What Do You Want/Expect Out Of This Housing Downturn?
Readers suggested a topic on what might be desireable effects of a housing correction. “I’d like to know what people want/expect out of this housing downturn. For example, in addition to a house at 2.5x income, I’d like to own a few multi-family properties to hold long term as a cash flow investment. So, I’d like to see enough lopped off of prices such that most people think RE is a bad investment and multi-family properties stop being seen as potential condo conversions and become income producing again.”
“I also realize for that to happen, it seems that this country would most likely fall into a very ugly recession if not depression.”
“Is it possible to ask for 30%-50% off of peak without bringing about economic depression?” One replied, “I think housing and incomes ‘have’ to come back in line, and I don’t think that this necessarily results in a despression.”
“Credit is already tightening up, and the disengagement between incomes and housing prices can only exist as long as there are lenders out there willing to overlook such an obvious risk factor.”
“It is worrying how deeply Wall Street has tied itself to sketchy mortgage practices, but in many ways it’s no different than how deeply they got involved with dot coms that didn’t even have a clue how to earn a profit. And we survived that.”
“Also, remember that a large majority of homeowners bought pre-2000 and are not HELOC’ed, and so are not directly affected by such a price reduction.” Another had this,
“Add together new and existing home sales for the 7 1/2 years since 1/1/01 and you get over 50 million dwellings changing hands. Obviously there’s double (and triple etc.) counting in there, but add in HELOC’s and I reckon that majority might not be as large as you think.”
From MarketWatch. “Sales of North American-built vehicles sank to the second lowest level in 14 years in June. Light truck sales continued to fall, hitting the lowest level since October 2005.”
“General Motors Corp. posted a 21.3% plunge in June U.S. light vehicle sales. ‘As we look at the results coming in, the performance is capping off a second quarter for the industry that I think can best be described as a bit underperforming,’ Paul Ballew, GM’s top sales analyst, said in a conference call. ‘We’re dealing with the twofold impact of gas prices and the housing correction that is occurring in a couple of key states.’”
The Associated Press. “Late payments on home equity loans climbed to a 1 1/2-year high in the opening quarter of this year, while delinquencies on credit card bills fell, painting a mixed picture of how people are managing their debt.”
“‘There are still signs of consumer financial distress, which will continue throughout most of this year as the worst of the housing problem works its way through the economy,’ said James Chessen, the American Bankers Association’s chief economist.”
“On a brighter note, late payments on credit card bills dropped in the first quarter to 4.41 percent. That was down from 4.56 percent in the fourth quarter and was the best showing in nearly a year.”
“‘The improvement in credit card late payments is somewhat remarkable, given that the economy was not operating on all cylinders,’ Chessen said.”
The LA Times. “Credit counselors said consumers were paying the price for reckless attitudes about debt fostered by years of easy credit, particularly in the mortgage market.”
“‘It’s a monster we all created,’ said Todd Emerson, president of a nonprofit consumer credit management organization in Riverside.”
“During the housing boom, home equity loans gave many consumers a ready source of cash as the value of their property shot up. But with prices declining, quite sharply in San Diego and some other California regions, borrowers have less equity available to cash out by selling their houses or refinancing their home equity loans.”
“As a result, late payments on such loans rose to 2.15% in the first quarter, up from 1.94% a year earlier and the highest in nearly two years. On home equity lines of credit, the delinquency rate was 0.6%, the highest since mid-2003.”
“Emerson said the bankers’ report reflected a scary trend: Ten or 15 years ago, consumers made regular mortgage payments at all costs so as not to lose their homes.”
“‘People today, in order to keep themselves alive, they’re paying off their credit cards first rather than paying off their mortgages first in order to keep an open line of credit,’ said.”
“Many of those homeowners bought expensive properties with a ‘figure it out when they get there’ mentality, Emerson said. ‘Trouble is,’ he said, ‘they never figure it out.’”
The New York Times. “The wonderful world of leverage has lifted homeownership to near-record levels, and we thump our chests with pride at the prosperity and middle-class life that possessing a home implies. Hovering in the background, however, is a glaring statistic: Never before have homeowners actually had such a small ownership stake in the houses they occupy.”
“The reason is debt. Home prices have gone up a lot, but borrowing against homes has gone up even more in almost all of the last 20 years. ‘Owners’ equity,’ as the Federal Reserve calls the difference, is gradually eroding — a detail that millions of families ignore, focusing instead, perversely, on the rising dollar value of their homes.”
“When they sell, most still pocket a tidy sum after paying off their loans. But millions of middle-income families don’t sell; they take out another loan, which they often spend, surveys show. And then, as the margin of potential profit — a k a owners’ equity — shrinks.”
“At the end of the first quarter, the nation’s homeowners owned, free of debt, only 52.7 percent of their dwellings, down from 54.1 percent a year earlier and 57.5 percent at the start of the century. The decline occurred even though owners’ equity, measured in dollars, rose by an astonishing $4.3 trillion since 2000. Unfortunately, mortgage debt rose by $5 trillion.”
“‘Basically people are gradually consuming their capital,’ said Edward N. Wolff, an economist at New York University who studies household wealth. ‘It makes the middle class in particular more vulnerable. Their homes are still their biggest saving, and that is the bottom line.’”
“Even now, the illusion of rising equity obscures its erosion. For a family with a $50,000 mortgage and a house valued at $100,000, for example, the owner’s equity is 50 percent. Two years pass. The family borrows an additional $60,000, raising debt secured by the house to $110,000. The expected selling price, however, has risen to $200,000.”
“Home prices, however, must continue to climb for this merry process to continue. Indeed, millions of homeowners seem confident that they will do exactly that over the long run, despite the drop in recent months.”
“The tax code has played its own special role in all of this. Congress changed the law in 1986, allowing individuals to deduct on their tax returns only those interest payments on loans tied to housing. Interest on other loans no longer qualified. With that big change, borrowing against one’s home to buy a car or an appliance or clothing or a vacation became cheaper, after taxes, than standard consumer credit.”
“‘What surprises me,’ said Lee Price, chief economist for the House Appropriations Committee, ‘is that more people haven’t mortgaged higher percentages of their equity.’”
“The culture of ‘own your home free of debt as soon as possible’ had endured for decades. Through the 1960s and ’70s, owners’ equity ranged from 65 to 70 percent. As recently as 1983, some 52 percent of American homeowners who were 55 to 65 years old owned their homes without any mortgage debt. By 2004, however, that percentage had dropped to 36 percent, according to Federal Reserve data.”
“The first sharp decline in owners’ equity, nearly three percentage points, came in 1990 as home prices dropped while borrowing held strong. The decline then continued, despite the housing boom, although at a slower pace, a fraction of a percentage point annually during most years. And then last year, another steep drop in equity kicked in, as home prices weakened but owners kept up their borrowing.”
“‘You might end up without enough pension income to pay off your mortgage, or enough equity to draw on if health costs get out of hand,’ said Conrad Egan, president of the National Housing Conference. ‘But people seem to be saying, ‘O.K., I’m willing to live in that kind of environment.’”
