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The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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If Fannie Mae and Freddie Mac do raise the cap on mortgage portfolios what are some potential resulting scnearios? After all the public could scream loud enough that Congress could force the hand of the “piper.” There is no easy exit from this mess.
“There is no easy exit from this mess”.
And there shouldn’t be… It’s time to pay the piper but our financial engineers are burning the midnight oil trying to come up with a painless exit. However they really have few options, raising the mortgage cap is only putting a band-aid on a bullet wound. That will not fix the core problem IMO. They will drag this thing out as long as they can.
Here is Jim Willie’s take on how Fannie will be used to bailout the industry. This won’t require a bill to be passed or any acknowledgement from the gov’t. Good luck trying to discover the machinations within Fannie.
http://www.financialsense.com/fsu/editorials/willie/2007/0809.html
“My guess is FNM accounting will change from a dark place to an apparent reformed entity, but with a vast black hole, never to require full disclosure. It will never face liquidation of its worthless mortgage bonds or of its deeply underwater derivatives. FNM will be a bond cemetery which nobody can visit.”
LOL if I wasn’t crying…
Japan’s banking industry had lots of similar entities during the 1990s real estate implosion.
Hey Ben — at some point, can we make this a subject over one of the upcoming weekends?
The parallels (and in some ways, absence thereof) between Japan’s housing bubble pop and our own? And the timelines of each, etc?
I’d like to start thinking ahead re: real estate.
Thanks for the consideration.
I think the comparison with Japan means little…
Nippon is/was a nation of savers, versus joe6pack~
Sorry if this comes up as a double post (I waited 20 minutes)
Here is a possible scenario where the bailout occurs without a bill being passed.
http://www.financialsense.com/fsu/editorials/willie/2007/0809.html
It will be typical of most govt. solutions such as social security, medicare etc. pass it off to the next generation. Remember it’s all about me generation.
The future is already sold. The future is here. Let’s market everything to market so the generations that made the mess don’t pass on before the pain is felt.
You can’t spell “team” without “me”.
“Fannie Mae and Freddie Mac do raise the cap…the public could scream loud enough”
Does “the public” even really know what most of these terms mean? How much do they really care? To them, it would be “some government organization helping people save their houses”. I would bet that most people don’t know what Fannie or Freddy actually do, or that they are private companies run for profit (with a wink and a nod from the US government).
Now that panic seems to be taking hold, can we revisit that discussion of FNM, FRE & FHA bailouts? Because any political resistance to stupid suggestions for fixing the problems facing the mortgage market are likely to crumble when blood is flowing in the streets. (Hopefully I am only speaking figuratively here!)
Good topic kuga. I believe that it’s all talk from Congress and the presidential candidates. They know it can’t be done.
Imagine the field day that the alternative media will have with Fannie and Freddies reporting record. They are a mess already.
Bailing out FBs will effectively shut a much larger number of people out of the market due to propped up prices bolstered by undeserved interest rates for FBs according to some of the proposals I’ve seen proposed on CNBC.
Can you imagine people who have defaulted on their mortgages being given a 1% interest rate even if it’s just an extended teaser period? They are still stuck with a house no one will buy at these prices.
“Fannie and Freddies…Bailing out FBs”
I still contend that at least in Cali, Fannie and Freddy can not come in and save the day, even with raised caps…the only thing that can save the day is a 3.5% (or lower) interest rate and no income documentation required or no “debt to income” ratio. Otherwise, by requiring people to actually QUALIFY for loans using ACTUAL INCOME, and ABSURDLY LOW TEASER RATES FOREVER, Fannie and Freddy have very lessened power in Cali.
CBs are ‘injecting liquidity’ all over the place.
What does that mean exactly?
Handing out money?
Who’s money are they handing out?
Can I have some? I promise I’ll go out and stimulate the economy.
Who are the recipients and what do they do with it?
How does that work?
Does it work?
What are it’s limitations?
How unusual is this?
It seems to me the panic levels are very high behind the curtain.
I second this topic.
I wish there was an income statement, balance sheet and statement of cash flows for the FED, something that provides some transparency.
