The Mortgage Market Is In Disarray
The Boston Globe reports from Massachusetts. “A growing credit crisis is prompting lenders across Massachusetts to cut back suddenly on new loans, making it difficult for even creditworthy borrowers to get mortgages and causing some home sales to fall through at a time when the housing market is already slumping.The most prevalent impact in the Bay State so far involves borrowers with good credit now having trouble getting jumbo mortgages, which are popular in Massachusetts because of the high price of housing.”
“Keith Shaughnessy, president of Foundation Mortgage Corp. in Littleton, said the mortgage market “is moving right beneath our feet. The new story is people with good credit are now having a tough time getting a mortgage.”
“Several mortgage company executives have said they have never witnessed such a sudden cutoff in credit, and analysts predicted the drought and subsequent turmoil may continue for several months.”
“Fed officials ‘could’ve helped the regional mortgage lending environment had they moved’ rates down, said Kevin Cuff, president of the Massachusetts Mortgage Bankers Association. The mortgage market, he added, is ‘in disarray.’”
“In July, mortgage sales plunged to $11.2 billion nationwide, from $41.6 billion in June and $92.2 billion in May, according to FBR Investment Management, which tracks the data.”
“The mortgage problems are also cutting into home sales at a time when real estate prices and home sales are in decline. Allison Horne, owner of Dynamic Capital Mortgage Inc. in Brookline, said one client with $200,000 in savings wanted to buy a $1 million home in Boston’s South End, but had trouble lining up a mortgage.”
“The market turmoil ‘has totally affected people’s decision of, ‘do I want to do this,’ Horn said.”
From NPR.org in Massachusetts. “Eight years ago, Jose Pomales moved into his modest ranch house in Boston’s Hyde Park neighborhood. He says he has always paid his mortgage, but two years ago, Pomales refinanced and got a loan from New Century.”
“The monthly payment on Pomales’ $300,000 loan started at about $2,100. Then, the payment increased by more than $300 a month, and will soon be adjusted to about $2800 per month. In another six months, his mortgage payments will be increased even more.”
“Pomales says he had no idea how much his monthly payments would go up and is now unable to afford his home. His only option, he says, will be to either try to sell the house or just let the bank take it.”
“I foresee several million. I think that we could easily see 2 to 3 million people lose their homes and go back to renting, basically,” says Bill Wheaton, who runs MIT’s Center for Real Estate.”
“He says that some of those affected will be people who paid too much or borrowed too much against their homes. If their payments are rising and the houses are worth less than they owe, they’ll just walk away, Wheaton predicts.”
“Pomales worries that without refinancing, he will soon be forced to leave his longtime home. ‘We’re just regular middle-class, hard-working individuals, and you hate to see things taken away when you’re working hard for it,’ he says.”
The Post Gazette from Pennsylvania. “Chuck Sanders, CEO of Penn Hills-based Urban Mortgage, a mortgage broker specializing in helping home buyers with blemished credit histories, summarized the impact of the turmoil in mortgage markets with one word: ‘Ow!’”
“While severely distressed lenders have stopped making loans altogether, Mr. Sanders said, the truly painful part is that lenders who remain solvent are ‘really tightening the screws’ in qualifying customers. In July, six of 25 loans that he had expected lenders to make to his customers fell through.”
“‘It’s a rough market; there’s no way around it,’ he said.”
“And the worst may be yet to come. Mr. Sanders believes that ‘a couple more national major lenders’ may close their doors, and he hopes, ‘optimistically,’ that the turnaround may come in the second quarter of 2008.”
“‘But I’ve heard doomsday as far as three years out,’ he said.”
The Tribune Review from Pennsylvania. “The credit crunch in the national mortgage market is hitting the Pittsburgh region. ‘The underwriting criteria is changing daily and getting tougher for borderline borrowers,’ said Brad McLean, a Strip District mortgage lender.”
“The housing industry is tightening as more homes remain unsold, said McLean, president of the Mortgage Bankers Association of Southwestern Pennsylvania.”
“Even credit-worthy customers are feeling the effects. ‘You are seeing a movement to full verification on loans,’ said Mark Steele, president of Howard Hanna Financial Services. ‘You verify someone’s employment with the employer, and you would verify what their income is.’”
“‘The industry fell into the trap, quite frankly, where they were doing loans that they were told what the income was, and made some difficult loans that aren’t performing right now,’ he said. ‘Now, you are going to give me income tax returns or W2s to verify what you are making.’”
“‘We are lucky in the Southwestern Pennsylvania region that this region did not experience the tremendous appreciation in housing values that other sections of the country had,’ said Steve Madden, branch manager of Countrywide Home Loans Monroeville office.”
The Union Leader from New Hampshire. “New Hampshire will see foreclosures continue to increase into 2008 as subprime mortgages continue to fail, a study released yesterday said.”
“Foreclosures will hit the real estate market, cutting demand for homes by 10 to 15 percent through 2008, Brian Gottlob’s study said. He warned that if housing prices fall by 10 percent, foreclosures will increase by about 80 percent.”
“The reason behind this rash of foreclosures is different from the 1990s housing market collapse. Rather than a weak economy, the loans are going bad because they were risky to start with, as housing prices rose and mortgage companies rushed to lend money to borrowers whom banks rejected.”
“The number of subprime mortgages in the New Hampshire market increased more than ten-fold since 1999, from 1,700 loans to 22,000 by early 2007. Gottlob said mortgage credit quality has been eroding for the past two years as housing prices stagnated and began to fall.”
“His figures show 19 percent of subprime borrowers are behind on their mortgage payments, compared to 2 percent of more traditional home loans.”
“The subprime industry has collapsed in recent weeks as investors refused to buy packages of risky mortgages out of fear they would turn into bad loans. Gottlob agreed that if troubled borrowers can’t refinance their existing subprime loans, ‘you’d be in essence dooming them to foreclosure.’”
The Concord Monitor from New Hampshire. “When real estate agent Bob Pratte started selling homes in the new Stinson Hills development in Dunbarton, four houses sold immediately. Then, at the beginning of last summer, sales stopped. ‘I’d go there on weekends, and no one would show up,’ Pratte said.”
“For several years, prices were rising fast, and ultimately people could no longer afford it, he said. ‘The market is still adjusting. There was a drastic change,’ he said. ‘The whole country had a dip, and in New Hampshire, it had to happen sooner or later.’”
“The town has at least four residential developments that were approved but have not been built, said Ken Swayze, co-chairman of the Dunbarton Planning Board. ‘I’ve been on the planning board about 10 years, and this is one of the slowest periods I’ve seen for projects to start up,’ he said.”
“Swayze said the conditions remind him of a recession in the 1980s, when several projects were also approved but never went forward, including one that is now being revived. ‘It’s the same thing - market conditions, economics,’ he said.”
“The major difficulty facing sellers in Dunbarton comes from the homes’ prices; new houses tend to cost around $400,000, putting them squarely into the segment of the market that has been hardest hit, according to Tim LeClair, associate broker in Concord. LeClair said luxury homes and starter homes have been moving, but those going for $300,000 to $500,000 have been tough to sell.”
“‘A good number of those people are spending as much as they can spend,’ LeClair said. ‘When you read about housing prices coming down, interest rates going up, foreclosure at record numbers, it makes people wary of making that kind of investment in a house. People remember the late ’80s, early ’90s, when your $300,000 house was almost overnight worth $250,000.’”
