Suffering The Low In California
The Mercury News reports from California. “Starting in 2003, thousands of Silicon Valley residents desperate for a house, two-car garage and back yard made the hour-plus commute from the job-rich Bay Area over the Altamont Pass to Mountain House, where home prices started in the low $300,000s. But then the real estate boom went bust.”
“Last month, DataQuick reported that San Joaquin County mortgage holders were among the most likely in the state to default on their payments. ‘It is as bad as it looks,’ said Susan Patteson, an agent and a Mountain House resident since late 2003. ‘Homes that two years ago sold at the peak of the market now sell for $200,000 less. We rode the high; now we’re suffering the low.’”
“A sure sign of decline at Mountain House is a dying lawn. A closer look reveals trash, ad fliers shoved under the door, and the clincher: a foreclosure notice or, worse, auction announcement, taped to the window.”
“These are the same homes that in 2004, 2005 and as late as June 2006 were sold by lottery to crowds of 300 pre-qualified buyers, many of whom camped overnight just for the chance to own a home.”
“‘The loans are worth more than the house,’ said Jim Lamb, a Realtor who lives in Mountain House.”
“The biggest problem for home sellers in Mountain House is they must compete with brand-new houses still going up. Meanwhile, builders are slashing prices, offering upgrades at little or no cost, and promising to fix anything that goes wrong with the house in the first year.”
“Among the homeowners who are hurting is John Basso. Basso paid $503,000, and spent more than $100,000 on upgrades and a pool.”
“Then earlier this year, Basso was transferred to Austin. The house went on the market in June for $675,000, then $649,950, and now it’s dropped to $624,950. ‘We’re not trying to get every dollar out of it,’ he said. ‘We’re just trying to complete the transaction.’”
“With a glut of houses on the market, why are they building at all? The developers have little choice. They paid millions of dollars to buy the home sites and are obligated to pay for the streets, sewers, water treatment plants and schools before houses can be built. The only way to recoup their costs is to sell homes.”
“As far as Mountain House resident and Realtor Patteson is concerned, it’s a no-win situation. ‘If they stop building, the town stops growing. If they continue building, our resales are low,’ she said.”
The Fresno Bee. “Broker Tad Tadich isn’t surprised that trying to help homeowners escape foreclosure has grown to make up about half his business. After all…Central Valley cities including Stockton, Sacramento, Bakersfield and Fresno have some of the highest foreclosure rates in the nation.”
“Tadich sees an increasing number of prime borrowers forced into foreclosure, and he doesn’t see that trend going away anytime soon. ‘I think the prime borrowers are going to be the issue in the coming year,’ he said.”
“Tadich said many could be affected. ‘There were lots of people who had excellent credit who were using conventional underwriting techniques to obtain loans that had blow-up features in them,’ he said.”
“Doug Heffner, owner of Integrity Lending Group in Fresno, said most prime borrowers in the Valley tend to be more conservative compared with those in the Bay Area or Los Angeles, who may have been forced by higher property values to take on more risky loans.”
“‘My concern would be more with the overall real estate market,’ he said. If the foreclosure epidemic continues to drive down home prices, more people who may have used their home equity to finance affluent lifestyles may find themselves in trouble, he said.”
The Orange County Register. “O.C. real-estate and lending job counts are off 5,200 in the year ended in July, by this blog’s math. That is the biggest year-over-year drop in these property-related businesses since June ‘93.”
“Local finance jobs, largely mortgage work, have been hard hit, down 3,800 positions, or 7%, in a year. Payrolls in these industries are down 14% from their peak and to a level last seen in December 1993.”
The Voice of San Diego. “On a hushed street in the middle of a neighborhood that didn’t exist a few years ago, foreclosure is a constant neighbor. Little Lake Street in Chula Vista is one of many spots countywide where next-door neighbors are simultaneously drowning in their mortgages.”
“In the last few months, foreclosure has hit 1326 Little Lake Street. And the house across the street: 1327. And next door: 1330. And 1346, and 1401, and 1406, and 1413, and 1425, and 1448. And others.”
“Eager would-be homeowners once waited in line to purchase a place here. But now, a big wave of trouble has washed over Little Lake Street. Buyers borrowed loans at terms they can no longer — or couldn’t ever — handle. And they overwhelmingly used loans to cover 100 percent of the purchase price.”
“Little Lake homeowner Keith Vincent and his wife aren’t in trouble on their mortgage, he said, but the weed of uncertainty on the street grows taller daily. He used to count the signs, he said, but he’s lost track.”
“‘The signs and the burnt-out lawns tell you who’s going,’ Vincent said. ‘It’s not easy to swallow.’”
“The homes that have sold since 2005 on the resale market sold for an average of $336 per square foot. But the homes that are currently for sale are listed for an average of $285 per square foot.”
“And throughout the new developments, builders stuck with new unsold homes have dropped prices and added incentives, making those new homes more attractive than the ones that have already been lived in.”
“‘The Chula Vista 91913 is horrible,’ said Kristian Peter, a longtime Chula Vista Realtor who sells homes that have been repossessed by banks. ‘Right now it’s a flood and it’s only getting [worse].’”
“The trouble’s not contained there. In a county brimming with homeowners in trouble, there are more streets like Vincent’s. In the first six months of 2006, the ZIP code with the most homes in foreclosure had just 35. But in the same period this year, foreclosures slammed 92057 in Oceanside, affecting 512 houses near the so-called back gate of Camp Pendleton.”
“With 512 properties in foreclosure among a housing stock of 16,000-some houses and condos, according to DataQuick, the 92057 code has nearly 32 in 1,000 homes in foreclosure, nearly three times the county average.”
“Peter said it’s no wonder there aren’t more buyers able to absorb some of the unsold home inventory. And there’s not much to stop the neighborhood’s property values from declining past the point they’re at currently, he said.”
“‘People’s eyes start to glaze over when they see ‘foreclosure,’ he said. ‘But there’s no such thing as a good buy right now in San Diego.’”
“Vincent, the homeowner on Little Lake Street, says he tries to be optimistic. But more new homes are on the way, with construction workers and cranes still scattered throughout Eastlake and Otay Ranch, Vincent fears his home could lose much more value in the coming months and years.”
“Who knows, ’cause they’re building as far as the eye can see,’ he said.”
The Press Enterprise. “About 1,500 people converged at the Ontario Convention Center on Sunday to attend an all-day auction of homes repossessed by lenders. All were anxious to discover how much of a deal could be had now that foreclosures have burgeoned to a record level in Riverside and San Bernardino counties, where they are up eight-fold in a year, according to DataQuick.”
“Kathy Van Pelt paid $210,000 in cash, including a 5 percent auction fee, for a doublewide mobile home and a two-car garage with an apartment over it in Wildomar. Van Pelt said she bought the place for her adult grandchildren who now stay with her Menifee.”
“Van Pelt said she hopes the property will increase in value and become a nest egg for her retirement. ‘I am so excited about this because it seems like it is a new beginning,’ she said. ‘It looks like a good time to buy when values are down,’ she added.”
“Pete Nyiri, (who) specializes in selling repossessed homes, had 25 listings in Sunday’s auction, said each property’s reserve price is ‘the market value less whatever (the lenders) feel they will let it go for. You have to let the consumer win a little bit or they won’t go to the auction. It will get a bad rap.’”
“He said that in the days before the auction, a prospective bidder has limited time to assess the houses, all of which are sold ‘as is.’ For assistance, he said, a bidder can hire an appraiser or bring along a real estate agent. ‘The buyer does have the ability to do their due diligence and they have nobody to blame but themselves if they pay more than it is worth,’ he said.”
“Investors interviewed at the auction said that as the months pass and lenders overloaded with foreclosed properties grow more desperate, the prices at auctions will get more tempting. ‘We were here to buy, but there is nothing here worth buying yet,’ said Greg Norris, a vice president with The Norris Group.”
Blow-Up Loan Doll
“Tadich said many could be affected. ‘There were lots of people who had excellent credit who were using conventional underwriting techniques to obtain loans that had blow-up features in them,’ he said.”
“Blow-Up Loan Doll”
Just add air and it will bend you over your granite counter-tops, while the squirrels laugh merrily through the window over the farmhouse sink.
Thank god for granite and easy clean-up!
The fat cats are getting scared:
SAN FRANCISCO (MarketWatch) — The subprime mortgage crisis may generate more claims on so-called directors and officers insurance policies and similar coverage, according to one of the world’s largest insurance brokers.
So-called D&O policies protect executives and members of a company’s board from liability in the event of a lawsuit against them claiming wrongdoing in connection with their firm’s business. The coverage usually pays for the cost of defending lawsuits, after a deductible, and also a portion of any settlement.
http://tinyurl.com/2qwgph
Does D&O mean “deceitful & odious?”
Wow, this could be fun, it could be like insurance in Florida after the 4 storm hurricane season.
“Among the homeowners who are hurting is John Basso. Basso paid $503,000, and spent more than $100,000 on upgrades and a pool.”
“Then earlier this year, Basso was transferred to Austin. The house went on the market in June for $675,000, then $649,950, and now it’s dropped to $624,950. ‘We’re not trying to get every dollar out of it,’ he said.
Ummm… actually you are, dude.
(1) He paid $603k for the house, including upgrades, (2) he knows the market has declined, and (3) he is still trying to find someone who will pay more than he did for the house. I realize there are transaction costs, but that is YOUR problem Mr. Seller and why it doesn’t make sense to buy a home if you are planning to live it in 5 years or more.
Try $400k and see if you get any movement, buddy. Even at that price someone is going to be catching a falling knife.
G-hog, I think that should read, “…if you AREN’T planning to live in it 5 years or more.”
Oops… yep, thanks for the correction.
Per San Jose Mercury Sat RE section
page 4 ..
only 36 percent of sales are above asking
therefore 64 percent are below asking price.
Good luck selling giving we are in a down market.
Man I can just see this guy. Having his buddies over hanging out by the gas grill oohing and awing over the pretty pool water and his cool new Harley in the garage next to his Chevy 3500 duallie. Here comes his wife in her 2006 C Class Mercedes while the kids are sporting new $150 Nikes and ipods. Theres a 37 foot toy hauler on the side of the house with 2 Honda Seadoos trailered behind the back yard fence. Inside the master bedroom is over $6000 of furniture all being paid on installment plans no interest due till 2011. Of course not to forget the 60″ Pioneer Plasma hanging on the family room wall, set his best buy card back another $5 grand. Sounds surreal? I know guys just like this and they are in their late 20’s or early 30’s. Stupid Stupid Stupid!!!
