A Speculative Bubble Driven By Extravagant Expectations
The Asbury Park Press reports from New Jersey. “Westminster Communities and Paramount Homes representatives say they are concentrating on selling the condominiums they have built and will continue to do so despite a housing market that, in Metro Homes’ Dean Geibel’s words at a business luncheon last week, is ‘frozen in place.’ ‘The marketplace is not good,’ said Sam Gershwin, president of Westminster Communities. ‘We’re building for those people who have bought units and finishing the rest of the buildings we have on the way.’”
“‘When we or someone else can figure out when the marketplace is going to change and people want to buy real estate, we will get involved again,’ Gershwin said.”
The Boston Herald from Massachusetts. “Think the subprime mortgage meltdown was frightful? Now consider the prospect of your home losing half its value.”
“The whopping 86 percent rise in home prices from 1996 to 2006 was ‘a classic speculative bubble, driven largely by extravagant expectations for future price increases’ and not economic fundamentals, Yale University professor Robert Shiller wrote in a paper accompanying his speech at the Jackson Hole Economic Symposium.”
“‘The worst downturn in the real estate market in my lifetime resulted in a 15 percent decline’ over five years, said Tim Warren, CEO of The Warren Group. ‘So I have a hard time getting my arms around a 50 percent decline.’”
“‘I think that the fundamentals in Massachusetts are relatively strong, and there’s still strong demand for housing,’ said Bob Buckley, who works with commercial and large-scale residential real estate. There will be ’some price adjustment’ as the market responds to subprime mortgage problems, he said, but New England is somewhat insulated thanks to its tight zoning controls.”
“And John Ford of Ford Realty heartily disagreed with Shiller’s warning, saying that while Dorchester and Mattapan will get hit hard thanks to a glut of low-verification and creative financing loans, ‘Boston proper will hold its own.’ Worst-case, he said: Boston-area home prices decline 5 percent to 7 percent over the next 12 months.”
“‘I don’t think there’s any signs of panic here,’ Ford said. ‘Yes, prices might drop. But 50 percent is totally unrealistic.’”
“New data shows that home foreclosure petitions in Massachusetts jumped nearly 67 percent last month compared with the same month a year earlier.”
“That makes it 18 straight months the total has risen compared with the previous year. The information comes from the Warren Group, a Boston-based publisher of real estate data.”
The Cape Cod Times from Massachusetts. “While the Cape saw a roughly 27 percent increase in foreclosure petitions in July, it was not the hardest hit region of the state for the month.”
“Foreclosure petitions more than doubled in Essex and Nantucket counties and doubled in Hampshire County in July. During that time, Middlesex County, which includes Cambridge, saw a nearly 92 percent increase.”
“In July, there were 35 completed foreclosure deeds recorded at the Barnstable County Registry of Deeds. That’s more than four times the number of foreclosures recorded at the registry in July 2006.”
The Republican from Massachusetts. “Foreclosure auction announcements have more than doubled in Hampden and Hampshire counties over the first seven months of the year, according to data released this week.”
“Franklin County’s auction announcements almost doubled, by 92.5 percent, to 77 in the first seven months of the year. Terence F. Egan, editor-in-chief for The Warren Group, said this week that Western Massachusetts lagged behind the state in the real estate boom and has lagged in the real estate slump.”
“‘That may tell us that the worst is yet to come in terms of foreclosures, because the downturn in the real estate market really hit Western Massachusetts much later than it did in the eastern part of the state,’ he said.”
“When home prices start to slide, ‘that’s when troubled borrowers start hitting a real wall,’ he said. ‘Borrowers who end up in difficulty with their payments really start seeing their options dwindle,’ said Egan, and a greater number of the petitions to foreclose start working their way to actual foreclosure.”
“The number of petitions to foreclose, the first step in the auction process, are running at more than 2,000 a month statewide, he said, whereas last year they were running at about 1,300 a month. ‘That’s a pretty clear indication that this is going to remain a trouble spot for some time to come,’ Egan said.”
NPR reports on Massachusetts. “In 2005, Tami Amato bought a modest two-family home for herself and her three children in Boston’s Dorchester neighborhood. She bought the home with an adjustable rate loan that was fixed for just the first two years.”
“Amato says she could afford the initial 6.4 percent rate. And she says her lender promised her the loan payments would never go up, because she could refinance before they did. But she says that wasn’t true and that the interest rate rose to 9.4 percent.”
“‘I thought, ‘I can’t do this,’ Amato says. ‘It was just too much money.’”
“Today, Amato’s house is full of moving boxes and almost devoid of furniture. Afraid that the bank is going to foreclose any day, Amato has been moving her belongings into storage.”
The Queens Chronicle from New York. “The subprime lending crisis that has devastated many of the borough’s working-class communities took on new urgency last week as experts predicted another wave of foreclosures in the coming months.”
“In July alone, Queens saw 882 foreclosure filings, the most of any borough, according to a report released last weekend by Sen. Charles Schumer. That tally marks a 56 percent increase from February, when foreclosure filings reached 566.”
“Industry analysts say more problems are right around the corner. In the fourth fiscal quarter of 2007, which ends Sept. 30, a wave of adjustable-rate mortgages first issued in 2005 are expected to reset.”
