A Change With Profound Implications
Some housing bubble news from Wall Street and Washington. Inman News, “Reports from the nation’s 12 Federal Reserve banks show continuing weakness in residential real estate and construction, with most districts characterizing housing markets as soft or weak, and no districts reporting an increase in new home construction.”
From Bloomberg. “Consumer advocates Thursday called on the Federal Reserve to write stricter rules to end abusive lending practices, saying the central bank had not acted forcefully enough to prevent delinquencies and foreclosures.”
“State officials and consumer advocates recommended that the Fed write rules that would require lenders to ensure a borrower’s ability to repay. ‘Common sense tells us that if you take out a loan, you should have the ability to pay,’ Iowa Atty. Gen. Tom Miller said.”
“The lenders, including JPMorgan Chase & Co. and Option One Mortgage Corp., urged the Fed to require simpler consumer disclosures and to issue guidelines instead of rules. ‘We recommend that the board be cautious,’ said Faith Schwartz, senior VP at Irvine-based Option One, a unit of H&R Block Inc.”
The New York Times. “In opening remarks, Randall S. Kroszner, a governor on the Fed’s board, said the central bank shared responsibility over mortgage lending with other state and federal regulators.”
“‘Rising foreclosures in the subprime market over the past year have led the board to consider whether and how it should use its rulemaking authority to address these concerns,’ Mr. Kroszner said. ‘In doing so, however, we must walk a fine line.’”
“In the morning, representatives from mortgage companies and an association of mortgage brokers parried, mostly in good humor. The opposing sides appeared to agree that the mortgage industry got carried away in the recent housing boom but disagreed sharply on the scope of the problem and what should be done.”
“‘There are folks that do this business the right way,’ said Pablo Sanchez, a national mortgage production specialist with JPMorgan. ‘I would hate to have this as the last record that this is all the lenders’ fault.’”
From Marketplace. “With the hope that subprime problems eventually will be worked through and won’t infect the overall mortgage market, Mortgage Bankers Association’s chief economist Doug Duncan said: ‘We’re just urging people to take a deep breath and look at the big picture.’”
The Miami Herald. “Miami’s Intercredit Bank has signed an agreement with federal bank regulators to take steps to tighten its lending practices and reduce credit risks.”
“In March, Ocean Bank was hit with a cease and desist order from the Federal Deposit Insurance Corp. Miami banking analyst Kenneth Thomas said that two actions on lending practices coming so close in time was an unusual but stemmed from the weakening real estate market and the rise in mortgage problems.”
“‘This is the second major one that emphasizes lending and not just compliance with the Bank Secrecy Act or other anti-money laundering issues,’ Thomas said.”
“Economists said homeowners trying to refinance their adjustable-rate mortgages before they reset to higher levels are already feeling pinched. The national average for the 30-year fixed-rate mortgage jumped to 6.74 percent Thursday. At the beginning of the year, the average was 6.18 percent, according to Freddie Mac, a big buyer of mortgages.”
“Last year, adjustable-rate loans accounted for 25 percent of mortgage applications, up from 11 percent in 1998, Freddie Mac said. Demand for adjustable-rate loans peaked in 2004 at 33 percent; many of those are at or near the reset point.”
“‘It’s going to be tough,’ said Adam L. Stein, president of the Washington Association of Mortgage Brokers near Seattle. ‘I talk to people every day looking to get the fixed rate. You give them the current rate and they say, ‘That doesn’t do anything for me.’”
From MarketWatch. “The mortgage bankers came out with their latest survey on mortgage delinquencies and foreclosures on Thursday, showing a small rise in the percentage of homeowners who are in the process of losing their homes because they aren’t paying the mortgage.”
“Foreclosure rates for adjustable-rate mortgages, or ARMs, have doubled over the past two years. This is not just the subprime borrowers, those with less than stellar credit. Even prime borrowers who opted for ARMs are in trouble.”
“The foreclosure rate for subprime ARMs has gone from 5.1% to 10.1% in less than two years. The delinquency rate has soared from 10% to 15.75%. For prime ARM borrowers, the foreclosure rate has doubled from 0.8% to 1.6% in just one year. The delinquency rate for prime ARMs jumped from 1.5% a year ago to 2.4% this year.”
“Bill Gross, manager of the world’s largest bond fund, says U.S. housing is in such a perilous shape that the Federal Reserve may need to cut interest rates in six to nine months.”
“Not so, says Alan Greenspan, the Fed Chairman who presided over 14 straight rate increases before retiring in January 2006. The odds are 2-to-1 that the economy will avoid a downturn, he said last month. He said in a speech in Mexico City two days ago that long-term interest rates are still low and may not last.”
“What Gross and Greenspan differ most on is the direction of the real estate market. ‘They can’t both be right,’ said Brian Hilliard, chief economist at Societe Generale in London.”
“For more than two years Gross has been wrong on the direction of borrowing costs. ‘We have made a mistake over the past 12 months expecting the Fed, first of all, to stop before 5.25 percent and, second of all, to maybe start to ease a little before where the market expects it to ease,’ Gross said May 17. ‘If there’s been a mistake, that’s it.’”
“A measure of U.S. consumer prices rose less than forecast in May, evidence that ebbing inflationary pressures may allow the Federal Reserve to keep interest rates unchanged this year.”
