The Housing Bubble

Containment didn’t happen

The Funds of August…

The housing bubble was renamed the “Subprime” this or the “Subprime that”.

Mentally containing it, just a little, to loans (and only “dodgy loans” at that). Thus the concern for how loans perform, rather than overpriced houses. And all the interest in propping up housing prices because the problem we have is with bad loans.

That people still don’t get the idea that affordability is the primary issue.

In a way, the biggest story was the dog that didn’t bark.

Consider all that has happened — the media realizing the bubble was a bubble, the media realizing the bubble had popped, financial organizations admitting huge losses, soaring energy prices, a credit crunch, a dollar collapse, etc. These are the worst economic conditions I can recall since the 1970s and early 1980s, worse than the early 1990s.

And yet employment and the stock market (in total) are up.

Are the U.S. and global economy that resiliant? Or was 2007 the year the sea suddenly pulled away from the shore after an earthquake, drawing onlookers to the beach?

“What was the biggest housing bubble event of 2007?”

The introduction of the Joshua tree as a WMD.

“We have just experienced a historic year.”
Understatement of the past 362 days.

The article (in April I think) in the New York Times that it is better to rent than buy, and stating exactly why accurately. MSM coverage changed after that.

Another watershed event might be the credit freeze that began around November that had central banks of the world scrambling in unison to restore liquidity.

“Everyone was passing the risk to the next deal and keeping it within a closed system,” says Ann Rutledge, a principal of R&R Consulting, a New York structured-finance consultancy. “If you hold my risk and I hold yours, we can say whatever we think it’s worth and generate fees from that. It’s like…creating artificial value.”

I saw this referred to as, “marking to make believe”.

Pooling of risks is used to decrease the chance of catastrophic losses and is then tranching is used to concentrate risks for some bondholders and decrease them for others. The problem is that few realized the degree to which, as the pooling process created a national market for real estate, it corelated the risks enough to mean that tranching did little to segement them.

Look for creative gifts, loans, and legislative bailouts of INSURERS in particular, would be my guess.

IMHO the helicoptor mulah will be more than cancelled out by the Rapture if the fiat mulah back into thin air from whence it came due to repudiations and bankruptcys.

Fed Auction’s Biggest Interest Comes From Wall Street Area
By Sudeep Reddy
Word Count: 355

WASHINGTON — The Federal Reserve’s first auction of $20 billion in loans to banks under an initiative aimed at unfreezing money markets drew 93 bidders, indicating interest from all sorts of banks across the country. But the first details of where the money went suggest the biggest borrowers are near Wall Street.

http://online.wsj.com/article/SB119880644394254559.html?mod=hpp_us_whats_news

There will be a bottom at some point but we wont see price appreciation for years beyond that like some expect. The only reason to really buy a house is to live in.

Sure there will be money to be made but it wont be in the tens of thousands like we just experienced and it will be out of hard work and labor.

A better question is when should those who said there was a bubble start considering a bottom, or at least the end of the bulk of the nominal price declines. Which is really asking when will the bulk of the nominal price declines occur, in 2008, 2009 or later?

the serial bottom callers… will find their exact target location here:

“At ground zero”

Anyone got the gps coordinates for that? … I’ve already investigated “Area 57″ it wasn’t to be found.

Come on Txchick, you’re shortchanging yourself. Don’t forget the bankruptcy reform law…still out there like a tiger, just waiting to snare Hillary when the BKs start ramping up. Think spring.

Six months from now will I have to bank at the local Shanghai America branch???

“I’d like to see a return of the “Contract With America” concept of 1994.”

Yeah right. A retread of that stupidity so as to finally crash and burn.

No thanks.

I for one would love to see Ron Paul get in, and will vote for him. However I do doubt that he’ll make it. Also I don’t see Hillary getting the nod either so who’s it gonna be? Don’t know but if we get a another in the endless line of Republodems we will continue down the same broken path.

