorry, Tucsonguy, going to the County Recorder’s office isn’t as much fun as it used to be. They have computers that tap into the same County Assessor info that you can get from home. And that’s about all they’ll allow the public to do there. I think you’ll need to pay for the online access to the goodies.
In Maricopa, you can pull the PDF of the entire Deed of Trust for free. It’s all laid bare - principal amount, ARM or fixed, rate change dates and amounts. Nowhere to hide for Maricopa FBs.
Friends who owned their home for 15 years pulling out most of their equity (based on 2006 prices in San Diego) to buy ‘investment’ lots in Lake Havasu. They bought FIVE of them and built TWO houses before they got the TAX surprise. Now they have three empty lots, no buyers and no equity. Gee and retirement is five years away for them, or so they thought.
Isn’t it amazing who fell for the idea of being a real estate mogul?
We played the game to perfection, sold in Aug 05′, sweet~
Now my 2 sisters?:
Final score: Oldest sister; 2 houses in Tucson, one in San Diego.
Younger sister, 2 houses in San Diego.
My older sister told us that she bought a house in San Diego, about 6 months ago, because prices seemed “cheap”…
Oh how badly, I wanted to say, “Have you ever heard of motels?”
LOL. You can priceline your way into some nice four-star places for $60/nt during peak season — it’s where we put the relatives once I got fed up with our little (rented) condo turning into the San Diego Hilton for all the people who think that sharing genes = entitled to move in, eat our food, let the dogs run away, keep baby up too late, and crush our nice Danish furniture with their big butts. It also miraculously cut their visits from 2-3 weeks down to 4-5 days.
Family sucks!
What was the “TAX SURPRISE”? Property Taxes?
I have the same question - what was the taxable event?
No clue, don’t really want to know…
From what I understood from them, it put them into the AMT rate.
Wow, so you, like, actually have to pay TAXES on properties you buy?? Dude, you’re harshing my RE mogul buzz…
Heloc bonds are currently running 25 to 35 cents on the dollar.
yea, but you can get a roll of Charmin for a buck….
(it’s lot’s softer)
Yeah, but a Heloc Bond holds a lot more crap…
We shouldn’t forget all those relatively worthless Harleys, Beamers, SUVs and such bought with funny money.
Everythings going on sale this summer.
“Everythings going on sale this summer.”
LOL! I am not sure why, but that just struck me. Thanks for the hearty laugh.
Don’t get sucked in early…
This sale is going to last until supplies run out.
I was talking about the toys, but I agree that it will take a long time to unwind.
And will hurt employment for the makers of those toys.
1st due to the removal of the false demand of the last 5 years.
2nd by having to compete with the surplus used product.
I’m thinking Used toys (for me) for Christmas.
Got popcorn?
Neil
LOL
Too funny. The wife and I got a charge out of that one.
Sounds like this dumbf*ck took out $400k+ in equity, blew it all and now has nothing to show for it. If these f*cktards are any indication of those that Dodd and others are trying to save, they won’t be getting my vote.
Hey, he still has the pictures from the Barbados vacation…..
(I wonder how they split the $200k? $100k for the home improvements and $100k for the vacation?)
10K pergraniteel upgrades for the house
15K plasmas & XBoxes for every room
20K bling and new wardrobe for the Mrs.
25K first-class all the way Barbados vacation
70K new Bimmer, loaded with all the goodies
60K regular lap dances and stripper “dates” for the Mr.
Don’t forget the top notch boob job, facelift, tummy tuck, and regular spa visits for the Mrs.
You’re right on the Plastic Surgery. Big HELOC expense. People complain about health care costs yet spend many $K on their puss (not counting their pets).
Filing for Bunkrupcy for the lifesyle? Priceless
So you’re looking for a national economic implosion taking us all down? I’m not.
Dodd and others are trying to help people keep their homes, keep paying their loans back and avoid defaulting by doing such outrageous things as giving them the latitude to refinance without huge penalities.
JTZ- DUDE, du da math, man. Most of them are in so deep that to refi @ current fixed rates FOR CRAPPY CREDIT isn’t gonna help for long. Take that 600k note they took on the teaser @ 1.5%, or ARM at 4%, make it a fixed w/no penalty (just for argument’s sake) at oh 8%, cause their credit sucks and WHAMMO another FB with the future of the brontosaurus.
And give it to them for a more favorable rate? Who’s gonna cover the note &risk…YOU? YEAH, SQUEAL LIKE A PIG!!!!
Ahh, yes, that’ll work. Captain Dodd will help them refinance, so that they still owe the same amount, but pay less in finance charges.
And they’ll still pay on that asset even when the value of the asset drops well below what they owe on it. They’ll just keep right on paying that “reduced” finance charge + principl (+ interest + taxes), now won’t they?
Yeah RIGHT!
When they finally DO default next year or the year after, the lender will then have a guarantee on the asset from the Federal government, so that now the taxpayers can bail out the MBS holder.
GGGGGGGGRRRRRRRREEEEEEEEAAAAAAAATTTTTTTT!!!!!!!!
I don’t want people to keep their homes, when they’ve bought more home than they can afford — unless Mr. Dodd is also proposing to help *me* buy a house I can’t afford. A bailout — even a nice, liberal, unconstitutional contracts-clause-violating one like a law purporting to re-write mortgages to strike the prepayment penalty term — would be rewarding the foolish at the expense of the prudent, plain and simple.
The basic unfairness of it aside, Dodd’s plan amounts to subsidizing stupidity, by socializing the downside risk and letting the idiots keep the upside. Anything you subsidize, you get more of.
None of those sob stories offered to share any of their home equity with me when things were flush. They buys their ticket and takes their chances. For God’s sake, give Mellon a chance: Liquidate the malinvestments, get the pain over with, and start over.
BO and ANNA lived the GOOD LIFE on home equity
and by the Luck of the Irish, or the tooth fairy sold and still made a profit…..
They may still have to pay the IRS
I also wonder how many people like the Apostolaches have drained their IRAs to make their payments.
Not only do you lose the compounding interest that the investment would’ve had if you hadn’t drained it, you’ve got to pay taxes on any qualified portion.
sleepless..Or bought a 2nd home or investment property with their IRA/ 401k loans!?
Yep, the next line will be “who will make my 401K/IRA whole again?”
Geez, break out he clowns, oh, I mean lawyers…………
Good thing I just bought more ammo…..
Do a CHENEY on ‘em (but my aim is better)
One can see they sold for $575-600K since little impact on principle for first 5 years of payments and only netting $35K.
(1) OK Here is a great example of RE appreciation way above the mean.. $175K to nearly $600K. So what happened in Irvine to justify that kind of run up… Hyperwage inflation? Pure Bubble Mania will end with over 50% reduction. .. at best this should be selling at 200K.. it will take nearly 65% cut to get back to fundemantals. And it will…
(2) I sure feel sorry for the new owner… he/she/they will not be any better off. Most likely used a risky loan to get into the house. If they boaught in 2006, than its already underwater.
“I sure feel sorry for the new owner…”
You feel sorry for the bank or mortgage company? They are the ones that own this POS. They deserve sympathy?
Here comes Dodd or Hillary to save the day. Oh wait, so DavidCee or JoeMomma or none of these other partisans attack me, here goes.
George Bush is an idiot.
Dick Cheney is a power hungry nut.
Donald Rumsfeld was an awful dogcatcher, ant-eater or whatever he was supposed to be.
And Hillary is still a stupid, greedy, power hungry b-tch.
“You feel sorry for the bank or mortgage company?
Said it in a joking manner… should had add cry me a river!
Technically, you were harder on Hillary. Calling Bush an idiot was simply stating a fact. But with Hillary you gave it that “little extra” slam.
And water is wet.
What the 5%^^&%%^$^% makes people so clueless that they don’t realize and Adjustable Rate is… follow me on this… ADJUSTABLE!!!!
When my wife and I got a mortgage (in the distant past…) the loan arranger (Hi Ho Silver…) asked us if we wanted an ARM instead of fixed, and I laughed. It seemed absurd… why in crap would I want an interest rate that was a random variable? How can you budget THAT? What kind of morons are these!
Also, this “HELOC for home improvement” idea is just … bizarre. It would have never crossed my mind if Countrysnide (for instance) wasn’t sending me ads about it on a weekly basis. I thought the goal in homeowning is to burn the mortgage as soon as possible and relax in your paid for place- that is when you have it made. When I do home improvements, I just use some of my ‘extra’ money after savings and other expenses, just like for any other item I want. Which is why I usually end up doing these things myself instead of contracting them out- it would be too painful to waste the cash. I thought it was common knowledge anyway that home improvements virtually always only return a small fraction of the money spent, even in a good market. It. Boggles. The. Mind.
There are two assumptions you make: (1) the HELOCer has the ability to do those repairs/improvements, (2) the HELOCer is doing improvements to raise the value of the property. Both of these can be wrong. For example my parents are using a HELOC to remodel their kitchen (the house is already paid off).
I would never attempt to gut and remodel a kitchen, but in some houses the existing kitchen really should be replaced (cabinets in a poor state of repair, 50 year old electric wiring, 3 crappy floors made from asbestos).
My parents don’t plan on selling their house in the foreseeable future, they plan to enjoy living there. Having a nice new kitchen will make my mother happier than her crappy kitchen.
If you look at it like that, home improvements can be money well spent. Using a HELOC makes sense (e.g., in this case with an LTV
I liked this definition I came across as I studied for an exam a couple weeks ago:
Alternative financing instruments: Shifts risk of changes in the market rate of interest from the lender to the borrower.
Pretty simple
Damn if they hold, damn if they fold. That is why sellers prefer the banks to put them out of their predicament and foreclose. Forgot the sellers and buy from the banks. They have more wiggle room and are now effectively acting as sellers agents by way of foreclosures. And that is why foreclosures will keep spiking up.
what LTV ??
LTV = loan to value ratio. 100% is really pushing it for a buyer. Can’t believe some people cashed out all the equity to buy cars, plasma TV’s, home improvements. Shows you home improvements only return 50 to 80 cents for every dollar you spend.
At my work 2 of my co-workers just bought new cars with house equity. Both live in houses that they can’t sell and they know it!
