Bits Bucket And Craigslist Finds For September 6, 2007
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Down here in South Florida people are still guzzling Kool-Aide, as I try and bring up the points we all discuss here and am always contradicted by FBs.
I call them that because, even though they’re my friends, they won’t be honest about their slot machine starting to take and not give.
So very different than my home town, god bless it, where they buy to live, and fight the tax man until the day they die. There is no place like Nebraska.
http://www.omaha.com/index.php?u_page=2798&u_sid=10125154
Nebraska is a wonderful state, 1 of 50 in the good old US of A!
I’ve written this before. I can’t believe Midwestern lawmakers aren’t fighting Barney Frank, and the rest of the expand Fannie and Freddie crowd, tooth and nail. The center of the country should say “hell no” we won’t let you put these monsters on steroids at our expense. I can’t understand why midwestern politicians aren’t screaming against high-end bailouts.
(I can’t understand why midwestern politicians aren’t screaming against high-end bailouts.)
Perhaps they want to try to keep Northeastern housing prices high to hurt our economy.
If Michigan is any indication, they’re by and large incompetent and are unable to stand up to their even more liberal bedmates on the coasts. CAFE is a good example of that. I say get rid of CAFE, but the kooks on both coasts are hell bent on eliminating the US auto industry, if not cars altogether.
The Senate is a “gentleman’s club” where members can put up “trial balloons” during the early stages before any heated debate on the Senate floor. I doubt that the Barney Frank crowd will get that far with their housing schemes, but if they do look for the midwestern Senators to rip it to shreds.
Got 10% down?
can put up “trial balloons”
- Agreed. I am glad that the issue is out in the public and debated. It is like a movie release, big interest in the beginning then death.
The public attention span is geared to TV commercials 2-3 second scene changes.
Barney Frank is a representative, not a senator.
The House is considerably less a “gentleman’s club” than the Senate, but it’s designed that way. In general, issues are raised and bills passed much more quickly in the House — it’s up to the Senate to hem and haw and deliberate. That’s where you’re likely to see some pushback from Midwestern politicians.
I do agree with you about the trial balloons, though. Many of these initial ideas go nowhere, or are radically transformed (or defeated) by the time they wind through both House and Senate.
corn subsidies
“corn subsidies”
Very good, Grasshopper!
test
OK, how do you do the smiley face????
I am pretty sure the colon,parentheses smiley face gets automatically upgraded. test
test
thanks Diggs, that makes me happy
It is interesting that when Barney Frank was among the first in the Senate to note that lending standards needed attention he was popular, but people do not even recall that. Now he is labeled “bailout crowd” even though this specific point amounts to allowing the same kind of arrangements permitted in other areas to be used in his. Possibly midwestern politicians are not screaming because this is a different problem, because they want help on the loan standards issues from Barney Frank and others, and Midwestern politicians are prone to modesty and do not have many $417k home areas outside of elite neighborhoods that could be used for comparison.
A voice of reason. Thank you Mole Man.
This morning, the congressman of my district Barney Frank had a fascinating discussion with [my almost neighbour] Karl Case of Wellesley College, hosted by Tom Ashbrook, on WBUR. http://www.onpointradio.org/shows/2007/09/20070906_a_main.asp
“If you thought the subprime mortgage mess was behind us, think again. In the next year, another two million adjustable-rate mortgages are scheduled to reset from low “teaser” rates to household budget-busting new highs.
Foreclosure rates are already soaring. In some regions, whole neighborhoods risk going under. A credit crunch backlash has markets around the world in turmoil.
Now Washington is girding to weigh in. But who, if anyone, should be bailed out? Who punished? Who reined in?”
The Young and the Reckless
Subprime mortgages
Of the wretched and the reckless
Sep 6th 2007 | WASHINGTON, DC
From The Economist print edition
With elections looming, politicians pile in to the mortgage mess
http://www.economist.com/world/na/displaystory.cfm?story_id=9767843
Here is a bailout program midwesterners might like: Let the lenders who made stupid loans bail out the FBs. The only downside that I can is that lenders still in business might become very reluctant going forward to make subprime loans, which in turn would cause a severe price crash in coastal bubble markets.
Oh well…
But the upside potential is great: Neither we nor our children would have to ever again have our lives disrupted by another real estate bubble. Because the lending industry would not find it in its own best interest to create one!
My guess is that any presidential candidate who is smart enough to pick up on the populist support for such a measure might be able to win the Main Street (esp. Red State) American vote over the likes of the Dodds and Clintons out there who want to bail out their Wall Street campaign contributors at the expense of innocent third parties.
Thursday, September 06, 2007
An own-to-rent solution
Congress wants to help homeowners who are struggling to keep up with skyrocketing subprime mortgages. Forget a traditional bailout, Chris Farrell explains the beauty of the own-to-rent plan.
Competing For Sale and For Rent signs hang in the front of new townhomes in Centerville, Virginia. (Paul J. Richards/AFP/Getty Images)
TEXT OF INTERVIEW
Scott Jagow: This week, Congress is debating ways to help out homeowners stuck with awful mortgages. There are many ideas floating around. One in particular from economists Dean Baker and Andrew Samwick strikes our economics correspondent Chris Farrell. It’s own-to-rent. OK, Chris, explain this.
Chris Farrell: The simple way is, Congress passes legislation and says the current homeowner has the right to stay in the home as long as they like. All they have to do is pay fair market rent. And of course under this plan, the homeowners turn over the property to the mortgage holder. So the mortgage holder does get the property, and it’s a bailout that really protects the low-income homeowner who was sold a bill of goods.
Jagow: Do you really think that Congress would do something like this?
Farrell: You know, the idea is out there. See there’s a real problem with bailouts and let’s just use the word bailout loosely all right? You don’t want to reward speculators and you don’t want to reward lenders. You really want them to suffer, you want that pain. They deserve to go to the seventh circle of hell anyway right? Now, but you do want to protect the homeowner that was misled. The benefit of this idea is that it’s the most targeted idea I’ve seen that helps out that person, doesn’t throw them out on the street, doesn’t force them to go through foreclosure, and at the same time forces the lenders and the speculators to take a financial hit.
http://marketplace.publicradio.org/shows/2007/09/06/AM200709061.html
‘They deserve to go to the seventh circle of hell ‘
sounds serious
It would be soooooo unworkable and complex and unfeasible. And, of course, I’d love to see it happen, just for the sheer confusion and angst it would cause. But it’s a lousy idea.
Not to mention the outcry, say 5 or 10 years hence, when perhaps prices start rising again, for these people to be allowed to “buy back” their homes for original mortgage balances.
Fun to watch, but a bad idea.
The fact that they are even thinking of a plan like “rent to own ” tells me they are aware that FB’s really can’t qualify for a re-write of their loans in alot of cases .
How is Congress going to get a private lender to agree to rent out a foreclosed property to the prior FB is my question ? Market rent would be so much lower than loan yield that the lender would be better off getting rid of the problem by selling .
I just don’t see how they are going to qualify these FB’s that bought 50% /70% more house than they should of . The bulk of these loan applicants signed loan documents that were false regarding income .
I can understand re-writing a adjusted up 12% to 13% loan down to a 6.5% or 7% loan to avoid a foreclosure for a borrower who can qualify at the lower rate ,but it should be at the lenders expense.
On Kudlow business show yesterday they had a Lady from the FDIC Insurance (didn’t catch her name )state in essence that MBS paper could be re-written ,and the contracts usually provided ability for the service company to re-write to avoid greater loss.
So, with that in mind ,why can’t these MBS funds take care of their own problem? No bail outs on the taxpayers dime .
What about the person who wants to buy that home at an affordable price? This proposal, it seems, would take the residence out of the market for as long as the original debtor feels like it and as long as the defaulter can afford the market rent.
What is the market rent, anyway? A lot of single family homes don’t have good rental comparables.
I’m not convinced that I should like this idea. If the debtor and creditor find it economically attractive to convert to a rental model, let them do so on their own terms.
Also, the policy makers act like its some big deal for a FB to move from a house to a rental property ,(these people didn’t lose down payments for most part) .The next thing we are going to hear is that the government is going to pay for the moving expense of the FB’s that lied on their loan applications ,or they will pay the landlord money to take on a prior FB who just loss their house .
To me ,the lawmakers would be overstepping their position if they went to the aid of borrowers that were involved with loan fraud and simply bought to much house for their income .The legal system provides for a legal remedy for fraud .Where does it say in the lawbooks that because a fraud was on a mass level ,the laws will no longer apply . Is this some new “mania law ” whereby if alot of FB’s committed fraud it gets excused and they even get government aid? Where is the concept that justice must prevail and fraud isn’t rewarded ?
This is a bad idea because it stalls foreclosures. We are all entitled to buy a foreclosure at a reduced price. It’s the American Dream. After all, we can’t be expected to rent, can we? I say bail out the HBBers by passing a law requiring all lenders to immediately foreclose on all houses. That would give us a level playing field to start from, and would help out all the low-income renters who were sold a bill of goods by their landlords.
“People are screwed.”
-Big V
“It would be soooooo unworkable and complex and unfeasible.”
As opposed to what? Screwing future generations of taxpayers by raising the Fannie and Freddie affordable limits to let low income households buy California coastal luxury homes? Or turning the FHA into a govt-sponsored sump-prime lender with guaranteed 100% financing?
“It would be soooooo unworkable and complex and unfeasible.”
It seems trivially workable to me. It would just require the gov’t telling the lenders that it can’t be bothered to evict non-paying owners. Sheriff: ‘Pretty busy around here. Yep.’ ‘But wait, you still could take title to the house and charge the FB rent. If they don’t pay the rent, THEN we’ll be happy to kick them out for you’. Non owner-occupied, no problem… the FB would not bother to pay rent once they lost title. Of course, the bondholders (of the MBS) will go bust, but they probably would have anyway…
My husband was born and raised in Nebraska and we will fight the tax man until the day we die
The flip side of this is that without taxes the bills for the war and upkeep of the infrastructure built in the Ike era go unpaid. This has serious and direct implications for real estate development which is often limited by road development. If Queens Creek were adjacent to I-40 then it would not be such a train wreck, but the roads there are narrow and likely to remain so. This taxes are bad outlook is the reverse of the mentality that built the interstate roadways and electrified the countryside.
Are you suggesting that taxes pay our current bills? Here’s a website that shows otherwise:
http://www.cbo.gov/
(and there’s many more of course)
Lack of sufficient taxes never stopped the DC scum from spending $$.
Exactly, Mole Man.
People that hate taxes sure like to drive on the interstate, drink clean water, eat safe food, fly safely. Government makes all of that possible.