Let the credit crunch begin!
“The subprime mortgage crisis is contained…”
-B. Bernake
I guess a lot of people must disagree.
http://biz.yahoo.com/ap/070809/wall_street.html?.v=18
Bernake; the spanish translation; ” Bozo” ! These guys that sit up in their Ivory Towers have absolutely no clue how the ” real” world operates!
Yes, they do, they know that they create fake money and then bullshit everyone into using it a depending on it. They know exactly how the real world works. Whether Ben is actually an insider in that respect is unknown. I would guess that Sir Alan is one of those illuminati money masters though, that’s why he’s a British Knight, knighted by the banking cartel for a job well done getting the US to screw the pooch.
Agreed.
I believe it’s actually Uzbekistani for “giant, clueless turd.” Common interpreted uses of the phrase are “Excuse me, a Bernanke I must go take,” “Yuck, a Bernanke I stepped in just and must wipe shoe off,” and “That economist make so foolish of statements a Bernanke he is!”
The sad part is just how clueless some of the people here are.
Bernanke is fighting the good fight against inflation.
If the only tool you have is a hammer, every problem looks like a nail.
Bernanke’s limited toolset primarily includes the overnight lending rate.
So what if the equities market and bond market are screwed up… that’s not the banking system’s fault. Nor does he have visibility into their domain.
So yes, the orcs and trolls of the equity and bond markets took on too much risk and Bernanke has no visibility to it. It’s not about “ivory tower”… you know less about the extent of the subprime market, but your gut feeling tells you it’s going to get worse.
Whether he has that gut feeling or not, policy decisions cannot be made without cold, hard, facts. The fact that the MBS market has kept the rest of the world from looking at their sham job is just the reason that he ought to let them rot in hell.
If he agreed there was a problem, he would be pressured to “fix” it with a bailout. You don’t want that anymore than I do, so he’s being smart about it and shutting up. Let the markets fight their own war, and not involve our banking system, otherwise they become the lender of last resort.
Chuck Ponzi
–
“Bernake; the spanish translation; ” Bozo” ! These guys that sit up in their Ivory Towers have absolutely no clue how the ” real” world operates!”
These guys get paid to LIE, I mean mislead. Hence, we have lot of mis-leadrs. Tells you a lot about where we are heading. No?
Jas
“The Federal Reserve followed suit, adding $12 billion to U.S. markets to help ease liquidity constraints, according to Dow Jones Newswires.”
I know there has been a little disbelief of whether or not a “Plunge Protection Team” exists. Well here is bold Fing proof. Stocks down over 200 in the first few minutes, then Fed injects “liquidity” and there is an immediate rise. OMG. I hate this total manipulation!!!!!!!! BTW, if they just inject this money, why is the $ strengthening, therefore weakening gold and oil this morning? Wall Street took this signal the WRONG WAY. They started buying bonds as “security” instead of gold. What morons! I’m so mad I’d love to let the explicits fly!
–
Fed Open Market Operation is different from the PPT. PPT is a “Working Group” that actually intervenes in the stock market to “stabilize.” So much for the free markets.
Jas
Maybe because they aren’t interested in “security”?
You don’t think Paulson is shepherding the money along too do ya. You’re talking like a heretic. I can’t believe something like this could happen in America.
Subprime and globalization don’t mix…
MARKET SNAPSHOT
Stocks nailed as credit woes take driver’s seat again
AIG fronts losses on the Dow after insurer reports rise in mortgage defaults
By Kate Gibson, MarketWatch
Last Update: 2:00 PM ET Aug 9, 2007
NEW YORK (MarketWatch) - U.S. stock losses accelerated Thursday after reports of liquidating Goldman Sachs hedge funds further fueled credit worries that sparked unusual action by Europe’s central bank, which stepped in with a large cash injection.
The latest developments “brought to the forefront the question of whether subprime is spreading globally, and will it put a dent in global economics, which have been a major stimulus underneath this 58-month bull market,” said Al Goldman, chief strategist at AG Edwards.
http://www.marketwatch.com/news/story/us-stocks-slide-subprime-woes/story.aspx?guid=%7B5B61E6AC%2D63CE%2D4979%2DBD3E%2DCDF387041A94%7D&dist=SecMostRead
“58-month bull market”
That bull is long in the teeth.
Oh you have to see this!
http://www.shortsalemagic.com/
My friend was in this business, it’s an ugly, you’re evicting old and sick just to make a buck. Very sad.
More evidence the mortgage meltdown is anything but contained is coming from overseas this morning. BNP Paribas, the largest bank in France, has frozen three funds that invest in asset-backed securities, or ABS. BNP will not allow investors to pull money out. It will not allow investors to put new money in. In fact, it won’t even provide a value for the funds — Parvest Dynamic ABS, BNP Paribas ABS Euribor and BNP Paribas ABS Eonia. These aren’t tiny funds. They’re funds with $2.76 billion in assets.
BNP’s reason for the freeze: “The complete evaporation of liquidity in certain market segments of the U.S. securitization market has made it impossible to value certain assets fairly regardless of their quality or credit rating.” In other words, the subprime mortgage meltdown is causing pricing for all kinds of structured bonds to go haywire.
Here’s the big-picture problem: We’ve been led to believe that the explosion of investment in all these newfangled investments (CDOs, CDO squared, CLOs) … that the explosion in the securitization of every type of loan under the sun … that the ballooning exposure to complex, hard-to-value, over-the-counter derivatives ($415 trillion in notional value outstanding as of Dec. 31 2006, more than quadruple the level of six years ago, according to the Bank for International Settlements) … and that the origination of all kinds of new “creative financing” mortgages in the home loan industry … was a good thing.
But now the rubber is meeting the road. It turns out that all these stupid mortgages are blowing up in borrowers’ and lenders’ faces. It turns out that these complex instruments just can’t be valued accurately, if at all. It turns out that Wall Street just got too “smart” for its own good. Now, we’re trying to sort the mess all out. And unfortunately, the risk of a 1998-style meltdown is very real as a result.
Heck, look at what’s going on in the European money market this morning — the overnight London Interbank Offered Rate, or LIBOR, is surging. It just soared to 5.86% from 5.35, according to the British Bankers Association, putting it at the highest level since the start of 2001. 3-month LIBOR rose to 5.5% from 5.38%. 6-month LIBOR climbed to 5.39% from 5.34%. The European Central Bank has responded by lending the market the euro equivalent of $130 billion.
This is serious stuff. It’s a sign that liquidity is seizing up amid fears of subprime mortgage contagion. LIBOR hardly ever moves on credit concerns, only in response to increases in the federal funds rate. And guess what’s tied to LIBOR? All kinds of short-term loans, including some Adjustable Rate Mortgages.
Sounds like those borrowers are going to get bent over and armageddon’d real good!
Don’t most Europeans have ARMs for mortgages? A quiet desperation has got to be setting in in at least a portion of the households.
“I foresee several million. I think that we could easily see 2 to 3 million people lose their homes and go back to renting, basically,” says Bill Wheaton, who runs MIT’s Center for Real Estate.”
Damn right it’s serious stuff.
Given this pronouncment in a state with 8 million people, you’re talkin’ a complete meltdown.
I was assuming that he was referring to the entire US, not just Mass.
Yea - they probably don’t more than 3M households in Mass.
On the other hand, if they all did foreclose, it would do them right - running up the national debt for that stupid Big Dig.
