The Housing Bubble

April Fool - The Simpsons
don´t be fooled today…….

Nova Star Financial / riding the wave

http://immobilienblasen.blogspot.com/

How about this for a bumper sticker (in bubble-land):

In the background show a bunch of bubbles gently floating around, and then , in the foreground, in big black letters: “I RENT”

“The American Republic will endure until the day Congress discovers that it can bribe the public with the public’s money.”

Alexis de Tocqueville

Interesting trend on Craigslist rentals in the Tampa Bay and Sarasota areas: more and more condos for rent offer an option to buy.

It’s official!!
The bottom has been reached!!!
It’s all uphill from here, let the bidding wars begin!!!!

april fools

Here are the results of the Real Estate Auction in Key West yesterday

http://www.keysnews.com/298608266587455.bsp.htm

“Has real estate really gone down that much?” Camp asked after no one bid on a Third Street triplex that started out and sold for $600,000.

“Yes,” someone in the crowd retorted.

“The darkest places in hell are reserved for those who maintain their neutrality in times of moral crisis.”

Dante Aligheri

Not sure but I got to believe the ratio of inventory (single family plus condos) to total households in an area is an indicator of local support for a market. Using the data on Sigalarm’s site I got the following for a few selected cities in Northwest Florida, Florida statewide, and California statewide:

Pensacola 15%
Fort Walton Beach 12%
Destin 39%
Panama City 75%
Florida 6%
California 2%

The above ratios show how dependent this area is on out of state buyers to support the market. If the boomers don’t hurry up and get down here NWF will have a severe meltdown as there is no way in hell locals can pick up the slack.

All I can say after is that if you are a RE player in NWF don’t wait around for the authorities to announce the RE disaster this summer—get your KY while supplies last!!

Some anecdotes.

In Tampa (Wesley Chapel), I have friends that have been trying to sell their home for about a year now. They started out at 330K, after many reductions, finally lowered it to 275K and got an offer for 265K. Their house really is nicer than most at this price range, so I’d say their situation is indicative of the local market. Anyway, the buyer has now backed out, coming to the realization that she couldn’t make the payments (100% financing, yada, yada, yada). My friends are in a really bad situation since their new house has just been finished and they can’t get quality financing without the proceeds from selling their first house. They are going to try the liar loan route now. (I gave subtle warnings about the bubble a year ago, and he recited the familiar line about housing prices never going down. I pointed out a specific example of prices going down significantly in CA, but to no avail)

Down in Fort Lauderdale (Weston), my in-laws have been trying to sell a 2/2 townhouse for over a year. Despite my emphatic warnings and explanations, they have been following the market down. They started at 300K and are now at 269K. They got an offer for 255K but countered for 263K(even knowing that the potential buyer was approved for only 260K) and lost the buyer. They have just got a second offer for the asking price minus the closing costs. The buyer apparently doesn’t have enough cash to cover a 5% down payment plus closing costs.

These first hand accounts really do tell me that only the most stupid (and stretched) money is left over and that even these people are starting to catch on. Look out below.

I know of a couple who just lost their house to the bank.

They are moving in with their kids - 9 people living in one house.

Next to a bunch of Somilians here in Columbus, Ohio.

I visted their place last week - it is a dump.

I am waiting for a bunch of other people to move in with them.

I will keep you posted.

Asa

Thanks to those who came to the S.F. Saloon last night for a short party. Too bad we had to contend with the UCLA game! The place was packed. Perhaps we can do it again when there won’t be any competition for space. Blog on, West LA!

Will the symbiosis end with a trade war? One possible casualty: Higher mortgage interest rates could result if China suddenly developed a distaste for purchasing U.S. T-bonds and MBS. In fact, in the “best” possible case, where this was merely due to equilibrium adjustment rather than a retaliatory volley in a trade war, a stronger Yuan would result in less U.S. imports of Chinese goods and less Chinese imports of U.S. dollars that currently get repatriated in our debt market.

Watch out what you wish for, Congress!
———————————————————————————-
DEAN CALBREATH
What’s that sour taste? It’s the U.S. trade deficit
April 1, 2007

As I went to the cafeteria last week to grab a snack, I plunked down 75 cents for a candy-ish item called “Florida’s Natural, an Au’some Fruit Juice String.”

Fruit. Juice. Nature. Fused together by the Florida sun. Au’some! (Don’t ask me what that means.)

So it came as a surprise when I flipped the package over and found that this juice-infused taste of Florida was actually made in China – or, more precisely, in a 1,500-worker factory in Shenzhen across the border from Hong Kong.
…
Prodded into action by the trade hawks, the Bush administration on Friday levied tariffs on glossy paper products imported from China – an opening volley in what may be a costly trade war. The move was a major turnabout for the Commerce Department, which had previously questioned whether it had the legal authority to impose the tariffs.

