The Housing Bubble

That is Phoenix, AZ and its soroundings.

Actually, what surprises me (as a Phoenix-area lender) is that the latest peak is only about 15% higher than the 2003 peak. I hope that the two repo situations I faced in 2003 are the last two I will ever face, but at that time, I wasn’t even aware that foreclosures were high in the surrounding environment, I thought I just made a couple of mistakes about choosing clientele. And, there was no sense (at least not on my part) that a bubble had overblown itself and was breaking (in 03). I did indeed have to unload those two properties at a slight loss but I attributed that loss mainly to my own impatience. Just not willing to carry them on my books, pay the HOA fees, etc. Anyway, if I did not know about the national bubble now bursting, the Maricopa graph would tell me only that things now are “a little” worse than 2003. Of course I agree with all of you that now is The Big One and Maricopa will be awful.

LOL at your unbounded eloquence!

A Notice of Trustee’s Sale is the beginning of the foreclosure process (90 days to public auction).

Ok, Ok, I am blind.

Not if the houses are properly insulated.

It’s funny–I just talked to a major Gainesville realtor (does commercial and residential properties, also builds with some friends of his), and he’s convinced that the media is keeping the buyers away. At one point we were talking and another woman came in the room and said “Isn’t it that the prices are too high?”

He was quiet for a moment and reiterated that it was the media.

He also thinks 5-10% off 2006 prices is a sweet deal. I told him that the only properties in my budget right now in Gainesville are shacks built without the benefit of a plumb line in the early 20th century. I also told him about the coworker who got a 3bed2bath for $60K at a bank auction only three years ago.

Nope, it’s the “durn media”.

Although he agrees that the condo craze in G’ville is ridiculous and the market is not moving … and bought my argument that even though UF has not reached peak enrollment, the overeager builders are oversupplying housing to students and there is no power for landlords to raise rents.

Of course, he doesn’t really have much of a stake in that market, since he sells the properties, he doesn’t rent ‘em.

Hope springs eternal… I told him that there is a chance despite the spring shocks that the financing situation could improve because of the continuing excess liquidity in global capital markets. The house of cards will topple, but not necessarily today (hell, the stock funds I still hold have done great since the beginning of the year… damn…).

He didn’t really care about what I had to say on that topic, though, for one really good reason: the credit crunch has no effect on many of his buyers because he can still get 100% financing through government programs. He can even use the money to cover closing costs (sketchy…). He called it a “no brainer”. I told him that, as a buyer, I was unwilling to take on that kind of risk (say, if I had to move and the market went down).

He said the market doesn’t go down–it’s the damn media.

Lol.

Probably has a redneck tenant who believes his lease expires if the house is sold.

Any Lawyers in Boise, want to make sure he gets paid to break his lease?

gwynster, you beat me to it.

I used to live in a subdivision in Texas with streets named after spectacular natural features of the western U.S. — Glen Canyon, Mount Shasta, etc. It just reminded me how featureless and ugly the Texas landscape was by comparison.

I moved back to California within 18 months.

most airlines and hotels start wages around $9-$10 an hour.

In the New England tourist industry it’s minimum wage with no health insurance benefits.

And then there are the establishment’s who hire “summer nationals” aka mostly college kids from Eastern Europe so they don’t have to pay SS and unemployment insurance.

They lie to state government for an exemption by saying no locals will take the jobs they offer which is a crock of BS.

Meanwhile native HS/college kids can’t find squat for summer employment.

Another area where the fix is in.

That contrasts with the government’s monthly payroll figures, based on a smaller survey, which showed a gain of 498,000 jobs for the period.

So the parasites are adding jobs at an annualized rate of 2 million? Nice.

