“The Biggest Imbalance Is In Price”
The Republican reports from Massachusetts. “Foreclosure filings in Massachusetts soared to new heights in February, the fifth consecutive month with more than 2,000 filings statewide, according to a report released yesterday. ForeclosuresMass.com reported that foreclosures almost doubled in the 12-month period ending Feb. 28, compared to the same period a year earlier.”
“In the 12 months ending Feb. 28, lenders filed 21,644 foreclosure petitions, compared to 11,894 in the year ended Feb. 28, 2006, for an 82 percent increase.”
“‘We see this continuing well into 2007,’ said Jeremy Shapiro, president of ForeclosuresMass.com. ‘We’ve never seen this volume before, even during the crash of the 1990s.’”
The New York Times on New Jersey. “Broad swaths of Newark are groaning under the weight of mortgage debt, much of it accumulated in the building boom of recent years. In many of these neighborhoods, a heavy mortgage debt has led thousands of residents, many of them first-time homebuyers, close to financial ruin, experts and local officials say.”
“According to recent census figures, more than 40 percent of Newark homeowners spend more than half their income on housing, one of the highest percentages in the New York metropolitan region and among the highest in the country.”
“Driving the high mortgage debt and the boom in home sales here, and around the country, has been the proliferation of mortgages that have made it possible for people with poor credit, scant savings and modest incomes to buy homes.”
“For Quintin Fields, buying a home in Newark was less about finding a place to live and more about trying to find opportunity in the city’s housing boom. It is an opportunity he now wishes he had passed up.”
“A first-time home buyer with an annual income of about $36,000 and almost no savings, Mr. Fields did not qualify for a prime loan for the $315,000 house. So his half brother arranged a 15-year mortgage from WMC Mortgage Company, a subprime division of General Electric, and another from the Option One Mortgage Company, the subprime group of H & R Block.”
“The $2,312 monthly payments were much more than he could afford, but Mr. Fields said his brother assured him that they could find tenants. They did, but then lost them. Last July, without the rental income, his brother, who was managing the property, stopped paying the lenders. Mr. Fields now owes almost $30,000 in delinquent payments and has fallen out with his half brother.”
“‘It’s just sad,’ said Mr. Fields. ‘I can’t even borrow money.’”
New Hampshire Public Radio. “In New Hampshire, twice as many houses went to foreclosure in the first few months of 2007 than did during the same period last year. That increase has been blamed on a preponderance of subprime loans.”
“But there’s evidence that more conventional loans have also played a part in the sharp rise in foreclosures.”
“Lenders have foreclosed on more than twelve-hundred foreclosures in New Hampshire since the beginning of the year. Most of them were in Hillsborough, Stafford and Rockingham Counties.”
“Carol Stacy, the Registrar of Deeds in Rockingham County says she’s seen the numbers take off from last year. ‘Well, we’re talking in January, 2006 there were fifteen foreclosures, and in January, 2007 there were 35 foreclosures. In February 2006 there were 13. And in February 2007 there were 28. That’s pretty substantial.’”
The Buffalo News from New York. “Denouncing what he called ‘rogue’ mortgage lenders and ‘liar’ loans, New York Sen. Charles E. Schumer on Wednesday called for the national regulation of mortgage brokers, and a ban on riskier products and controversial loan terms.”
“However, one Western New York mortgage lender said some regulation is clearly necessary to weed out bad actors. She even supports some of Schumer’s recommendations, although she hopes Congress doesn’t overreact.”
“‘As usual, the government is reacting far too late to abuses,’ said Linda Mallia, president of Devere Mortgage Corp. ‘I just hope now that they don’t do what they usually do. I hope what is done is reasonable and realistic.’”
“Schumer conceded that nothing can be done for those who have already lost their house. ‘Once it’s foreclosed, you really have trouble,’ he said. ‘It’s probably something we should look into, but we can’t get them back into their house.’”
The Poughkeepsie Journal from New York. “Economists at a forecasting center in Westchester County say the nation’s housing market is far from being done with its downturn. Too-high home values, heavy consumer debt and harder-to-get loans will combine to push prices down, predicts the Jerome Levy Forecasting Center in Mt. Kisco.”
“How much? There’s 30 percent to 50 percent left to go, they say. ‘Flimsy financial arrangements,’ or risky lending practices, are being curtailed as people struggle to meet their mortgages and delinquencies skyrocket, the Levy crew said.”
“In Dutchess County, prices are already down from the peak, according to the most recent data published by Mid-Hudson MLS in Poughkeepsie.”
“For the first two months of the year, the average sales price for Dutchess single-family detached homes fell by 11.2 percent versus the same period a year ago. Volume of sales was about flat while the inventory of listings was high, running 20 percent above year-ago levels.”
“David Levy, head of the institute, said in a news release, ‘Most people are missing the point. The biggest imbalance is in price, not inventories of unsold homes.’ The study predicts prices will fall substantially over several years.”
“Kevin Feltes, an economist at Levy and author of the report. said, ‘The reason prices need to come back down is that affordability is so low. But also, what’s really allowed home prices to go as high as they were was a lot of speculator buying.’”
“‘We think that loan problems are going to push lenders to be tighter and tighter,’ Feltes said. That means marginal buyers will be pushed out of the market, and having fewer buyers tends to depress prices.”
“It is now ‘a severe crunch,’ said Arnold Restivo, a Fishkill-based lending manager for Tuthill Finance, which lends to people who have been turned down by other lenders. ‘As credit standards are tightened with the subprime market, more marginal buyers cannot qualify for as many loans as they did in the past,’ Restivo said.”
“Pete Plavchan, owner-broker at the Real Estate Superstore, Town of Poughkeepsie, cited a local factor that could wreak havoc: property revaluations done recently in eight local towns, leading to owners getting reassessment notices telling the presumed current market value.”
“Those numbers, he said, were taken ‘at the top of this bubble,’ and seem to be about 30 percent higher than what current sales prices suggest. ‘It contributes to false expectations from people,’ he said, which encourages them to set prices high, depressing sales and, eventually, prices.”
“‘There’s always going to be sales,’ he said. ‘The only ingredient that’s going to change is price and value.’”
‘More than 9,000 New York City home owners faced foreclosure last year - an astounding 50% increase over 2005 - and that number has skyrocketed even higher during the first months of this year.’
