A Major Devaluing Of Home Values In California
The San Francisco Chronicle reports from California. “Sales of new homes in the Bay Area plunged 35 percent in June, the latest sign the once-strong real estate market continues to stagger. A trifecta of cooling prices, rising foreclosures and tightened credit have forced many builders to slash prices. In addition, some are putting up homes for auction.”
“‘Many of the foreclosed homes are dumped on the marketplace, and it’s skewing values,’ said Robert Rivinius, the building group’s CEO. ‘A lot of builders are already selling homes at the bottom of their price structure … and so it creates a lot of uncertainty in the marketplace.’”
“‘How does demand come back? When prices come down,’ said G.U. Krueger, chief economist with IHP Capital, said the deflated new home market is simply one more indication that the market had run amok and is now returning to some equilibrium. ‘Prices went way ahead of themselves relative to the incomes of the consumer, and price increases could only be maintained with exotic financing.’”
The Press Democrat. “Peggy and Charlie Della Maggiora have Oregon on their mind, building a retirement home on five acres by a creek near Grants Pass. But they remain tethered to their Rohnert Park home, now languishing on the glutted, glacier-slow Sonoma County housing market.”
“‘Here we are, kind of stuck,’ Peggy Della Maggiora said, with a for-sale sign planted in front of their four-bedroom home. ‘We’d love to be up there.’”
“As inventory piles up and anxious sellers whittle down their prices, buyers — now in the driver’s seat — comb the ample offerings and, in many cases, sit on their hands, anticipating even better deals to come.”
“‘It’s not a bad market, just a little slower,’ said Greg Wilde, who is relocating from Windsor to a new job in Orem, Utah and faces the unappetizing prospect of carrying mortgages on two homes.”
“He’s cut $20,000 from his initial price of $559,900, tacked on a $5,000 ’seller contribution’ and offered a $1,000 finder’s fee. ‘We’ve had plenty of lookers but no offers,’ said Wilde.”
The Santa Cruz Sentinel. “Gary Gangnes of Real Options Realty, calculated the unsold inventory index for Salinas, where the bulk of Monterey County’s foreclosure sales are taking place, as 26.7 months. Watsonville: 203 listings and an average of six sales a month.”
“At Vista del Mar, a condo complex completed last year near Auto Center Drive, developers have sold only half of the 102 units, with another 20 in escrow. They are cutting prices up to $50,000 and offering a lease-to-purchase option to generate sales.”
“‘The buyers are out there, they’re just waiting for the prices [to drop],’ said Aldina Maciel, a real estate agent in Watsonville.”
From Sanluisobispo.com. “‘We are seeing many programs disappearing, which is making it very challenging for some borrowers to get the kind of financing that would have been available to them a month or two ago,’ said Kevin Hauber, a loan officer in San Luis Obispo. ‘The availability of jumbo loans, particularly for specialty situations like stated income, stated assets or anything to do with an unusual property, has been impacted pretty significantly in the last few weeks.’”
“The hardest-hit segment in terms of price is new homes. The median price of new homes is down more than $100,000 year over year — or 17.5 percent. The median fell to $480,000 last month from $581,500 in July 2006.”
The Fresno Bee. “Housing construction continues to struggle in parts of the central San Joaquin Valley as builders contend with stiff competition and an abundance of homes for sale.”
“‘The market is terrible,’ said Mitch Covington, president of the Building Industry Association of the San Joaquin Valley. ‘We have inventory, a little bit of traffic and can’t convince [buyers] that it is a great time to buy.’”
“Many established builders, faced with more competition from other developers that flocked to the region during the real estate boom, and with a glut of used houses on the market, have been cutting prices and offering free swimming pools and appliances to boost sales.”
“‘Maintaining profitability is a challenge for some builders given the demand for incentives and lower prices in this down market. But because of it, many builders are willing to offer very good deals,’ said Stan Smiley, senior managing director for Hanley Wood Market Intelligence.”
The Press Enterprise. “Property tax reductions for more than 11,000 homes that have seen a drop in value were announced Wednesday by San Bernardino County Assessor Bill Postmus. The reductions come as home sales have slowed and foreclosures are on the rise in the Inland region.”
“The new assessments represent a drop of more than $238 million in value in San Bernardino County and $610 million in Riverside. Officials are keeping a close eye on the value of property and said they expect to see even more value reductions. ‘We are in the process countywide of going into a major devaluing of home values,’ Postmus said in an interview.”
“Areas of Temecula, such as the Wolf Creek community, as well as French Valley, Murrieta, Hemet, San Jacinto, Indio and Eastvale were hit, Swain said. ‘A whole lot of quick expansion and tracts were going up quickly,’ said Frit Swain, an assistant assessor for valuation. The office reduced assessments on 31,333 properties.”
“‘You are going to see this as a pittance compared to what this year’s numbers are going to be,’ Postmus said.”
“June sales at Inland new-home communities were down 23.1 percent from a year ago, reflecting a statewide drop of 26.2 percent amid a slump that began in early 2007, the California Building Industry Association reported Thursday.”
“‘In some neighborhoods, the builders are putting more into the newer houses and selling them at the same price as the older ones,’ said Frank Williams, CEO of the Building Industry Association’s Baldy View Chapter. ‘You don’t want to devalue a neighborhood.’”
From USA Today. “It’s not just cash-strapped and newbie buyers who are getting rejected. The credit-tightening is also cutting off prime buyers in high-cost cities who often need to borrow more than $417,000.”
“‘We had a buyer, a doctor with an 800 (point) credit score, a down payment of more than 20%, and the (lender) backed out at the last minute,’ says Lisa Gregory, an agent in San Diego, who represents the seller. ‘We were stunned.’”