From CNN Money. “This month’s rise in global interest rates is probably a sign of the beginning of the end of an era of supercheap money - a change with profound implications.”
“‘This is the end of the cheap money cycle,’ Marc Pado, U.S. market strategist at Cantor Fitzgerald in New York, said.”
“‘The warning shots fired by the market will perhaps make investors stop and think about whether they can continue to pile into asset classes without abandon and not have to pay the price at some time,’ said Peter Dixon, strategist at Commerzbank in London.”
“Rising rates could hurt economic growth, especially in the United States, where rising mortgage rates could threaten the already fragile housing sector by increasing the burden on home buyers.”
“The housing sector already faces pressure from an oversupply of homes on the market and falling home values in some markets. The sector also faces risks from ongoing problems in so-called subprime loans to borrowers with weak credit. Weakness in the housing sector has worried economists, and the market still may worsen.”
“According to a report from the financial service companies, National City Corp and Global Insight, the number of single-family homes they judged overvalued in the United States fell from 17 percent in the last quarter of 2006 to 14 percent in the quarter ended March 31.”
“The latest price declines were mostly clustered in areas that had seen big price run-ups during the boom, with California, Florida, New York and Massachusetts taking hits.”
“James Diffley, managing director of Global Insight’s Regional Services Group, said in a statement, ‘The price declines we are seeing today in California, Florida, and New England were predicted two years ago when we identified them as the most extremely overvalued markets in the nation.’”
“The metro areas facing the greatest threat of future price drops are in California, according to Diffley.”
“He blamed it on a, ‘huge glut of new and existing homes for sale on the market, and the tightening of credit standards in light of the subprime mortgage troubles [that] will continue to exert downward pressure on prices for some time.’”
From Reuters. “There is no good news for some the largest home building companies in the United States. ‘We do think if you’re dumb enough to buy a home builder (share), you ought to buy us,’ Ryland Group Inc. CEO R. Chad Dreier, told an investor audience at the JP Morgan Basics and Industrials Conference this week.”
“Against a backdrop of plunging sales and rising contract cancellations, there was little talk of a turnaround or a bottoming out of the housing market.”
“Most U.S. home builders have taken defensive positions looking to generate cash. They have also been selling unsold homes, land positions, paring debt, laying off employees and cutting prices to generate sales.”
“‘Our goal is close as many homes as we can in this fiscal year,’ said Don Tomnitz, CEO of D.R. Horton Inc., the largest U.S. home builder. He tells his sales force that ‘If the buyer’s got a pulse, and they’re warm, take them out of the market place’ by getting them to sign a contract.”
Loans served out of bounds twice,
Double Fault…
“‘There are folks that do this business the right way,’ said Pablo Sanchez, a national mortgage production specialist with JPMorgan. ‘I would hate to have this as the last record that this is all the lenders’ fault.’”
Don’t blame Pablo, he just did his yob.
Don’t cry for me, greedspan y pablo
The truth is you abandoned the truth
Not much to ask for
You didn’t keep your promise
Please keep your distance…
Cheap shot, chicago. You can make your point without being racist.
Wasn’t the dude’s name Pablo? Where is the racism?
By using the man’s real name, chicago was inflaming racial stereotypes. He should have referred to him as ‘the national mortgage production specialist with JPMorgan who shall remain nameless’ thereby not implicitly indicting all people with Hispanic-sounding names.
And I’m not implying that a person named Pablo is Hispanic. He could be Arabic, Japanese, or Swahili for all we know!
/sarcasm
By using the man’s real name, chicago was inflaming racial stereotypes. He should have referred to him as ‘the national mortgage production specialist with JPMorgan who shall remain nameless’ thereby not implicitly indicting all people with Hispanic-sounding names.
And I’m not implying that a person named Pablo is Hispanic. He could be Arabic, Japanese, or Swahili for all we know!
’sarcasm off’
Could the thought police take a little time off and develop a sense of humor?
The racism wasn’t necessarily in using the man’s name, it was in mocking a Spanish accent, to wit: “he just did his yob.” Unless that was a typo, and, if so, I apologize.
Spike66, they have no sense of humor, and will be right over to make sure you don’t either by “re-educating” you…
JimAtLaw,
I guess I expect too much. Having a sense of humor requires having some perspective which requires intelligence which is perhaps more than those folks who march with the thought police can muster.
“Re-educate” moi? I think not. I live in New York, where “blow it out your ear” is considered polite.
Thank God for the First Amendment. Otherwise we’d all be in real legal trouble every day. In typing, I learned that the right pointer finger is used for the letters “J,” “Y,” and “M.” The guy with the egg shell skull should relax.
“national mortgage production specialist”
sounds sporty
“What Gross and Greenspan differ most on is the direction of the real estate market. ‘They can’t both be right,’ said Brian Hilliard, chief economist at Societe Generale in London.”
Everyone is worried about what the Fed will do, but this isn’t just about the Fed. My bigger concern is, what will happen to long-term interest rates, dollar value and inflation/deflation? So I need to know what China and Japan and foreign investors will do… because those actions may give the Fed few options.
“Foreclosure rates for adjustable-rate mortgages, or ARMs, have doubled over the past two years. This is not just the subprime borrowers, those with less than stellar credit. Even prime borrowers who opted for ARMs are in trouble.”