‘Loan companies are going out and bombarding these owners, many of them senior citizens, to convince them to take home equity loans,’ said Yvonne Reddick, district manager of Community Board 12 in Southeast Queens. ‘How do you give someone a loan when the monthly payment on that loan is higher than the person’s income? It’s a disgrace.’
‘Boston, Mass. State lawmakers and Patrick Administration officials are calling for greater oversight of the mortgage lending business.’
‘Isabel Frias testified through a translator a mortgage broker lied to her: TRANSLATOR: When she expressed her concern, he said do not worry, you are only going to be paying two thousand dollars per month. CURT NICKISCH: Instead, it was three thousand. Frias lost her home in Lawrence after just six months.’
These loan agents that lie about the payments better watch out . One of these days if these scum agents do it to the wrong person they might flip out and seek revenge or take justice into their own hands .
Some retired people killed themselves after they lost all their money with the Keating S&L Scandal in the 80’s. Didn’t some nutcake go after a bunch of stock brokers and kill them after he lost some money on stocks ? People can get real funny when they think they have lost it all and can never make it back .
In this case it was never theirs to begin with - it’s all the banks money.
IF it was their to begin with I suspect their “Losses” will be their downpayments just - and if they bought a house they can afford it’s a paper loss as long as they keep paying the mortgage.
That map of NY defaults is astonishing. The minority neighborhoods are blood-red, and in Manhattan (other than Harlem on up) there was ONE default in 2006! I suppose it’s skewed by the fact that it only tracks 1-4 family homes, but still…
Wow! Brooklyn and Queens boroughs really illustrate your point. This is starting to look more and more like a CDC type epidemic.
I’m really worried about the racial strife that’s going to emerge from all this, especially since it’s only getting startted. Those maps demonstrate that, in just a few years, a massive number of NY minorities have gone from creditworthy homeowners to penniless and evicted. And from what I understand, these aren’t so much failed flips as long-term family homes that are being lost.
This is going to make people a lot angrier than, say, the Rodney King thing.
No way you are wrong. What has happened is that former drug dealers went into mortgage fraud bidness.
Pay is WAY WAY WAY higher. Why rob a bank when you can just fill out a form and they hand you cash back at close? Then rent it out or flop there till the foreclosure happens ( they hope the democrats will postpone the foreclosures 4ever for them!)not.
Meanwhile the white people steal money from the same fraud via the stock market/lender/broker/securitzation racket. Everyone wins!
out of curiousity i looked up a co-op management company that has a bunch of buildings in Queens and Manhattan.
http://www.argo.com/BrokerWebsite3/ArgoCorporation/applications1.asp?ownership=sale
almost every building is 20% down required. look at the requirements for an application. you can get a liar loan, but the co-op board will check you out so it’s not like anyone can buy a co-op
http://www.kaled.com/downloads.html
here it is for another management company
While 20% down is the formal minimum for some coops (though 25% is more common), almost all want to see an additional 5-15% in cash reserves after you’ve made the downpayment (proof that you’ll be paying your monthly maintenance even if you lose your job) . The apple-to-apples comparison to other areas isn’t zero down/20%, but more often zero down/30% down. Condos are a different story, requiring only 10% down and no real reserves. Unsurprisingly, condos have outpaced coops during the runup, largely due to these lesser cash requirements.
“Loan companies are going out and bombarding these owners, many of them senior citizens, to convince them to take home equity loans”
This reminds me of the time I was in college in the mid 90’s. Every credit card company around was bombarding my dorm mailbox with offers. Every where I went, there were credit card advertisements offering easy money, relaxed living, a springbreak adventure. At the time, giving credit cards to college students was a new concept. These days, the average college student graduates with an average of $5,000 credit card debt. It’s pathetic that these predators have started gone after the elderly now.
Where is real estate headed?……
* 10% of all mortgages are sub-prime, affecting about 2M homes.
* Home prices are going down, not up, putting these mortgages “under water.”
* 20% of these mortgages are moving to default, and that’s with rates under 7%.
- That’s 400,000 homes that will be empty in about a year.
* The 80% that haven’t defaulted aren’t all doing great, just not bankrupt yet.
- If just 1/4 of those people are forced to sell, that’s another 400,000 homes on the market this year.
* If doubling the amount of homes available for sale is accompanied by rising rates and tightened lending requirements - where are the new buyers going to come from???
WHAT if the banks and the desperate sellers decide to take a 10% hit on their homes? What does that do to the value of the other 100M homes? How are the builders going to sell their 1M new homes with 1.6M unsold used homes on the market? What about the loss of assets for 800,000 consumers taking a 10% loss on their homes (U.S. average $250K) - that’s a $20Bn hit to U.S. consumers. If my home drops 10% in value how will I get a line of credit to buy more stuff?
* 33% of new mortgages and home equity loans in ‘05 were “Interest only.”
- Just because they are technically “prime” doesn’t mean people can afford them when they ratchet up.
* 43% of first-time homebuyers put NO MONEY DOWN.
* 15% of 2005 buyers (it’s worse now) owe at least 10% more than their home is worth.
* $2.7T of loans will adjust higher this year.
- A 2% rate hike on $2.7T is $54Bn taken out of consumers’ hands.
BEAZER Homes, USA (BZH) charges indicate that these practices were stepped up in 2006, not pulled back so these numbers may be far worse once we get the final tally for last year. Sounds pretty bad, doesn’t it?
Well, it’s much worse than that… According to Barry Ritholtz, in 2005 47% of Washington Mutual’s (WM) (his example bank) ARM loans were in NEGATIVE AMORTIZATION (payments were not covering the interest charges so the shortfall is added to the principal). It’s OK though because the bank (and I wish I was joking) BOOKS THE NEGATIVE AMORTIZATION AS EARNINGS. “In Q1 2005, WaMu booked $25 million of negative amortization as earnings; in the same period for 2006 the number was $203 million.” Wow, on track to do almost $1Bn in “profit” based on their gain in “house value” that is owed to them.
Do they pay taxes on the negative amortization that were booked as earnings?
How many are using Section 8 rent vouchers to buy their homes?
The Section 8 Housing Choice Voucher Program enables qualified first-time homebuyers to receive monthly assistance for homeownership expenses in lieu of monthly rent aid.