“The qualification hurdles are so bad in California, where the median single-family home costs about $595,000, that a record number of sellers are offering to lend money to their buyers in the form of second mortgages. From April to June, almost 5% of home sales in the state had seller mortgages on them. Three years ago, less than 1% of sales had seller ‘carry back’ financing, according to DataQuick.”
“Larry Underhill, an agent in Stockton, Calif., says he’s seeing homes go under contract two or three times. Each time, he says, the deal craters, because ‘Buyers can’t qualify, or buyers are understandably cautious. They see property values sliding and are saying, ‘Why am I doing this?’”
The Union Tribune. “As the nationwide credit crunch continued to shake Wall Street and the lending industry yesterday, the California Association of Mortgage Brokers urged Congress to give a financial break to the state’s home buyers.”
“Leaders of the trade group asked federal lawmakers to declare California a ‘high-cost’ state and raise the limit on the size of loans that can be purchased or guaranteed by Fannie Mae and Freddie Mac.”
“Ed Smith Jr., the group’s vice president of governmental affairs and industry relations, said consumers should ‘knock down the doors of their (federal) legislators to get the limit increased.’”
“Critics say raising the limit could prevent inflated housing markets from correcting.”
“‘We should be worrying about the soundness of the mortgage financing system and ways to root out some of the abusive practices we’ve had,’ said Lloyd Irland, a Maine-based economist. ‘Now we are being asked to adopt policies that will ratify these inflated housing prices.’”
‘Prices went way ahead of themselves relative to the incomes of the consumer, and price increases could only be maintained with exotic financing.’
‘Now we are being asked to adopt policies that will ratify these inflated housing prices.’
They could raise the jumbo limit to 2 million, and it won’t increase pay (except briefly for the REIC) and it won’t bring back crazy loans.
Bingo.
I believe I read that the average down payment in Cali over the past 3 years was 3% - Fannie and Freddie can’t help.
Bernanke can’t help either - just putting a band aid on an amputation.
http://centralcoasthousingbubble.blogspot.com/
I tried to explain this to residents of the Alt-A Bay Area recently.
They are convinced that a jumbo limit increase and an FFR rate cut will be their “savior”, as apparently, the local REIC and Wall Street have trained them (the lemmings) well.
I told them it’s probably too late for that to work as they desire.
“They could raise the jumbo limit to 2 million, and it won’t increase pay (except briefly for the REIC) and it won’t bring back crazy loans.”
Especially when the rate for a jumbo is now 9%. Two or three weeks ago it was 6.5%. For a 500k mortgage (small for most SoCal ‘oweners’), that’s an extra $1,000 a month for a buyer with the same loan. I’m looking forward to reading all the anecdotal stories of deals falling out of escrow. I suspect that will be the bulk of activity from now on…closing out files. Give it another two or three weeks, and then there will be no activity at the title companies until we hit rock bottom. After maybe a 75% drop in prices, then we might see some purchasers at foreclosure auctions which will finally give the title companies new business.
I’m not sure where you’re getting 9% from. I thought it was 7 1/4 - 7 1/2%, and I came across this from Bankrate:
North Palm Beach, Fla. — Aug. 17, 2007 (Bankrate.com) — Average rates on 30-year jumbo mortgages in California rose 3 basis points to 7.01 on Friday, according to Bankrate.com’s daily Your Best Interest report. A basis point is one-hundredth of a percentage point. The mortgages in the survey had an average of 0.67 discount and origination points.
You have to add .5% to bankrate’s rates. Rates vary locally. In southern cal, rate is now 7.5% for jumbo, more for multi million dollars loan.
Ok, so my point stands.
My credit union is still offering
30Yr Jumbo 6.500% 0.500 6.621% 6.625% 0.000 6.698%
For primary residences and second homes only. Interest only payment options are available on 30 year products. Rates quoted below require a 0.75% loan origination fee.
The origination fee may be waived for a 0.25% increase in the interest rate. Rates are based on an LTV of 80%. For loans greater than $417,000, mortgage insurance is required if the LTV exceeds 80%. This is in California
So what they are saying is you only get the low rate if you have a LTV of 80% (or in other words you are putting down at least 20%).
Quite a tough thing to do for many CA borrowers these days.
It doesn’t matter if yu are talking about 6.5% or 10%, you have to plunk down 20% down or more to “maybe” qualify. And apparently you need 50% down to do it. LOL! Sellers in CA are in big trouble! Fed “discount” rate my butt. The fed is just saving Wall Street buddies. Consumers are going to be screwed.
The sheeple deserve to be screwed. The average consumer couldn’t read and understand their loan docs. Another example of the wonderful public screwel system in California.
Jumbo rates are based on fICO scores. The bankrate.com quote is for FICO 760+. The rate for anything less than PERFECT Credit is at or near 8%. These teaser rates never seem to mention FICO scores.
David is correct. There are add-ons as your FICO goes lower and add ons for LTV higher than 80%. Bankrate has little to do with reality. Sort of like an ad.
“Wishin’ rates.” Reminiscent of Robert Cote’s “Wishing Prices.” I’ve wished for many things during my relatively long life — and gotten darned few of them.
‘Prices went way ahead of themselves relative to the incomes of the consumer, and price increases could only be maintained with exotic financing.’”
Actually, prices couldn’t even be maintained by exotic financing. The market peaked in 2005, exoctic financing was available well into 2007, but foreclosure rates starting picking up last year and inventory has been building since 2005. So even the exotic financing could not support the house of cards.
That’s an important point to make - especially since it completely discredits the currently circulating misconception that the CBs have engineered a recession-proof global economy.
Who are “CBs”?
Thanks.
CB’s = Central Bankers
central bankers
Thanks.
Oh. I thought it was Citizens Band.
“By Golly, it looks like we’ve got a Convoy!”
I think the exotic financing did help. This thing should have slowed in ‘03 but the exotic financiang pushed that out two years and will now make the correction more painful.