********************************************************
But Chairman Greenspan encouraged real estate buyers to use Adjustable Rate Mortgages. He is not stupid so why did he do that?
I still think to this very day that Greenspan didn’t know how much fraud was taking place on the liar loan applications and just how many people where actual speculators .
Bankers in general push adjustable loans because the investors in the secondary market have never liked the 30 year fixed rate . Adjustable loans would of been OK (had the loans had decent spreads and points), and the loans not turned into liar loans with a high amount of speculation going on .In fact, the prices of RE would not of inflated so much had proper loan underwriting just of been done including down payment requirements . I just don’t think that a Fed Chairman is involved that much with the everyday underwriting of loans and the default rates were low enough that the red flags didn’t go out .Now maybe Greenspan should of know that the market had slipped into a liar loan ,high speculation market ,but I don’t think anybody knew ,except for the front line lenders agents , RE agents, and borrowers .
Wiz,
You’re right in that Greenspan has no connection to “reality” (that’s us, folks)…BUT, he has his minions who are connected, directly or indirectly. The Fed has researchers who likely have been reading this site (and others like it) for a long, long time. Additionally, they HAD to know about the relaxation of the rules…they are a part of that process & lowering rates to negative territory (below inflation) will have consequences like distorted asset pricing.
He’s supposed to be “The Maestro”, so we have to expect he’s brighter than most.
IMHO, it was intentional from the start. Also notice how the 30-year was taken out around the same time, forcing people into shorter-dated Treasuries…you’d think the govt would want to lock in those super-low rates for the longest period possible. Something just doesn’t sit right with me regarding Greenspan & co.
How about this, the Fed is impotent. It’s going to end up being nothing more than a clearinghouse bank. like it was created to be.
stricter rules ” = 1/2 % max commission for mort brokers in the future
they helped so many
‘We’re just urging people to take a deep breath and look at the big picture.’”
OK, sure. Let’s give it a try….stepping back……looking……..ah yes, I see it! We’re soooooooo screwed!
LOL
You might not want to take a step back and see the whole view..
The tide is going out and most of the people are swimming naked…
And yes, that is a bus chartered by “Ginnie Craig” and those other ones are from the “sunny hills retirement community,” and those cars over there belong to the “Living with incurable skin disease support group.”
You really don’t want the full view.
Got popcorn?
Neil
Better to just keep your head buried in the sand, I would think.
Insert head in sand. Now, take 20 giant steps back while keeping head firmly inserted in sand. Ouchie!
Images from the final scene of the movie Animal House ” Stay calm, all is well !!”
Naked Gun “Nothing to see here. Please disperse.”
lol…i was just thinking about that one too…
What is to worry about between MSNBC and Business week there isn’t a problem.
Spending is up!
http://www.msnbc.msn.com/id/19247223/
Foreclosures……what stinking foreclosures?
http://www.businessweek.com/bwdaily/dnflash/content/jun2007/db20070614_838245.htm?chan=top+news_top+news+index_businessweek+exclusives
Smiles everyone SMILES!!!
nice typo
These three states account for just 8.7% of all mortgages in the county, according to the MBA,
states of the county ?
In what bizarre world do all these economists equate rising prices with a strengthening economy?!? Prices are rising because money and credit have expanded. As a result, there is less demand to hold money and prices are increasing as a result. Consequently, the Fed has to raise interest rates to artificially increase the demand for money. There’s nothing “strong” or “healthy” about this. It is a result of reckless lending and printing of money by the Fed. Now the chickens are coming home to roost.
Good lord, people are completely illiterate when it comes to relatively simple matters about economics. Inflation is not mysterious or difficult to understand. It’s simply an increase in the supply of money and credit. Whenever you have more of something, all things being equal, it’s value goes down. That’s why the only solution to this mess is a return to commodity-backed currencies. Inflation is eliminated in that case.
IMO, Ron Paul is really the only person capable of addressing the coming economic destruction of this country.
The simplest things are the most difficult to understand, the more educated you become.
“Ron Paul is really the only person capable of addressing the coming economic destruction of this country.”
Agreed. I do think he’s our only hope.
Help me Obi-Ron Kenobi … you’re my only hope!
It’s over. The “big boys” have made their money. The set up worked perfect and now higher rates are in store for all loans. The big boys will “not” drop the rates because they feel sorry for all of the borrowers. It’s always about money/fees and they are looking out for number one- themselves. The private federal reserve answers to no one in DC unless sometime in the future our system changes but who will do it? Perhaps, the public will wake up and demand changes but that is most likely years away.
Unfortunately, the changes won’t come until theres blood in the streets………
How does letting the same bozos that started this mess make more rules to benefit their donors make sense? I might be crazy but it seems that common sense has left the building. Wait, I am crazy.
Isn’t that what government is all about?
“State officials and consumer advocates recommended that the Fed write rules that would require lenders to ensure a borrower’s ability to repay. ‘Common sense tells us that if you take out a loan, you should have the ability to pay,’ Iowa Atty. Gen. Tom Miller said.”
But that would make it harder for the subprime kingpins on Wall Street to earn scam profits, wouldn’t it?
How are Bear Stearns’ profits looking these days?
The fall of the High-Grade Structured Credit Strategies Enhanced Leverage Fund may be only the beginning.