Oh yeah, this interwebby thing wouldn’t exist without the US government either. Huh.
origins of the interwebby thing
Amen ET-Chicago. I’ve never understood the tax whiners. They are typically comprised of working class folks. The more they whine, the more the burden gets shifted to them. It makes no sense.
Right, and the government makes the sun come up in the morning too!
No one could ever possibly build a road, fly an airplane, or use a computer without the beneficent blessing of the all-Holy Government!! It would never ever happen!
Get real.
You don’t even have private property without government. In fact, there was no significant private property anywhere until the last few hundred years, upon the development of modern states.
Libertarian philosophy is built on fairy tales.
Private property is a concept of the common law, which has developed gradually over the course of about 900 years, and been subject to constant scrutiny and criticism all the while.
It is a far cry from common law to statutory law, which is horrendously complex, made hastily, often amid secrecy and conflicts of interest.
The real fairy tale is the idea that government can jump in and regulate and micro-manage every facet of existence, and then get credit for making all kinds of wonderful things happen.
They are typically comprised of working class folks.
Yes, those aweful working class folks. I spit on them
You mean without taxes, we can dig a giant hole to bury our dead soldiers in? Gee… sounds good to me.
Seems to me our taxes DO go to dig a giant hole to bury our soldiers in. Most recently in Iraq. Interesting how the latest run-up in real estate prices coincides with our military excursion there, neh?
lock n load
http://www.lp.org
my local http://www.fcto.org
ntu.org - cagw.org
and Ron Paul
my last dealing w the IRS was like a trip to Auswitz
How does your husband like the inflation man?
That’s my problem, not his
My h, a native CNYer announced to me yesterday that I make way too much an issue over fraud. He told me it’s everywhere and I have to learn to accept it and deal.
The conversation had to do with a local issue. I think people feel overwhelmed with the fact that it IS everywhere. So they’ve given up for self preservation reasons.
Being a native Ohioan who lived in Syracuse for 15 years, I can tell you that NY Politics is in a league all its own. Not representative of the rest of the country. But if that was your standard growing up….
I think there a few from Ill that will despute that. My dh worked for the house of reps for 5 yrs. He has some great and chilling stories. They don’t call it the machine for nothing.
I’d say after reading this blog that one cannot point to any single region as being more likely to experience fraud.
“My h, a native CNYer announced to me yesterday that I make way too much an issue over fraud. He told me it’s everywhere and I have to learn to accept it and deal.”
Not sure what an “h” is, but a statement like that is chilling, IMHO. Extrapolate it out to other widespread, undesirable phenomena. Wow. Just, wow.
Palmetto, it’s called a race to the bottom. We started on this path in 1981 and never deviated from the course. You can criticize the apathy of J6P but it was the system that threw him overboard 25 years ago that brought on the apathy. Maybe it can be best described as willful ignorance.
Started in 1981? Have you ever heard of Boss Tweed? Tom Pendergast? How about the Daleys in Chicago? Political corruption has been around alot longer than the past 25 years.
Jerry, 1981 was the year we shifted to the supercharged-debt/credit vegas type economy better known as “supply side”.
What a bizarre reading of economic history. Why then have we had constant government deficits since LBJ? Why was the sole exception when the suppy siders you so despise controlled Congress for a few years? You do realize that the deficit is the responsibility of Congress, which has sole authority to make law governing taxes and the budget right?
The deficit, year after year, is the end result of the reckless raiding of the treasury via “tax cuts” by supply side idealogues occupying the whitehouse and congress. It began in 1981. Tax slashing for the benefit of the priveleged elite is the core fundamental belief of supply side panderers. If there is anything bizarre, it is the denial of the supply side apologists which I suspect you may be one of them.
Tax slashing for the benefit of the priveleged elite is the core fundamental belief of supply side panderers. If there is anything bizarre, it is the denial of the supply side apologists …
Amen, I say.
Ummm…re the going on since 1981: Actually it was going on in the 30s too but both parties were part of it. I’d file this practice under “nothing new under the sun”.
“The battle lines were drawn over the issues of taxation-and a national sales tax in particular-as the critical issue Congress would decide in pre election 1932.
At first it did not appear likely to be much of a battle. Democratic leaders deferred to Bernard Baruch, whose differences on the subject with Mellon, Mills, and Raskob were negligible. Democratic Speaker of the House John Nance Garner, publisher William Randolph Hearst, and Jouett Shouse, director of the Democratic National Committee, all endorsed the sales tax idea. Their argument was simply that is was essential to balance the budget and a sales tax was the only way to raise sufficient revenues. Democratic leaders were so anxious to place the tax burden upon those least able to pay that they allowed Mills to maneuver them into accepting responsibility for authorship of the idea.”
….”It was apparent to many Americans that the purpose of the sales tax was to “soak the poor.” Some of its advocates made little attempt to hide this. The sales tax was “proper” said Hudson Motors’ board chairman Roy Chapin, “since the lower income brackets pay nothing to the maintenance of the National Government.” As it happened, though, the view of proper redistribution subscribed to by Chapin and so many business and political leaders was not shared by those upon whom the tax would fall. A large number of Americans perceived that “the interests” were trying to substitute the sales tax for income and corporate taxes. “It’s a wonder,” said Socialist leader Norman Thomas, “they don’t put a tax on tickets to the breadline.” (Forty years later, members of the Reagan administration suggested almost that: to tax unemployment benefits.)”
“The Great Depression”
Robert S. McElvaine
Ummmm….they DO tax unemployment benefits.
That was written in 1984….sorry.
Rationalization is what got us into this mess. Q: “Why should I pay XXXk for that house?” A: “Because everyone else is paying XXXk for houses.” Rationalization can be called “coping” by the feel good crowd - but its really a sign of individual and social decay.
How’s that C&W song go….?
“If you don’t stand for something, you’ll fall for anything”
Superb post, edgewater john.
very true, and do not underestimate the coping skills of humans… liken it to slowly turning up the heat in the boiling pot. Along the way, they can make excuses as to why they feel so hot and ignore what should be warning bells because the increase happens ever so slowly, little things here and there. Briefly irritating, then the mind goes onto something else: “Oh well, too bad, so sad.” Need to keep moving on… And so it goes for most….
Being a person that was around in the business under traditional underwriting ,I can tell you that one of the reasons for underwriting loans was to prevent fraud .I saw underwriters fired for not catching fraud loan deals .
All these fraud ideas with loans have been attempted since the dawn of lending ,but they were prevented most of the time in prior lending cycles . You can’t have a financial system where fraud is a allowable practice ,and you certainly can’t have loan agents helping borrowers commit fraud so they can make a higher commission .
The Wall Street new set up model for lending missed a very important aspect of the underwriting process ,and that was to prevent fraud .Hit the mark appraisals were also a breeding ground for fraud and cash back deals .
It was bad enough that the loan makers created low down /teaser rate /no document loans /,but to also not have sound appraisals and underwriting to prevent fraud on these easy underwriting deals just is beyond belief .
That kind of positive thinking is what got the Third World where it is today.
(Sigh) I so agree. And to tell you the truth, the evening didn’t end well after he said that to me. (I don’t hide disgust well)
CarrieAnn:
That is a BS argument often proffered by fraudsters. When he urges you to accept it, he’s really just hoping that he won’t be prosecuted for his own part of it. The only way to deal with criminal behavior is to prosecute it. You should stand by your morals.
Card Terms… So your home ATM is shut down and now there’s some card tightening going what’s a true blue American consumer to do?
http://www.dallasnews.com/sharedcontent/dws/bus/personalfinance/stories/090607dnbusconsumercredit.1a39bd1.html
Ah, another sign that cash is once agin becoming king and that debt sucks. I love it.
What’s a “credit card”? Is that one of those plastic thingies?
It’s the thing I buy just about everything with, for convenience sake and to get a statement showing what I spent my money on. The money I spend is automatically transferred from checking each month.
In other words, I’m a “deadbeat” on two no-fee cards, one with cash back.
But because it’s all automated, I only use two cards, and there is no risk of my not paying, the banks probably make a good, safe living off me anyway just from merchant fees. It’s just that I’m not getting raped.
From Dave Ramsey’s online store, about his debit card policy:
Number 1 - We are NOT accepting credit cards! Never have and never will. I mean, come on, do you listen to the radio show at all? Have you ever heard of a plasectomy? Please understand that accepting credit cards is something that will NEVER happen as long as Dave is still alive (and even forever after that!)
But he is accepting debit cards.
One of the cornerstones of Mr. Ramsey’s personal finance philosophy is that people who use CCs tend to pay too much for their gasoline and buy useless junk that they otherwise would not buy if they where paying with greenbacks.
Well, as a general rule I agree with this. It is true for MOST people, but I am not MOST people. I DO watch gasoline prices, and the few times that I buy worthless junk I will not hesitate to take it back for a credit refund. This can be such a hassle at times (traffic, time, etc…), it teaches me to not buy worthless junk to begin with. Have not returned worthless junk for a few years now, as I do not to buy so much stuff at Walmart these days.
There is nothing wrong with buying everything on CCs, which is what I do if the purchase is not a few dollars. You can get up to an additional year of free warranty on consumer electronics, and I also get cash back rebates - although in reality we are all paying for the “free” extended warranty and cash back rebates with higher prices.
(The CC processors charge a higher percentage for processing rebate cards. I have read this in their contracts.)
The argument that most people do not overpay for gasoline with debit cards does not hold water with me.
Got 10% down?
Ramsey is right on with the behavior related to personal finance. He goes after scum like American Express and even refers to them as scum. He is an advocate for those who’ve made extremely stupid moves with their money(or the banks), he never advocates an easy out rather he implores the individual to THINK and then act. Listen to his show sometime folks. He is way ahead of us in regard to spending behavior.
He means plasticectomy. Trust me. I know medical Latin. At the very least, he could get away with plastectomy, but Medical Spellcheck would bounce it.
I gotta totally disagree. People tolerate my “eccentricities” regarding refusing to buy if something is even moderately overpriced (too many stories to tell), I have had supermarket clerks call over friends when my savings card racks up an amount saved that’s a multiple of the amount spent (and no, not impulse buying at the grocery store, i simply modify WHAT I eat -> Cereal for the next few weeks, Yogurt for the next few , alternate/blahblahblah…), and seeing as I think I made the same argument on this Blog 2 years ago, I only take out about $100 per week via ATM (my own bank’s, I have never and will never pay an ATM fee) for small cash purchases (meals if necessary) and pay my rent via check, everything else is via credit card for multiple reasons (ease, tracking, savings, etc). Paid in full every month. I have not, in the past 8 years, paid an interest charge. The average person? Probably. But he paints too broad a generalization.