“[Wall Street] got involved with dot coms that didn’t even have a clue how to earn a profit. And we survived that.”
Thanks housing bubble ;)… next bubble will be?
Government sponsored enterprises backed by the “full faith” of the government.
You already have a government agency backed by full faith and credit, FHA/GNMA. And if you want to see the Congress in action, check out last week’s hearing on FHA and the non-profit downpayment assistance outfits that the IRS has labeled ’scams.’ Bipartisan support for the scams. You can read the prepared testimony faster than you can listen, so I’d fast forward to the places where Congresscritters are asking questions. Keep the airsickness bags at the ready. I’d especially advise reading the prepared testimony of Nehemiah’s Scott Syphax, who maintains that prohibiting FHA from insuring mortgages without downpayments is tantamount to slavery.
http://www.house.gov/apps/list/hearing/financialsvcs_dem/ht062207.shtml
FHA/GNMA, although there is belief that they are so backed, are NOT backed by the “full faith” of the government.
“Most agency and GSE debt is not backed by the “full faith and credit” of the federal government, but investors generally treat the securities as if they had negligible credit risk. The markets believe the federal government would prevent an agency or GSE from defaulting on its debt because of its role in promoting public policy and because of the shear size of the largest of the agencies. As a result, agency securities have an “implicit guarantee” and trade in a narrow spread to Treasuries. (Their yields are usually slightly higher than Treasuries with comparable maturities but move in similar patterns.) However, both the agencies themselves and the federal government continually emphasize that there is no legal obligation for the federal government to support the debt of the agencies in the event of an insolvency or default….”
and
from the FDIC
“…These benefits do not extend to a guarantee of GSE issues. The offering documents for each security that Fannie Mae and Freddie Mac issue clearly state their securities do not constitute debt of the United States and are not guaranteed by the federal government. ….”
http://www.ginniemae.gov/about/about.asp?subTitle=About
Ginnie Mae securities are the only MBS to carry the full faith and credit guaranty of the United States government, which means that even in difficult times an investment in Ginnie Mae MBS is one of the safest an investor can make.
So I guess they are printing falsehoods on all their securities, if Hoz is right?
My Link from FDIC:
An Update on Emerging Issues in Banking
Assessing the Banking Industry’s Exposure to an Implicit Government Guarantee of GSEs
My link is 2004.
http://tinyurl.com/2nrd8y
Your link is fascinating. And from your link “Ginnie Mae MBS are created when eligible mortgage loans (those insured or guaranteed by FHA, the VA, RHS or PIH)”.
As I read this the only ones guaranteed are those with government mortgage insurance. This makes sense. as I previously posted “Most agency and GSE debt is not backed by the “full faith and credit” of the federal government”.
My belief is not in housing GSEs, but I expect nationalization for the “greater good” in strategic areas. Metals, oils, energy etc. that are subsequently sold in the US stock markets with majority ownership under government control. This is the type of GSE I expect.
I believe that FHA is a insured loan rather than backed by the US government . The FHA /PMI insurance will pay any lender on a default on a low down loan I believe . The insurance is paid for by the borrower . Someone please correct me if I’m wrong .
What distinction are you trying to draw between “backed” and “insured”? If the borrower stops paying the loan, the government pays it instead. How is that anything other than “backed” by the government?
The government doesn’t pay it but rather they have a big wad of money from the insurance pool that it comes out of when there is a default .
There is a wad of money that comes from insurance proceeds, but if that wad of money proves insufficient the govt. has to pay anyway.
seminars and franchises for collection services
Now the realtors/mortgage lenders and fired hedge fund managers can attend and learn how to “help” homeowners in debt for fees/bonus of course for the top performers as they all must continue their high life styles.
Lipstick? For the all the Wall Street pigs…
Yuh, so I have a friend who bought in Beaumont, California last year near the top. Now he got a job in the San Francisco area and has to move.
Problem is, he can’t sell without coughing up 30 to 40 thousand dollars to pay off his mortgage because according to the realtor, the house will sell for 30 to 40 thousand less than his original purchase price.
Last year he was taking out Home Equity Loans, “Free Money” he called it.
I’m just sayin’ is all.
What solutions are there to this dilemma? I’m actually trying to help.
“What solutions are there to this dilemma?”
it’s not a dilemma .. it’s called paying the piper.
hopefully a lesson will be learned and the mistake will not be repeated. This alone could easily “save” that person millions in the future, not just a piddly 40K.
as far as I were concerned, while helping and getting involved, I’d be very careful to avoid taking on that person’s burden.
He is screwed, no way around it.Bring the money to the closeing table or could he rent it?. I seriously doubt he could rent it and even come close to his payment but not sure what he put down.
Maybe his new company will buy it from him if he’s a valuable employee? I have no magic formula.I he wants out of the house then he must sell it at current market value.If he does not want to carry it for a long time better price it below all the comps.Not 1000 below but at least 5% below. Welcome your friend to the FB club.
Beaumont is in SERIOUS trouble.
He should get out now and swallow the 40K. If he tries to wait it out, he could lose money on the rental, then throw in the towel in 3 years and lose 100K.
Tell him to rent when he moves. He should NOT buy a house for a few years while the bubble makes its way out. He will lose at least $40k and let it be a lesson NOT to buy at the peak of the bubble!
I GUARANTEE HE WILL BUY A HOUSE IN FRISCO TOO…….
Then get fired because he is not making enough $$$ then BK and a divorce.
And he gets a job offer by being a Moron….and I’m still out of work
You should spend less time on this message board, then.
This economy’s running on fumes (the hard won fruits of prior generations’ labor) - and the folks running it are sniffing those fumes all the way down. What better way to respect the legacy of our elders than to fritter away all that equity in this historic and ongoing transfer of wealth?
What gets me is the total lack of concern about future generations.
It’s the ME NOW culture propagated by the reality TV and MTV garbage. It’s all about hype and flash instead of substance. Just look at the iPhone and iPod craze. People pay ridiculous prices for chinese made junk just so they can be cool. People drive around in flashy cars trying to look important with their credit cards maxed out. Everybody wants to live like royalty. Our society is so fake that it needs to good recession or depression to wake people up. With this generation, people might curl up in a fetal position and cry instead of rolling up their sleeves
TV didn’t start it … it was the generation who lived through the depression and the war who spoiled their children because they didn’t want them to suffer the way they did.
The boomers are narcissists as a result. As narcissists, they made even worse parents because they couldn’t discipline their children or set boundaries. Instead of the whole village raising the child, the parents refuse to believe their precious offspring does anything wrong, while non-parents either do their best to ignore (to keep away from the parents) or treat kids like little prisoners and they’re the wardens. So now ordinary things kids do become grounds for criminal proceedings in the schools.
It all started with good intentions, but it’s ending badly.
You must also be a teacher - you definitely speak the truth about today’s children AND parents.