“‘It’s going to be tough,’ said Adam L. Stein, president of the Washington Association of Mortgage Brokers near Seattle. ‘I talk to people every day looking to get the fixed rate. You give them the current rate and they say, ‘That doesn’t do anything for me.’”
Sure it does, FB. It ensures you’ll soon foreclose on your POS McMansion…
But wait! I thought Seattle was “different”?! Do you mean that folks in Seattle, despite all those great jobs at Boeing and Microsoft, bought houses they couldn’t really afford?
They didn’t get the job offer from Google they were hoping for.
It might not be different - but the shmoes around here think it is.
Win Adam Stein’s Money…
“‘It’s going to be tough,’ said Adam L. Stein, president of the Washington Association of Mortgage Brokers near Seattle. ‘I talk to people every day looking to get the fixed rate. You give them the current rate and they say, ‘That doesn’t do anything for me.’”
“rising mortgage rates could threaten the already fragile housing sector by increasing the burden on home buyers.”
Yes Yes Yes, and I suppose it’s impossible to think that prices will never come down to offset those increases in rates ?
Mo Money,
Testify brotha!
Rates are going up (Neat thing about global markets… the Fed cannot do a thing…). The resets in the 2nd half of this year and next year… will do interesting things to the market.
Got popcorn?
Neil
“‘Our goal is close as many homes as we can in this fiscal year,’ said Don Tomnitz, CEO of D.R. Horton Inc., the largest U.S. home builder. He tells his sales force that ‘If the buyer’s got a pulse, and they’re warm, take them out of the market place’ by getting them to sign a contract.”
Sounds like Tomnitz might have missed his calling in the lending industry. Isn’t their motto ‘anyone with a pulse gets approved for a loan?’
I hope somebody has that sentence on tape. The lawsuits should crush these scumbags.
Sounds like Alec Baldwin’s exhortation in “Glengarry Glenross”: Get them to sign on the line which is dotted!
Why do you need a high pressure sleazy sales force to sell home ? Either you need and can afford to buy a home or not. The rest is just needing to hammer out details like size, lighting fixtures, and counter tops etc.
I have no problem with the home builders moving a ton of inventory in 2007. Keep the pipeline full!
For soon people are going to wake up and realize just how many surplus bedrooms there are in this country.
And maybe the fact that there is a local shortage of dental hygienists, mechanics, teachers, fire, and police… Naaaa…
Seriously, in the south bay part of LA, I know a ton of doctors. All are screaming about how its impossible to find/hire/retain good staff (for what they can afford to pay). Doctors? There is a surplus. I’m talking trained staff (not the receptionist).
Got popcorn?
Neil
It would be fun to visit my local DRHorton sales office with that Tomlitz quote!
JL’s blog, OCR
SoCal housing inflation at 6-month low
The cost of running a SoCal home rose 5.2 percent in the year ended in May, new Consumer Price Index stats show. That’s the lowest annual housing inflation rate since last November. The rate averaged 6 percent for all of last year, 5.9 percent in 2005.
Among the components of the SoCal housing inflation rate in May, on an annualized basis:
• Fuels and utilities: Up 2.2 percent in a year, the highest of 2007 but well below 2006’s 14.3 percent
• Furnishings and operations: Down 1.3 percent, the lowest since April 2004.
• Rent of residence: Up 6.1 percent, the high for 2007 and up from 5.8 percent for all of 2006.
• Homeowner’s rent equivalent: Up 6.2 percent in a year vs. 5.4 percent for all of 2006.
SoCal’s inflation for all goods and services ran at a 2.9 percent annual rate in May, the lowest since November. Local inflation averaged 4.3 percent in 2006. May’s national rate was 2.7 percent.
dang….
Let’s say, hypothetically…. Let’s say we’re headed for an era of high interest rates.
To me, that kind of makes sense…. We need to inflate away our national debt, our high standard of living, our consumer debt, the value of all those dollars the Chinease own… we need inflation, and that means high interest rates.
So, here’s my financial situation. Fiancee and I have debt:
Me: $30K mostly 4% and 5% until paid off, a small-ish amount (like $8K) at 10% fixed.
Her: $130K on the 1st (5% fixed). $40K on the second 5-9% ARM. $10K credit card. $60K student loans (like 3.5%)
$0 savings. $50K in her 401(k), less than $10K in mine.
The house may sell for as much as $250K. I’m thinking more like $230-235K - fees and expenses = $210K. Pay off all the debt except the student loans, rent for $1300 a month, and start socking away $1K a month for a couple years, then buy again when the price of the house is back near $150K… walking in with a $30K down.
But….
What if the gubment opts for high inflation rather than letting home prices crash?? Of course, under report it by a few % so that wages, socail security, etc don’t keep up, but in general, just inflate away americans’ debts.
In that case, I’d be much better holding the house since I won’t be able to buy back cheaper later, whatever I save won’t be enough for 20% down, and I’d be buying later at much higher interest rate. I’d be better holding the debt, and just paying it off later with cheaper dollars.
ARG…… Just when I thought I was sure prices would crash, I remember my previous belief that the gubment has no choice but to inflate away the national debt and social security obligations.
What to do???????????????????????????