Combotechie,

Ron Paul has no chance of being elected this cycle and if he runs as an independent in the general election, it will only serve to elect the Hillary/Obama/Edwards side because he’ll split the Republican vote. IMO we should be more pragmatic, voting for the best person that “has a chance to win”. Need proof?

1) In 1992 without Ross Perot running and splitting the Rep vote, Bill Clinton never would’ve been elected.
2) In 2000 without Nader running and splitting the Dem’s vote, W never would’ve been elected.

Regarding the Contract with America, what part don’t you like Exeter?
FIRST, require all laws that apply to the rest of the country also apply equally to the Congress;
SECOND, select a major, independent auditing firm to conduct a comprehensive audit of Congress for waste, fraud or abuse;
THIRD, cut the number of House committees, and cut committee staff by one-third;
FOURTH, limit the terms of all committee chairs;
FIFTH, ban the casting of proxy votes in committee;
SIXTH, require committee meetings to be open to the public;
SEVENTH, require a three-fifths majority vote to pass a tax increase;
EIGHTH, guarantee an honest accounting of our Federal Budget by implementing zero base-line budgeting.

http://www.house.gov/house/Contract/CONTRACT.html

Peace to all,
Lip

Are they clued in to what’s happening, or totally oblivious?

Spent holidays with son and daughter-in-law. They’re clued in. They work for the same company, and are being transferred together. They close on the sale of their NJ house in less than two weeks. They did all the right things:
· Set asking price below comps
· Fixed up some things, (mainly flooring in kitchen and bedrooms), but didn’t fall for the granite countertopss and complete makeovers.
· Responded to a low ball offer with a counter. Counter accepted.
· Ended up with a sale, and will walk away with money (they bought in 2001).

Meanwhile they have signed a lease agreement in their new location and will wait until they buy. And yes, renting is a lot chepaer than buying.

Because of this blog and the people on it, there will be one less FB fanmily

Further along in this blog someone mentioned that the only people getting it are the first-time buyers and the sellers. Other than those directly involved in the business, I would tend to go along with that.

People who have never owned (Sister 3) are out of it. People who have families and have owned their existing house for awhile are out of it (Sister 1). But sister 2, who bought a non-descript condo in ATL after a divorce in 2005 is beginning to get it. At first she just realized that once you factor in HOA fees and insurance that your tax benefit was more than eaten up versus renting, with no real benefit. NOW she has made the more important realization that her condo is a depreciating asset and that she may in fact not build any equity in it anytime soon. She still has to get from the “anytime soon” to “ever” stage.

Not family, but not clued in. I got together with a group of casual acquaintances (meet once a month kind of thing) and mentioned that I’d just started renting in a new location. So that got the usual questions, and I was honest and forthright with the data, “I’m paying $1200 a month”, I said. One response was, “Why don’t you buy!? If you can afford that you could afford to buy.” So I pointed out the obvious. No, I can’t. I threw down the gauntlet, if he could find me a comparable dwelling where the PITI would run me -around- $1200, I would buy it, even though I’m not otherwise financially ready. Naturally, no such place was found.

People are so caught up in their own situations, that those who bought 7+ years ago don’t really realize how bad it is out there. But maybe now a handful more acknowledge the affordability issue.

I went to the annual Christmas Eve party my boyfriend’s family has. No one talked about the housing bubble, but we did talk about the long reach of the Wall Street credit bubble. His sister and BIL are CPAs who do accounting for many small to mid-size companies in the Southeast. The BIL said that “It is getting really bad out there”, meaning the economy. He also said that he never thought that he would be working for so many companies that had invested in derivatives , like he is now. He (and I) were appalled at the magnitude and pervasiveness of derivative ownership that he has encountered. He said that even a “little-bitty” non-profit that he does work for now owns derivatives. He talked about the difficulty in valuing derivatives, and the amount of documentation he had to read for each one to try and figure out what it was worth. I told him to just say they weren’t worth anything (kind of as a joke). But he pondered this and seemed to think it was a good idea, because he couldn’t get in to any trouble that way.