Our key with our son, was to give him ways he could earn money for things he wanted, rather than a paltry allowance, then buying hime whatever he wanted. This way he feels empowered to make a difference, but there is a price to be paid at the same time. It used to be - you have a credit card …
I have to disagree. This spending and splurging craze didn’t start until the late 1990’s. I don’t remember people taking out HELOCs and MEWs en masse before that time. You didn’t see all the middle class people driving BMW’s and taking exotic vacations in the early 1990’s. When I grew up in the 1980’s I was helping out at my mom’s business when I was 12 years old. When I was 15 I was unloading trucks during the summer. Do you think teens would be doing that today? Kids used to take summer jobs not too long ago to save up money and buy their first car. These days they get mommy and daddy to buy them a Mustang or SUV.
you are correct - I really think this started hitting with the kids born in the mid 80s. They are all “gifted”, they are all completely spoiled and ill-behaved. Grade inflation, esteem inflation, greedy little pigs.
Not all, but way too many of that generation. It isn’t their fault. It is their negligent, indulgent parents and the too PC environment in the schools. Bring back the paddle.
Did you see that little twirp of algore’s, driving 100mph and smoking some mary jane.Oh woe is me. Here I was hoping that we could get him again in ‘08. But he says he will save the subprime idiots by raising our taxes. Pass me the beer, the fire works are over. Happy 4th to all.
Here in Virginia Beach, in the summer the businesses get labor from out of the country. The foreign guest labor probably doesn’t complain when asked to work extra hours unpaid.
I was talking to a coworker about this the other day. I wonder if maybe the “everybody’s middle-class” white collar knowledge/office work that took over after Vietnam had anything to do with it. When my grandpa came home from the GM plant, he smelled like oil and solvent and looked completely bushed.
I understood the connection between his nice house and six children and hard-effing-work. I wonder if kids who grow up seeing their parents go to an office everyday develop a disconnect from the idea that things have to be *earned*. After all, from the outside, most office jobs look pretty cush.
*Disclaimer: I have an knowledge industry job which I assume looks easy even though it busts my ass most everyday.
Good thing I don’t care for anything flashy. My idea of splurging is spending $11 for a pound of lox(smoked salmon) or buying a Yankee candle for 50% off(well worth it and the enjoyment/relaxation I get) I don’t even own a car and when I buy one, im looking to spend around $2000 for an old Toyota, those brands are very reliable. I am cheap by nature. Even on a house, I prefer to spend only around $50k for one.
Has there ever been a generation that didn’t think their kids were spoiled?
This country is in a peck of trouble economically. The house of cards is about to fall.
16 pints of trouble? Reminds me of:
He who goes forth with a fifth on the Fourth will not go forth on the fifth.
What do I expect?
I expect housing prices in the states of Florida, Arizona and Nevada to return to levels where middle income people will be able to have a mortgage on a 1500 square foot home that is 25% of their monthly income. This will take a year to happen.
I expect home prices to drop to their 2001 levels in California. However, even after that drop home prices will be out of reach of middle income persons in the desirable coastal areas of Cali, which is where the jobs are located. Areas such as Stockton and Riverside may be affordable, but they are hours away from the job centers in Orange County, Century City, Silicon Valley and the like.
I expect the California economy to shrink because of unaffordable housing. I expect the economies of Texas, Arizona and Florida to grow because middle income people will be able to purchase homes that cost 25% of their monthly income and are close to job centers.
This may happen, but not until 2009 or 2010. Prices would have to fall 40 - 50% in a few months. That would mean lots of houses changed hands and that will not happen. The spring selling season came and went with a whimper. Real estate sales will continue to slow the rest of the year. Interest rates will also probably rise as well making more and more houses at of reach for many buyers.
when prices drop people walk, the homes will NOT change hands they will sit there for month vacant.
been here seen this happen before.
Just out of curiosity (not trying to be argumentative), but have housing costs in “desireable” areas not always been high compared to income? High housing prices keep these areas from becoming even more overcrowded.
If housing costs compared to income were not lower in “less desireable” areas, how would you ever entice people to move there? In many cases, there are only jobs there because of massive state government subsidies, which the states “need” because otherwise they couldn’t get anyone to move there. (Intel, operating its high-water usage factories in New Mexico and Arizona, is a perfect example of this.)
The ratio of price to income does not determine who will or can live in a particular neighborhood.. income does.
All other things being equal, high income people can afford more house.. low income people, less so.
“And then last year, another steep drop in equity kicked in, as home prices weakened but owners kept up their borrowing.”
I think one good outcome of this bust will be a hard, honest look at debt. Debt is not wealth. “Liberating your equity” is nothing more than a bank slogan… they earn fees and interest on someone’s lack of financial self-control.
I can only hope that lending standards tighten to where they were even 10 years ago. Have at least 10% saved for a downpayment. No credit card debt. Ideally no car payment. 6 months cash in the bank.
I think a return to 2.5x gross income would mean that anyone who bought after 2000 is probably f***********. But if a good percentage of those folks walk, they’ll have a seven year credit bomb, but they’ll get to walk. Lesson learned.
I keep thinking about the Dot.com crash. All those reasons we thought it could never happen. But the market crashed nonetheless and some of those stocks have never recovered. Why would anyone think housing would be different?
At least with the dot-com mania, there was the potential that some good may have come out of it. After all, when easy money is turned into massive infusion of capital into a relatively new field, there is the chance that some of it will generate some really revolutionary products.
That being said, I don’t see any such product for the housing mania. Houses are still houses, not much different from the houses of 50 years ago.
“they’ll have a seven year credit bomb”
It takes 10 years for charge off and other negative information to be purged from your credit report.
I believe 7.5 years on charge-off’s, but 10 years on bankruptcy, tax issues and … Judgments that remain unpaid can be renewed indefinitely, so possibly forever if not paid. I believe the typical FB will end up with a default judgment and a bill from the IRS. The IRS will quickly file a lien, so pretty much a default judgment, foreclosure and most likely a state and federal tax lien … I am not sure what the deal is as far as discharging debt in bankruptcy where fraud is a major player. Bad news for stuipid speculators for sure.
Interesting issue that we’re starting to see in BK. BK trustees are looking at loan docs and asking debtors why they said on their loan apps that their income was $10k per month but their “penalty of perjury” bankruptcy case says $2700/mo. Fortunately these generally are unsophisticated clients who honestly testify that the mortgage broker filled out the loan app and they just signed. Easy to pile on the borowers but many of you have never purchased property. There is a STACK of docs to sign with legal jibberish in them and the notary is trying to rush you through the signing. Often times no one is there from the mortgage company. Just you and the Notary who knows nothing and wants to get home to her kids and/or bottle of JD.
If you file a BK then no tax implications/ personal liability or walking away from the mortgages.
I have been through 4 recessions in my life. It would seem like they did not start with a housing slow down, but by the time things started getting worse housing and auto sales were way down. Many say that the current economy is just fine. This does not seem to be the case however if you look at the national housing picture and the recent auto sales data. Also with record levels of debt at the consumer level the economy cannot stay strong for long. With the stock bubble of 2000, the housing bubble of 2006, and the stock bubble of 2007 fresh in peoples minds I believe that America has some pain ahead, but after that much better days.