Darrell_in_PHX,
It may be the worst of all possible worlds I have expressed before…..massive inflation in the goods that keep us alive and the home fires burning (food, fuel, insurance like hospitalization, etc.) and massive deflation of the things we own or attempt to own like our homes, land, gadgets, vehicles…..
Inflationary-Deflationary Depression
Crapburner,
I agree with everything you just posted but Depression.
It will get ugly… but not Depression ugly.
Expect food, fuel, medical, and imported goods to go up in price.
But… expect services to drop in price. Interest rates to go up (but not to 11% for a 30yr prime mortgage… but higher than today).
This will continue to divide the haves and have nots. It will also move many haves into the have not category. (Realtors ™ meet online house searches… In fact, all brokers are going on-line.)
I’m predicting unemployment will get to 8% to 9% nationally (really ugly in Detroit, Florida, Pheonix, and a few other locations),
But someone somewhere is inventing something I just have to have… (HDTV, Wii, Ipod, high speed internet, etc.)
If nothing else, maybe we’ll get a government smart enough to throw a few hundred billion into infrastructure… sigh… probably too much to hope for.
Got popcorn?
Neil
Yes, it will get depression ugly.
Unemployment already ranges that high if you add in those not actively seeking jobs.
BTW, where is the government supposed to find even more money when their already borrowing 2 bills a day from foreigners???
“I’d be buying later at much higher interest rate. ”
When interest rates went down what happened to prices? I can’t see how prices will stay the same if rates keep going up. All the realtors like to say how expensive things will be but there’s no way. Especially if incomes don’t go up.
RE went up 77-79 just on inflation w rates flying
the turn costs 12% - that’s the nut
What were incomes doing then?
Incomes were stepping up smartly. I remember getting 10%-plus increases for a few years. Young then. Sure disappointed when all that stopped….
Your debt load doesn’t look too bad but I don’t know what your income is like.
Your 30K is at interest below market rates so if you sold the house your better off not paying that either. Same with the student loans. You take the house proceeds from the sale and put it into a CD at 5+ percent and it pays for itself. Short term CDs because the rate will probably go up.
Question is how are you doing servicing the debt?
You have 60K you should try to get rid of in that debt as well but I’d be hesitant about everything under 6% because you will probably get that from CDs soon.
Can you rent for less than 1300 cause that is close to your imputed rent value for the house?
I was living on the equiv. of about $45K. $70K, but $20K to ex and tax on $12K of that.. Okay, call it $46K. My fiancee was living on $30K.
Since Feb when I changed jobs and alimony ended, I’m at $75K - $12K child support and taxes on that. Finacee also changed jobs, recently, and jumped to $55K + $4K child support tax free. So, $130K - $8K and tax on the 8K, so call it the equiv of $120K, give or take.
We’re both now maxing out the 401(k) up to employeer max (.25 match for me upto 5%, 1 for 1 match for her at 4%).
I think we’re also WAY overwitholding with taxes. With both of us changing jobs and crud, we decided to just claim 0 until we had enough stubs to get an idea where we’d be. Then my payroll changed from 2 weeks to 2x a month…. need to re baseline again.
Anyway, need to sit down with the stubs, rough through the taxes, see how much to reduce witholding.
Short answer is that total debt, including house is only about 2 x annual gross. We have no problem making payments, and are actually overpaying on the higher interest rate stuff.
Huh?
Maybe I’m missing something, but Darrell and his fiancee will have an outstanding debt load of nearly $80,000 in unsecured short-term debt after the sale of their home.
Existing obligations leave them with the ability to “sock away” $1,000/month…a situation that means it would take nearly seven years of saving at this rate to pay off the debt. Your savings situation tells me that maybe this whole scenario needs some rethinking.
Looks to me like you might be better off with the cushion of equity and your fixed rate primary mortgage and just work on knocking down debt.
Just a thought!
Hardly sounds like a “not too bad” debt load based on income.
In that case, I’d be much better holding the house since I won’t be able to buy back cheaper later, whatever I save won’t be enough for 20% down
I disagree. Even if pretty much everything else inflates upwards from here, housing is unlikely to do so for a very long time –at least several years. Why? Because it’s already far too expensive compared to everything else (esp. wages and rents). It might stay fairly stagnant in (in nominal terms) in some areas, while the cost of everything else “catches up”, but revert to the mean (in real terms) it most certainly will. And with the cost of borrowing rising sharply as liquidity gets withdrawn, the total amount of debt your average mouth-breather can service will have to go down. Either way –nominal house price deflation or stagnant RE nominal prices coupled with non-RE inflation– housing will remain a very *bad* bet for some time to come.
Housing being flat while everything else inflates at 8-10% is what I’m worried about. I sell for $250K now to rent at $1300. Then I go to buy 3-4 years from now when rent has increased to $2500, houses are still $250K, and now I’m forced to get that $250K at 12% instead of 5%.
I guess the question is this. If we start to see the housing market TRUELY crash… Like 5-10% default rate, prices dropping 10-20% in a month, 4-5 million REOs, banks and prime processors folding one after another…. Would the govt. start the helicopter drops to stabalize housing, even if it casues 10% inflation?
If we’re looking at 10-20% drop in houses for the next 2-3 years.. then I want to sell.
If we’re looking at flat housing while everything else inflates at 10% per year for the next 5 years… then I want to hold to keep my very low fixed interest rate.