Sigh…
And I continue to drive my PAID FOR Jeep.
Wow. Paying off your car in 30 yrs. What a great idea…especially for a depreciating asset with a normal life of 10-12 yrs. Whoever coined this generation the “Stupid Generation” was spot on.
My car is 13 this May, and I expect a few more years out of it. It still is a bad idea to finance them for more than 4, they’re a money sink all their life. I don’t doubt that I’ll end up paying more in insurance than I did for the car (purchased new).
“We’ve been through some things together
With trunks of memories still to come
We found things to do in stormy weather
Long may you run!”
It was ME and it’s….. “THE MORON GENERATION!!!!”
Whoever coined this generation the “Stupid Generation” was spot on.
Nice NYCityBoy. Neil Young is one of my favorites.
Example:
Home is Valued at $100,000
Loan (debt) at $90,000
LTV would be 90%.
“The study assumes that home prices remain unchanged over the next six to seven years. A hypothetical 10 percent price drop, for example, would result in 1.9 million foreclosures, vs. 1.1 million, or 22 percent of the adjustable loans issued in the 2004-06 period.”
Cagan: Housing prices appear to have reached a permanently high plateau.
ROTFLMAO! That’s a rosy assumption — flat prices.
Cagan has documented 30-40% losses in so. Cal in earlier research he has done. For this guy to assume a zero percent change in appreciation is bizarre. It’s not like this guy hasn’t seen so.Cal real estate recession upfront and personal before.
He’ll probably publicly declare that house prices really are going to fall… as soon as he gets his house sold.
Or am I a cynic?
Home values have already dropped well below that 10% mark here in Santa Barbara County. These so-called studies are obsolete before the ink is dry.
I wonder what that study would predict if it “assumed” a 40-50% drop in home values, which for California is a more realistic number.
“40-50% drop in home values”
I think this would mean financial holocaust!
I think this would mean that this time is no different than last time.
GetStucco is right,
The most bubbly areas last time lost 40%.
This time will be greater.
Got popcorn?
Neil
Last time, Beverly Hills dropped 40%.
4.3 million estimated foreclosures with 40% price drop using linear extrapolation (not recommended).
My wife was down in Beverly Hills a few weeks ago and she brought back good news…
She saw a full size billboard for tatoo removal, so I guess our brief fling with looking like sailors, is over.
no more “tramp stamps”?
San Francisco South Bay Lost 35%…
This time is just ripe for a nice round 50% drop…
Bzzzzt.
The South Bay has not lost 35%.
Imploder, my Scottish friend calls it her “slag tag.”
Sure did JTZ… dont you recall as all mfg left the valley.
Expansion by local employers to Texas, NM and Oregon.
“40-50% drop in home values”
I think this would mean financial holocaust!”
Ah!!! The light bulb moment!
The cure for a snake bite is snake serum.
The poision is the cure!
There is no difference regarding the Financial Holocaust here as well… Home people need shock treatment…. need it badly…
Ah!!! The light bulb moment!
ROTFL
Now he understands why we bears are so frustrated. To those who don’t get it: Its the economy stupid.
Got popcorn?
Neil
Completely OT:
>The cure for a snake bite is snake serum.
>The poision is the cure!
Not to be hyper-anal but that’s actually a misnomer. Venom is usually shot into livestock in small dosage and their hystamines are extracted to create the serum.
Some holistics believe that hypo-doses of venom will build a tolerance and give other benefits, but that’s purely preventative
A relative used to milk rattlesnakes for this purpose. I didn’t like visiting his farm.
Why is a 50% drop in values so catastrophic? Think about it– you’re talking about returning to 2002 prices, which is about where prices should be.
The line “everyone who bought after 2003 would be screwed” is true only to a point. The intelligent buyers, who are currently able to make their monthly payment, will be stuck in their house, but they won’t get foreclosed on, and they won’t go into BK (uh– bankruptcy. Plenty of them will be eating cheap ground up cow byproducts from Burger King).
People who have bought, then subsequently refinanced time after time in order to make their payments and try to keep up with the Joneses are absolutely screwed, but remember: at that point it doesn’t matter how much home values drop. These people are screwed the moment they can’t continue the “refinance shuffle”. Prices drop 50%, they get foreclosed on. Prices drop 10%, they get foreclosed on. Prices drop 5%, they get foreclosed on.
The real litmus test for the market’s resilience is where the real bottom is.
Common sense isn’t nearly as common as it used to be.
“They” say housing won’t drag the economy into a severe recession…..
Of course “They” said subprimes were perfectly safe…
Ok, this is ‘cuz you gentle folks are relatively brilliant.
I will start off with the proposition that a 50 % drop in real estate value is a mere bagatelle. The time frame that most on this blog use for cost basis is 2000 to 2002, the corrected time frame should be when the bubble first started.
The first mention of the FederaLReserve opening the spigot was 1994. By 1999 the first of a series of economic papers discussing the house bubble were published, in 2002 wesites/Blogs such as Itulip (noteworthy for calling the dotcom bubble) called it . “Yes, it is a housing bubble” .
Now that we have established this has taken 13 years to get to this point, what economic reason would induce me to put hard earned moneys in a house? If I buy at 2002 levels I am still buying bubble prices.
So for your edification this is the math formula to use when looking to buy a liability (houses are liabilities not assets).
It does not matter where you are located except if the area is economically worse off than in 1994 (e.g. Detroit)
The cost of the liability = (P)
(1994 P) X (CPI +1.4%/year) X(0.9) = true present value.
This formula is modified from a commodity trading strategy designed to trade bubbles. It is based on the commodity correction not only going to the mean but passing the mean on the downside by 10%.
Is this infallible - NO. But at the very least it gives a reasonable basis to buy in a falling market.
Try it on houses in your neighborhoods. A 50 % drop may be adequate in some areas, but in others I would expect 75%.
In Japan the housing market dropped and lost 80% of the bubble value. 15 years - a whole generation grew up without seeing an uptick.
Hoz,
The bottom of the last market dump in my area was 1994. So I use 1997 as my basis for “normal”. YMMV.
Ouch, crazyintheOC. I just read “Night” by Elie Wiesel yesterday. Use of the word “holocaust” does the same thing to me as someone saying they “felt like they had been raped” when they were financially taken advantage of. They just ain’t even close to the same level of seriousness. yeah, yeah, I know it’s just a figure of speech but give me a break - I procrastinated reading that book for my whole adult life because I knew how awful it would make me feel about people.
Thank God that man’s inhumanity to man came to a crashing halt in 1945.
Don’t you think his “hypothetical” should include a 20% drop, a 30% drop, and even a 40+% drop? It’s like the doctor walking in the room with your prognosis and saying “best case scenario is you live another 10 years” and then leaves the room. Uh, doc, what’s the worst case? The answer: You don’t want to know.
Ideally, I would prefer the housing scenario where the doctor tells you, “you’ve got about 10 to live”. 10 what? Years? Months? Weeks? to which he responds, “9….”
Have prices ever remained unchanged for six to seven years? Also, I wonder how he calculated the value the homes in order to determine how much equity (positive or negative) the homes had. As noted by others, I think that we need to see what the model says if there is a 20%, 30%, or 40% drop in prices.
If you and I were to ASSUME prices remain unchanged when they’ve dropped precipitiously in each of the past (much smaller) bubble implosions, this certainly does make an ASS out of U and ME.
Yes, in Germany. Housing has been pretty much nominally flat since 1993 or so.
A lot of dynamics at play this time that were largely absent in the early ’90s. The big ones are globalization driven wage arbitrage, HELOC driven demand, HUGE increase in nutty financing schemes, investor driven demand going in reverse and the huge run-up in housing related job growth that is already heading south.
Nothing linear about this meltdown. It’s a vicious cycle that’s only getting started. If we see a 50% decline it’ll be mild IMO…
The big ones are globalization driven wage arbitrage, HELOC driven demand, HUGE increase in nutty financing schemes, investor driven demand going in reverse and the huge run-up in housing related job growth that is already heading south.
Change a few words here and there and you’ve got 1929 all over again.
I don’t know about the rest of you, but most of my friends have like 3 figures in their checking accounts, the wrong 3 figures, i.e. $666 in the bank.
They live life on the financial edge…
Is this as common as I think it is?
I don’t know. But since I’ve been reading this blog I’m beginning to suspect it is a lot more common than I thought it was.
My husband has been out of work since January and we have been living on my salary quite comfortably never having to touch the 5 months worth of savings we have in the bank!! This is why we RENT!! Our strategy is to be able to live on one income if necessary. This is how we have always lived our lives!! If we can’t buy a house where we can have a fixed 30 year loan and a managable payment we won’t do it!! BTW.. I am still maxing out my retirement account to the tune of $15k per year. We are not sweating or anything - it’s just that my husband is getting bored at home. He can only do so much laundry! Most people cannot live like this. Heck if they missed one paycheck they’d be in a world of hurt!!
To be fair, one dynamic that was present then was measured inflation. That probably made the bubble burst earlier than it did this time. Now WAGE inflation is contained - IN A BOX - because of 2 things:
1) Globalization
2) The extra family income. WHat extra family member was silently working, you ask? THE HOUSE. It was generating cash flow greater than anyone else living in the house. And the house is now officially ON STRIKE. Now rather than generating cash flow the house is SUCKING on cash then the occupants can’t hope to deliver.
50 % would not nearly cut it in coastal WA. either. Homes would still be laughably expensive.
Yeah, we really partied hard here. Could have a long way to fall.
Chances are the model is only realistic on the local variable space. The assumption of a manifold is stupid given the obvious endogenous relationship between impact on the economy and a decline of 50% represents. Lots of things in the model get broken when the declines go that far. Lots of bad things that would happen don’t even get put in the model to begin with.
I have to stop drinking Scotch when I read this blog. I don’t understand a word you wrote.
And I swear someone earlier used the word bagatelle.
lol….maybe you’re not drinking enough!
Perhaps we should apply multiple regression and correlation tests, to find out which variables are pertinent.
“If you remove that energy from the market, it inevitably will weaken.”
Err ! You mean take away the Kool Aid?
“The housing market needs some energy to move forward”
You mean bring back the Kool Aid? Like a heroin junky!