This is the “New and Improved” Panic of ‘07
Ya know, if we just all think positive thoughts, this could all turn out ok.
$tuart $malley to the rescue?
I was alluding to “The Secret” but perhaps some of the money masters, bankers and hedgies could use some of SS’s 12-stepping today. I’m sure more than a few are feeling a bit “unloved”.
So can helicopter drops save the day? I guess we are watching a natural experiment play out which may shed light on the answer.
“I promise I’ll go out and stimulate the economy.”
LOL
Another massive helicopter drop in Europe today!!
ECB Loans 61 Billion Euros After Money Rates Rise (Update2)
By Christian Vits
Headquarters of the ECB Aug. 10 (Bloomberg) — The European Central Bank loaned 61.05 billion euros ($83.6 billion) after concerns over U.S. subprime mortgage losses continued to roil credit markets and drove overnight interest rates higher.
“This liquidity-providing fine-tuning operation follows up on the operation conducted yesterday and aims to assure orderly conditions in the euro money market,” the Frankfurt-based ECB said in a statement earlier today. The bank received 62 bids worth 110.035 billion euros in the so-called “fine-tuning operation.”
The overnight rates banks charge each other to lend in dollars soared to the highest in six years yesterday after a reluctance to lend money amid concern over U.S. subprime mortgage losses. Overnight euro rates again rose to as high as 4.27 percent today, compared with the ECB’s benchmark rate of 4 percent.
The three-day operation comes after the bank yesterday pumped 94.8 billion euros in cash into money markets at a fixed rate of 4 percent. The marginal rate today was 4.05 percent.
To contact the reporter on this story: Christian Vits in Frankfurt cvits@bloomberg.net
Last Updated: August 10, 2007 06:03 EDT
Another massive helicopter drop in Europe today!!
Helicopter Ben? No, it’s Helicopter Jean-Claude!!
Please explain: do those ‘cash injections’, in a few words, mean that that national banks are paying for the losses of MBS? Thanks.
Hi Ben & everyone,
I have been a sometime poster and frequent lurker for about 2 years. Its time to re-name the blog because the housing bubble is just a memory. How about “thehousingcrash.com”?
I am still convinced that there is organized crime involved in the sub-prime disaster. I don’t know whether it’s Russian, Al Queda or home-grown, but nothing will change my mind that such wide-spread and insidious fraud could have been spontaneous. Chew on that guys!
I haven’t heard any more about MA government bailing out lenders and folks getting foreclosed, but I don’t think its a dead issue.
Peace! Spucky
There almost certainly was - the organized crime was the Fed and big banks, and perhaps to some extent the execs at the big homebuilders. They made *tons* of money from the bubble, and many got out right at the peak.
I don’t think any of them anticipated how bubbly it would get, or how bad it was going to crash. Many who were on the take will get burned.
Same as the JP Morgans and such in the early 1900’s.
If there was an organized element to the inflation of housing prices, and they were not expecting it to get this bad, they definately forgot the most cardianal of all rules.
Never underestimate the stupidity of the American consumer.
I vaguely remember a post some time ago about either gang members or mobsters running real estate scams from prison!!
Oh and - perhaps a weekend topic?
Speaking of weekend topics, I’ll bet there’s much sadness out in the Hamptons, LMAO!
Crash? No, no, no, no. It’s a housing apocalypse.
housing apo-collapse
For the MA foreclosures, supposedly a “fund” and “hotline” have been setup. IMO, it is nothing more than a PR move, so the polls can say they did something. I really don’t think most FBs can be saved. Even if they get bailed out for the short term, within a year they’ll be right back in the same situation.
CENTRAL BANK ACTIONS
Bank Injection
ECB $131 billion (Aug. 9)
Federal Reserve $12 billion (Aug. 9)
Bank of Canada $1.1 billion (Aug. 9)
Japan $8.5 billion (Aug. 10)
Australia $4.2 billion (Aug. 10)
ECB $84 billion (Aug. 10)
Total $240.8 billion
The EU must have upgraded to the new high speed printers when they switched over to the Euro.