“Queens is already home to the shortest-lived mortgages of all properties in the city that eventually go into foreclosure. In 2004, for instance, the average foreclosed mortgage lasted just under four years before the loan defaulted. In the first half of this year, the lifespan had shortened to about two years.”
“A federal bill would (place) limits on the steep fees that often find their way into the fine print of subprime loan contracts. The bill, introduced by Schumer, would also make brokers more liable for their loans and offer them incentives to follow fair lending practices.”
“The senator is the author of a recently passed bill that requires all lenders to register their credentials with the federal government. Now, he’s hoping to tighten the reins even more.”
“‘The mortgage crisis has created a perfect storm for homeowners in New York and across the country,’ Schumer said. ‘We need all hands on deck to stem the rising tide of foreclosures.’”
The Staten Island Advance from New York. “Those caught in the subprime lending squeeze shouldn’t expect a good cry on Mayor Michael Bloomberg’s shoulder.”
“Sounding more like a Dutch uncle than a rich uncle, the mayor yesterday put much of the blame for the crisis on homeowners who took bad loans in the first place.”
“‘What happened here is a bunch of people who really didn’t have the wherewithal to get mortgages got mortgages. If they didn’t have access to those mortgages, the elected officials would scream you’re discriminating against them,’ Bloomberg contended during his weekly radio address yesterday.”
“The mayor made his comments yesterday on the lending crisis in response to a reporter’s question about how foreclosures might affect New York.”
“‘It can’t help. I mean, there are people who have subprime loans and variable-rate mortgages and when they get reset they’re going to get very badly hurt,’ he said. ‘We’re not immune to this. … We will get hurt less, I think, than the rest of the country. But make no mistake about it, it’s not good for America and it’s not good for New York.’”
“‘Buyers are not totally innocent in this process. Consumers have not been truly honest with themselves as to whether they could afford the mortgages, and some consumers, frankly, were not ready for homeownership,’ Simone Wegge, an economics professor at the College of Staten Island, testified last month.”
“‘Some of them lied about their incomes,’ Bloomberg added. ‘Now they said the salesman convinced them to do it. OK. But we live in a world where, when you put your signature down, you’re supposed to know what you’re signing, and we have to take responsibility.’”
“‘Some of them lied about their incomes,’ Bloomberg added. ‘Now they said the salesman convinced them to do it. OK. But we live in a world where, when you put your signature down, you’re supposed to know what you’re signing, and we have to take responsibility.’”
Here we stroll down the slippering slope of another Wall Street induced moral hazard. I’m not suggesting that liar loan owners should be bailed out. I am saying that if the temptation (liar loans are legal aren’t they?) weren’t there in the first place, we wouldn’t be where we are now.
I ran a red light and cause damage to the car I ran into . The temptation to run the light was there ,after all I was in a hurry . Now I want you to taxpayers to bail me out and pay for the damage I caused . By the way ,by me a new car because I didn’t have comp. coverage on my car . What’s the difference with what the Gov. wants to do for the FB’s .
They were just battling out the “moral hazard” issue on Fox News. The discussion wasn’t as dumb as I expected it to be. They actually brought up such arguments. This woman “Pat”, who has been on more and more in recent months, is easily the person with the most common sense. She said something about bailing out 401k plans that lose money. “Isn’t retirement also important?” She brought up the fact that this is a dangerous game of picking and choosing bailouts. Ben Stein lost his sound. That was good. He’s been making a Lereah (jacka$$) of himself lately. Even Cavuto said, “to all you borrowers. Read your paperwork” before going to commercial.
Now Charles Payne is saying he likes CFC. He said, “the CEO needs to lose his perpetual tan.” Too funny.
READ MY LIPS-NO NEW BAILOUTS!
Seriously, I have mixed emotions about who is at falt. One side of me says that offering people seemingly free money in the form of a “guaranteed large appreciation” is hard to resist(although we knew this was not true). On the other hand I also subscribe to the saying that “you cant cheat an honest man”. I guess there is plenty of blame to go around, the point is the honest and prudent taxpayers(us) should not have to pay for it in the form of a bailout!
Also, will we learn from our mistakes and not do something like this again-of course not!
It’s hard for me to resist chocolate, and ice cream. Who do I blame as I gain weight or have other problems? I guess if that damn Baskin Robbins wasn’t down the street, I wouldn’t have a problem. They should have to close, and the government should pay for my treatment.
There is always temptation to do something risky - there’s normally some big expected reward. The person that takes the risk should be responsible for the outcome.
The whole point of 401K’s is that you have control over your money. You make the decisions. And with choice comes responsibility. That is why the current administration wants to privatize social security - to make it look more like 401K’s (and to make people who get most of their money from salaries to think more like people who get most of their money from investments).
I think it is a bad deal for the average Joe who stays with same employer for 25+ years, but those guys are few and far between these days.
To bailout a 401K investment is to admit that the people who owned them would have been better off with a defined benefit pension.
‘This woman “Pat”…’
Wasn’t (s)he a regular on SNL a few years back?
‘ By the way ,by me a new car because I didn’t have comp. coverage on my car.’
- ALLRIGHT ….. we will get you the new auto.
But, it will be a Kia.
I ran a red light and cause damage to the car I ran into . The temptation to run the light was there ,after all I was in a hurry .
I use a similar analogy when teaching people how to use a computer operating system (Windows or Linux).
Some people are shocked how easy it is to “make a mistake” (a few clicks and you just deleted 12 months worth of work if you don’t have backups. And often people don’t even do backups.)