When the average man on the street finds out how the Wall Street pro’s started this whole economic downturn he will lose trust in them. This will cause a slow down in stock sales. Hopefully CEO’s will start getting pay raises based on performance. People will no longer want to be in debt and savings will be the new measure of wealth for eveyone. I believe that if we all pull together to solve the problems we can do it.
‘I believe that America has some pain ahead, but after that much better days.’
I agree. What is somewhat shocking is the way the media portrays economic cycles and events like recessions. Recessions (typically) are the natural way that an economy purges malinvestments. So IMO to the extent that is what is going on, it’s constructive. After all, malinvestments are the root problem and an economy performs much better without them.
If the media wants to abhor something, why not the forces that create malinvestments?
It’s because people lose their jobs. Media attitudes are very visceral.
For example, I don’t see what a big deal it is when gas prices are high. I was ticked when they dropped in the early 90’s, actually, because I knew that meant they’d stop making fuel-efficient cars, and I wanted one, dammit. However, media coverage makes it seem like high gas prices are worth guillotining over.
It’s all visceral and geared towards the monthly payment consumer. Of course the pain of the recession is directly proportional to the deregulation, fraud, and belt-loosening of all sorts in the boom, but during the boom, hey, everyone has a job, everyone has money, we all scream for ice cream. Life is good!
One of the most fundamental problems with society these days is that everybody wants the gain but nobody wants the pain. It is shocking the extent to which people have become brainwashed into thinking that living beyond their means is alright and is nothing to worry about. To make matters worse a lot of people also believe that they bear no responsibility for their actions and that when the chickens come home to roost others must be held to account. IMO what is happening is what I would call an erosion of moral values and it does not surprise me one bit that it has become worse with the debasement of the US dollar by successive governments since the abolition of the gold standard in 1972. Same thing happened when the Roman emperors debased their coins and weakened their society so much that the Huns literally walked in.
One of the most fundamental problems with society these days is that everybody wants the gain but nobody wants the pain. It is shocking the extent to which people have become brainwashed into thinking that living beyond their means is alright and is nothing to worry about. To make matters worse a lot of people also believe that they bear no responsibility for their actions and that when the chickens come home to roost others must be held to account. IMO what is happening is what I would call an erosion of moral values and it does not surprise me one bit that it has become worse with the debasement of the US dollar by successive governments since the abolition of the gold standard in 1972. Same thing happened when the Roman emperors debased their coins and weakened their society so much that the Huns literally walked in.
One of the most fundamental problems with society these days is that everybody wants the gain but nobody wants the pain. It is shocking the extent to which people have become brainwashed into thinking that living beyond their means is alright and is nothing to worry about. To make matters worse a lot of people also believe that they bear no responsibility for their actions and that when the chickens come home to roost others must be held to account. IMO what is happening is what I would call an erosion of moral values and it does not surprise me one bit that it has become worse with the debasement of the US dollar by successive governments since the abolition of the gold standard in 1972. Same thing happened when the Roman emperors debased their coins and weakened their society so much that the Huns literally walked in.
Sorry for the triple post. It was due to keyboard problems or perhaps a subconscious indication of how strongly I feel about the issue.
That’s ok. I thought it was an technical echo.
well, it is worth saying 3 times… I have said it here before. We need to take a look at the Roman empire in the last days. Lots of similarities and it would not hurt us if we try to learn from, not repeat, historical mistakes
Romans placated their discontent citizens/poor with “bread and circuses”.
Today, US placates their discontent citizens/poor in the same way.
Today’s Bread = .99 cent menu at any fast food joint. Extremely cheap, readily available.
Today’s Games = NFL, MLB, NBA, video games, Hollywood personality worship, latest techo-gizmo. You name it. Our society is drowning with entertainment options.
Ben I agree. I don’t believe the apocalyptic forecasts. It might feel like the end of the world for some(specu-vestors, realturds) and many will get a desperately needed edukation in economics 101(those who didn’t live through the 70’s and don’t see the economic benefits of high interest rates).
The economy is still afloat because some of the money from the housing bubble is still around and hasn’t been totally spent.Give it more time and people will slowly run out of funny money.
You’re misreading Ben’s post, exeter. He’s not saying that it won’t be pretty bad, only that afterward it’ll be much better for it.
Here’s my big worry. While the great deleveraging could improve things eventually, population trends may cause things to unfold to the contrary - consider that there are a huge number of boomers scheduled to retire over the next 5-10 years. If the economy goes into the crapper during this period, or even if employment remains above water but the biggest retiree investments (real estate, stock market) get hammered, what will be done about it? I can easily foresee a selfish boomer generation taxing the productivity right out of Generations X and Y to pay for retirement medical (Medicare et al), cash payments (social security), and other benefits… am I crazy to think this may be in the cards?
it’s not the end of the world; however, I am neither a specuvestor nor a realturd but I am not going to like a deep recession or depression. Almost all boats sink with that tide in some way - even those of smart people. Hopefully the pain is sharp and swift - and directed mainly twds the culprits. Then the humbled masses may see Jesus and get a clue.
““At the end of the first quarter, the nation’s homeowners owned, free of debt, only 52.7 percent of their dwellings, down from 54.1 percent a year earlier and 57.5 percent at the start of the century.”
This is an aggregated percentage that includes that admittedly shrinking number of retirees who own their homes outright. I’d be interested to see a breakdown of those who hold a mortgage, what’s the average LTV?
In 1990, the average equity in homes was 60 percent, This plots pretty well (too lazy to look up intervening years)
so 1990: 60%, 2000: 57.5%, 2006: 54.1%, 2007: 52.7% 2010: 40% ?
Possible; however, if overall ownership drops (due to foreclosures, walk-aways, what have you) that number could fall slower or even rise.
What do I expect?
The blame game will get turned up to 11, (homage to ‘Tap) and we’ll start with the easiest to blame. The immigrant that speaks little of our language is the obvious plum, as bullies always pick on the weakest link.
Financially?
It craters from the top on down. Remember the words “Arthur Anderson” and how it used to command instant respect, in matters arithmetic?
Expect the same downfall from every last one of the Korporate Big Money Brobdingnagians and expect mayhem financially, as the general populace realizes that everything that used to be, is just that, and of no use, in our brave new world…
What do I expect? Great time to list the ills. First an unemployment rise before fall. Mass foreclosures because of this, failing banks, falling stock market if not an outright crash, devalued dollar worth less than 25% than now, many people homeless and unemployed. Shortages of food, fuel, supplies, medical care, and generally a collapse of society. Later on a “new currency to replace the dollar, welcome to the Amero” the attempt of business to integrate Mexico, Canada, and US in a north american union. Falling revenues for all government departments, pensions disavowed or declined. INcome loss on a grand scale and lots and lots of people getting to enjoy the benefits of a third world economy. Many americans that think they are seperate from their poorer neighbors rediscovering that they actually know how to live on less than 5K a month. Just lots of fun and that is before we get any natural disaster thrown on top. It looks like lots of funds, the derivative implosion is pending and when that starts it will be party time for sure.
