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The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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What was the role of the hedge funds in the housing bubble? What role will the hedgies play in the bust? These funds are unregulated, so why should there be a bailout? Hedge funds should be regulated: out of existence.
I’m disgusted by the cries for bailouts, but we knew they were coming.
As for the bailout, ask this. Who should be bailed out if multiple banks fail, and the bailout overwhelms FDIC? Anyone who puts in the effort should be able to determine that FDIC can’t handle a large problem, same as the insurance companies couldn’t handle the large problem of Katrina.
Lots of folks saying the speculators in housing are just whining now. They were taking a risk, and they lost. That is fine, but loaning out your money to collect interest is also a risk. Why do folks think that loaning out your money to collect interest on it requires a bailout when that bet goes bad?
This situation is not too far off (within a couple of years depending on the housing situation) unless the government interferes in some way prior.
FDIC guarantees *are* a bailout.
It doesn’t matter if we call FDIC a bailout, since it was already in place when creditors deposited their funds. In fact, depositors were willing to take a reduction in rate of return in exchange for the lowered risk. The presence of the FDIC was known beforehand by all.
Rather, what is discussed here is an ex post facto bailout. There was no presumption of risk mitigation when the original agreements were executed. More- a bailout is an enforced redistribution of funds from those who exercised restraint to those who did not. in other words, the idiots were prudent, and the prudent were idiots.
“More- a bailout is an enforced redistribution of funds from those who exercised restraint to those who did not.”
Exactly — think of it as an individual battle in the government’s War on Savers. By the way, here is some fresh evidence the government is winning this war:
Even with the rise in incomes, the savings rate remained in negative territory for the 23rd consecutive month. It was unchanged in February at a negative 1.2 percent of after-tax incomes, the same as in January.
This means that consumers spent all they earned in February and dipped into savings and increased borrowing to finance purchases during the month.”
http://www.foxnews.com/story/0,2933,262666,00.html
Better word choice:
battleattackSan Diego Pension is suing Amaranth.
Amaranth lied about trading strategies and made “excessively risky and volatile investments,” according to a complaint filed yesterday by the San Diego County Employees Retirement Association.
The thing about this story that is both unbelievable and perfect as a sign of the times is that Brian Hunter, the trader who blew up Amaranth, is now starting his own hedge fund and it looks like a whole bunch of Middle Eastern money is backing him. This guy is doing some pretty expensive (for his investors) on the job training.
http://www.usatoday.com/money/markets/2007-03-23-amaranth_N.htm
“Bailout” often is taken to imply the longer description “ad hoc bailout,” referring to a hastily-concocted insurance claim payment (from a non-existent insurance program) to the “victims” of an unforeseen disaster. The FDIC does not qualify under this definition, as it is an existing insurance program.
Not to belabor the point (well, actually I am belaboring the point) but FDIC insurance is not really risk-adjusted, is it? Does Downey Savings pay more for their FDIC coverage than another bank that has less exposure to subprime lending? If there were no FDIC coverage, would I really want to invest my money in a Downey Savings CD?
It is still socializing the risk. I guess I am sticking to the definition of “bailout” as any government intervention in financial markets that discounts risk.
I’m probably hair-splitting though, like debating whether adultery is fornication.
“It is still socializing the risk. I guess I am sticking to the definition of “bailout” as any government intervention in financial markets that discounts risk.”
You are absolutely correct, droog. The FDIC is socializing the risk and thus in a perfect world would not exist. The problem is that the time for that debate was before it was created during the Depression, or at least during good times to allow banks and depositors to make other plans.
To have a contract with banks and especially depositors and then revoke it after the fact though is a different matter. If we don’t make good on FDIC insurance then the Treasury debt guarantee is null and void because both are backed by the full faith and credit of the US government. While the Feds are waving their magic wands they might as well void all contracts and repeal all of the Bill of Rights except the right to bear arms, because force will be the only means of providing for oneself. As I posted below, paraphrasing William F. Buckley, idealism is fine, but as it approaches reality the costs become prohibitive.
And as the saying goes, if I were present at the creation I would have given God some hints on how he might have improved things. We must however deal with the real world as it is, not as we would like it to be.
“…like debating whether adultery is fornication.”
Like debating about what the definition of is is (can’t wait for that debate to get revisited in the upcoming prezidential race…).
There’s a big difference between loaning out your money for interest via FDIC insured deposits and speculation on housing. FDIC is a government agency that guarantees the safety of your deposits even if the debtor defaults on his/her loan to you. So bailing out depositors is a government obligation that was in place at the time the deposit was made making it a low-risk (and low-return) investment relative to stocks, bonds, commodities and real estate. Speculation in housing was done even though the speculators knew that there was no government guarantee of future asset values in the housing market. So bailing out speculators is unfairly changing the rules of the game to lower their risks after the fact, whereas the government pumping unlimited funding into FDIC to bail out depositors is just fulfilling an existing promise of the government. Failure to do so would be tantamount to the federal government defaulting on its debt payments.
Agreed, but all degrees of a bailout lead to market distortions and moral hazard.
BTW noone ever said life is fair!
FDIC insurance premiums are paid by the deposit-holding institutions. Is there any reason to believe they don’t pass this cost directly to the depositor in the form of reduced return? If depositors are essentially paying for the insurance themselves (with the bank as middleman), I don’t see that as a bailout. Bailout to me means someone else is paying, and the beneficiary has not contributed anything.
Exactly. Banks pay premiums to FDIC. FDIC’s reserves are a very small percentage. When they can’t fulfill their obligations, then the gov’t (via the FED) would need to bail them out. From my research, there is no guarantee by the gov.
Even if there were, the guarantee would now be passed to foreign creditors. It would be akin to asking your broke uncle to bail you out on your bad loans. The national debt is almost 9 trillion. Congress will be needing to up the mandated debt limit again. Does anyone think the Treasury can actually bail out a potentially defunct FDIC?
From the FDIC website. “FDIC insurance is backed by the full faith and credit of the United States government.”
http://www.fdic.gov/deposit/deposits/insuringdeposits/index.html
This is the same guarantee that Treasury debt has. If they back out on the FDIC guarantee then the guarantee of Treasury debt is equally worthless and government doesn’t get funded so the entire system shuts down (no SS payments, pay for gov’t employees, etc.). Almost instantly we are back to the days of barter (and maybe the Stone Age).
This is simply unrealistic. Paraphrasing William F. Buckley, idealism is fine, but as it approaches reality the costs become prohibitive.
The banks have paid a price in the good times for insured deposits in terms of assessments based on the total amount of deposits insured and very tight regulation (as opposed to the mortgage broker/investment bank anything goes CDO machine). And FDIC insurance came about from the Depression to stave off runs which would ruin even well-managed and conservative banks (a la the movie “It’s a Wonderful Life” where they didn’t have the money because it was invested in Joe and Sally’s homes).