When you drive a car on a two-way highway, what prevents you from driving left of the center line head on into another car? Does the car prevent it? Does the road prevent it? — nothing. We have guardrails to often protect you on the right, but it is entirely up to the driver (not the car, not the road) to avoid head-on collisions. And of course, head-on collisions do happen.
In a free society and economy, we should focus on how to learn from our mistakes. It is so COOL in the USA to be ignorant about finance and money and government. I think we should blame that attitude and make that the issue. EDUCATION and teaching SAVINGS and responsible living. Those true “self responsibility values” instead of bullcrap “Christian values” (gay marriage, stem cells).
The people of New Orleans and Florida have learned nothing about how insurance isn’t a cure-all. Nor have the California people about earthquakes.
Entitlement / Greed / Lack of Self Responsibility. These “values” we have tossed in the trash and we have a great opportunity to learn from this and be better off in 10 or 20 years. But instead, we are looking for quick fix and ignoring the causes.
Piss poor comparison. Are there cops and ambulance chasers out there urging you on to run the red light? Notta chance. Liar loans on the other hand…..
Not even close to analogous.
Thanks for the Massachussetts articles, I get tired of reading about california and Florida.
Prices are definitely coming down here, I’m seeing more for your money. What was once in the 700,000 range is now in the mid to low 600’s and so on.
Seems like there is more of a glut on the high end than the low end, and alot of empty houses at the high end. I’m still eating popcorn.
I respect Robert Shiller, many of the houses bought here were done at the subprime level, because of unaffordability. Sure theres demand people have jobs but without those mortgages and loose lending, how can anyone making 60k a year afford a 400,000 house with traditional mortgage practices. It would take double that income to obtain that kind of mortgage. So Mr Shiller knows what hes talking about these other Shills do not.
Hope you caught the play on words. LOL
A big drop in home prices would not be a bad thing and actually a good thing since it meant that the cost of living had dropped. We cheer this when computer prices drop or when cell phone prices drop so why not for houses? The problem is that many peoples wealth is tied up in home prices and not their income or other assets. This is made even worse since the US has stopped producing a large percentage of what it needs to live and so the country is living off of borrowing on assets, one of which is housing, which is now dropping in value.
What the country needs is to stop wasting resources on “nation building” around the world and stop giving away freebees to people (whether rich or poor) in the US and go back to making things that Americans need to live at a price that Americans can afford.
I too would like a 50% drop in prices, although this would mean any current mortgage holder with less than 50% equity = toast, banks, CU, wall $treet nuked, home sales single digit % vs boom years, … IMHO a throughly trashed economy
The question is, how many have less than, say, 25% equity and cannot handle the mortgage, either because they bought 2003 to 2006 or HELOCed up to those prices? That is the real question here. How much and how many?
The question is, how many have less than, say, 25% equity and cannot handle the mortgage, either because they bought 2003 to 2006 or HELOCed up to those prices? That is the real question here. How much and how many?
That’s a good question. Our house is paid for and I honestly only know two of my friends whose houses are paid for. One actually saved up cash to buy the house and put on many updates and additions all with cash. The other one went bankrupt, after buying a house they couldn’t afford, probably 25 years ago down south, and her grandparents bought them a house up here in Ohio. They never had a house payment and still lived payday to payday. Let’s hear thoughts from some of the rest of you on how many people you know that actually have a paid up house, or at least some equity in a house if you’re younger.
Own outright? My brother married a woman whose father bought her an Upper West Side 2 bedroom NYC co-op. They have to pay the fees and taxes, but no mortgage. They are 40 and 38.
My parents bought their “active adults” townhouse for cash and did the renovations (finished the basement) for cash. They are in their 60’s.
My uncle and his partner own their house in Vermont and probably have equity since they had a lot when they bought it and that was about 5 years ago.
Other than that? No firm data. The younger people at my office who own proably have very little or even negative equity. (For example, I don’t see how a 5th floor walk up 2-bedroom around Clevland Park in DC can possibly be worth over $600K. I don’t care how high the ceilings are.)
However, I doubt that most of the people with negative equity know it yet.
The only person I know with a paid-for house is my mother, but of course it’s considered impolite to ask people how much money they owe. We put 50% down on our current house and pay a double mortgage payment every month. It’s not fun to pay for a depreciating asset (we live in California). I wish I had enough money to pay it off right now. On the other hand, we are happy living in it.
“mortgage holder with less than 50% equity = toast”
Not exactly. Mortgage holders with less than 50% equity who bought houses before the speculative bubble, with legit loans they could afford, will be just fine (assuming they keep their jobs).
I fully expect a 50% drop in the market value of my paid-for house - maybe more than 50% - and I am okay with that. That’s because I, years ago, I bought my house because I wanted a place to live, not for an investment.
The same goes when I buy a car. When I buy a new card I fully expect, and accept, a drastic decline in its market value.
No complaints, just the way it is.
“We cheer this when computer prices drop or when cell phone prices drop so why not for houses?”
Because people don’t take out 30-year loans to buy a cell phone.
Because people don’t take out 30-year loans to buy a cell phone.
Exactly. You’ve probably paid a grand total of $5000 after 5 years on a $100,000 loan. No one ever stops to figure the interest. My rule of thumb has always been, if you can’t afford the 15 year mortgage payment you’re looking in a price range that’s too high. That’s the only way to build up any equity the first 10 years.