“Give me a nickel Mister so I dont feel sick and I can get better”
Know why there weren’t many good jokes about the Jonestown mass suicide in Guyana, almost 30 years ago?
The punchline was too long~
Oddly enough, I thought it was easy credit (i.e. Other Peoples’ Money) that was driving the housing bubble, not “energy.”
‘If you can’t hang onto your home and you know it, you’re not going to give up your TV and all of that,’ Thornberg said. ‘You’re just going to say … I’m moving into an apartment.’
LOL
Yup! They can keep it.
At least now they’ll have the first and last months rent, to be able to rent an appartment, which they didn’t have before (and why they bought a house instead)
The Shadow Knows
Their parents do not require 1st and last.
Their parents will also need the rental income (due to their failed investments). Problem solved. McMansion rooms occupied.
Got popcorn?
Neil
“‘I feel conned,’ Perez said, noting she agreed to the loan’s adjustable rate only after her loan officer assured her she would be able refinance later. But with her neighborhood’s home prices down, lenders will not refinance, she said.”
Let me see if I got this straight.
Broker “Well Ms. Perez, you see now that house vaules are skrocketing through the roof once this crappy loan I am giving you gets ready to reset all you have to do is pay me $300 and I’ll give you yet another crappy loan to add to the first one. But don’t worry Ms. Perez cause real estate always goes up!!”
Ms. Perez: “But this doesn’t seem right I only earn $28,000 per year as a state worker how will I afford a 1/2 million dollar house”?
Broker: Don’t worry your pretty little head Ms. Perez…real estate always goes up!”
Perez feels conned because house prices didn’t skyrocket. Should they have, she would feel smart, and content. Had she not been given the loan in the first place, she would have felt discriminated against. Yeah, I know, a lot of generalizing. But, the bottom line is, these dimwits never accept responsibility for their own actions.
Boo f*ckin hoo. Bust out the violins for this greedy biatch. After the violins comes the fat lady singing the foreclosure blues. Then leave the keys on the counter cause the repo man is bustin’ down the door. — scene to be played out many, many times over the next 3 years.
No tears will be shed from this guy. Nope, not a one.
Yeah. I never felt discriminated against. I just looked at my credit (a mess after my last divorce) and the required income calculator. It said i couldn’t afford that nice little beachfront house I wanted. So, I’m a rentin and savin.
BanteringBear said “Should they have, she would feel smart, and content.” You are dead on. A couple years ago on the blog everyone was talking about the ass wipes who would brag at parties, etc. about how much their house was worth, and statements like “I make more on house appreciatation, than I do at my job”. They all acted like geniuses, when it was actually just a pure stroke of luck to have been an owner at the right time. I personally made out awesome and even though I do think I am smarter than the average person, my house fortune was pure luck (right place, right time, etc). All of these folks who stretched to get into a house they couldn’t afford were speculating and they deserve to lose the house if they can’t afford it. No tears for any of them. You could see all of this coming a mile away.
“Genius is before the fall.”
“Orange County likely will have 21,000 to 22,000 adjustable-rate loans go into foreclosure during the next five to six years, said study author Christopher Cagen estimates, resulting in about $4.8 billion to $5 billion in losses, not enough to be more than a drag on the economy.”
They just don’t get it ! Its not the $5B in foreclosures that will cause the problem, its what happens when you sell 22K houses at an auction into an already saturated market. It drives prices down, way down.
And when prices go down, that triggers more foreclosures and it kills the equity withdrawls. The equity withdrawls will be the big killer on consumer spending. Houses will go from being a balloon of free money for homeowners to an anchor around their neck as they try to swim to safety. Sooner or later this will all trigger job losses and then the whole cycle will accelerate again. Then it will really hit consumer spending !
Sounds like a vicious cycle is coming up until we hit bottom in a few years.
“Sooner or later this will all trigger job losses and then the whole cycle will accelerate again.”
Sooner.
“Another real estate trust NovaStar Financial, said that it planned to cut about 350 jobs, or 17 percent of its work force.”
http://www.nytimes.com/2007/03/17/business/17lend.html
“They just don’t get it ! Its not the $5B in foreclosures that will cause the problem, its what happens when you sell 22K houses at an auction into an already saturated market. It drives prices down, way down.”
Absolutely. But we’re still at the stage where MSM and business media insist on seeing this as an event that is easily “containable” and won’t have implications beyond subprime borrowers. But….this is a big change from RE won’t go down because jobs are still strong, all this bubble talk is ridiculous..I think we are at the stage of “Houston, we have a problem,” but no one wants to go on record saying the economic recovery since 2001 has been one big sham on the consumer. Debt = wealth isn’t a sustainable paradigm.
easily “containable”…
Yup.
Sure.
Lemme put this 100 Megaton nuke in this here Coke can. Awwwlrighty then, ever one take a couple steps back, this is gonna be real cool!!!!
‘“Houston, we have a problem,” but no one wants to go on record saying the economic recovery since 2001 has been one big sham on the consumer. Debt = wealth isn’t a sustainable paradigm. ‘
Lisa, are you married? If so, do you have a single sister? Where do I find women like you?! Just hearing common sense is such a luxury for me these days… it’s almost unreal!
Debt = wealth
“War = Peace”
“We’ve always been at war with Oceana”
A billion dollars a year lost in OC is a HUGE deal. Most of that is going to be lost in the next 2 to 3 years.
But you are right Tweedle, it’s the side effects of that, AND the fact that even though 21,000 get foreclosed on maybe another 50k, 75k, or 100k households are hanging on by their fingernails and putting everything into their homes, not into the economy.
But what does one expect from an RE whore.
This study was released by First American Corp … aka First American “Title” Corp … bahahaha. Taking a page from the NAR and MBA dis-information playbook.
‘Now is the time to buy for fair market value, not speculation,’
Nonsense. Housing is still highly speculative: at an open house this past weekend in Eureka, I couldn’t believe how many (primarily aged Boomers) were looking and enthusiastic. This thing won’t be appropriately priced until everyone hates real estate, and we are a very long way from that currently.
Gotta love the things those real estate agents say.
It’s all about transactions for them. Thats how they get paid.
I agree. You can’t eat if you don’t sell! Why are they listing homes with unrealisitic sales prices, that have no hope of selling. It seems in OC, brokers are still looking for the home run - 6% @ 2005 prices. With volume drying up, you would think RE brokerages would sit down with their staff and get the word out - drop prices and generate some commish - now.Sellers and brokers in deep, deep denial in OC. Maybe subprime implosion will get prices moving down by giving RE agents what they need to b*tch slap sellers into reality..
Staff is declining. I don’t know about OC, but here in the south bay we see lots of empty ex-RE offices…
Soon Realtors ™ will be hungry enough. Soon. And then the bottom falls out.
Got popcorn?
Neil
Yep. Starving realtors are potential allies. They’ll still be scum, but they won’t have time to waste on greedy, delusional sellers.
“Yea, he’s a scum… But he’s our scum!!!”
For sure, I see for Lease signs all the South Bay for commercial real estate due to the lack closure of agent and loan offices.
The Wife and I were looking at some models this weekend for decorating ideas and as we were leaving a very young couple came in the door. The prices started in the mid 300’s. I thought either they were lookin to borrow one of the bedrooms for 15 minutes or they should have been looking at apartments.
There are people buying right now because they honestly believe the NAR commercials. Just talked to a friend in the Temecula/Murrieta area in SoCal and they were trying to buy the house they’ve rented for the last two years. Seems that the first loan fell through when the appraisal came back 20K below the price the owners wanted (400k) So they started over with another loan company and the owners reduced the price to 380K. Now the second loan just fell through because the house is now appraising ANOTHER 20K less at 360K. They said they are giving up. What the heck are they thinking? This turn of events SAVED them a major financial mistake. But you know why they wanted to buy so bad? They didn’t want to move from the house or school district! WOW 40K to stay in school district and not have to move??!! And this guy is a PhD! I just don’t get it…
“And this guy is a PhD!”
I’m guessing not in finance…
“Money is a relatively new concept for the human species. We learn about it the way we learn to read or play the piano—with effort. For most of us, money makes scant intuitive sense. We understand trade, but fiat value eludes us.”
http://tinyurl.com/23u38a
Why not continue to rent?
Why not just keep up the process or trying to refi and letting it fall through. It’s like making $10k per month!
In NY picking the right school district can cost you almost $10k a year (property tax differential), so $40k over 30 years might not seem so bad …
Went shopping this weekend in Fairfield county, CT. All I can say is you gotta be kidding me. Entry level sh#tbox is $800k, 4bed/2bath house is $1.2m and a mcmansion is $2m. A real mansion is $2.2m +++++ (LOL)
Something gotta give. I just hope it happens in my lifetime. Broker was practically in tears says been showing houses nonstop since DEC but has yet to sell one. We called Friday afternoon to make an appointment and he drove us around all day Saturday to look for houses. We stopped at the office three times, not once did I see another potential buyer show up.
where in Fairfield are you looking? Bethel is very nice and prices are more reasonable. But if you are looking in Greenwich/Stamford/Darien, fahgeddaboudit.
And I can recall house-hunting back in 2004, when the real estate agent acted like he was doing me a huge favor to take me on ONE drive-around to look at houses. And the drive-around took up a portion of the morning, not the whole day.
“Something gotta give. I just hope it happens in my lifetime.”
Feel the same way here in L.A. Sales are slow… but not slow enough for people to lower their prices appreciably. (search oh say… 90048 in ZIP Realty to see what I’m talkin ’bout)
I keep waiting for a crack to show up in the market, a foreclosure… anything… But I think the only crack around here is what everyone still buying is smoking…
The Westside will fall
but it will come last of all
at least 24 months away from any serious reductions in West Side IMO
Sadly… you may be right. As you said below, there is no sense of urgency yet. And I don’t know what will instill the sense of urgency this market needs. Actually… I do. People need to stop buying, the market needs to seize up Florida style. Hasn’t happened here yet.
Prices here are up around 2-300% since the late 90’s. Until people see that “equity” start seriously disappearing, they’re gonna hold out.
Prices here are up around 2-300% since the late 90’s. Until people see that “equity” start seriously disappearing, they’re gonna hold out.