In any case, there is an upfront contract with the banks and especially the depositors such that to have the Feds renege on FDIC insurance would be akin to repudiating the national debt. And then all bets are off and we really better stock up on ammo and canned goods because everyone will be putting their cash under their mattresses. And it’s pretty hard to have economic growth and people employed with everyone’s money in their mattresses. 25% unemployment here we come?
FDIC is no more a gov’t entity that the Fed is.
“The FDIC – short for the Federal Deposit Insurance Corporation – is an independent agency of the United States government. ”
http://www.fdic.gov/deposit/deposits/insuringdeposits/index.html
Also note that it is a “.gov” website.
The 20% downpayment is supposed to be insurance to the lender, and ultimately the individual who lended the money via the broker (in this case the large lender). The mortgage insurance was also along this line of thought. However, folks would do the 80/20 loan to forego that requirement.
GStucco–I agree with your definition of bailout. I was meaning the bailout by gov (which ultimately is the Fed since the gov can only borrow) when the FDIC is overwhelmed.
I was approached last week from my broker. He has a couple of hedge product that shorts the housing index (MLSUA) and (BPH) they pay a 3 to 1 ration on the downside and 1 gives 10% upside protection. They are actually a decent product for one to invest in if you have little insight into the individual companies and don’t want to pick your own.
Relax. No one bailed out Amarinth to the tune of 6 billion dollars of loss.
Oh wait, Amarinth was one of the EEEEVIL corporations/hedge funds. No people were involved. Just a faceless entity. Nice.
“The political and commercial morals of the United States are not merely food for
laughter, they are an entire banquet.”
Samuel Clemens
1st….today
LOS ANGELES - City prosecutors said Thursday they will ask a judge to revoke
Paris Hilton’s probation in a reckless driving case, a move that could lead to a jail term.
The decision followed an investigation into whether the hotel heiress and reality star violated terms of her probation by driving last month with a suspended license.
“We’re confident we have sufficient evidence to prove that her license was suspended and that she had knowledge of that suspension,” said Nick Velasquez, a spokesman for the city attorney’s office. He declined to elaborate on the evidence, citing an ongoing investigation.
Hilton could face up to 90 days in jail if a judge finds she violated her probation, Velasquez said. A hearing was scheduled for April 17.
In January, Hilton pleaded no contest to alcohol-related reckless driving stemming from a Sept. 7 arrest in Hollywood and was sentenced to 36 months’ probation, alcohol education and $1,500 in fines.
Hilton was pulled over on Sunset Boulevard on Feb. 28. Police said they saw her blue Bentley Continental GTC speeding with its headlights off. She was ticketed for misdemeanor driving with a suspended license.
Hilton’s spokesman Elliot Mintz said at the time that she hadn’t been aware that her license was suspended.Mintz did not immediately return a call seeking comment Thursday.
Is Paris Hilton supposed to be a weekend topic suggestion?
I don’t get it.
Well,
If anybody gave any thought to it…
What sort of parent would name their kid after a hotel?
Enough said.
what is this star magazine? who cares she should crash into a brick wall of an overpriced cali mcmansion for all i care
Aw, come on, MG. That’s too painless. She needs to plow through the brick wall, continue on through the granite-and-steel kitchen, then end up in the pool. With a loud splash, of course.
I live in the Bethesda, Potomac, Rockville, MD area and are seeing home sales start to increase quite a bit and have been seeing it for the last 2 months or so. Is anyone in other parts of MD or Northern Virginia seeing the same thing? I’m trying to see if the same thing is happening further out from the city.
Surprisingly, places in my neighborhood are moving (Loudoun). That is, the ones that are priced correctly are moving. For example, there were two identical townhomes listed in my neck of the woods, one for $390k, the other $500k. When I say nearly identical, there is one unit between them — they almost share a wall. The $390k sold within a month or so(the selling price hasn’t showed up on the system), the $500k one has been on the market for 70 days.
So, if you price it right, apparently they are selling. Having said that, the ones that sold sold a few weeks ago, right before the tightening lending standars. I guess we’ll see over the next few months if tightening lending standards + sudden MSM interest in the bubble have decreased the number of eligible buyers.
Hi,
I am in No. VA. and I am not seeing a major trend down. There are some that have begun dropping but for the most part I haven’t seen any big drops. Except on a scattered few.
My co-worker husband is a real estate salesman. He had four closings last month. Two the month before. He’s retired military and does mostly military personel but…
On the other hand foreclosures are steadily climbing for Fairfax and Loudoun counties. I have also noticed the foreclosures are no longer starter homes prices (350-450k) but have begun gnawing higher up the price ladder.
I don’t think we are different yet perhaps this area for a combination of reasons will lag CA? FL? There is a far amount $ here.
I’m here in Loudoun as well. In my neighborhood there have been a fair amount of sales, though as with any local neighborhood observation the sampling is small and thus anecdotal. I’ll be curious to see what the MRIS numbers are that come out in about 10 days. Sales have been *way* off relative to 2001-2005, however even all in 2006 they were still high historically (historically being pre-2001).
As of Feb. they were still down YoY compared with 2006, and 2006 was a weak year. March of 2006 was actually quite strong - it was April that was the big shock as sales actually went down MoM from March to April quite a bit and continued to stay low through the summer.
In other news - foreclosure listings in Loudoun on foreclosure.com are *just about* to hit 10% of all listings - 291 foreclosures vs. 2940 listings. This is in the single most affluent county in the country, mind you. The foreclosure count is up from 149 in just 5 months.
Hi, I am on Capitol Hill, see some sold and under contract signs. Dead cat bounce? Lots on inventory. Last night saw three houses in a row with signs.
Just took a run around my neighborhood and saw some sold signs on houses that had been on the market for a couple of months (zillow says they bought 5+ years ago). So, maybe spring dead-cat bounce. I also have a coworker that just put their place on the market this week (at a reasonable price compared to comps) and they’ve already had to families visit with realtors.
So, I guess some people do think that it’s a good time to buy.
Spring bounce.
This weekend sees the end of March. For the last 2 years, raw existing home sales have gone up about 40% between February and March, and the NAR’s seasonal adjustment factors take this sort of rise into account.
But this year the subprime tightening started in earnest at the end of February, so March is the first (but probably not the last) month where inability to get loan funding might become a sales factor.
Have we had a 40% rise in sales over February? If not, the headline (I.e. seasonally adjusted) sales numbers are going to look horrible for both MOM and YOY.
(Unless, of course, the NAR focusses attention on the raw MOM.)
Yes, this is going to be the season for very creative statistics. And if they can’t cherry-pick any comparisons that look good, they’ll have to compare it to the “historic mean”; if that doesn’t work, then it’s the weathers fault (unseasonably warm/cold/wet/dry, tornadoes, whatever).
I’d like to talk more about the proposed bailouts. In what forms could they take and what it would they might do over time.
I was thinking about a “bailout” yesterday and got worried that something might actually come out of it. Now i’m really just an average guy, but i can see a scenario where there’s some sort of “federal” guaranteed mortgages that would enable people to refi to have a political win.