Let me add this
http://biz.yahoo.com/ap/070809/wall_street.html?.v=35
A move by the European Central Bank to provide more cash to money markets intensified Wall Street’s angst — although the bank’s loan of more than $130 billion in overnight funds to banks at a bargain rate of 4 percent was intended to calm investors, Wall Street saw the step as confirmation of the credit markets’ problems.
The Federal Reserve followed suit, adding $12 billion to U.S. markets to help ease liquidity constraints, according to Dow Jones Newswires.
“This is a mini-panic,” said Joseph V. Battipaglia, chief investment officer at Ryan Beck & Co., calling the banks’ injection of money into the system an “unprecedented” move, and evidence that the problems in subprime lending are, in fact, spilling into the general economy.
“All the things that had been denied up until this point are unraveling,” Battipaglia said. “On top of this, retail sales were mediocre, which shows that indeed, the housing collapse is affecting the consumer.”
Retailers were releasing their July sales figures Thursday, and overall the figures were disappointing.
Retail sales were mediocre because people have to eat. The only real winners on retail sales were Walmart and Costco and that because they sell food and gas. JC Penney probably blew out the goods at big discounts.
“All the things that had been denied up until this point are unraveling.”
There’s the quote o’ the day!
Wanted to add, Hedge Funds and Investment Banks need volatility to make money. What have you seen over the last few weeks? Jim Cramer saying it’s up, it’s down, it’s up, it’s down.
“Jim Cramer saying it’s up, it’s down, it’s up, it’s down.”
He’s talking about his PUTZ!!! Taking too much Viagra, Jim???
I think he’s long viagra.
I think he’s long viagra.
Naaa… obviously SHORT viagra.
ROTFL
sorry… this has gone on for so long that its tough to take it serious anymore. Yes, I’ve read about the BILLIONS that the Fed and ECB are poring into the banks to maintain liquidity today.
Yawn.
Because the markets are so disconnected from the math, I’m just in a pure schadenfreude mood. Its just no longer possible for me to take it seriously. Maybe because of how scary this downturn is… Cest la vie.
Got popcorn?
Neil
But now the rubber is meeting the road. It turns out that all these stupid mortgages are blowing up in borrowers’ and lenders’ faces.
I think it is technically more correct to say that these stupid mortgages are blowing up in borrowers’ faces and lenders’ a***s. At least that is what the evidence is showing.
When the bank posted second-quarter results last week, Chief Executive Baudouin Prot assured investors the bank would be virtually untouched by the plummeting valuation of some subprime mortgage portfolios in the U.S. because it has little exposure to the market.
Everything is fine. Housing has bottomed. Subprime is contained. Nothing to see here. The economy is good. Carry on.
Great Post! All the ” experts” that were telling us 6 months ago, ” don’t worry” really look like idiots today!
“In July, mortgage sales plunged to $11.2 billion nationwide, from $41.6 billion in June and $92.2 billion in May…”
Can you say “lockup,” boys and girls?
Can you say this whole turd is about to blow up in their faces!
Does this refer to secondary market sales? The drop is absolutely amazing and even a bit unbelievable. Could someone with more expertise than I explain these numbers?
Secondary market sales. Brokers made loans and sold them to processors. The processors bundeld them into MBSs (Mortgage Backed Security) and sold them…. Or re-bundleded them into CDOs and sliced them into pieces. Lowest 8% BBB-, 6% BBB, 6% A, etc. 76% AAA.
Great, as long as home prices never fall and all you have to pay is the cost of the foreclosure and sell for the appraised value.
However, if it the house can’t be sold for the amount you owe, the CDO structure falls apart and the AAA slices aren’t.
Does this refer to secondary market sales? The drop is absolutely amazing and even a bit unbelievable. Could someone with more expertise than I explain these numbers?
(Comments wont nest below this level)
Comment by Darrell_in _PHX
2007-08-09 11:20:17
Secondary market sales. Brokers made loans and sold them to processors. The processors bundeld them into MBSs (Mortgage Backed Security) and sold them…. Or re-bundleded them into CDOs and sliced them into pieces. Lowest 8% BBB-, 6% BBB, 6% A, etc. 76% AAA.
Great, as long as home prices never fall and all you have to pay is the cost of the foreclosure and sell for the appraised value.
However, if it the house can’t be sold for the amount you owe, the CDO structure falls apart and the AAA slices aren’t.
I can hear the 1950’s style “Wheels of Progress” theme jingle in the background now, “Dah dah dah dah, duh duh duh duh duh ….” and instead of images of rows of people in factories and operating heavy machinery it’s quick images of $35k/yr mortgage processors and sleezy realtors.
“All the ” experts” that were telling us 6 months ago, ” don’t worry” really look like idiots today! ”
Not really. If they’re anything like the Harvard jackasses, then they’ll just claim that they warned us! Luckily, we have written docementation of their ill words.
AND no one knows if the counter parties to the derivative hedges will stay solvent and honor their contracts
If you have a Cayman domiciled hedge fund (say Bear?) you simply tell the holder of the credit derivative to stand in line with the banks for their pennies on the dollar ; makes the hedge have little meaning. In turn the leveraged holder of the hedge does the same thing to their lender - and we cascade down
“The new story is people with good credit are now having a tough time getting a mortgage.”
“Even credit-worthy customers are feeling the effects. ‘You are seeing a movement to full verification on loans,’ said Mark Steele, president of Howard Hanna Financial Services. ‘You verify someone’s employment with the employer, and you would verify what their income is.’”
Well first of all - good. They should be verifying all this. As far as people with good credit having a tough time getting a mortgage, why is this? Is it because prices are still so out of whack with incomes? I mean if I have 20% down and the mortgage amount I want is 2.5 - 3 x my verified income, why should I have any problem? Is it that people with good credit are still trying to stretch as far as possible to get into overpriced housing?
Is it that people with good credit are still trying to stretch as far as possible to get into overpriced housing?
I for one think that may be the case. It is ingrained in peoples heads that have to do what ever it takes to get as much as possible. Also most folks don’t really think we’ll have that big a correction in the housing market for some reason(IMO). I suppose they think a housing PPT will swing into action at the last minute and all will be saved.
wonder if some of the experts on here have a view on if tightening lending standards are going to translate into higher mortgage rates. I don’t understand how mortgage rate setting works but occurs to me that one of the things lenders could do to extend credit is increase rates to cover their risks. So, for example rates on loans to folks with sterling credit and good downpayments would go up if they are borrowing a more than 3x income (as eastcoaster notes). i.e., you’ll be able to get your loan but you’ll pay a high risk premium.
How often do these mortgages adjust? Every month, every six months, every 12 months?
Varies, maybe 6 months usually - but they do keep adjusting, and UP, until they reach some predetermined cap…which can be anywhere from 9 to 14% these days.
In many bubble areas, home prices are at easily 7 - 9 X median salaries for the area. This most likely means sellers will all be competing for cash buyers if they want to keep their prices at this level. I am not sure how many cash buyers there are out there, but I suspect their numbers are very small in the lower end markets. This would in effect kill an entire industry (Real Estate Sales), which we are already seeing…
We’re cash buyers, awaiting a fair price for an average home. No value in owning until prices get real. (So Ca)
I ate their McMansion with mushrooms and a nice Chianti….. SLURP.
Let the bleeding begin…..3…….2…….1
In many bubble areas, home prices are at easily 7 - 9 X median salaries for the area.