Keep in mind that this is just for 1 - 4-family buildings/houses, which is only tiny a fraction of the housing stock in Manhattan (south of 96th St.). When you factor in the foreclosures on units within larger condo/coop buildings, I’m sure the Manhattan map would appear much bloodier.
“The Biggest Imbalance Is In Price”
What an observation! Soon the banks will be selling foreclosed homes for pennies on the dollar. That should help the *price imbalance* issue!
The **ONLY** imbalance is price.
Well, I would say that underwriting standards have been pretty imbalanced as of late, though they seem to be quickly reverting to normalcy.
A first-time home buyer with an annual income of about $36,000 and almost no savings, Mr. Fields did not qualify for a prime loan for the $315,000 house.
The End. (or at least is should have been)
“‘It’s just sad,’ said Mr. Fields. ‘I can’t even borrow money.’”
What’s even more sad is that he *was* able to borrow money.
“I can’t even borrow money….” How about doing things the old-fashioned way? EARNING money instead of borrowing it? Obviously, you can’t be trusted to pay it back if even one element of your real estate strategy falls out (in his case, losing roommates), so forget real estate and get back to work.
I am outraged. This man’s constitutional right to borrow money has been violated. Which amendment is that again?
What was the line from a few days ago… “Buying a house is probably not for people who don’t have any money.”
“‘It’s just sad,’ said Mr. Fields. ‘I can’t even borrow money.’”
It’s not sad, it’s just.
The punctuation was wrong in the original version. He actually said “It’s just. [I'm] Sad.”
36K X 3 = 118K LOAN Ceiling + 20% down means a maximum purchase price of approximately $145K
Should have been an open and closed case.
And that is probably what the house should have sold for.
Yea - This guy probably has a monthly net of right around $2200. How in the world did he qualify for a $2312 mortgage payment?
The new 3 things that get you in a house: LIAR LIAR LIAR.
He should have said, “It’s just sad, I was never able to save money.” That’s a more befitting statement. What this country needs to do is starting teaching basic finance in high school. Maybe then we’d have less fools.
From the Boston link…
“…without putting the lid on critical financing for low-income borrowers.”
What’s critical for low-income folks is learning to save their money.
You can’t provide loans to people who can’t save a nickle and expect anything but foreclosure and bankruptcy.
So true spike66. The industry sold these people a bill of goods that they could refinance once they got their 20% appreciation per year and live off their house . Of course these people were stupid to believe these sale pitches about real estate being a sure bet , real estate always goes up ,get in now .Many of these low income borrowers saw real estate going up for years so it was easy to believe the “myths “.Its a big joke that loans were sold based on appreciation and the loan agents /realtors promising that equity riches would take care of all future payment problems . Only in a real estate mania that is fueled by greed will people throw caution to the wind the way they did . The RE industry was just handing out loans to anyone . New home tracts were sold out quickly to speculators and the unqualified during the boom ,but now many of these homes are vacant .Nobody can say that the industry was concerned with proper lending . Now everyone is crying the blues because this RE scheme came to a end . No bailouts !
Well said. However, when this crisis really sets in governments all across the nation will be throwing everything at this monster before it sucks everyone and everything into its deflationary vortex and spits us out onto the shores of some kind of third world existence. This is a national disaster!
I have always said that some basic financial education would be a good idea, but given how badly the schools teach other subjects, you should be careful what you ask for. Just reading that NY Times story was enough to convince me that a liberal education in basic finance would only create more fools.
OT: You know it has gotten bad when you go on a Yahoo board, make a comment that people don’t like about a housing stock and the next ten messages accuse you of being :
1. Gay
2. Child Molester
3. Dishonrably discharged
4. On parole
5. An Idiot, etc, etc
I guess things are really worse than the papers are willing to tell
Mugsy,
I’m sure you’re right. As noted yesterday, if Costco can fire it’s $10 an hour workers and hire $7 an hour replacements with no problem, then the unemployment numbers are much worse than reported. Add cc debt, mortgage debt, car loans and increased layoffs, and I bet there are lots of angry, frustrated people out there.
I just try to keep my mouth shut and stay out of their way–I’m not volunteering to be a target.
I agree. People keep touting jobs, but I don’t exactly count losing a job at Citigroup and getting a job at Burger Hut as exactly equal. Fast food is probably growing in size because people can’t afford to eat healthy hence the job growth in this sector.
We are in an economic expansion. That doesn’t mean it fixes the housing problem, it means the national economy hasn’t contributed to the housing down turn.
What happens when the expansion ends?
But who’s expanding?
Halliburton?
Insert returning 51 year old National Guardsman story here:
My wife and I got back into el lay about this time last year after hanging out with the good people of New Zealand.
A Great trip!
We’d stashed our car @ a friend’s house and took the shuttle from el lay hex and he was one of the passengers.
We got to talking and he told us he was from Alabamastan’,
a good ol’ boy, laced with intelligence, but with a veneer of dumbed down south, that was easily gotten past.
He told us he’d spent his 48th and 49th years in Baghdad.
El lay traffic being what it is… (it took us 3 hours to go 40 miles)
We had a lot of time to talk.
I asked what was Iraq and Baghdad really like?
He asked “Have you been to Tijuana?”?
I said, sure.
He said much of Iraq looks like Tijuana, except Tijuana functions on a much higher level, from a functionablility standpoint.
We looted our wealth, health and well standing in the world to “bag” a Middle East version of Tijuana, that doesn’t work very well?
I thought his age seemed a little on the high side.
He told me the oldest National Guardsman he knew that was serving in Iraq, was 58.
Connect the dots.
It was Circuit CIty not Costco
When I see this kind of behaviour from a company I add them to the list of outfits I will never again do business with. If more people took my atitude, these scumbags might think about the people who make up thier organization and give them some consideration.
They lost me with their open box/restocking fee policy.
If you’re selling an inferior product I shouldn’t be stuck with it, and I shouldn’t have to pay you to take it back. (Unfortunately this policy was introduced to combat fraud in returns, however, I’m wondering how many regular sales they lost with that.) I go to the local guys who offer service behind their product.
Circuit City lost me with their “bait and switch” policy.
They advertize spectacular “sales” for great brands at super low prices, but when you get to the store or try to buy online, the product is never available. A very dishonest company…
Robert Nardelli just became the new CEO of Circuit City.
lol
David,
good catch. Thanks.
Are we at the anger stage?