“As the nationwide credit crunch continued to shake Wall Street and the lending industry yesterday, the California Association of Mortgage Brokers urged Congress to give a financial break to the state’s home buyers.”
Pandering for bailouts will only increase from here given the discount rate cave in this morning.
Prof, This is the last gasp of the dollar.
“Soon you’ll attain the stability you strive for
in the only way that it’s granted
in a place among the fossils of our time.”
The discount rate is a non event. Just a bank bailout.
It’s not even a bailout, just an expectations play… The bailouts are yet to come.
Just wait until you go abroad. the dollar will buy next to nothing. in china, the currency of choice is not dollar anymore; it’s euro.
Get ready to buy gold if the fed lower rate in sept. inflation will sky rocket.
“This is the last gasp of the dollar.”
Hoz — who knows? Might just be part of the plan. While I’ve never understood why the uber-rich and uber-powerful want even more than they already have, I’ve also never concluded that they don’t. Hopefully, I’ll taste a dram or two of that blue-label scotch before the ship goes down — if not, I had plenty enough of the black. Nothing’s perfect — probably even for the azzholes.
“‘Prices went way ahead of themselves relative to the incomes of the consumer, and price increases could only be maintained with exotic financing.’”
Throwing good money after bad.
Gotta take care of Da Boyz
I can not help but think that Wall Street knew that the Fed was going to step in on Thursday, judging the way the market rallied over 300 ticks. Some insiders must of known.
I couldn’t agree with you more. I am picturing a “Blue horseshoe loves bluestar” phone call making the rounds. Bernanke and co should be prosecuted for leaking insider info. Make him go stay in Martha’s old cell with a bunch of ghetto bitches.
That’s exactly what I was thinking. Notice yesterdays rally was heavily concentrated in the financial stocks. The Fed was tipping it’s hand to the Da Boyz. It just goes to show you how rigged this whole crooked financial system is. First of all, what they refer to as a dollar is not. It’s a federal reserve note backed by nothing. Anyways, the Fed caused this problem with low interest rates along with a total lack of lending standards. There rate cut is no fix. There are billions of mortgage resets ahead of us and unless the Fed monitizes those mortgages we will shortly resume the credit contraction.
The Fed and/or GSE’s will likely end up buying those CDO’s as a bailout. Problem solved.
couln’t agree more. there is no reason for the late rally on thursday. absolutely no good news what so ever for that. Bearnanke had better be careful to make wise decisions for the country and not for his buddies, otherwise this is the end of the American empire.
”
“‘The market is terrible,’ said Mitch Covington, president of the Building Industry Association of the San Joaquin Valley. ‘We have inventory, a little bit of traffic and can’t convince [buyers] that it is a great time to buy.’”
Whats the matter BIA? Are buyers all of a sudden going stupid on you? You know it’s always a great time to buy.
Porky:
“M..M..My that’s a Lov..L..L..Lov..Lovely shade of Gir..Girl,..Girl..Girlsnberry you have there Pe..Petu..P..Petunia”
I don’t really understand this but it made me laugh just the same.
OT: These threads just keep getting longer and longer as time goes on. I’ve gotten to the point now where I can’t read them at work anymore becuase they take up too much time!
Does that mean it’s getting worse?
With the Bits Bucket comments blowing past 300 by mid-morning, I’d say that YES is the answer to your question.
Funny, I was going to comment on that last week but forgot. The comments in some of these threads have gotten huge, I remember when there was maybe 50 comments a thread and now it’s often hundreds. The momentum is building.
True. Not so long ago I’d read all threads for each day. Now I pick a couple of interesting ones. Still, I feel like I could be missing the best points of the day on threads I just don’t have time to read.
I’ve taken up the habit of searching the thread for my favorite posters. They are usually involved in the best exchanges on the blog.
A few months ago someone predicted that the blog would peter out as the bubble burst. But the bursting has spread to nearly every aspect of the world’s economy, so it gets more interesting every day.
I too remember the number of comments being much lower when I started reading here…. at least we are no longer doing that annoying first! stuff anymore.
I don’t mean the comments (although those are getting huge as well), I mean Ben’s posts. They’re friggin’ huge!
I just started reading this site regularly 2 weeks ago, and I’m hooked!! Y’all crack me up.
I have to start setting my alarm clock for 4:30am…
Fortune
Why does Wall Street always get bailed out?
http://tinyurl.com/2wuev9
“Wall Street loves to talk about letting financial markets weed out the weak. But when the Street itself gets in trouble, it sticks out its little tin cup, asking for help. And gets it…”
“Sure, we know that Ben and the boys will always bail out the biggies. And none of us - I think, anyway - wants the world’s financial system to implode. But I’d feel a lot better if the Street had to pay a serious price to its rescuers–say, having to fork over a big equity stake and pay a loan-shark interest rate. That way taxpayers, who are picking up the tab for the rescue, would get paid bigtime for taking on bigtime risk.”
Oh, I’m pissed. I’m really pissed. That says it all. And the presidential candidates are busily hoovering up some of the droppings for their campaigns.
Greedspam, Bernanke and DaBoyz. Want to see ‘em in a court dock in Mayheeco.
It is the only profitable business practiced in America - Finance.
It would not be so profitable were it not for the Fed’s subsidies to the detriment of savers.
Professor,
Should you get a chance to read this over the weekend, I’m sure it will not amuse you. If you go to the Wharton Business School pdf and read it first, I feel sorry for anyone in index funds.
The Biggest Personal Finance Story of the Past 30 Years
“…Yet, at the same time, the Financial sector has grown to be almost twice the value of the Energy sector in S&P500 market capitalization. Nevertheless, we have not heard a widespread media clamor about escalating financial services costs and profits. Instead, all we hear about are financial scandals related to greed, fraud, and scams. Even then, many of these scandals have faded from memory, as securities market values have risen in recovery following the market bust….”
http://tinyurl.com/26aadd
So should we go long on financials permanently? The bear’s version of capitulation.