Ha, ha, ha. Good thing I wasn’t drinking my coffee when I read that.
You are quite light on infusions of Central Bank moneys:
“Their moves came after Asia central banks joined a global campaign to keep money flowing through the arteries of finance. Central banks worldwide have injected at least US$323.3-billion in the past 48 hours….
Taiwan, Malaysia, Indonesia and the Philippines all stepped in to support their currencies by selling U.S. dollars, traders said, as escalating credit market worries hit risky assets around the region.”
$240B or $323B what’s the difference? We don’t have any problem.
Watch out for new $10000 bills
Why is the ECB so panicked? I assumed the real bagholders were China…but it’s the Europeans holding this trash?
Any clue whether Japan is largely free of exposure?
They’ve got a bubble of their own that isn’t popping yet. I assume this is preemptive to keep their’s going.
Uh, in a sense, the banks are doing what the big brokerages like JP Morgan did just before the crash of 1929. It seems whoever has any spare change is putting it into the system to keep it on life support. Didn’t work then. Won’t work now.
I agree in the days and weeks just prior to the 1929 market crash the big players in the marketed in a concerted effort under the rubric of “organized support” attempted to boost/support/prop up the markets to keep them at what they thought was a “reasonable” valuation level.
The parallels today in what the Central Banks are doing is eerily similar. No sky is falling chicken little, just cognizant of history and the lessons of the past.
Good luck.
Here is a well written article on understanding the effects of inflation. A must-read for those not well versed on the subject.
http://www.safehaven.com/article-8146.htm
“Lenin was certainly right,” affirmed John Maynard Keynes. “There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”
Awesome, augur-inn. Thanks for that. A must-read for every American citizen. This is exactly what is going on, but there is hope. We can used this opportunity to get back on the gold standard and rid ourselves of this monkey on our collective backs.
agreed!
Can someone break it down for simpletons? I certainly understand the housing bubble but now that other things are crashing I don’t totally have a handle on that. Like footie’s post, why are central banks doing that? Is this part of the liquidity crisis?
School me.
No offense, but:
Nobody would expect to learn basic thermodynamics or techniques of archaelogy (say) in a single question, but Money and Banking, which requires a lot of background, training, and study to understand thoroughly and properly: hey, give it to us in a couple paragraphs!
Nobody would expect to learn basic thermodynamics or techniques of archaelogy (say) in a single question, but Money and Banking, which requires a lot of background, training, and study to understand thoroughly and properly: hey, give it to us in a couple paragraphs!
Einstein said that if you can’t explain your subject to a six-year-old, you don’t really understand it.
Not to mention that I have always found that the more complicated a transaction is, the shadier it is. Think Enron.
Finance, at its core, isn’t that complicated. All of the various complicated financial instruments are really just smoke-and-mirrors ways of borrowing other people’s money to invest with. And it’s a lot easier to do stupid sh*t when it’s someone else’s money you’re gambling with.
I’ll try to explain from what I’ve learned - then someone else can correct me.
Banks have loaned out so much money they have no reserves left for new borrowers. All they have in their vaults is mortgage-backed securities, which they are loaning to the federal reserve so that in return, they can get loans of cash. With the cash they receive, banks can start to make loans to borrowers again. THen, using the pledges of these borrowers as collateral, banks can re-pay the fed and get back their MBSs again.
Maybe this was discussed already but I was reading about REIL blocking the final sales price of home so only the list price will be recorded as the final sales price. Wouldn’t the final price still be recorded on the county records?
what to buy now ?
even gold isn’t performing………
This is a good topic too. I.e. How do we protect ourselves from this mess?
20 acres, some cattle, a few cows, chickens, 1/2 acres garden, several acre orchard of fruit & nut trees, a year supply of food and cash on hand. And enough guns and ammo to keep it all.
But that’s just me. Your mileage may vary.
But those 20 acres are already overpriced - bid up in the current bubble! LOL. Believe me, I’ve been looking! The places with all the necessary ingredients (plenty of water is one) are all bid up too high.