I’m not sure which stage we’re at but I’m staying off the boards for awhile. I realize that people can’t reach through the wires and hurt you but the vitriol is downright incredible. What’s worse is that some of these people seem to be intelligent otherwise. I guess emotions overrule logic when the chips are down.
I was under the impression YAHOO no longer allows posting.
Their finance boards are still open
Mugsy . I also am not looking forward to what will happen when people go into the anger stage of the process of this RE meltdown . These borrowers thought they were going to get a pot of gold and many will lose everything they got instead. Desperate people do desperate things .
if we are not it is real close
keep saving!
“Denouncing what he called ‘rogue’ mortgage lenders and ‘liar’ loans, New York Sen. Charles E. Schumer on Wednesday called for the national regulation of mortgage brokers, and a ban on riskier products and controversial loan terms.”
This might be the biggest nail in the coffin. The markets are already punishing reckless lenders, but this kind of governmental intervention could distort the credit markets even further against borrowers. Schumer’s usually a populist type; I wonder if he realizes this kind of legislation would be pouring gas on the fire for the embattled home-debtor and torch home prices.
On the other hand, we have a push for another kind of legislation that would do the opposite: give taxpayer’s money to bad lenders (disguised as help for stupid borrowers). This would serve to defend home prices in the short term, and I sure hope this isn’t the direction we go in.
Maybe he wants prices torched. If the American dream of homeownership and a decent quality of life appears unreachable to future college students and workers, why bother with the hard work of trying to better yourself.
The Japanese recognized this in their late 80’s property bubble and worried about the morale of the “sararimen”, roughly translated as salarymen. The Japanese Ministry of Finance raised rates to prick the bubble.
I agree with you. I think what home prices need is a good torching. I’ll take Schumer’s legislation over that of Dodd or Clinton, who seem to be suggesting bailouts instead of tightened lending standards.
I agree on all counts. Home prices need to torch ! The only way this bubble clears is if we get enough new buyers into the market to buy up the surplus AT PRICES THEY CAN AFFORD. That means a 50% haircut on just about everything.
Hey why not take all those thousands of unused Katrina trailers and let FBS live in em as long as they want? Use the city parks in every city in amerika!
Well. The market is beginning to implement its self-correction feature, and Chuckie the idiot wants the government to get involved and screw things all up even more.
“Denouncing what he called ‘rogue’ mortgage lenders and ‘liar’ loans, New York Sen. Charles E. Schumer on Wednesday called for the national regulation of mortgage brokers, and a ban on riskier products and controversial loan terms.”
And I bet if you looked back a couple of years, you would find that Schumer would be one of those complaining that lenders were discriminating against poor people by not lending to them.
so look back a few years?
I hope these jerks get what’s coming to them. Namely, foreclosure!
Unfortunately, some families and kids will be put out on the street. Don’t paint everyone with the same brush. The greedy flippers and speculators I have no sympathy for.
Unfortunately, some families and kids will be put out on the street. Don’t paint everyone with the same brush.
Why not? If the head(s) of those families had any smarts, the presence of their kids would have been a prime factor in a decision to NOT put themselves at such risk. But no, they chose to expose themselves as they did, and they’re about to be rewarded for their efforts.
To me there is a distinction between luckless speculators and long-term owners that got burned by one of these door-to-door con-men.
Those maps of NY boroughs say it all - most of the blood-red areas are neighborhoods filled with long-term black families. You have an elderly grandma who worked as a domestic for 50 years and who bought a house in the 60’s, and that house now has three generations living in it.
Some con-man comes by on a weekday when grandma’s alone, talks about church, asks her, “don’t your grandkids deserve some new clothes?” He seems trustworthy; she signs some documents.
Later the rest of the family comes home and by then it’s too late. Six months later, the money’s gone, the defaults begin, and it’s a matter of time before they’re all out on the street.
Some con-man comes by on a weekday when grandma’s alone, talks about church, asks her, “don’t your grandkids deserve some new clothes?” He seems trustworthy; she signs some documents.
Later the rest of the family comes home and by then it’s too late. Six months later, the money’s gone, the defaults begin, and it’s a matter of time before they’re all out on the street.
Which is why it’s never, ever a good idea to make decisions based on emotion. People that do this have no business being involved with large amounts of money, being in control of anything, or making laws.
What evidence do you have that this is actually the common case?
Didn’t say it was a common case, just that the scenario presented is a good example of where clearheaded thinking is necessary, instead of succumbing to emotions and ending up with an even bigger problem than before.
That comment shows a certain want of education, among other things.
We had families with small children living under the freeways during the 80s in Houston. Couples standing on the street median with signs, begging for money and a small child on a quilt next to them. It isnt a pretty sight.
They won’t be on the street. They’ll just have to become “loser” renters like me. Thus, no pity.
I have to say lately this board seems overly exuberant about the prospects of people being pushed out into the street.
I think some people need to learn to be more empathetic towards others regardless of their situations.
If we could go back in time, before the bubble and knew the amounts of money that was about to be made I bet a lot of the people on this board would have jumped in and joined the band wagon.
We need to check our attitudes and realize it’s our very human nature to feel greed and want as much as we can for very little investment of either money, time or emotion.
Yes, a lot of people did stupid things but what stupid things have we all done in our lives in other ways?
I may not have been a part of the bubble but I certainly can not be angry at the ones that were. In my heart of hearts I know that if my situation would have been different I may have also been someone who tried to make out big in this game.
Remember to err is human to forgive divine.
“Remember to is err is human to forgive divine”
and to bailout is …..
While I agree with you wholeheartedly this blog will not. People did what they did and while greed played a big part for many, for many others it was the familiar “why throw money away on rent when you can buy instead”. Everyone who has ever bought a house or ever will uses this argument including *every person on this board*. Of course this is conveniently forgotten when you’re on the outside looking in (and I am a renter as well).
On the other hand I hope the speculators fry.
I empathize with SOME of these people, but I still don’t want to be forced to pay for their mistakes. I’d be willing to bet most people here agree with that sentiment.
How can you empathize with them ?
Didn’t you go to a dinner party and hear hour after hour about how everyone was getting rich on housing ? And then put up with the polite smiles when you told them you rented because you thought the housing market was a bubble ?