It looks like the gamers have at last been gamed by a dispassionate and neutral market. I bet that when the market was going up like a kite, Bush must have been giving high fives in the White house in full knowledge that the feel good factor was alive and well in America which translates into more votes. Same thing for the Fed which deliberately inflated the housing balloon in the first place to keep the game going. Now that they both realise that the balloon is descending fast they are coming up with panic measures to keep it up. IMHO they cannot keep home prices from falling any more than they can prevent darkness from falling after sunset. Markets like nature move in cycles and what we are seeing now is the down cycle and the good old regression to the mean which will run its course just like you go to the restroom during a meeting to answer the pressing call of nature even if you don’t feel like doing so.
“And John Ford of Ford Realty heartily disagreed with Shiller’s warning, saying that while Dorchester and Mattapan will get hit hard thanks to a glut of low-verification and creative financing loans, ‘Boston proper will hold its own.’ Worst-case, he said: Boston-area home prices decline 5 percent to 7 percent over the next 12 months.”
No problem here. We’re different. Fundamentals don’t apply is Mass. What a Masshole.
I think prices will decline comparable to how much they went up in each area. If we look at the 2000-2002 prices in each area, that’s about where prices will return to. Some will decline 10% some 50% some even 60%.
Let’s see who should we listen to, the head of a Realty company whose livelihood depends on the house market. Or the guy whose been right for 10 years? Hmmm?
Are massholes worse than the regular kind?
“The whopping 86 percent rise in home prices from 1996 to 2006 was ‘a classic speculative bubble, driven largely by extravagant expectations for future price increases’ and not economic fundamentals, Yale University professor Robert Shiller wrote in a paper accompanying his speech at the Jackson Hole Economic Symposium.”
I think that we should start a campaign:
“Robert Shiller for Fed Chairman.”
I’ll start printing fliers.
“Robert Shiller for Fed Chairman.”
Much too independent for the residents of Richistan to support him…
“Think the subprime mortgage meltdown was frightful? Now consider the prospect of your home losing half its value.”
“‘What happened here is a bunch of people who really didn’t have the wherewithal to get mortgages got mortgages. If they didn’t have access to those mortgages, the elected officials would scream you’re discriminating against them,’ Bloomberg contended during his weekly radio address yesterday.”
Great segue for the MSM if they choose to get on board the topic of the decade.
“But 50 percent is totally unrealistic.”
They are acting like it has never happened before. It certainly has in real dollars in 1980s bubble markets.
I live in a row of identical houses. In 1987, one sold for $300K. In 1994, I bought mine for $209. Add in 7 years of inflation (higher then than now), and you have more than a 50% drop.
And back then, with the baby boom shifting from the singles and couples phase to the parenting phase, small co-ops and condos (studios and one-bedrooms) were hit much, much harder.
That is just a cyclical change. Look all across urban and rural America and you see housing that has had huge declines in inflation-adjusted value — often to zero and abandonment — as a result of the shifting value of different locations and deterioration. I was just reading about Bushwick, Brooklyn in 1977, where people just left because they couldn’t sell their houses at any price.
50% unrealistic? I bought my 800 square foot mobile shack POS in Newport Beach in 1994 for $11,000 cash from the bank’s REO portfolio. FB’s mortgage was $30K. HA! 65% haircut! Currently saving like mad for a down payment on a 3rd house in 2011-2013, or when I can find a SFR that cash flows positive at market rent from day 1. Patience will eventully payoff.
Got diversified assets?
I rented a Brookly co-op (studio) from 1992 to 1996. My landlord bought it for about $80K to $90K in the late 80’s. When I moved out I could have bought one like it for about $32K to $37K. That is absolute numbers - not adjusted for inflation. And the neighborhood was safer when I left than it ever could have hoped to be when he bought.
Living on the fringe of Boston, Newton and Brookline I haven’t seen much change in the volume of houses for sale. Here and there a “Sale Pending” sign but it seems for every sign that goes down, another pops up.
Also, “For Rent” signs litter my area and seem to be GROWING. A very marginal, small, “Luxury” condo building just threw in the towel after trying to sell units for over a year…now “For Lease”.
One last observation; the Boston Globe and local paper publish a list of recent housing transactions….maybe a month or so old. Usually, for my area, there are six to a dozen transactions listed. Unless I missed something, there have been NO transactions in my area listed for the last couple of weeks. Is this seasonal or something else?
I have a feeling the lack of transactions is telling; few can now qualify for conventional mortgages.
Interesting to see how Boston plays out. Just checked rent.com and things look about the same, 1500 for a rathole, 2500 to live decently, Newbury, Beacon St, etc. If there’s anyplace on Earth tenants can keep mortgage holders afloat that’s got to be it. Unlike Chicago or someplace more expansive, Boston is waterlocked, finite, and a commute, even from what passes for nearby here in Illiniois, i.e. Newton, is brutal.
“I have a feeling the lack of transactions is telling; few can now qualify for conventional mortgages.”
The August sales numbers ought to be really interesting. Especially here in CA, as Jumbo loans suddenly got very, very hard to qualify for.
I don’t think much can be done to prop up prices. The bailout talk may prolong the sellers’ denial phase, but if we’re back to more conventional lending standards, the hard cold reality is that far fewer buyers will qualify to buy at these prices….and with appreciation off the table, I think far fewer buyers will WANT to buy at these prices.