“20’s or early 30’s”
Being in my early 40’s living in Silicon Valley all I can say is …
I can recall the crazy 80s. The yuppies in their 20-30s and their expensive habits. They all burned out by the end of the decade. Lost their toys, money, jobs, homes and families on that faitfull day in October 1987…
It was wonderful to watch, even better when I purchased my first BMW from a broken up Yuppie… I got it dirt cheap.
Now Im going get me a nice home for 50cents on the dollar. Seen all this before.
I’ve known people like this guy. Big Spenders. Small Net Worth.
You just described my buddy who lives in Lake Elsinore to a T. In addition, he commutes 120 miles round trip to work. I recently sold him my old fuel miser car and he has to work OT non-stop just to keep up with all the house and toy payments. Oh yeah, and his wife is pregnant too.
pretty soon we will all agree this is “The MORON Generation”
wife pg working lots of ot…..hmmm is he sure it’s HIS KID????
“Oh yeah, and his wife is pregnant too.”
For that kid’s sake, I hope it was the neighbor that knocked his wife up. Kids deserve a better gene pool.
Went to the beach in San Clemete, CA… we were 1 of 3 three cars, (Toyota Corolla)… out of hundreds…that was pre 2000 year models…everything else…high end models & SUV’s up the A-hole…every one had to pay the same…$1.00 per hour parking. I think I had the bitch’est beach towel on the sand…Rufino Tamayo print…
Another example of an idiot.
Lets face some facts here. Prices typically were $100-125/sq ft
in the best of places in 1997 under normal conditions. They shot up to 2.5x that by 2000 and then another 2x above that…. now days we are seeing homes at 500/sq to 1000/sq ft
We are way way off the normal mean. Aside from the drop in rates of the 2001-2003 we did have all the free money and idiotic spending (burning) from stock options. But now all this is no more. Back to reality.
Its no surprise we will see a 50% correction in the Bay Area.
“Then earlier this year, Basso was transferred to Austin.”
Just last week MSNBC had this piece about Future Jobs, which would require four or five career changes in a worker’s lifetime. I was thinking that the housing industry would also have to adapt to this future too, because the workers retirement nest-egg will not be able to withstand getting screwed every ten years by the REIC whenever a career shift occurs.
Yes, it seems that the nation went house-crazy at precisely the wrong time - just when staying mobile might just mean staying employed. One would think that the 1950s - and not the 2000s - would have been the time for folks to go to such great lengths to own a house. Why did so many wait until the age of gloabalization to behave like this?
Global wage arbitrage kept wages stagnant after the .com bubble and RE looked like the only way to get wealthy. Moving to LA in two weeks and there is now way I could have taken the job if I was a recent home buyer.
Good luck with the move & new job!
Absolutely agree that being mobile will be the #1 way to stay employed in the future.
A search of Travis County property shows that Mr Basso already bought a 3700 sqft home in Austin, so maybe that’s why he’s itching for a sale…
Nice detective work
I think this is a classic story of the summer of ‘07: sellers refusing to admit that they won’t be turning a profit.
Someone is paying $335 sq. ft to live in Chula Vista (or Chulajuana, as everyone north of there calls it)??
Also, “Among the homeowners who are hurting is John Basso. Basso paid $503,000, and spent more than $100,000 on upgrades and a pool. The house went on the market in June and now it’s dropped to $624,950. ‘We’re not trying to get every dollar out of it,’ he said. ‘We’re just trying to complete the transaction.’”
Can someone please clue in Johnny that an asset’s value has absolutely NOTHING to do with what YOU paid for it??
Right up there with this realtor nugget:
“‘The loans are worth more than the house,’ said Jim Lamb, a Realtor who lives in Mountain House.”
The last two weeks should have shown Jim what a piece of paper may ultimately become worth. Me, I’ll still take the house.
About every two days i get into a slight differing of thoughts in other words people who are in total denial and say this thing is not bad and the press is going overboard as well as blogs. These folks of course are investors who don’t want the truth, they just want a 40% profit because their brother in-law got it 2 years ago.
They say things like wait till OCT and i get this grim reaper look, i answer, OCT i don’t think you want OCT to come to fast. I just about have learned that a person falling from a cliff use to ask for a helping hand, but today they want to tell you i won’t fall i can pull myself up so let me alone fine, i hope the fall doesn’t kill you?
I’m perplexed…what do they ‘think’ is going to happen in October?
Historically, the market dies until January.
Exactly, that is why i wonder where these people get this idea that the fall things are going to turn around and the subprime market with resets isn’t that bad as is made out. That is why these folks got in trouble in the first place they are in a dream world of another dollar in the slot machine and i win big?
what do they ‘think’ is going to happen in October?…
all that pent up demand from the post superbowl, tax refund season, spring selling season, memorial day weekend, fourth of july weekend, summer vacations, labor day weekend, is going to come to the rescue of all of the realtors, mortgage brokers, inspectors, etc.
As far as I can figure, Halloween ain’t gonna be the only scary thing in October.
Bast as I can tell, all of the defaults from rate resets that occured bewteen Super Bowl Sunday and Fourth of July, should be resulting in foreclosure by then. If not foreclosures, certainly NOD filings.
It’s really amazing what people will convince themselves is possible when their backs are against the wall.
Pretty soon they will be facing the wall.
Oh crap! I forgot Halloween was coming. I’d better go buy a house immediately to be ready for all the brats coming to my door demanding their sugar high! They don’t take candy from mere renters you know!
how about the tidal wave of ARM resets they keep talking about that will happen in October?
“Kathy Van Pelt paid $210,000 in cash, including a 5 percent auction fee, for a doublewide mobile home and a two-car garage with an apartment over it in Wildomar. Van Pelt said she bought the place for her adult grandchildren who now stay with her Menifee.”
“Van Pelt said she hopes the property will increase in value and become a nest egg for her retirement. ‘I am so excited about this because it seems like it is a new beginning,’ she said. ‘It looks like a good time to buy when values are down,’ she added.”
So many things wrong with this - 1) Paying near top dollar for a double-wide, apt and garage 2) Thinking today’s date is when “values are down” 3) Buying property for your grandkids 4) The opportunity cost of $210K in cash - poof! 5) Hoping the property will increase in value to “fund your retirement”
The only good thing is that she won’t be paying any interest on the loan. The rest of the story is just crazy.
You couldn’t make this stuff up if you tried.
Granny better teach the grandkids how to cook meth if she wants to recoup anything out of that double-wide.
“Granny better teach the grandkids how to cook meth”
Home cookin’, m-mm, m-mm, just like grandma use to make. Wonder if the smell of cooking meth would sell a house better than baking cookies?
BWAHAHAHA!!!
LOL
I wondered how she came up with the 210k CASH for a dump……all makes sense now.
“Granny better teach the grandkids how to cook meth if she wants to recoup anything out of that double-wide.”
BOOM!!!
There goes the retirement nestegg.
Bingo….this ain’t a new beginning, it’s the beginning of the end, for her.
On one side of the family, I had wealthy grandparents. And a wealthy aunt. Although they subsidized several cousins, I don’t recall anyone getting any real estate.
I’m glad I’m not the only one blown away by what this lady paid for a stinkin’ trailer. My house here in Michigan ain’t worth half that much right now, but at least it doesn’t have skirting.
FWIW, today marks the first time in almost 3 years that listings in 93552 Palmdale have been lower YOY. That probably doesn’t mean much, in fact it may only mean that the hump has been reached and we’ll now slide down into resignation and despair. Nevertheless it is a marked change in my chartists view of the RE world.
Palmdale…
In the general vicinity of where jesus lost his sandals, long ago
LOL…right on the mark
And up until the last few years one of the few places remaining in Socal where you can still support a family on one income.
Having said that, absolutely, it’s a desert wasteland. Nobody, I mean nobody, should ever think of moving up here from “down below”.
The Dude: Yeah, well. The Dude abides.
“With a glut of houses on the market, why are they building at all? The developers have little choice. They paid millions of dollars to buy the home sites and are obligated to pay for the streets, sewers, water treatment plants and schools before houses can be built. The only way to recoup their costs is to sell homes.”
So the solution is to throw good money after bad? Yeah, I get that they are stuck with a huge investment and nothing to show for it, but I don’t buy that all they can do is build until they go BK. NO ONE is going to buy those houses, at least not in any kind of volume that the builder would need. OK, so they’re on the hook for all the land they bought. Just stick some cows on it and get the agricultural tax break. Lease the land to farmers or something. Negotiate with the local govs, trust me, they’d come to their senses if they realize that no tax money would come from a BK builder and empty developments that taxpayer money would have to be used to bulldoze.
And crikey, if I’m a bank that was lending to the builder, and saw what was going on, I’d be talking to the builder and cutting some sort of deal to stop the bleeding.
Sheesh, it’s like saying “We broke our leg, but our only choice is to keep on breaking it until it is completely shattered.”
sounds about right
Toll Brothers has agents at new areas who say right to your face that everybody else is hurting but not us, then i drive their neighboor hood and every third house is empty with a buy me sign now on it? I go back to the model and ask what gives you said you are not hurting, i look down and guess what, the agent has two broken legs not one? take care
Once again, it’s time for that Slim family favorite: the Toll Brothers slogan. It was coined by the son of one of my mother’s teaching colleagues. (He was a Toll Bros. construction employee for a while.) Here goes:
Toll Brothers Homes: Guaranteed for Five Years. Then They Fall Apart.
I can just see a builder petitioning a city council for a variance reversal to change his residential land back to agricultural land ..
“We plan to raise cattle.. lots and lots of them.. then subdivide! It’ll attract investors and commercial business by the bucketfull! Everyone wants to own a farm.. this is the original “American Dream”, dontcha know..
And, after all, the price of meat never goes down.”
Yep, the builders, having come down hard on city councils and county commissions, probably have no standing to go back and reverse the zonings they fought so hard for and spread so much money around for.
What a mess. The scope of the development is mind-blowing, I just can’t imagine how that part of it is going to end. It’s not like a house in foreclosure here and there. It’s not like it’s even one development here or there, I imagine there will be in the hundreds across the country that will fail.
Well, the US has always done things in a big way, haven’t we? If we’re gonna fail, I guess we might as well fail big.
The big “We” may fail but this is a “Look out for #1″ situation, imo.. The opportunities for individuals to profit from this deluge of troubles will be everywhere.
Meanwhile, just gotta survive the storm .. go into hibernation for a while… i hope everyone likes popcorn.