“look at all the homeowners we saved”
My thoughts are that getting behind some sort of bailout that would enable FBs to refi is a win-win for politicians and financial companies. If they can get Mr. Future Trailer Park Guy in a new mortgage that he could actually afford, maybe a 50 year mortgage, a guy like that would jump at it.
What is the likelyhood of a bailout like this taking form? Would it take too long to get through the Congress to make a real difference? Me, I think the “market” got us into this situation and the market should be the one to resolve it.
I think there’s every reason to believe some kind of bailout will be attempted.
This is why every single one of us needs to write, e-mail, fax and phone at least one politician and one newspaper editor/journalist. We need to get out there in numbers. They need to hear what the consequences of their actions would be — we won’t vote for them, and their actions would cause a long, protracted deflationary recession/depression.
The sooner we get out of this mess, the better for everyone concerned.
Oh, and it would be **expensive** as well.
Look at the proposed details of that Ohio bailout. I believe they would allow “owners” (and I use the word loosely) to refinance into a 30-year fixed rate at 6.75%. How does that help the FBs? They can’t afford an interest-only payment. How are they going to afford a fully amortizing loan at 6.75%?
We will come to the conclusion once again that we, as a nation, can’t afford unlimited supplies of guns and butter.
I can get on board with this type of “bailout”. Sure, many won’t be able to afford 30-year @ 6.75%, but some will. So it helps those who are more financially sound (note that doesn’t have to mean wealthier - it means those who are careful with their finances) and weeds out those who, well, aren’t. Not everyone can be “saved”. Propose something like this to them and, if they can’t handle it, then it’s time for them to sign a lease.
Except this still inappropriately prices risk, and even worse, the government is the one setting the price. Let the market decide who can refinance into a fully amortizing mortgage, and at what rate.
I guess it all boils down to who do you want to save?
My money is on the various financial rats leaving the ship, not homeowners.
Aladinsane, just anecdotally, yesterday a friend was telling me how her husband, a CFO who had worked for only two months or so at a mortgage company, got fired because he refused to go along with a plan to close shop on this company and open shop with another name and keep on doing business. I guess the lenders are priming for a bailout. With another name, they could even get to refinance the bad loans they made with the defunct company. Talk about sharks…
My idea about a bailout would be that the lenders give the bailout . If the lender thinks that they can save a loan by a re-write verses foreclosure than it’s the lenders or bagholders choice .
I don’t know what % of the loans can be rewritten but this would be a altering of the original contract between the lender and borrower . Why should the gov. provide refinancing for FB’s. This is a issue between the lender and the borrower .The lender or borrower should not be forced into a re-write either . Borrowers that decide to sue regarding foul play or bad faith are asking for the contract to be voided or some sort of compensation . Lenders that re-write loans are doing so to avoid a greater loss to the lenders than a foreclosure would bring . The question would be ,can the lenders really determine what loans can be saved verses the hopeless ones and can they re-write loans without people screaming discrimination .
Many of the borrowers had no intentions of ever living in the property ,so how can someone like that be saved from foreclosure ? In prior real estate cycles Lenders would agree to short sales and sometimes extend some grace periods to people in trouble or work with them so I see no reason why it should not be the current lenders problem rather than the taxpayers .
Totally agree, Wiz. As long as “they” can guarantee that the taxpayers will not have to pay one red cent — not in the form of “insurance” or a govt-sponsored loan, etc.
The lenders & associated businesses made all the profit from the bubble. Let them, alone, eat the losses as well.
The do nothing Congress will be on vacation soon, and the 100 Billion War spending bill will be front and center. The spring buying season (March 15 thru July 1) will be toast before anything can be proposed. Too little, to late.
Thinking back to just before the great stock bull market unexpectedly began circa 1982 and around the time of the “Death of Equities” magazine cover, after the greatest housing bubble in US history what will sentiment look like at the bottom? Rather than the popular “It’s the American Dream to own a house and you’re a moron if you rent” isn’t the sentiment at large likely to be “I wouldn’t want a house if you gave it to me because it’s just a financial stone around your neck and everybody knows that the smart thing to do is rent and let someone else have the risk and burdens of ownership?” I suppose this goes too far because of the psychic value of living in a house (you really can’t do anything with a stock certificate but set fire to it other than buy and sell it), but I think sentiment has to get a lot worse than it is now. How will that look and isn’t it likely to take quite a long time to have such a sea-change in popular attitudes?
It took a long time for the “Death of Equities” psychology to evolve from the days of the “Nifty Fifty”, and it will take a long time for real estate to go from “It always goes up” to “I wouldn’t own a house if you gave me one”. A long, long time.
The pain of a child moving from rental to rental in the 30s still resonates deep inside of me. It is with a deep sadness that my mil tells of having to move every time her mother got bored with life. (Every 1-3 years)
Of course, it is a comment about her mother’s personality but the need to put down more permanent roots calls to me every time she tells it.
I suppose its why they built a beautiful home in the 70s and stayed there until their disintegrating hips and various other issues of the aging forced them to move. It was unbelievable the pain my fil was enduring (while still outside taking care of his beautiful yard) to stay in that home till the bitter end.
They own a condo now and my fil is usually out there doing a lot of the yardwork himself. But its interesting. He’s never been the same. The tie to that home was deep and enduring.
Ha! For me, the pain of being stuck in something I can’t get out of is far more painful and enduring. In fact, it is panic evoking, which is is why I’ve been renting for over 15 years.
“Ha! For me, the pain of being stuck in something I can’t get out of is far more painful and enduring. In fact, it is panic evoking”
The exact reason I am single, lol.
I’m not single but I needed about an acre of space around me to get married and even then, I had to be drunk to get through the wedding
It is with a deep sadness that my mil tells of having to move every time her mother got bored with life. (Every 1-3 years)
Of course, it is a comment about her mother’s personality but the need to put down more permanent roots calls to me every time she tells it.
They have other, bigger issues. Buying a house won’t make them go away - it’ll just make them manifest themselves in another way.
My mom was toying with the idea of switching from a two story house to a one story house, as she’s 81 and stairs are the Achilles Heel of the octogenarian set…
This was a year ago and I think she was a little caught up in the real estate game that was unfolding all around her, like some low hanging fruit.
Why not take a piece?
I disuaded her easily.
Why not just move to the smaller bedroom downstairs?
My childhood home is still intact.
CarrieAnn,
Some here want to put down roots and some don’t. I do. Homeownership is a way of putting down roots, and I can empathize with your in-laws. My parents live in the same house for 40 years now, and I am sure that they will only move out if medically necessary.
There are two considerations that shouldn’t be forgotten though:
1. A house makes you inflexible economically. If your current job is a dead end or is laid-off, getting a better job or any job at all might mean moving. After this housing bubble, a deep recession is a possibility, and homeowners might get stuck in the wrong part of the country.
2. Even if your job is great and remains so, homedebtorship is inferior to renting financially now. Put a price tag on buying now (and seeing depreciation tomorrow) and think what you could do with the money instead. Is it worth it? I save instead, go on vacations and wait for a better market.