Damn. I need an economist with only one hand.
I see the former (housing price drop 40% over 3-4 years) as highly depressionary. Mass collapse of all markets, mass unemployment, breadlines, etc. and not fixing any of the probelms except the housing bubble. We’ll still have massive national debt, still have massive social security obligations we can’t pay, still have a huge chunk of dollars in Chinease hands, massive consumer debt, mass corporate debt from the recent M&A mania, etc. Not to mention the real risk of civil unrest, race wars, class wars, real blood in the streets and cities on fire stuff.
I see the latter (high inflation with flat house prices) as painful for the few with assets, but it fixes so many other problems. The national debt shrinks as % GDP (by deflating the assets of people that own bonds), consumer debt inflates away (by deflating the assets of stock holders and bond holders), Social Security obligations reduce as we lie about CPI and therefore give sub-standard COLAs, inflate away the value of the dollars held by China, etc. The “rich” (meaning anyone not in debt up to their eyeballs) get screwed, but they aren’t likely to burn, pillage, rape and murder.
As short-term run (5-6 years) of high inflation (10% or so) resets the playing field in a way a Greator Pedression does not.
Anyway…. A few months on this board and I changed my mind on what govt would do. I was convinced they’d do the inflation route, then you guys convinced me they’d take the “let house prices crash” path. Then I read this thread about the end of cheap money and I start to tripple guess my predictions. End of cheap money means Greator Depression and I just don’t see govt doing it. More cheap money to fire up the inflation machine, then keep the money cheap compared to inflation to keep the inflation going long enough to infalte away the problems….
1) Get rid of all your debt, it will only drag you down. Obviously, it is already causing confusion.
2) Why do you feel compelled to sell the house- to settle the debt? Consider the debt may have been caused by lifestyle choices, and the selling of a house may only exacerbate debt all over again.
3) Take anything you read on the internet- including stuff in this forum- with lots of grains of salt.
4) See #1. The more debt-free you are, the more free you are, and confusions like this will occur less and be of less dire consequence.
Here are the annualized inflation numbers and the mix they use:
http://www.clevelandfed.org/research/inflation/US-Inflation/mcpi.cfm
This is a list of the items that have an annual inflation above 3%, there are a few familiar items….:
Water and sewer and trash collection services 3.2
Rent of primary residence 3.4
Miscellaneous personal services 4.2
Jewelry and watches 4.5
Tobacco and smoking products 4.6
Personal care services 4.8
Medical care services 5.2
Education 5.4
Miscellaneous personal goods 5.9
Dairy and related products 6.4
Communication 8.5
Nonalcoholic beverages and beverage materials 10.9
Processed fruits and vegetables 13.5
Meats, poultry, fish, and eggs 15.9
Lodging away from home 21.2
Fuel oil and other fuels 24.5
Motor fuel 226.5
Darrell- i think your over analyzing your current situation. Step back for a minute and look at the facts: 1. An overabundance of housing inventory 2. A public that is in debt up to their eyeballs 3. Rising costs of living in the things we need not want. 4. A globalized economy which has put a cap on salaries and wages. Now ask yourself where your household income/debt stands against the average person in this country. From what you state, it sounds like your doing quite well as long as your job is secure. You have nothing to worry about by holding off on buying, it’s the fear of missing out that’s getting the better of you. Whenever you start to think about it just ask yourself how the rest of the majority in this country is going to be able to pull things off if you can’t. And the simple answer is they won’t. No worries mate.
Sorry, realize you already own but same response. If your afraid of selling because you think you won;t be able to buy back, where are all these people who can afford higher prices coming from??
Ronin,
My $30K debt came from a combination of divorce($5K marital debt, and $5K changing jobs, moving to and setting up in new location), legal fees from said divorce ($15K) and lifestyle while paying $20K a year to the ex.
Fiancee’s came from divorce, custody battle, medical bills, and yeah, lifestyle decisions while being a single mom putting herself through college earning a Masters. That degree resulted in a $20K a year raise.
Okay, we spent $5K on a trip to Italy after I won free first class airfare.
I really don’t think we’ll be those people that rush out and re-max out the credit cards. We drive cheap-ish vehicles that will be paid off in 6 months. We shop WalMart, and like it. Okay, maybe a few too many trips to Disneyland, but with annual passes and staying with family, it isn’t “that” expensive.
I’m fretting about it now, because we just listed the house. We LOVE the house, but want to be debt free and buy back later for less. In 2001, I rode the tech stock market to the basement. I don’t want to do the same with the house.
But then again, I don’t want to give up the historic low interest rate if the govt takes the high inflation route out of the deep arse hole we’re in!
Your in pretty good shape it seems.
Basically with the transactions cost of 6% both ways it makes it pretty tough to jump out and jump in that fast. You also have to factor in the cost of moving and probably losing 2600 in rental deposits.
You also going to put the money somewhere and find real price drops vs inflated price drops. The government dropping money from helicoptors is a nice idea but they probably will not. First hyperinflation is a dangerous game because if you wipe out China with that, they will sour on buying debt from us in the future. So, you will probably induce some deflation.
The other problem is a large number of people on fixed income will get crushed (and there are a lot of em, enough to sway an election easily).