20 acres will not suffice for 2 people and 3 cows. Remember “40 acres and a mule”? 40 acres, one mule, one cow, a few chickens; maybe a family of four. There’s a reason the homesteads started at 40 acres.
flat, in markets that are rigged beyond all comprehension, nothing can perform as it should. Forget the markets. We all have to eat, sleep, clothe ourselves, bathe, get from one place to another, etc. etc. Life doesn’t stop because the rigged casinos can’t operate. I don’t know why everything has to take a dump when the markets implode. The solution is so simple, all we have to do is disconnect as a country from this rigged system, get on the gold standard, re-value everything accordingly, work at building back up the confidence of the American people in themselves, clean out the dreck on Wall Street and in Washington, etc. Continental Congress committes in various communities (with financial pigs excluded) would be a good place to re-assert the Constitution and a sane monetary system.
The markets are truly rigged beyond all comprehension.
I’m sitting here watching the Dow futures rise sharply on CNBC as they are telling me they’re rising because the Fed is ‘injecting’.
Steve Liesman is cheering them on.
“free markets”… what a joke.
The French did something similar in the late seventeenhundreds if I recall correctly
YES YES YES palmetto,
A person with a real solution.
Buy canned food and water.
Just make sure the canned food isn’t from China.
All of us HBBers could pool our money & buy our own island in the Carribean…I also hear Florida is for sale :D.
How will a bailout affect buyers, sellers, FBs, lenders, taxpayers, bond investors, builders, governments, and other housing constituents?
WSJ reports McDonalds hikes wages by 30% on average in China: http://tinyurl.com/29boz6
When was the last time they (or any marjor corp) did that in the US?
Got Freedom Fries?
how much longer can this credit crunch go before we see major layoffs on wall street and the financial sector?
also what major player will implode first? bank or investment bank that is
I don’t know if this is really worthy of a weekend topic (especially in a week with so much going on), but I am curious.
Do you find yourself more reluctant to spend money, even though the “wealth effect” doesn’t apply to you. I don’t own a house, my nonretirement assets are 100% cash and my retirement assets are over 90% cash. And yet, I feel a reluctance to make plans for my vacation, to pick up a few extremely needed items of clothing, to spend much money on anything. And I’m pretty tight with money even in normal times.
I assume it is because I lost my job in the last downturn and finding this one took a while so a feeling that a bunch of people are loosing jobs makes me nervous. But I have been at my current gig for 2 1/2 years, just got promoted, and this job is about as recession proof as working for someone else gets. (I work for an extremely under staffed department in a high priority federal agency and evey time I turn around someone is asking my boss to put me on another assignment.)
I’m just feeling like it is time to buckle down and protect my vulnerable financial middle. I’m trying to divert the feeling into useful things - mostly using up my Am Ex rewards points so I can cancel the card before the next fee cycle - I don’t need the damn thing. I also did some work to figure out which bar memberships I could cancel wihout limiting my ability to go back to practice law there someday. But the feeling is not a rational.
The shorters in our midst who have been making money hand over fist in the last few weeks don’t need to answer. Shorting requires much more time than I have to do research so I don’t play that game. Maybe next bubble.
I’m one of those shorters you mentioned and yes, the last few weeks have been good, and I anticipate more to come, but I basically was sidelined other than a bit of scalping to live on from March through July. I was bitching every day on here. It was like a toothache that no pain killer would kill. And I haven’t spent anything nor will I probably other than giving away what I always do. I’m in hoard mode.
During that unemployed time I was once actually at home and got “consumer confidence” call. By the way, it is no wonder they get weird numbers, the call came right around 5:30 I think. Weird time. When she asked whether I planned to make any major purchases in the next 6 months, I asked her what a major purchase meant. She said it was for me to determine. I said “no”, but the answer was probably “yes” using that definition. At the time I considered a $4 can of Endust a major purchase.
Seriously, a damp paper towel works just fine.
tx I doubt you remember, but at some point during that period I mentioned I was long; your comment was something to the effect of: But when do you get out? Well, it turns out that the day you asked that question would have been a fine day to ditch my positions. Alas…
In other news, did anyone see that the Fed is injecting liquidity by buying mortgage backed securities?
http://tinyurl.com/2fkh5b See the fourth paragraph, cuz it’s a bit hidden.