We are on the same wavelength Maz. I take out $100 cash every few weeks, but that is because I do not eat out that much, as I prefer to cook my own meals and do without the rancid grease and the hepatitis.
Today’s lunch special: arroz con pollo served with flagrant Thai Jasmine rice with a nice fresh salad greens with Mexican cheese and sprinkled with xtra virgin olive oil and apple cider vinegar, and a glass of wine
I am running low on my men’s daily multivitamin pills, but I will not be buying any until some drug chain has them on sale 2 for 1, and I will pay with my CC since I get double cash back rewards for stuff I buy at pharmacies.
The thing that pisses me off the most about DR is that he keeps telling people “I do not care how many people are waiting in line, you WILL write that check for two dollars!”
Morons.
Got 10% down?
I learned a hard lesson about paying contractor deposits with cash or check. When they guy (who had done previous work for me) failed to show up after 3 rescheduling and then completely closed up his shop just 2 days after promising me a refund in 3 days I was out of my 1/3 deposit for new carpet for over a year (while bankruptcy/fraud case was going on). Those who paid with credit card simply disputed the charge and got the money back immediately and let the credit card company deal with the fraud.
Can we please not use the word “rape” to describe minor discomforts? Some actual rape victims just might take offense to that.
I’m not sure that it’s an unfair analogy, if you consider what the CC co’s have done to individuals and families in extreme cases (purposely mailing out bills late, “losing” payments, double cycle billing, fees, retroactive APR changes, etc).
Some people have committed suicide over their credit card debt. This is no joke. (Check out the book “Maxed Out”.)
I’m sure the percentage of rape victims who commit suicide is greater than the percentage of debtors who commit suicide. One is a violation of one’s reproductive organs, whereas the other is simply a financial pitfall.
I find passing references to rape to be highly offensive, and I’m sure I speak for 99% of the women in this world when I say so.
‘What’s a “credit card”? Is that one of those plastic thingies? ‘
Uh huh. Good to pick the salad out of one’s teeth, not much else.
I raised this point with a friend, including rumors of occasional card limits being dropped to current balance. He pointed out that no new cards and dropped credit limits wouldn’t affect him: because he was already at his limits and couldn’t get new cards under the old system anyway (because of being without income).
I reported this before. There are some cards that do not report your limit to the big 3. Instead, they report your highest balance, which wrecks your debt ratio compared with ones that report your limit. Caveat emptor!
I heard Capitol One does not report credit limits, but they plan to start soon. Can anyone confirm this?
Every year I cash advance $30k with a CC that charges 1.99% for 9 mos with waived cash advance fees. So now my annual gig is up. Doh!
Got 10% down?
Which card? and how did you pull off waived cash advance fees?
I’ve been looking for that arbitrage scam myself, but never managed to find it…
I got this thing stuck on automatic. THEY call ME every year for this special offer. It is one of the largest CC banks in the world. (It may be helpful if you have been a CC customer of this bank for over a decade with a FICO in the 800’s.)
Got 10% down?
Which bank? My fico qualifies, and I’ve been with 2 big banks for over a decade. But I’m a deadbeat on autopay, as they say.
live within their means?
Doctor Links a Man’s Illness to a Microwave Popcorn Habit
A fondness for microwave buttered popcorn may have led a 53-year-old Colorado man to develop a serious lung condition that until now has been found only in people working in popcorn plants….
http://www.nytimes.com/2007/09/05/us/05popcorn.html?em&ex=1189224000&en=e88ac8c3e56e25d9&ei=5087%0A
Be careful out there, people.
Just remember, a lawsuit can happen for just about anything.
For an example there is 2nd hand smoke. There aren’t any “credible” studies that show a cause and effect, but it’s “common knowledge” that it causes lung cancer just like smoking.
The only thing a lawsuit shows it that a company is making money and a lawyer is trying to dip into the pot of gold.
There will never be credible studies as it is too hard to go back and quantify the actual exposure. Your common sense should tell you it is not good.
I personally know that 2nd hand smoke wrecks lungs and would not recommend prolonged exposure to anyone I like.
My father served in an engineering battalion in the occupation of Japan for a couple years out of high school, and smoked lightly for 20 years. He died at 78 of throat and lung cancer, 30 some years after quitting smoking.
He also spent a 45 year career as a bartender breathing in other people’s smoke.
What I learned from this experience is that this type of cancer is a hideous way to die. I appreciate smokers for their attempts to hold the line on entitlement spending. They deserve medals.
Kind of OT but this reminds me of the lemming mentality and then people trying to get out of a bad “investment”.
Apply cuts the price of the iPhone by $200 and people who lined up to pay $599 for a phone that is now $399 are pissed. Why? Because their phone is worth less than when they bought it?
http://blogs.business2.com/apple/2007/09/the-iphone-rebe.html
They were talking about this on Squawk Box this morning. People are such morons. Everybody knows that electronics prices start high and come down as more are sold. Any idiot that stood in line for one of these toys deserves to get clobbered. Maybe they can cry into the Tickle-me-Elmo they bought for $1,400 in 1996.
“as more are sold”
… or not sold.
Neophiliacs must pay top dollar to support their affliction. I don’t think they begrudge prices coming down `cause they had it first, man! Chacun a son gout . . . .
It’s always the people who ‘have to get everything right away as soon as it comes out’ who get screwed.
Apple products are a much better deal after a price reduction. By this time the iWhatever has gone through several revisions of the software, and perhaps the hardware as well, for a much better product, at a lower price.
Same deal with new cars. If you buy the first generation new model or redesigned next generation model when it first comes out you will pay at least several thousand over MSRP. But if you wait until the next year’s model you will likely get a much better product, at a lower price, with updated hardware that has more available replacement parts. (If your car needs parts that are no longer supported and entire sub-assemblies have to be replaced and they keep calling corporate experts from afar until they find one who says there is no warranty on this repair then YOU WILL BE SCREWED OUT OF THOUSANDS OF DOLLARS!)
Got 10% down?
Never buy the first model year of a car. They discover all sorts of little (and sometimes not so little) problems only after they’ve got a few thousand on the road.
Never buy the first version of software. See Oracle and Microsoft. Their first versions (except for Windows XP) tend to be crap. It looks like Microsoft went back to crapware with the introduction of Vista.
I got two Iphones on day 1. Sold them both for $200 profit each. Time to take that profit and get a free one for me
Did you do that with Bennie Babies too?
You can get a 4 GB iPhone, that is being discontinued as they will only keep the 8GB, for $299 at stores while supplies last. That’s not bad and has me thinking about getting one of those (I have a 4th Gen iPod and really don’t need that function on my phone).
May have been posted already.
WASHINGTON (MarketWatch) - The U.S. housing market showed signs of major disruption in July, with a 12.2% monthly decline in contract signings on existing homes — the largest drop since the pending homes sales index started in 2001, the National Association of Realtors reported Wednesday.
http://tinyurl.com/2zfdq4
Got 10% down?
The good news: The 12.2% decline in contract signings was better than the level in September 2001.
The bad news: It does not reflect the impact of the August credit crunch.
no problemo:
“NEW YORK, Sept 6 (Reuters) - The U.S. Federal Reserve said on Thursday it added temporary reserves to the banking system through 7-day repurchase agreements, in the second operation of the day”
its seems as though the drive through window at the FED is not getting the patronage it deserves despite the super size offers. BB says, “If they wont come and get the money, we’ll just send it to ‘em, no charge”
The soundbite delight this news recieves is part of the process. When it happens all the time, its not news its just standard ops. Again, when the tools begin to have the opposite effect, Uncle Sammy is gonna have a heart attack.
So that explains today’s positive stock market. Every other day, Bernanke says or does something. It doesn’t matter what he says or does, the stock market always goes up on the news. Then, every other other day, the stock market goes right back down to where it started from. I don’t know whether to laugh or cry.
The Bernanke put strike price has been upped to 13,350 on the DJIA. The stock market must always go up…
What credit crunch?
Per the WSJ, banks are falling all over themselves to offer conforming loans to those with good credit. The rate for a 30-year, self-amortizing loan is just 6.5%.
Again, It was 7.0% APR for a 15-year back in 1994, with a 40% downpayment, and I was lucky to get it.
The article mentions that houses on the coasts cost more, but that is because they are overpriced. With 20% down that’s a $521,500 house. Even in places like NYC one ought to be able to get a decent three-bedroom suburban house or two-bedroom condo for that much. Not double that much.
And those buying more expensive dwellings should either be rich, or should be moving up after building up equity in one of the housing units mentioned above by paying down the principal, thus permitting a larger downpayment rather than a larger mortgage.
All that is happening is the crap is going away, people are realizing prices aren’t going up for ever, and it is being revealed that prices are too high.
(Actually what is being revealed is that there will be massive losses on houses purchased or refinanced when prices were too high, to be divided among mortgage bond investors, mortgage borrowers and, they hope, taxpayers and public service recipients and future generations).
Do you have any data to support this conclusion that $521K is all that anyone should ever pay for a 3BR house or 2BR condo?
Because I see this sort of statement here a lot. And while I agree that there is a massive bubble and house prices need to come down, the data that I’m looking at show that 3BR house prices well in excess of $521K can be completely justified.
All I need to do is look at a price / income chart. Currently the price is way out of sync with income, however, if you look at where the price should be, it is *still* well above $521K for a 3BR SFH in many parts of the country.
Not that you have to like it…
“if you look at where the price should be, it is *still* well above $521K for a 3BR SFH in many parts of the country.”
Care to qualify that or do I detect a RE industry apologist?
Nice snarky response, backed up by nothing.
No, I’m not a RE industry apologist. Far from it.
I’m someone who looks at the data rationally instead of just chanting slogans.
Just because someone believes that a 3BR house can never be worth more than $521K does not make it so.
Based on inflation alone (the official government inflation number, which is probably low) and starting from home values from way before the bubble, many 3BR homes can be justifiably valued at far more than $521K.
Yes, currently the homes are overpriced by $100K (or more, in some parts of the country). But once they drop by a sufficient amount, they will be good values.
Again with broad general statements with no substance. Provide the data you appear to be keeping to yourself. Location, historical price, median wage etc.
value is in the eye of the bag-holder
sheeple are smart
Hey Voz…. you stole my tagline!!!!!!