I’ve been preparing for this disaster for a long time. The only thought on my mind now is, “how am I going to f-ck this one up?” I’m sure I will find a way.
The worst misallocation of resources in US history..
living on easy street has made a nation of idiots
For a lot of these developments, grading, roads and utilities have already been paid. So the developer has to see that as a sunk cost. The developer then has to make a judgement, can I sell a house for more than it costs to build (leaving out the land and site development costs)? If the actual building costs are $200k and the house can be sold for $210k, then the builder has to build out even if there total cost for the house (including land and site development) is $410k.
For land that is already purchased but not developed, you can do a similar calculation (development + construction cost vs. sale price).
Building will continue until prices drop to the point where marginal costs (ignoring sunk costs) are greater than potential sale value.
If marginal costs are less than potential sale price, the only reason to stop building would be if (1) developer/builder have very deep pockets; and (2) sitting on the sunk costs for 5-10 years could result in much higher sale prices (not likely given the current trends). The rapid decline of the housing market ironically adds incentive for builders/developers to build out everything they’ve got in the pipeline as fast as possible.
Thanks for the explanation, Groundhog. The key line in your post is “The developer then has to make a judgement”. I think lack of judgement has characterized this entire bubble/bust. The development around here looks more like desperate hope than judgement based on cold, hard facts. It’s like these developers think “Well, my homes will sell, the other guy’s won’t”. I don’t know what makes them think that, it all looks like the same crap to me. Reminds me of searching ebay for a particular item and finding page after page of the same item by different sellers, with maybe one or two having a bid. And yet, more sellers would put on the same item and it was obvious they were hoping theirs would be the one of two that sold. Never made any sense to me. Even if I had invested money in something I thought would sell on ebay, if I researched and found pages and page of the same thing with only a couple selling, I wouldn’t bother wasting my time and paying for listing fees on a hope. But that’s just me.
“The developer then has to make a judgement”.
You might be right about the developer just ignoring reality, but there is also a certain degree of individual decisions that make sense leading to group actions that don’t. Individual builders or developers can look marginal costs vs current sales environment and rationally decide to push ahead. But when EVERY builder or developer makes the same decision based upon the same information, we get a flood of homes on the market and a sale price much lower than the estimated price used to make the individual decision.
I’m sure there must be a name for this economic problem (seems like a classic game theory scenario) so perhaps someone else can shed some light here. Does John Nash visit this blog?
Personally, I think this will all grind to a halt when lenders refuse to lend one more dime to build one more spec home, anywhere.
“I think this will all grind to a halt when lenders refuse to lend one more dime to build one more spec home, anywhere.”
I agree. I just wonder how far off that event might be. Seems like it should be soon.
“You might be right about the developer just ignoring reality, but there is also a certain degree of individual decisions that make sense leading to group actions that don’t. Individual builders or developers can look marginal costs vs current sales environment and rationally decide to push ahead. But when EVERY builder or developer makes the same decision based upon the same information, we get a flood of homes on the market and a sale price much lower than the estimated price used to make the individual decision. I’m sure there must be a name for this economic problem (seems like a classic game theory scenario) so perhaps someone else can shed some light here.”
It’s the fallacy of composition.
http://en.wikipedia.org/wiki/Fallacy_of_composition
Earlier today I posted on another thread an excerpt from an article called Tragedy of the Commons about how poor regulation encourages widespread cheating. I think the same article deals with your game theory question: http://en.wikipedia.org/wiki/Tragedy_of_the_commons
“I’m sure there must be a name for this economic problem”
Prisoner’s dilemma
http://en.wikipedia.org/wiki/Prisoner’s_dilemma
“Two suspects, A and B, are arrested by the police. The police have insufficient evidence for a conviction, and, having separated both prisoners, visit each of them to offer the same deal: if one testifies for the prosecution against the other and the other remains silent, the betrayer goes free and the silent accomplice receives the full 10-year sentence. If both stay silent, both prisoners are sentenced to only six months in jail for a minor charge. If each betrays the other, each receives a five-year sentence. Each prisoner must make the choice of whether to betray the other or to remain silent. However, neither prisoner knows for sure what choice the other prisoner will make. So this dilemma poses the question: How should the prisoners act?
…
In game theory, the prisoner’s dilemma (sometimes abbreviated PD) is a type of non-zero-sum game in which two players may each “cooperate” with or “defect” (i.e. betray) the other player. In this game, as in all game theory, the only concern of each individual player (”prisoner”) is maximizing his/her own payoff, without any concern for the other player’s payoff. In the classic form of this game, cooperating is strictly dominated by defecting, so that the only possible equilibrium for the game is for all players to defect. In simpler terms, no matter what the other player does, one player will always gain a greater payoff by playing defect.”
This kindas reminds me of the economic situation some farmers face during years of a bumper crop. The more all farmers produce, the lower the prices, and the more all farmers will feel a need to produce even more to recoup their costs at the lower prices.
This is the theory behind the gobmint paying farmers to set land aside and not work it.
http://tinyurl.com/k27ko
So
farmerslandowners get paid not to farm.Got 10% down?
I don’t know about your other areas, but around where I work, a lot of developments aren’t being continued; they’ve just been flat out abandoned. No attempts to do anything with the property. They have that entrance road that goes in maybe a few hundred yards or so, and that’s it. Roads to nowhere.
No No I insist keep right on building! Imaging what this is going to do for the prices in 12 months give or take a few. I just might be able to buy a brand new home with the money I get taking in aluminum cans.
My limited understanding is the builders had to put up a surity bond that insured that the neighborhood infrasturcture would be built. If they don’t complete the project then they forfeit the bond. Thus the economics dictate completing the project in order to minimize the losses.
Basically, they’re screwed either way, I take it. I know about a little bit about surety bonds from the institutional construction biz years back.
As a potential buyer, I wouldn’t even think about buying in a new development at this point, even if the construction were decent. Not if there’s an HOA and it is my understanding that most of them are HOAs. That would be a nightmare, trapped in a ghost development where you can’t sell, but have to keep footing a larger share of HOA fees due to unsold and foreclosed homes.
Forfeiting of the bond causes immediate economic pain. Completing the project pushes the pain out somewhere into tomorrowland.
Because hope does indeed spring eternal there is always hope that a miracle will occur, via the FED, congress, the courts, etc, that will save the day for the builders.
“Because hope does indeed spring eternal there is always hope that a miracle will occur, via the FED, congress, the courts, etc, that will save the day for the builders.”
I guess that’s the bottom line: going on hoping. Rarely, if ever, works. The only thing that does work is confronting the realities of any situation, grim though they may be, and then figuring out what can realistically be done and doing it. Biting the bullet, and salvaging what can be salvaged. Sooner or later, this will happen because there will be no other choice.
“When all else fails, men turn to reason”. Abba Eban
“Take a chance on me” — ABBA
“Goofè Dean. Well, let’s see, we have on the bags, Who’s on first, What’s on second, I Don’t Know is on third…” - Abbott
“As a potential buyer, I wouldn’t even think about buying in a new development at this point, even if the construction were different.”
That’s because you are well informed about the situation; There are millions of potential buyer that aren’t, and these are the ones that will be catching the falling knife.
“these are the ones that will be catching the falling knife.”
And catching a few knives in the back, as well.
HOA ? Not for me.
I am waiting for lower prices like everyone here, but when I buy the house it will not come with any accociation fees.
California property tax is $5,000/year for a $450K house.
HOA tax is $2,500/year and what do you get? In some cases you only get someone to cut and clean a small little communal park. I once asked the developer how the HOA was used and distributed. Answer 30% went to the mexican workers who did all of the mantainence and 70% went to a managment firm (probably their only work was to write the payment checks to the mexican workers, and answer the phone).
There are other things that an HOA does:
Pays taxes on common areas (no need if you are not in the HOA)
Maintains roads & streets (Gov. does that if you are not in the HOA)
Keeps you an your neighbors from making that change property values (don’t get me started on this).
HOAs are best for the local government & the developer. The developer can build more homes and build to less stringent standards than non-HOA constructions. Then the Gov does not have to maintain the roads & streets.
As far as I can tell, there is nothing in it for the home owner, except interference in what you do with your property.
Upside to buying into a ghost-towning development (on the courthouse steps, for bottom dollar)-
Fewer homeowners means fewer voters for HOA elections. Ergo, it’s easier to get on the board, and then propose dissolution of the HOA, with community property divided up among the then-voting members. Any smart lawyer could come up with a proposal that would benefit every member of the HOA, therby ensuring that the vote would go your way.
Boom… no more HOA, and nice bennies (additional land and/or cash) for everyone involved. Plus, when sale time comes around, as it inevitiably will, “No HOA dues” will be one heck of a sales tool.
It’s HOA Judo.
–Shannon
Spot on. The developers post a performance bond and sometimes a maintenance/ warranty bond that’ll stay in effect two years after notice of completion is filed.
Here the rub, these surety companies don’t fall for this separate LLC bs. for each development…They’ll want the main corporation on the hook and in my experience, personal indemnification of all the principals.
You don’t ever default on a bond!
But the builders are wholesalers, right? So they can sell those houses for 40% less than today’s going rate and probably still make a profit (or at least pay their employees and break even).
The builders have the choice of building affordable housing and maybe coming out with a small profit .To build unaffordable housing in this climate is s-t-u-p-i-d.
Builders only do two things - they build or they go bankrupt. Most builders I’ve known have gone bankrupt at least once.
I’d appreciate some real estate stories about Trona, Ca.
Good, bad or indifferent, it matters not…
“Trona High School has 162 students and competes as the Tornadoes. It has the only dirt American football field in the United States outside of Alaska”
the soil is a wee bit salty.. grass won’t grow.
Population around 1800.. people (i’m assuming they don’t count lizards in the population numbers).
http://en.wikipedia.org/wiki/Trona%2C_California
Y’know I haven’t seen this flick, but it may be interesting?
http://www.tronamovie.com
Countrywide has an office there
http://tinyurl.com/29ruoq
Toll you so.
House things down there?
I’d check out their website, but I don’t want to accept Toll House Cookies.
“If they stop building, the town stops growing. If they continue building, our resales are low,’ she said.”
OMG… Lady, it doesn’t matter. Your town HAS stopped growing - as far a people. Now, empty houses are another thing.
Wow. The real pain is starting.
How about that Dow Jones, eh? Really came roaring, uh, I mean, wimping back. Anyway, here’s my mantra: 12 by 12/12 or bust.
I like it, especially the bust part, since that’s what’s really happening now.
BigP~
I had the day off and watched the early market meltdown last Thursday on CNBC from opening bell until the close.