Regards,
Peter
Thanks Peter. I was just telling a story. It was a story about emotion. I can’t say I have the same feelings. I mean my dreams are to sell everything and live on a boat. I was just speaking to those that did. It WAS important to them. And there are many others out there just like them. How boring the world would be if everyone was just the same, don’t you think?
But I do have to respond to this, PDXRenter:
“They have other, bigger issues. Buying a house won’t make them go away - it’ll just make them manifest themselves in another way.”
They stayed in that house for over 30 years. You should see the family photos. “We really did have the Brady Bunch upbringing” my husband enjoys telling me (although he’s way cooler than that). They thoroughly enjoyed their life. More people should be so lucky.
One of the most vital things missing from modern life is a sense of place. I grew up in two places, which was one too many. Now my kids, because of the nature of my work, have lived in four houses (three rented). I sometimes reminisce about growing up in LA, in a great old neighborhood with a bunch of kids the same age and neighbors who’d been there for years and years. That house was home in a way no other place has been. It really bothers me that I haven’t been able to give my kids the same sense of place, and roots.
I’m hoping that when sanity returns to the market, I can finally buy the kind of nice old place (built in the 1920s, ideally) in an old, established neighborhood, to recreate, for my kids, a little of what I knew in my childhood.
Same childhood experience here & agree that it would be nice to give the kids a stable place with a familiar environment and long-lasting friendships.
What part of LA? (don’t have to get detailed, just wondering) We’re from the SFV. Nice place, back in the day.
My view of the future…
Homeownership remains valuable at a fair price if staying a long time. You lock in part of your housing cost, and feel a sense of committment to the community.
I think you will see the end of young unmarried non-parents buying houses, people who think they might have to move in a few years buying houses, investors buying houses, etc. If second homes become easy enough to rent for cheap, fewer will be willing to buy, unless they work in someplace like Manhattan and rent their city crashpad, making the second home actually the first home.
People will expect to save up for years before buying, and then it will be a very serious decision. What if one of us loses our job? Might we have to move? Does this mean one of us can’t stay home with the kids? Etc.
A price collapse, and a refocus on homeownership for the poor, will continue the extention of homeownership down the income latter.
Empty nesters will still want condos — seniors need to lock in housing costs as much as anyone. You may end up with people owning two homes in their lifetimes.
Homeownership rate — perhaps 60%.
> People will expect to save up for years before buying, and then it will be a very serious decision.
The way I would like to see it to be.
> A price collapse, and a refocus on homeownership for the poor, will continue the extention of homeownership down the income latter.
One force “collapsing” prices will be a more proper pricing of risk of mortgages. I would expect this to slow down or even reverse the extension of homeownership to the poor, wouldn’t you? Or do you expect government programs to continue the extension?
> Empty nesters will still want condos — seniors need to lock in housing costs as much as anyone. You may end up with people owning two homes in their lifetimes.
Sorry, I don’t understad the last sentence. Do you expect more people owning two homes at the same time? Do you expect more people to own “only” two houses over their lifetime?
Mish blogs sometimes about a Realtor called Sonny Page. (sp?)
I don’t know whether that’s a real name or not, but I noticed a comment this Realtor made about the state of business. Apparently their agency has a progress board, showing the number of closed sales for the calendar year by agent (or husband/wife pair), and the quoted number from a week or so ago is that 60% of the agents/pairs had NO closed sales for 2007 yet.
And this 60% is 70-something out of 110 or so, which means we’re dealing with a reasonable sample.
How long before at least some of these agents give up?
I’m told that in the Phoenix area, agents are leaving the field in droves.
One would hope so. Up till now the number of, ahem, “realtors” (TM) has been increasing exponentially:
http://bubblemeter.blogspot.com/2006/09/is-there-realtor-bubble.html
I just read an article from NPR that was posted on a Yahoo! Finance board. It might have been the BZH board. Kai Rissdall had done the special. I always liked his work. The report made me think, “they finally get it”.
My question is this. “Has the housing crash become a self-fulfilling prophecy?” I know there are bailouts and Jesse Jackson in the wind but this thing seems to be snowballing at an astounding rate. Personally, I don’t think anybody or anything can stop it at this point. The villagers have felt the rumble, looked towards the mountain and now see the largest avalanche ever racing down the slopes. And oil is $66 per barrel. Milk is going up 9%. Corn prices have doubled. Fear will be in the hearts soon. Wow!
I just don’t see the snowball in my area…
No snowballs here…
http://cdec.water.ca.gov/cgi-progs/current/PLOT_SWC
By the way el lay… Water’s gonna be a little on the short side, in just a few months.
Everything looks honky dory.
You can get as much as you’d like.
For now.
It may be that the crash is a self-fulfilling prophecy, which in that case would be the natural counterpart to the price bubble run-up self-fulfilling prophecy.
‘The stock market and housing market bubbles, and their demises, show unsettling parallels,’ said North on March 27. ‘The stock market bubble, which the Fed burst in 2000, caused significant disruption and sent the economy into contraction for three years. The housing market bubble, which the Fed burst just a few months ago, shows all of the same characteristics, including strong evidence already that an economic contraction is upon us. If history is any guide, it is likely to get worse.’
North demonstrated five steps that both incidents have had in common:
* Step 1: The Fed held monetary policy steady for some time before it started raising the Federal Funds interest rate to slow the economy and quell incipient inflation
* Step 2: The asset market continued its rapid ascent.
* Step 3: The Fed continued to raise the Fed Funds rate.
* Step 4: The market bubble popped and deflated, and the assets rapidly started to lose value.
* Step 5: For the stock market bubble, the economy quickly started to contract. For the housing market bubble, we are only beginning to see what is going to happen.
‘To date, the housing market bubble has behaved exactly as the stock market bubble did in Steps 1 through 4,’ North commented. ‘If the housing market bubble continues on the stock market bubble’s path into Step 5, we would expect to see conditions such as slowing GDP and job growth, as well as other negative indicators.’ Those expectations have already been met, he said’
Very few people were affected by the dot com crash in 2000, in the scheme of things.
This is different.
Has there ever been a boom in history that wasn’t followed by a bust? I can’t think of any. And yet all of these knuckle-draggers around us have treated us like we are idiots when we were talking about the inevitable crash that was coming.
Conclusion: People are stupid.
The thing that’s really astonishing to me is how people seem to have no short-term memory in that the stock bubble deflated just 7 years ago and hear we are through a housing bubble that was caused by the Fed trying to bail out the previous bubble. How many times are people going to have to touch the stove before they get the message that it’s going to cause them pain?
And really, how would a bailout work? The choices seem to be (to me) either hyperinflate and save the day in nominal dollars (as the value of a dollar sinks like a rock) or deflationary forebearance by the banks that causes a long, slow, Japanese-style depressionary bleed, or letting the market do its thing, take the hit and move on.