Also people in the middle class will be severly marginalized by the inflation. If you could make it show up as income then fine. It doesn’t. So you destroy a large segment of the middle class and end up with more of a welfare state.
So, look for more of finesses situation with some inflation.
Try to build up more of a cash reserve to ride out tough times and contracted credit. Tough to pull money away from stocks with the excess liquidity but you have to do it.
Also tough to pass on lifes little extras. I gave up eating out, starbucks, travel (resorts… still hiking though).
Tough to get out of the debt these days. The Wife isn’t making it any easier.
we need inflation, and that means high interest rates.
You’ve got it ass-backwards guy. Ever heard of Paul Volcker? It’s low interest rates that are inflationary.
Why does the sale of your fiance’s home mean that your loan gets paid off? She should pay off her own student loan. Isn’t that more fair?
We’ll be marreid in a month, so her debt + my debts = our debts.
Student loan interest rate is the lowest, and is tax deductable (not that that makes a heap of difference… It is really about the interest rate).
Besides, the amount of money and hours of labor I have in this house is sizeable.
From the Marketwatch article:
“When it comes to loans entering the process, increases in California, Florida, Nevada and Arizona are to blame, he said.”
Keep in mind that 3 months ago these areas weren’t being hit as hard. The stories were all from Colorado and the rust belt. Now the tide has turned and it’s batter up for all 4 of the bubbliest markets.
Is this the point at which the “ugly” everyone keeps talking about begins??
The ugly starts in the fall and winter when the ARM resets really get rolling.
Ugly now, fugly in the fall.
I agree with Darrell…the real ramp up in ARM adjustments only started in May/June. The peak being toward the end of 2007. These failing borrowers will get ~60-90 days before they are actually foreclosed upon.
Fall/Winter when ARM resets really get going…Winter/Spring when foreclosures begin to peak…just in time for the 2008 spring sales rally, er, um, I mean slump…
O.C. unemployment rate steady at 3.5 percent in May
Financial activities, which includes the real estate and mortgage sectors, is the only group to lose jobs.
Orange County’s unemployment rate remained stable at 3.5 percent in May, the same as April, but slightly higher than the year ago rate of 3.2 percent in May 2006, the state’s Employment Development Department said today.
Over the past 12 months, county employers added 12,100 jobs, for growth of 0.8 percent, EDD said. That’s slower than the 2 percent growth reported for calendar-year 2006.
In May, the construction industry in Orange County added 2,000 jobs, while leisure and hospitality also grew by 2,000. Financial activities was the only major industry group to post a drop in May, with a loss of 200 jobs.
Over the past 12 months, financial activities, which includes the real estate and mortgage sectors, has lost 3,400 jobs in Orange County, a drop of 2.4 percent. Growing sectors include educational and health services, which added 6,600 jobs, and government, which grew by 3,200 in the past 12 months.
Orange County’s unemployment rate, at 3.5 percent, was the second lowest in the state in May, behind Marin County, where the rate was 3.3 percent.
The local unemployment rate, which is not seasonally adjusted, remains below the unadjusted rate for California, which is 4.9 percent, and for the nation, which is 4.3 percent, according to EDD.
gross 1/2 of health and 75% of ED is gov
Growing sectors include educational and health services, which added 6,600 jobs, and government, which grew by 3,200 in the past 12 months.
Rhetorical question:
“ARE MOST ECONOMISTS NAIVE?”
http://www.financialsense.com/fsu/editorials/iacono/2007/0615.html
Starts out with some Lereah bashing, but then comes this juicy bit:
“Alan Greenspan was arguably the country’s most powerful financial cop in his 18 years as chairman of the Federal Reserve. But Mr. Greenspan’s regulatory record has received far less scrutiny than his management of the economy.
That may be changing. A former colleague says Mr. Greenspan blocked a proposal to increase scrutiny of subprime lenders under the Fed’s broad authority. That added scrutiny might have helped curtail questionable lending practices now blamed for soaring defaults by mostly low-income borrowers. Democrats in Congress are now turning up the heat on regulators, especially the Fed, for failing to do more to stamp out those practices, and the Fed appears increasingly likely to overhaul its approach.
Edward Gramlich, who was Fed governor from 1997 to 2005, said he proposed to Mr. Greenspan in or around 2000, when predatory lending was a growing concern, that the Fed use its discretionary authority to send examiners into the offices of consumer-finance lenders that were units of Fed-regulated bank holding companies.
“I would have liked the Fed to be a leader” in cracking down on predatory lending, Mr. Gramlich, now a scholar at the Urban Institute, said in an interview this past week. Knowing it would be controversial with Mr. Greenspan, whose deregulatory philosophy is well known, Mr. Gramlich broached it to him personally rather than take it to the full board.
“He was opposed to it, so I didn’t really pursue it,” says Mr. Gramlich, a Democrat who was one of seven Fed governors.”
“‘It’s going to be tough,’ said Adam L. Stein, president of the Washington Association of Mortgage Brokers near Seattle. ‘I talk to people every day looking to get the fixed rate. You give them the current rate and they say, ‘That doesn’t do anything for me.’”
Duhhhhhhhh Adam. The only way they were able to buy the house with one of these dopey teaser ponzi. They can’t afford it with a normal fixed rate loan. Is this that difficlut to understand loan sharks.