Everything comes to an end. The once-vaunted transparency of the US markets has been revealed as a tawdry joke. The ratings agencies are completely compromised. The currency continues to be devalued. The Fannie Mae school of accounting seems to be spreading. The Fed moves are an insider’s games.
American financial products are about as reliable as imported Chinese toys…maybe they’re toxic, maybe not.
“The ratings agencies are completely compromised.”
> Ratings agencies have been crap for several decades now. This is nothing new.
“American financial products are about as reliable as imported Chinese toys…maybe they’re toxic, maybe not.”
> When in our country’s history have there not been unreliable finance products? Increased public awareness hardly equates to increased occurrence of unreliability.
“Ratings agencies have been crap for several decades now. This is nothing new.”
Pension funds, mutual fund managers and investment managers are often constrained by having to buy investment grade products–those rated AAA or AA. As should be beyond obvious at this point, plenty of toxic stuff is included in the products labeled investment grade.
How much? Nobody really knows. What is the real value?
Nobody knows.
But with Europe, Asia and Oceania taking major hits, all the financial ordnance has a happy little sticker saying Made in the USA. And this is just the opening act.
Bernanke has decided to trash the dollar; the rest of the world will pile on. The global markets will be badly burned…but when their economies recover, do you think they will be eagerly investing in innovative products from Wall Street?
As Hoz observed, financial products were what we had left to sell–and we have scorched that market.
Spike66 -
I’m not as pessimistic as you or Hoz - I think we’ve plenty to sell. Lots and lots, both on the product side and service side (including intellectual property). No economy is more efficient than ours. And, since the dollar is falling, it means we’ll sell more of it overseas.
Further, countries overseas own lots of our Treasuries, and therefore are indebted to us.
The only thing that nags at me isn’t economic, it’s ideological. Both within our country (the onward march of socialism and the “entitlement” culture) and outside of it (terrorism, which will be projected at less and less cost everywhere as time passes). The cheap cost of lethal weaponry is unsettling to me.
You’re living in a parallel universe if what scares you is socialism and and terrorism. The terrorist threat is over-hyped. Entitlements are but a tiny fraction of the burden of our national debt. Totalitarianism and economic depression are the true threats to our current way of life.
Why do I even follow the rules? I must be an idiot.
Joe , your Momma raised you right … continue to follow the rules.
You aren’t even half the idiot you think you are.
From the article… “Sure, we know that Ben and the boys will always bail out the biggies. And none of us - I think, anyway - wants the world’s financial system to implode. But I’d feel a lot better if the Street had to pay a serious price to its rescuers–say, having to fork over a big equity stake and pay a loan-shark interest rate.”
LOL… The big boys paying “a serious price” would lead to systemic implosion. Bernanke and Paulson know that, and will do what they can to hold off paying the piper until after the 2008 election.
Say what you will about this Administration, but its underlings are nothing if not loyal.
Not counting spaces, a 28-character user name! Please tell me you’ve enabled cookies.
Luv,
Jen
I like you, Jen; you have a subtle, and occasionally barbed, sense of humor.
It is a little long of a name, but my old one was being compared to the Federal Reserve Board, so I had to change it, didn’t I? I need to keep this one for a while, because I noticed that the last change caused my first few posts not to appear (which I assume is a safety feature to keep people from arguing with themselves using different names).
The Fed’s move, by opening before Options Expiration Day opening burned a lot of index option short players whose options expire at opening price. If you were short this pre-market pop made some of your options worthless. This was done intentionally to punish people who are shorting. This is big investors, not mom and pop. So Fed got in a double bang for its buck there. Bernanke wants you to think twice before shorting.
That gives me some heart that the Fed understands the market, is willing to hurt speculators and has some skill in doing so.
I still don’t like the Fed involvement at all really.
“‘We had a buyer, a doctor with an 800 (point) credit score, a down payment of more than 20%, and the (lender) backed out at the last minute,’ says Lisa Gregory, an agent in San Diego, who represents the seller. ‘We were stunned.’”
The Loan Pendulum swings both ways…
I speak of the pompitous of loan~
“‘The buyers are out there, they’re just waiting for the prices [to drop],’ said Aldina Maciel, a real estate agent in Watsonville.”
This line is the current vogue spew from realtor groups.
“It’s a great time to buy!”
“buy now or be priced out forever!”
“They’re not making any more land”
“It’s different here”
It too shall pass.
The New Vogue:
“It’s a brave time to buy!”
“Buy now and be priced in forever”
“They’re not making any more land” (True)
“It’s difficult here”
“They’re not making any more land” (True)…..Thats true but so is this”
“They ARE making more Buildable land” Look at all the public land sales in AZ and USgov forests…all to build on.
The buyers are out there, they’re just waiting for the prices
[to drop][to bottom out].“The buyers are out there.”
I beg to differ, there aren’t any truly qualified buyers left at these prices. At least not any stupid enough to commit financial hari kari.
The REIC machine has nearly ground to a halt. It’s going to take a lot of pain and effort to get it moving again.
Hey - the SF Chronicle and an economist it quotes are actually doing their job!
“‘How does demand come back? When prices come down,’ said G.U. Krueger, chief economist with IHP Capital, said the deflated new home market is simply one more indication that the market had run amok and is now returning to some equilibrium. ‘Prices went way ahead of themselves relative to the incomes of the consumer, and price increases could only be maintained with exotic financing.’”
This is great. There are stories every day (literally) in the Chronicle about the mortgage / liquidity / insolvency situation.
The Lamest major city Newspaper in All of America (LNAA) must be trying to lose its moniker, though at the possible expense of exposing the fact that it should have been reporting this all along.