All the leading candidates from the left side of the aisle were very quick to jump on the bailout to “save our homes” theme. But I don’t think this will work out very well for any of them, as the people whose pockets they will take money from tend to vote, and the “victims” who will receive the transfer payments are not as likely to vote. I guess it could help with raising campaign contributions from the banking industry, though, as they are the ultimate beneficiaries of efforts to keep alive their subprime customers’ ability to make backbreaking interest payments.
> how would a bailout work?
>1. hyperinflate
>2. long, slow, Japanese-style depressionary bleed
>3. letting the market do its thing, take the hit and move on
I agree, these three seems to be the alternatives. I believe that the FED will try it with a mix, but could they control such development sufficiently?
From my travels I know the Japanese mindset very well…
Just one word for you.
HONOR
Aladinsane, I would bet that the Japanese mindset had a lot to do with the way their bust played out. It’s much harder to figure that out here, because the culture is much more diverse. It’s anyone’s guess.
Cass, a nice point, but not sure if I agree.
In many ways our culture seems to act in unison based on ‘crowd action’ analysis. An example is the paradox of information showing every bubble collapsing, the increase in housing prices resulting in a bubble and, yet, the stare from coworkers when you inform them that house prices are going down. Your coworkers are part of the “crowd”
Similarly a lot of people bought pets.com because of crowd behaviour.
“The ability to make money in markets depends critically on an individuals ability to make decisions independently of the crowd.”
I posit the WWII housing boom did not have a bust. I always admire that portion of the Schiller chart on national home prices.
I think you are right about this, and when you think of the fundamentals (troops returning from WWII and starting families, national investment in freeway system spurring suburban building boom), the reasons are obvious.
Try to list all the fundamental reasons why housing prices doubled between 1998-2005 in many local U.S. markets formerly known as frothy. Good luck!
Insert history lesson here.
All the defense industry people stateside did nothing but make money, with nothing to spend it on.
All the returning g.i.’s came back to the states, were fully laden as well.
All non essential non war oriented production of virtually everything, was rationed severely during the war years.
The only similarity between 1946 and 2007 ?
Both have 4 numbers.
They also lived through the Depression and knew how to save money rather than pi$$ it away on useless stuff. My father even refused to buy things manufactured overseas. Kinda wish they were all still around…
The comparison hinges on:
What is the dollar value of the 2001-era stock market losses compared to (potential) housing losses?
Total residential housing is ~50 trillion
total stock market in the US is 14.38235 trillion at 2:05pm EST
Source for $50T? The reason I ask: With a population of 300M people, the US then has $167K for every man, woman and child in housing. If the average family is 2.5 kids, then translates to a avg house of 750K per family.
Seems quite high.
Here’s data from the census:
http://quickfacts.census.gov/qfd/states/00000.html
Housing units, 2005: 124,521,886
Median value of owner-occupied housing units, 2000: $120K
Total housing @ 2000 prices = $15.8T
I don’t have 2005 national median handy…
“This tabulation includes only specified owner-occupied housing units–one-family houses on less than 10 acres without a business or medical office on the property. These data exclude mobile homes, houses with a business or medical office, houses on 10 or more acres, and housing units in multi-unit structures.”
“Median” is not the same as “mean”
So every major city has a lot of excluded property. Most of New York city, Chicago, LA San Francisco. All vacant housing is excluded.
I’ll stick with 50 Trillion - the lowest number I have seen for all residential housing 45 trillion
Correction: My Bad - The Chicago Merc estimates The US residential market at 21.6 trillion.
I will trust the Merc’s numbers before I would trust the governments.
http://tinyurl.com/34rb3k
At least I’m not a “cognitive dissonant”. LOL
Just in case anyone thinks so what. The depressing thing is mortgage debt is currently at 9.7trillion.
According to the FDIC (Scenarios for the next recession, MAr 2006) 40% of homes are owned outright.
21.6 trillion X 0.6 = 12.96 Trillion Mortgage House Value(MHV)
this gets better
An Avg of 74.9%
That doesn’t seem so bad until
one calculates avg equity position with historical past.
for an avg equity position of 44.9% current
For historical records from the FDIC
“in 1990, the average equity in homes was 60 percent; today it’s 56 percent.” (Mar, 2006 figures from 2005)
Apres moi le deluge
http://tinyurl.com/mqh8y FDIC
http://tinyurl.com/647jl Household mortgage debt
The stock market crashed and the housing bubble started. Now will the housing bubble crash cause the stock market to bubble up again?
I’d like to know whose market this is right now. It’s not yet a buyer’s market. And it certainly isn’t a seller’s market. But it is still a market, isn’t it?
A sucker’s market.
I’d say the same is true for the stock market. A traders market at best, sucker’s at worst.
Certainly NOT a buyers market. Just because sellers are not making you sign letters that you will feed the squirrels, doesn’t make it a buyers market. When price come back to 4x median income, instead of 10x where they are today. Then we can call it a buyers market.
I’d like to know whose market this is right now. It’s not yet a buyer’s market. And it certainly isn’t a seller’s market. But it is still a market, isn’t it?
As always, it’s the middlemen’s market - aka commissioned agents.
With agent’s starving because of low sales and some fixed costs, it’s not even a middlemen’s market. “2007 will suck.”
“agents” instead of “agent’s”
I think we clearly need to discuss proactive measures against bailouts. Blogging can be very entertaining and fun, but this is where we might be able to make a difference. I think someone should start a “NO BAILOUT” blog and post form letters and bailout related stories.
If there is some sort of program to allow FB’s to avoid foreclosure I will be truly angry. In my tinfoil moments I wonder if this is all part of the plan.
‘I will be truly angry.’
This is what I see, people getting mad. When something like this is thrown out, the first sensible question is, ‘how are you going to pay for it senator?’ That should tell you how this will turn out.
But some will say, ‘the Fed will turn on the printing press.’ When have you ever seen a congress person suggest that as a way to pay for a program?
A guy in my neighborhood was arrested for attempted murder. Upon his release he was served an eviction notice from his landlord. When he was moving his junk out the neighborhood watched in quiet joy. As he was moving out, he was yelling obscenities at everyone and saying, “I don’t need this place, I have three condos in Miami!!”
Only Carl Hiassen could be more imaginative regarding the Florida debacle.
Nobody deserves a bailout.
Carl Hiaasen’s take on this thing has got to be my dream novel. Maybe someone ought to send him a a helpful link to this blog.
‘how are you going to pay for it senator?’
No only does he not know how it will be paid for………..he has absolutely no idea of the final cost. How could he?
Dodd to me sounds like a Dudd
‘how are you going to pay for it senator?’
When members of a certain political party (which will remain anonymous for this post) start talking about “saving the children,” who would dare be crass enough to ask about where the money will come from? The answer is obvious, anyway — it will come from the pockets of those who were financially conservative enough to avoid spending their last dollar and then some on buying houses they could not possibly afford.
“it will come from the pockets of those who were financially conservative enough to avoid spending their last dollar and then some on buying houses they could not possibly afford.”