Oh, I WISH… In SoCal, the ratio is closer to 11-12X median incomes –and mind you, that’s HH incomes (incl. 2-earner families). And most people here are *still* oblivious to what’s happenening in the credit markets, and what’s about to happen to all their vapor-equity. Where’s Neil? I need some popcorn.
Well as a new ‘Burgh resident I can tell you all that last week we were pre-approved for $170,000(all we asked for) at 15 years at 6.75% by Howard Hanna. As of this writing I’m not so sure we are going to get that deal when we actually go to get the loan. Only time will tell.
Non-conforming loans are getting hard to fund, period. There has been so much poorly underwritten mortgage rubbish repackaged into securities that potential investors can’t really distinguish between solid loans and rubbish. So basically the secondary market for jumbo loans has evaporated.
For example, the relatively conservative Washington State Employees Credit Union no longer offers jumbo loans at any rate–as of Monday their website fields for jumbo loan rates are blank.
Eventually, jumbo loans will be offered again, but it will probably take stricter lending regulations (not guidelines, regulations) to bring some trust back to the market.
The funny thing is that mortgage brokers have been resisting tighter lending regulations all along, but that is the ONE thing that will convince investors to get back in the game.
“As far as people with good credit having a tough time getting a mortgage, why is this?”
Put yourself in the lender’s shoes. If the lender believes housing prices will continue to fall significantly, they may become skittish when it comes to funding a loan involving shrinking collateral even with 20% down.
The coldest summer I ever spent was the K winter of 2007… Mark Twain
“The monthly payment on Pomales’ $300,000 loan started at about $2,100. Then, the payment increased by more than $300 a month, and will soon be adjusted to about $2800 per month. In another six months, his mortgage payments will be increased even more.”
Of course he only paid $202,000 for the house, so he took out nearly an extra $100,000 in equity two years ago.
Cue the violins…
I think someone needs to inform Mr. Pomales that crack is, indeed, wack.
Yeah, I’m sorry. The average American has been allowed to let themselves grow so lazy, fat, and stupid. What I just said will undoubtedly piss off some folks (Hey, I struggle with my weight, OK? But at least I STRUGGLE with it and exercise!). There are a few people I truly have sympathy for - those who bought their first home and now have to sell it, due to divorce, family emergency, or other reason. But the rest? I’m sorry. READ before you sign. If you don’t understand, ASK. So many people just got swept into the “don’t worry, it will go up and you can refinance into a fixed” game. That’s highly leveraged gambling, folks. And if you can’t be bothered to read the terms of your note, well, I can’t be bothered to bail you out of your own mess.
/Rant off!
” ‘We’re just regular middle-class, hard-working individuals, and you hate to see things taken away when you’re working hard for it,’ he says.”
He didn’t work for that $300,000 he borrowed it. Maybe he did work hard for the house, but he gave all that up when he “cashed out”.
Where’s the money Jose?
Spent it all?………..took a month-long cruise to nowhere?
Bought a Hummer?
“Invested” in more housing?
Cry me a river.
To think that this borrower ,after pulling 100k in equity ,said in essence that he had no other choice but to sell or walk is just BS .Get a second job and start paying on the 100k you pulled from your house .
What’s this BS that unless a borrower has current equity in their home they are entitled to walk . Who ever promised people that their asset would always be up. If everyone who bought a car walked because their car went down in value 3 thousand the minute they drove it out of the showroom ,they would require 50% down for a car purchase .
I guess I’m saying that it’s not a valid reason for a bail out that the asset is down in value currently .I say change your budget borrower ,and pay your bills .Sure there are people that can’t pay under any circumstance ,but that’s only a certain percentage .
Also ,some of the business talking heads are coming right out and telling the truth about the potential problems with the sub-prime mess . Very different seeing some talking head sounding like we did about 2 years ago on this blog .
New to this blog but appreciate the info. immensely. Seems to me that the urban rents (don’t think so for exurbs) will rise–perhaps substantially– in the next few years as possible buyers won’t be able to qualify for mortgages. Probably a good time to think about buying a multi-unit property. What say you all?
I say read this blog for another week or two and then see what you think.
Sounds like a dumb idea.
(1) Would it be cash-flow positive today? If not, then walk away.
(2) Many metros are seeing a flood of rentals coming on the market. Do you want to compete with them?
Unless you have quite a bit of experience in that field, I would say no.
STUPID. STUPID. STUPID Idea.
Stay away from housing of all types for the next 3 years+. Only people making money in property these days are 1) people shorting the CDX.HY index and 2) people stuffing loans to bag holders thinking housing has finally “bottomed”.
Don’t be a bag holder. Read this blog and learn.
It’s a simple calculation. Compare:
1. Put your money in the bank @ 5%
2. Take a loan, collect rent, and pay interest.
Unless you assume something nutty for the appreciation, you will find that the no-risk bank has a higher payoff.
Until price-to-rent ratios become sane, a bank is a better investment.
Look at the bottom line:
THERE ARE WAY TOO MANY HOUSES IN THIS COUNTRY, right now.
Therefore their values will continue to dive. Eventually something will be done with these houses - if there are not enough qualified buyers for them, they will become investments (which actually have positive cash flow), and be rented.
But the bottom line is that there will be a lot of competition with people trying to fill up empty houses, so rents will be thin at best, for years, until our population increases enough to fill the bedrooms.
(and the builders keep building, as the they can still make money - or lose less, by building, for now, at today’s high and sticky prices)
Hometown Chicago - I don’t know if you actually live in Chicago, but are you aware that Chicago’s population is dropping more quickly now than at any time since the 1970s?
Meanwhile, look at all the construction cranes in the city, many working on multi-story buildings. Lots more empty dwellings coming on line with fewer and fewer people to buy or rent them.
I would hesitate a lot before buying *any* real estate. Unfortunately, your theory about rents may be critically flawed. Rents may stagnate or even decline — *not* increase — as more and more rental supply hits the market. The rental supply will increase from homeowners renting unsold homes (especially if they’ve already bought a second home, while waiting for the first one to sell) and from condo flippers and “investors” dumping condo properties on the rental market. Lastly, some of the condo conversion projects (turning apartments into condos) will fail and will revert back to apartments. This is already happening.
I’d stay away from real estate investing, unless you are shorting the sector.
In July, mortgage sales plunged to $11.2 billion nationwide, from $41.6 billion in June and $92.2 billion in May, according to FBR Investment Management, which tracks the data.
So the number of pending sales were up, but according to this data actual sales are off by a huge amount.
One would have to guess the correlation between actual sales and amount loaned would be strong, so does this indicate sales are down ny a similar margin? This is incredible if true!
Not necasarilly… this is sales to the secondary market and refi’s… so, it is not including conforming sales to fnma/fhlmc
I had some more thoughts I would llike to share about the fall in mortgage sales. The median price of a home nationwide has been around 223k for a while. So at 92.2 billion that would be 413,452 houses sold. At 41.6 billion that is 186,547 houses sold. At 11.2 that is 50,224 houses sold.
I don’t know if this is an accurate way of showing home sales, however this shows that there has been one heckuva slowdown.
But sales and pending sales are two different things. I’ve pointed out before that “pending” sales probably get carried over from month to month. They are not necessarily new originations in that month. They just keep stacking on top of one another, and they can claim, “pending sales are up! Everything is OK!”
“I foresee several million. I think that we could easily see 2 to 3 million people lose their homes and go back to renting, basically,” says Bill Wheaton, who runs MIT’s Center for Real Estate.”