No change in spending for me, but then I don’t spend much anyway.
Not so sure about the rest of the family. It seems the females are more influenced by their peers, and might feel confortable spending less if everyone else is. The daughters may be content to go to the park and play cards if no one else is getting money for a movie. Just last night one of them turned down a free rock concert in the park for a movie.
I need help figuring out what’s a safe haven for my 401k. Are treasury MM and/or bond funds relatively safe? (Realizing practically no gains, perhaps, but safe in that my money wouldn’t be lost in an overnight crash.) Any advice is welcome.
If you are more than ten years from retirement, you should not be looking for safe havens for 401ks. I’m 48 years old and my IRAs and 401ks are 100% stock mutual funds. They will remain that way the next ten years and I will slowly move the allocation into bonds.
“And I’m pretty tight with money even in normal times”
No. We live WAY below our means, and have been actually ramping up a bit of our spending. If/when things get cheaper (used toys, vacations, houses), we may actually start buying (expensive) things…with cash.
Assuming that cash is actually worth anything when the time comes.
There’s an FB in Orange County who has a watch on Ebay I’d love to have. She’s been through about 4 auctions with no bidders (never lowers the price!) and I’m about to email and ask her for her best price.
What I’ve been very reluctant to acknowledge in the past few weeks is that I’m finding it more difficult to save. The problem seems to be groceries and utilities.
I was planning on purchasing some badly needed living room furniture. My sectional is over 20 years old and it’s falling apart. But since I’ve found it impossible to save in the last 3 months, I guess it will do for as long as it takes.
Yes, this is beginning to feel like the late 70’s/80’s to me, and even though my job is fairly secure, my grown kids’ jobs aren’t.
“…even though my job is fairly secure, my grown kids’ jobs aren’t.”
That worries me, too. They blissfully plug away at their jobs and I worry that those jobs could be threatened at any time.
I haven’t really changed my spending. We live a bit under our means, but I do have a weakness for used guitars. That said, I’ve been conscious for several months about thinning down my guitar herd to the “lifetimers” before the recession hits full-on.
Day-to-day, my main extravagences are concert tickets and CDs. I’m not going to change my spending habits in the near future, for the simple reason that I’m already socking away a nice chunk of cash every month.
I haven’t changed my spending lately cuz I tightened up about 3 years ago. Then after finding the blog 1.5 years ago, I got manic about paying down any debt. We could be better prepared but we’ve got a good shot if this turns ugly.
I have started hoarding things though. The beautiful clothes (based on quality, not faddish brand names) I used to give to goodwill after my kids outgrew them now are saved for their children. (I wonder if they’ll be able to afford similar quality once the dollar tanks and 1/2 their salary goes to medicare/ss)
Or maybe I/they will have them for barter. Isn’t that out there? Lately, I like to humor my bizarre thoughts because after all these years I’ve found my instincts are often more right than wrong.
Our house is paid for and taxes and ins. are $2150/yr and $538yr. so I think we should be in good shape.
Let’s stay ahead of the curve here, now that the market is nipping at our heels. There are going to be a lot of foreclosures. It isn’t just the subprimes, and the exploding Alt-As. You’ll have regular people who can no longer pay for the usual reasons — health, unemployment, divorce. And you’ll have those who bought at the peak, and those who HELOCed at the peak, and who are suffering to pay the mortgage just deciding to walk away. It’s like a riot — when everyone else is doing it, the stigma diminishes.
So what happens to the homes? In report after report here, the banks are taking the homes at auction for the value of the mortgage. What kind of loss are they reporting? What kind of reserves have they created against the loss? What is the value they are carrying on the books? How are they managing the properties?
Thus far, the banks have managed to delay sales until credit crisis, thus multipying the loss to avoid admitting it.
What is going to happen, and when?
The American Way…
Deny, Deny, Deny, Deny
Then hold a teensy weensy press conference, stating that all tellers will be going to rehab, and that you are sorry that the tellers caused this mess~
I second this topic. I want to know what we can reasonably expect the REO market to do in the coming months. They can’t sit on this stuff forever, and they can’t sell it for what they’re owed on it.