According to the Comptroller General, who has been making the rounds of the U.S. trying to get ANYONE to listen to him, we can’t possibly pay off the debts (U.S. gov’t) we as a nation have already incurred. This was brought to the attention of the administration by Treas. Sec. O’Neil, who was promptly fired for his efforts.
Therefore, your concerns that a bailout will come from the pockets of the financially conservative are unfounded. Any debt “created” for a bailout will be neatly piled on top of the nearly 9 trillion that we already owe (as well as the 70 trillion in out year unfunded liabilities). Any congressmen concerned with budgeting matters already have ample reason to suggest raising taxes even though it won’t matter a lick with regard to solving our fiscal deficit. I would offer that a bailout bill requiring it’s funding by a new tax increase would be counterproductive for those suggesting such.
‘Any debt “created” for a bailout will be neatly piled on top of the nearly 9 trillion that we already owe (as well as the 70 trillion in out year unfunded liabilities).’
Our children will then have to eat the sins of their fathers (and mothers).
I’m thinking it’ll manifest itself as an “inflation tax” by printing dollars, which to date has gone unchallenged by j6p. Default or deflate dollars, either way it’ll suck.
“When have you ever seen a congress person suggest that as a way to pay for a program?”
Nobody ever discusses “turning on the printing press” as a way to pay for government programs. It is their dirty little secret — the only way to tax in the wake of a certain not-to-be-named political party’s twenty-five year demonization of taxation as a means of paying for government spending.
Read today’s front page article in the LA Times called “bailout not likely”. It spells out the likely political downsides.
Maybe we should petition some organization, like the Concord Coalition, to get on board. Of course, as much as I admire their platform, they really haven’t made any progress in urging fiscal responsibility and “pay go” efforts in Congress.
Is there a “No-Bailout” saint, like St. Joseph, the patron saint of FBs?
Sounds like Dodd is getting the message, that any bailout is political suicide. You have to figure, prudent people are more likely to vote than ne’r do wells with ’spotty” credit, no job history, stated citizenship, etc.
In Washington, Democratic Sens. Hillary Rodham Clinton of New York, Christopher J. Dodd of Connecticut and Barack Obama of Illinois — all of whom are presidential candidates — are among those demanding government action…
But none of the three Democrats has offered more than general ideas for aiding borrowers, and none has called for a massive federal assistance program.
“Dodd has been extremely clear that he is not talking about any kind of bailout,” a spokesman for the senator said.
latimes.com/business/la-fi-bailout30mar30,0,4891093.story?coll=la-headlines-business
Politicians only have to look concerned. Appearance is everything.
Agreed. They dont give a rip about j6p either way.
Perhaps FEMA could be in charge of the “Bailout.” I envision a toll-free number where VICTIMS could call and state how much in the hole they are, and then a credit card type voucher could be sent to them to give them a helping hand.
The cost is immaterial as it could merely be lumped in with all the other deficeit spending run up by the present administration. (Maybe another tax cut would be necessary to insure solvency.)
See how simple it can be.
That is ignoring the matter that deficit spending already must be reduced as the ‘deficits don’t matter’ crowd is already history. Unless you are one who believes that also?
Curt:
You just convinced yourself to buy Gold.
Bought 600 shares of “GLD” yesterday!
What’s you favorite brand of popcorn?
We’re partial to the “Red Ruby” variety at http://www.crownjewelgourmet.com (no spam intended, I’m just a customer). Any other suggestions for good pop-at-home (no canned caramel drenched stuff please) for bubble-deflating munchies??
A friend became a freshly minted realtor in 1992, in the SFV in el lay.
He went to work for some bigger local re concern and I remember asking him how things were going after a month on the job?
He told me that a husband & wife realtor tag team, that used to be #2 and #4 in sales had been reduced to maintenence man and the cleaning lady.
He lasted another 2 weeks and gave up the ghost.
In 1992 el lay was just one of a few hot spots in the country that had a real estate bubble.
There were no computers spitting out data, for the average joe to see.
Not much subprime in 1992.
Is the slowdown just the absense of speculators and the elimination of sales to the financially unfit?
Are we only going to revert to 2000 pricing/sales levels? John Q Public isn’t in a frenzy to buy anymore but he wasn’t pre-bubble either. If we having a real financial meltdown and not just a reversion to the mean, I would think John Q would be sitting home. The open house a few homes down from me last weekend was surprisingly well attended. My husband works in a small office but several have bought new in last several months. When people talk about moving away from here, they start looking for homes in the new area, not even considering rentals….and some of these are people that know and understand the upcoming slowdown.
Sales numbers have dropped precipitously but are really still in the range of what we previously had deemed “good numbers” back in the old days. So what happens next?
“So what happens next? ”
Great minds think alike, LOL! What happens next is what I’d like to know…
I still think the risk of inflation is more likely than a deflation scenario. Would like to hear what “smart money” is doing these days… One thing seems certain, dollar is going down the tubes.
Inflation of dollar, deflation of wages.
Ouch!
large debt should cause deflation. The FED in the past has responed to this by lowering interest rates. This has caused bubbles. Wheres the next bubble? I expect the FED to give large investments banks lots of money to try and save the housing crash. How will the FED give the Goldman Sachs types all this money? Cheap money I guess way cheaper than it should be with all this inflation. Probably some sweet trade deal with China so China will continue to buy treasuries.
China may decide to retaliate by diversifying some of their big war chest of foreign exchange reserves away from the US dollar. The biggest beneficiaries would be currencies such as the Japanese Yen, Euro and British pound. The inflationary pressures of the tariffs and higher oil prices should keep the Federal Reserve on inflation watch for the time being. However with the US economy already plagued by the problems in the housing market, and US consumers facing the toll of higher oil prices, at the first sign of trouble, the Federal Reserve may have no choice but to put growth ahead of inflation and look to reconsider their plans to cut interest rates. Either way, foreign investors need to be even more cautious of being long dollars in the weeks ahead as they watch for any response from Chinese officials.
Link:
http://tinyurl.com/yu8fth
I’d like to discuss where do we go from here. The housing bubble popped, what’s next? How do we protect our investments and cash, and profit from this change?
Get liquid. Pay off your debts. Go to cash; put this cash in secure interest generating accounts.
Exercise patience. Wait it out.
Don’t have any debts, never had. Went to cash, am extremely uncomfortable there due to high inflation and USD devaluation risk.
Whatever the inflation hit to your savings it, will be more endurable than the hit you will take on an illiquid asset in the comning months/years.
If you are really worried about this, employ a heding strategy by putting some of your cash pile into some other currencies. I am NOT doing this as I expect that at the end of the day the currency that will get hurt the least will be the Dollar. I understand that makes me a bit of a heritic around here.
At least houses have a floor price,somewhere.A well taken care of house always can be a dwelling place,of value to someone.Unlike the stockmarket scene..Remember Kmart,some time back,it’s stock went to 000 [ziltch].Stockholders lost every penny on it,than just a few months later kmart comes ‘out’ of bankruptcy ,and buys Sears roebuck Co……Guess it depends on who pulls the levers. Thats who gets the value,i guess.What a ripoff.