I feel ZERO pity for these people. NONE. ZIP. NADA. ZILCH.
screw those people
sure most people here would have bought at the beginning but not everyone would have have bought something 10 times their salary with no money down
Nor would everyone have bought to sell at a profit 2 years later…
I looked at buying two years ago; speculative, “flip”, type stuff. Had a good contractor to work with all lined up too.
The numbers didn’t come close to working. In fact, if the numbers hadn’t been as ridiculous as they seemed in 03-04 I would never have developed an interest in what was developing in RE.
Then I learned about subprime and MEW volumes……and found this site.
I understand investment priniciples but I’m no math wiz. The numbers were so bad in Boston, however, you didn’t need to be a math major or an investment manager to KNOW a RE bubble was forming. All you had to do was stop and think.
Sadly, the hallmark of all bubbles is that people don’t stop and think, right? Greed blinds these “players”. I have empathy with the ignorant who got clearly swindled by lenders. But, as others have noted, I have no empathy for people who heloced or leveraged themselves to attain something they hadn’t earned and couldn’t afford.
I appreciate your comment about the attitude, but I don’t think you understand the attitudes I have had to and continue to endure for being a renter. Our friends (who all own homes) assume that we are poor or are deadbeats. Snobby women that I meet at the park with my kids are nice until they find out we are renters and then make comments about how they know how hard it is to save for a house and how we’ll be able to become homeowners one day (we actually have owned before and just didn’t buy again when we relocated last in 2004 because the prices were out of whack with incomes). I have had to put up with family members basically tell me that I am making my kids suffer because we rent.
And you know what? I am bitter. And I hope all these people with crazy mortgages and serial refis and flipper mentalities learn their lesson because their irresponsibility is why my family waits to buy. So I might have attitude, but I always keep it inside. I keep my mouth shut and smile and nod while they give me their attitude.
Oh, just so you know, we could have bought, but chose not to because of this craziness. We are only thirty, but are in the highest tax bracket for married filing jointly on just one income, we have over half a million in assets that we SAVED OURSELVES (only made 20k on the sale of our house and haven’t ever done great in the stock market), and our ficos are both over 750. So it’s not like we didn’t have the ability to play this game - we chose not to play because we thought that the runup in prices would end badly.
loser renter!
(im kidding!! im renting too, its the same everywhere)
Here is my story, I wrote this back in October on another blog. Note, my dream home is now selling at 350,000.
It all started for us when we decided to accept a promotion for my husband to Canada. My husband works for the CBP and is also a reservist in the A/F. I had a dream several years before this, to save 150,000 over a five to six year period. To be able to live in Florida and pay close to cash for our dream home and have a small mortgage. My dream home was around 200,000 back then. So we got here and we started saving, buying CD’s and watching our money slowly grow.
It’s funny how you can never really plan even though you thought you did? Well first off, once we got to Canada and thank’s to the strong dollar policy getting scraped, we saw the dollar plunge from 1.59 to 1.11 over the time we have been here. All along watching the housing bubble get larger and larger. For me I have been sickened over it. Not just for us but for everyone who has ever had a dream. You know the real ones? The ones that you plan for and save for and sacrifice a lot for. Not the get rich quick kind that caused this bubble in the first place but the good ole fashioned kind. My dreams included watching my kids be able to afford their first homes like mine which back in 1984 was a brand new 2 bedroom, 1 bathroom, 800ish square feet for 38,000. Now I look around and wonder how they can ever afford their first 500,000 (starter home) when they are ready to purchase. The way the bubble had been growing I expected the prices to be in around that when my oldest is 30 in 9 more years.
Well after five years and almost 100,000 now in savings we are a bit short from the mark, but that’s ok. We had a couple of changes in our plans along the way. I guess the biggest one was my husband getting deployed to Iraq for six months. Well, he made it home safely and now we sit with 8 months left in Canada before our re entry back to the USA. My dream home now a stunning/staggering 410,000 (down a bit now to 389,000)
My heart is saddened for the real losers in all of this, the ones that bought thinking they would be priced out of the market forever if they didn’t. The ones that actually believed their realtors and bankers and took that advice and took Reverse mortgages and the ARM’s and the Stated etc…They were the ones that really were taken advantage of the most. I am sure there were plenty of little old ladies that were convinced to sell now to only have their homes re sold for thousands more than they received. The list could go on and on but the biggest losers really are our future generations, the ones not even born yet.
There will be no winners in this, I am not sure now how I will feel once I am able to afford my dream home again. Knowing that there were so many losers in this. It is truely a sad world we have become. I know we will recover from this in time, it is just such a shame that it was ever allowed to happen in the first place.
All of the 15 homes I am currently watching in Port St Lucie are empty except for 5 of them. The 10 others are owned by people from other States or other addresses in Florida. The prices range from 375,000 to 419,000. These same homes were selling for my price I wanted in 2001. I wonder what their prices will look like by the summer of 2008? Funny, it’s like when the stores mark up their clothes and then advertise sale prices 50% to 75% off, there really is no sale at all just the illusion of a sale. Kind of how this bubble bursting will be. Just getting back to fair market value again.
SKB
> Snobby women that I meet at the park with my kids are nice until they find out we are renters
Recently in our neighbourhood park: Spoke with nice older woman while the kids were on the slide. Heard that a questionaire had been sent to residents around the park, asking how to improve park. Wondered why we hadn’t received no one (we live a bit further away, but in same city), told that we lived down in the (nice) rental complex. “But then you don’t pay property taxes”, the lady exclaimed - do people now assume property tax are first-class citizens who make decisions and renters second-class who better shut up? “My landlord pays property tax, of course,” I replied, “and we pay it through the rent.” - I’m happy to be a renter, but then I was bitter.
Not only that, but your landlord is probably paying at a higher rate, since apartment complexes are usually considered commercial property.
…so tell her to go stick that in her pipe and smoke it! Too bad you have to play nice because of the kids.
Remember to err is human to forgive divine.
I’m with you on this one, except that I’m not. Greed may be an integral part of human nature, but it’s also a deadly sin for a good reason.
Case in point: Guy I work with — smart, IT professional, with two kids, paying maybe a grand a month for a rent-controlled, 2 bdrm apartment 10 miles from work. Between him and his wife, they make about $130K a year, tops. Not a dime in savings, retirement or otherwise — the whole nut goes to his Nintendo obsession, the new cars and private school for the kids.