Most of South America already uses the US dollar! I do like the idea of an America’s currency, but I believe we will keep the name of the dollar - after all thats what Canada calls their currency.
I’m an American, but I grew up on the border and I have great respect and affection for Canada and Canadians and all the ways they differ from the US–and I hope they continue to distance themselves from the US. Just because we are afflicted with a parasite called Mexico, is no reason for them to share the same fate. Civilization survives north of the border.
I am Canadian and from what i see up here i believe that there is no way that Canada will join in any Amero Currency scheme regardless of anything. Nonetheless Canada’s trade with your country is immense so the fall out of the contraction in credit and the real estate unwind likely will be very material to it’s prosperity. BTW, Canada has it’s own bloated credit markets and real estate bubbles and i would expect it to get creamed in due course in it’s own right. We definitely have the same society of instant gratification, unaccountability everywhere and almost total economic and social illiteracy. May be because of it’s size one may be able to survive in a safer mode, but who knows any more.
The only thing I expect is that there will be change, and it probably won’t be in the pocket of the Middle Class.
Is it ever?
Want:
To buy a sfh (that actually I like) in coastal California, and can pay off in
[got cut off]
…less than 30 years.
Expect:
People’s attitudes have changed about debt, so I’ll always have to compete with people willing to take on more debt than I am comfortable with (even after the downturn, that is…)
I expect lots of kooky predictions about The End Of The World As We Know It.
George -
You should know to take those with a grain of salt. They make it entertaining around here, at the very least.
Somewhere in all the most dire predictions are the nuggets of truth about the future. If you’ve been paying attention here long enough, you know what I mean by that.
Also - see my rational expectation below re: urban coastal California.
Yeah, we all know empires last forever right?
yeah - we all know lots of Ottomans, right?!
It will be the end of this credit bubble as we know it.
I expect to see a Hummer Hybrid, 2% FFR and a giant government bailout. And I don’t expect too much fuss.
The world ends with a whimper, as we all know.
Despite what the most bearish observers say, I do not expect many areas of urban coastal California will see median house prices returning to 4x of median household income.
Since many of these places are at 8x to 10x presently, I suppose 5x to 6x might be doable, or whatever is a respectable “houseownership premium” over the costs of renting.
Of course, this assumes a “normal” course of events over the coming years, which I suppose presumes no spectacular helicopter drops by the Fed, no wars, no quakes, etc.
Bring on the apocalypse, so I can snatch me up one of them easily defensible homes in Laurel Canyon!
*I kid*
*Well, mostly. Sorta*
Laurel Canyon? You must be a hippie. Last time that place was ‘desirable’, Jim Morrison lived there. Traffic so clogged, the exhaust is visible like a fireplace with a closed flue during most of the day. Also, if you are in the canyon - say Wonderland area, the sun SETS by 3pm. Mudslides, gushing, flooding water near the country store - and brush fires are common. Hopefully, I have talked you out of that folly.
You are welcome!
I guess I’m pretty bearish, but I can think of lots of marginal areas of SD county at the coast (e.g., Imperial Beach, parts of Oceanside and OB) which I bet will get back to less than 4 X before the end of this decade. Don’t know about SF and LA areas, but I’m thinking there must be some in Ventura County which could also get relatively cheap.
Actually, they will go there. People don’t really understand just how far down this has to go just to get back to fundamental values.
When the monthly cash costs of buying a house, full PITI, with a 30yr fixed rate fully amortizing mortgage, are significantly (at least 10%) below the rent for the same house, there will be natural buyers, either homeowners or investment buyers.
This might seem ridiculous but I remember when that was the case in New York City in the early 1990s. A friend of mine had his Gramercy studio on the market for over a year at $50,000 with no takers.
If it happened in New York — and a friend of mine was buying apartments in central London at the same time at a 13% cap rate — then it will happen again.
Consider that interest rates might be in the 8% range by that time.
Are there any numbers on how many former homeowners have just left the market? That is, how many got out in time, with cash, and are no longer counted either as debtors or as free-and-clear homeowners, but are renting simply because it’s their best option?
If this number is significant, wouldn’t that offset some of the debt burden borne by others, if one is trying to gauge the general health of the economy? (I don’t know, I’m asking)
That’s an interesting question.
There are more than a few posters here who did exactly that and are holding out as renters for the time being.
However, looking at the general population, I would expect their number to be very, very small.
The Lefantomes are doing this at age 50, and if the numbers aren’t small, it wouldn’t have made much sense.
Good point. I did the same and can say that I’m the only one within my circle of friends/co-workers that rents. Even the 23 year old office assistant “owns” a house.
I’m also over 50, sold my condo 18 months ago, paid off my debt and am renting until sanity returns. Yes, I do get a lot of strange looks, but it’s quite satisfying at times to explain that I’m renting a place twice as nice as the “homeowner”’s place at half the price, and I can move whenever I want. The lightbulb goes on, and with it comes the nausea.
Add me in. Escaped 07
me too. Renting a place in a decent n’hood for about 50% of the monthly costs* of the practically identical place that just sold next door. This is not rocket science, people.
Same thing with the fate of the the US$ - but thats another blog (sort of).
*10% down 30 yr mortgage + taxes.
I am not a fan of renting but realize its a wise decision while riding out the bubble. Once prices bottom out, buy as itll be cheaper than rent once you own it free and clear. If the landlords make money(they are losing money now) then rent costs more than buying.
I live with parents and am waiting a couple years for the bubble to be fully deflated then get a nice big house for $100k or even $50k. What locations will I be looking at? Eastern Tennessee is very scenic and pretty
I think most of the financial geniuses who made money flipping plowed it right back into RE and are even more leveraged. Others who made a fortune off their shack moved up into a more expensive McMansion. Only the few smart money players got out with the money. The brokers and realtors blew their money on tacky jewelry, leased luxury cars and vacations. Now they are starving.
Good question! I’m the only one I know of in my neck of the woods who’s done it. Anybody else?
My mom sold in ‘06 and rents in Boston. Uncle sold in Richmond,CA and bought in Akron in ‘05– which is about as close to cashing out as you can get while still owning a house.
Hubby had enough savings for a down payment on a place in Southie (South Boston) in 2002, but he was outbid. He couldn’t find anything he liked that was affordable. Then he met me. I’m Black (unlike Hubby), and Southie is still not a friendly place for Blacks, so he felt like he’d dodged a bullet.
We’re still renting, he still has his down payment, and when I graduate next May, we’re planning to move somewhere (probably the Midwest) and buy a house.
But even for every flipped sale or every expensive McMansion where money was subsequently plowed back in, there was a seller who made money.
Perhaps at the end of the chain you have the most prudent, financially astute people. The 10% of us that have 90% of the wealth. Perhaps they have sold their second homes (bought by the flipper or the person desiring the McMansion) and are now down to only one and holding cash.
This is a great topic in itself, IMO.
(I started the thread)
I’m not sure I was “financially astute,” or just lucky. We sold our primary residence at the peak because (a) I desperately wanted to leave L.A. and (b) people were willing to pay crazy amounts of money for our house (we bought in ‘94).