There was an article a couple of weeks ago about an investor (group) trying to sue a lender (one of the bigger ones I believe), because they alleged that the lender was making up the shortfall on loans during the buyback period so that they wouldn’t have to eat their crappy loans. Once the buyback period was over, then they just let the loans go into default. I have the feeling that we are going to be seeing a lot more of this before it’s all over.

joe,

My cousin is a investment banker for a major US insurance company. He was down here in Florida a couple of weeks ago and we actually talked about this issue. His response about restructuring the loans in a CDO that a fund owns was “Good effing luck !!!” Like you said when this finally plays out it will be verrrryyyy interesting…

Chris

My money is on the banks when that scenario comes to pass. They have the deeper pockets and they will get the pols to line up behind them as those facing reelection in ‘08 try to juice up their populist cred.

I think he’s quoting someone else’s tale.

I googled the “Reddick” referred to in this post and it’s pretty freakin’ hysterical. The “Marshall Reddick Real Estate Network” is a scam outfit that runs seminars and teaches people how to invest in RE “based on spiritual values.” It’s really scary what some people got involved with during this bubble — unfortunately, this charlatan seems to still be up and running.

Here’s their website: http://www.marshallreddickseminars.com/mrweb/mrren/home.aspx

Here’s a blog that provides some real background:

http://www.changingmydirection.com/maison/2006/03/marshall_reddic.html

Some quotes:

“The Marshall Reddick network has been a complete diaster for my wife and myself. They make promises such as “you can’t lose money”. “We will buy it back if it does not work out”. When push comes to shove they don’t keep them. They rarely return emails or calls if there is a problem. They advised us to buy a house in Florida in 2005 that has now gone down in value 30K and the rental market is also depressed. My attorney has advised a class action lawsuit for fraudulent inducement. I would be interested in hearing details from anyone else who has been given misrepresentations about real estate investments by Marshall Reddick or his company.”

“I too have been screwed by the lies and deceptions of Marshall Reddick and his BS. The christain thing he promotes I believe is there to make people think he is religious ergo an honest man. Of course with all the religious nutbars who steel money it’s not suprising MR is one such person. I sold most of my properties and broke even or what I made over the price essentially did not cover my original closing costs and repairs and negative cash flow. They never answer calls or if they do don’t do anything. Some of the brokers were nasty. The goods onces like leave them because they aren’t willing screw the buyers. I recall one real estate broker in oregan left because he was told by MR to ignore any complaints and push his properties. The broker had a conscience and walked away. Many brokers realize they may lose their license being dishonest as to falsely advertsing what rents will be and value of the property so they leave his network. OTOH, Marshall makes sure who ever he pushes in his network he will ALWAYS get a cut. Since he doesnt have a license he is not subject to the same ethics. I do think though he needs to be investigated and sued in a class action suit. It irks me he made so much money based on so much fraud.”

Yikes!

Isn’t the construction company’s obligation to construct and reserve the property for the buyer? Seems like this was a “calculated” risk on the part of the buyer; no small print hides that fact.

I advised a client/good friend to walk instead of fullfill the contract.

he thanks me to this day.

What profits a man, if he gains the whole world but loses his soul?

(take that in a poetic sense–I’m an atheist too)

Oops - correction - Salinas is #1 (peak HPI 362.17), Naples a close second (peak HPI 361.15). Miami as at 347.73 but still rising. I don’t think they’ll make it though.

That is surprising. doesn’t look that way “on the ground”

My observation is that sfh prices in Miami (especially better neighbourhoods) are holding quite well. Don’t know what is holding them - foreign money perhaps.

Does Case-Shiller provide the raw data? I haven’t been able to find that - if you know please let me know. That’s one nice thing about the OFHEO data.

And while the OFHEO does truncate, this is only with respect to mortgage amounts, not to home prices. Those that buy homes with higher than $475 value but lower than $475 mortgage (e.g. me) are included, thus it does include a sampling of higher-priced homes.

Plus it provides the longest-term data I’ve seen, at least in detail - back to 1975. My observation is that it’s been a pretty good indicator of long term trends, e.g. the early-90’s mini-bubble and what areas were affected most (SD), and the weird anomalies of Salt Lake City and Honolulu, and gives a good indicator of the scale of the current bubble and which areas are affected most. It’s pretty much inline with Case-Shiller though does lag by about 3-6 months.