Space Dog,
A couple of us tried to explain this to you yesterday, but for whatever reason you continue to use words like “rationally” and “justifiably” to support buying houses at for just about anybody is a ridiculous price. Who gives a rats ass about “based on inflation”?? You are looking at the wrong data rationally. The issue is “affordability.” House prices are way out of wack in terms of affordability and have to come down. They will likely overcorrect, then maybe adjust slightly higher. Maybe not. Regardless, few if any areas can justifiably support a 3BD at 521K, inflation or not.
You obviously can afford to overpay. Good for you. 99% of the rest of the country is not in your shoes, and never will be. You cannot rationally look at affordability, wage growth etc. and come to any other conclusion.
If you’re thinking of buying a $521k 2 BR condo in 60640 - don’t do it.
where are you finding MHI or CPI that are in line with a 521k price tag? Please name them by county for us data heads >; )
Another point I haven’t seen lately:
Let’s say you make $150K a year to get into that $500K house with a 3X loan — how many people here are willing to wager they will continue to make that $150K FOR THIRTY YEARS?
A friend just told me he’s averaged $165K for the last 10 years — and with only 25 years to go on his $500K plus mortgage, that’s a lot of miles on the treadmill.
Sorry, I think anybody who makes that kind of gamble on a third of their life has spent too much time staring at the blinking lights in the casino.
Blano, I’m quite aware of affordability. I’m all with you on that.
But what you fail to recognize is that there are people who can afford these homes once the prices drop to historical norms. And I suspect there are more of them than you realize. I can afford them. My friends can afford them. People left and right of me at the office can afford them. And we don’t have to stretch to do it.
There will always be people that can afford them. And there always will be enough of these people that the prices will not fall below a certain threshold, barring absolute cataclysm (in which case we have other things to worry about than house prices).
If income levels stay exactly where they are there is absolutely NO DATA IN THE WORLD that you can point to that will show that houses in Chicago that currently cost $750K will be overvalued when they drop by about 10% or so. The current income levels can indefinitely support prices that are around 10% less than they are at now. That’s a fact, not an opinion.
Now, if income levels actually drop precipitously for some reason, come back and talk.
In short, YES, the issue is affordability. But houses WILL be affordable by historical standards (at least in Chicago) when the prices drop 10% or so. Fact, not opinion.
Ok, since you say there’s NO data I can point to which shows 750K aren’t overpriced when they drop 10%, kindly show me the data that justifies your position that justifies a 650K home price. Please back up YOUR statements with “fact.”
I’m betting people smarter than me on this site will be able to tear your facts to shreds.
Obviously the prices are not affordable due to the high number of foreclosures and liar’s loans. My guess is that the people in your office make more money than the average person in Chicago. So a 10% drop from $750K makes the house $675K. Does the average person in Chicago make $200,000+ and have $150,000 for a down payment?
“Ok, since you say there’s NO data I can point to which shows 750K aren’t overpriced when they drop 10%, kindly show me the data that justifies your position that justifies a 650K home price. Please back up YOUR statements with “fact.” ”
Blano, he can’t do it nor will he. Spacedog is a Real-Troll.
“Spacedog is a Real-Troll. ”
Much more diplomatic than I was going to be. SpaceCadet contradicts him(her?)self left and right. None of us should touch this, or give them the satisfaction of our response. HotDog uses far more words than necessary to TRY and make a point - common for those who have nothing to say.
Dear SpaceDog:
While I agree that there may be SOME 3 bedroom houses that are worth 521K, there aren’t enough of them to make the AVERAGE price of a 3 bedroom house that high in any county. For instance, a large house with a view of the ocean in San Diego has always cost a half a mill and always will, but that house today costs more like 3 mill and can’t be supported by even the upper class in San Diego. The CEOs and what-not are simply not making that much.
There are a few rich people, and those people’s salaries can be used to justify the high prices of a few luxurious houses. The rest of the houses, however, must be priced such that the rest of the people can buy them. Otherwise, without stupid financing (which obviously can’t go on forever), no one will.
Sincerely,
Big V
I have tried to post this about 5 times today already and it never shows up. I’m starting to think this blog is not allowing me to post.
Exeter and Blano:
I did post some data. Not sure where the post is yet. For some reason there is occasionally a 10-15 minute delay before some of my posts appear.
I’m sure this will be a repeat, but in short, taking a look at:
http://www.housingtracker.net/affordability/illinois/chicago
shows that the historically normal price / income ratio of about 3.0 is about 20% less than the current price / income ratio.
House prices in Chicago have already dropped about 3.5%. We’re talking about another 10% drop over the next year or so. Given inflation over the past year and next year of about 2.5% each year, that comes to about 18.5%, which just about brings us into line with the historical norm.
Big V:
I may agree with what you are saying. That has absolutely no bearing on what I am saying, however. The argument was not about the average in a county. The argument was about whether some 3BR SFH’s can reasonably be valued well over $521K. As far as I can tell, you just said you agree that they can. Why your obnoxious tone, when you are agreeing with me?
ET-Chicago:
As many have pointed out on this blog before, not all people can afford to buy homes. Many rent. Therefore the idea that a median-house price 6 times median-income implies that people are buying at 6 times earnings is false. The price / income ratio is still higher in Chicago than can be maintained (see the Chicago affordability link above), but it is not 6.0.
Big V:
Sorry for my “obnoxious tone” comment. I read so many posts and got yours confused with someone else’s. And now I don’t even remember who’s was so annoying.
You are confusing inflation of consumables with inflation of wages. Just because gas and food prices go up 20% does not mean that home prices should also go up 20%. Home prices should move up with wages, not inflation. Inflation of consumer staples would actually hurt home prices.
I’m not confusing anything. Of course house prices should go up with wages, as I have referred to many times.
However, you can’t just ignore inflation. If the price of a house stays the same for a year, but the inflation rate is 2.5% for the year, then that house actually lost value in real terms.
That depends on what share of the income distribution you believe ought to be able to afford a home at those prices. Incomes are not that high, even in NYC, except for a limited number of people.
Bingo — there are too many homes priced for millionaire households, or conversely, a relative shortage of millionaire households (same as in San Diego!). I guess we need to print more liquidity in order to increase the number of millionaires?
Exactly. Most people can not afford to live in the nice part of town in a thriving metropolis. I see nothing wrong with this.
But urban professionals, making six figure incomes, often married without children, can.
I guess this all sort of depends on what you define as a “nice” home. On top of quality construction, for me that includes things like a friendly safe neighborhood, nice restaurants within walking distance, a park reasonably nearby, and maybe access to public transportation. If you want a 3BR SFH with all of these things in a city like Chicago or NYC, be prepared to shell out quite a bit more than $521K.
Of course there are always the “developing” areas that are cheaper. Or boring parts of town far from any decent restaurants.
Definitely there will be 3BR homes less than $521K in NYC after prices fall. Will they be “nice”? Depends what you mean by “nice”, I guess. I wouldn’t personally want to live in such houses, but my standards may be high.
Ah… the elusive 3bedroom SFH in NYC or Chicago. Can any metro folks tell me the last time they’ve seen this uni-corn type thing in NYC?
“Exactly. Most people can not afford to live in the nice part of town in a thriving metropolis. I see nothing wrong with this.”
Whoa, easy fella! You’re not picturing Andersonville when you write such things are you?
Sure, why not? I’ll admit I could be wrong on this, since I haven’t actually lived there. But driving down Summerdale, for instance, people were outside waving at me as I went by. It was safe. It was friendly. There are restaurants nearby. Parks nearby. The lake is not difficult to get to. And depending on where we’re talking about, maybe public transport a short bike-ride away.
Again, I could be completely missing something, as my opinion is simply based on driving by and walking around.
On a summery day Lakewood-Balmoral, Andersonville, etc. is indeed pleasant. May I ask, are you a transplant to our fair city?
If so, to put your Summerdale Ave. experience into better context have a stroll along Broadway, or better yet, Winthrop or Kenmore. It’s easy because they’re only a few blocks to the east.
Andersonville is not a fortress - please read the local police blotters and visit the local grocery stores if you doubt this.
As for public transit, soon the CTA will be cutting service and hiking fares. The Red Line reconstruction will last for years, the 147 and 143 buses are packed, and the 22, 36, and 151 buses are too pokey for practical transport.
Lastly, while a 10% decline in prices for Chicago may suit your requirements for affordability - it falls far short for helping the vast majority of Chicagoans. While it is certainly your right to be at peace with this fact it is nonetheless an elitist point of view - and come to think of it - such a point of view will be quite welcome in Andersonville.
I can’t imagine a 3-bedroom ever getting down to $600,000 near the Cleveland Park metro stop in DC, but I’ll hold out a little hope in honor of those who think that no 3-bedroom home should ever cost that much.
I’m not particularly secretive about my life, but I don’t think it serves this blog well for this thread to turn into a discussion about me
Suffice it to say I’m originally from “an affluent northern suburb of Chicago” (as the nightly news refers to the town), but have lived in various parts of Chicago since 1995.
Andersonville is fine, it’s nice, I like it.
But it’s overpriced. As is most of our fair city, even the less dreamy ‘hoods. (Dreamy is subjective, but pick your neighborhood of choice.)
Here’s a starting point for you:
Chicago median family income 2007: $49,476
Chicago median home price 2007: $311,136
(source)
Now I’m no math genius, but that looks like 6x earnings to me …
Ah… the elusive 3bedroom SFH in NYC or Chicago.
Actually, there are plenty of beautiful 3 BR SFH in Chicago.
I think everyone here from Chicago can agree on that …
Space Dog — take your trollish arguments back to space…
PB-
I thought the idea of this blog was to encourage thoughtful dialectic — not ad hominum attacks. ( Or should that be ad pseudonym attacks?)
I thought Space Dog brought up a good point and defended it most reasonably…moreover, I was enjoying the conversation.
“PB-
I thought the idea of this blog was to encourage thoughtful dialectic — not ad hominum attacks.”
It was an ad caninum attack.
sorry to be the correcty-fairy, but that’s actually ad canem
^_^
Most houses in greater Chicago don’t cost anywhere near 750K.
SpaceDog is looking in Andersonville, a gentrified Chicago neighborhood, with a strong Swedish flavor which became popular with lesbian couples maybe 20 years ago. It’s cleaner and safer now, with lots of cute shops, restaurants, the Swedish museum and well built homes from the 1910’s and 1920’s. It just doesn’t have many single family homes and has no available land, therefore the prices of the existing SFHs are high.
I suspect the cost of jumbo loans will affect the price soon. The quality of Chicago public schools will push Andersonville parents out - probably north to Evanston, Niles, Wilmette. Skokie if they want something cheaper.