I hope this doesn’t affect rents for any renters out there. Of course there’s so many people trying to rent their homes that may keep rent costs down.
I am thinking in the mid - short term, as hundreds of thousands of residences are taken off the market and sit empty as REO’s, rents could actually go up, since all the families displaced from these empty homes will need to rent, and a huge percentage of homes will be taken off the rental market. That is unless banks decide to get into the rental business which would be a big first.
May be, but that may be offset by stuck flippers, and repartments. And at least in Portland, OR, the big apartment places are still fighting for tenants and offering specials.
“That is unless banks decide to get into the rental business which would be a big first. ”
My mother in law was just telling me this weekend that many Syracusans were writing their rent checks to banks during the Depression years.
But were they just an intermediary? How would they maintain all of them?
Yessiree, banks just LOVE being long-term landlords. Nothing like having all those non-performing cash-flow negative assets on the books to explaing to the SEC and shareholders. Or having to deal with evicting deadbeat renters, repairing damages, maintaining the property & grounds, paying HOA, property taxes, etc.
Here’s to YOU, Mr. Bankster-Landlord! You sure earned it.
I’ve seen SFR’s for rent in the most unlikely areas, AKA the Main Line. I was driving thru Paoli and was stunned to see FOR RENT signs on lawns of homes. Either stuck flippers or sellers who don’t want to come down on their price and waiting the market out.
I’m seeing an entirely new class of rental product coming on the market in my area. Forecloees will probably move in with friends or family for a while til they get a suitable rental. Because there are so many accidental LLs being created, in my area, anyway, I don’t see rents moving up drastically.
“foreclosees”
that means people who are getting foreclosed. If I invent words I should at least spell them right.
No problem phillygal!
I enjoy reading about where I used to live. My sister lives in Caln township and she says real estate is just fine in Chester County. My brother live in Lionville and he just became a realtor a few months ago. Sometimes it gets tough to talk to your family.
Chester County is one of the places that the Delco Suburban Sprawl escapees are headed. It still has a lot of open space and beautiful country, as you know. The difficulty in getting home financing is going to affect the regular folks considering getting a mortgage in Chesco too, though.
Your brother’s timing is pretty bad - unless he wants to specialize in property management.
Philly,
I am an ex-Philly guy; but have not followed the market up there much. Can you give me any updates; what markets are hot and what is dead? Society Hill still going strong? What about all those new condos on DE ave?
Anyway, sorry to break in the middle of this conversation, just wondered if you had anything “on the ground” from that area.
I’m in Delco near Chesco. Sales are slowing in this area, and lower priced home sales are grinding to a halt.
The established good neighborhoods in the city are holding their own, Society Hill is one of them. Prices are down from peak, but no fire sales yet. My peeps tell me stories of NYers still coming in and keeping prices up, in decent hoods, not the fringe gentrification areas.
As for condos on the river, right now the best I can say is that too many condos were built in the city. I worked for a company that marketed them. I can call one of the sales mgrs there and ask her what’s going on, ’cause I’m curious myself. Who knows if she’ll even take my call though…
Contrary to what a lot of city dwellers think, Philadelphia is not bulletproof. The price erosion has started on the edges - the burbs - and slowly but surely working its way in to Center City.
I’m just amazed former borderline crack houses in South Philly (south of South Street) became the happening place to buy the last few years. Sh!tbox rowhouses that went for $60k 6 years ago went for $160k - $200+k just a couple of years ago. Those people will be stuck forever paying off a mortgage on a dinky box in a depressing crap area.
Sh!tbox rowhouses that went for $60k 6 years ago went for $160k - $200+k just a couple of years ago. Those people will be stuck forever paying off a mortgage on a dinky box in a depressing crap area.
That’s why nobody knows how to value their porfolio’s.
Some shit-box, run-down, crackhouse is the collateral for your $500k paper x thousands…Good fookin’ luck to all you MBS bagholder’s.
Seeing as how you’re from Philly and I’m from South Jersey and work in Philly and we’re both familiar with the area, consider this. Think of all the big houses in West Philly, yes a ghetto now. But in the 1920s (last major boom) those places were really the bomb I’m sure. Those are big grand houses that are now split into twins and in a lot of cases rented. I see the same thing for the mainline considering what you’re describing.
I know - I had the thought at lunch that maybe foreclosed families will double up and rent out the flips gone wrong on the Main Line!
Add in the murder rate and everything is fine in Philly…
I have just come back from upstate NY visiting a long time friend in the Finger Lakes. Beautiful old circa late 1800’s early 1900’s homes divided into a number of apartments . My friend who has a beauty, still SFH says mosted of those converted on his street house welfare recipients. The homes are going down hill quickly.
Desertfox
Phillygal,
May the dog fleas of 1,000 new LL’s infest all of your family members’ hair.
Not so, Foreclosee Breath.
I am willing to put up with higher rents just to see greedy people lose their homes that they didn’t deserve to possess in the first place. All of them tought they were going to make hundreds of thousands of dollars without working for it. Serves them right.
“Fed officials ‘could’ve helped the regional mortgage lending environment had they moved’ rates down, said Kevin Cuff, president of the Massachusetts Mortgage Bankers Association. The mortgage market, he added, is ‘in disarray.’”
Here’s a pip.
Let the FED accommodate a gaggle of real estate buyers stupid enought to purchase overpriced homes so they can
sail off into retirement heaven with a $500k cash out on heavily depreciated housing stock purchased in the late 40’s and 50’s for $30k.
Guess what Kevin?
The easy money train has stopped running and the snotty burghers of Mazzholeland who want to get out of Dodge are stuck without a ticket.
Cry me a river.
‘Now, you are going to give me income tax returns or W2s to verify what you are making.’
You don’t say. I wonder how they came up with the idea.
Gee when we bought they also verified by calling the employer to find out how long you worked there and your salary. I think W’2 and income tax forms can be faked like anything else. This is the computer age.
Matter of fact there’s a whole new scam for someone.
Of course they’re faked, but it is 20 years (or so) in the slammer for doing it, if caught. But for some of these “investors”, I’d put nothing past them.
I can tell you that their is massive panic in the mortgage industry. They are laying off people left and right.
Lenders have changed the product lines and only conforming borrowers are able to do loans. Rumor has it that Option 1 and Delta Funding are next to go down.
Don’t you love how Wall St. was responsible for the .com bust and now they are involved in the housing bust? Liar loans and risky loans were able to get done because Wall St. was using junk to buy the paper.
If there is a light at the end of the tunnel, hopefully the FEDS will step in and change the mortgage industry. No one has adressed why it is so expensive to buy or refi a house. If you were going to buy a car would you pay the dealer 4 points in the face and over 1,500 in junk fees at the closing? I think not.
All mortgage brokers/lenders should be licensed and strictly governed. Too many felons in the banking industry who left Wall St. You know where they are going now….? Into the student loan business.
Too bad the FEDS are governed by wall street.
“Into the student loan business.”
That’ll be popping in the near future, IMHO.
Could this be why college tuition has gone up so much?
Bingo. It’s no different from the housing bubble. As long as students can get financing, schools feel like they can charge whatever they want. If students couldn’t get those crazy loans, prices would come down or they would lose their customers.
to Pevey:
There may be some of that, but remember that slots for college education is a scarce resource. If there is more demand (more people have access to loans) and there is no more supply, price goes up.