That’s why I’ve almost given up on the idea of ever buying. By the time it makes sense to buy my kids will be almost off to college.
Westside condos will fall sooner than that. I can already see the signs. The SFHs will take longer, as you say, but I expect to start seeing some meaningful reductions by this time next year.
Return to normality (say 1997 pricing plus inflation) is probably three to five years out - where my xtal ball gets cloudy.
“Until people see that “equity” start seriously disappearing, they’re gonna hold out.”
Critical mistake in you logic. You could had said the same in 1991.. but prices did fall because some did sell and the new prices for comparables did set new lows. There will allways be sales some in the black and some in the red even at the bottom in the near future.
I
“at least 24 months away from any serious reductions in West Side IMO”
Imploder I love your posts. Don’t get down on this. Just remember that crashes happen suddenly and violently. Look at tech stocks. People kept saying, “my god, they must come down but they are not moving”. All hell broke lose and they were toast.
Just a few months ago we were all saying, “subprime should be going down”. The thunder crashed and subprime is gone.
You feel like you are waiting forever but the timing of these things can’t be predicted. A seismic event happens and suddenly the correction is over. All you see is rubble and smoke.
When will that seismic event happen for your west side and what will it be? Nobody knows. But if it is like every other bust, it will come on suddenly and be over quickly. It will be violent.
The trees that look the strongest often fall first.
“Feel the same way here in L.A. Sales are slow… but not slow enough for people to lower their prices appreciably.”
They can’t. People who can lower their prices are the ones who have already driven the 10% YOY price drop. The ones who aren’t lowering their prices are the ones who are leveraged to 100% LTV of their house. They don’t have any cash on hand to bring to a closing, so they can’t lower their price. They are essentially playing the lottery at this point, all while barely eking out an existence because of their carrying costs. Haven’t you noticed that it’s a lot easier to get a table on 3rd these days?
For example: check MLS S943421 in 90266. ZipR shows 3 days on market, but that place has been for sale for a year now. The price has come down 10%, but ZipR won’t show you that due to the reset. LA-area realtors are playing every trick in the book right now. The cracks in the market are there, you just need to dig a little bit to see them.
“They can’t.”
I know some one selling a house right now in West Los Angeles. Been on the market for 5 months lowered their price 10%.
But they could lower it 30% and still make money, they just don’t think they need to. The market doesn’t have that sense of urgency.
But don’t delude yourself….they COULD.
Agreed. All it takes is a couple clicks to see that many of the places for sale were bought in the last couple years, or are “newly renovated” (flippers late to the party) etc. I actually understand the seller mindset. What I don’t understand are people who are buying now.
There appears to be an endless supply of fools with money here. I know it’s hard to reverse a decade of “it only goes up” thinking, and I do see houses just sitting on the market at stupid prices. It’s just frustrating, that’s all. I feel like…. I get it, why doesn’t everyone else? I’m getting sick of popcorn… hehe
Maybe I need to stop paying attention for about 3 or 4 months. If I stop watching the pot, perhaps it will boil…
Maybe we need a spanish version of this blog:
el blog de la burbuja de la casa
el blog de la burbuja de las bienes raices
El blog de la burbuja inmobiliaria.
El blog de la tirar la masa casa
Or is it El blog de la casa tirar la masa? My Mexican is a little rusty.
El ignigto el bongo for implodo, pore favore, mi carnade.
I’m in this area. The statistics I read in the local papers always say prices are flat or down just a couple of percent. Zillow.com says that averages are down 20% from the peak. Sellers think that chopping $100,000 from $2MM is a huge concession. Buyers see it as %5. The result is no transactions.
Here is the deal.
Everyone here is speculating on the proper entry point.
I have had to put my life on hold to think about this d@mn bubble.
In exchange inconvience I expect a better than average deal and not fair market value.
Otherwise all would be for nought and I shoulda jumped in with a 10 year option arm and planned BK in 10 years time.
“I have had to put my life on hold to think about this d@mn bubble.”
Wrong strategy. Go on with your life, just possibly without buying a house in the near future.
SSBG,
Totally understand where you’re coming from. Hope you’re not putting too much off, as time goes by too quickly (as you already know — you’ve been here a long time as well).
All my life, I had planned to have a house where we could take care of our parents in their old age. We’re stuck in a two-story with a half bath downstairs (can’t bathe them here). Rents have gone up too much for us to move (family of 5) and we don’t want to buy.
Both of my parents will likely not make it to the end of this year, so we have to rely on hospice at their homes. Lots of guilt about this, as I watch them struggle.
It sucks…big time. If this bubble had never happened, we could have bought a decent house (single story with handicap access/amenities) a few years ago. Now, there will be no second chance for us to do the right thing.
Wish those moronic representatives could understand that foreclosing on the FBs is not the worst thing that could happen. Plenty of us bubble-sitters who have been dealing with all kinds of hardships because we were trying to avoid financial ruin.
If the FBs get bailed out, I’m going to be one very pi$$ed-off bubble sitter — and I vote in every election.
This Yahoo article is a hoot.
With bidding stalled on some of the least desirable residences in Detroit’s collapsing housing market, even the fast-talking auctioneer was feeling the stress.
“Folks, the ground underneath the house goes with it. You do know that, right?” he offered.
After selling house after house in the Motor City for less than the $29,000 it costs to buy the average new car, the auctioneer tried a new line: “The lumber in the house is worth more than that!”
As Detroit reels from job losses in the U.S. auto industry, the depressed city has emerged as a boomtown in one area: foreclosed property.
At a weekend sale of about 300 Detroit-area houses by Texas-based auction firm Hudson & Marshall, the mood was marked more by fear than greed.
“These people are investors and they know the difficulty of finding financing. They know the difficulty of finding good tenants. They’re cautious,” said realtor Stanley Wegrzynowicz, who attended the auction.
HOW LOW IS LOW?
Steve Izairi, 32, who re-financed his own house in suburban Dearborn and sold his restaurant to begin buying rental properties in Detroit two years, was concerned that houses he thought were bargains at $70,000 two years ago were now selling for just $35,000.
At least 16 Detroit houses up for sale on Sunday sold for $30,000 or less.
A boarded-up bungalow on the city’s west side brought $1,300. A four-bedroom house near the original Motown recording studio sold for $7,000.
“You can’t buy a used car for that,” said Izairi. “It’s a gamble, and you have to wonder how low it’s going to get.”
HOW MUCH CAN YOU BUY FOR $1 MILLION?
Mayor Kwame Kilpatrick was greeted with applause when he announced last week that two condominiums in the city’s revitalizing downtown sold for over $1 million each.
But investors, including some from out of state, proved far more cautious at Sunday’s auction.
In the most spirited bidding of the day, a sprawling, four-bedroom mansion from Detroit’s boom days with an ornate stone entrance fetched just $135,000.
Dave Webb, principal at Hudson & Marshall, said Michigan had become a “heavy volume” market for his auction firm in recent years, although bigger-money deals were waiting in California, a market he said was ready for the first such auctions of repossessed property in years.
“These people that are buying have got to look at holding on for five to seven years,” he said. “The key is holding power.”
Even with the steep discounts on Detroit-area properties, some buyers handed over their deposits with a wince.
“I’m not sure it’s congratulations,” said Kirk Neal, a 55-year-old auto body shop worker who bought a ranch in the suburb of Oak Park for $34,000. “My wife is going to kill me.”
Realtor Ron Walraven had a three-bedroom house in the suburb of Bloomfield Hills that had listed for $525,000 sell for just $130,000 at the auction.
“Once we’ve seen the last person leave Michigan, then I think we’ll be able to say we’ve seen the bottom,” he said.
The mood is changing from greed to fear very quickly.
All these prices don’t surpise me except the Bloomfield Hills house…that is amazingly low. Bloomfield Hills is where the auto execs live and has not seen a house in the $100’s since the early ’80’s.
That’s going to do wonders for the comps…
This is central California’s future.
There was an article over the weekend in the PNJ which quoted a builder as saying he couldn’t build a house/condo for less than $150 per square foot. As this article shows he may not be able to build them but it is certainly possible to sell houses for substantially less than $150 square foot.
“These people that are buying have got to look at holding on for five to seven years,” he said. “The key is holding power.”
And in the end, the rich get richer.
Every so often I get absolutely floored by the wide economic range in our great country.
“At least 16 Detroit houses up for sale on Sunday sold for $30,000 or less.”
You could buy all of those for less than the cheapest most run-down condo in my neck of the woods.
Double you tee eff.
What’s worse, is when you have $300k crappy old homes in rural WA where median income is less than $30k, yet you can purchase a home on 20 acres for half that in an area in the midwest where wages are much higher. Talk about WTF…
20 acres for $300k? That’s got to be some unproductive farmland!
Actually, I’ve seen old homes on 40 acres for less than $100k in areas of the midwest and south. Then, you look around western WA and a nasty trailer on acreage is running well over $250k in many areas. The problem is, the only people who would even be willing to call that home cannot even afford half that.
Farmland does not go for 10K an acre except near cities where it is being used for development. You can buy farmland in Southern Illinois (Pope County - the only county to declare BK for a $1000 bond issue) for ~500/acre, in central Wisconsin ~1200/acre, in Northern Minnesota ~ 250/acre.
And if you are a baseball lover “Matt White, a journeyman pitcher trying to make the Los Angeles Dodgers, could become baseball’s first billionaire player…White, who has appeared in seven big league games in nine professional seasons, paid $50,000 three years ago to buy 50 acres of land…A geologist estimated there were 24 million tons of the stone on his land. The stone is being sold for upward of $100 per ton, meaning there’s well over $2 billion worth of material used for sidewalks, patios and the like….” Maybe the Cubs could get a new owner and get some of his luck!
Don’t rule out or overlook the power of the Fed. They meet this week and will announce their decision on Wednesday. They most likely won’t move this week, but could change their “bias” to neutral. They will probably acknowledge that the economy has softened, and when signs that the real economy has slowed, the Fed will start to ease.
If they can get 10 year notes down to around the 4% range later this year or early next, the refinancing opportunities could go a long way to ease the mortgage debacle.