In the meantime, the Senate Finance Committee last week held a hearing on the Chinese currency, which economists say is undervalued against the U.S. dollar by as much as 40 percent. The low value of the yuan allows factories in China – such as the Heung Shing Novelty Works in Shenzhen, where Florida’s Natural candy is produced – to pay workers a fraction of what they would make in the United States.

The House is weighing a law co-sponsored by Rep. Duncan Hunter, R-Alpine, that would force the United States to take countermeasures against the yuan.

http://www.signonsandiego.com/uniontrib/20070401/news_1b1dean.html

Last week, one of the attorneys in my office was talking about his client that would close on the purchase of a home the following day. Countrywide gave him a 106% LTV deal. I told the attorney to prepare his client, ’cause ain’t no way Countrywide will fund that loan. He wanted to know why, and I told him “just because”.

Sure enough, two hours later Countrywide killed the deal and demanded a 5% downpayment.

Immediate office points!

There is a perfectly logical reason to not require escrow accounts on subprime loans. As long as a future foreclosure is in the bag, why not avoid requiring a pesky escrow account, as it implicitly limits the buyer’s home purchase bid by diverting money for tax and insurance payments which won’t need to be made after a near-term foreclosure?
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NATION’S HOUSING
KENNETH HARNEY
Lack of impound accounts fueling foreclosures
April 1, 2007

WASHINGTON – As financial regulators and Congress probe more deeply into the delinquencies and foreclosures roiling the subprime home loan market, one key contributing factor is receiving increased attention: the lack of mandatory escrow accounts, also known as impound accounts.

According to some industry estimates, a majority of subprime mortgages closed during the housing boom years carried no escrows for property taxes and hazard insurance. That is in stark contrast to the prime mortgage market for consumers with good credit, where mandatory escrow accounts are routine.

“It’s an upside-down world,” said Mike Calhoun, president and chief operating officer of the Center for Responsible Lending, a consumer advocacy group based in Durham, N.C. “The people you’d think need an escrow the most aren’t required to have them, and the people who need them the least are forced to use them.”

Escrow accounts are set up by lenders to guarantee the timely payment of property tax bills and insurance premiums. On top of principal and interest charges for the mortgage every month, the lender also collects pro-rata amounts of money to be paid when tax bills and insurance premiums come due during the year. In that sense, escrow accounts serve as a safety net for homeowners and lenders alike.

http://www.signonsandiego.com/uniontrib/20070401/news_lz1h01harney.html

I visited an apartment complex last week, and they had a “rent-to-buy” option. You didn’t rent to buy the apartment. Instead, if you stayed in the apartment 3 years, they would put $9000 (taken from rent payments) toward the down payment on a house. The catch was that you had to buy the new home from the same builder that built the apartments. Why sure, I’ll take $9k and put it toward a cardboard shitbox that cost $75K more than than the market (and $125K more than it’s worth). Not bloody likely.

And it was one of those annoying apartment complexes too — the kind where they are all happy-happy joy-joy and have the clubhouse and all the meet-the-neighbors events. As if I want to live with a bunch of 24-year-olds who act exactly like college sophomores, except that they can afford better beer.

A sign of the times: The sdhomes BUYING GUIDE runs a weekly series by area realtors about the current situation. Usually the flavor is of 2005 vintage, “It is a great time to invest in a San Diego home, because San Diego real estate always goes up…”

Today’s column reflects the chill financial wind blowing through the normally red-hot spring San Diego market. Reading between the lines, I am inferring that a very large share of recent San Diego purchases were only possible with 100 percent financing, and that the realtor who wrote the piece senses this type of loan may be disappearing with the sudden concern about skyrocketing foreclosures and falling home prices. Needless to say, no mention is made of the likelihood for further price declines with a return of downpayment requirements.
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Loan options are changing
by Isabel Hall
General Manager and Senior Vice President of McMillin Realty, Mortgage and Escrow

The world of lending is undergoing a significant change for homebuyers. For several years now, many homebuyers have enjoyed the benefits of purchasing a home using conventional, easy-qualifying financing with zero down payment. The advantage is obvious; relatively little cash is required to close the transaction, allowing first-time buyers with limited savings to enter the homebuying market. (The disadvantage is also obvious: There is a much greater foreclosure risk on 100% financed home purchases.) Today’s significant change is that these “sub prime” loans (sic) are fast disappearing.