Government consistently ignores the truths of market dynamics. They’ll provide more money in tuition, but I think they would get more people educated by building more campus’.
“In July, mortgage sales plunged to $11.2 billion nationwide, from $41.6 billion in June and $92.2 billion in May, according to FBR Investment Management, which tracks the data.”
…
Got Kleenex?
The $11.2 billion is a real jaw on the floor number. I’d be careful before quoting it in public, until its confirmed.
At an average price of $200,000 per house, that’s 55,000 houses for that month or about 660,000 annualized at that rate. What’s the bubble normal annual rate?
I think the idea above, that it’s mortgages sold, not loans made, is right. Banks are still making loans; they’re just not selling them to securitizers.
Hence, the bankster’s urgent “need” for Fannie/Freddie to raise the conforming loan ceiling pronto. They’re fresh outta private-sector bagholders, so they need Joe Taxpayer to stand in.
The most prevalent impact in the Bay State so far involves borrowers with good credit now having trouble getting jumbo mortgages, which are popular in Massachusetts because of the high price of housing.”
High price of housing is only due to the availability of ‘jumbo’ mortgages. So it is really very nice that even borrowers with good credit can’t get big mortgages. That will force the house prices down.
I recall that greed –> fear —> credit crunch —-> price crash was the sequence predicted by wise people on this blog back in 2005 Spring. I am a happy that logic still rules. No need to revise the text books.
As am I, but honestly, I didn’t even need to watch this play out to know that is exactly what was going to happen. The only way that it would not happen is through some invention of a “new math” that allows the old rules to no longer apply. The massive amounts of leverage allowed us to get into this situation. But that same leverage promises that we get the results that we are seeing today. Just a simple math equation; unfortunately, you don’t know when it will actually come to equality.
Every time I start to get a bit discouraged that prices are not coming down fast enough, I read articles like this that refuels my optimism. I get the same buzz being a renter now as I did when I owned a home and it kept going up in “value” every time I read articles like this.
The “so smart” Ivy League MBAs forgot that one bad apple can spoil the bushel. The subslime toxic waste is infecting the entire CDO and now rather han sitting back and figuring out how much they are actually losing, they are doing a throw the baby out with the bath water and marking all CDOs as worthless when they still contain performing loans.
The mortgage market is at ZERO now unless you qualify for VA or FHA financing, so just as the losses are piling up, these smart guys are taking there INcome to zero. 20% of loans are imploding so therefore let’s not make any loans at all. (wouldn’t it be smart to make PRIME loans and CDO them? Oh no those are worth zero, too, HUH?)
Just as more homes are becoming REOs, lets stop making loans, so no one can buy the REO, no refi’s, so more REOs, no loans, no one buys, more FB’s can’t sell, go into default, no loan, etc etc.
Going to be a long time before these supposedly smart Wall St types get there collective heads out of their fourth points of contact.
(parachute landing fall: first is balls of feet, second is calf, third is thigh, fourth is what you think it is as you work your way up)
Jay, I fully believe this is all by design, these people know what they are doing…nuff said
Only one “Ivy” leaguer called this mess…
My hat’s off to her~
“The reason behind this rash of foreclosures is different from the 1990s housing market collapse. Rather than a weak economy, the loans are going bad because they were risky to start with, as housing prices rose and mortgage companies rushed to lend money to borrowers whom banks rejected.”
And the reason house prices rose is because interest rates were dropped insanely low because of a weak economy. Hey, this is kind of sounding like a circular problem.
Prices are coming down, but you can’t get a loan to buy. So what’s the difference?
Banks are cutting off loans, just as they are getting more and more REO’s. If no loans, who will buy the REO’s?
Sounds like some Sweet Dealz are coming! Casey, get your credit cards out!…
If prices come down enough people won’t need loans. It’s likely that by the time houses are cheap enough that people only need 50 - 75% loans to buy them things will sort themselves out. I’d do a seller carry if a buyer could put 30% down. Banks are not necessary(especially a central bank). People have managed without them before. Eventually bankers will realize that their value is in assesing the merits of different uses of their money, not just handing it out for transaction fees. Banks used to funnel money to the most useful projects. They will again if they want to survive.
That’s what happened in the late 70’s early 80’s. A lot of seller financing since bank loans were at 15 - 18%. The banks saw that and said no way and started making loans again. Saw a little of this in the 90 - 92 housing recession, that’s why the banks created al this toxic waste, so they could get back in the game.
That’s what happened in the late 70’s early 80’s. A lot of seller financing since bank loans were at 15 - 18%. The banks saw that and said no way and started making loans again. Saw a little of this in the 90 - 92 housing recession, that’s why the banks created al this toxic waste, so they could get back in the game.
That’s how we bought our 1st house. Purchase contract. Friend of the family lived down the street from my husband’s parents and the friend’s parents, who lived up the street, went to a nursing home. We gave them a downpayment and they gave us the deed and carried the mortgage at 12%. Rates at the time were 21%. They charged us a fair price for the house and in 4 years we made $10,000 when we sold. We could have never bought back then with a conventional loan even though we made good money and had zero debt. At 21% the payments would have killed us. In turn they probably couldn’t have sold either, so it worked out for both of us.
Climber,
this is an interesting point. If rates get too high, as the jumbos are going now, I don’t think this is a bad idea. You could do all the credit checking and get an attorney. If you knew the buyers well enough, sure there is risk, but you could always undercut the banks’ rates and still do well. Like you said, someone puts 30% down on 150K. The reamining 120K could be financed at 15 years for say 6-7%, may be a little more dep. on what the banks eventually top out at. Not a bad income stream for 15 years! Sure, inflation will eat away at it, but still, not bad.
This is precisely how wer’e buying our place. Belongs to my in-laws they’ll be the mortgage holders for the next few years, then we’ll revisit buying them out right or if they want a nice income source for the next few years after that. Involve a lawyer though to cover your tax implications etc.
The CDo proves the cliche of one bad apple sppoils the bushel. (subslime is ruining entire portfoliio)
Now the new lending standards are double, triple bolting of the door after the horse is gone.
LMAO…
Me too. Very accurate and funny statement
The big question is: When will oil, gold and silver disconnect from equities?
As soon as people cover their margin calls. Stock drop, people need to raise cash. So they sell “stuff” that peopple want (oil, gold, treasuries). New cash buys the “stuff” bringing it back and then on to new highs.
The CDO is not worthless, yes it is WORTH LESS, but it has value. Say it is 20% subprime, not all sub primes are in default. But all the CDO holders are acting like every CDO is worthless. It IS hard to figure out the value, so rather than do what’s hard, they throw the baby out with the bath water, close the loan window and panic.
No new loans means no NEW income just as more toxic waste is set to implode, banks will be hurt even more next year and of course panic even worse.
“not all sub primes are in default”
YET!!!!!!! How many people are going to stay in the houses after prices drop 50%?
I think that is what is really going on. The sheeple are waking up from their dilusions and finally realizing what is REALLY going to happen. Home prices ARE going to fall back to fundamental support levels. The run up was just a bubble, created by insanely loose lending, and it IS going to pop, and prices ARE going to fall back to 2001, adjusted up for inflation, level. At that time, ALL subprime will default, alonlg with most Alt-A and lots and lots of prome.
“and prices ARE going to fall back to 2001″
Agreed. And as GS and others here have postulated, the prices will probably overcorrect and go really low before settling back into equilibrium.