Just think of the anger of the denizens of the Alt-A Bay Area who had “no idea” because the LNAA was ignoring the situation.
I suppose it’s better late than never!
I have been smirking and laughing for about the last two months while this really started to unravel here in the Goldplated State of Calif-areyouinforitnowia. I had refrained from looking at my 401k and IRA the past week because I have learned not to punish myself.
Well, I broke my rule last night and now I’m pissed. Not only is this credit/housing bubble hurting home debtors, but it is plastering my savings…..I’m no longer an angry renter! I’m a really pissed off saver!
If I didn’t get in the game, why am I taking it in the shorts because all of these bozo’s are panicing and the market is tanking. It reinformces in me that the greedy bastards who ran this market up should get run over as it comes back down. Not me…them!
Now back to my normally scheduled rant about the plight of the banana slug…
Thats the problem, you were in the game and you bought over valued stocks to place your savings in. Everyone else bought overvalued houses to place their “savings” in.
It is a sad day where there is no real safe place to store “value” or purchasing power.
RayW — Don’t sweat this - it’s a long overdue market correction. That’s all it is. You’ll get one every 18-24 months or so. Personally, I’m very encouraged by it as it is health restoring.
If it’s any consolation, a good portion of the losses aren’t being taken by you and me, but rather the flipper idiots and their hedge fund accomplices. You and I may be temporarily down by 6-12 percent, but these folks have lost of great deal more than that. This time, many risk takers actually are taking it on the chin - hard.
Hopefully some of our HBB bunkmates here - like Hoz and Txchick - have covered their shorts successfully. If they haven’t done so already, it’s going to get increasing tough for them to do so.
” Personally, I’m very encouraged by it as it is health restoring.”
What is it about lowering the discount rate that you find “health restoring”? Please explain.
At this point the Fed’s lowering rates will do as much good as pushing on a string. Even Japan’s effective 0% rate couldn’t stop deflation when their RE market tanked.
We will either see evidence of increased inflation while the economy slips into recession due to the credit crunch (stagflation), or a cash starved populace inducing deflation during a greater depression. My bet is on the latter.
It’s a function of liquidity and unfreezing frozen monetary lines. No one is going anywhere (and nothing will be solved) if everything is seized up in place. You can’t fix problems by allowing wrenches to remain in the mechanisms.
Now, if the Fed had cut the interest rate at the consumer level, I would be considerably more bothered because doing so would encourage more of the same that got the country into the subprime/alt-A mess. As I stated elsewhere, if consumers are hurting, cut taxes. Do not cut interest rates.
Would I have liked to see a cut in the discount rates between banks? Of course not. But it’s better than the alternative.
You know, I should have re-read my post. Spike66, I didn’t even talk about discount rates as being health-restoring. Though I still believe so for the reasons I explained elsewhere.
What I did say in my original post was that the stock market correction was health-restoring. And it is. All sorts of foul, weak, high-risk money has been chased out of the markets and lost during the past month. Lots of the highest-risk gamblers at every level of wealth are licking their wounds.
And for a board that generally is gleeful about folks losing their shirts in the housing market, it should be equally gleeful about what has happened in the hedge markets.
Afterall, the hedge fund players were accomplices in the run-up of housing prices to bubble heights.
Same here. No entiendo.
It’s really funny how “taking risks” is admired. It’s GAMBLING folks. The few gamblers who get lucky, get power. The people who consistently produce real goods and services get left behind. Playing it safe (i.e. being sensible) is looked down upon. Thus you get the vast majority of the population who DIDN’T get to be major league sports figures have hopelessly useless careers because they didn’t choose something practical while Indians and Chinese who became doctors and engineers are eating us alive.
It’s a silly aspect to our culture that isn’t healthy in the long run.
Don’t worry people, the fed’s will rescue you??? Countrywide is out 11 BILLON dollars on screwy fuzzy math loans and gets a dicount rate from the gov’t to boot. I’m sure when your houses devalues because of bad loan prctices in your area all you have to do is call Wash DC and tell them that your house lost 50% by no fault of your own, tell them it was the flippers,RE agents,builders, and loan oficers who did it, you will get a check in the mail for the difference, and it is snowing right now in Maui?
“Critics say raising the limit could prevent inflated housing markets from correcting.”
Why do these critics want to keep prices propped up at unaffordable level? Raising the conforming loan limit might temporarily give prices a pop, but it would also have the undesirable consequence of tempting more GFs into buying homes that will ultimately be foreclosed once they figure out they don’t have the income to support a $500K home purchase. It would further help to keep homes unaffordably priced, rather than letting market prices correct to the point they are realigned with incomes in the local end-user pool.
Doesn’t the CAR realize their industry will suffer mass layoffs if no buyers can afford to buy homes?
I was amazed that was printed. Can’t print cheery news on homes deflating in California.
I think you are misreading the quote. The critics are criticizing the proposal to lift the conformal limit. The critics would like the inflated housing markets to correct. They are against lifting the conformal limit because that would prevent the correction.
Yeah, I read it that way myself. They’re criticizing the possibility of an increase in the limit, and implicitly arguing that a correction is necessary… “‘We should be worrying about the soundness of the mortgage financing system and ways to root out some of the abusive practices we’ve had,’ said Lloyd Irland, a Maine-based economist. ‘Now we are being asked to adopt policies that will ratify these inflated housing prices.’”
On the other matter, I’m not sure CAR realizes that mass layoffs in the RE industry will occur due to its own folly. Look who we’re talking about, after all.
“‘It’s not a bad market, just a little slower,’ said Greg Wilde, who is relocating from Windsor to a new job in Orem, Utah and faces the unappetizing prospect of carrying mortgages on two homes.”