I can visualize the “deal”:

You turn over your entire paycheck to us, after taking our cut to cover your 200 year mortgage we will pay you back the balance in our XYZ hedge fund fun bucks, which we will gladly accept at our company owned stores.

A little neo-feudalism perhaps

not necessarily. These guys could be drinking their own koolade. Like the top performing realtor who buys 4 houses for investment, or the top performing load officer who refis to buy cars and vacations.

A visual of the beastie that is/was cerbeus…

http://en.wikipedia.org/wiki/Image:Cerberus-Blake.jpeg

Hell’s Hound

Article in WSJ today points out that hedge funds aren’t even making the same return as stock index funds. Some are even losing money on a regular basis. The hedge managers have to do something to try to reverse their fortunes. Buying distressed assets in the faint hope of turning them around or being able to repackage and unload them to other suspecting buyers at a profit is a strategy. About the same strategy as a drowning man grasping at straws.

Cerberus = private partner w/PPT?

A CLOSE FRIEND O F MINE WORKS AT CERBERUS

guess what he and the wife are doing this summer?
spending 3 months in malibu while their 3 bedroom
private roofdeck apt. in th west village sits empty

cerberus is freaking huge

itl cool down with the monsoon season heating up

That’s why I added dividend stocks and went into T-bills. Isn’t everyone else doing this? We’re still worried about “lack of” passbook savings?

relative to the Asian markets, the DOW/NASDAQ/S&P/RUSSELL are tame………pork fried rice is running longer and faster..

why did US market run after a “Ploitical” move to slow the Chinese?

ANti-Counter Spin?

I’m not an accounting nerd but I’m sure the stats include income that goes to savings or to checking - both would be considered disposable. And I would imagine (hope) that the savings rate includes your 401(k) - so you would very much be a positive saver I’m sure.

Professor Bear’s interpretation: The current bull run on the stock market has sucked in debt-financed purchases of stock, in a giant dead cat bounce off the tech stock bust of the early 2000s.

to have what the haves “have”

from all one, from one all.

thats not a pradigm shift, thats

ANARCHY

And the average wage in 2045 will be $9 per hour.

That much gain in 40 years is equivalent to 7.5% per year.

Given that:
- Real estate historically has risen about 5% per year
- We’re starting off on the wrong foot by going *down* for the next 3-5 years at least

he’s off his rocker.

More realistic would be $2.5M after 40 years, assuming the economy eventually recovers back to normal sometime within the next 10-15 years.

Just the fact that he’s making such a statement (even if it were true) proves him to be a big hype artist. That being said - it’s sad how many Americans are influenceable by hype artists.

Or maybe he’s factoring in the inevitable hyper inflation we will be experiencing soon. So a gallon of milk will be $60 and a 1 day pass at DisneyWorld will be over $1000.

I lived in Mexico when it went through its hyperinflation period. It was a surreal experience.

Something for Mr. Yun to think about:

If Southwest FL RE spends the next 15 years losing 75% of it’s value, then in the next 25 years it will have to gain an average compounded rate of 19.2%.

Got 10% down?

Seems that the stock market is where people should be for 2007 and 2008 (and should have been since 2003). Still no clear sign on whether we’ll have general inflation or deflation. And pundits better give me a link (proof?) when they say the real inflation rate is 8%. My counterproof to inflation: wage increases still modest. House prices have peaked. But wages are number one in my counterproof. Most of you posters, if not all, agree that RE prices will come crashing down. What’s inflationary in that? Since no amateur and no expert can honestly say what the direction is, the stock market’s “wall of worry” is where I have 60% of my net worth.

What is this horse sh!!t “Core consumer price”. I look at my house hold half of my expenses are food and energy.

Government is such a fraude and MSM is so f(*&*ing idiot to be silence about this.

Despite the “low core inflation” the 10-year treasury bond is really taking off today, up 0.06 or 1.2%. The bond has been breaking out over the last two weeks. Most mortgage rates track the 10-year T bonds, so this will lead to less affordability and difficulty in refinancing. If I were buying a house, I would be more concerned about interest rates than gasoline, unless the compute was a long one.