What does this mean to a buyer currently in the market for a home? It means “plan ahead.” By talking about financing options with a real estate agent in the initial stages of the homebuying process, one can take steps ahead of time to insure a successful closing (But aren’t prices likely to fall if all the first time buyers with no savings are suddenly underwritten out of the market, and those with savings are required to put skin in the game?). If a gift for the down payment is the answer, early arrangements can make the loan process quicker and easier (But isn’t it 100 percent financing if a gift covers the downpayment?). If a higher credit score is required for 100 percent financing, a buyer can clean up the credit while searching for the right home (How do you erase a historical pattern of stiffing creditors over a couple of months’ time while you are shopping for a home?). If FHA or VA financing is the better alternative, a person can prepare for the lender’s expectations in advance (But doesn’t the FHA require a 3% downpayment? I guess it is possible to find someone to “gift” that…)

What does this mean to a seller? Some “zero down payments” loans that have been financed in the recent past are now being turned away. A seller is best served by a real estate agent who queries the lender on any “100 percent financing” offer before accepting such a purchase contract. Again, early preparation can prevent disappointment.

Knowledge is power. Plan ahead; seek a real estate agent’s guidance; consult with an informed loan officer; prepare for a successful closing. (Or better yet, don’t try to catch a falling knife as 100 percent financing goes back out of fashion.)

Aution results in Bakersfield from Analysis Guy:

https://www2.blogger.com/comment.g?blogID=33255068&postID=3888720158667925434

If you have not read The New Road to Serfdom: An illustrated guide to the coming real estate collapse by Michael Hudson, here is your chance. The article was originally published in Harper’s magazine (May 2006). Serfs Up!

Link: http://www.itulip.com/forums/showthread.php?t=966

Why Ask For An FHA Loan?
…
Low Downpayment - We have a low 3% downpayment, and that money can come from a family member, employer or charitable organization. Other loans don’t allow this. (If someone else pays it, the 3% downpayment is actually a 0% downpayment…)
…
Help You Keep Your Home - The FHA has been around since 1934 and will continue to be here to protect you when the others walk away. Should you encounter hard-times after buying your home, FHA has many options to help keep you in your home and avoid foreclosure.

http://www.hud.gov/fha/choosefha.cfm

And here is further encouragement from HUD for households to buy homes they cannot afford (whoever in the press said $363K was the FHA mortgage limit did not check their facts):

https://entp.hud.gov/idapp/html/hicostlook.cfm

(Type in San Diego on the “county” line…)

I may be misinterpreting this information, but I believe the implication is that the FHA is insuring mortgages on San Diego homes priced as high as $697,696, which does not really sound like much of a starter home to me.

Mortgage Tree Lending DONE!:

http://bakersfieldbubble.blogspot.com

“‘The market at the beach has died,’ said Scott Gaston of Dover, an investor who is selling a Rehoboth Beach house he bought in foreclosure in January. Already, he has lowered the price.”

the second wave of flippers, buyers of foreclosure and REO homes. RE always goes up, doesn’t it?

Was reading on CR blog a post about subprime mortgatgees which focused on the fact that only 13% were used for first time home buyers. Most of the subprime were refi cash out from fixed to ARM/IO with low teaser rates and cash. I notice this during 04/05 the large number of fixed to ARM with teaser rates and wondered what the hell were these people thinking!

The FHA seems to be a key player driving the foreclosure crisis. And blue state CIC candidates have consequently proposed to expand its role. Is there any way to block Federal agencies like this one from success with their ongoing campaign to destroy the U.S. housing market?
———————————————————————————
Posted yesterday by Jerry from Richardson:

‘foreclosing on the american dream | third in an occasional series
FHA program key in surge of foreclosures
“I just can’t make it. The mortgage is too big. It’s so far behind now …”
By David Olinger and Jeffrey A. Roberts
Denver Post Staff Writers
Article Last Updated: 12/06/2006 05:16:42 PM MST’

http://www.denverpost.com/search/ci_4228048?source=email

Wow…I never thought it would happen to me. Was going to an open house, and just totally fell in love with the place. Was also highly impressed with the realtor’s research - she really knew her stuff. Long story short, we made an offer for full asking price on the spot. I feel good about it - with all the inventory, it really is a good time to buy, and rates might be going up.

APRIL FOOLS! BWAHWHAHAHAHAHA!

I slay me….

Talking to a group of friends (about a dozen at a birthday party) last night about the current state of everything in the USA including real estate. Most of the people have mortgages. Only two of us were renters. Some (the older boomers) had paid off over the years and were now free and clear. One (in his 40s) sounded like a typical fb. Last year he bought 2 properties near Palm Springs as investments but said he thought he might have made a mistake even if the values had not dropped too much at this point. Fortunately, he makes enough to keep his head above water even in a severe down turn. Others had bought in the 70’s and 80’s and 90’s and were in various stages of paying off their mortgage.