The overshoot is a natural consequence of panic and drying up of credit. Equilibrium home sale prices cannot be restored until the credit markets stabilize, but for the moment, the investors in MBS are holding back because of the risk of catching falling-knife collateral. Likewise, the credit markets cannot stabilize until prices stop deflating. So absent government intervention in the mortgage market (ha ha!), it is a long way down from here. With govt intervention, it is likely still a long way down.
I think many investors think this way, because they believe that even primer borrowers brought overprice properties. If primer borrowers have to sell (Job/medical bills etc.), then are in the same boat as subprime and Alt-A borrowers.
We all know that subprime and Alt-A are toasted.
It is the prime borrowers and HELOC addicts that we have to worry about.
Cinch
BS ? how about w 10-15% down
The new story is people with good credit are now having a tough time getting a mortgage.”
Prime is now a FICO of 720, up from 700 two weeks ago.
20% down with a 720, VA or FHA guarantee, don’t fit this, no loan.
I think we should factor in the 2X-3X income, as well. Even with 20% down, people will not go in over their heads anymore. They and banks will realize that it will not be worth paying 10-12X income, esp. all the more in a decreasing marker.
I’m not sure this has impacted all lenders. I talked to our broker at the Washington State Employees Credit Union and they are still apparently offering 0, 3 and 5% down loans under $417,000 — though oddly enough 80/20 loans are gone. The broker tells me that since One Washington (WSECU subsidiary) are “A paper lendres” they are not impacted by problems in the secondary mortgage market.
So I’m assuming that low down loans just require mortgage insurance and that is still available?
The broker tells me that since One Washington (WSECU subsidiary) are “A paper lenders” they are not impacted by problems in the secondary mortgage market.
This sounds like Kool-Aid induced wishful thinking. Mortgage credit markets today are ALL impacted by what’s happening on Wall Street and other exchanges around the world. Credit markets are more interconnected today that at any time in history. A ripple in one pond can cause a tsunami in another.
Unless One Washington has no shareholders, fronts all of it’s own lending capital and keeps 100% of its loans (no MBS tranching, slicing & selling), your broker is full of it.
Private Equity? I posted about a week ago about someone I know, in his 70’s, recently operated on for cancer, total income less than $500 (supplimented by some casual work in a relatives store) who was able to get a mortgage for over $400,000. He has no assets and went bankrupt after the 1994 Northridge earthquake when his house was destroyed and is insurance didn’t cover anywhere near the repair costs. No point in going into how he got the paperwork through because we all know how. Obviously the realtor and mortgage broker cooked the numbers (I’m shocked!!). So what’s my point? Well, I found out he got his mortgage through a company called Magnum Finance. This is one of many private equity companies out there. Now I’m wondering how many of these “private equity” companies are holding the paper on these mortgages or if they dumped them onto Wall Street or one of the incompetent government mortgage entities. If they do hold the paper - then that’s another nail in the coffin as the mess unfolds.
“The mortgage problems are also cutting into home sales at a time when real estate prices and home sales are in decline. Allison Horne, owner of Dynamic Capital Mortgage Inc. in Brookline, said one client with $200,000 in savings wanted to buy a $1 million home in Boston’s South End, but had trouble lining up a mortgage.”
A million bucks in Southie? Times have changed. I had a friend that squatted in an abandoned multi-family home there back in the late 1980s.
And paid too much for it
(I’m a native of Taxachusetts)
The South End is miles from Southie. It had a major boom in the 1990s.
Southie is yuppified too, now, by the straights, but not to the $1,000,000 range yet.
A quick education on Boston geography:
The geographical center of Boston is in Roxbury. Due north of the center we find the South End. This is not to be confused with South Boston, which lies directly east from the South End. North of the South End is East Boston and southwest of East Boston is the North End. Backbay was filled in years ago.
I wanted to have cereal for breakfast, but no milk.
Got Milk?
Ooooh, I hope I can sell my house soon. My 2nd yr is up on Nov.1 and I still fixing it up. I am up about 80% in 2 yrs (it was a dump) so I have room to work with. Then I join the elite group of renters in executive homes.
Good luck with that! You better be prepared to use that “room to work with”. I think you’ll need it.
err… you’re not up 80% until you sell it, are you? good luck.
I am actually up 92%. But figured 80% as a conservative bet. Ya see, I bought it at 35% off the market price in 2005 as I had an option on it for many years (long story). I am not your typical flipper and I am still under $200 a sq ft and about 6x average income of the hood in a resort area that did not drop a dime in the 89-95 dump. Sorry to disapoint you all with making money and facts. Did I mention I sold my other rental in 2005, it had only gained 44% in 2 years and I banked it and still have every penny waiting for the big sale.
With such a proven, sure-fire, money-making strategy like that, Stan, I think you’re being way too conservative. You should use all your sweet, sweet equity and go lever up bigtime. Use it to get some $0-down cash-back neg-am specials on 10 more properties.
Can’t get rich by being all wimpy, like all of us fraidy-bears here. Be a real man, Stan! Go long, go deep, baby –balls out! Bullz rule!
Just think Stan…. With the baked in 50% price drop, you’ve only lost 1%.
…and it cost about $245 per sq ft to build a cheap house out here. Unless we enter the great depression part II (and that wont happen in the next 2 months) this place is still cheap for what you get, where you are and the quality of life. Now the big question is; should I go fishing or play golf later today?
Just like there are still huge waiting lists for the great buildings in Manhattan.
I can GC ANY structure anywhere at $70/sq ft. and make money doing it. You’re can’t blow smoke up everyones a$$ here.
Nice try though.
Now that there’s no loans available, who’s going to buy it?
“‘A good number of those people are spending as much as they can spend,’ LeClair said. ‘When you read about housing prices coming down, interest rates going up, foreclosure at record numbers, it makes people wary of making that kind of investment in a house. People remember the late ’80s, early ’90s, when your $300,000 house was almost overnight worth $250,000.’”
For those that remember the late 80s and early 90s, I can’t see how they would want to get as much loan as they could. Certainly going through one housing crash should educate you for life.
I can only think that Americans are wildly optimistic to max out on borrowing money when I think that the normal human reaction to debt would be extreme caution. As you are borrowing against your future income. Imagine that consideration in health if you’re going to do something that would take ten years off of your life that you know about but do it anyways. I guess that there are people that do that but the numbers should be far lower than what people do with borrowing.
Don’t worry, we will see a return to normalcy pretty soon. Eventually only the very wealthy will ever get past any loan greater than 150-200K, dep. on where you live. Those times are coming real fast and are going to be real interesting in places like where I live, South Orange County. There is no question in my mind, homes have to come down 50%. Even then it will still be a stretch with HOA, taxes, insurance.
I hope you are right Dan.
Yeah, it wasn’t that long ago that $180,000 house was like “Woah, man, this dude’s pulling down some change. $180,000, for a house, are you kidding me. It is huge though.” LOL
I think the thing that really blew me away was when those Uber Townhomes started going for like $350,000. WHAT?!!!
We thru the late 80’s early 90’s crash, but the late 70’s early 80’s one was even worse. 21% interest rates were a killer. Our 2nd house was a 15 year fixed loan and I wouldn’t have considered anything else. It’s paid for now, but we probably will move to a place with less land in a few years, when this all shakes out. Next one will just be cash, but I wouldn’t move until I’ve thoroughly checked out the market and where in the cycle we are.