It was pretty fookin’ wild.
Losta screamin’, yellin’, wild eyes, & rampant rumors
Closest damn thing I’ve seen to hysteria, since the trade towers came down.
I know, I felt like getting drunk. Guess I’ll just have to watch the slow and orderly decline, though. How boring.
Time to play “My Favorite Flipper”:
http://homes.realtor.com/prop/1083177584
3b/3ba, 2,791 sq. ft., listed for “$1,349,000 - $1,399,900″ (BTW, what’s up with this trend of listing a price range? Sorry, but negotiations start with the lister’s lowest price.)
L.A. County Assessor lists the home as 5b/3ba, bought for $735,507 on 10/20/2005.
Who wants to take a guess when, and for how much, this one sells?
I was just thinking last night how this will effect Pasadena. I’m sure it will be better off than OC, Valencia and other areas that have had a major cookie cutter build up these past 10 years.
If I had to guess I would say that house will sell for about 899-850, but I am not as familiar with the Pasadena market as I am with some of the others.
I would guess that Valencia will take about 30-40% off 2005 prices while Pasadena may only lose 20-30%?
Just a guess, anyone else?
This is only in a so-so neighborhood of Pasadena. It’s definitely not in one of the better ones. I’d expect to pay that much in the Sierra Madre Villa neighborhood near the Eaton Canyon Golf Course. Those houses up there have bigger lots, too.
Nice house, 1.3m nice not hardly, 735k barely. Once the bank forecloses probably 400 to 450 sometime around 1Q09
$1.4 million.. and overhead powerlines.. yup. (take the “tour”)
was this a ‘flip’? I think so looking at the pictures - they must have been watching the tv shows …
i dunno who or why… check out the patio(?) and pool.. i ask ya.. Would anyone do that on purpose?
Sure looks like a tiny lot. And I was still stunned at the reduced prices people would pay that were thrown out here.
Wow, that address brings back some memories. Back in the 70s as a grad student I rented a 1BR garage apt behind a house on S Craig, between Colorado and Del Mar. Is that house even south of California? I forgot where the San Marino borders are. Where’s az_l?
Nope, you don’t get south of California until the 500 - 600 block. Prices over $1M should be reserved for the palaces on 3 acres south of CalTech in Oak Knoll.
Thanks for the house number refresher. I know Caltech is on the Pasadena side of California. When I was there 30 years ago, there really were some nice houses on the San Marino side of California. I assume that’s still true?
Um, when I clicked on this link the only thing that I got on my screen is that if you call now @ 626-705-1160 then Joshua will pay YOU *$4,000.
Got 10% down?
I lived in Pasadena for many years; this is an “okay” neighborhood, doesn’t rate those numbers.
Plus, they’ve made a classic flipper mistake, putting trendy “updates” in an historic house (this has to be 1920’s); that’ll turn off at least half the potential buyers who would be looking in Pasadena.
One million USD.
I feel so sorry for all the SOCAL idiots-NOT.This house in Texas,new would sell for mid 200K and be in a nice area.
Is TOLL bros anything like KB Homes.They’re the the biggest pile of crap to hit Texas since something called Berkshire-Dallas Homes.
I paid 187,000 for 2900 sq.ft in 1998, and that’s about where I’m at once again.BUT, I bought to live in.My property taxes are high at 5050 a year, but there’s not state income tax.
Love to visit SOCAL, but 2 weeks and I’m outta there.
Kathy Van Pelt paid $210,000 in cash, including a 5 percent auction fee, for a doublewide mobile home and a two-car garage with an apartment over it in Wildomar. Van Pelt said she bought the place for her adult grandchildren who now stay with her Menifee.”
“Van Pelt said she hopes the property will increase in value and become a nest egg for her retirement. ‘I am so excited about this because it seems like it is a new beginning,’ she said. ‘It looks like a good time to buy when values are down,’ she added.”
I used to think my uncle lottery addiction was irrational, well no longer. I think Mrs Pelt may top my uncle, with this one.
I think it is a tragedy in the making when a lot of us (Americans) think that their house is their salvation to retirement.
Cinch
“Van Pelt said she hopes the property will increase in value…”
Yeah, that’ll happen right after her sister Lucy holds the football so Charlie Brown can kick a field goal.
Have a really nice colleague/friend who is thinking of the same except he refinance to “upgrade” his shack. He is hoping to downgrade in a few years and retire. I don’t know of a creative way to tell him that his plan may not be sound.
Cinch
Cinch, I had this very conversation with my parents this morning. We agreed on the following:
1. Houses are lousy investments. In real terms, they don’t do much better than track inflation — or beat it by a percentage point or two.
2. Houses are there for you to live in, not profit from.
3. Because of items 1 and 2, you’d best seek your fortune elsewhere.
Try to convince this to the rest of America!
The Slim Family has given up on that. But we do make a nice frugality support group. For each other.
I ranted on this topic a couple of days ago. I think the problem is that most of America only noticed two things: a)most comfortable WWII retirees owned their house and b)housing has doing nothing but go up in their lifetimes. Thus housing=retirement.
Discussing the nunances like actually needing to own the house free and clear or what housing does in real prices is somewhat beyond the grasp of these simple folk. Unfortuneately, the simple folk include my Dad and In Laws. *sigh*
Luckily, I’m fortunate that my immediate family is also cheap enough that our frugal ways do not seem totally out of place. It’s somewhat frugal support group.
“We rode the high; now we’re suffering the low.”
Not yet, you aren’t.
“The loans are worth more than the house.”
No, they aren’t.
“If they stop building, the town stops growing.”
Duh.
“The only way to recoup their costs is to sell homes.”
No, that won’t work either.
“My concern would be more with the overall real estate market.”
Really?
“I think it is a tragedy in the making when a lot of us (Americans) think that their house is their salvation to retirement.”
My mom lucked out. Her house did end up funding her retirement, which unfortunately ending up consisting mostly of medical care. Wish she could have enjoyed her retirement more, but she always said she enjoyed working.
I’m sorry to hear that.
Cinch
Thanks, Cinch, didn’t mean to be a Donnie Downer. In a way, I can understand the desperation with people hoping their house will fund their retirement. Things are just not like they used to be and we have grossly rigged markets now. What’s an unsophisticated saver to do? I have a lady friend who is freaking out right now because her 401K just lost $30,000.00.
OUCH! And she’s pretty frugal.
I think we have to change the way we view retirement, which by all accounts a recent invention. Only since FDR did the masses think about retirement. Retirement has always been the privy of the upper class or well to do few.
I’m generalizing here and not directing this at anyone in particular. I think many of us think retirement is an entitlement. I think like everything else worth having, we have to earn it through hard and smart work.
Cinch
I think that widespread retirement will disappear within a generation. For most people, it will be too expensive, and they’ll need to keep right on working.
I agree. It may even disappear as soon as with the baby boomers and be looked upon as one time fluke of a particular generation or two. Too many baby boomers I know have not saved or planned enough for retirement. (My Dad thinks he’s going to retire at age 65 like grampa except without the savings or pension…*sigh*)
Anyway, we’re saving for retirement, but I really consider it my “old and too ill to work” fund. Not planning to put yourself out to pasture also changes some fundamentals: if I work until I drop dead then it’s important to enjoy life right now, too. So we probably won’t save as much but we’ll take trips and do important things in the here and now. And no, I don’t want to work 80 hour weeks now thinking that in 3 decades I’ll have all the time that I want. I’ll still have to work then, anyway.
The notion of retirement plays a central role in the greatest transfer of wealth in our history - specifically the transfer of wealth from the last of savings generations back into the hands of the nation’s elite. By dangling the carrot of retirement - many savers willingly allow others to play with their money, and with hardly any guarantees on returns at all.
What kills me about all the financial advice given around retirement is that it’s based on living on less than what you were earning working. Frankly, there’s no way I want to live on less in the future. By saving and investing and a little luck I’d like to have as much or more so I won’t be a burden on anybody.
Just so you know where I’m coming from. I’m 32 and I don’t plan on retiring. Like your mom, I think work is more fun and very enjoyable. I guess the trick is to find what you love to do and chances are that you’ll do it until you kick the bucket!
Cinch
Naivete talking? I’m convince!
Good for you, Cinch, I feel the same way. I know one feisty old bat around here who is in the stuff business and she’s determined to go out with her boots on.
I feel the same way about saving for retirement as I do about walking down a dark city street at 3am with a wallet full of cash. I’m not going to bust ass my whole life to see my savings stolen from me.
My retirement plan is a quart of good whiskey and a pistol.
That is my retirement plan as well.
I bet I nail a whole bunch of deserving asshats before they get me.
That’s the best thing I’ve heard all day. Need more whiskey, though.
Sorry about your mom, Palmetto. She was obviously a very responsible person - she paid for her house and was not a financial burden to her family. We all aspire to that.
I’m sure Palmetto’s mom would not have been considered a burden under any circumstances. I doubt Palmetto would have minded paying her back for, um, BEARING HIM if she needed a little help.
Owning a paid-off house is critical for old-age. My mohter owns her apt. in Manhattan, and I know she’ll be fine. My father, on the pther hand, in and out of sublets, on my sister’s couches, they pay his rent, it’s a nightmare.
Being old and renting sucks. In SF many elderly folks lost their rentals during the housing boom through owner move-in evictions.
At this point in my life, retirement is the only reason I can think of to own. And owning a small place is the best bet. I don’t want 2 floors and a lot of rooms to take care of in my late 70’s.
For those who plan to work until they die, consider that no matter how well you take care of yourself, there’s the **very real** possibilty that you’ll be too ill to work.
IMHO, retirement is a plan that should enable a person to eat & have a roof over one’s head when he/she is no longer able to work.
Sorry to hear about your mom, Palmetto. Hope she’s able to get better and enjoy life a bit more.
“Tadich sees an increasing number of prime borrowers forced into foreclosure, and he doesn’t see that trend going away anytime soon. ‘I think the prime borrowers are going to be the issue in the coming year,’ he said.”
That’s significant. Sooner or later these lenders are going to get it pounded into their head that it’s the persons debt to income ratio that’s important. Prime borrowers can borrow to much also.
I think it is funny when the Steven Colbert makes fun of sub-prime borrowers and never mentioned the prime borrowers who brought severely inflated houses. I’m not saying the Colbert Report is the MSM; I think the MSM want to pin the problem at sub-prime, but we all know better.