Last month he announced to the rest of us in IT that they’re in escrow on a $700K house about 50 miles from work, in a place called Newhall where summer temps hit 100 on a regular basis. The commute would not only be soul-crushing, but it would put both him and his wife at least an hour and half away from their kids during the better part of the day. Every last one of us in this office tried desperately to talk him out of it, until he just stopped talking.
Yesterday, I said to him, “I bet you’re glad that house in Newhall fell through” — assuming that it had. Apparently, the original, 100%, 2/28 ARM did fall through, but he’s still “trying to make it happen”. I couldn’t even say anything. He already knows I’ve done the math every which way and know absolutely beyond a shadow of a doubt that unless he and his wife double their incomes in two years, they’re doomed.
It’s like standing in the middle of a herd of lemmings. Facing them and watching the cute look on their desperate, hamster-like faces while they gallop mindlessly toward the cliff can be charming. Turning around and watching them crash onto the cliffs below is downright horrifying. But having pity for them after you’ve been screaming “stop” for two years is a tough call.
I cannot equate the suffering I see on a daily basis with stupid greedy decisions people make in their best interests.
There is plenty of real suffering and plenty of real victims for me to feel any empathy for someone who played roulette with their family’s security.
Let’s see…do I give my emphathy, money, and time to a child with terminal cancer and no family, women raped on a regular basis in Darfur, and true homelessness due to mental illness, etc. or do I waste my time and resources trying to help those who have gone completely overboard with this so-called “human nature” to be greedy?
Well put. I, too, have a vastly different definition of “victim” than these do-gooder-wanna-bailout people do.
Out on the street? They can afford a to buy a house and are unable to afford to rent a place?
Of course. If you bought a couple decades ago, your monthly nut is a tiny fraction of NY rent. That is, until you refinance…
This is what i don’t understand.. all this gloom and doom scenario that these unlucky folks would be thrown out and be on the street… well, the property is gonna depreciate, the lender is gonna take a big hit, sell it to a landlord, who’s done a proper cash flow analysis and who will be more than happy to rent the said house back to the ‘unlucky folks’ on the street.. simple market forces playing out.
The only unnatural factor i see around is the inflated house pricing that is nowhere near the ‘value’ of the property. There are enough ppl. around who need shelter and more than enough housing units.. so what’s this talk about ppl. being thrown on the street.. and a side note - if you are paying a mortgage, loan on a car, loan on a big-screen TV etc… none of that is yours till you payup.
I would prefer a tighter lending regulation than a freaking halfa$$ed bailout… so lets get this crash over with already.
And about those riots… well, hurry up the foreclosure and REO re-sale process so those housing units can be made available again.
In some cases i do see the wealth being transfered from the poor schmuk who had the house paid-off, but i believe these cases may be few, and should be dealt with through litigation. i.e local legal aid offices.
ok, rant off… thanks for listening.
got cash?
I just gave away over $5K to someone who was begging on Craigslist. I’m very sympathetic if it’s real and verifiable.
I’m not surprised at all.
sure , you first
why don’t they nail these talkling heads
“how much have YOU bought lately ?”
http://biz.yahoo.com/brn/070329/21526.html?.v=1
“But there’s still a buck to be made in real estate, even in good and bad economic times. Everybody has to live somewhere, work somewhere, shop somewhere — and someone has to provide them with space in which to do those things.”
The only thing missing from this quote is the ol’ “They ain’t making anymore land!”
Pay 10,000 people half of what 5,000 people were making and you’ve just created 5,000 jobs…. THE MSM will love you for it!
If you think about what you buy every year and how much of it is made in China by people so grossely underpaid as to be quite shocking, I suspect if you could put them together in one place, we have anywhere between 2 and 10 full time chinese laborers working full time to meet our demand for stuff. In great measure this seems a scheme to push down inflation.
Isn’t that what Circuit City saying they will do? replacing lower wages sales people
However as you probably know this only works when done with a small percentage of the countries workforce, once it becomes a large percent, then the workforce can no longer afford its own products and the businesses loses business. How many of the Circuit City employees will be able to buy a flat screen TV. How many will steal a flat screen TV or look the other way when someone else steals one. What kind of neighborhood are they going to have to put Circuit City stores in when the employees can’t buy a car and must walk to work or take public transportation.
Henry Ford knew that it pays to have employees who could afford to buy cars because he gets some of the money he paid in wages back.
“A first-time home buyer with an annual income of about $36,000 and almost no savings, Mr. Fields did not qualify for a prime loan for the $315,000 house. So his half brother arranged a 15-year mortgage from WMC Mortgage Company, a subprime division of General Electric, and another from the Option One Mortgage Company, the subprime group of H & R Block.”
“The $2,312 monthly payments were much more than he could afford, but Mr. Fields said his brother assured him that they could find tenants. They did, but then lost them. Last July, without the rental income, his brother, who was managing the property, stopped paying the lenders. Mr. Fields now owes almost $30,000 in delinquent payments and has fallen out with his half brother.”
What?!?!? A $36K/yr income can’t pay offord the monthly payments on a $315K house?
I am too lazy to do the math, but I wonder if the $2,300 monthly payment noted above includes tax and insurance. NJ property taxes are the highest in the nation I think.
property taxes in nj are obscene
my bil has a mcmansion with 20k annaul tax bill
the 4 of them really need that 3600sq ft of living space
and don’t get me started on their bratty kids
“my bil has a mcmansion with 20k annaul tax bill”
Many clueless buyers forget about the property taxes and/or insurance. Until the bill comes due.
Yea - the mortgage payment alone is greater than his take home income. Even with a renter, this financial equation is a bust.
Ah Buffalo, NY:
Actually, great place to live if you can find a good job. You can pick up a beautiful vintage victorian mansion- the real kind with tons of woodwork, a nice landscaped yard, carriage house, all in the best part of town for 500-600K. Here in DC, I can’t even get a ranch (or rambler as they call them here) or a newly built POS townhouse for that.
“‘We see this continuing well into 2007,’ said Jeremy Shapiro, president of ForeclosuresMass.com…”
It can keep on going into 2008, for all I care.
It WILL go into 2008. In a couple months the rate of subprime resets will double, and stay at that level for more than a year.
“‘It’s just sad,’ said Mr. Fields. ‘I can’t even borrow money.’”