I bet I’ve heard from a dozen people in the last few weeks that it’s a good time to buy with all the houses for sale. I’m telling you the majority of the general population really still does not get it. They think because it’s a buyer’s market with the huge number of houses for sale that it’s the time to buy before the prices go up. Most don’t realize it’s going to be a buyer’s market for a long, long time.
What is the risk of this to high quality MM funds w/ short avg. duration (60 days or so)? Am thinking about moving to treasuries or a treasury MM fund …
The risk is a run on the bank due to it going under and hoping that the FDIC bails out your CD/MM. Figure in taxes on your bank MM and you probably get the same yield from a Treasury only MM. (I’m in treasuries and municipals)
Be careful of money market funds, not all are FDIC insured. And news reports this morning indicate that some are seeing defaults for the first time in forever.
I just moved money to treasuries this morning. It’s like Quaker Oats; it’s the right thing to do.
ING Direct 5.25% eSavings, no lock, FDIC ins.
What’s the base to get that rate?
Only when the concept of monthly payments for one’s purchases is a thing of the past will this embararssing spectacle end.
Go out to dinner, pay with an 15% credit card and pay for that dinner for what 20 yrs is it? (to pay off a CC at minimun every month)
What shocks me is that some people are planning to die in debt!
My best friend married a woman that out earns the two of us combined. She has zero savings but a ton of neat “collectibles.” (e.g. footballs, basketballs, and baseballs signed by the whos who of each sport. She was loved at charity auctions.) You get one guess on the first thing they worked on pre-marriage. (Pay off all CC’s, then save 10% of net salary/month, etc.)
Thankfully I married someone who saves. Alas, her family is really pressuring us to buy. I’ve just started making fun of their comments; they don’t like it but they realize I have a plan and have done the math already.
Let’s put it this way… pressuring me to do something rarely makes it happen.
Got popcorn?
Neil
“Let’s put it this way… pressuring me to do something rarely makes it happen. ”
I think that’s true for most of us guys. My wife would be the first one to tell you that I’ll do EVERYTHING except what she asked me to do. And her mother will be the first to say that I am just like her husband (my FIL).
It is quite interesting to hear what the Harvard’s supposedly smart people say in their State of the Nation’s Housing report.
2007 Report:
After setting records for home sales, single-family starts, and house price appreciation in 2005, housing markets abruptly reversed last year. In 2006, total home sales fell 10 percent, starts tumbled 13 percent, and nominal house price appreciation slowed to just a few percentage points. Suddenly, it was inventories of unsold vacant homes that set records and homes in foreclosure that were making the news.
Contrast this with 2005 report:
House prices, residential investment, and home sales all set records again in 2004. But higher short-term interest rates and the strongest one-year price appreciation since 1979 made it more difficult for first-time buyers to break into the market. With low-wage jobs increasing and wages for those jobs stagnating, affordability problems will persist even as strong fundamentals lift the trajectory of residential investment.
In 2004, many households rushed to take advantage of still attractive interest rates and buy in advance of potentially higher prices. As a result, homeownership posted an all-time high of 69 percent last year, with households of all ages, races, and ethnicities
joining in the home-buying boom. The rising tide of housing wealth gave consumer spending another boost. In combination with historically low mortgage interest
rates, house price gains last year sparked near-record cash-out refinances and record home equity borrowing. Although refinancing volume dropped by half in real terms to $1.4 trillion, the amount of equity borrowers cashed out held fairly steady at $139
billion while net growth in second mortgage debt almost doubled to $178 billion. As cash-rich households stepped up their spending, housing wealth effects again accounted for a third of the growth in personal consumption last year.
The sun is setting on the fat, lazy, American consumer. Kind of sick of seeing all the fat chicks everywhere anyway…
This is the end
Beautiful friend
This is the end
My only friend, the end
Of our elaborate plans, the end
Of everything that stands, the end
No safety or surprise, the end
Ill never look into your eyes…again
“This is the way, step inside”
“This is the way, step inside”
“See the horrors of a far away place”
“See the architects of love, hate and pain”
“See mass murder on scale never before seen”
“See the ones that try hard to succeed”
Joy Division 1980 (had it right)
Ian Curtis fan. I love it!
Yes, a Mr. Curtis fans is here and watching with muted fascination these events.
Put on “Closer” and understand the future that is in store.
First it was hyped real estate, then subprime blowing up, now Alt-A and Prime and now on the verge of international banking lock-up for the lack of cash.
When all these LDO’s/derivatives start getting called in for cash and their is no cash or value behind them, watch out.
I started sucking the savings out today and putting it in the vault to cover 90 days expenses in case banks/credit unions has liquidity problems.
“Procession moves on, the shouting is over”
“Race to loved ones now gone”
“Standing around as they sit by their tables”
“Scattering flowers washed down by the rain”
“Stood by the gate at the foot of the garden”
“My fate stretches out from the fence to the wall”
“Kind of sick of seeing all the fat chicks everywhere anyway… ”
You MUST be close to Omaha!
I wonder how many people on here have a ton of cash and want a deal (me) and how many are just renters who missed a few boats, dont have a great education nor work ethic and need Armageddon to get back in the game? If we see a depression you wont have a job and unless you are darn tough, someone will take what you have as survival of the fittest kicks in. Be careful what you wish for. :0
“…how many are just renters who missed a few boats, dont have a great education nor work ethic and need Armageddon to get back in the game? ”
Nobody here. All of the stupid people bought houses.
I bought in 1996, about 2 years after it cratered the last time to speak for yourself. My mortgage is less than rent for something comparable, and I have 10 years left on the loan. So not everyone who owns is in all that bad of shape, just depends when you bought.
Doesn’t matter. I still wish for a huge crash in housing prices. I want the greed to be properly punished by market forces.
Agreed. If we have a recession or a depression their will be “no” sector of the economy that won’t be hit and it will trickle down into everthing.
I don’t have a ton of cash, but enough to get me just the space I need. OR if the numbers work out, a tri or four-plex of which one unit would be mine, and the remainder rented. The downslide in prices is occurring slowly enough that I can figure out which direction to go.
Stan: I have found the bloggers here to be thoughtful and interested in sharing their knowledge about housing and the economy. Sometimes they spice up their observations/analysis with interesting anecdotes and humor. The two groups you describe don’t conform at all to people on this blog.
Looks like Stan here is a troll. Please don’t feed the troll.
I’m not so sure many on here are wishing for “Armageddon”, but probably many of us think that the dissipation of the massive credit bubble in the mortgage market is long overdue — and that it is necessary in order for markets to eventually clear and have a functioning home loan market.
Personally, I think some of the bloggers on here may be onto something when they comment about the “gimme mindset” that seems to have accompanied the credit bubble. Good riddance to that. Increased consumption from asset inflation is entirely different than increased consumption from increased production. The latter describes the best of capitalist society; the former is merely a something-for-nothing attitude that leads to an entitlement mentality: “my house value *has* to increase 15% every year!!”. We should not regret seeing its demise.
Looks like reality is finally starting to hit Wall St. This is starting to look U G L Y. Just like we’ve been saying for years now, if they only would have listened.
Real estate crash/downturns primarily evolve from real estate booms - and since this was a superreal estate boom fueled by a super-bubble in junk loans, it will be a super-crash
Not getting much news play - however yesterday it was reported the Chinese are threatening to induce a dollars crash - should the Dems (and others) in Congress keep trying to turn the screws on them via legislation in an effort to blame China for the trade imbalances