“Are they clued in to what’s happening, or totally oblivious?”

Family is partially clued in, but still gave me a bit of grief for the super lowball offers I made this summer.

“It’s not enough to have correctly identified it and predicted it; we should all be thriving.”

The goal of the War on Savers is to make this strategy difficult and risky to pursue.

I’ve been looking in the RV market for a 5th wheel for 2 years now. No price capitulation by dealers or owners yet but with the MEW dried up, it seems to me that dealers will be a bit more motivated than in the past.

I want to find a way to short Credit Card and Automobile debt. Lahde figured out the MBSs, but what about CCs and Autos? Seems like an obvious play.

Evicted “the couple”??

OK, no kids involved to get hurt. I would support the lender keeping after these parasitic scum until they got every cent owing.

Yeah, but how much time did the guy waste with the frivolous filings? What’s the opportunity cost?

Wow… talk about gaming the system. I’m surprised this guy isn’t in politics.

For all the money he spent on lawyers, he could have paid the $4,000 ten times over, assuming he was serious about keeping the house instead of just jeeping up the game of getting a “free” roof over his head.

PB,

Not enough Zonies coming over? The future is looking pretty slow over here in AZ with many companies cutting back in 2008, some drastically.

Must admit we went to the OC this past summer. Will have to tell the fetching Mrs Lip that we need to come over to SD this coming summer. My favorite area is the LaJolla beach.

July 4, 2008 Capitulation sinks in. Once the March, April, May - spring buying season doesn’t happen, the unsold listed houses will throw in the towel. Countrywides REO website in Nevada has over 1000 properties, there are over 8000 bank owned REO’s in Nevada. If Countrywide needs to raise cash, joe6pack is in a world of hurt.

The only people in my neighborhood that realize that the winds have shifted are the first time buyers and a handful of sellers….
and even then, the handful of sellers who have had their houses on the market for 1 year or more and have an inkling that there is a problem, still don’t lower their price more than 10k at a time.
Personally, I think the anger is there, just under the surface…hence, the wishing prices are only dropping by 10k. It’s like the equivalent of sellers saying ‘HA, that’ll show ‘em’

We are headed into a bottomless pit for many, economically…

Bling will go away by itself, just like it did in the 1930’s.

There were dozens of automakers in the 20’s, until there was just a few.

I once did an appraisal on a set of sterling silver flatware, dating from 1927. It had 8 different spoons, 11 different forks and 7 different knives.

Your great-grandfather’s or grandmother’s bling…

Didn’t the DOJ file suit against NAR to open up the MLS to everyone?

I think there may be a replacement of NAR data as the semi-official measure of U.S. housing prices, by the Case-Shiller index or something else. For years there was no alternative, but now there is one. Lots of people are starting to mine deed recording records now, and it seems that the repeat sales method is ascendent.

BTW, I can now get sales of similar houses in my ‘hood right from the NYC Dept. of Finance. Doesn’t help me if no similar houses sell, but I’ll see it when one does.

NAR = New American Recession

A bad loan is a bad loan …….unless real estate is going up to cover the FB and the lender . How many years will it take for real estate to start going up again ?

We drove from the Central Valley of California to Tuscon and saw tons of RP campaign signs along the way, more than any other candidate, by far…

There’s a Ron Paul sign up in downtown Burlington (This is the city where our independent and left of center Senator Bernie Sanders got his start.)

The other day I went to a local story time and a woman and her children had Ron Paul pins on. Not the biggest fan of pinning political buttons on kids but Ron Paul has reached the Northeast, too. I have to admit Ron Paul appeals to me simply because he doesn’t appear to have been bought out by special interest groups. McCain had a similar appeal until it was clear that he had sold out, too.

I’m convinced that the issue with lack of exposure is that most of the people who run the media either don’t like, don’t approve, or more simply, don’t know how to explain Ron Paul. My husband and I have met enough print journalists to be underwhelmed in general with their intelligence and ambition (there are notable exceptions, of course). Ron Paul is not a guy that’s easy to describe in sound bites.