If that happens….get your savings into Euro or Pound Sterling…
“If they can get 10 year notes down to around the 4% range later this year or early next, ..”
what steps can the FED take to do this…
A bad recession would do the trick.
Gee, I thought recession is the thing the FED is trying to avoid?
Hey but if that’s what they want they should raise the FF 3 full points on Wednesday….
I wasn’t suggesting this as a good idea — merely observing that long-term T-bond yields drop in a recession. In fact, govt bond yields were really, really low in Japan from 1990-about now (deflationary expectations have that effect on long bond yields)…
Not really sure that the Fed wishes to avoid recession. A convincing case can be made that the fed would like to see a recession to get rid of excess. Do not forget that the first rule of a member of the federal reserve is to lie.
Stucco,
My original post went to the fact that FED can’t control 10yr bonds yield, hence the “conundrum” messing with the FF hasn’t done it, right? (although I know you are an adherer to a PPT, ect.)
Sweet Jesus, don’t get Stucco started on the conundrum…
Hey everybody, Imploder has a post addressed to GetStucco that contains both “conundrum” and “PPT”. Step back and give GS some room folks…
As Rodney Dangerfield would say,
“Tough Crowd, Tough Crowd”
LOL
Not an adherer to PPT theory; it just seems to fit the data well on days like today when the news would naturally tend to move stocks down (but other explanations might also fit the situation).
The Fed can control the 10-year bond yields to a point. For instance, if they hiked the FFR up to 10% instead of a mere 5% and change, they could get the 10-year bond yield to go really low (and kill inflation and employment in the process, a la Volcker). Or they could get the 10-year bond yields to go really high by dropping the FFR to 0% and holding it there indefinitely until an inflation risk premium developed, unless the economy was already in a deflationary spiral (a la Japan), at which point dropping interest rates amounts to pushing on a string. And if the Fed and the Treasury worked together, they could presumably coordinate the supply and demand for long-term T-bonds to control the yields.
Get Stucco, sometimes I don’t get a word you say, but I really respect you and appreciate your posts.
Didn’t this type of “economic management” get the Soviet Union in trouble?
“Or they could get the 10-year bond yields to go really high by dropping the FFR to 0% …”
hmmmm, thought they just did this with not that result… hence the “conundrum”
‘hmmmm, thought they just did this with not that result… hence the “conundrum”’
No, they did not just do this. They hit the pedal to the metal after the 9/11 attacks & tech stock crash, just long enough to dispell the deflationary hobgoblin from their own minds. But then they commenced the measured series of tightenings, which continued up to the point where the housing market was toast. And this is where they stand as I type.
If the fed lowers interest rates inflation will go up. If inflation goes up it will cost more to buy stuff. If it costs more to buy stuff your paycheck buys less and less stuff.
So by lowering interest rates all the fed is doing is gaining a short term benifit at the expense of a the economys long term well being.
If the gov really wanted to help people out they would give $$$ to first time home buyers that are getting 30yr fixed mortgages. This would flush all the speculators out of the market while still getting new home buyers into the market. An example of this would be to give only new buyers 20% of the cost of a home.
Am I understanding you correctly -you want me to finance a downpayment for new buyer with my tax dollars?
yes, we should double all the income tax rates for this. The Goverment will then collect all the money and return it to us at a rate of 25 cents on the dollar for down payments.
This make much more sense than people saving that money at 100% on the dollar for their own down payment….. understand?
Hillary and Dodd and run the program for us….
I’m sure you guys are just as pissed off over the hundreds of billions of our dollars that were blown/stolen in Iraq.
I’m sure you guys are REALLY pissed about that!
“I’m sure you guys are REALLY pissed about that!”
Yes, but I’m more disturbed by so much dying, killing and suffering…
Now go wash your birkenstalks… they’re so heavy with dirt, you might have trouble walking on water.
And just where do you think your already paid tax dollars go? Go down to your local Community College and check out the grants office waiting room, or try the social security office and see how many people in line are actually over 65, want more? go to the supermarket and stand behind the lady with the most kids and watch how she pays for the top sirloin and which ford expedition she loads it all up in.
If the gov is going to finance a bail out the might as well help the people that need it rather than the ones that don’t.
Greedy speculators bid up the market with money that wasn’t there’s. Now we’re stuck in a situation where a house has become too expensive for first time buyers to afford.
Either one of two things needs to occur.
1. Banks go broke, houses get auctioned, price goes down
2. Gov steps in and “lends some assistance”, prices appear high but are really going down.
If gov is going to get involved they might as well do it right. The speculators need to go broke and the people standing on the sidelines need to be rewarded.
Just my 2 cents…
“If gov is going to get involved they might as well do it right.”
Ah, the faulty construct in your well meaning post!
To be clear I’m not for a bailout…
I’m just saying that if gov is going to get involved. And they will because it gets votes. We need to provide them the best alternative. The people getting screwed in all of this are the first time buyers that are either choosing to carry crazy amounts of debt or are standing on the sidelines.
What politician is going to pass up a stump to grandstand on where no matter what they say people will support you?
Shadash: how exactly are prices “really going down” in your scenario if the gov is giving these grants? When has a gov subsidy ever resulted in prices falling?
No, your plan would help to keep prices up (if not move them up even more) because first time buyers would feel that they could buy that much more house. This would reward the speculators and HELOC junkies.
Oh, and how long would this program last? Because the minute you take it away, you can bet that prices will fall (since they are no longer subsidized).
The gov just needs to stay out of this and let the market forces work to restore equilibrium. It will be painful for some, but that’s always the way it is when there is excess. As for the politicians, let them talk all they want, just as long as they don’t actually do anything. And the cost of any real bailout would be far too high, and I think (at least I hope) they know it, so they will talk about it (in order to gain votes - hey, “I feel your pain” was successful) but not actually do anything (because they won’t want to explain how they are going to pay for it (which would have to be higher taxes, cutting spending, higher deficits, or some combination thereof).
Waiting,
Prices would only appear to be high because of artificial gov inflation. It would work because first time buyers are a limited quantity. You can only be a first time home buyer once. Sellers would not raise their prices because first time buyers are a limited asset. A limited asset that can’t generally purchase a 500k house with a 30yr fixed mortgage.
What do you suggest? Other than nothing? Because I agree that gov should let the whole thing tear itself apart. People only change they way they do something when it causes them an adverse amount of pain/problems. (foreclosures, bankruptcies, etc) In the example I proposed gov could still get it’s bailout and first time home buyers could still buy houses.
In my view IF a bailout occurs it should benefit the first time home buyers not the refi/heloc people.
We have a state congressman here in Michigan who wants to extend the property tax cap of the seller to the buyer for one year. I view that as a government subsidized “teaser rate”. Totally insane.
Shadash,
The increased expenditures of subsidized downpayments would be inflationary. This would have a negative effect on savers/people with fixed incomes. You can’t just seperate out housing and inflate its price. The dollar would be crushed down.
Additionally you would cause all sorts of other loop holes to open up. People would divorce so they could buy double houses on the government dime. Rich people would have their 18yr old kids as dummy buyers. So the price will be inflated up as fast as we print the money to create the downpayments.
Unless something lowers the “economic cost” of housing; like a bunch of land suddenly becomes available and/or technology shift.
If gov is going to get involved they might as well do it right
The right way to do it is to liberalize the bankruptcy laws, so the foolish buyers can go BK and get on with their lives, the foolish lenders can take it in the shorts as they richly deserve, and house prices can return to sane levels, so responsible people can afford to buy again.
My simple joesixpack logic is not able to seperate a speculator from a first time buyer that has no down payment and lies about his/hers income. Same thing to me.
absolutely. and leave your urine sample next to the mailbox for gov’t collection.
And you don’t think it would sustain the current inflated prices on housing if the government was giving away down payments?
Let’s keep government out of it and let the market deal with this problem.
I second that motion!!!!
Agreed, SM. But the market is a harsh mistress. Some of those in these toxic loans will go crying to Uncle Sam. What can we do to protect politicians (and the economy) from themselves?
Some of those in these toxic loans will go crying to Uncle Sam. What can we do to protect politicians (and the economy) from themselves?
This is what I’m talking about. If you’re not crying and whining about a situation and someone else is who do you think will get the attention?
I’m not for gov intervention. But, is politicians HAVE to get involved. Which they will because it gets votes. They should support the people that need help rather than those that don’t. (Subsidize the first time buyers. Don’t bail out the HELOC/REFI junkies)
Backstage,
Write your congresscritter. Let them know that they have support for standing firm against a bail-out. Tell them that this single issue will determine your next vote for their office.
I can’t believe I’m saying this, but I would support a moderate war supporter over any candidate supporting a bailout!
A lot of people here seem to think a bailout is a given because it will get votes.
you need to go check out the article at CNNmoney today concerning bailouts. When I checked, there was a mile-long comment section and only 3 (THREE!) were supporting a bailout- 2 of those were FB’s.
It appears that people are vehemently opposed to the bailout idea.
Make your voices heard along with the masses.
This would lead to fraud and house price stabalizing at a higher plateau.
Sellers would raise price 16 % instantly.
The only sellers it would benefit would be the one selling in the lowest price range. First time home buyers can’t generally purchase 500k homes with a 30yr fixed.
Wrong, the people selling their houses to FTB’s would have more money to trade up with. It’s a food chain. Subsidies for FTB’s work their way all the way up.
No subsidies, period. Prices will drop to levels FTB’s can afford.
Japan had 10yr bonds at 0.10% for last 10 years. House prices still went down every year except 2006. For a total of 17yrs housing prices went down.
Once the ponzi scheme breaks the market seizes up. The fed can lower rates all they want it wont reflate the housing bubble any more than greenspan’s insane experiment reflated the nasduck.
Some of us do pay heed to the Japanese experience of the dreaded liquidity trap, wherein people refuse to consume or invest (domestically) even when money is essentially free. But Japanese tend to save a lot more than Americans do, and their population is aging much faster than ours. Plus they allow virtually no immigration, so their population is not only aging but also static or declining. Talk about insufficient demand.