Who says you need to borrow money to get thru life?
You have been watching too many “What’s in your wallet?” commercials.
This Mr. Fields should bless all the banks and mortgage companies that refuse to indulge his desires for another loan or refi - they are offering him an opportunity to stay out of further debt.
It’s all about affordability. Prices are just to way to high.
If stupid buyers just wouldn’t buy at these prices but demand price concessions prices would tumble down faster.
Sounds easy enough. Too many stupid people.
I’ve been tempted to place an ad in the real estate section that says, “I’ll buy your house - for $150K max! Best house wins!” and see if anyone responds. (Though probably only Realtor vultures would - trying to sell me a $300K house and assuring me I can do it.)
David Levy of the Jerome Forecasting Center has it 200% correct about it, “not being inventory but affordability” . AND I think we can use the “affordabilty factor” as a good guide as to when this mess will be over.
The Wall Street Financial Gangsters have probably realized, because of what has happened over the last 6 years, that the old system of 20% or 10% down was a good indicator of how reliable a borrower was going to be in the future. After all, if a borrower puts NOTHING down, pays almost NOTHING (for a while) in mortgage payments and prices go belly up, what has the borrower got to lose if he/she walks? Nada. Having put down 10% or 20% however, gives a borrower pause for thought because it’s their money (downpayment) they are losing. Not somebody elses. As an economist noted yesterday, when the Wall Street Financial Gangsters make a bad financial judgement, THEY don’t lose money. They simply manipulate the 401k money.
That said, the Wall Street Financial Gangsters have probably been studying how much they can “squeeze” borrowers before borrowers find themselves in trouble. It used to be that a borrower could only borrow 3 times his/her income PLUS a downpayment. This meant they were able to pay the mortgage from proven income. Even if they fell upon unexpected hard times, the majority were able to struggle through until the clouds passed AND the majority probably had some equity built up to draw on. This time it IS different. (1) Many have no equity. (2) The majority of fb’s didn’t put down a deposit. (3) Their incomes do not cover the payments - especially once they reset if they took out a toxic loan. A PERFECT storm.
Back to the Financial Gangsters of Wall Street who are continually manipulating and searching for new ways to increase their $60 million bonus payouts - always at someone elses expense of course. Throw into that mix that they are always looking for ways to pass on THEIR losses to someone else. 401k contributions being their favorite piggy bank to raid. Thus, you can be 100% certain the Wall Street Financial Gangsters have been closely studying this mess to see what percentage of borrowers (over the last 6 years) were able to pay more than usual in mortgage payments. I suspect the old 3 times earning rule will not be coming back once the smoke has cleared. Possibly a borrower will be able to get 4 times earning or even 5 times. If, with the old system, a borrower was paying $1,000 a month - the Financial Gangsters of Wall Street will have “fixed” the system so they can pay $1,300 a month. Of course, it means working longer for the average borrower. Maybe getting a second job at Circuit City (lol) but the winners will be —— The Financial Gangsters of Wall Street. Like the one Bush appointed to be Secretary Of The Treasury. Gee, what a surprise.
Mike,
I have little sympathy for Wall Street. Dealt with them for years. But explain to me how “The Financial Gangsters of Wall Street” coerce people into taking out loans. If people didn’t take out the loan, it would never exist, no? The fact that some perform and some don’t is a fact of every loan made to everyone and every corporate and government entity. Yes, financial types “calculate” a failure rate and build that into the “model” for the type of loan they create. Exactly why is this a problem?
Not all subprimes fail, historically (at least not yet) so by virtue of that fact they have to succeed (at least to some extent) for both the borrower and the ultimate lenders. Until you can show me that either the borrower or the lender was an UNWILLING participant in this transaction, unwilling (on both sides) to accept the cost of a misjudgement, why should there be any great animosity about any player in these transactions absent evidence of outright fraud?
Subprimes “work” for most people. Have historically. That they may not, in this instance of a bubble, doesn’t change that fact. Are you suggesting that only loans that hardly ever default should be made? That only people with a 700 Fico are worth taking a risk on? Don’t get me wrong, I wouldn’t make that loan and I assume you wouldn’t either but the fact is lots of people have made lots of money lending to poor credit risks (while accepting high default rates). Are you saying intelligent, informed, “sophisticated” investors should not be allowed to take these kinds of risks? They should not be allowed to calculate, estimate and price these loans according to any criteria they deem acceptible to provide a reasonable rate of return?
I’ve got news for you; they will wether you approve of it or not. If there is a willing buyer (idiot or not) and a willing seller (idiot or not) and the transaction is transparent (not fraudulent) what’s your beef?
Sub prime loans worked for most people because the “most” were usually professionals like doctors, lawyers, etc. The scam arrived when the Wall Street Financial Gangsters gave the nod (because they really run the money system) to ordinary wage-slave Joe Sixpacks getting sub-prime loans. The hidden manipulation/trap was in the price of the property and the eventual reset if the borrower had a toxic loan. If these loans had been available to Joe Sixpack when, say, property was reasonably priced, he might have had a chance. At these prices he has very little chance of surviving the foreclosure tsunami.
30 years ago, unless you could provide verifiable documentation that you were earning enough (in a stable occupation in some cases) to pay for the loan during good or bad times - you didn’t get the loan AND you needed a hefty deposit. That kept things like the current madness we have seen in check.
Yes, it’s true the Wall Street Gangsters didn’t force these suckers into these loans. A drug pusher doesn’t force people into taking drugs either but without easily available illegal drugs, there would be no addicts. Without sub-prime loans being offered to borrowers who were either (A) Not sophisticated enough to understand the fast footwork of scam artist mortgage brokers and realtors or (B) Not capable of paying back a sub-prime loan once it resets, there would be few foreclosures.
We all know that smoking kills (despite what the honest CEO’s of tabacco companies say isn’t true). We know that sugar laden foods make you fat and herald in diabetes and heart problems (despite the CEO’s of cereal and fast food companies saying isn’t true.)
Of course nobody forced these suckers into signing a toxic loan contract but SOMEBODY in power (like our wonderful “We Care” politicians) should have at least tried to educate the unwary buyers OR bring in legislation to protect the unwary. In the past 6 years I haven’t heard one politician say anything about toxic loans and I certainly haven’t heard a scumbag CEO on Wall Street say something like, “People need to think carefully if they take on a sub-prime loan.” I have heard them on numerous tv shows saying how great the economy is and how well the average American is doing. The usual spin crap.