Does anyone have the ACTUAL FIGURES for the number of single family residences that were purchased using sub-prime and alt-A?
Dr. J says that the subprime numbers total about 3.4 million, or about 2.5 percent of all houses in existence (140 million). If that’s the case, that’s a very small number.
Likewise does anyone have the ACTUAL FIGURES as to how many of residences foreclosed say, since 2006, were the only residences owned by a single buyer? For example, are half of the foreclosures due to individuals who purchased two or more properties?
I’d like an answer to both to better understand what the real risks are going forward (to housing, to stocks, to the overall economy). I have no where near the data I want.
I think a lot of us here (including myself) spend an awful lot of time making predictions and hypotheses that are a tad on the hollow side.
Sure read these and the links from Meredith Whitney
From the FDIC:
Scenarios for the next recession
Mar, 2006 caution pdf
“…Overall, Ms. Whitney’s research suggests that a group that includes approximately 10 percent of U.S. households may be at heightened risk of credit problems in the current environment. This group mainly includes households that gained access to mortgage credit for the first time during the recent expansion of subprime and innovative mortgage loan programs. Not only do many borrowers in this group have pre-existing credit problems, they may also be more vulnerable than other groups to rising interest rates because of their reliance on interest-only and payment-option mortgages. These types of mortgages have the potential for significant payment shock that occurs when low introductory interest rates expire, when index rates rise, or when these loans eventually begin to require regular amortization of principal including any deferred interest that has accrued ….”
http://tinyurl.com/qm5rq
The information and the governments public reporting of this information and the lax standards even in March of 2006 - pure greed.
You might also read (from the Federal Reserve of St Louis)
Is the US Bankrupt?
Laurence Kotlikoff July, 2006 caution pdf
abstact: “Is the United States bankrupt? Many would scoff at this notion. Others would argue that financial implosion is just around the corner. This paper explores these views from both partial and general equilibrium perspectives. It concludes that countries can go broke, that the United States is going broke, that remaining open to foreign investment can help stave off bankruptcy, but that radical reform of U.S. fiscal institutions is essential to secure the nation’s economic future. The paper offers three policies to eliminate the nation’s enormous fiscal gap and avert bankruptcy: a retail sales tax, personalized Social Security, and a globally budgeted universal healthcare system.”
http://tinyurl.com/g9kwc
Read and learn. The government was well aware of these problems for years. And if you wish to see were it started: go to the
03/22/1994 Federal reserve board meeting notes. In those notes you will read “”When we moved on February 4th, I think our expectation was that we would prick the bubble in the equity markets. What in fact occurred is that, as evidence of the dramatic shift in the economic outlook began to emerge after we moved and long-term rates began to move up, we were also clearly getting a major upward increase in expectations of corporate earnings. While the stock market went down after our actions on February 4th, it has gone down really quite marginally on net over this period. So what has occurred is that while this capital gains bubble in all financial assets had to come down, instead of the decline being concentrated in the stock area, it shifted over into the bond area. But the effects are the same. These are major capital losses, which have required very dramatic changes in the actions and activities on the part of individuals and institutions.”
The creation of the bubble markets. You will also read that he was questioned if this would not create new asset bubbles, look at his reply.
and finally
“The fate of the world economy is now totally dependent on the US stock market, whose growth is dependent on about 50 stocks, half of which have never reported any earnings.”
Paul Volcker
Ex-Chairman of the Federal Reserve
September, 1999
Knowing this was inevitable is no day at the beach scenario. It is one thing to watch a car crash and another if you know the occupants.
GET OUT OF DOLLARS - FED WILL DEBASE CURRENCY TO SAVE BANKERS
some options FXY (yen), FXF (swiss franc), GLD (although I prefer owning some physical gold).
I like DBV as well. A good way to diversify out of the dollar slowly. They backtested DBV. It returns are better than the S&P 500 over the long term w/o the volatility (beta).