“He’s cut $20,000 from his initial price of $559,900, tacked on a $5,000 ’seller contribution’ and offered a $1,000 finder’s fee. ‘We’ve had plenty of lookers but no offers,’ said Wilde.”
Greg, may you rot slowly and grow old fast like your house in Windsor while you work three jobs to feed the alligators in both place.
Cinch
Windsor is a dump, too!
Maybe it’s just me, but if Greg doesn’t want to face “the unappetizing prospect of carrying mortgages on two homes,” maybe he shouldn’t buy a house in Utah until he’s sold his former one.
Silly Bob, BK is for FBs.
so 559k to 532k drop on what is probably a 200k property is suppose to bring you multiple offers? oh pwlease how do people with that much housing-ego function?
One of the zips I track is Provo 84604, right next door to Orem. Utah county is right where many of the Socal exurbs were this time last year. Median asking prices have already backed off 15% from the peak there and inventory is setting new record highs on a weekly basis.
This guy may end up one of the last GF/FBs of this mania.
Professor Bear> Remember a lot of these people have expensive homes and second and third homes they want their value held up, don’t think for a minute they care about you the consumer?
“Turn around and walk away…alone, alone”
“Turn around and walk away…alone, alone”
Boz Scaggs
“…critics pointed out that the Fed did nothing to address the underlying problem of easy credit leading to excess.
“Markets should not be calmed by this tactic. Unlike the Fed funds rate — which affects all banks’ cost of funds — a discount rate cut only lowers the cost of emergency borrowing by institutions in distress,” High Frequency Economics wrote in a note to clients.”
After policy U-turn, another Fed step anticipated
http://www.reuters.com/article/reutersEdge/idUSN1744246220070817?pageNumber=2
The last line of the article…
“Andrew Busch, global foreign-exchange strategist with BMO Capital Markets in Chicago, agreed that the Fed’s action “will not solve the bigger issue of easy credit conditions causing the market to take too much risk.
“If we stabilize from here, this problem will be revisited in 18-24 months. However, the day belongs to the Cramers of the financial world.”
And that says it all, folks…
“‘The market is terrible,’ said Mitch Covington, president of the Building Industry Association of the San Joaquin Valley. ‘We have inventory, a little bit of traffic and can’t convince [buyers] that it is a great time to buy.’”
Did they run out of greater fools?
They probably don’t have any idiots left who can get a loan.
We’ll be convinced naturally when prices are fair.
Bwaa haa ha!
Got popcorn?
Neil
“Critics say raising the limit could prevent inflated housing markets from correcting.”
Where is the personal responsibility for taking on this debt? Why should my tax moneys be used to pay Freddie’s screw ups if they do this insane increase?
I am with the critics on this. It will not matter in the long run, but I would like this over in the next ten years. All it will do is make prices stickier, mopes believing in entitlements.
Everybody have a great weekend!
I think I’ll go to Vegas this weekend and bet everything I have on black. If I loose I can just ask for low interest loan to bailout me and my family. They wouldn’t throw me out on the street just because I gambled and lost…would they?
loose = lose
Thank you.
The Fed could do whatever they want and the California market will still correct.
Why?
Because the exotic loans that were used to purchase most of these homes will be gone.
Most of the latest buyers knew they were stretching their financial limits with their purchases, they just didn’t realize that they weren’t even paying the full mortgage.
Remember, you pay about $1000/month per every $100K borrowed in a standard 30 year loan (which is the cheapest loan available). So anytime you hear someone say that they will give you or that you will pay $2000/month for a $500K loan, they are not giving you the full story.
Exactly. It’s 417K or bust.
Do you think it is possible for any of those idiot loans to make a comeback?
Sure! Since Americans have a negative savings rate, we will have to find a foreign country that has savers looking for higher yields. Then all we need is a credit rating firm to put a AAA rating on the loans and we are all set to go. Wanna bet that the DaBoyz aren’t already thinking about it?
Yes. There will be millions of available fools and crooks to enable idiot loans forevermore.
Witness the 40- and 50-year mortgage loans. The urge of most Americans to live beyond their means will ensure that such loans will flourish. And, in effect, make borrowers less and less wealthy. Greater obligations and fewer assets.
Ah the good old days of the NINJA Loan: No Income No Job no Assests.
Good friend of mine qualified on his second refinancing (to pay for his BMW) on a NINA loan, so they do exisit, and there are (were) actually people using them, and they weren’t doctors.
Yesterday’s early stock losses fooled me into thinking that the unwinding would accelerate. I was euphoric. Today I’m back in the reality-based bubble blog community, telling myself to be patient.
At what interest rate? I’m paying
Your numbers seem to be off. With a 100K balance and a 6.5% rate for 30 years that works about to about $650/mo.
with or without taxes (ca is 1.35%?) and ins?
“Ed Smith Jr., the group’s vice president of governmental affairs and industry relations, said consumers should ‘knock down the doors of their (federal) legislators to get the limit increased.’”
We should knock down the doors and demand it be DECREASED, actually. In fact, we should demand they cease funding/buying until their accounts are straightened enough to actually file.
And honestly, we should demand that they be disbanded entirely, and that tax-payer money never again be used to guarentee banks’ profits.
After watching the Fed bail out the gamblers today I have to wonder why the hell I am not gambling too.
Oh yeah, the Fed doesn’t bail out mom and pop. They only bail out the Wall Street Gangsters.
Mom and Pop pay the bailout costs out of their devalued savings.
Fed BURNED a lot of gamblers today. By announcing this news before opening of Options Expiration Day, a lot of people who were shorting the market got burned BIG TIME. And these weren’t mom and pops, they were big investors betting on a market crash.
http://market-ticker.denninger.net/2007/08/flipout-friday.html
A little news for all your oil bears and USO bears out there, Dean has been upgraded to CAT-3 hurricane, and is likely to go to CAT-4 in a few years and hit the Gulf next week.