I’m sure the next “bubble” in some other area is in the hopper. Let’s hope Bush/Paulson do not get their Private Wall Street Retirement Accounts passed (which I hope is as dead as it seems) which would be handled by the Wall Street Financial Gangsters. If the next “bubble” goes belly up like this one and there are Private Retirement Accounts being handled by Wall Street — guess where the gangsters will get the money?
Maybe you’re right. If some hard working guy/gal without too much education gets suckered in by these bubbles, why should you or I care? If some chinese worker makes $2 an hour making 50 WalMart toys which sell for $20 each in WalMart but cost $30 in a non-WalMart store - why should we care? That’s the Chinese workers problem and if he gets sick - *uck him. If Circuit City fires employees and then offers them their jobs back for less wages - why should you or I care if it means $50 off that 42″ screen.
Rumor is, the USA could lose 40 million jobs in the coming years. 40 million! If that happens and you still have your right wing opinions and couldn’t give a sh*t about anyone but yourself, you might want to spend some money employing out of work construction people to build you a “safe-room” and stack up with guns and ammo. You’re gonna need it.
Who all thinks high end flippers in hot areas that did HELOCs and are now defaulting will make subprime look like small stuff? I am not sure how to quantify it. But, buying at say 1 mil, HELOCing up to 2 mil and then defaulting is huge. Like the example below:
http://bubbletracking.blogspot.com/
How prevelant is this? The lenders get killed on these loans.
“‘We see this continuing well into 2007,’ said Jeremy Shapiro, president of ForeclosuresMass.com. ‘We’ve never seen this volume before, even during the crash of the 1990s.’”
Everyone repeat after me, “It’s different this time”
“Mr. Fields did not qualify for a prime loan for the $315,000 house. So his half brother arranged a 15-year mortgage from WMC Mortgage Company…”
Worse than accidentally shooting your buddy in the face.
Funny comment. How go Mr. Cheney and his dear mutilated friend? Seeing how it was a canned “hunt,” I’d say he got his money’s worth.
OK here it is, realtors are throwing homeowners under the bus …
They need volume … dont care if you get your $$ or not.
Cool.
Cow_tipping.
These FBer’s SOLD themselves into Financial Salvery… That was their Big Gamble…and they LOST !
Big dollars. Bigger idiots.
http://news.yahoo.com/s/nm/20070329/us_nm/usa_subprime_foreclosure_dc
This story is currently on the front page of Boston.com, which historically has furiously pumped myths of home ownership and dreams of endless appreciation.
I also find interesting that photo of a foreclosure in Dedham. Dedham is an upper middle class area, and only a few miles from where Karl Case preaches that the mortgage crisis will not derail the Massachusetts housing market.
“Dedham is an upper middle class area”
Craven…I’m wondering if you’ve got Dedham confused with Milton. I haven’t lived in that area for 7 years. But I did live in Norwood (next town to the west) for 5 years and people avoided Dedham like the plague due to gunshots at the mall and drive by issues on Route 1. I think if anything Dedham was BARELY middle class at all.
I live next to Dedham. Its firmly middle class.
Wow! Big changes in 7 years.
Westwood was the hot town in that particular area when I lived there. The 20/30ish people I hung with aspired to a home there—besides Dover which was upper middle and really meant you were doing well. Are those towns any different now?
CarrieAnn- These towns are no different now. When my wife and I were thinking of moving from Norwood (just after you lived there) Westwood was on the list, but the prices were outrageous for the s/f, small lots, traffic. Schools are better than average though. Dover still is upper middle but “new money”, can’t stand people like that.
HAHAHAHAHA subprime debacle hits million dollar homes (with private bowling alleys):
http://news.yahoo.com/s/nm/20070329/us_nm/usa_subprime_foreclosure_dc
Oh man this quote is classic:
“It’s not the American Dream anymore,” said Fran Napolitano, a county clerk in Hackensack. “It’s ‘who can I stab next.”‘
Maybe the fools that moved to the Lehigh Valley & made our bubble increase values 100% in 4-5 years will move home soon. The local paper here tries to act like our local market around Allentown, PA is going to be fine. They ran an article claiming “No bubble here”, the truth is almost all homes are price reduced & sitting on the market forever. The inventory is so high & that doesn’t account for the homes people have taken off the market after not selling for 6 months to a year. These commuters thought they were getting a bargain & traveling like over the road truckers to get to their jobs. Now when the market tanks here they will be screwed worse. The locals who bought into this housing frenzy our really going to suffer. I bet prices in the Lehigh Valley go back to pre-2002 values. A average home around then was 100k. In 2005 it was 210k, most people that were smart knew this was insanity. I’ll be glad I waited to buy a home very soon. House values in this area are heading for the sewer.
Repeat of the “super-commuters” of the late 1980s — in the very same place. Northeast states are small, but do you really want to commute from one state to another through a third that is the most densely populated in the country?
“‘There’s always going to be sales,’ he said. ‘The only ingredient that’s going to change is price and value.’”
Sales always decrease during a bust, though this time there may be more fire sales, thanks to the growing number of foreclosures. Not sure about value, but lower prices are in the bag.
My friends are always a click away…
“It is hard to believe that a man is telling the truth when you know that you would lie if you were in his place.”
H.L. Mencken
I tried commuting one time. It was 45 minutes to 1 hour. During the winter it sucked so bad it was HELL! That trip turned into 1 1/2 -2 hours quick. The thing that’s going to kill the Lehigh Valley is the same as mentioned before, they tried this already here and failed. Homes will be cheaper in NJ soon. That will drive our already over inflated inventory of homes through the roof. Personally, I know some of the people that moved to PA from NJ & NYC. Imagine driving 2 -4 hours minimum along with a 8 - 12 hour day. That’s truely eating sleeping working. That’s not healthy!
“Those numbers, he said, were taken ‘at the top of this bubble,’ and seem to be about 30 percent higher than what current sales prices suggest. ‘It contributes to false expectations from people,’ he said, which encourages them to set prices high, depressing sales and, eventually, prices.”
Bank REO departments must really like this, as it makes it very easy for their listings (at actual market value — 30% below “assessed value”) stand out and sell quickly.
go nyc
we are ripening… like a fruit