How about a topic where we come clean…what has surprised us about the bubble? For me:
1. I’m surprised that Los Angeles prices have been so sticky (so far)…two years into this.
2. I’m surprised how fast credit has tightened up (high pucker factor here). It was just last February or so that sub-prime was having “a few problems”.
3. I’m surprised by the speed and the magnitude that the housing crisis has been effecting other investments (stocks especially)…from the DOW breaking 14000 to where we are now.
4. I am surprised at how fast loan products have been drying up, requirements have tightened, and how there are almost *no* investors for sub-prime securities.
1. Houses are illiquid - and the median distorts.
2. Credit moves can happen with the push of a button. Lenders, having just come to terms with the true risk involved at this stage of the game, are quitting or dying.
3. Stocks are liquid.
4. Same as number 2, really.
I’m surprised my local paper is STILL NOT ADMITTING THERE’S A BUBBLE. See my “Dear Journalist” post of the other day. Go to this page http://thehousingbubbleblog.com/?p=3228 and search for “gal”.
I’m with you on the speed of the credit crash. The whole house of cards seems to be falling down just in July-August. I guess because the decline in housing prices has been so gradual, I expected the finance side of things to be slow also.
Which makes me wonder if the price declines can continue to be slow, if nobody can actually get a loan. I guess we’ll have to wait under the REO market takes off. The FBs can’t sell low, and the financially healthy folks I’ve noticed trying to catch the “last wave” don’t have to sell low. Gotta get those folks out of the picture first.
I was surprised housing prices kept rising after 2003, when they started getting really out of line with income. The credit bubble is the answer to that.
I’m surprised that so far, for most around me, it’s still just a story on the television.
Ben -
How about a story on how everyday people (like most of the people on this blog) that could see this housing crash and issues with CDOs back when they were being flamed by the RE crowd for being wrong. Something along the lines of..”The shoe is now on the other foot”
I can’t claim to have had any special understanding of it in 2004-05. I was just scratching my head and wondering who the hell was buying all those houses at crazy prices my wife and I could never afford, even with relatively good incomes. At first, I thought maybe we had just “missed the train” somehow.
I have an uncle who lost his shirt playing speculator in the ’80s California bubble, but I didn’t really connect the dots until I did a little Googling and found the world of the bubble blogs, especially this one.
Well I remember a colleague, 20 years out of the military, and with a new degree out of a tech school got into real estate on the side - bought a new house and turned it into a rental and then went to get his brokerage license. That was back in 2001. Even at that time I had no interest in getting into real estate. But the new RE broker was / is not the sharpest knife in the drawer. For other reasons he was one to be disrespected. I kept that in the back of my mind. Then in 2004 I noticed prices going up significantly. Still not interested in RE. But I thought these prices were ridiculous. Look at any south Bay house in LA up for sale and check the price history on Zillow.com. The price doubled since December 2003. Unbelievable and unsustainable.
Are we going to see even a tiny acknowledgement from the talking heads that the ‘nut jobs on the blogs’ called it right?
Anyone see the interview with Ben in Newsweek? Sounded like mea culpa to me.
http://www.msnbc.msn.com/id/14252223/site/newsweek/
This raises another question. Just how far do YOU expect house prices to fall, Ben?!
Awesome! Way to go, Ben! Anyone know if this will be in the print edition and, if yes, which one?
Chip, that was from last summer.
M gal, a lot.
Good luck on that one. The media never admits it’s wrong on anything.
How about a thread on the implications if a lot of people take Cramer’s advice and just walk away if they go underwater?
During the last big bust in the UK and Australia, in the early 90’s, one very significant stabilising factor was people were prepared to take real financial pain to keep their homes.
Anecdotally it seems to me that things are different today, and more people will do the ’smart’ thing and mail in the keys. There are even tales of some FB’s more-or-less openly planning to stop payments and save while being foreclosed upon.
Maybe this is because today’s numbers are so large there might be no realistic expectation of working things through, but I suspect another factor is that a lot of folks have at least some knowledge of how the airlines etc. have used bankruptcy to get away from obligations, and are taking the view that all’s fair in love and finance.