Cinch
The fact that house prices got way out of line with incomes is almost never mentioned in the media. The solutions given almost always geared towards trying to supporting prices that aren’t affordable. The current mess is proof of that. I guess stuffing more people into mortgages that they can’t afford is going to be a long term fix? The current Fannie and Freddie limit of $417.000 is already well above the affordable limit relative to median incomes in most of the country and even most of California. Raising the limit will only help people who already have a lot of income get a better rate. Not a lot of help to the average Joe.
I read somewhere recently that as of 2004, only 6.2 million Americans had financial assets (not including real estate) of $1 million or more. That is a surprisingly small number of Americans with those financial assets. And isn’t it sad to think that $1 million isn’t really all that much money today. Think of the average Joe who has a tiny fraction of that amount saved.
I don’t know if it was the same study, but someone did a survey around here (Detroit) where the survey said over 100,000 people had assets of $1 million or more, and the number was growing. But when you dug a little deeper, the study revealed that not only was it not ” $1 million of net assets,” they did not count any liabilities of the folks surveyed!!!! No mortgages, credit card debt, vehicle loans, nothing. I couldn’t believe what I was reading. What a useless survey that was portrayed as good news around here.
After I read these articles about people who jumped in without doing their due diligence before they signed on the line, I look in my box of “Give a Damn” to see if I can find any for them. Too bad…it’s empty and I don’t give a damn. They should have realized the mortgage broker who told them they could refinance before the loan adjusted had no way to predict the future and it was going to end badly. Fools and their money don’t usually make for longterm relationships.
Capital One is out of the game:
http://biz.yahoo.com/ap/070820/capital_one_financial_wholesale_mortgages.html?.v=18
Just read the same thing on cnn.com. Novato Caliyourinforitnowia just lost a major employer because the mortgage unit they shut down is headquartered there. Novato, located in Marin, go away we got ours, County ground zero of what’s wrong with California..
Yep, Greenpointe has bit the dust. I must say I’m going to miss them they had decent Commercial paper.
Commerical’s not dead, they’re trying to sell it.
Hmmm, I thought they were dead my guy there jumped ship month’s ago…
sorry, shoulda linked the bloomberg story.
————————–
GreenPoint will continue to service residential mortgages from offices in Columbus, Georgia, and is looking at alternatives, including a possible sale, for its commercial mortgage origination business, Fairbank said in the memo. The bank will retain a $12.5 billion mortgage portfolio and will still make loans through its branches, the statement said.
Commerical’s not dead, they’re trying to sell it.
“I don’t want to go on the cart!”
“Oh stop being such a baby!”
HAHA! Perfect quote.
I think Ditech (GMAC, division) will survive, because they say “People are smart!”
If Ditech goes, where will TV networks find money?
Cinch
“Lost another loan to ………” ooops, no-one left to lose a loan to.
Cinch,
You have a point. TV ad revenue is about to drop. If for no other reason than they will have to discount to fill as much airtime. Or maybe fewer slots… Either was. I’m glad this is contained.
Got popcorn?
Neil
Here’s a theory I’m working on in my dimly lit combine…
Big business (REIC) hates real capitalism because creative destruction isn’t compatible with long term profitability. So legislation acts like credit in that it delays the inevitable collapse. The collapse being the end of credit bubbles or the end of industry reliant on old technology (MSM, Music Distribution, etc).
So the theory is that the Internet, and subsequent 10 year lag before people really figured out how to use it, caused the housing bubble by forcing the Fed to slash rates at the end of an era.
So, in a nutshell, Bernanke is battling the Internet tidal wave of creative destruction with monetary policy. Or maybe he really had no idea housing would be a problem.
GMAC is now majority owned by Cerberus Capital Management (51%), who is now also the majority owner of Chrysler (80%). These guys sure have bitten off a lot in the last few months, even for a 3-headed dog guarding the gates of hell.
I just watched Rep. Barney Frank on CNBC I must say I’m depressed after seeing that.
Ah…Rep Barney Frank….he’s a legended in the Pages of Congress..
He’s a moronic buffoon…
perhaps.. but don’t forget he’s got a large, rock-hard constituency who follow him closely.. willing to jump aboard whenever he commands it.
“…rock-hard constituency…”
I won’t ask, and won’t tell.
Well if that’s the case, then no one here get’s there wish because he’s advocating a very cleverly disguised bailout.
Jebus! You guys are killing me here! To recap: RayW says ole Barney is legended “IN” the “pages” of congress and now he has a “rock hard” constituency?
My wife is looking at me wondering what has me laughing so hard!
LOLOLOL!!!! You guys crack me up.
He clearly doesn’t get it yet he’s convinced “Something must be done!” This is political hackery at its finest.
mis, I’m afraid to ask, but what did he say that brought you down?
See for yourself…
http://www.cnbc.com/id/15840232?video=477751114
The regulation I don’t have a problem with as long as it’s the right kind of regulation, not just smoke and mirrors stuff. The rest of it is a cleverly disguised bailout. Especially the federally subsidized rental housing he’s speaking about. With H.U.D already providing that service just what exactly is he talking about and how much is it going to cost me the taxpayer. I have an idea and the thought of it depresses me. Leave the market alone and let it work itself out.
Sounds like a nice, friendly chat has been scheduled for tomorrow morning. Stay tuned for bailout plan announcements later in the day.
BTW, did Dodd mean to refer to the Fed Chairman or the President’s Working Group Chairman?
UPDATE 1-Bernanke, Paulson, Sen. Dodd to meet on markets
Mon Aug 20, 2007 2:22pm ET143
By John Poirier
WASHINGTON, Aug 20 (Reuters) - U.S. Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson will meet with Senate Banking Committee Chairman Christopher Dodd on Tuesday to discuss the recent volatility in financial markets.
The closed-door meeting will take place at 10 a.m. (1400 GMT) on Tuesday in Dodd’s office. Dodd, a Connecticut Democrat and presidential hopeful, is expected to hold a news conference afterward.
U.S. lawmakers are beginning to cast a critical eye on the role of market participants and policy-makers in light of recent turmoil in markets.
“The meeting I’m having with the Fed chairman tomorrow is just to be kept up-to-date and to have a good opportunity to talk to each other,” Dodd said in an interview with CNBC television. “I thought it was a good time for us to sit down and meet again for a candid conversation with the chairman about where things are headed.
http://today.reuters.com/news/articleinvesting.aspx?type=bondsNews&storyID=2007-08-20T182207Z_01_N20297492_RTRIDST_0_USA-FED-CONGRESS-UPDATE-1.XML
Just the same ol’ gig from the politicos - blowing hot air out of BOTH ends - to command a 15 second sound bite on the news that conveys the leaders hip. Expect more future actions from this double steam valve regulator taking on the runaway freight train of housing/credit/economy/home - debtors gone bust.
Got 10% down?
apparant transparancy…
you see when the credibility is the issue, you have to start signalling a little more clearly. Instead of sneaking up from behind and pulling the rug out, you stand right in front and kick squarely in the balls.
This has been long overdue. Get ready for an inflation target. The big guns, unheard of strategy, tin foil hat conspiracy diatribes, and pain.
surely everyone is ready for the pain?
Dodd’s did say on CNBC in so many words that the regulators knew about the problem with loans 3 years ago but they didn’t do anything about it . Dodd’s was implying that he was for bail-outs, but not to speculators ,however he didn’t say how the bail-outs were going to be determined .
I don’t know how the Gov. is going to justify bail outs paid for by the taxpayers . These loans are contracts between the lenders and borrowers . The only way the Gov. can bail the situation out is by buying the bad paper at a higher value than it deserves or providing a new loan that will default anyway .
Wait until the gov. finds out just how bad these loans are and just how much fraud took place in the final years of the housing appreciation cycle .
“Doug Heffner, owner of Integrity Lending Group in Fresno, said most prime borrowers in the Valley tend to be more conservative compared with those in the Bay Area or Los Angeles, who may have been forced by higher property values to take on more risky loans.”
This comment simultaneously encourages me and scares the bejeezus outta me.
My guess is the price/income ratios are equivalent (8-10X?) in both places, but we keep hearing how SF and LA are prime. If those two go the way of the IE, maybe depression isn’t such a far-fetched notion.
“Doug Heffner, owner of Integrity Lending Group in Fresno”
Isn’t that the King of Queens? From IPS driver to owner of a Lending Group…way to go Doug!
I’am calling b.s. on that one. I spent half an hour talking to my friend in stockton. he informed me that his wife’s best friend is facing foreclosure on a house she leveraged to buy her new home. She bought the new home for $600,000 and now its worth $500,000 and still falling. I sold my home in Merced last year , to a realtor who paid cash and tried to flip it. He is renting it out and it has lost over 20% of the purchase price. I’am very thankful he was greedy enough to buy it.
“Integrity” Lending?? Is there such a thing???
Well CNBC is saying that a big rate cut for tomorrow.
Bernake has been talking to “Wall Street” who is saying they can’t make book to keep it’s operations going (something about a repo book).
I don’t understand half of what they are talking about, but it seems to me that long term, this could be very bad news. Yeah there will be a lengthy rally, but if this situation is SO bad that market operations can not be funded?
Please all of you out there, help me understand this.
They are also saying that Bernake is initiating these calls.
Yea, I’m listening to that crap now and it’s really depressing, it seems they are gearing up to pull out all stops to stop the bleeding. They are refusing to let the market correct itself on it’s own. To take it’s natural course… which in the end especially when the gov’t is involved means that everything is going to end very very badly for all concerned.
Here’s a stupid question from a know-nothing.
If things are so bad that WS can’t fund it’s operations: the only thing to possibly attempt is to reinflate the housing bubble right?
Then the paper that they can’t sell, they don’t have to mark to market as it currently stands.
Like I said, I’m a know-nothing but that actually seems a possbility to me as something they would attempt.
Where people are going to get the money to buy when affordability is at an all time low is beyond me, but then again, what do I know?
I must say that I am VERY suspicious that Cramer would continue to gloat as if he runs WS and the On the Money girl would be reporting a rumor. I thought that reporting rumors was against basic journalistic standards. So what are they trying to do?
I’m slowly constructing my tinfoil hat. I’m using the heavy duty stuff.
Nova
There was nothing artificial about this bubble.. “They” didnt do it and “they” cannot reinflate it at will.
The bubble, it’s evolution and subsequent bust was very much predictable years ago, by the awareness and understanding of, and the changes in, basic market forces and conditions. Ask Ben if you doubt it.
not that this will put the slightest dent in tinfoil sales..
joey:
Be kind. I’ve read this blog for years. I understand much more than I did long ago, but I also know that the richest amongst us will do anything to maintain that status. I’d be pissed if in some kind of way that they were bailed out and reckless speculators and fraud inducing mortgage brokers were bailed out at the expense of people who were prudent financially.