I not THAT clever, and after several months of reading this blog, I wonder if maybe there aren’t quite a few people like me. Perhaps though, this is a gathering-place of the enlightened, and not reflective of the general population!
“(b) people were willing to pay crazy amounts of money for our house ”
That is why my wife and I sold our AZ house in July of ‘05. I am no financial genius, but if you were paying attention back then, you could just feel it (the peak) in the air.
I bought my house as a PLACE TO LIVE, not an investment. If I hadn’t, it would have had a for sale sign on it 2 years ago. But I am sticking with my house and because my area wasn’t so bubblicious, I would have only netted 200k after I paid off my loan. Not enough incentive for me to pack 200 boxes!
I Agree!!!!
Not to mention smaller investors who may have simply sold one or two properties near the top, and kept the cash.
I’m sure there were some who cashed in their chips, but just like the dotcom craze, greed is a powerful force.
Off topic, but I excpect we see much more of this in the coming years…
http://www.presstelegram.com/ci_6291156
Sounds a little suspect, perhaps upside down and HELOC’d out the rear?
Reading the story, it reminds me of suicide bombers - someone in a seemingly hopeless situation, can’t see a way out, convincing a young man with little to lose to do his/her dirty work.
suicide bombers are usually well educated, wealthy and not mentally disturbed. That’s why the West can never figure them out.
Care to source that assertion?
See this article in the IHT about the recent bombings in the UK where many of the conspirators were doctors.
“‘What surprises me,’ said Lee Price, chief economist for the House Appropriations Committee, ‘is that more people haven’t mortgaged higher percentages of their equity.’”
Or…Throw away a dollar to save a penny?
So the consumer takes out a dollar of fake equity or nonretrievable equity(cause the house won’t sell for enough to retrieve it). Then buys a depreciating car in which the dollar dissappears totally, all to save a little in taxes.
He loses 4 ways; 1. He loses the mortgage interest on a dollar he borrowed. 2. The dollar borrowed from the house is gone, cause noone will take him off the hook and he cannot extract it back out. 3. The dollar spent on the car is gone with depreciation. 4. He is paying for property taxes and insurance on the non existant dollar because of the over valuation of his property.
Basically the consumer is paying all this money out on a dollar than never existed in the first place.
Hmmm, I am surprised more people don’t want to do this.
“When Poverty walks through the Door, Love flys out the Window”
We are going to see a lot of Dream Home, toys and Hummer romances ending rather badly in the next few years.
Interesting. I hadn’t thought about the interpersonal/social implications.
is a good credit rating going to take precedence over looks?
Maybe I am being stereotypical, but whenever I see a really ugly old guy with a model looking woman 20-30 years younger I always think to myself, “That guy must be LOADED”. I know, I know, he probably just has a good personality.
women value intelligence, men value looks (just trying to start a war here) - LOL
Who needs women? Ill never marry. Even my mom says I should get a date but theres a million other things higher on my list. If I wanted to see “pretty” women, all I have to do is look at plus models(thin is NOT in) and besides I find many other things prettier. I was agape and almost drooling when I see natural/nature beauty of mountains, streams, trees, etc.
“is a good credit rating going to take precedence over looks?”
Hope so - I’ll be a supermodel! OTOH, I’m not about to get involved with someone who does not have a great credit rating. (Unless it’s just as my toy boy. :D)
you go girl!
I have. Lots more single people in the near future - with bad credit scores.
ala When Harry Met Sally:
“Promise me I won’t ever have to be out there again!”
I knew I remembered this Devaney guy from bubble past.
Prospering in an Implosion; Subprime Market’s Fall Plays to the Strengths Of a Bold Contrarian
April 12, 2007, Thursday
By VIKAS BAJAJ (NYT); Business/Financial Desk
Late Edition - Final, Section C, Page 1, Column 2, 1643 words
John Devaney has ammassed fortune by dealing in asset-backed bonds through his United Capital Markets company; often makes decisions against conventional market wisdom, turning big profits while others falter; his early beginnings in business are profiled
if someone is an idiot to take out a loan, what does that make the person who MAKES they loan?
The investors: How to get rich trading “idiot” loans
Investors have made a fortune trading bonds backed by mortgages.
By Stephen Gandel, Money Magazine senior writer
May 2 2007: 1:21 PM EDT
(Money Magazine) — The housing boom was good to John Devaney. Really good. He owns a Rolls-Royce, a Gulfstream Jet, a 12,000-square-foot mansion in Key Biscayne and a 143-foot yacht, as well as a few Renoirs and a valuable 1823 reproduction of the Declaration of Independence.
Devaney’s not a developer, and he’s certainly not a flipper. The 36-year-old CEO of United Capital Markets is a bond trader. And one of his specialties is buying and selling bonds that are backed by the mortgage payments of ordinary homeowners.
Option ARMs? Devaney loves ‘em. “The consumer has to be an idiot to take on those loans,” he says. “But it has been one of our best-performing investments.”
http://money.cnn.com/2007/05/01/real_estate/bubble_investors.moneymag/index.htm
you know what they say, never mistake brains for a bull market. right now it’s easy to see it was more bull market than brains.
“But Devaney, who told a crowd of investors that the riskiest mortgage bonds looked “awful” before the crash, says he thinks he’ll be buying. “I don’t believe the carnage and fallout will be as bad as people think,” he says.”
Nice catch from Florida thread.
I’m one of those who cashed out (last year). From the numbers I’ve seen and experienced, it seems like the gap between rents and owner mortgage/carrying costs has never been larger, in favor of renters. So this makes overall debt larger not smaller. Of course the “investors” were counting on yearly fantasy price increases. It’s really mind-bogglingly stupid.
“a 21.3% plunge in June U.S. light vehicle sales” is
“described as a bit underperforming,’ Paul Ballew, GM’s top sales analyst, said”
while
“late payments on credit card bills dropped in the first quarter to 4.41 percent. That was down from 4.56 percent in the fourth quarter”
was described as “somewhat remarkable”
Can we get anymore lipstick on this dead pig?
This is cool…repo man in Florida taking REIC autos
“It is actually stunning the number of cars we’re taking from people who are supporting the local real-estate market,” said J. Patrick Altes, the president of Falcon International, a recovery agency with offices throughout Florida. “It’s almost the type of thing where we see it and you wonder if anyone else sees it. . . . It’s like they turned off the spigot.”
Scroll 1/2 sown
http://articles.moneycentral.msn.com/SavingandDebt/SaveonaCar/TheRepoManIsGettingBusy.aspx?ref=patrick.net
Great link, mikey…that article is a must-read…a couple of good points from the article:
1. Since people are buying cars with much longer-term loans, the cars break down before the loan is paid off, so the owner pays to get the car fixed but then can’t make the next car payment = repo…
2. The article quoted an industry insider who “estimates the average loss to subprime lenders at $6,000 a car” when they have to actually go through with the repo.