However, I noticed that most were looking very “property owning unsure” (as opposed to being “property owning confident” a few months ago) as the conversation went on and subjects like recession, sub-prime meltdown, national debt, inflation (all agreed government numbers were b.s), healthcare costs, the Iraq and Iran mess and China were injected into the conversation. Interestingly enough, the Bush supports were no longer happy with Bush or Cheney. One ex-Bush cheerleader actually said he now thinks Bush will go down in history as the worst President the US has ever had.

All in all, the atmosphere was not one of being confident of the America’s future.

Then, finally, a very interesting observation by someone (a mortgage paid off boomer property owner) who said, “Truth is, we all think WE own our property. Try not paying your taxes or fall on hard times and being unable to pay your taxes - and then you’ll find out real quick who REALLY owns your property……and it isn’t you even if it’s paid for.”

OK, I’m starting to become a little anxious about the cash I have saved in the likes of ingdirect, etrade, etc. I vaguely recall someone (GetStucco?) recommending treasurydirect.gov as a safe harbor for cash while the housing downturn plays itself out. I’m thinking it would be wise to move most of it to T-bills rather than hope ingdirect hasn’t loaned my money to someone that won’t be able to pay it back. Am I being paranoid? I appreciate your feedback.

Next source of ‘foreclosures’ - tax sales?

LA Times
No impound? It’s lending without a net
http://tinyurl.com/243vcg

“As financial regulators and Congress probe more deeply into the delinquencies and foreclosures roiling the sub-prime home loan market, one key contributing factor is receiving increased attention: the lack of mandatory escrow impound accounts.”

“Sub-prime lenders dispense with mandatory escrows to keep monthly payments low. That’s an important lure because the interest rates they charge often are three percentage points or more above prime market rates, and many clients already have high debt loads and modest incomes. But the lack of escrow accounts also places heavy responsibilities on the borrowers to accumulate sufficient funds during the course of the year to pay tax and insurance bills, and to know when those bills come due.

Roy Rangel, a broker with Statewide Mortgage and Lending in San Antonio, calls the lack of escrow accounts “a killer” for financially strapped, unsophisticated borrowers “who don’t really understand that the payment they’re making every month isn’t everything that they owe” and that they’ve got to come up with thousands more to pay taxes and insurance.”

“Consumer advocates, however, think that Congress ought to consider imposing a much tougher standard: forcing sub-prime lenders to maintain escrow accounts.

“I think the failure to escrow on sub-prime mortgages is an abusive practice,” Calhoun said. “We think escrowing should be mandatory.”"

I went to a live performance of Brahm’s German Requiem (in English…) and the following passage reminded me of this blog:

Psalm 39:4–7 Lord, make me to know mine end, and the measure of my days, what it is: that I may know how frail I am.
Behold, thou hast made my days as an handbreadth; and mine age is as nothing before thee.
Surely every man walks in a vain show: surely they are disquieted in vain: he heaps up riches, and knows not who shall gather them.
And now, Lord, what wait I for? My hope is in thee.

Replace the Lord with geologic time, and I would kind of agree with that.

We spend a lot of time on this blog worrying about (disquieted) how external events are going to impact our net worth (heaps of riches). It’s good to remember that there are more important things in life than money.

Heck, even the FB’s (well, most of them, anyway) keep going in the face of financial disaster. We’re still alive; beats being dead.

PMI removal has been a big part of housing for the past 3 years. You are required to be in the house for 2 years and you must make improvements to the home in the meantime.

The requests have all but dried up as the homeowners realize that they are under water. That is a couple hundred bucks a month you will pay till you are a little old homeowner, for nothing, other than your own stupidity. Call it a rental fee for a mortgage.

Anyone seen what’s going on at the Lanser Blog in the past month. He’s gone really bearish in my opinion and now all the permabulls are pitching a fit over it and blaming Lanser and the bubble bloggers for the change in the market in SoCal. It’s hilarious if not sad. I think we are now officially in the Anger stage thanks to the Subprime Meltdown no longer allowing for denila in the MSM.

Here is a quiz on alternative mortgage products. I predict a glut of MSM articles published six months hence which directly attribute a record number of foreclosures to the lending industry’s recent eagerness to qualify so many buyers to use one of the products listed below to buy homes the buyers otherwise would not have been able to afford.
=============================================================
Sunday, Apr 01, 2007
Moneywise
STEVEN PEARLSTEIN ON BUSINESS
ON BUSINESS
Be smart, first time buyers

Today’s pop quiz involves some potentially exciting new products that mortgage bankers have come up with to make homeownership a reality for cash-strapped first-time buyers.