On another blog a bull, of course, suggested that all of the big institutions were too big to fail and that BB will cut and cut so all of the homeowners could refinance and the hedge funds will be able to unload their paper instead of mark to market and deal with the consequences. The savers will be eaten up by inflation.
Like I said, I’ve learned a lot here, but I don’t know enough to decide if this is possible or not.
Didn’t lenders raise the interest rates? Wasn’t it they who tighten the rules?
Not BB, nor J6Paks nor hedge funds can persuade or force lenders to loosen up and start lending again against their best interests.. Lenders got stung really bad and won’t soon forget it. An inflationary “stock split” will fool exactly nobody.
Lenders will react positively to RE market stability.. to security in the form of stable loan collateral and solid, dependable borrowers.. and to nothing less.
Keep following the money chain joey. From where did the money originate for the lenders to lend? We are in the discovery phase of who actually lends to the lenders, and the flexibility of this particular system.
We are not so far removed from 1907.
..but what does it matter from where they get the money? Lets say a lender finds $10 Billion in the gutter..
Will the means of their acquiring this money change their attitude about mortgage risk? Will they lavish it on a new batch of specuvestors, expecting that property prices will suddenly take a turn upwards and onward forever? Will it change the strawberry picker back into Cinderella who, as long as he pays with another HELOC, will never face foreclosure?
As I see it, most of the recent problems are simply due to stirring the Stock market in with the Real Estate mortgage market.. mixing a very volatile, extremely efficient, high liquidity market in with one that’s a virtual opposite.
The RE market is as about as inefficient as could be imagined, moves about as fast as a glacier while it’s asset liquidity is effectively nil.
Suddenly, there’s a News flash:
The stock market reacts instantly and positions shift now.
The RE market may react sometime next year, assuming someone happens to be awake and tuned to the news.
but this is all getting straightened out as we speak.. it will be painful, and there’ll be lots of weird effects around the edges of the storm.. but there is no force under heaven that can move this RE market backwards.. got as much chance of that as there is of pushing Dean back through the Caribbean.
From where did the money originate for the lenders to lend?
China and a number of other places other than the USA, and if anyone thinks they are going to keep on buying garbage MBS at even lower rates to keep this housing party going, they’re nuts.
Oh, I have my hands clasped in a small (very small) prayer that Bernanke is doing a head fake and in fact raises rates. I’d be ROTFLMAO. Imagine the outrage! Well, I can dream, can’t I?
Yea, I don’t think that’s going to happen. If the reports I’m hearing in the media are true seems he’s caving to the pressure put on by the Wall Street Whiners.
This just really pisses me off too. Let the market come down to what is supported by fundamentals. Doing any type of bailout just keeps prices artificially high and screws it for everybody else who was responsible and didn’t take on more debt than they could handle.
Oh, man, novasold, that’s grim. Puts me in mind of the fruitless efforts to avoid the 1929 crash. Better a severe recession now than a total depression later on, IMHO.
Since there seem to be quite a few intelligent posters contributing to this blog, I’m wondering how you have your money invested right now. I’m currently have about 65% in equities (diversified across large cap, mid cap, small cap and international), 30% in fixed income and 5% in cash and gold. I have a gut feeling that the things are going to get much worse but I don’t know whether to listen to those who are predicting depression and deflation (which I assume means I should be in all cash) and those who are predicting hyperinflation (which I assume means I should turn to gold or other commodities).
I can’t get much out of my Schwab Private Client advisor other than I shouldn’t try to time the market but I thought I might get some good free advice here. I’m also wondering if anyone else in using Schwab Private Client and whether you think it’s worth what they charge.
Thanks in advance for your help.
Read this, http://www.federalreserve.gov/boarddocs/speeches/2004/200403022/default.htm, then figure out what you think Bernake will do and what you should do
I read it and found it confusing. Bernanke rejects the conservative fed policy at that time. He also suggests that the link to the gold standard was the key factor.
His apparent view that the fed should have had a looser monetary policy is an easy choice given the evidence (in hindsight) of severe deflation (10% per year), but would it have been better to flood the market with dollars if that would have led to hyperinflation (which I think happened in Germany)?
If someone with a better understanding of the article can explain the conclusion, it’d be appreciated.
OK I’m going to bitch about economists (the most unworthy of social *cough*scientists*cough*.
Economists like to believe that their macro projections into the past actually have merit and value. Decisions and actions can only be implemented in the present and in the REAL economy and the effects of which are only partially knowable through models.
Confidence in the postive outcome for the future through mutally beneficial agreements between members of a socially cohesive society is what drives an economy forward. The “economic” numbers are just units of account to describe the nature of a society at any given point in time. No duh, right? Yeah, but do you believe the numbers, which numbers are important, and if the focus is so much on the numbers at what point do the numbers actually effect the general economy? Maybe ’tis better to lie?
Modern day macro is a failure. Do we really need to take a random walk and marvel at the failed cointegrations that have been put forth?
Milton Friedman basically admitted before he died that everything he had put forth was unworkable in the long run (M3? what M3) and his brains beat the crap out of Bernankes! So how the hell does Chopper Ben think he has an answer for the depression mystery?
Here’s my humble opinion. Implementing economic models in the general economy is like an 8 foot tall man legally blind man swinging a 2×6 at a pinata in a china shop. Put that in your model!
The black boxes are burning brightly.
I’m in short ETFs, some long large cap, some gold, and mostly cash. One scenario that seems to have come out in the past few days is the possibility of a new “Fed Bubble”, whereby equities will soar knowing the fed will make sure “nothing bad happens” by cutting rates, or by buying equities directly through the PPT. I’ve seen a couple of analysts already come out calling certain fed actions based on S&P levels. At this point, nothing would shock me.
I’ve recently bailed on the stock market and I have no good reason other than thinking I’m up against lots of forces I don’t understand to *if I’m lucky* in 20 years have booked a 7% return. With the unlying capital at risk. With the baby boomers slowly but surely pulling out in the next 20 years. I have to admit that I admire those here who can and do trade successfully because I have neither the temperament nor the skills.
Our position is now somewhere in the range of 70% cash and I’m increasing our gold purchases. The advisors always say to not try and time the market - I suspect because that’s “safe” advise. However, I just received the best return of our lives by timing the housing market.
Go with your gut and do your best to hedge. I see no reason why the economy has to be purely inflation (hyper or otherwise) or deflationary. We very well could have helicopter Ben having us shell out $100 bills to get a gallon of milk/gasoline and have a house cost $150K (and an iPhone going for 30 cents).
Confused. I don’t know about any intelligent posters as we are a bunch of kooks
but don’t forget that cash is a position also.
IMO: You can get both Deflation AND inflation together. Deflation in the things that are discretionary spending but inflation in things you NEED (Food, energy, services where there is no real local competition such as health, insurance or Govt.)
Also rememeber it is not in the feds interests to post a true inflation number. If so, they’d have to pay out more in pensions etc.
Your comfort zone for speculating (your not investing really) is something that will let you sleep at night without worrying about it. If you are concerned, sell up and take a break till it settles either way.
Confused:
Starting last winter, I started reallocating our portfolio. We’ve gone from 65/18/17 (equity/bonds/cash) to 58/19/23. Recent market action has also helped reduce the equities slice, of course :). We are also diversified globally and across industries. I’ve thought about gold, but never taken the plunge. Your allocation also needs to be informed by your time horizon, of course.
You can try to time the market, but I know I have never been successful doing it as an investor for the past 25 years. Bulk of market moves will often happen before you can react, so if you are not long when the big updraft happens, you don’t get the benefit. Downdrafts are just as sudden, of course, and often larger. Investing takes a strong stomach sometimes (I don’t tell my wife about the bad days–she gets too worried).
My reasoning is and has been for the past 9 months or so that the Fed will be forced to cut due to the knock-on effects of the housing/credit crunch; bonds will do OK, stocks will be volatile. Naturally, I wish I’d taken my own reasoning to heart and moved more out of equities than I did, but so be it.
I don’t see a depression coming, as some do. Housing prices will return to sanity in most places, but that may be because of a long, slow flattening of nominal prices in many areas, making it a poor investment for years. Perhaps I’m too optimistic, but I think we’ll muddle through. General recession seems like a strong possibility in the near term, however.
So there’s some feedback–I wouldn’t call it advice. Good luck with the Schwab guys. I have no experience with that service, but in fairness, you can’t expect them to fortell the future.
Big rate cut. Oh well, BB might save his big boyz friends, but this might finally collapse the value of the dollar for the rest of the world.
As for Prof. Bear’s War on Savers. Well, here it is. Heck, if BB cuts enough, it might not even be worth putting money in the bank. Just keep it in the mattress or in the false ceiling in the bedroom.
Cutting rates is a total hosejob. Yes, as one poster put it last week, “Isn’t lower rates what got us here in the first place?”
Geez, these guys just can’t help themselves to another heaping pile of “Please bail us out.” Again proving another poster’s “Privatize the gains, socialize the losses.” Man, if I had a dime for everything that has come to pass on this board, I could pay off every debt in the country, i.e. national, state, local, corp, personal and mortgage.
You guys have been right on, esp. those who see through the smoke and mirrors of an economy that other than pushing paper around, really only produces back robs, tans, and poems for each other!
I am so disgusted. Well, it just shows you that BB has no ballz and obviously supports his rich buddies. He obviously doesn’t care about really cleansing the system and making people pay for their bad choices.
Heck, if he lowers rates enough, maybe I can buy that million dollar McMansion on 40 years at 1% for the entire life of the loan.
I am so bummed and pissed after reading about this possible rate lowering. It is going to make J6P feel good again and therefore keep this joke of an economy going a little longer.
Oh, you say I am a doom and gloomer. Well, the longer this crap keeps going, the harder the fall is going to be when it happens. Oh well, maybe this is all planned and I should just get my tinfoil hat on.
Lowering interest rates puts more downward pressure on the dollar, thus increasing the cost of imported goods. Oil rises, the trade deficit jumps…. not sure how this is consistent with BB’s goal of keeping inflation in check.
I’m no economist but WHY does the government need to bail out all of these fraudulent lenders and brokers and by extension all of those irresponsible people who took out these mortgages? I can guarantee you that these people would be gloating today if their house kept increasing at 15% per year.
I had better not vent more given the new increased government surveillance!
“Kathy Van Pelt paid $210,000 in cash, including a 5 percent auction fee, for a doublewide mobile home….”