The British School on Bryn Mawr (w. of Ashland) is a local option over CPS. In fact, its presence probably makes a considerable contribution to the increasing gentrification of Andersonville. All the same, I agree that many will eventually flee to the burbs - especially those caught in the vortex of condo HOA and property taxes.
Bottom line, Chicago is not NYC, The Bay Area, L.A. Time will eventually prove that stagnant real wages and skyrocketing costs of living will result in a sizeable correction. The chief mitigating factor in this is that so many Upper Midwesterners are forced to Chicago to find work.
Time will tell, but in the meantime the city remains chock full of folks who are being squeezed pretty hard. Like for instance, Angel’s restaurant in the very heart of Andersonville - @ Clark & Balmoral. A great eatery, not pretentious and very affordable - they closed July 22 because gentrification is pushing the rents up.
Don’t house prices just come back to” supply and demand “? If they built to many high priced homes, in any given area ,and they don’t have enough demand for those high end homes, based on the areas income levels for high end ,the prices will come down to move the product .
This is a double-post, but I just wanna make sure SpaceDog gets it:
Dear SpaceDog:
While I agree that there may be SOME 3 bedroom houses that are worth 521K, there aren’t enough of them to make the AVERAGE price of a 3 bedroom house that high in any county. For instance, a large house with a view of the ocean in San Diego has always cost a half a mill and always will, but that house today costs more like 3 mill and can’t be supported by even the upper class in San Diego. The CEOs and what-not are simply not making that much.
There are a few rich people, and those people’s salaries can be used to justify the high prices of a few luxurious houses. The rest of the houses, however, must be priced such that the rest of the people can buy them. Otherwise, without stupid financing (which obviously can’t go on forever), no one will.
Sincerely,
Big V
“The rate for a 30-year, self-amortizing loan is just 6.5%” bwa ha ha ha.
The culture is so perverted that this concept requires a special descriptor.
Self-amortizing versus self-annihilating?
“Per the WSJ, banks are falling all over themselves to offer conforming loans to those with good credit. The rate for a 30-year, self-amortizing loan is just 6.5%.”
Any poor sap who goes for 30-year conventional financing in coastal bubble markets gets to catch the falling knife. There is no way that 30-year amortizing loans can prop up prices the way subprime loans did.
Here’s the best five sentence summary of the present economic turmoil, IMO: “The basic problem is that the financial world is not really suffering from a syndrome that modern financial medicine can cure. If the ailment were merely a temporary lack of liquidity, central bankers could clear it up tomorrow. But the problem is not illiquidity, it’s insolvency – caused by too much credit, not too little. People, businesses, nations – debtors owe more than they can repay. Borrowing more may postpone the crisis…maybe even disguise it; it cannot solve it.” Bill Bonner, The Daily Reckoning
“But the problem is not illiquidity, it’s insolvency – caused by too much credit, not too little.”
And the only cure for insolvency is to declare bankruptcy and start over. That may be the silver lining behind this cloud. If it gets bad enough, we can scrap the “system” and start over, FED-free.
“But the problem is not illiquidity, it’s insolvency – caused by too much credit, not too little.”
This blurb came straight from the Fed when they opened the discount window back 3 weeks ago. It really was a telling statement in that they were telegraphing the fact that the remedy won’t do any good.
playing poker is a tough gig, sometimes you gotta show em a “tell” so you can set em up for the really big pot, which in this case is coming much later in the game.
Now that the chumps have been flushed with the minor (yeah minor) 10% correction in the rearview window, the big pots are a comin.
this is also very clear from the ECB decision today to leave rates unchanged despite many good reasons to hike rates. Everyone who doubted can see now that despite his hawkish words, Trichet too is a lakey of the stock markets and the (EU) housing bubble. Several weeks of feverishly pumping liquidity in the EU markets (last M3 number at 13% yoy, probably even higher now already) nothing has changed. The ECB burocrats are only delaying the day or reckoning AND making the problem much bigger, but who cares … The Trichet put is in full effect now, competing with the Greenspan/Bernanke put.
With respect to Bernanke and Trichet rhetoric: Read their lips!
” No MEW taxes?”
Gold is definitely reading their lips today
“A lackey of the stock markets and housing bubble”
Or maybe a lackey of the US?
“…insolvency – caused by too much credit, not too little.”
Somehow I doubt that helicopter drops of liquidity can fix that problem.
“Credit derivatives awarded the top ratings by Moody’s Investors Service and Standard & Poor’s may be as vulnerable to default as high-risk, high-yield bonds…CreditSights said in a report entitled ‘Distressed CPDOs: We’re Doomed!’”
http://www.bloomberg.com/apps/news?pid=20601087&sid=adE7E1gxvOmw&refer=home
Possible job relocation to louisville KY. If someone needed to be near enough to the airport to have an OK commute and a spouse needed to work at the Univ of L–what neighborhood/area would be best. Traffic matters. Older homes are fine, even if they need work–crime is the deal breaker.
Thanks in advance.
try epodunk.com for demographic research
Epodunk…..what a great name.
Been seeing a boom of ads on Toronto TV stations for reverse mortgages. Now the morning gossipy “news” shows in Canada have been chirping about the real estate boom here - “Isn’t it great how the number of $1,000,000+ homes is exploding?”, “Buy now or be priced out forever!”, “How to buy that home you can’t afford”.
Some friends of mine, a couple who make a combined $50k with no kids, are talking of buying a $300k home in the suburbs even though they rent affordably downtown within walking distance of their jobs. They told me it would be a good idea because “real estate always goes up!”
We just moved here a few months ago from SoCal. I’m sickened to see that Canada’s bubble is just getting started, and they’re clearly not learning the lessons of the US mistakes. I’ve not heard a mention on any of these news stories or anywhere of the problems in the US housing markets or credit markets.
No, the Toronto bubble has been in full swing for quite a while now. They’ve built a lot of condos, all over the place. Just because a house is only 300k in the suburbs doesn’t mean it wasn’t 150k 4 years ago.
We decided to move here in mid-2006 - a nice 2BR condo downtown was going for $150k (albeit with $500/mo assoc. fees) at that time, not too bad. A year later there’s no way we’re going to buy anything in Ontario.
Any insights as to what’s going on here? Has financing been loosening up like in the US? How long has the bubble been inflating here? I’ve had a hard time finding contrarian information on Canadian RE.
I can see affordability is not sustainable, but that was true in the US for a long while before things turned around. I’m a bit surprised the credit crunch hasn’t seemed to hit here yet.
The denial here in Ontario is “the bubble is not like the US due to stricter lending practices”. however there is still euphoria of building and buying and a recent history of housing market crash that bankrupted many people in the late 80’s early 90’s that people conveniently forget about.
It’s coming here too. Don’t worry.
Oh, and I think $300k for a shiny new crapshack in Stouffville with a 60min commute each way is completely ridiculous. Especially for my friends on $50k/yr income, no kids… Ugh.
I love how they have the little colored flags on poles around the developments, just like in Riverside! “Look maw, purty pink and blue flags! Let’s buy us a house!”
Toronto’s housing bubble has been in full swing for at least 8 years. Prior to that, the housing crash was so hard from a previous bubble that it wiped out many people and housing values did not return for those who bought in the last bubble for at least 10 years.
I wonder if the Canadians are getting their loans from US banks. That would be one way for the banks to delay the inevitable, methinks.
Once again, Congress is bolting the barn door after the horses are gone.
This law should’ve been passed 3 years ago. As for today, just one more piece of legislation that will dry up the number of buyers….
Democrats in Congress are planning to introduce bills in the coming days that would prohibit a range of practices used to market subprime loans to people with weak credit histories or low incomes.
http://www.nytimes.com/2007/09/06/business/06dodd.html?_r=1&oref=slogin
Some analysts have estimated that 20 percent to 40 percent of people who now have subprime loans could qualify for cheaper fixed rates.
But most if not all of those people chose the subprime loans because they were greedy and thought those teaser rates were wonderful. People who qualified for prime loans put themselves in this spot (getting subprime loans) except for some instances (like Countrywide) where they were lied to.
I suspect those that “qualified” chose to take out no-doc loans instead (thus the fact that they technically qualified for better loans than they ended up getting). The problem with them taking the better loans is that they would not have been able to LIE ABOUT THEIR INCOME.
Also ,those borrowers wanted low down aspect of the sub-prime loan. Anybody interested in a teaser rate adjustable is looking at real estate in a short term way because if someone planned to be a long term owner they would of taken advantage of the low fixed rates .
But, also, US savings rate is negative, so often they didn’t even have the downpayment. Instead of paying CC 22.99% for the downpayment, they roll it into the “cheaper” suicide loan…
It’s less risky for the FB, thus rational (sort of)
And so with apologies to David Letterman, here are Top Ten new slogans for Lennar Homes:
10. For the real gambler in us all.
9. ‘Cause real estate always goes up. . .sometimes in smoke.
8. You’ll get a real bang from a Lennar Home.
7. Because everyone like to tell their friends that their yard is “All Mine”.
6. It’s not too late to get in on the homebuilding explosion.
5. When you’re bored of playing Minesweeper on the computer, buy our homes and play it for real.
4. No extra charge for the mercury and nitroglycerine.
3. Relax. All your problems will just blow over. . .
2. It was good enough for the Army, so you know its good enough for you.
And the number 1 new slogan for Lennar homes is:
1. Lennar Homes: They’re da bomb.
(To see what I am talking about check out http://www.orlandosentinel.com/news/local/orl-bomb0607sep06,0,5813122.story)
“People have spent $500,000, $600,000, and they’re worried.”
I guess there’s more than one way to “blow up” the comp’s
Lennar. Figures. I’ve known about these clowns ever since there was a lawsuit in the early 1990s by a HOA in Miramar (South Florida) for building a community over an old trash dump.
I think KB Homes just recently had a similar situation in the Carolinas over a development that was built over an old bombing range. There was some sort of settlement, but not one that fully satisfied the homeowners. The Army Corps swept the place and was able to dig up the bombs that were under open grassy areas, medians and such, but as far as what might be underneath the homes, nothing they can do about it.
Whatever happened to title searches. Everyone of these people were probably charged for one.
Good point. My Chandler home was farmland for 50 years before the development, and was open desert before that (records from 1890s US gov’t survey before AZ was even a state). I never suspected a dump or bombing range, but it was nice to read the title search as confirmation.
Title searches, heck how did the appraiser arrive at a value??
There’s a swath of homes in San Mateo that were selling for $250,000-$275,000 during the dot-com boom that suddenly took off and tripled practically overnight to $750,000 because people were competing so much that they stopped looking at contingencies and stopped worrying about full disclosure.
The advent of the subprime loans kept these values artificially high but they haven’t gone higher.