But the floor price can be very, very low.
Witness the recent auctions in Michigan where houses were sold for less than used cars …….
Also, because of leverage the downside risks of buying a house are far greater than buying stocks (except on margin). At least with stocks you will lose at most 100% of your investment. With houses you can lose much more and the housing market becomes very illiquid in a downturn.
Depends - you can buy leverage stocks by buying on margin too (or shorting).
Difference is that with stocks it’s widely-known that buying on margin is risky. Everyone assumed (wrongly) that the same wasn’t true of housing.
“At least houses have a floor price,somewhere.”
There is no reason this floor price cannot be negative, though. Take a drive around a few urban cores in midwest cities (Detroit, Cleveland, St. Louis, etc.). If you have never done this, you might be impressed with all the dilapidated vacant homes to be seen. The price of these homes are effectively negative — nobody sees positive benefit in owning and maintaining a home which is in sufficiently bad condition and surrounding environment, and hence they are abandoned.
In a few years time, what name will be given to this global event?
Housing bust
Banking crisis
Monetary faillure
Credit crunch
Recession 2007-…
The great Depression (part II)
…
The great RE bear trap of ‘07?
The housing head fake?
(Ducks back into cover :))
The Plasma TV decision.
I have a question regarding fundamental valuation models for housing. I’ve seen several models using p/e ratios where e=rental income and other ratios like price to income etc.
However, p/e ratios deviating from historical ranges could indicate that in certain locales, e is expected to increase more rapidly or more slowly than in the past due to changes in the local economy e.g. boom in technology, decline in traditional manufacturing etc.
After all, growth stocks should have much higher p/e ratios than defensive value stocks so the same should apply to housing.
Has anyone seen anything authoritative and insightful on this topic?
I’d like to know what our readership has uncovered in our collective research into the financials of the players in the housing mess. I was counting up Countrywide’s REO in CA, CO, FL, MA, OR, NV, AR, MI, and here’s what I found…
date #REO Avg list price Total list price
3/09/07 2413 $240,706 $580,822,829
3/29/07 2920 $250,756 $732,206,496
Wow. That’s a lot of dead inventory. I haven’t run the numbers versus their 10-K and 10-Q, but I imagine that this overhang (which is growing FAST) will soon comprise a huge chunk of their book value.
http://www.countrywide.com/purchase/f_reo.asp
The Fed’s key concern is keeping inflation under control, right? They are going to run into problems if they keep saying that without followup action in the face of rising core inflation. (And note that though consumer spending was reportedly lower, it was not sufficiently low to end a twenty-three month streak of negative savings rates.)
——————————————————————————–
ECONOMIC REPORT
Higher inflation, weaker spending in February
Core inflation jumps to 2.4% year-over-year increase
By Rex Nutting, MarketWatch
Last Update: 8:47 AM ET Mar 30, 2007
WASHINGTON (MarketWatch) - The Fed’s stagflation dilemma is getting tougher. Core consumer prices increased at the fastest pace in six months during February, even as consumer spending slowed to the weakest in six months, according to government data released Friday.
The Fed’s preferred measure of core inflation — the core personal consumption price index — rose 0.3% in February, the biggest gain since August, the Commerce Department reported Friday. Core inflation matched economists’ expectations. See Economic Calendar. January’s gain was revised from 0.3% to 0.2%, softening the blow to some extent.
On a year-over-year basis, core inflation ticked up to 2.4% from 2.2%, moving further away from the Fed’s comfort zone of around 2%. It’s the highest since September.”
http://www.marketwatch.com/news/story/higher-inflation-weaker-spending-point/story.aspx?guid=%7B23813EBF%2DFACB%2D45F5%2DA310%2D0FAE392B63D9%7D
TIPS are pricing inflation at 4.8% (12 months out)
Nothing needs to be done. Stay pat on rates and let things evolve.
Watch china’s moves. If they start throwing some money back at us then things might balance out and incomes will recover in some sections.
Things are too far gone for alt a subprime though. Huge amount of suffering going to happen there but a large investment by china will help keep the economy and trade going. People with wages can rent and will be fine. No wages and things get uglier.
China is going to retaliate for the stupid congressional actions today. IMHO they will likely cancel some plane purchase contracts from Boeing, since they just introduced their new short range jet the ARJ-21 and do not need to buy from the US.
Additional news this week: China is trying to unload dollars. China is buying more hard assets, steel etc. China is not selling any corn.
Guess which party we can thank for the incipient death of the symbiosis, which was pretty sweet for the U.S., which for years has traded dollar IOUs for all kinds of cheap manufactures from China?
“Even though US Treasury Secretary Paulson has been in favor of a buddy versus bully approach and China has done their part by taking gradual measures to slow their economy and stock market thorough interest rate hikes and higher reserve requirements, it has not been enough to satisfy the newly Democratic controlled Congress.“
Long T-bond yields and gold are rising today while stock prices fall — more evidence of stagflationary pressures…
http://www.marketwatch.com/tools/marketsummary/
Here’s a topic suggestion, Ben.
What are some of the ancillary companies that will be affected by the evaporation of housing sales? We’re all aware of Home Depot or Lowes, but what other companies will take a hit?
I’ve seen slowness in the Tucson Lowes and Home Depot stores since last fall.
krazy_canuck suggested this subject yesterday:
“a discussion of mutual funds that have significant exposure to subprime and MBS in general.. I think the participants of this blog would like to know what funds to stay away from…”
Is a 1% sales commision the new norm for California real estate? My parents just retired lawyer neighbor in Moorpark said she will not pay more than 1% to a realtor when she lists her house. She bought her 1,800 sq. ft. house in 2004 so I’m not sure she’s going to get the windfall she’s hoping for. Given the outrageous house prices in California, I guess realtors can live on 1% or not. Can California realtors survive on 1%? (I know I shouldn’t care, but I find it fascinating.) Do they have a choice at this point?
She won’t find many takers for that unless her property is worth 10 million or more. Not many of those in Moorpark.
I don’t know how listing agents would react? Maybe, she would find an agent for 1% who would just list it, recommend a low price and make appointment showings only (no open houses). If she doesn’t pay the buyer agent the 3%, however, she’s reducing her chances of getting any offer at all. Even most FSBOs offer some commision to the buyer’s agent.
How about Financial Armageddon. Could this be the end of the economic system as we know it? (history tells us that that this type always fails in the end)
It’s certainly a possibility…
To understand the nature and speed of which things will happen.
A proffesor at MIT (?) noted that one of the secretes to sucess was to try things and fail quickly. The faster you go through bad outcomes the sooner till you get to good ones.
In relation to the bubble. If your ARM is resetting and you have little hope of repayment, What is your best course of action?
1) Hold on as long as you can?
2) House to market for a short sale
3) Run up credit card debt on assets to sell on ebay/pawn shop to get cash before declaring bankruptcy and disapearing in to the sunset?
4) Run up CC debt and generate cash while immediatly stopping payment on your loans?