And consider how many of these pending sales will get canceled as some of the greater fools regain their senses BEFORE the falling knives slice their hands.

You know it’s bad when even Lawrence Yun of NAR admits “Psychological factors seem to be holding buyers back as they look for clear signs that the market has bottomed…” and David Seiders of NAHB admits this time it’s different:
New home construction in the U.S. may not return to last year’s level until 2011, said David Seiders, chief economist for the National Association of Home Builders, in a May 29 interview in Washington.

“We’ve fallen way below trend because we soared way above trend during boom times,” Seiders said. “The upswing will be relatively slow, unlike earlier cycles.”

airball

Isn’t it fun to watch these guys find bizarre ways to spin negative news. We have two months of terrible sales data, but these TWO MONTHS are consistently down relatively to last year so that means we are “stablizing”.

Japanese 2-year govt. bond hit 1% earlier today.
Highest interest rate the 2 year has seen in a decade.
Most Japanese real estate funds that leverage 80-90% borrow vs. 2 or 3 year paper. 50% leverage can borrow against 5-7 year paper.
Watch Japan rates as well.

You don’t believe those Caribbean banks buying gazillions of dollars worth of Treasuries are the end-users? Maybe if they gave the poor Bahamians all those paper bonds they could build houses with them.

The 5% threshold was supposed to trigger the definitive end of the bubble, but nothing happened the last time it made it above 5%. In fact it meekly came right back down. What will be different this time?

I’d vote for that man.

Well, as someone smarter dan me just said, if that horse gets out the barn, it’s got a long way to run.

Tx!

Your best bet wouold be to turn him on to this blog…

T-H-A-N-K

Y-O-U

“Why is it even in the Fed’s comfort zone?”

Because they mortally fear deflation. Any inflation level close to 0% would potentially tip the savings rate back into positive territory, at which point the U.S. economy could quickly begin to resemble Japan’s from 1990-2005, including sixteen straight years of positive real returns on money stuffed under the mattress, coupled with
falling housing prices. This is the Fed’s hobgoblin, and they will do anything in their power to keep inflation to the positive side of 0% in order to avoid it.

Debt must be destroyed through inflation, or there is no business investment or borrowing. The whole financial system is based on banks lending new fiat money to businesses and individuals. I actually read an analysis of the beneifts of 2% inflation - can’t remember where but it sort of made sense - at 2% prices double in 36 years - generationally at worst and debts are continually “paid back” through inflation, allowing debtors to continue to live essentially. The problem is when inflation hits 8, 10, 15%.

I’m beginning to think the main purpose of the Fed is to be one big inflation engine.

Of course it is. What else could it possibly be?

That’s a good article.

I voted for Bush and am ashamed I did. He makes me sick, just physically ill. I’d much rather have had Kerry. I wouldn’t agree with him on alot of things, but it’s better than being betrayed and insulted by one of your own.

I’ve thought for a long time that Bush will be the end of the republican party. Just destroyed it. Big government, international interventionism…who is this guy? He doesn’t care though, he’s abandoned the party that elected him to try to go for a “legacy” that the liberal media will love.

I hope they don’t let him speak at the convention in 08…

test

Sen. Kyl, the repub senator from AZ who cosponsored the bill with Kennedy says he is “surprised” at the anger from his constituents. Anyone from AZ with an opinion?

curious prose for hapless foes?

“why for God’s sake would you even consider going on the line to help save the neighborhood comps?”

Wouldn’t if it is not OK. But I’m pretty certain the builder will eat the place before he’ll torpedo the neighborhood precisely because he is building a lot of bigger, more expensive ones nearby. We all know, from many discussions here, that cash-back at closing represents fraud IF a lender is involved and if the cash-back is not plainly disclosed to the lender. My question is, is it fraud if there is no lender? I probably confused the issue with my comment about tax stamps - that was here in Florida and the house I’m looking at is in Georgia. I suppose the only good way to find out is to pay a lawyer there to tell me.

Also re waiting — this neighborhood is built out and my wife places a high premium on brand-new over used. The Wife Tax is a fact of life.