These homes were built over a landfill - an old one. I rented one of these homes and you could see bits of metal and other debris only inches below the surface of the lawn. Mold was a big problem in the bathrooms.
These are time bombs waiting to implode.
Blame game…
http://money.cnn.com/galleries/2007/fortune/0709/gallery.subprime_blame.fortune//index.html?cnn=yes
And Detroit goes from bad to worse:
Volkswagen AG is moving its North American headquarters from Michigan to northern Virginia to attract a younger skilled workforce, according to a report in the Washington Post Thursday morning.
The German automaker has 1,600 employees at its Volkswagen of America offices in Auburn Hills and Rochester Hills. The Post reports suggest that the company will move about 400 jobs and invest about $100 million in a move to Herdon, Va., a suburb of Washington, D.C. The paper also reported that about 400 Detroit-area jobs would be eliminated leave 600 positions in Southeast Michigan.
http://www.freep.com/apps/pbcs.dll/article?AID=/20070906/BUSINESS01/70906015/0/BUSINESS01
I guess by “younger skilled workforce” they mean “illegal immigrants.” Herndon, VA is mostly illegals now.
http://www.washingtonpost.com/wp-dyn/content/article/2007/09/05/AR2007090502600.html?hpid=topnews
A little off topic. The consumer is unfazed by the whole housing bubble matter, at least for August:
Stores Report Solid Sales for August
http://tinyurl.com/24yfh7
And yet, at least in the Empire state:
N.Y. consumers’ confidence sinks
Consumer confidence in New York state plunged to its lowest level this year.
http://tinyurl.com/zbb9j
I’m so concerned about my economic future that I need to go out and buy things. I’m schizophrenic and so am I.
You mean you have multiple personality disorder
Schizophrenics hallucinate and often suffer from excessive paranoia.
Thanks for clearing that up for me, IC. I misdiagnosed myself again!
how do you know InColorado ain’t also you?
Calendar shift, much like the March comps due to Easter falling earlier this year. Schools in a lot of states - especially biggies like Texas and Florida started later this year. The sales tax holidays that accompanied the new school year were moved back into August from July last year. Good opportunity to short some bad retailers.
Stuffed Consumer at Bernanke’s Restaurant Cartoon
http://www.stockmania.com/2007_09_06_archive.html
Always enjoyable!
Now this is the information format the general public will really understand.
A Wall Street Trader Draws Some Subprime Lessons: Michael Lewis
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a5lhZkEauCu8
So right after the Bear Stearns funds blew up, I had a thought: This is what happens when you lend money to poor people.
Don’t get me wrong: I have nothing personally against the poor. To my knowledge, I have nothing personally to do with the poor at all. It’s not personal when a guy cuts your grass: that’s business. He does what you say, you pay him. But you don’t pay him in advance: That would be finance. And finance is one thing you should never engage in with the poor. (By poor, I mean anyone who the SEC wouldn’t allow to invest in my hedge fund.)
“This is what happens when you lend money to poor people.”
Bullsh!t. This is what happens when you lend money to poor people to enable them to buy homes they cannot afford.
The article is a joke. And a very good one.
Notice now you don’t hear much about deficiency judgements? The Wall Streeters must be worried about being tarred and feathered.
Now that there is all this talk of how Greenspan knew about the trouble with the housing bubble over two years ago, I don’t suppose that anyone ever speculated that Mr. Greenspan, who was a friend / disciple of Ayn Rand, intentionally engineered a situation that could potentially (though unlikely) destroy the entire financial system..?
You know…. like something out of “Atlas Shrugged”.
For those who have not actually read Atlas Shrugged, the protaganists in the story are so upset at the masses of humanity taking advantage of the few people in the world that actually innovate and build that they organize a mass walk out where all of the most brilliant people go into hiding, letting the world collapse on itself.
Sort of entertaining to speculate about the possibility, no?
“…intentionally engineered a situation that could potentially (though unlikely) destroy the entire financial system..?”
I find your cynicism a bit harsh. I think the man recognized a potential economic disaster in the wake of the September 11, 2001 terror attack and pulled a seat-of-the-pants maneuvre to forstall it.
“… potential economic disaster…”?
In other words… you might be saying that Alan Greenspan panicked?
What was far more problematic than “panicking” (if one believes he was panicking - I do not) was that nearly two years after 9/11 he pushed the FFR down to 1%, where he left it for a full year.
Which was followed by a mealy quarter point raising regime, just in time for the last months of the ‘04 election, in order to have cover that he was not playing politics.
Yes, and if Mr. Magoo and the Fed were supposed to protect our financial system, then why did they ignore the complete collapse of lending standards in the banking industry. The whole thing stinks to high heaven. For those of you who are truly interested in learning about what the Federal Reserve really is, I recommend ” The Creature From Jekyll Island”. This is not some half cocked conspiracy book but a true account of how the Federal Reserve came into existence and how it runs counter to our Constitution.
Greenspan may have felt that the death of the tech stock bubble and the 9/11 attack could together create a new Depression. I believe the Friedman-Schwartz hypothesis is something like ‘a more accommodative monetary policy could have greatly reduced the severity of the Great Depression’. Thus the ‘Great Reflation’ of the 21st century (Richard Duncan).
The tactical aspects of the specific fed rates was naturally improvised.
Of course others believe that a simple expansion of the money supply will not cure all and we were already drowning in money as a result of the death of the modified gold standard in 1973.
when looking at such theories, the first question for me is “What would be the motive?” So what would it be?
Now that there is all this talk of how Greenspan knew about the trouble with the housing bubble over two years ago, I don’t suppose that anyone ever speculated that Mr. Greenspan, who was a friend / disciple of Ayn Rand, intentionally engineered a situation that could potentially (though unlikely) destroy the entire financial system..?
As a matter of fact, I had exactly that thought several years ago.
The Onion weighs in on the credit crisis being “contained” to subprime:
http://www.theonion.com/content/news_briefs/mortgage_market_collapse
My favorite part: “The reassuring sight of a smiling African-American woman jumping up and down and screaming with excitement could soon be a thing of the past.”
Not if you’re Oprah Winfrey.
Those silhouettes in the story ad are just…. odd.
Sacramento market observations:
My daughter took a bunch of clothes to a high end consignment shop over the weekend. She and the shop owner get along, mostly because she takes her “profits” and buys more clothes at the shop. Anyway, the shop owner was lamenting business was substantially down. It seems the women Realtors buy all her used business clothes and she has not seen a Realtor in months. She was surprised the real estate market would effect her. She though used clothing would flourish when times got tougher.
Also, we went to Home Depot on Sunday. There were more employees than customers. Seriously, I saw 9 employees and only 3 customers in the store. On a Sunday.
I stopped by Chipotle for a burrito last night. Three servers behind the counter and I was the only one in line. It was a weeknight at 5:30 and I have never been in that store without at least 5 people in front of me.
I don’t think the world as we know it is going to end, but it is going to be changing…..
Also, we went to Home Depot on Sunday. There were more employees than customers.
- I judge the Depot’s business by the paint counter line. If no line exist…..no flipping / improving going on. Juan sixpack could be getting down to only his ’six pack’.
Yes, labor day weekend and no one doing any labor….
You mean all those classy realtors with the 5-figure paychecks were buying used suits? I thought they blew all their money on living high on the hog?
Got attached product?
I posted my HD experience on the weekend thread. I actually was ASKED by an employee if I was finding everything I needed and if I wanted HELP!!! That could be the end of the world as we know it!
Same thing happened to me at Lowe’s yesterday. For the first time that I can ever remember I had two employees ask if I needed help when I walked in the door. Kinda spooky having them hang around while you shop, but I love the no crowd part!
Actually this is part of the new “culture” at HD that the newest CEO is promoting. Not so much to do with declining sales.
SuUUUre.
I went to the new Home Depot store here in Gainesville on Sunday. I needed some stuff for the Fraternity House. Same thing happened. I was asked if I needed any help, like five or six times. Business appeared “OK” but this was just after their grand opening.
Jingle: I was the only one in line
then it wasn’t a line
Oooo… high end consignment shops! Can’t wait till I get back to the States for Christmas and can hit those up. I highly recommend the charity ones run by Junior League in any medium to large Southern city. Barely worn, not very old, hideously expensive clothes for sometimes 10% or less of what they cost new. Rich (or rather, spendthrift) Dallas women are great for that sort of thing. Oh, and the ski clothes…
I went to HD on Saturday of Labor Day Weekend. The only registers that were open were the self-serve ones, and no line at any of them.
Back in the day, line would be 4-5 people deep at 6 check out stands, with 2-3 deep at the self-serve.
A little different topic, but I just bought a tall latte and it cost me over $6!! A small coffee shop in Glenwood Spgs, Colorado. When I laughingly asked her just how big this drink was going to be, the barista said “They charge a fortune for coffee here.” She gave me an extra 1/2 glass. I’ve been used to paying $2.50 in this area. Also, paid $10 for a breakfast burrito in a little place in Ridgway. Last time I ate there, a month ago, they were $6. Ouch.
Won’t return to either place, though prices are getting that way everywhere. My point is that prices are going sky high here - groceries, too. People are complaining and even the clerks mention it when you check out. One little bag for $50!! And we’re talking about a few yogurts, a gal. of milk, a box of dog buscuits, a few vegies, and a box of frozen waffles. yup, the biscuits were for me, the rest for my dogs, who won’t touch anything not fresh and organic - lol
“Fed still addicted to small amounts of “nitro” to keep the engine revolutions from further decreases, the piston rings must be feeling the pressure.”
“…and the current most overt symptom that all is not right in the boiling room is that Libor rates continue to head in ‘the wrong’ direction, providing an overt symbol of the limitations of central bank liquidity injections,” said Alan Ruskin, chief international strategist at RBS Greenwich Capital. “Not that central banks are not pursuing appropriate policies, with the ECB continuing to pump in extraordinary amounts of cash.”
http://biz.yahoo.com/ft/070906/fto090620070912011965.html?.v=1
Follow the bouncing Ball
Alarm raised over Japan real estate
By Michiyo Nakamoto in Tokyo
Published: September 5 2007 23:09 | Last updated: September 5 2007 23:09
The head of Japan’s second biggest housebuilder on Wednesday warned Japanese property prices were a bubble set to burst, fuelling concerns that real estate prices have reached unsustainable levels just a few years into a recovery from a prolonged slump.
“The property market has become dangerous and I wouldn’t be surprised if the real estate bubble goes bust,” Takeo Higuchi, chairman of Daiwa House, told Bloomberg.
So, if everyone hangs on for another 10 or 15 years, it all could happen again!