I think the depth to which folks have gone ‘underwater’ is the key. I mean, if you are $200-300k underwater on your house and continuing to sink, you are basically screwed financially for the next 10-20 years. Your house is effectively unsellable and you cannot refinance.
In previous bubbles, people had put in big downpayments on their houses, so they had “skin in the game” and wouldn’t just walk away. But if you put zero down, and you know that you’re going to lose the house one way or the other, why would anyone bother keeping up with payments?
“have used bankruptcy to get away from obligations, and are taking the view that all’s fair in love and finance.”
If that becomes the mantra of the day, who is going to lend out any money without a lot of skin in the game. Try that with a loan shark and see if you don’t get a quick session with AA (attitude adjustment).
The great value of this blog is people here in 2003-04-05 saw into the future and realized the wheels had to come off this wagon.
Now the wheels are wobbling and I would like to see some discussion on how we navigate this cart down the hill so we are reasonably intact at the bottom.
I don’t mean hording canned goods and toilet paper.
Should we find links for the actual bank and mortgage companies foreclosure departments? Not the paid subscriptions foreclosures sites.
What are some good sites or books on how to buy foreclosures.
How can we recognize problems with the documents of a foreclosure?
I think we can use the time to educate ourselves until prices come down enough to buy again.
Possibly for weaving into a related topic:
As I understand it, on August 15 or 16, there is the possibility of more market turmoil as hedge fund investors must declare their intention to claim redemptions on September 30. I’d be interested to know more about this “calendar” and the bloggers’ forecasts of the results on or following such trigger dates.
Maybe this topic has been discussed before, but historically, what is the relationship between the Fed Chairman and the U.S. President? Does the FC act totally independently or does the FC take advice/orders from the Prez? “Where is it written” what the relationship is supposed to be?
I would like to know what a 1% interest rate cut would mean for this whole picture?
Could that actually save the housing market?
Interest rates in the past have been around 7-8% so this is not and interest rate thing. This has been a Ponzi scheme of grand proportions and they only end badly.
I said it before and I’ll say it again, the coup de grace is going to be the CC debt. The last few days where the Feds had to enter into the financial picture just put in the final nail to rising CC rates. J6P didn’t understand anything going on in subprime, the last two days of market activity, and loan resets, but he is sure going to start feeling the heat and it isn’t even Xmas yet. Congress hasn’t heard a thing yet, just wait until J6P and friends can’t go out to eat, have to sell their toys, and can’t go mall shopping every weekend; And nothing spells divorce faster than a lack of monitary liquidity within a marriage. This puppy is going to unravel as fast as a run-away semi heading down the grapevine (CA-I5)and the carnage won’t be pretty.
My favorite quote from CNBC guest this week: “watch the price of the collaterial and ASSUME someone owns it”!
Right now that’s the problem. No one knows who owns what. Underneath all the paper float there is ‘real property’ and that property has an innate worth depending on use. Unfortunately the paper float has what some would call ‘blue sky value’ but that term only applies when true good will is involved; what we have now ‘financial modelling’ that the big boys created as a way of spreading extreme risk around the globe in an attempt to trivialize it. Funny thing about modelling, it’s like a pretested drug, it works in the laboratory but when thrown into the public arena you uncover its most undesirable side effects. The extreme side effect now is that everything has to be marked to market and that means that most property in CA has a market value of a third of its 2005-2006 high value.
The stock market is fine. Those companies that are managed well will continue along and those in debt will be bought up on the cheap and a whole lot of money on some balance sheets is going to go poof!
Perhaps we could recap and discuss this historic week. How did we get from ‘it’s largely contained’ to ‘global infusions of liquidity?’
EVERY time that I am out and about, I see 1 to 2 U-Haul trucks, and that’s been going on for maybe 5 months now. Is anyone else having a similar experience? Americans seem to be moving a LOT.
Maybe this subject can be added to a thread . What price should money be at now for loans and where whould the fed rate be at ,and how much higher should the rate and down payment requirement be for a jumbo loan ,in a perfect world of course if you were really pricing risk right .
Also MSM still isn’t addressing high % ownership in United States along with excess building and speculation that will keep inventory high .