I have no crystal ball but I’d be willing to bet that Real-Turds, all of them will be a relic of the past. Think about it from these two points; What sub-group of all sub-groups are ass-deep over all the rest in real estate speculation? You guessed it: REAL-Turds. They’re are THE friction in the market right now and markets are heartless and very efficient in removing friction. These morons are about to get mowed down by market forces and I for one will be standing there basking in the moment. And if anyone wants to criticize me in that moment of glory, I’ll suggest to them to set their minds on the vomit that flew out of Lereahs mouth for 5 years.
And my other point was this…
Remember “full service stock brokers”? My uncle was one. $200 per trade regardless of size and that was back in the 70’s and 80’s. They’re extinct now thanks to online trading. I heard floor traders are getting canned on the NYSE. REtards are next.
Good venom, I like it!
I’m on track to getting what I want. In 2010-2011 or thereabouts, I intend to buy a nice condo on the edge of Boston. One that had a 2005 market price of $280,000 and will have a 2010 market price of $200,000. I’m pretty sure my prediction will hold up… it’s been on track so far (since 2004). I’d like to pay one-third cash and take out a 15 year mortgage.. and *still* have plenty of savings for furnishings, vacations and all the rest. I have an amazing rental/housesitting deal that, including all utilities, is only about 11% of my gross income… I’ve been socking away the cash.
Timing really is everything… I will never have this chance again, to move so optimally from renter to owner. I am age 40 and have been a renter for 18 years.
I *LOVE* your username! LOL
If $200k is the cheapest, keep renting. What’s your rent cost? $200k to buy is still too expensive. You can get a nice condo in south FL for under $150k and im betting we will see nice condos under $100k at the bottom with 1/1 small condos as low as $50k!
Hindsight sure is 20/20.
Just a few short years back Cd’s etc were only paying 2%. I could have taken $100,000.00 and walked up to a homeowner and said, “Hey your house that you paid $100,000 for is now worth $200,000″. Of course his pride in ownership and new found “wealth”, would hardly cause argument. Then I tell the guy that I will take his $100,000 equity out of his home for him and lend it back to him at an interest rate of lets say 5.75%, much more than I could get with any other investment. The loan would be secured with his house which is really only worth $100,000. No risk to me. If he cannot pay I take the house and get my money back. So essentially I have made money on his house. What a sucker.
I hope it leads to a slowdown of McMansions eating up exurban/rural communities.
And I hope for vigorous, swift and effective prosecution of fraud at every relevant level.
As a current homeowner, I’m not hoping for a 50% haircut in the DC area — but a solid 25% to 30% off 2005 prices would be ok by me.
If oil and natural gas prices continue to rise over the coming decade, as many predict they will… that, coming after this real estate bust, will be the end of many of the newer McMansion exurbs. Maintaining a 4500-square-foot home and doing a 600-mile-a-week commute only makes sense when home heating and automobile fuel costs remain low.
I expect to continue spending time at this blog site. No matter of yer learning, earning, or yearning, always plenty of interesting people !
I am surprised nobody has talked about shorting the homebuilders. I have already gotten much more out of the collapse of the housing bubble than I could have hoped for by buying puts on the homebuilders. The last four weeks have simply been amazing. I keep moving up my stops and they keep going down. This is the primary reason I follow this blog.
I also own a number of rental properties in the DFW area. I have not bought any in the past year. Rents are stagnant and I cannot find anything close to what I could find even a couple of years ago. So far, I am not seeing any price declines in the new construction market for starter homes. I see lots of incentives/discounts, but the prices are still higher than they were a few years ago.
Forgot to explain the last paragraph: so I hope that prices will come down a bit and/or rents will go up a bit as new investors exit the market and/or new tenants enter the market now that they can no longer qualify to buy in light of the subprime collapse.
One other thing I expect/hope: at some point the other shoe has to drop on banks with lots of alt-A and negative amortization exposure; e.g., DSL, FED, and BKUNA.
At the beginning of the year I shorted 3 homebuilders and 2 banks (heavily into construction and land loans as well as end-user ARMs and option pays). This week I closed out one of the homebuilders because it reached my target of a 50% drop (I’m not greedy). I replaced that short with another bank. Close to 50% of its assets, not loans, are construction and development loans in the southeast. It sure looks like an FDIC receivership candidate.
My real hopes are to find an inexpensive piece of land (20 acres+) and build a small (800 ft. sq.) energy-efficient house on it with a greenhouse. Land prices are beginning to soften in W. Colo.
My last house was owned free and clear - for 7 years I had no house payment. It enabled me to live on very little, and I truly understood what “wage slavery” was. I sold at the top of the market and want to further free myself from dependence on people who don’t have my interests at heart - e.g., banks, utility companies, suppliers selling me bad food from China, that sort of thing, thus the greenhouse (yes, I know, lots of work, have done it before). Also will go solar. Will bycycle and ride my horses or drive a cheap fuel-efficient car or all of the above. (I obviously don’t live in an urban area.)
Independence Day will have a whole new meaning.
Good for you! Keep us posted on your efforts.
I second that…sounds like a great plan. Please keep us posted.
(By the way, are your dogs vegetarians?).
LOL - well, how did you guess? Actually, I am, but once in awhile I get them a hamburger, they gotta live it up once in awhile, shouldn’t suffer for my follies.
I hope that the housing crisis brings Americans back to their senses, so that we can solve what I consider to be the real current financial crisis, which is 26 straight months of negative Personal Savings. Before this streak, we had one month of negative personal savings (the month after 9/11) in over 50 years, since the data started being kept by BEA. The savings crisis is unsustainable. It has already cost American households $2.2 trillion of lost savings (plus interest) in 26 months, and it’s not going to turn around on a dime. But if it continues for much longer, American households will start to run out of savings, period, especially as housing prices decline. (Home equity is the most important component of savings.) If American consumers just returned to zero personal savings, it would be a major victory at this point. But it would knock up to 1% off already weak GDP. So, I think it will take a combination of a housing crash, a stock market correction, and a lengthy recession to bring U.S. Personal Savings back to positive. I pray it happens soon, or we will go broke as a nation within a decade.
26 months ago, Americans just collectively lost their minds…and nothing has really changed since.
old dogs don’t learn new tricks.. and they can’t teach tricks they don’t know to their puppies..
If we wanna save the next generation, one small step would be to add “The Richest Man in Babylon” to required reading lists in schools (assuming schools still have such a thing as required reading).
Haven’t read the book, but I did once read Hammurabi’s law (written back in the good old Babylonian days) - any builder who had a building collapse and kill people was subject to the same fate (death). Bet that made for some good careful quality craftsmen.
When you can get ahead by saving then it will change.
Does the personal savings rate include IRAs, 401(k)s, andsimilar retirement svings? Does it measure them against debts?
What to expect out of the RE implosion….a drop of prices, depending on locale, of 30-50% in housing and land.
What I want out of it? About 5 acres of grassland and woodlot…small energy efficient house and a place to grow the tomatoes and peppers. Pretty radical.
Purely and simply, to get out of the consumerist rat race that RE debt, CDO’s, derivatives, and the latest consumer junk that has tried and seemed to have succeeded for a shortwhile most Americans and increasingly a lot of the world’s people’s minds.