Link: http://tinyurl.com/33ero7
‘“The property market has become dangerous and I wouldn’t be surprised if the real estate bubble goes bust,” Takeo Higuchi, chairman of Daiwa House, told Bloomberg.’
Deja vu all over again so soon?
“So, if everyone hangs on for another 10 or 15 years, it all could happen again!”
Only if there are highly inflated foreign bubble economies with people ready to throw money down the drain. The greater fools of this piece were to a large extent gaijin investors. Goldman launched a Japan commercial RE fund a couple of years ago. The foreign demand helped to push up prices then they congratulated themselves on how smart they were to invest in a rising market. Sound familiar?
The question is, where will the greater fools come from to bail out the American RE market?
Congress?
Observed 2007 Financial Crisis: Subprime lending
Predicted 2008 Financial Crisis: Covenant-lite lending
MOOD SWING
Deals Boom Fizzles
As Cheap Credit Fades
Wall Street Mulls End
Of Golden M&A Era;
Opening for Foreigners
By DENNIS K. BERMAN
September 6, 2007; Page A1
The global mergers-and-acquisition boom that began in 2003, the greatest deal frenzy in history, is winding down.
This summer’s crisis of confidence has choked off the easy credit that fueled buyouts for years, abruptly altering the psychology of the deal market. Through June, M&A activity, as measured by total transaction values, had been running at its highest annual rate ever and was on pace to generate the deepest pool of investment-banking fees.
But within weeks, the market began to run out of steam. In August, there were about $222 billion worth of deals around the globe, according to market research firm Dealogic, the lowest monthly total since July 2005, and a far cry from the $695 billion figure struck in April and the $579 billion in July.
“The M&A business has always been cyclical, and a downturn is inevitable,” says Robert Kindler, vice chairman of Morgan Stanley. While M&A isn’t going away, he says, “I would not be surprised if deal volume is down 20% to 30% next year.”
http://online.wsj.com/article/SB118904060991218852.html?mod=todays_us_nonsub_page_one
Is anyone still claiming these days that the mortgage crisis is contained to subprime?
What People Can Do If Foreclosure Looms
As Mortgage Woes Mount, Squeezed Homeowners Have Options
To Try to Avoid the Worst — From Counseling to the Courtroom
By AMIR EFRATI
September 6, 2007; Page D1
As mortgage woes spread, what’s a nervous borrower to do?
Mike Wilt, who lives in Uniontown, Ohio, is trying to figure that out. Mr. Wilt, a marketing director for a communications firm, is current on his $180,000 adjustable-rate mortgage — the home’s price when he paid for it. But he says he may soon start to fall behind, as he’s been notified that his interest rate jumped to 11.5% from 8.5% in September, which will cost him an extra $400 a month.
…
More and more borrowers, many with adjustable-rate loans, are finding themselves in Mr. Wilt’s shoes. Nearly one in five subprime borrowers, or those with poor credit, were 60 days or more past due on payments in June, according to First American LoanPerformance. But the problem is spreading to other homeowners: Also in June, 1.24% of second mortgages for so-called prime borrowers, those with better credit, were 60 days or more late, up from 0.54% in the same month last year. And some 4% Alt-A borrowers, who fall between subprime and prime borrowers, were 60 days or more past due in June, up from 1.25% in the same month last year.
http://online.wsj.com/article/SB118903997029818836.html?mod=hpp_us_personal_finance
I would lend this guy money at 8.5%, if it was guaranteed by a gov’t bond.
“Deliquencies (sic) hit 5.12 percent of all outstanding mortgages, up from 4.39 percent a year ago, the Mortgage Bankers Association (MBA) said in a quarterly survey. Serious delinquencies, those 90 days or more late, jumped to 1.11 percent of all loans, from 0.98 percent in the first quarter.”
http://money.cnn.com/2007/09/06/real_estate/mortgage_delinquencies_climbing/index.htm?cnn=yes
Am I reading correctly? One in every 20 mortgaged households is in serious enough financial distress to be behind on payments? I realize that not all of them will be going to foreclosure. Still, it looks like a pretty slim holiday season for retailers.
These articles appeared in close proximity on the first page of today’s SD Union Tribune business section:
Auto sales skidding for county’s dealers
12 percent decline has some showrooms closing, others shifting focus
By Dean Calbreath
STAFF WRITER
September 6, 2007
http://www.signonsandiego.com/uniontrib/20070906/news_1b6autos.html
Fed report sees little spillover from slump
Investors shrug off info; sell-off sends stocks down
By Vikas Bajaj and Edmund L. Andrews
NEW YORK TIMES NEWS SERVICE
September 6, 2007
http://www.signonsandiego.com/uniontrib/20070906/news_1b6fed.html
The same thing happened to me on Tuesday. In the AM, I heard on the radio that major car companies (including Toyota) were expecting a 10% decline in sales by the end of the year. Then, on E*Trade, I saw that major car companies (including Toyota) had just reported better-than-expected earnings, and their stock prices were up. All this is very confusing.
don’t be confused, it’s just because I bought a new Toyota - lol
The MarketWatch propaganda engine is sputtering…
MARKET SNAPSHOT
U.S. stocks higher on positive data
By Kate Gibson, MarketWatch
Last Update: 9:59 AM ET Sep 6, 2007
NEW YORK (MarketWatch) — U.S. stocks climbed higher Thursday amid positive economic data and sales figures from retailers including Dow component Wal-Mart.
http://www.marketwatch.com/tools/marketsummary/
Is 13,350 the new Bernanke put strike price on the DJIA?
http://www.marketwatch.com/quotes/?sid=1643
The Ultimate ‘Success Through Failure’ Manual
The Federal Reserve System surely qualifies. I can see the headline in a full-page ad.
Wake up the financial idiot inside you! How you can cash in big-time on your own failures.
Then there are the bullet teasers.
World’s leading experts reveal:
You’ve heard the phrase, “a license to print money.” How to get one.
How to plant your very own tree that everyone says money doesn’t grow on.
How to get the reputation of being a brilliant rescue specialist when you actually caused the disasters, some of them catastrophic.
How to get all the money you want and then decide how much to pay the government at the end of the year.
How to silence your most dangerous potential critics by hiring them or else by buying them off with money that costs you nothing.
How to get your few unbought critics labeled by the media as conspiracy nuts.
How to bamboozle Congress in full public view at least four times a year, decade after decade.
http://www.lewrockwell.com/north/north564.html
Yawn…
New foreclosures set record in latest MBA survey
California, Florida, Nevada and Arizona drive numbers up: economist
By Amy Hoak, MarketWatch
Last Update: 10:15 AM ET Sep 6, 2007
CHICAGO (MarketWatch) — The number of mortgage loans entering the foreclosure process in the second quarter set another record, according to the latest data from the Mortgage Bankers Association.
http://www.marketwatch.com/News/Story/Story.aspx?guid=%7B5266FE43%2D10D5%2D4469%2DAABE%2D7F6885DA05A3%7D&siteid=mktw
Here is the Bloomberg article:
http://www.bloomberg.com/apps/news?pid=20601087&sid=adofww_iqJB8&refer=home
I wondered when foreclosures, which were unusually low, would rocket past average and move up to high. I guess it already happened, and things haven’t even gotten rolling yet.
“Wait until next year.”
“Duncan said there was a “clear divergence” in performance between fixed-rate and adjustable-rate mortgages because of the impact that rate resets have. ”
What Duncan fails to realize is that many of the delinquincies are being caused not by rising interest rates, but by the termination of early “teaser periods” that allowed borrowers to skip on paying the principal and the full interest amount. Whereas borrowers were only paying, say 5% interest on their loan, they are now being asked to pay, say 10% interest plus principal. Even if ARM rates weren’t rising, these borrowers would still be looking at a doubling of minimum payment requirements.
There is also the little issue that, like 30-year fixed rate loans, ARMs do eventually require amortization of principle, only at a higher rate if there was an introductory interest-only period. This problem cannot be fixed by suppressing interest rates artificially.
Also in June, 1.24% of second mortgages for so-called prime borrowers, those with better credit, were 60 days or more late, up from 0.54% in the same month last year. And some 4% Alt-A borrowers, who fall between subprime and prime borrowers, were 60 days or more past due in June, up from 1.25% in the same month last year.
Yeh, this is all contained to a small percentage of subprime borrowers.
Has anyone noticed an uptick in the classified job section of the paper looking for financial counselors. Our paper has had a lot more lately.
I don’t know, but I have been recently inundated with messages from employers who are seeking a contractor. I interpret this to mean that a lot of employers are laying off their full-time workers and trying to replace them with part-time hourlies.
Back from Burning Man, did I miss anything?
Hey aladinsane, were you the one that started the fire early?
I was beyond tired at 3 a.m., in my tent, when I heard the fire truck and siren going by and hoped the fire wasn’t anywhere near, and fell back asleep.
They got a new one up by Friday and everything went according to hoyle.
wondered where you were - if you were at Burning man, you have more to tell than we do…
Aladin - sorry to have missed you - just got back yesterday morning ourselves.
I’m in equal parts happy and discouraged to see that not much has happened in the Real World, since I was last part of it.
I didn’t catch your address before I left ,and i’m sure our paths crossed somewhere…
I too thought what supreme irony it would have been for the chips to have fallen, during our stay in Black Rock City, but alas…
It didn’t happen.
I will forever have an image of the monkeys spinning in front of one of the most beautiful sunrises imaginable, as we stayed up Burn night, into the wee hours of Sunday morning greeting the dawn.
p.s.
Saw a Realtor in town, “Black Rock Realty” riding my trusty 1 speed bicycle late one early morning down the backstreets of the well lit, city…
http://www.brokeruniverse.com/grapevine/thread/?thread=452656
Political: Stated Income. Are you guys having the same problems with UW?
I’ve had it with my underwriting. I’ve had decline after to decline, after decline. I walk into an office. I sell myself and my personality and my knowledge of the business and pitch programs like a good AE, I assist and train my LO’s and Processors with packaging and I help with ideas on how to sell a loan to the client. I do everything I can to help my brokers and LO’s and do what I think is a good call and determine what has a chance to “fly” only to get shot down by cooporate. Once it’s shot down, I’m a “DOG” and I never hear from the broker again.
I keep hearing this from underwriting:
“The stated income per month is not supported by the line of business. The depth of credit history and assets does not support the stated income.”
I love it…”
“I´m getting the same thing…they want assets equal to and more of the monthly income…unfortunatly we live pay check to pay check.”