People who bought a while ago and didn’t tap out their equity will be able to afford to sell for less, and can do so knowing they’ll pay less for the next house. Bank REO’s will start to go for less as banks won’t want foreclosed houses on their books for months and months.
Spring Smackdown 2008….I think we’ll see a move from denial to panic at how the market has done a complete 180.
I think if this housing bailout thing goes through my husband and I are quitting and working part time. Seriously there is no point to working hard and living within our means (he could do locums and work one month out of the year). The government can go collect its 90k from some other fool stupid enough to try and work within the system.
I’ve written to both my senators (no I wasn’t as histrionic as I was above).
“Buyers are not totally innocent in this process…”
“Some of them lied about their incomes “,Bloomberg added .”
When borrowers buy 500K houses when they only make 50k a year ,and they have to commit fraud on their loan applications to do it , they are gambling that real estate going up will cover all sins .
In large part , these speculators are the jerks that want a bail out .I can’t help it if these borrowers believed commissioned salespeople during a mania ,or TV shows ,or the latest great place to invest posted by the MSM. If you have to commit fraud to get a long term loan ,maybe something is wrong .Now maybe the mortgage agent changed the loan application ,but people know it when they are buying over their heads and the lure of the no down loans pulled alot of people into the RE appreciation/flipping game .
Often times on Flip that House programs you would see borrowers who you just knew couldn’t qualify for a car, much less a house ,getting big loans on flips with little money to fix up the piece of junk they over payed for .If they put something on TV the
sheep will buy it .
I don’t have a problem with qualified buyers getting a new FHA loan if it is more affordable than the 12% or 13% adjustable they currently have ,but that is going to be a small % of people . These are “insured “FHA loans ,so apparently the borrowers have to qualify . Wonder how many borrowers are actually going to apply ? Wall Street won’t be happy unless they get a total bail out on this mess and I’m sick of these false market makers crying for relief .
Why doesn’t the lender give a good loan deal to a first time home buyers that takes a foreclosure off their hands ,(the bank that made the junk loan in foreclosure currently . )?Why make this a problem for the taxpayers to solve . Tax (1099) the people who submitted fraudulent loan applications ,which made up a high % of the applications ,and go after the lenders agents that engaged in fraud .
I don’t have a problem with qualified buyers getting a new FHA loan if it is more affordable than the 12% or 13% adjustable they currently have ,but that is going to be a small % of people .
I do have a problem with that. Why with the low interest rates would someone HAVE to get an ARM in the first place, unless they had no downpayment and couldn’t get one of the low fixed rates. There was barely 1/2% between ARM and fixed most of the time. Anyone getting an ARM, either wanted to buy more house than they could afford, or they didn’t qualify for fixed. The only ones that should get help are the loans that are discovered to have changed documents and mortgage company fraud. Everyone else created their own mess and should figure how to get out of it. If they heloc’d then they definitely don’t need a bailout. Maybe after 5-7 years this country will have a few more responsible citizens after they learn the hard way that greed doesn’t pay and have to scramble to find a place to live.
There was a certain % of people that should of been offered a fixed rate but they were talked into a adjustable ,(don’t know how that was possible ). If these people get the loans they should of gone on to begin with ,than I don’t have a problem with that .
“I do have a problem with that. Why with the low interest rates would someone HAVE to get an ARM in the first place, unless they had no downpayment and couldn’t get one of the low fixed rates.”
Bingo. Everyone I know who bought recently with ARM / IO financing did so because they did not qualify for a fixed rate. Little or no downpayment saved. Unable to go full doc. Credit card debt. On and off employment. No cash reserves to speak of. The works.
Does anyone know what the old standard was for how long you had to be in the same job to get a loan? I know that it doesn’t translate well to the realities of the current job market, but I am curious.
We all know the old standards on downpayments and % of gross income allocated to PITI. But I have no idea what the the old standard was on job stability.
I’ll cut a little slack towards the people who should have gotten a fixed rate but were talked into an ARM. Yes, they should have done more research, but who hasn’t made an honest mistake at some point in their life?
As for the cash-out refinancers and the crowd who took out HELOCs to buy a Hummer, they can live in that Hummer for all I care.
I think the bailout should ask the lenders who funded those broken ARMs to take the hit. READ W’S LIPS AND WATCH OUT FOR YOUR WALLETS, FOLKS! THIS GUY IS ABANDONING THE PRINCIPLES OF HIS PARTY AND HIS OWN FATHER!!!
Professor Bear .Bush made one comment in his Fridays speech about current lenders being willing to lend a helping hand to borrowers in default . Believe me those lenders should of heard this line loud and clear ,even if they didn’t like it .
“Bush made one comment in his Fridays speech about current lenders being willing to lend a helping hand to borrowers in default.”
I applaud that line, but wish that it had been clarified that it is morally repugnant to ask others besides the lenders and investors who funded these crazy loans to pay for the cleanup bill. Assign damage costs to those who created the damage, and this mess need never occur again in either our lives nor our childrens’ lives.
One of the things that kills me is that we will lend FHA money to people 90 days in default. If you are this far behind that you probably don’t intend to catch up. This means that any loan made to these borrowers will likely be foreclosed on immediately (the borrower won’t suddenly be able to pay) making this a pure lender bailout.