5) As the tsunami begins to hit next month, What happens? It takes 6-9 months for a house to appear on the market so not much will happen for a while.
6) Ignore overwhelming evidence that things are going to tank and drag things onward?
I guess a lot of these depend on your life situation. Do you have a good paying job? banks will go after your income. Do you have kids and family to think of? you can’t ride off and live in the canadian wilderness. What is your skin in the game? Ruthless flippers and speculators will walk away with minimal losses, particularly those that are from out of state.
How we people hide assets from banks seeking to recover losses?
Will the symbiosis die in a trade war?
=============================================================
U.S. sanctions China in paper-subsidy dispute
Move is shift in decades-old policy of not sanctioning non-market economies
By Robert Schroeder, MarketWatch
Last Update: 12:31 PM ET Mar 30, 2007
WASHINGTON (MarketWatch) — The Commerce Department announced sanctions against coated Chinese paper imports on Friday, the first time in 23 years that U.S. duty law has been applied to imports from China. Commerce Secretary Carlos Gutierrez said imports of Chinese coated free sheet paper would face countervailing duties ranging from 10.9% to 20.3%.
Subsidies enjoyed by Chinese companies put U.S. producers at a disadvantage, said Gutierrez, who emphasized that the sanctions were legal under U.S. trade law.
“It is critical that companies compete on a level playing field,” Gutierrez told reporters. “With today’s decision we are demonstrating our continued commitment to create an environment of true competition for American manufacturers, for workers and farmers.”
http://www.marketwatch.com/news/story/us-sanctions-china-paper-subsidy-dispute/story.aspx?guid=%7B4C6B00D7%2D465E%2D4EE6%2D8941%2D59BA0B80B58E%7D
Gs - this is the start of the trade war. I am always amazed at DC stupidity.
Yes China is going to retaliate. Yes the dollar is going to get a lot weaker and the carry trade is going to collapse and inflation is going to get worse.
For an 81 million dollars “we are powerful” statement, the bozo congress has put another nail in the economic coffin.
As far a I’m concerned there is already a “Bailout” in place,
it’s called bankruptcy. When you sign the mortgage, it is a
commitment. Save so money and plan for some pitfalls along the way. In our society we have a lack of responcibility that is out of control. It’ always someone elses falt. How many times do we
bail these FB’s out?????
But at least we aren’t bailing out the lenders with BK.
Personally, I fault the lenders for our mess. Humans will always fall prey to an “EZ money” scheme. It’s up to the lenders to ensure they are doing business with people who have the will and ability to repay their loans.
If lenders are stupid enough to offer 100% LTV, low/no-doc, neg-am mortgages to morons with a 550 FICO score…they deserve to lose every cent, IMHO.
BK is a way to put the price of risk back where it belongs.
Using Section 8 Housing Vouchers to buy Homes ……….
Caught yourself a falling knife on the way down and feeling regrets? Not to worry…
————————————————————————————-
On second thought…
Buyer’s remorse is common, but here are five ways to beat it
By Amy Hoak, MarketWatch
Last Update: 8:01 PM ET Mar 14, 2007
CHICAGO (MarketWatch) — Most people have experienced buyer’s remorse in some form, whether it’s feeling guilty over the price paid for a new pair of shoes or a jab of regret after splurging on some unneeded tech gizmo.
But when it comes to one of the most expensive purchases in a consumer’s life, a home, feelings of remorse can be a lot more intense, easily rattling otherwise confident home buyers and causing them to second-guess what they liked about a house in the first place.
Luckily, many local real estate markets today are buyer’s markets; there’s lots of inventory to look at and often ample time to negotiate on price, said Eric Cunliffe, senior vice president of RealEstate.com. Those factors greatly decrease the chances of buyers completely changing their minds — and wishing they’d gone for a different house — after the fact.
http://www.marketwatch.com/news/story/shaky-housing-market-spurs-more/story.aspx?guid=%7BA32CD5C2%2D11FC%2D4423%2D9B22%2DF05C7A55678F%7D
Fed Chief: Two Sides to Credit Access
By JEANNINE AVERSA
The Associated Press
Friday, March 30, 2007; 12:48 PM
WASHINGTON — Troubles plaguing lenders and borrowers with risky mortgages may challenge the notion that widespread access to credit is always a good thing, Federal Reserve Chairman Ben Bernanke suggested Friday.
Bernanke’s comments came as he talked about a decades-old law, called the Community Reinvestment Act, that aims to make sure that banks serve all their customers, including those in low- and moderate-income communities.
The Fed chief said the law, enacted in 1977, has produced some benefits, including helping to bolster home ownership rates among the poor, “but the results are not uniform.”
The law doesn’t apply to lenders that aren’t banks, many of which are responsible for providing certain risky mortgages to people with low incomes and blemished credit histories.
“Recent problems in mortgage markets illustrate that an underlying assumption of the CRA _ that more lending equals better outcomes for local communities _ may not always hold,” Bernanke said at a Federal Reserve conference. “Whether, and if so, how to try to differentiate `good’ from `bad’ lending in the CRA context is an issue that is likely to challenge us for some time.”
http://www.washingtonpost.com/wp-dyn/content/article/2007/03/30/AR2007033001116.html
The CRA is a political lightning rod, and I applaud Bernanke’s courage to make a subtile suggestion that it helped to precipitate the subprime mess.
The next shoe to drop after the subprime implosion: Rising used and new home for-sale inventories & additional price declines. I am not sure I would describe the situation as “ultimately safer and more stable,” unless the analyst quoted below is talking about after prices adjust downwards to equilibrate with the lack of high risk buyers.
————————————————————————————-
Rise and Fall of Subprime Lenders Began on Wall St.
Listen to this story… by Jim Zarroli
(Auctioneer Timothy O’Connor conducts a foreclosure auction in a Miami-Dade courtroom in Miami, Fla.
Timothy O’Connor conducts a foreclosure auction in Miami. Florida had 19,144 homes enter foreclosure in February, the most of any state, according to RealtyTrac. Getty Images)
All Things Considered, March 30, 2007
It all started last November, when a relatively small lender — called Own-It Mortgage Solutions — defaulted on its loans to JP Morgan Chase & Co. Since then, more than 24 subprime lenders have folded, victims of rising default rates — but also of rising suspicions that the entire subprime market is teetering.
…
“What we’re seeing now in the subprime market is, when the Wall Street firms get cool on the subprime market, they just cut the funding,” Cecala said. “And the warehouse loans vanish overnight — and that’s what puts a company like New Century out of business.”
Analysts say that the upshot of the troubles in the subprime loan industry is that there will be fewer companies offering loans to people with weak credit scores — which means home ownership will get a little more elusive for low-income people.
But it should also wash a lot of risk out of the mortgage market, making it ultimately safer and more stable — at least until the next housing boom occurs.
http://www.npr.org/templates/story/story.php?storyId=9248739
Since many of the readers and contributors to this blog are renters, and will continue to rent through this debacle, I am curious how the bubble is impacting rents in various areas of the country. Just a thoght for a topic.
D’oh, thought