“The foreclosure rate for subprime ARMs has gone from 5.1% to 10.1% in less than two years. The delinquency rate has soared from 10% to 15.75%. For prime ARM borrowers, the foreclosure rate has doubled from 0.8% to 1.6% in just one year. The delinquency rate for prime ARMs jumped from 1.5% a year ago to 2.4% this year.”
So the prime ARM borrower foreclosure rate shot up 100% YOY — the fastest rate of increase mentioned here? I thought the mortgage market’s problems were contained to subprime?
They also keep quoting the (low) total delinquency number, which includes people who have been in their houses for 10-20 years. Would be interesting to see a breakdown that showed the delinquency rates for buyers in the last 2 years.
“Economists said homeowners trying to refinance their adjustable-rate mortgages before they reset to higher levels are already feeling pinched. The national average for the 30-year fixed-rate mortgage jumped to 6.74 percent Thursday. At the beginning of the year, the average was 6.18 percent, according to Freddie Mac, a big buyer of mortgages.”
No way out for the FBs.
” sign anyone with a pulse .. ” Greattttt , just like the sharks who sell cars, the house builder reps are now reduced to watching out for ” ups “.
Amusing isn’t it? People are’nt customers anymore, they’ve been reduced to a herd mentality get-em-in & get-em-signed trade jargon tag.
And the car sellers (Towbin Dodge aka King of Cars) doesn’t have the least bit of shame about using that term. ‘Course look at the ghetto mentality of the show with all the emphasis on the bling, gotta gong to ring.
I would SHUDDER with fear if I had to face the prospect of entering a homebuilder model now. Just think of the target on yer back w.a license to kill issued from the CEO.
Free for all get- em now or hit the road jack/jack.
I would get everything EVRY word EVERY promise, get it ALL in writing with a min of weasel clauses with this sales environment.
boy howdy !
Can’t wait for the CEO to start tv ads saying ” IF YOU BUY A HOUSE FOR LESS I’LL EAT A BUG WHILE WALKING MY DOG SPOT”
“‘Our goal is close as many homes as we can in this fiscal year,’ said Don Tomnitz, CEO of D.R. Horton Inc., the largest U.S. home builder. He tells his sales force that ‘If the buyer’s got a pulse, and they’re warm, take them out of the market place’ by getting them to sign a contract.”
Happiness is a warm pulse
Happiness is a warm pulse, says Tomnitz
When I hold that contract in my hands
And I feel your finger sign on the dotted line
I know nobody else can bury you, in an unwanted home
Because happiness is a warm pulse, says Tomnitz
Happiness is a warm pulse
-Yes it is.
Happiness is a warm, yes it is…
Pulse
Borrowers had a window of opportunity to lock in fixed rates never seen before and sit back comfortably and watch their loan become cheaper and cheaper as inflation ate away the value of their debt. Instead, they went apesh!t and buried themselves in adjustable-rate debt. Now it’s time to pay the piper.
As this transpires, I feel so blessed to have locked in a reasonable 30-year mortgage at a ridiculous 6% rate. I doubt we’ll see that rates that low again in my lifetime.
Let me rephrase that. I feel fortunate, not blessed. I don’t think God bestows mortgages (good or bad) on anyone.
I’d differ on the “inflation eating away their debt”. I think that was historically true, when wages and salaries inflated along with prices, but in our New World Order, when salaries are eroded away by COL inflation and aren’t rising (unless you’re part of the financial economy), inflation won’t come to the rescue of the indebted.
So– We missed the post-quake, post-riot buy window and will have to hope to hang onto our rental house in Mar Vista for the rest of our lives?
Is that today’s upshot?
““In the morning, representatives from mortgage companies and an association of mortgage brokers parried, mostly in good humor. The opposing sides appeared to agree that the mortgage industry got carried away………”
The conversation probably went something like this:
“hey remember all those billions of funded stated income loans back in 05….hahaha…man those were the times…yeah maybe a few of em were exaggerated, whooopss….my bad”
I bet they parried in good humor the way opposing lawyers do in court before the proceedings officially start.
Baffled me during my first few court appearances until I realized it was actually a type of gentlemen’s club, instead of sworn enemies battling it out over major issues as TV tries to portray.
That’s pretty much the mindset of the money class: it’s us against the peasants and although we may disagree we better stick together to keep making our money.
( true story; my last name is the same as a Superior Court judge in Hillsborough County, FL … . so any minor infraction, ticket, etc. results in the State Attorney trying make an example of me ,… one court appearance I arrived early in a modest sport court & sat up front, and as the attorneys arrived with all the usual backslapping & flesh pressing one female mistook me for a J.D. and leaned over to whisper ” here comes all the unwashed masses “.
Her snotty remark was swallowed in suprise later … when MY case was called as Me as the defendent.
Look of egg-on-her-face; priceless !
I’m reminded of the looney toons cartoon with the sheep dog and the wolf walking up to the time clock with lunch pail in hand, “morning, morning, how you? good, you? fine.”, clocking in, then setting to work trying to protect/get a sheep. Then the whistle blows… sit and have lunch together… whistle blows again and they are enemy again… end of day whistle blows, clock out, see you tomorrow, yep, see you tomorrow.
Oh the lawyers are happy to generate billable hours in court. They are happy to be there.
Plantiffs not so much