The commissioned salespeople were talking people into going on the adjustable loans based on a theory of “leverage” is good .Some of these people could of gone on a fixed and could of put a down payment down . Some people were not even offered a fixed and they were told that they didn’t qualify . The realtors/loan agents liked to put people on low down adjustables with teaser rates because it was a easy sale ,verses going the qualifying route . You would be surprised how convincing a salesperson can be .Also people were sold on the concept of keeping as much money as they could to invest in more real estate . This boom real estate market was all about selling “leverage ‘as well as taking out money by equity loans and buying toys or more real estate .
The commissioned salespeople sold the sheep on the concept of “leverage” and they convinced the sheep that debt was good and it didn’t matter what loan they went on because they could always refinance .They told the sheep that they were running out of land and if they wanted to sell their property the rich baby boomers would be their buyers . The salespeople had all the answers ,but they were answers based on a promise that real estate always goes up and that financing a loan would always be available .Both these investment premises were false as we can see now .
I’m just saying that some prior borrowers could be put on the fixed FHA loan now and they actually could qualify .In fact , I think the lender that put them on the adjustable to begin with should re-write them into the fixed rate they should of offered them . Let the lenders clean up their own mess if they want to avoid a foreclosure . Most the sheep will not qualify for such a re-write ,but it should be available for the small % that can be helped by it IMHO .
As far as victims go ,how about the people who where priced out of their long term house by a raise in property taxes based on a fake ,fraudulent loan riddled, real estate market .Alot of these people were seniors on fixed incomes or low income families that bought many years ago .
There has been alot of victims of this run-up in real estate ,not to mention the people who were priced out of the market . I have questions about a mass RE marketing scheme that was based on lies by the REIC . When I went through real estate school, many moons ago ,I was told that you were not allowed to sell future value or promote panic selling or buying . These are just issues that come into play regarding the sheep being sucked in by the REIC, based on lies .When you think about it , the REIC sales ptiches were absurd ,but the MSM wasn’t in the mood to challenge the false RE investment assertions and promises .Still , a person knows it when they are buying over their heads and they know it when they lie to obtain a loan ,so scr-w them.
should of = should’ve
“‘What happened here is a bunch of people who really didn’t have the wherewithal to get mortgages got mortgages. If they didn’t have access to those mortgages, the elected officials would scream you’re discriminating against them,’ Bloomberg contended during his weekly radio address yesterday.”
Bloomberg’s office is just down the street from our office. On Tuesday I think I will go over there and kiss him on the lips.
Just do it on the #6 Train he takes daily to get to work.
Bloomberg’s office is just down the street from our office. On Tuesday I think I will go over there and kiss him on the lips.
Finally, a politician with a brain. Give him a kiss for me too.
Give him yet another kiss and then add an approving squeeze on the ass, from me.
Goshamighty, a politician speaking truthfully and boldly? Wow.
‘If they didn’t have access to those mortgages, the elected officials would scream you’re discriminating against them,’
That is mean and discriminatory of the NYC mayor to talk so disparagingly about his city’s cab driver and hair dresser real estate investers.
P.S. I will take a serious look at Bloomberg if he enters the Presidential race, as he is the first politician I have heard speak truthfully about the housing mess to date.
California’s state budget reached a crisis when governor Gray Davis signed to long term spending programs funded by taxes generated by the .com bubble. Looking back, any fool should have seen that tax revenue generated by cashing in stock options on companies that never had made, nor even projected to make any money could not last. But, Wall Street “experts” called these “New Economy” companies and men all sat round the Wall Street Week roundtable and nodded sagely. And the Terminator became the Governator.
So now, consider that the same thing is happening nation wide with state property tax revenues, not to mention sales tax revenues generated from all the purchases made by bubble cash. Which then leads us to state and federal income tax revenues being dramatically reduced as the credit spigot is shut off. I have need seen anything written about this, least of all coming from the hand wringing politicians. These politicians have leveraged their spending of bubble cash just as irresponsibly as the most ignorant homedebtor so wait for that funding crisis. Sales taxes will be first to go, then income taxes, then property taxes, especially in those states that don’t have a Prop 13 type cap on assessments.
“I have need seen anything written about this, least of all coming from the hand wringing politicians.”
In the middle of June, the State Legislature in Florida announced a budget shortfall and a looming budget cut. I was out there for a job interview. Three weeks later I had a job offer with the University, 24 hours later they went into a highering freeze. Four weeks later my job offer is put on hold. The legislature meets September 18th to determine how large the budget cuts will be (stated 4-6%, rumor as high as 10%) Of course, I am glad this happened before I got out there and possibly got into a layoff. Many of my colleagues say “but there are never any layoffs in Academia.” I said “what don’t you get about the fact that we are funded by gov’t money? If gov’t money goes away, our jobs could go away.” Get real.
I think the bailout, when finished, will create a semi-permanent sub-class of home owners who are in houses worth $300 which have $500K / 50 year loans. They will be “semi-permanent” because they can never sell their home for what they owe on it.
The objective of all current bailout schemes is to keep recent buyers from defaulting. The only way to keep their payments at the same low levels is to streach out the length of the loan terms. The government’s role will be to prohibit excessive fees which could kill a re-finance, and put pressure on the lenders to to go out an additional 20 years. Maybe the govt will back up the last 20 years with some sort of inflation hedge.