We could have a moment this election cycle as when Truman was elected where the media was convinced they knew who had won, only to discover they were the last ones to know.

Here in MA. RP bumper stickers are rarely seen though there are two on my car. This morning I saw 3 RP signs in the front of a house a few streets down from me. It was awesome to see. I wanted to stop, get out of the car, knock on the owner’s door and shake his or her hand. My house in on a dead end street / caldisack, so RP signs in front of our house probably wouldn’t add a lot of value to RP’s campaign.

Ben, what do you make of the fact that RP never shows up in mainstream polls? When people were convinced he wouldn’t win in Houston and he did, were mainstream polls showing he wasn’t even close to winning?

I’m baffled as to all the money he’s raising, his Internet presence, etc., and yet I think I’ve only met one person over about 40 who’s heard of him. It’s going to be very interesting to see how he actually does in the polls.

Good question. The corp america I’m gainfully employed in recently learned a valuable lesson. Seems an end user downloaded a freebie utility, clicked accept on the EULA “end user license agreement” during the install and started using the software. A couple months late the vendor showed up with a lawyer saying we gave them permission via the EULA to audit our company for some of the other licensed software they actually sell. We came out mostly clean and legal, however, it was a wakeup call to ensure we diligently police software licensing within the company. I’m not supposed to mention the vendor by name, however, think PDF.

“Ron Paul just needs some scandal to make the news.”

He should publicly state that the Earth is 5,999 years old and that he believes that Jesus was left handed.

We haven’t spoken much about this, but I think when huge numbers of houses foreclose all at once, including those who just walk, investment funds will come in and buy blocks of homes at 10-30 cents on the dollar.

There will be rental farms in America, similar to company towns.

While mgmnt companies prefer multifamily buildings to manage, SFHs in a geographic cluster can be handled, and will give new meaning to the term, slumlord.

Look for nabes with 65% subprime penetration, marginal quality and then look for a mass default. This will of course occur everywhere, once the hundredth monkey in your locale gets hit on the head with the financial coconut.

I know other parts of the country have empty new stock and recently built and vacated properties, so your results may vary. I am looking at a couple of areas in Suffolk County, NY with older, rundown homes where I think this is highly possible. Depending on how bad it gets, would a big clearinghouse sell me a thousand homes for $20 million? [or 20K per?]

Rental farms, coming to a neighborhood near you.

Home ownership, either by owner-occupiers or landlords, will make sense in the future for the same reason that it made sense in the past, up to a few years ago.

When it’s cheaper than renting

We were quite taken by Casa Grande in Az.

Smack dab in the middle of nowhere.

Per capita income of $16k…

45 miles to Phoenix, 70 to Tucson.

Each roundtrip car visit to those locales is around $15 or $25 currently.

The A/C bill in the summer has to be mighty.

How much longer can people last, before push meets shove?

watcher,
good question. I understand the smart money is on index puts, but since I am the dumb money, I am on the sidelines in treasuries and cash. I am always interested in what shrewder folks are doing, but dumb money like me is neither nimble nor courageous. And that will probably cost me big time.

So what keeps down the quagga population in he Ukraine? Some sort of fish? Otters maybe?

Maybe the solution to the problem isn’t all that difficult to find.

“I expected a faster crash with 2007 as ‘crash year’ and a bounce along the bottom for years after.”

Wow, how could things start unwinding any faster. The exposed soft underbelly of this fiasco has hit with lightening speed in WS and banking here and around the world. The depths to which this delves exceeded my comprehension at the time, and is truly potentially frightening and far reaching. Stop looking at a few trees and see the forrest.

I thought (years ago) that December of ‘07 would be when I started house hunting and sometime in 2008 would be when I buy. Unless something drastic happens that timeline has been put off at least two years. So I guess I’m not very good at predicting when the bottom will occur. However, although the correction started well after I thought it would, the past few months have been breath taking in the acceration and 2008 should be a fascinating year.