Banks expect that people stating their income should show that they have one month’s income in the bank. If you are stating your income only because it is variable, not because it is fraudulent, shouldn’t you have assets to balance off the swings?
Bwahaha!
Not only that, but wouldn’t the bank want to know that you have enough resources to save a little at the end of the month, especially considering that your monthly mortgate will likely be 2-3X your current rent?
Back from Burning Man and what a time was had by all…
Cruising up hwy 395 a couple of Saturdays ago, from Gardnerville to the Carson City line, I counted 23 sign spinners~
It got me thinking about this phenomenon, as we’ve reduced ourselves to the level of your most basic fish, say a rainbow trout.
In this case, the spinners are mere lures.
For some perverse reason, we are attracted to them…
Although like any artificial lure, there is no substance whatsoever, to their kind.
Welcome back. Mellow Yellow is sporting a 7 handle in honor of your return.
We also did the 395 route - and was amazed to see the amount of new homebuilders signs sprouted along the highway. Seems that even places like Lone Pine and Independance are not immune to the likes of KB and Lennar..
Hey Aladinsane:
Well, what’s it like being a human again after your stint as a trout?
Inywayz, I’ve heard that the sign spinners are employed because it’s illegal to set an advertisement down on a public sidewalk/street and it’s also illegal to loiter, hence the constant movement of said spinners.
Carson City and the outskirts going north yielded not 1 sign spinner, in comparison…
Dane County Wiscconsin - July numbers
Year Sales New Total Active Mean Median
2005 935 1191 3151 236,594 207,879
2006 831 1235 5307 246,591 215,000
2007 761 1159 5409 258,545 218,000
Someone had asked for Madison, Wisconsin, numbers, but the best I could obtain were Dane County numbers, which included both condos and SFH.
I don’t have median and average incomes, off hand, but I can tell you for these amounts, its difficult to buy a nice home in a nice area with good schools.
I know these numbers would look very low compared to Seattle and CA, but it’s my locale. Also, since 1999 prices have about doubled - I sold a home in 1999 for 130K, came back in 2004 and paid 218K for the “same” house (exact same model, but different house).
I am a proud member of the $700 Club…
Fed dumping more money in the market, buying vast amounts of securities from banks, and giving them currency in return:
breitbart.com
From the Article (FTA): “The Fed has injected some 200 billion dollars into the financial system since August 9 in a bid to boost credit flows which have seized up due to problems linked to the distressed US mortgage market. ”
This might be part of the bailout equation. The fed buying “mark to make-believe” CDO’s at make-believe price, then later perhaps, allowing banks to repurchase them at their more actual, much lower prices?
KPCC 89.3 in Los Angeles is going to have a bailout show on Airtalk at 10 AM this morning. I wrote the following letter and sent it in to the host. With apologies for borrowing a great phrase from one of the poster’s here, here it is:
“A Fool and My Money are Soon Parted”
6 September 2007
Dear Larry,
I am educated and passionate about the housing situation in the United States and strongly oppose any tax-payer bailout to prop up real estate prices. With my wife and I finishing graduate school in 2005 and obtaining our first real career jobs, we were astonished to discover that using traditional lending and affordability criteria (20% down and monthly payment including taxes to be no more than 28% of our gross income), there were no listings for any house in the area we wanted to move. We are in the 95th percentile of household income with no children, and the “area” to which we wanted to move consisted pretty much of an entire county. So, although I could fill ten of your shows with the history behind this massive financial debacle, I will restrain myself and give you three reasons why we oppose any proposed bailout plan:
* First, Bush’s plan simply won’t work because it is based on incorrect assumptions. He intends to enable people to refinance into FHA loans at stable interest rates. But the plan ignores the fact that almost anyone who bought in the last few years used exotic mortgages (interest only, adjustable rates, and option-adjustable) to push the boundaries of affordability. Have we already forgotten that the Federal Reserve just a few months ago announced that lenders really should be qualifying people on more than just the teaser interest rate? This plan won’t help anyone because people aren’t stuck with a bad loan–they’re stuck with too much house debt. Even at zero percent interest they can’t afford to amortize it. How is the FHA going to “one-up” the low monthly payment of a negatively amortizing loan?
* Second, we don’t want to have to “double pay” for housing. My wife and I crunched the numbers in 2005 to see what we could afford based on the historical lending criteria I mentioned above. We couldn’t afford anything! So, we started saving our money. And I started researching real estate to figure out why people in the 95th percentile of household income couldn’t afford the “0th” percentile house. When affordability returns, we will buy a home. Why should we have to pay for someone else’s home, too? What happened to personal responsibility in America? We did our due diligence and avoided a calamity. All it took was an education–and some healthy skepticism when we saw Leslie Appleton-Young of the California Association of Realtors(R) announce that because their affordability index had reached all-time lows in 2006 (single digit affordability in Los Angeles County) that they decided to change their index to use funny-money loans and only 10% down.
* Third, any bailout prior to the foreclosure process is really a veiled bailout of the bankers of Wall Street, and we believe they should have to take their lumps, too. This whole mortgage crisis has been caused by central bankers around the world keeping interest rates below rates of real inflation. So everyone in the world is chasing yield, and because of some financial “innovations” that allowed mortgages to be chopped up into little securities with zero perceived risk, tons of money flowed into lenders’ mortgage credit coffers. This had the great effect of allowing anyone who could fog a mirror to qualify for a lifetime of crushing debt. Bankers didn’t care about holding the loan; after all, they made their fee! Homeownership rose to unprecedented levels. The President got his wish for an “ownership society.” But it’s all false. Now that the world’s yield chasers have realize that lenders suffered from an acute case of moral hazard, there is no more cheap money. Home (and commercial) prices should return to historical levels after many thousands of foreclosures, and my family will be able to buy something we can legitimately afford. It’s sad that so many people will be hurt, but most shouldn’t have been able to buy in the first place. It’s only a strange confluence of world events that allowed them the liberty to bet it all on black.
Larry, please get the word out that this crisis is far from over, but we as a country need to let it play out so that home prices return to historical levels of affordability. We need to view homes as places to live, not as some grand investment that will fund our retirements. It’s going to be painful but if we keep trying to prop up prices with government intervention, we’re going to wind up rewarding the bankers that made the mess and harming the government’s stated goal of increasing homeownership. Housing is a commodity like anything else, and low prices make it within reach for more of society. Thanks for listening and hopefully we’ll be able to afford something in 2009.
Sincerely,
Captain Credit Crunch
Excellent points. I especially liked the point that any “bailout” to try and offset the wave of Foreclosures really is a bailout for the lenders and those that hold mortgage backed securities.
“A Fool and My Money are Soon Parted”
More like a fool and his money are soon wedded.
This episode of airtalk is now available for download from the iTunes podcast for those who missed it live.
Gold above 700, dollar down against all currencies, foreclosures at an all time high and rising….and the dow goes up.
Gold bugs must be smiling today:-)
Richie Rich money now buys me about 250 gallons of dinosaur distillate, per troy ounce…
Here is a direct quote from the FHA website about their new FHASecure program, to bail out FBS:
“The combination of FHASecure and risk-based premium pricing will permit FHA to return to the role it was
originally designed to play, bringing stability to the real estate market by helping break today’s cycle of
foreclosures and price depreciation and creating much needed liquidity in the now-constricted mortgage
market.”
So, in their own words they are trying to prop up housing prices.
“We claim to support freedom of speech yet we lock away people who speak out against our way of life or when they say something that offends us.”
Can you give an example of this?
I’ve started a new project where my computer access is limited. I will be trying to read at night to keep up. (I’m experiencing withdrawal already.) In the meantime I’ll be missing everyone’s wit and wisdom.
I don’t have a computer or internet at home, so it took me a whole day at work Tuesday to catch up on all the reading from the weekend (in between my incredibly boring and tedious work of course). I actually couldn’t wait to get to work and catch up on all the wit, wisdom and humor here!!!
CNN seems to have just figured out that there is a drop in housing these days….
–
“Foreclosures Are Just a Seven State Problem.”
The seven states (Indiana, Michigan, Ohio, Arizona, California, Florida and Nevada) represent 30% of the US population and close to 40% of the residential real estate by dollars.
The first three are due to poor economies and the last four due to the bubble. I think that all the seven states are either in a recession already or will soon be.
Jas
I don’t believe the problem is contained to only seven states, anyway…
The foreclosure problem is contained to the following seven states:
1. The state of waking
2. The state of awareness
3. The state of hunger
4. The state of uncertainty
5. The state of fear
6. The state of panic
7. The state of destitution
Texas has got to be in the Big Eight. Lots of subprime melting here.
(Oh wait, the Big Eight is farther north.)
I found this link from la.curbed.com
This marketing idea turns on the notion that a desperate seller can sell to a desperate buyer, provided the buyer is also a gay man.
http://www.freehouseboy.com/
What’s going on with the DJIA averages? The many sites that quote it minute by minute are all 20 minutes behind. Is something fishy going on???
“Is something fishy going on???”
Never!
You can lead a banker to money, but you can’t make him borrow.
THE FED
Little new discount window borrowing
By Rex Nutting, MarketWatch
Last Update: 5:04 PM ET Sep 6, 2007
WASHINGTON (MarketWatch) —
Major U.S. banks apparently didn’t take advantage of the Federal Reserve’s offer to lend them money at 5.75% over the past week, Fed data released Thursday showed.
http://www.marketwatch.com/news/story/little-new-discount-window-borrowing/story.aspx?guid=%7BF40AE72E%2D080A%2D4F49%2DACCF%2D60CFD739B397%7D
Sept. 6 (Bloomberg) — Hovnanian Enterprises Inc., New Jersey’s biggest homebuilder, reported its fourth consecutive quarterly loss as buyers canceled orders in the housing recession and the company wrote off options to buy land.
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=ajVJHSPtAQSU
Goldman Sachs made $300m last month from the rescue of one of the investment bank’s troubled hedge funds, even as external investors lost more than a fifth of their money.
http://www.ft.com/cms/s/0/bbcf8df0-5cb1-11dc-9cc9-0000779fd2ac,s01=1.html
NEW YORK (Reuters) - Lehman Brothers Holdings Inc (LEH.N: Quote, Profile, Research) and National City Corp (NCC.N: Quote, Profile, Research) said on Thursday they are laying off 2,150 workers….
http://www.reuters.com/article/ousiv/idUSN0642433020070906
Speaking in New Mexico, Dallas Federal Reserve Bank President Richard Fisher put it bluntly: “The job of the Federal Reserve is not to bail out risk-takers: You’re a big boy, you take risks, you bear the consequences.”
http://www.reuters.com/article/ousiv/idUSN0638240820070906