Gordo
Their payments
The only way to keep their payments at the same low levels is to streach out the length of the loan terms.
I doubt this would make much difference in most cases. A couple of years back there was a home in La Jolla for sale at 29 Million. For laughs, I ran the quickie numbers on Realtor.com and found that with my $50K down payment number the monthly payment would be 187K at 6%. I decided there was no way I could really afford that, so I tried a 300 year loan - not much luck there either. $157K a month. Point is most in trouble right now way over-extended. I could see there may be some marginal borrowers who might benefit from a re-negotiation of terms, but this would only benefit a very small percentage. For most this will involve the govt making the lyons share of their payments for the duration of the loan. Once neighbors see that all they have to do to get “bailed out” is to stop making payments this would only make the problem worse. I just don’t see a bailout plan working which does not forgive most of the money borrowed in the past 4 years in many bubble areas.
Wow, look at Bloomberg wearing his big boy pants! He’s right and he surely understands the problem.
The only thing I can say is he finally said something after Congress and Bush finally said something.
As far a the Gub’ment bailing out FB’s, that is going to happen one way or another. Your tax dollars at work.
It would be ideal if any goverment action simply stopped the meltdown and confined it to the stupid money lending sectors. Believe me I am certainly not in favor of tax dollars bailing out speculators and people who took out stupid loans, predatory lenders, etc. But as one poster put it you could easily get into a situation where you are trying to seperate the fly crap from the pepper.
Keep in mind that we’re all in the same boat. A general recession or even depression is bad for all.
No action from the Fed would keep house prices from falling to where they are going. Thats a market issue. But keeping the banking system going and making money avaiable to be leant to the credit worthy, thats a good thing.
We get the lower house prices which we all on this blog predicted and hope for and buyers start coming out from under rocks.
The whole point is either to buy yourself a house at a resaonable price or to go back to making money in RE. If Government action makes that happen, great.
But usually the Gub’ment f**ks up an already f**ked up situation.
What is happening right now is a case of the gamers getting gamed by a dispassionate and neutral market. Bush must have been tap dancing in the White House when home prices were kitting up as this equates with voters feeling good about themselves. Same thing for the Fed which engineered the whole thing in the first place by running the printing presses 24/7. They now realise that the balloon which they deliberately inflated is descending fast, hence the panic measures and attempts to arrest the descent. However gamers can’t afford to be too obvious and that is why Bush and Bernanke are insisting that their measures are in no way a bail out for speculators. IMHO they can no more arrest the decline in home prices, than they can prevent darkness after sunset, simply because markets like nature move in cycles and right now we are regressing towards the mean. If you don’t believe me try drinking all day without going to the toilet to answer the call of nature. Well?
Lazarus: they can no more arrest the decline in home prices, than they can prevent darkness after sunset good one!
Hey kids, this is my first post in 3 months, I took the summer off from this blog because I was busy with a new business opportunity, its good to be back.
Its is crazy how much things have changed in the last 90 days, all of a sudden all the “flippers, mortgage guys, investors-etc are crying the blues”, and yes just as many of us predicted they are talking”BAIL OUT”(did you see Bush’s proposal yesterday), I hope they dont reward all these idiots for making irresponsible and dishonest decisions.
I will close with a few things I have experienced lately:
1)Las Vegas is a total nightmare-My cul de sac of 12 homes has 7 “For Sale” signs up-4 of them say “Bank Owned”. Of the other 5 homes 1 is vacant but not for sale, I am renting for a below market price, another across from me is being rented to a guy who looks like he just got out of jail. That leaves a few who just live here. Alot on new condos and home are also coming on the market soon-should be ugly.
2)I have a friend who is an extremely technical intensive stock investor and he does not think Bernanke can lower rates with out destroying the dollar. I have a debate with him that Bernake will buckle under the pressure and lower on the 18th-If I am wrong I can see a 500 point drop in the Dow that day.
3)Biggest is I think we finally have come to concensus that this was indeed a RE bubble that should have never have happened and there is alot of pain to come. Hey guys, pat yourselves on the back, we knew it all along-I will be enjoying a cocktail tonight at about 8PM-PT -every body join in with me to celbrate.
Any way missed you guys-the next 6 months should be very interesting.
Welcome back!!
Yes , welcome back . Hope your just renting in that neighborhood.
If I was just a regular homebuyer and I bought into a tract in good faith and ended up having the neighborhood destroyed by flippers and bad ass renters ,I would be pissed .The builders knew they were selling to alot of speculators and I wonder when the builders agents are going to be held accountable for their fake loan applications made in the thousands .
CrazyintheOC: My cul de sac of 12 homes has 7 “For Sale” signs up-4 of them say “Bank Owned”. Of the other 5 homes 1 is vacant but not for sale
Good thing you rent! Holy cow!
Wonder how Randy in Las Vegas is doing?
http://economicrot.blogspot.com/
Hell, I’ll have a cocktail right now to ‘celbrate’. In fact, I never stopped from last night. Will these pesky guests never leave?! And take your damn organ-grinders monkey wearing the little red fez with you.
I surely do agree that the next 6 months will be interesting indeed.
“Sounding more like a Dutch uncle than a rich uncle, the mayor yesterday put much of the blame for the crisis on homeowners who took bad loans in the first place.”
I am now officially a Bloomberg fan.