Our minds and wills are being colonized by these large institutions….
Basically the system in a nutshell is this. If you do not buy, consume, go into debt, and buy all the lies these forces put in front of you, the system wants you not to exist because you are costing them money for insurances, pensions, etc. They cannot just let you LIVE and PROSPER according to your rules.
The Real Estate Bubble and its manifestations is just a symptom of the larger problem.
Yup, pretty radical - common sense has for sure become radical these days.
Have you read “On the Wild Edge : In Search of a Natural Life” by David Peterson. Great book, if you haven’t, it’s right up your alley. Essentially about a guy and his wife who punched out of Laguna Beach to live in the mountians in Southwestern Colorado about 25 years ago. Guarantee you won’t be disappointed!
SimpleS,
I have lived that way for many years and had the experience in the 60’s and early 70’s, to have gardens, raise rabbits and chickens for meat and was generally broke. Live in the city because my secure job is here for awhile. Rural living is in some respects harder but you need less I find as long as consumer instincts given to you do not take over and that 1500 sq. foot home with small out building, gardens, small pickup truck does not become the McMansion of 5000 sq. feet, an Escalade in the triple garage and a huge boat.
The end of the housing bubble and 5-6-7-8 dollars a gallon and up gasoline is going to put an end to this because no one will be able to afford it anymore.
You are not going to propel forward an economy with 40K vehicles and 400K homes on a 10 dollar an hour service economy job.
It is all going to bust.
I have no idea! My philosophy is to expect the worst and hope for the best, and you can never go wrong. This is also known as “Murphy’s law”.
We will just have to wait and see. I do know is that MSM/US Govt. is always late by a couple months/years in telling the public what is going on.
I say, stuff that popcorn!!!
“Is it possible to ask for 30%-50% off of peak without bringing about economic depression?” One replied, “I think housing and incomes ‘have’ to come back in line, and I don’t think that this necessarily results in a despression.”
Yes, it has to result in a depression. If you don’t see it, you’re simply not looking hard enough.
Anyone questioning this line of thinking ought to consider that the predictions made by the more (if not most) bearish HBB posters have been consistently borne out, and we haven’t even really gotten started yet.
What do I want?
Simple: housing to return to affordable levels - 2.5 times actual income. I want to be able to buy a house as a single guy on my income (which is above the median household for the area) without having to spend an absurd amount of my paycheck on the house and/or wipe out my life savings on an “investment” which could be destroyed in the next fire, flood, hurricane, etc. When the average person is able to buy a house after saving up money for a down payment without having to ruin themselves financially, that will probably be a good enough result from the end of the housing Bubble.
Now, what else would I like in a dream world? An end to the “consumption culture” before we bury ourselves in trash and/or deplete all of our resources and pave over the planet. I hate the modern mindset so much: people buying crap they don’t need with money they don’t have to impress people they don’t like. 2 or 3 people living in houses large enough that none of them have to even have contact with anyone else in the house. 2-car garages stuffed so full of crap that there is no room for the huge, fuel-guzzling SUV/Hummer or the “look at me, I am important!” luxury car that they “earned” with a bonus stolen from somebody else’s paycheck. I am so sick of the “see me, like me - or else!” culture of the times. I am sick of the monumental greed and stupidity and the relentless, locust-like destruction of anything of value left in the world. Is there a place still full of trees? Pave it over and put in another mall or housing development! Are there still people with secure jobs? Fire them all - outsource them, insource them - just make them poor! Is there still a place where people can raise their kids in peace? Fill that place with illegals/section 8/whatever is needed to destroy it. Are there still people who save their money and live within their means? Inflate the price of everything and devalue the dollar until they are broken and stop being resistant to the New Order. Is there still any aspect of decency left in the world? If so, find it and destroy it.
Maybe a Depression will help cure the problems… or maybe not. If I can at least buy my own place and put more distance between myself and my “fellow” man, it would be an improvement.
Best Wishes for a fun 4th everyone.
Hmmm, What do I expect?
I know what I want and that is a Craftsman bungalow on at least 6k sq/ft lot with enough interior room for my son and I and my home office. A large garage with a workspace for creation, invention and repairs. Dirt enough to grow veggies, fruits and nuts and a breeze to keep the smog away. I hope to pay no more than what I pay in rent which translates into a 350k to 400k price tag using the 150 - 200 X rent metric. Local houses like the one I rent have current wishing prices in the 700 - 800k range so it’s a 50% drop I am hoping for and that is based on 2001 prices + 3.5% - 4% per year a la GetStucco’s formula (that was your’s right GS?). And I want Ben to finally get the acknowledgment he deserves for his hard work on this blog from the MSM.
I expect to see prices very sticky here on the coast for a long time yet, but I also expect to be wrong in my expected duration and decline. I expect to hear chuckles when I share my thoughts about 50%+ price drops. I expect that I’ll be able to continue to save money as this train wreck plays out so if it takes a while that’s ok with me. I expect that MSM and REIC will continue the happy talk and cheerleading all the way to bitter end and then when things actually are picking up they will act as if it was they who called it . Oh, I almost forgot, Gary Watts will predict gluttonous appreciation in the first half of every year and then call for an “inverted” year for the last half until, like those above, things do turn around, and then he too will take credit for it.
I want a 3-bed, 1.5+-bath SFH or townhouse in the city or a first-ring suburb. Since gas will only get more expensive, I want to be near public transportation. I don’t need a big yard. I don’t want a 2-hour commute to work. I’ll live on the street before I live in the ghetto again. Once the bubble pops, I’m expecting to find one for no more than 2-2.5x my gross income.
I expect the dollar to keep sliding. The British Pound just his $2, and the Canadian Dollar may be worth more than the US dollar by the end of the year. I expect a surge in forclosures and unauthorized rooming houses. Foreclosures will lead to divorce, and divorce will lead to foreclosures.
Gas prices will continue to rise, especially if OPEC decides to price oil in Euros. That will lead to a rise in food prices. Gardening will be en vogue again. WWII and Depression-era housekeeping guides, which were all about doing more with less, will come out of attics. It’s going to be a wild ride.
If we are already seeing houses now for 50% off, then we can expect to see further drops in the next months and years. This is music to my ears as I have been priced out of almost any house almost anywhere. A 50% drop would make houses in many cities and states affordable to us middle class people.
Questions:
1. Is said drop based on peak prices in q4 2005?
2. Are the drops adjusted for inflation?
3. Will even “cheap” locations experience as much drop? Less? more? I get conflicting answers on that. Some say cheap locations are undesirable and therefore must drop more. Others say cheap locations are more affordable so most people will buy there over the more expensive locations.
4. If the disparity between “cheap” and “expensive” locations shrinks enough, won’t it make more sense to pay a slight premium(as opposed to a huge premium) for the desirable location?
5. Is there really a such thing as “location, location, location” or is this made up by realtors and speculators to justify the bubble prices?
*also see all my replies above*
Mr. Bond: “You don’t expect me to talk because of this torture do you?”
Goldfinger: No Mr. Bond, I expect you to Die!!