I think we’ve already seen what excessive liquidity can do to the US housing market; i.e., inflate it to absurd proportions. But how is our recent cost-of-money history comparable to Japan’s when our FF rate has been >5% and long Treasuries have been >4.5%? How about the 1.95% teaser rates on the toxic ARMs? OK, those rates were ephemeral, but FBs either didn’t understand that or thought they could flip in time. So, yes, the Ponzi scheme did break.
But now it appears that reflation of the bubble can be prevented not so much by keeping index rates high as by making credit unavailable to those who are not qualified by sane traditional standards; i.e., 20% down, DTI
SF
I read an interesting article a few months ago that compared the Japanese demographic bell curve to that of the US. The “bell” peak for Japan was older than ours, by approximately 10-12 years. It made the case that as the older core of the dempgraphic curve reaches retirement age, the participants become more conservative in their investment style, and begin to move savings from riskier investments (equities) to safer vehicles (bonds).
Good thing we don’t have any savings here in the US, no worries.
…and the migrate toward multi-family housing. ergo, who will buy all those sfh’s that are being sold by them?
The fed can lower rates all they want
Well actually they can’t, for the simple reason that the US is the world’s biggest borrower and debtor, and can’t dictate to the rest of the world the rate at which it will borrow money.
The Japanese, on the other hand, lend money to the rest of the world (due to their high savings rate) and can set their interest rates anywhere they want.
what happens if the houses are 20% down by then and ow(n)ers are upside? how does it help the owner to refinance?
upside …> upside down
To get 10 year T’s back to 4%, the FED needs to RAISE short term rates, not cut them.
We have been considering moving to CA for job. Evn at 250K income i do not really want a 600K home. Especially since they are worth only 300 at most.
I cannot wait for the implosion in prices, forclosures, etc. Maybe this will take half the illegals with it.
“Maybe this will take half the illegals with it.”
I wish, but don’t bet on it. If drastic measures aren’t taken, they’re here to stay.
Yes, most will stay and southern california will look a lot like economically like many areas of latin america. You will have the rich areas with barbed wire and security guards and you will have the slums filled with misery. This will become the new american dream, I mean nightmare.
will?
Hey its the republican model, ruling elite behind walls with security (what do you think Blackwater and Custer Battles are going to do when their no bid contracts in Iraq are over)…when are you guys singing up for the right wing death squads?
It would be funny if it wasnt so sad, especially since once they are done with the dirty brown people, anti-war protesters, labor leaders, catholic clergy who will be next?……If you arent a super wealthy wasp, or already a mercenary you will be on that list…enjoy.
Alrightttt!
“‘I feel conned,’ Perez said, noting she agreed to the loan’s adjustable rate only after her loan officer assured her she would be able refinance later. But with her neighborhood’s home prices down, lenders will not refinance, she said.”
I feel your pain, asshole. I too feel conned when I hear whining like yours, because I realize you’ll probably be asking for some kind of government relief or assistance soon.
I hope your new life as a homeless person teaches you something.
“I feel your pain, asshole.”
priceless LOL
“I feel your pain, asshole.”
Exactly. Now shaddap and get to packin’.
More from the Money article:
“For some, the new realities of the housing market are tough to swallow. When a job opportunity led Kristen and Darren Boucher to uproot from Las Vegas to Des Moines last year, they held on to their former home out of a hope that the formerly sizzling Vegas market would quickly bounce back.
But the couple have been unable to find renters to cover the costs and now spend almost a thousand dollars a month to make up the shortfall. They’re starting to dig into savings, and Kristen has suspended her Roth IRA contributions.”
I know countless people who are doing this or something similar to keep one or two mortgages going. They are draining down every other asset they own, bank accounts, retirement accounts, they are not funding retirement accounts, 529 etc., and they are racking up credit card debt, all to keep the mortgage beast at bay, until the market comes back and makes it all better.
The consequences of this latest bubble will be felt for years and years.
It would be smart to let the house go back to the bank and keep every dollar they have in retirements accounts as these can’t be touched by creditors.
“They are draining down every other asset they own, bank accounts, retirement accounts, they are not funding retirement accounts, 529 etc., and they are racking up credit card debt, all to keep the mortgage beast at bay…”
The mortgage beast is more commonly known as an alligator.
‘If you can’t hang onto your home and you know it, you’re not going to give up your TV and all of that,’ Thornberg said. ‘You’re just going to say … I’m moving into an apartment.’
You can have the house, but PLEASE don’t take away my TV!
Toast,
Laugh all you want, but I know for a lot of people they could give up the walls easier than the Plasma, surround sound, DVR, etc.
Actually, I have everything but the plasma. (Man is my 27″ old… I’ll be looking for a good deal in the fall. Here Flipper flipper…)
Got popcorn?
Neil
I have a 27″ CRT that I purchased from Sam’s Club a few years ago for $150. I may look at an LCD in the near future for watching DVDs as the price point on these continues to plummet (Thank you early adopters and overleveraged borrowers!).
As for broadcast television, I’m more convinced than ever that there is absolutely nothing on that is worth watching. It’s electronic Soma.
I use an Orwell word (prolefeed) rather than a Huxley word (soma) to describe teevee, but it’s the same idea.
“The basic tool for the manipulation of reality is the manipulation of words. If you can control the meaning of words, you can control the people who must use the words.”
— Philip K.Dick
It all depends on what the definition of “is” is.
Or the definition of ‘covert’
Or the definition of “enemy combatants”
“‘The big issue is, what’s going to happen to these people?’ Thornberg said. ‘The market has finally got it that these aren’t good bets. With that kind of pulling back action, that’s going to contribute to a period of slowing, whether it’s a recession or a mild slowdown. With either one, income and jobs are going to take a hit.’”
If there is not a recession, then this will mark the first time out of eight since 1955 when a 25% residential construction recession did not coincide with a recession in the rest of the U.S. macroeconomy. Is eight a lucky number?
Magic Eight Ball says, “Recession”.
I just don’t think people grasp the forthcoming impact of the “bubble”.
Even if home prices stay flat (i.e. don’t go up) and there is a bailout and the foreclosures are stopped…there is still the fact that the spending associated MEW is over and done…I’d bet at a minimum that the slowdown in spending will cause at least a mild recession. Furthermore, as the Hummers, Jetskis, Harleys, Corvettes, etc. are bought in the “resale” market, there is a huge effect on those employed in the sale, production, servicing, etc. There is also the home improvement business that depends on MEW. It goes on and on and on.
I just can’t see it continuing…..
I know it is much more complex than that
My family is deep into this too. I have a relative with 5 properties in Sarasota and another who works for one of the Japanese toy manufacturers (jet skis, motorcycles etc). We don’t have room in our house for all of them either, we never jumped on the move-up bandwagon.
The foreign trusts and gov’t debt holders have no horse in this race; they will liquidate. The trendline towards hyperinflation will now steepen. (As an FYI, 1923 German hyperinflation culmination was just a few month event; the prelude was increasingly growing inflationary rates for 9-12 months.)
If you were a foreign debt holder, would you continue to hold a declining asset, supposedly a low risk asset? Not only will the RE market perform spectacularly on the down side, and continue to cave on itself down the bottomless bottom; not only will the allied industries bankrupt, turning legal workers into dole recipients and illegals onto the streets; not only will the entire US economy experience the reverse multiplier effect; but the foreign debt holders stand a high probability of both trying to stampede through the eye of the debt market needle and of ending up holding significantly devalued paper debt.
So, you see, there is a silver lining here. For the US government, and its people, the debt music stops and the foreign creditors get stuck without chairs.
For the US government, and its people, the debt music stops and the foreign creditors get stuck without chairs.
It’s not like it’s not happened before, is it?
Time to start singing…
Don’t cry for me, Argentina…
“A year later, their rate adjusted up, adding another $400 in monthly payments, and Bo lost his job as a mortgage broker. Out of desperation, the Apostolaches took a $200,000 home-equity line of credit, in part to help cover the payments, but then quickly realized they were in over their heads.”
Out of work and not wanting to look like a needle dick, Bo cashed out 200 large. Genius! Anyone here been out of work and needed $200K to tide them over? WTF!
LOL !
Yeah that is funny, I guess he still wanted to live like a king.
“Bo cashed out 200 large.”
Well cash is cash. He was a mortgage broker. He knew what he was doing. Get all you can. He was busting the house out.
If they can get 10 year notes down to around the 4% range later this year or early next, the refinancing opportunities could go a long way to ease the mortgage debacle.
I don’t see any reason why the government should stick its fingers into this mess. Let the current scenario play out, and let the lessons be learned, instead of trying to soften the blow of some people’s own stupidity.
…“‘It worked fine at first,’ says Bo. ‘Borrowing that much was the biggest mistake of my life,’ Bo admits. ‘I guess I just got caught up in the real estate frenzy.’”….
Given the original mtge and the fact the he was a mtge broker in the biggest RE boom of all time, he could have taken advantage of a very prosperous time and probably paid off the $175k (or most of it) with the windfall earnings of that occupation the last few years…but NO!..he had to believe the bullcrap he was spewing and mtged his future away…What a FOOL! He is very lucky he got with some equity.
He’s also lucky his dad had an opening for a new CFO.
“I guess I just got caught up in th real estate frenzy.”
Ah, the madnesss of crowds.
“By 2005, although they had doubled their loan balance, their payments had increased by only $400 a month. A year later, their rate adjusted up, adding another $400 in monthly payments, and Bo lost his job as a mortgage broker.”
The guy was a loan broker? When he saw 30 year fixed money a 5%, he doesn’t know enough about his own business to grab it. He goes for the adjustable?
The first 200,000 was the mistake. They partied it away. Then when he really needed some cash for his unemployed stretch he was cooked. A shame.
He doesn’t care. They will buy a new home soon, and get back on the home equity gravy train.
I bet that as a truly honest mortgage broker he was telling his customers: “I never read all that legal mumbo-jumbo either”.
“This is not just a Wall Street problem; this is a Main Street problem, they say.”
So many people have posted that here starting 2 years ago that they should be paying royalties to print it now.
“As long as home prices kept climbing, lenders had little fear of losing money if they had to foreclose. ‘Homes were only affordable with very creative financing and the expectation that prices would go up. Neither of those is true now,’ said economist Stephen Levy., director of the Center for the Continuing Study of the California Economy in Palo Alto.”