Here goes: Which of these products do you think makes sense?

(a) The “balloon mortgage,” in which the borrower pays only interest for 10 years before a big lump-sum payment is due.

(b) The “liar loan,” in which the borrower is asked merely to state his annual income, without presenting any documentation.

(c) The “option ARM” loan, in which the borrower can pay less than the agreed-upon interest and principal payment, simply by adding to the outstanding balance of the loan.

(d) The “piggyback loan,” in which a combination of a first and second mortgage eliminates the need for any down payment.

(e) The “teaser loan,” which qualifies a borrower for a loan based on an artificially low initial interest rate, even though he or she doesn’t have sufficient income to make the payments when the interest rate is reset in two years.

(f) The “stretch loan,” in which the borrower has to commit more than 50 percent of gross income to make the monthly payments.

(g) All of the above.

http://www.kansascity.com/mld/kansascitystar/business/personal_finance/17004079.htm

Maricopa County Arizona (Phoenix Metro) NTS
Jan 05 1297
Feb 05 940
Mar 05 1040
Apr 05 766
May 05 759
Jun 05 767
Jul 05 748
Aug 05 795
Sep 05 669
Oct 05 728
Nov 05 704
Dec 05 749
Jan 06 726
Feb 06 687
Mar 06 790
Apr 06 638
May 06 764
Jun 06 797
Jul 06 851
Aug 06 1019
Sep 06 1114
Oct 06 1238
Nov 06 1493
Dec 06 1407
Jan 07 1624
Feb 07 1577
Mar 07 1720

This quote features a soon-to-be-dispelled myth that equates saving money with “investing” in declining-value assets (houses):

‘”Home ownership is such an important part of people’s savings. It’s the biggest asset people own. It is the key part of the American dream,” she said.’

http://www.newsday.com/business/ats-ap_business16mar31,0,4162229.story?coll=ny-business-leadheadlines

Home||Business
Garrison Keillor must be blushing in shame about this story…
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Subprime lending: Made in Minnesota
Minnesota lenders virtually invented the mass-market subprime loan. And most got into serious financial trouble as a result.
By Thomas Lee, Star Tribune
Last update: April 01, 2007 – 9:24 PM
Mike Zerby, Star Tribune

The subprime mortgage crisis that has gummed up the housing sector nationwide doesn’t carry a “Made in Minnesota” tag. But it almost deserves that label.

Minnesota lenders — from Norwest and Green Tree to Metris — were pioneers in finding ways to cater to strapped borrowers, creating the lending template that others copied. And in a foreshadowing of the current situation, all of those lenders but Norwest (now Wells Fargo) eventually got themselves into serious financial trouble by bottom-feeding in the credit pool.

Such high-risk lending would seem to be in direct conflict with the stereotype of the stolid Midwestern banker. But history suggests that it’s the risk-averse stereotype that needs adjustment and that no matter how many times subprime lenders blow up, new ones will rise here, unable to resist the temptation of lending at double-digit interest rates.

http://www.startribune.com/535/story/1091878.html

Reflections on a 39% percent haircut in the pace of residential construction…
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April 1, 2007

The threat to national, local economies from the housing sector
By Patrick Barkey

Is there anything more personal, and more tragic, than getting evicted from your house? Not to mention newsworthy and dramatic? Perhaps this is why stories about mortgage delinquencies, foreclosures and evictions have started rolling out in advance of the events themselves. The oft-mentioned meltdown in the mortgage market, brought on by the perfectly predictable slowdown in runaway growth in housing prices over the last three years, is really more like a storm brewing offshore, whose arrival, impact and aftermath remain in doubt.

But parts of the housing slowdown — or bursting of the housing bubble, if you prefer — arrived many months ago. Home construction has fallen to earth, and markets all over Central Indiana have noticed. One year ago at this time, the national economy was on pace to build almost 2.3 million residential housing units. Since that time we have tumbled to a 1.4-million unit pace.

Until last June, metropolitan Indianapolis was on a home construction pace equal to the first half of 2005. But in the second half of 2006, building permits slumped hard, with the 12-month total almost 30 percent down from the previous year. Other forms of construction, including commercial and highway construction, have grown to help pick up the slack, but there is no doubt that the party in home building has closed down.

But a second “bubble” in housing markets, one with more sinister implications for credit markets and the economy as a whole, has not come ashore quite yet. That is the oft-predicted collapse in housing prices.

http://www.indystar.com/apps/pbcs.dll/article?AID=/20070401/OPINION03/704010356

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