As quoted by National Hurricane Center “…DEAN STRENGTHENS TO A MAJOR HURRICANE WITH 125 MPH WINDS…”
Hurricane Dean storm path
Years or hours??
Days. Expected to go to CAT 4 when it reaches Gulf of Mexico in about 2 days.
If we’re lucky it’ll change course radically and hit New Orleans.
Maybe then people will stop trying to rebuild their underwater houses.
Naw, let it hit Texas. Remember Big Babs Bush telling folks in NO they should have made provisions–that’s now my attitude.
It’s every man for himself–devil take the hindmost.
What an odd thing for someone living in an earthquake prone area to say.
Yes, except we didn’t ask for a $100 Billion bailout recently to correct our corrupt practices.
Except for replacing that old bridge that fell down:
clicky
The entire project, which will require 100,000 tons of structural steel, is now expected to cost $6.2 billion (as of July 2005), up from a 1997 estimate of $1.1 billion (for a simple viaduct) and a March 2003 estimate of $2.6 billion that included a tower span.
Somewhere under $1 billion of that is state money.
You do realize I’m just screwin with ya, right?
Sorry, misread your comment as referring to Nawlins and not Wall St.
It’s pretty much ‘pick your natural disaster’ when you select what area of the country you live. However, living below water level in a hurricane zone is a lot like building your house on the active fault line. If your house is flooded and you live below sealevel, I have no sympathy. If your house falls into the fault when it rips open, I have no sympathy.
“‘We had a buyer, a doctor with an 800 (point) credit score, a down payment of more than 20%, and the (lender) backed out at the last minute,’ says Lisa Gregory, an agent in San Diego, who represents the seller. ‘We were stunned.’”
Hmm, there’s something fishy here… Methinks the good doctor was trying to make a potentially questionable stated-income loan, or the lender got caught with its credit pants down. There’s no way this guy would have been turned down under a traditional qualification scenario; either that, or the California housing market truly is f’ed.
Maybe the doctor is not a MD but a PhD in something useful like - underwater basket weaving. Maybe the doctor’s score is 400 and doctor live-in girlfriend’s score is 400.
“either that, or the California housing market truly is f’ed.”
DING, DING, DING, we have ourfselves a winner!
This type of action on the Fed’s part works for so many of our life-tenant citizenry… I mean I know people with good jobs who finance stuff like vaccum cleaners. I am the only one I know (I’m sure I’m not alone on this blog) who pays his life, home and auto insurance 6-12 months in advance to avoid the finance charge aka interest. Noone I talk to even sees it as interest. I tell them they are financing the premium and they just stare blankly at me.
Then they go buy more stuff cuz it’s ‘zero payments for xxx’ bla bla. They probably prefer to finance forever rather than actually paying as they go because they dont see a need to wait for anything. Our middle class has allowed itself to be converted into life-tenantcy.
Financing VACUUM CLEANERS? I mean, for Pete’s sake, it’s an appliance.
Yep. They dont realize there is an entire industry around financing merchants who offer ‘no payments for xxx’ by funding the merchant up front at a discount and nailing the consumer later for full face, admin fees , and interest. Go bed shopping sometime where they have the ‘no payments for xxx’ and offer them 85% full cost in cash or 90% on your credit card… they will do it because they make more that way…. the guy taking the ‘no payments for xxx’ plan pays the 15% in the price.
Thanks for the tid bit
Too funny. I have some friends who have a combined income of over 100k, which for Western PA is pretty good, but they still are suckered in by the no interest for 36 months gag. Unfortunately for them, something always comes up in that time frame, which causes them to be late on the payment. Guess what? The 24% interest goes back from day one.
Stupid, stupid people. Thank goodness for them they do not have any real equity in their house or else they would be pulling that out and going even further into debt.
They can’t understand why I don’t want to be a homeowner.
It’s actually much worse than that. The companies that provide the 0% financing hold your payment for days without recording it, so they can nail you for late fees. You call to ask for the payoff amount, and they forget to mention there is an extra $5 charge for the call. This way, you think you paid off the entire amount on time, only to realize because of the $5 fee you are now on the hook for interest for the entire period.
This is common practice.
“‘Here we are, kind of stuck,’ Peggy Della Maggiora said, with a for-sale sign planted in front of their four-bedroom home. ‘We’d love to be up there.’”
What she really was thinking:
“‘Here we are, kind of stuck,’ Peggy Della Maggiora said, with a for-sale sign planted in front of their four-bedroom home. ‘We’d love to be up there.’” But NO one will give us a ton of money to fund our retirement! We could get unstuck but we would be upside down and thought we did not have to work for a living. Please some GF unstuck us.
Our middle class has allowed itself to be sold into life-tenancy. I know people with good jobs who finance vaccum cleaners. The dont understand what I mean when I say ‘pay your auto insurance a year in advance to avoid financing the premium’. I mean they see the finance charge… they just don’t see it as interest. I truely think the common middle classer likes what the Fed has done because they would rather have it all today - even if they have to work forever - rather than pay as they go.
I finance my auto insurance. GEICO charges me $4 per statement to spread out a 6 month policy over 4 payments (ie, $16 per policy or $32 per year). On a ~$900/6 month policy, that works out to be a ~2% finance charge. I’d rather have the cash earning interest at 5% in our ED savings account.
This press release just off the wires:
“Amstar Mortgage Corporation a subsidiary of Amstar Financial Holdings, Inc. (Pink Sheets:AFLH) announces that is laying off most of the office staff at its corporate headquarters. This is in response to current market conditions in the industry. No mortgage company in the industry is doing well at this time. Many large lenders owe Amstar Mortgage Corporation substantial money, but most of these lenders either have or are going to seek bankruptcy protection in the near future. “We had great staff here and we are sorry to let most of them go, but the current conditions require this decision,” stated Mr. Wayland. At this time Amstar is speaking with another mortgage company about managing Amstar branches, so service can be maintained with our offices and customers. Amstar Mortgage Corporation currently does over $1,000,000,000 in mortgages a year with approximately 116 branches and licensed in 31 states. Amstar Financial seeks to eventually divest itself of Amstar Mortgage Corporation, so it can concentrate on more profitable ventures. More news will be available as information and details are formalized.”