OK, so now that the California affordability mystery is out of the bag, who will buy homes, in the aftermath of creative finance and the collective belief that California real estate always goes up?
Illegal aliens. They’ll fill ‘em up ’til they look like clown houses.
With what down payment?
You’re talking about the subprime market, which just pulled a Keyser Soze. How is a family of immigrants going to scrape together a 5% down payment on a $400k house in the burbs?
The Inland Empire is absolute toast. Nobody with any sense wants to live there, and everyone else suddenly can’t afford to live there.
Phantom equity provided by the seller. Those are the deals getting done these days.
You have to remember that for realtor and mortgage hucksters illegal alien = GF at this point. They still need to generate commissions.
“Phantom equity provided by the seller”
OMG, that’s a new one.
It is ironic that in california illegal immigrants can’t get a driver’s license, but thye can get 100’s of thousands of dollars to buy multiple homes. I hear of some buyinsg million dollar homes.
Gives new meaning to the work “suckers”. They sucked so much equity out of the house they lost it! Good luck EVER finding a 3bd room in Irvine for $1400/mo ever again.
Not that I have pity for any of these fools, but it is sort of sad seeing a normal homeowner, who happily lived in the place 9 years, losing it because they allowed themselves to get caught up in all this madness. By the way, is anyone else astounded at how fast this thing is unwinding, especially in the MSM?
“….author Christopher Cagen estimates, resulting in about $4.8 billion to $5 billion in losses, not enough to be more than a drag on the economy.”
—————————————————————————–
Isn’t this the same Chris Cagan that was claiming last year that there was no RE bubble? The multiplier effect of 1.1 million home foreclosures is gonna hurt and I find it hard to believe Cagan’s fantasy that it’s not going to be a big deal!
Orange county has a population of 3M. 5B loss means $1600 aveage loss for each man, woman, and child in the county.
Nah, that won’t cause a drag on the economy.
My wife is more of a financial whiz that I, and she is completely surprised at the level of stupidity shown. As I told her, we ‘could’ have bought a million dollar home, easily, with these exotic loans. But, but, but, there is nothing and there was nothing and there will be nothing that would have EVER, EVER allowed us to pay for the actual cost of the payment of the house. Interest rates could go down to 0%, and we still could not afford the entire payment.
So it bothers me when you have/had all these brokers telling their customers that they could refi later. Refi into what? A 100 year loan? They should have known that the person was NEVER realistically able to fully pay for the house.
So it bothers me when you have/had all these brokers telling their customers that they could refi later. Refi into what? A 100 year loan? They should have known that the person was NEVER realistically able to fully pay for the house.
Fuzzy math
Right. Sooner or later, you have to pay the piper. I don’t care what sort of exotic financing I can get on the Ferrari, I cannot afford the damn thing period. People just don’t use their heads.
Ferraris also on sale starting this summer.
I keep checking CL Orange County, Los Angeles, and San Diego. Found a couple of 1990s so far, but nothing more recent or decently priced.
“But, but, but, there is nothing and there was nothing and there will be nothing that would have EVER, EVER allowed us to pay for the actual cost of the payment of the house. Interest rates could go down to 0%, and we still could not afford the entire payment.”
I’m surprised to hear of people still unable to understand this point you made. THey claim that they can cash flow all of mulitiple homes; just wait till the rates reset. They won’t know what hit them if they don’t dump those properties soon.
“Interest rates could go down to 0%, and we still could not afford the entire payment.”
This is the one circumstance in which I would recommend an interest-only loan
A 100 year loan? They should have known that the person was NEVER realistically able to fully pay for the house.
A lot of them thought they would hold onto it and then sell it at a profit before the teaser rate/ARM adjust took hold.
“‘A lot of people were buying homes they shouldn’t have, driving prices upward, and now that part of the market’s starting to implode,’ economist Chris Thornberg said. ‘The question is, how did we expect this wasn’t going to happen?’”
Actually, Chris, I think the real question is why anyone would take your opinion seriously at this point and why you are being quoted in the newspaper.
“We” did expect this was going to happen.
Chris Thornberg is a vocal bear and probably had to leave UCLA’s Anderson forecast for being such a vocal bear.
He gets a pass in my book.
Ditto
Remember his quote, “OC is going to get hammered.”
Yes, in print he sounded mild, but never in his public speaches.
None of us were risking our career giving bearish public speaches two years ago. So Chris definately gets a pass.
Got popcorn?
Neil
Actually can find Chris comments on Google Video… search his name and housing bubble. Last half-hour is golden…
I believe it was a quote of his printed in the LA Times when he was still at Anderson that drew my attention to this mess. Interestingly, after the left, the Anderson forecast changed its tune completely.
Festus,
He was asking a rhetorical question. Watch his video on YouTube to get the inflection.
Chris has been one of the more public housing bears over the last few years. There were one or two quotes that were taken out of context by people who didn’t bother to look further into the article that made some think he wasn’t. But almost everything he said, while cautious, was completely housing negative.
The video presentation is great, although probably dated now. Still worth watching. Chris is one of the good (smart) guys.
The pundits still don’t get it. It is not just subprime mortgages, it’s CC’s and HELOC’s that will bring down prime as well. There was a new game in town called ‘Live for today no matter what the cost’ ;after all you live in America and are entitled to have whatever you want right now.
I’m looking forward to many people I know getting a painful education in personal finance.
Does that make me a bad person?
No; otherwise, I would be too, and I don’t think I am
Education=good
Got popcorn?
Neil
Experience keeps a dear school, but fools will learn in no other.
Benjamin Franklin
“The pundits still don’t get it. It is not just subprime mortgages, it’s CC’s and HELOC’s that will bring down prime as well.”
And Prime hasn’t been all that prime recently. 80/20 loans with high credit scores and full documentation are part of the Prime lending pool. I think we’ll find that recent Prime as well as Alt A borrowers are every bit as overstretched as Subprime. Subprime loans have shorter teaser periods (1-2 years) versus 3-5 years, so it makes sense they would be the first to implode.
Interesting - Ameriquest losing stadium naming rights
http://www.bloomberg.com/apps/news?pid=20601079&sid=aHvK94_tVXWs
this is off topic, but the worst invention in the history of mankind is Zillow’s Zestimate. Look at this:
7036 Grasswood Ave, Malibu, CA 90265 5 beds, 5.0 baths, 3,168 sq ft
ZESTIMATE™: $3,279,455
SOLD 03/06/2007: $2,107,000
Value Range: $2,951,510 - $3,738,579
30-day change: -$159,399
So the house sold two weeks ago for $2.1 million but Zillow has a Zestimate of $3.2 million. Wow, someone sure got a real bargain on that place!!
Sold two weeks ago and already showing up on Zillow? I’ve been trying to track down what happened to houses thatwere on the market and one day the sign was gone. I tried to check whether they had been sold on ZIllow, and nothing came up. Does that mean they were just pulled from the market?
they were most likely pulled from the market.
The squirels ate the sign. Hungy buggers you know, with no buyer to feed them.
Thats OK dwr… per Zillow Sales History which I consider accrurate you have it sold for 2.1M but it sold for 1.4M in 2003…
I dare ask if there was any reason for the $700K (50%) increase in under 5 years.
Zillow is great when you know how to use it and ask the questions that need to be answered. My two cents! I just found a dot.com stock… Its will pop! In the mean time the homeowner can keep paying the $30K in property taxes.
Sale History
03/06/2007: $2,107,000
11/24/2003: $1,425,000
I’ve actually been tracking this house for a while, and Zillow USED to show a sale in 2005 for $2.75 million. That’s right, the former owner took a 600K plus haircut, but now ZIllow has removed that sale and instead only shows the sale from 2003. Interesting…..
You may wish to double check the Property Tax records in your county if they are online… Santa Clara County does provide online access free of charge…. assessor info that is!
Additional data is purchased from county. Also try Domania.com they used to go back to 1987 transactions.
> sold two weeks ago for $2.1 million but Zillow has a Zestimate of $3.2 million.
Instant equity! A great opportunity for a cash out re-fi.
OT - an MSMer actually asking the right questions.
http://www.cnbc.com/id/15840232?video=219546200&play=1
Another thing Wall Street and the MSM don’t understand is that in those fast growing markets ‘location’ was put on the back burner, but when this thing bottoms out it will be ‘location, location, location’ once again. Those people (with prime mortgages) in AZ,FL,NV who moved further from the city to more affordable digs will find their housing tracts filled with boarded houses, weeds, etc and strip malls boarded and growing weeds too. Now what prime mortgage holder (especially older folk)is
going to sit out in de-burbs fearing for their safety while paying full price on a piece of excremental housing? I guess we’ll see a new term soon in the MSM defining ‘Post traumatic housing syndrome’ made up of people in their twenties and sixties.
…will find their housing tracts filled with boarded houses, weeds, etc and strip malls boarded and growing weeds too.
That’s an eerie, fascinating and frightening vision.
For years, in Tucson, I’ve always asked when seeing a sign proudly announcing new construction, “Can we just have the desert back, instead?”
At least most readers of CNN Money seem to agree w/ us regarding the bailout. Good to see:
http://money.cnn.com/blogs/generationrisk/2007/03/time-for-mortgage-bailout.html
Good link, thanks.
Good to see that “the message” (the moral and financial problems with a bailout) are getting out there.
Does anyone believe this crap? 2 million people were late with their payments in the last 12 months, but only 1.1 million foreclosures in the next 6 years.
Yeah right…
I’ll “bailout” alright. RIGHT OUT OF THIS COUNTRY if the government steps in to financially assist FB’s in any way,shape or form. I’ve been holding back from buying for 5 years now despite the fact that I already had a significant down and a purty decent income. Anyone who got in after me was betting on appreciation to carry the payments over the long term. Anyone with the common sense that God gave asparagus already knew by then that something wasn’t right regarding the irrational surge of home prices.
Getting back to the Bailout topic, I think Nicole Gelinas’ reasoning cinches the argument against doing so:
“If the government, or its proxy, now steps in and purchases those mortgages, or otherwise systematically bails out borrowers, it will create a hazard for the future. The next generation of mortgage lenders won’t take the high risk of subprime home loans seriously, because they’ll expect that, in the event of another crisis, the government will step in and bail them out again. So they’ll be even more eager to approve the risky subprime mortgages that are getting so many borrowers into trouble in the first place.”