Oh, she’s a Van Pelt. That must be old money. Parlaying the family fur-trading fortune into chattel — that’s what the Van Pelts do best.
Good Grief. The doctor is out.
no.. no.. not the fur traders.. She’s of the same clan as the famous Lucy, Linus, and Rerun van Pelts.
Yes, that’s correct…they live down the street from Block Head Chuck.
People, you’ve got the wrong clan. Can’t you see that “Van” is capitalized in the article? If Charles Schulz were alive today he’d roll over in his grave. Good grief, indeed.
And besides, tens of thousands of people are losing their homes; how can you joke at a time like this?!
Luv,
Jen
“And besides, tens of thousands of people are losing their homes; how can you joke at a time like this?!”
“…Of course, the advice that Lucy offered often leaves Charlie Brown feeling even worse than before.”
“Lucy Van Pelt works hard at being bossy, crabby and selfish. She is loud and yells a lot. Her smiles and motives are rarely pure. She’s a know-it-all who dispenses advice whether you want it or not–and for Charlie Brown, there’s a charge. She’s a fussbudget, in the true sense of the word. She’s a real grouch, with only one or two soft spots, and both of them may be Schroeder, who prefers Beethoven. As she sees it, hers is the only way. The absence of logic in her arguments holds a kind of shining lunacy. When it comes to compliments, Lucy only likes receiving them. If she’s paying one–or even smiling–she’s probably up to something devious.”
Luv,
Tim
“…Broker Tad Tadich…”
They make these names up…right?
Nurse: “What’s his name again?”
“T t taa Tad.. Tadish”
“Oh, you muh.. muh mean mu my husaband’s? Nurse? nn Nurse?”
BJ always throws in these sort of names just to get us all going.
Thanks again Ben………it’s always a good laugh
$200,000 for a trailer? You have to be kidding me. It looks like the real estate market still has a long way to fall
Beat me to it. Me thinks she overpaid by about 175K.
A trailer sold for $517k in Santa Barbara a couple of years ago.
Capital One to Shut Unit, Cut 1,900 Jobs
AP - Capital One Financial Corp. said Monday it will cut 1,900 jobs and shutter its wholesale mortgage banking business, a move that comes as lenders continue to struggle in the nation’s housing and mortgage markets.
YEA — Whats in your Wallet! Pink Slip!
“Whats in your Wallet! Pink Slip!”
BWAHAHAHAHA!
Gosh. I hardly know what to say. When I was a pre-schooler (’71-72) my parents (dad = navy surgeon, mom = middle school teacher until firstborn child arrived) bought a cheap house on Robbins Street. They knew the empty canyon behind the lot was a strike against the place’s resale value, but they were more concerned about a street with low traffic for their toddlers. They planted iceplants on the hillside to help stop erosion and were careful to keep us children in a circle of safety.
Don’t let the doctor thing fool you. They were poor as church-mice and they never thought otherwise. They were both a single generation away from Kansas farmers who barely survived the Depression and dust bowl.
My mother’s uncle (my great uncle? She always called him “Uncle Bill” and therefore so did I) survived the Bataan Death March. I’ll skip the drama at which I wasn’t present for anyway and wouldn’t be so for another generation. I’ll merely share that even for Depression Survivors, when a Japanese POW corrected you - as a family member - that you don’t throw away toast because it is burnt? No matter how disposed you think you are towards thrift, you will thank God that you have lived to butter your burnt bread and you will eat it and be grateful.
Back to my parents. They have done well by themselves, I think. Their forebears would be pleased, I believe. I’d like to be more like them, I’m sure of that but I don’t believe I’ve earned a vote yet, in that I feel it would be arrogant to assume that position. That starter house on Robbins Street - I wonder what it’s worth now. Whatever it is I’m sure it’s an amount that would have settled their minds and enabled many dreams had they gone that way. They didn’t. They stayed with the Navy for a few more years and eventually moved one when it thinned out after the war. They weren’t bitter for the end of something, but rather grateful for the opportunity to have served something larger then themselves.
From my father’s earliest days as a Naval officer they’ve loved Hampton Roads. Last year they bought a house in Williamsburg, VA on an I/O loan. They were not fools. There really is a right customer for that type of loan. They wanted a particular house on a particular lot and after a lifetime of service and hard work they bought exactly what they wanted, exactly where they wanted it. It took another twelve months to sell their Phoenix house (during which time they were both working, mind you - they were only 65 and intended on working up until age 67) and close the sale. They got significantly less than the neighbors who’d sold a year before, but they’re nothing but grateful. They got YARDS more than they paid back in the early ’80s. Can you believe that after 12 months of no interest in the property, they actually had a bidding war at the last minute? Me neither, but it couldn’t happen to finer people.
They took their IRS refund check (I/O loan = some tax deductible interest, a “luxury” they’d long-since forgotten) and bought cherry trees to plant around their new home and neighborhood in Williamsburg. They had to pay for HOA approval, but they think it’s worth it because they want to see cherry blossoms out the windows in the springtime as they get old(er). Presumably someone(s) in the HOA realized they were trying to pay personally for a community benefit and ceased trying to stop them from doing so.
The longer I know them (yes, my own parents), the more aware I am of how much I’ll lose when they’re gone. They don’t just make people like that anymore. We take our girls to see them (2.5 hr. drive from DC) every chance we get.
I’m not enough of a gambler or risk-taker to ever get rich. Neither is my husband. When we bought our house (in 2003, in DC) we were so thrilled to be getting a 30-year fixed at historic lows that it never occurred to us to try to go lower with an ARM. I hope we’re about more than just luck. I look at America and I try to believe in mid-western values. I hope we’re not too corny or extinct for our time and place. I want to pass on more of my parents’ values to my girls.
It never occurred to me to try to get a loan with anything less than 20% down, but I don’t begrudge those who did otherwise.
I won’t lie - the community would be better served by some more active, involved parents - even in the charter schools. It would be great if y’all would come into the District - those of you who are responsible with your money and your fiscal behavior. At the risk of sounding politically incorrect, I hope my neighborhood continues to gentrify. If it doesn’t do so quickly enough, we’ll have to move.
I suppose I’ve generated enough controversy for one evening. Good luck and God bless,
bcc
haha, why are you throwing money away on principal?
Refi that into a 2/28, get a phat check and buy a boat or elephant or something. There are some HOT condos in miami if you have the guts to wait a few months for the rebound.
hey it’s free money, but I can’t tell you what to do.
LMAO
ajas, you’re killin’ me - a f#(@$! elephant or something!
bcc- I”m about same as you. Just wanted to say I enjoyed your post.
My Parents are still in the same house they bought freshly married in 1963. Paid off the mortgage in 90’s and never once saw any reason to move.
bcc,
I too enjoyed your post.
FYI, my grandfather too was a navy surgeon. Very practical and passed it on to me and most of his grandkids. However, he could never really talk about the war (he was a surgeon at Pearl Harbor on December 7th… he would talk about how they ran out of bandages, plasma, and morphine and could never finish the story).
Talk to them. There is so much that will be lost when they’re gone.
It comes down to sensible debt and never being too greedy. The old wall street truism “Bears make money, bulls make money, pigs get slaughtered.”
This generation is about to get a lesson.
Neil
Good story. Thanks.
RE: Suvivor of the Bataan Death March…
The greatest of the great!
Sooo, I’m standing on top of a 30-story building, and when I jump, I think ” normally I would worry that I’ll hit the ground, but there’s a big ledge on the 20th floor”.
Interesting rumor/guess about Countrywide from Bankrate:
A mortgage broker tells me that Countrywide slashed its jumbo rates late last week, essentially betting the company on the hunch that things will settle down soon in the private mortgage-backed securities market.
Do you think they got a guarantee that Freddie would buy all they could process once congress gets back in session?
I sure hope some juicy insider trading stories come to light shortly, along the lines you suggest…
Do I see that the ‘conforming ‘ limit is $625k in Alaska, Hawaii, Guam. and the Marianas. Perhaps they will just bump it up USA wide ? Still will bail out some F’Bs, if they can qualify for their refis.
Does this mean lenders will again lower lending standards and loan to people without a hope of repaying their debt? Not likely IMO, and if not, then housing is cooked regardless.
Question:
If the fed cuts the funds rate, who does it help? From reading this blog I believe that would only result in a short term rally not a fix. So who would this help, in the short run, and who gets hosed?
#2: If BB does do this, will he officially be known as in the pocket of the uber-rich? I read posts where serious traders felt seriously burned buy Friday’s action. They state that this has resulted in a serious lack of confidence in an orderly market.
#3 If this rumor has been floated and he does not cut rates, then what?
Ironically there is a special on CNBC right now about how debt will kill your chances of becoming a millionare. That’s rich.
nova
I know there are alot of seemingly intelligent folks talking up the rate cut in the media. Personally, I think it’s bad policy but I just don’t see it helping regardless. It won’t stem the default wave and the illusion has been shattered for MBS investors. The argument that it will help ARM resets has some validity but I think the problem is bigger than that. There is a whole slew of folks who are going to default even without their mortgage adjusting higher. In times like these I think of one of my father’s favorite sayings: “What we have here is a genuine cluster f–k.”
I agree. Lower rates AND lower lending standards AND higher incomes might do something. Inventory, tougher standards, and flat incomes will win out, IMO, and kill this pig.
Might do something?
lower rates– no, not lower. still much higher. FED has issued guidelines that ARMs are qualified at fully amortized rate and not teaser rates. People who were stretching to finance at teaser rates are dead, and even rate cuts won’t bring us back to 2003. The rates will still be higher and they’ll still need a down payment. They’re dead.
lower lending standards– that ship has sailed. Investors don’t even trust PMI-backed and almost-govt-backed Fannie securities let alone sub-that. Now ratings agencies’ feet are being held to the fire so there’s no way to get investors to buy what you’re selling. It’s dead.
higher incomes– translates immediately into higher inflation and higher rates where it counts– treasuries.
The bottom line is that there is a huge well-earned stigma attached to the US housing market, and nothing but time can heal it. Or maybe, an even worse melt-down in the rest of the world. Either way, stick a fork in it.
Higher incomes imply protectionist policy, which all agree is not competitive in the world market. A large middle class is a historic abberation, and is in process of being corrected out of the system. I am not sure who will be left to buy cars, appliances and TV’s, but perhaps these are not really necessary to basic survival anyway.