“And John Ford of Ford Realty heartily disagreed with Shiller’s warning, saying that while Dorchester and Mattapan will get hit hard thanks to a glut of low-verification and creative financing loans, ‘Boston proper will hold its own.’ Worst-case, he said: Boston-area home prices decline 5 percent to 7 percent over the next 12 months.”
“‘I don’t think there’s any signs of panic here,’ Ford said. ‘Yes, prices might drop. But 50 percent is totally unrealistic.’”
Here is my suggestion to the asshats who write these articles and refuse to qualify the interviewee prior to the interview. Please ask a few simple questions to ascertain whether said individual is actually qualified to respond to your questioning.
1). Sir, can you provide documentation of your RE views from 2004?
2). Were those views consistent with the RE declines we have witnessed to date?
3). If not, what courses, books or research have you done in the interim that makes you believe that your views are now relevant?
4). In the absence of said research don’t you feel that you should defer to those whose views/forecasts in 2004 were consistent with the world that we are now witnessing?
but, they’re not making anymore land…
Why not inquire whether they passed high school algebra while they are at it? Anyone who can passed high school maths ought to be able to figure out that 50% declines off peak are not out of the question!
canpassed“New England is somewhat insulated thanks to its tight zoning controls.”
I can barely manage to type after reading this.
“‘The worst downturn in the real estate market in my lifetime resulted in a 15 percent decline’ over five years, said Tim Warren, CEO of The Warren Group. ‘So I have a hard time getting my arms around a 50 percent decline.’”
Just do the math! Mr. Warren’s brain might tell him something that his arms could not.
Yeah! When it goes Up 381% he can get his arms around that. But not when it comes back down 50%?
Haven’t we already determined that this one is different because it is causing an economic slow down rathet than being caused by an economic slow down? I mean, even in ideas that the deniers can understand. Other real estate downturns were caused by recessions. This one isn’t. So why should this one be the same as the old ones in terms of amount or length of down turn?
Why?
This one looks much more like the Great Depression, which was preceded by a debt bubble and the crash of the Great Florida Land Boom. Try not to GET STUCCO!
http://en.wikipedia.org/wiki/Florida_land_boom_of_the_1920s
Professor Bear . I have always felt that the current correction looks and smells like the Great Depression set of circumstances .
What was the Great Depression and the Florida 1926 RE boom but a problem with inflated prices and low down leverage coming due . No difference with margin calls on stock or loan calls on leveraged real estate that can’t be sold at the inflated prices . During the stock market crash and Florida 1926 RE boom it reached a point where everyone went to sell inflated stock or real estate in Florida ,and there wasn’t enough buyers ,but the loans to invest were due .
How is the situation any different today that 1926/1929? The loans used for leverage are due (at least the payments are ) and there is no escape by selling .
“How is the situation any different today that 1926/1929?”
Our Fed chairman has broadly publicized the fact that he is a student of the Great Depression who understands the mistakes the Fed made to worsen the situation, and hence will not repeat them. Time will tell whether a panacea was truly available.
“When home prices start to slide, ‘that’s when troubled borrowers start hitting a real wall,’ he said. ‘Borrowers who end up in difficulty with their payments really start seeing their options dwindle,’ said Egan
—————————-
Yeah, that is some real difficulty for their 2nd, 3rd, and 4th houses…
Here is a comment from the Ashbury Park article:
… As for Asbury I think anybody paying over 400K to live in a town where there are weekly shootings ,drugs ,and gang violence ,must be a bit wacky.The one good thing to come out of the sub-prime mess is that a lot of these deals will never get done…
What this bubble has done is unwittingly created lots and lots of soon to be section 8 housing in many areas. Now the gang bangers can enjoy ocean front views!
Got 10% down?
Long-time reader, sometimes poster…. Anyway, there is this cynical, paranoid voice in my head that says that the housing bubble was created by financial institutions with government complicity, with full knowledge that it would burst and economic intervention would be required. The housing bubble created a pretend consumer economy of wanton spending and now a bailout will help the same financial institutions. All of this economic manipulation is to keep the sheeple from seeing that our real economy has been destroyed by allowing corporations to realize historic profit from sending manufacturing abroad. The consumer economy requires that sheeple continuously spend, whereas the manufacturing economy requires that they produce.
BTW, I am in MA. House up the street from me (new) listed in 2006 at 589K, then 539K, then 499K. Just sold for 437K. Looks like about a 25% decline. Foreclosure and short sales are all over the place. House similar to mine bought for 285K in 2003, now on the market for 265K as a short sale.
Depending on when and where one bought a rental property from 1999 to 2005 say, and what the financing was, it’s possible to cover the mortgage payment on a rental but it had to be done based on a formula called ‘penciling out’. Surprisingly, rentals in some smaller university towns where rental demand is high can work.
There was a ‘Today Show’ segment with RE analyst Barbara Corcoran just a month ago touting university areas as possibly a way for parents to house their college students and charge rents that meet the mortgage payment. Rooms rent for $500 in some college towns where there’s a student housing shortage.
That may change with say a 30-40% drop in values which puts a bunch of foreclosures on the market that may become cheap rentals.
But the ‘college rental’ formula was working with just say 20-30% equity in a certain properties with 4 or more bedrooms. Sorry to put any kind of ‘good news’ into this blog. Just call it spin if you want.