And as far as I’m concerned the only reason the investors invested in this sub-prime junk was because they didn’t know how bad it was . If you asked a investor if they would of put up 500k in saving funds to finance a no down speculator who was betting on real estate going up and really could only qualify for the teaser rate ,would the investor say yes to that deal …..No way they would yet God knows how many people have these investments and don’t even know it .Would the real funder putting the money up do the same deal if the flipper simply had a good credit score ? I think the investor would not do the deal . Nobody in their right mind would fund the deal . A normal person would say they wanted 30% down or more to fund the gambler ,yet this borrowers got a 0 down loans . The ability to re-pay the loans didn’t seem to be a consideration either with this funny money that was simply based on real estate going up . The funny money belongs to someone and it wasn’t dropped from heaven like everybody is acting like it did .
Republicans, along with a little help from the Oracle of Ayn Rand, his emminence Alan Greenspan, are very very good at funny money.
By lowering rates, and turning a blind eye to regulation, they pumped all kinds of funny money into the economy. worked great….for a while. It even helped all those loathsome minorites and poo’ folks get a chance at the Ownership Society….what a crock.
Oh well, they will say. We’ll let Pelosi and the Dems sort this out.
Ayn Rand is a libertarian and wouldn’t support any sort of intervention in the economy (either through regulation or an official government policy like the one you describe). Anyone who knows anything about fiscal conservativism knows that GWB is NO conservative.
Read Roubini’s blog. This problem REALLY was a result of deregulated private sector mortgage industry, investment banking, and mortgage broker greed & fraud.
The modern Republican Talibanism on the economy, in practice, means to thumpingly advocate “deregulation” with moralistic libertarian arguments—as long as it makes their class group very wealthy—and then eagerly subsidize with tax money the inevitable ill consequences.
How about this? Break the corporate veil and apply unlimited personal liability, like the Names of Lloyds syndicates, to those who created this mess. That’s right, go after not just the corporations but the executive officers and owners of them.
The point is that the Randite libertarians are delusional adolescents and the big money powers entirely cynical in using these facile arguments for their personal greedy gain.
Old-fashioned fuddy-duddy George Bailey prudence and modest, but effective government regulation leads to the best overall outcomes for the most. A lesson we apparently need to keep learning.
Dr. Chaos, you said it. Nothing to add. I’ll just quote you.
Who bakes the cupcakes to move all of these foreclosed homes? Is it the Bond Holder, Mortgage Originator or the Auctioneer?
I have had the same thought all along and I am not from a financial or marketing, etc background. I do science for a living, and all along this was obvious to me…
This money……..it belongs to somebody. Somebody’s butt has to pay for this stuff.
We can’t just print up a bunch of paper or stiff our foreign debtors.
Someone will have to pick up the tab for this horrible mess that Human Greed got American Society into.
I fear that we will all pay dearly; and beginning sooner than most of us could imagine.
The smart money left the party long ago….
Errr ahhh …meant to say:
“We can’t just print up a bunch of paper or stiff our foreign
debtorscreditors”.The absolute immoralality of this “bail out” bullsh#t sends my head swimming. The country’s moral compass is upside-down. The place is becoming a confederacy of retarded, drooling gamblers AND dunces.
“Bo and Ana Apostolache…”
Hey, OCRenter, can you dig more information on these two to check Money Magazine’s story?
Every one of these “conned” FBs/GFs should be sent a mirror in the mail with a note that inside is a picture of the person responsible for all their woes….poetic justice served.
The bastards would crack ‘em at first glance
Well at least we know they could “fog” them…
Anyone have advice on ETF’s or Funds that are short in RE or mortgage banking? I’ve got puts on CFC (yea!!!!!) but would also like an aggressive bear fund.
I don’t know if anyone remembers the scandal with Charles Keating and Lincoln Savings and Loan in the mid 80’s .
Well Keating hired Alan Greenspan to lobby government to allow diversification from home loans into direct equity investments from money deposits at Lincoln Savings $ Loan . Keating used investment venture money from Lincoln Sav. to fund some elephant Hotel in Arizona that went belly up . In 1986 the regulators found out that Lincoln had unreported losses of 135 mil.
Also the investors thought this investment money was FDIC insured when it wasn’t . A bunch of retired people loss their lifes savings and some people killed themselves over the loss .
When Lincoln finally went belly-up it cost the tax papers over a billion at the time .The public cried for blood . They took Keating to Court and they threw the book at him ,(I forget what they nailed him on ). Apparently there was also some evidence that Keating was courting senators at the time to get his way .
One of the charges in the court case was that Lincoln Savings mislead the public by making them think that the funds were insured or backed somehow . I remember at the time looking at full-page newspaper ads offering 12% for the Lincoln Savings investments while other banks were offering 8 or 9 % .I felt something must be wrong so I didn’t go for it , but alot of people did .
My point is what is going to happen when investors find out what they have been buying in the secondary market ?
http://www.rgemonitor.com/blog/roubini/184125
“The sub-prime and overall mortgage carnage is now likely to lead to a financial crisis whose cleanup and bailout costs will make the S&L bailout bill look like spare change.”
…
Then this entire housing and mortgage and securitization bubble fed an entire industry of originators, brokers, banks, broker dealers who created and securitized this junk and created CDOs, synthetic CDOs, CDOs of CDOs (CDO squared) , CDOs of CDOs of CDOs (CDOs cubed) and another totally not-transparent fog of credit derivatives – that were being priced based on intuition rather than true analysis of risk. These credit derivatives went, in less than a decade, from non-existent to a notional value of over $26 trillion. In the meanwhile this industry sold this garbage and provided financing for these investments as well as a variety of other prime broker services to a rising mountain of thousands of hedge funds.
…
I remember this scandal clearly. The senators were known as the Keating 5. John McCain was one of them.
Pathetic.
From day one when I found out about the sub-prime loans my first thought was about who would be stupid enough to invest in this risky stuff if they knew what it really was . I concluded that the investors could not of known what the true risk was .
Either they made those loan packages look real good by fraud or the investors didn’t know the risk (or both ). True that the market was hot so the homes sold before the borrowers went into default up until late 2005 but still you can’t rate risk based on real estate going up covering the risk IMO . Would a investor in the secondary market really invest in a loan if they knew the borrower didn’t have any money in the deal and were gambling on selling before real estate tanked and they really didn’t have the ability to pay the note or the desire to pay long term or could cover the loan note by rents ?
The people rating risk should of said to investors ,”Do you want to invest in a unqualified liar borrower or speculator who doesn’t want to put any money down ,who cant pay the payment long term ,who is betting on real estate going up ?”
John McCain is clearly better suited than other candidates.
John Mc Cain was a Keating Five.
Well if John Mc Cain runs for President you can be sure this case will come back to haunt him . If I remember correctly Mc Cain was cleared on the Keating Scandal regarding any wrong doing on his part but he did get some perts from Keating if I remember correctly .
sorry, perks not perts
Did you prefer Cranky Allen Cranston… that old man left Dodge pretty quickly when he was exposed. John McCain will do well as leader.
Better him than “Elvita and Ice Princess”
Flippity floppity McCain won’t even win the Repuke primary.
OMG– talk about Mr. Peabody’s way way back machine–
http://en.wikipedia.org/wiki/Keating_Five
Wiz– thanks. Anyone else notice the headquarters of the Lincoln Savings? Yup, that hotbed of modern day subprime….Irvine (OC). Ever get that feeling of deja vu?
Thanks for the link my friend .
The fraud stories have been slow to get started here, but I think I found one of the first ones, if it is true. Some pretty strong claims made in this RGJ comment:
http://talk.rgj.com/viewtopic.php?t=15554
“We knew then, and even more today, how that lie about occupancy did create a buyer who otherwise would not have qualified to buy and further added to the demand frenzy this Reno Realtor ignited in July 2004. There were no multiple offers until he came along and made it up until it became real. This Reno Realtor knew it was a lie, all smoke and mirrors, but he sucked us all in and he incredibly succeeded in getting the Reno home prices doubled in just over a couple years. He benefited and he doesn’t even live here, he lives in Southern California. His Reno broker benefited. Now we pay the prices as the prices continue their plummet own, and the foreclosures escalate.”
Apprasial freud had been around for a long time. I first found out about it back in 2002. It was a big story even than. Not much has changed…
http://appraiserspetition.com/
To: Mr. Ben Henson - Executive Director
Appraisal Subcommittee (ASC)
Federal Financial Institutions Examination Council
email: benh1@asc.gov
cc: Other state or federal agencies with authority in the following matter
“The ASC’s mission is to ensure that real estate appraisers, who perform appraisals in real estate transactions that could expose the United States government to financial loss, are sufficiently trained and tested to assure competency and independent judgment according to uniform high professional standards and ethics.” From the ASC website.
The concern of this petition has to do with our “independent judgment” in performing real estate appraisals. We, the undersigned, represent a large number of licensed and certified real estate appraisers in the United States, who seek your assistance in solving a problem facing us on a daily basis. Lenders (meaning any and all of the following: banks, savings and loans, mortgage brokers, credit unions and loan officers in general; not to mention real estate agents) have individuals within their ranks, who, as a normal course of business, apply pressure on appraisers to hit or exceed a predetermined value.
This pressure comes in many forms and includes the following:
* the withholding of business if we refuse to inflate values,
* the withholding of business if we refuse to guarantee a predetermined value,
* the withholding of business if we refuse to ignore deficiencies in the property,
* refusing to pay for an appraisal that does not give them what they want,
* black listing honest appraisers in order to use “rubber stamp” appraisers, etc.
Apprasial freud? That must have been a Fraudian slip.
sorry for misp…
The degree that prices were going up was really so abnormal that it should of sparked a investigation because of it . Really a RE market driven by speculators and unqualified borrowers and fraud cannot be labled stable . Weird mania behavior .
Meanwhile, the rich don’t know there is anything to worry about. And that is because for them there isn’t.
http://www.nytimes.com/2007/03/15/garden/15teak.html