You know - I never understood why so many people seem to assume that lack of growth is a bad thing. I don’t *want* my home town to continue growing. I want it to get better. Getting better means better schools, better jobs, parks, activities, etc. None of that implies population growth or addition of new houses. Yes - it is possibly for a city to get better without actually adding population!!!!
/rant off
Inflate or die. How can the debts incurred today for your parks and schools be settled at par in the future if there is not more offspring to offload it onto? You will either obey and increase your population organically or have a more “diverse” neighborhood.
Choosing “die”=Trona
As a native Californian, I can assure you that population growth is NOT necessarily a good thing.
We’ve watched what was once a beautiful state with clean, safe, middle-class neighborhoods turn into an over-crowded, filthy ghetto with deteriorating infrastructure. Not good.
Agree completely. San Francisco is a good example - the population swelled during the dot com bubble, and the place became nearly unlivable for a while. Now the population is back down, and things are back to normal. Growth is certainly not necessary for a thriving city, and in many cases it is not desirable.
I want to clarify, I meant the article and the the quote from the article not the comment.
There sure has been a lot of nonsensical gibberish flying around the financial infomercial media, and in the world of blogs and message boards since Friday. So let’s try to separate fact from fantasy.
Read on……..
http://wallstreetexaminer.com/?p=1550
From SignOnSanDiego
“SAN FRANCISCO – Service problems disabled ATMs and online accounts at Wells Fargo & Co. for at least 24 hours starting Sunday afternoon, leaving some customers of the nation’s fifth largest bank unable to get cash or use debit cards to pay for goods.
San Francisco-based Wells Fargo would not say how many customers or machines were affected but acknowledged that services were down throughout the company – from personal banking and Wells Fargo corporate Web sites and ATMs to the processing of mortgage and student loans.”
Was just thinking… I wonder if it’s related to the mini bank run at Countrywide on Thursday and Friday. As in maybe they have circuit breakers like the stock markets where things start to shut down if enough money is withdrawn. Ahh, conspiracy theories are fun
More than likely the offshore outsourcing team in Indian didn’t even know the ATMs were broke in the US.
Question: What are the odds that the new imigration rules are being implemented now to decrease unemployment, does the FED see a wave of unemployment in the future???
No matter what they do, the Feds can’t change the fact that real estate prices got pushed up to high and now the investors want down payments and true qualifying on loans at higher rates .
Does the government think they can force investors to take on risky loans after they have already been burned .Do the Feds think the government has the kind of money it would take to buy all this bad loan paper or make loans to people on a easy money basis to keep the party going ?
Better to let the people who created this mess take the loss and just let the RE prices fall to where the maket really is .The lenders just can’t continue to make bad loans and either can the government for that matter .
Wiz,
I think you’ve hit it. At the end of the day, it would seem that with all the inventory, new lending standards, and lack of salary increases, it would boil down to the Fed buying all that debt. I just can’t see how lower rates save the day.
“it would boil down to the Fed buying all that debt”
You know what’s hilarious– we just sent alphonso jackson over to China a month ago to pitch MBS! Real modern day snake-oil, after the fraud has unraveled! Imagine how foolish that must’ve felt. The chinese want to make a profit, but they’re not Earth’s village idiots.
But wait. Who is?
There is no way out of this . It’s all damage control now .Let the recession and correction begin . Let America get creative again without it being some ponzi scheme that needed creative financing to exist .
I would rather the Govt. put tax money into re-building roads and bridges than a bail out for FB’s . The toxic loan bail-out idea is not contructive .Lenders who can re-write some of these loan to avoid foreclosures can do it if they want if its in their own best interest to do so .
I don’t see how the lawmakers can come along after the fact and change contract law anyway . IMHO ,new regulations would apply to future transactions, but not the ones in the past . If current laws were violated ,than a party has some standing to void a contract .
If a homeowner was ripped off by a lender than it’s up to that homeowner to show proof and go for a legal remedy .
Maybe some of the credit and income worthy people can be saved by a new Fannie /Freddie loan ,but usually people in foreclosure don’t qualify for a loan like that . Does anybody these days really want to make a loan to a borrower who was stupid enough to get in over their heads ?
Let the builders reduce the prices to move the inventory .
Let the commission salespeople become the most hated people in the universe for at least 10 years and let the main stream media go back to reporting news instead of being cheerleaders for the advertisers .Let America re-build on a firm foundation .
AMEN, WIZ!!!
The Fed already doesn’t have the 12 BILLION DOLLARS per month to fund this crappy Iraq war. How on earth it thinks it has some financial gymnastics to bprop up all these bad loans is beyond me.
What the Fed can do is cut rates and try to ignight inflation… push prices (and wages?), up to the point where they catch up to the housing prices. This means prices don’t have to collapse.
I’m not sure they can ignight inflation in today’s economy. The job cuts in the mortgage and real estate market are going to happen. We’ve overbuilt not only residential, but are overbuilding retail and commercial. Construction is going to crash. Builders are toast, and those losses will compound bank and investor losses.
Maybe we’ll get stagflation where prices rice but wages don’t, but that won’t help the housing market from collapsing. What they need is wage growth to allow people to afford the houses they can’t currently afford.
I don’t see how the Fed can push wages up.
BTW: Co-workers and I were chatting late yesterday. I’m not the only one that is making virtually the same salary today as I was making in 2000. Software developers had a huge wage increase from ‘95-2000, but we’ve (like everyone else) have been flat since. We can’t get a wage increase because any excess demand has been offshored or onshored with H1B.
What can the Fed do to allow businesses to raise wages when they are already being undercut by global economy wages? Kill the value of the dollar? That will be hard as the ECB and BoJ inject money to keep their currencies from gaining on the dollar and unwinding their economies.
Good morning y’all.
ECB released it’s injection numbers and it has been far greater than anyone expected.
A little bit of selling of the three month note this morning. Pundit is saying that some are betting that the fed will cut sooner rather than later. Based on what CNBC was forecasting it seems like they are thinking today. Squack Box has a fed task force on today.
The thing that’s scary to me is that if central banks do all of this and the investor still won’t buy the paper, this is going to be very ugly.
Rumor maybe Buffet will buy Countrywide? Please. He is not stupid.
I remember 2001 as the tech crash was getting rolling, there were stories tht Buffet was going to step in and buy some of the “values”, like JDSU and Corning. Didn’t happen.
He is NOT going to buy Countrywide.
CNBC also had theis “technical analyst” on talking about trends and such… going back to 97. Look, we’re not below trend… Sure, but start that trend in 2004, and we are below trend. These technical analysts are snake oil sales men… no, Bible Code readers. If you look for somethign hard enough, you’ll find it, but that doesn’t mean it is the most likely outcome.
Wake up mr. technical analyst…. We’re seeing a fundamental change in the underlying market conditions, so toss your charts and crap and use some common sense. We’ve had an economy fueled on debt, and the bill is coming due.
Then they had a debate about Fed cutting rates between a professor and an analyst.
Prof says that low rates got us into the problem, so dropping rates now is like giving an alcoholic a drink.. moral hazard… Don’t drop rates until we have transparacy in the MBS, CDO, hedge funds, etc.
Also, dropping rates now reduces our ability to drop rates later. Going below 3% (inflation) means there is no oppertunity cost to leaving your money in bad investmetns. That gives us a dead economy like Japan for the last decade. There is NO WHERE to make money. That means we’ve only got 2% or so to play with. So don’t drop yet. Let the crunch shake out the bad players, then use lower rates to rebuild the economy on something other than debt.
His opposition was an analyst of AIG who says Fed has to drop now, or depression is real possibility. Don’t even bother to mention how much money AIG stands to lose as home prices correct back to trend. We can socialize the risk now, or go into depression and that too is socializing the risk. Prevent the depression now, then worry about moral hazard. No dude, what you want is for the Fed to save your arse now, and you promise not to do it again. Excuse me if I don’t believe you since you’ve (you industry) has lied so many times before.
“The thing that’s scary to me is that if central banks do all of this and the investor still won’t buy the paper, this is going to be very ugly.”
Yep, you have to wonder if there isn’t some sort of mechanism in place to collapse the economic system of the US, because a rate cut will definitely cave in the whole shooting match, after a wild rally, of course. Rigged, everything’s rigged, but it is out in the open, at least.
I have a theory (conspiracy)
What if those in power are not as stupid as we believe… What if it does not matter if the debts of idiot mortgage holders repay or not? What if they are simply patsies used to infuse hundreds of billions of dollars into the economy at the expense of unwary investors from around the world? Am I so wrong about this? Did we not in effect rip the rest of the world off for hundreds of billions in order to prop up our failing economy? What if the bubble had never happened? Most on this blog do not like the bubble very much, but chances are we would have been in a brutally deep recession after 2001. Where we go from here is really uncharted territory.
“Last month, DataQuick reported that San Joaquin County mortgage holders were among the most likely in the state to default on their payments. ‘It is as bad as it looks,’ said Susan Patteson, an agent and a Mountain House resident since late 2003.”
Ouch.
I have some relatives in Mountain House. They bought sometime in 2004 for over half a million and I’ve often wondered how they could afford such a massive house.
I haven’t heard any bad news yet…
I’ve never even heard of Mountain House before today. Judging from Google Maps, it looks like a single housing tract placed in the middle of nowhere, about five miles from Tracy. It’s not surprising that places like this are the first to begin failing when there is a downturn. Most likely there are no “established” owners, and nearly everyone there bought in the past 5-6 years with a toxic mortgage. This is the stuff from which Palmdale-style ghettos are created.
Yeah, I’ve been out there.
It’s a bunch of stucco 4000sq mini-McMansions huddled together about 7 feet apart from each other on either side in the middle of a windblown desert (I’m from the east coast, most of california looks like a desert to me). The house is nice, actually better than what you could get for the same price back here, but 500-700K nice? No way.
You’re probably right about a lack of established owners. I don’t think the place even existed 6 years ago.
Wiz-
Excellent points and I would like to add that people need to live below their means. This constant bombardment by the media to have more more more is the driving force behind people who only make 30 grand trying to buy 500,000 dollar homes.
When did granite counter tops become proof of success?
I had this talk with my mother -she frets over how little SS and her retirement will be to keep “up” her lifestyle. Why not reduce that lifestyle so that you are comfortable? Who needs a 2200 square foot house when there are only two of you in the home?
I just don’t get it.
I honestly think we need to get back to learning how to live off the land, be ready for disasters and cut way back on buying crap.
We are so spoiled that I don’t think many could survive if the bottom dropped out. Does the majority of people know how to grow food, what plants are safe to eat, how to build the simplest shelter, etc>
Sorry, I just read The Road