From the release:
“Many large lenders owe Amstar Mortgage Corporation substantial money, but most of these lenders either have or are going to seek bankruptcy protection in the near future.”
Large lenders going bankrupt? Who do you suppose they are referring to? Holy cow, hold onto your wallets.
“We had great staff here and we are sorry to let most of them go, but the current conditions require this decision,” stated Mr. Wayland.’
- I hope that ‘Mr Wayland’ continues to work hard and help re-position the company for a successful comeback! It sounds like his job is still safe and he will be able to use all of his knowledge of the housing debacle to be more profitable in the future. And of course, screw the employees.
“Ed Smith Jr., the group’s vice president of governmental affairs and industry relations, said consumers should ‘knock down the doors of their (federal) legislators to get the limit increased.’ ”
The only reason Ed wants this action passed is so his buddies can continue to line their pockets at the expense of the consumer. The housing market is long overdue a correction and it must come back to levels people can afford, starting with entry level consumers on up!! The consumer should do just the opposite of what Ed Smith is touting and tell the federal legislators to DO NOT INCREASE limits on the size of loans that can be purchased or guaranteed by Fannie Mae and Freddie Mac.
‘Prices went way ahead of themselves relative to the incomes of the consumer, and price increases could only be maintained with exotic financing.’”
Exotic financing is available — but there’s a two-drink minimum now.
Luv,
Jen
I’ll bet you started drinking well before 5!
Someone call a taxi.
OK Jen, that’s twice this week that I’ve spit soda. Give my keyboard a rest so it can dry out.
Don’t forget to tip your Poole dancer, boys.
Luv,
Jen
Plunge Protection Team talk on CNBC.
My contention is that “most” people would buy if someone (ie the mortgage lenders) would let them, regardless of the price of the asset or their actual ability to pay their monthly nut. After all, many believe that the facade is real. Buyers didn’t stop buying because the asset was too high…they stopped buying because some nice mortagage broker on the other end of the phone told them no.
Yeah it’s sad. People would mortgage their mothers to buy a house. No price is too high even if they just get to own for a month, they’ll do it and forfeit their entire financial future.
Jim Cramer is saying he is a genius because Bernanke cuts rates. Looks like his rich homies on Wall Street got a gov’t bailout.
Where is the gov’t bailout with oil prices being $70 a barrell?
“Jim Cramer is saying he is a genius because Bernanke cuts rates.”
It was a cut in the discount rate, not the (more closely watched and quoted) federal funds rate. Cramer is an idiot. You can quote me.
Cramer was screaming for a cut in the discount rate, and that’s what he delivered for his pals. He’s the point man now for American fiscal policy. Perfectly cast for a banana republic.
Jim Cramer is a loser…his manical style makes for good TV, that’s all..
All show but no go; as we say in the horseracing business.
I expect that in a year or so Cramer will be viewed as the financial equivalent of ‘Flip That House’.
Time for bed, Jimbo. Your sun is setting.
I was joking earlier today when I suggested BB was listening to Cramer’s rants. But I guess Cramer thinks otherwise.
An apropriate end to the week, thinks I:
“…’Gentlemen,’ concluded Napoleon, ‘I will give the same toast as before, but in a different form. Fill your glasses to the brim. Gentlemen, here is my toast: To the prosperity of The Manor Farm!’
There was the same hearty cheerings as before, and the mugs were emptied to the dregs. But as the animals outside gazed at the scene, it seemed to them that some strange thing was happening. What was it that had altered the faces of the pigs? Clover’s old dim eyes flitted from one face to another. Some of them had five chins, some had four, some had three. But what was it that seemed to be melting and changing? Then, the applause having come to an end, the company took up their cards and continued the game that had been interrupted, and the animals crept silently away.
But they had not gone twenty yards when they stopped short. An uproar of voices was coming from the farmhouse. They rushed back and looked through the window again. Yes, a violent quarrel was in progress. There were shoutings, bangings on the table, sharp suspicious glances, furious denials. The source of the trouble appeared to be that Napoleon and Mr. Pinkerton had each played an ace of spades simultaneously.
Twelve voices were shouting in anger, and they were all alike. No question, now, what had happened to the faces of the pigs. The creatures outside looked from pig to man, and from man to pig, and from pig to man again; but already it was impossible to say which was which.”
Off topic: Saw a cardboard, handwritten sign on the median in Manhattan Beach Blvd last weekend:
“136,000 Beachfront Condo in Costa Rica for Sale”
Somebody screwed up.
According to http://realestate.yahoo.com/California/Santa_Clara, there are 306 homes for sale through the MLS - and 57 foreclosures or pre-foreclosures!
According to http://realestate.yahoo.com/California/Santa_Clara, in Santa Clara, there are 306 homes listed for sale on the MLS - and a whopping 57 homes in foreclosure or pre-foreclosure! Now what might those 57 homes in FC or Pre-FC do to the prices of the 306 homes for sale?
Help me out here. I’m smart enough to know not to buy now even though I’ve got the money to do so. But when is the right time? I’m looking for a 2/1 in the Hollywood Hills or possibly a 3/1 downtown condo. What’s a decent target price? It seems to me everything should come down at least 50% but I don’t know what to reasonably expect (and plan for).
Watch a graph of house prices month-to-month. When the descent stops, that is the time to buy. That is the time to lowball because that is when sellers will be most despondent.