The Flip Side Of The Wealth Effect In California
The Times Delta reports from California. “What should be one of the sunniest times of their lives is instead turning out to be a very dark year for a Visalia couple. Married for 58 years, the two are packing up their belongings and, on March 13, will leave their home of 18 years. The reason? They no longer can afford to make the payments and are losing their home in a foreclosure.”
“‘I can’t blame anybody but myself,’ the man said. ‘But it’s so embarrassing.’”
“They bought it with the cash they got from the sale of their home in Harbor City, a home that originally cost $18,500 and rose in value to more than $240,000. They brought their windfall to Visalia, paying $102,000 in cash for the home here. They watched its value rise just as steadily, eventually reaching $335,000 in 2005.”
“His pension, $2,500 a month, should have been enough to live on. But the couple took $100,000 in equity from the house for what turned out to be one seriously bad investment and a series of short-term needs, like travel expenses and car-repair costs.”
“Now more than $10,000 in arrears, they’ve been advised by their attorney to walk away and forget trying to catch up. ‘I would,’ the man said. ‘But even if I could, I’d still be in the same situation next month.’”
“Our homeowner said he sought help from credit counselors. They would provide him with applications but not much more, he said.”
“He alternates between feeling anger toward the man who pursued him relentlessly with offers of better and more creative financing deals, and anger at himself for getting into them, often in an effort to repair the damage done by previous deals.”
“‘I guess it’s my fault,’ he said. ‘When you’re drowning, you reach for any twig.’”
The Contra Costa Times. “In the past year, the word ‘foreclosure’ has become as common in Brentwood as the phrase ‘home equity’ was just a few years ago. As of Jan. 20, there were 553 homes for sale in Brentwood, and 193 of those were bank-owned properties that had been foreclosed on, according to DataQuick.”
“‘They feel totally hopeless, and especially now there are quite a few options the lenders are trying to offer them,’ said Elaine Brooks-Cox, housing counselor supervisor at Pittsburg’s Pacific Community Services Inc.”
The Mercury News. ” It’s hard to pity mortgage brokers, a group that made buckets of money off the housing and refinancing booms earlier this decade. But with home sales at a crawl and financial institutions fickle about lending, perhaps no one in the housing industry faces more significant challenges than mortgage brokers.”
“Joe Adamson, executive VP of San Jose loan brokerage Mortgage Magic, tried to describe his company’s responses to industrywide troubles. ‘What we’re doing now is . . .’ ‘Praying,’ interrupted broker Doug Jones from across the room at the company’s offices.”
“‘And burning incense and sacrificing chickens,’ Adamson wryly continued, as Jones and loan processing manager Gloria Martin chortled with the dark humor that characterizes many mortgage-industry survivors lately.”
“Magic has reduced the hours of six of its employees to avoid layoffs, renegotiated the lease on its office space and cut back on plant care, document-shredding services and phone lines. Past holiday celebrations included a company trip to the Culinary Institute in Napa Valley. In 2007, the staff party was held in a back room at the office.”
“‘We’re working hard just to stay in business,’ said Jones, who also moonlights as a magician, hence the company name. He, Adamson and company President Wendy Wong have been in business together nearly 18 years.”
“State Sen. Mike Machado this month introduced SB 1053, which would require mortgage brokers licensed by the state Department of Real Estate.”
“The law would place ‘a tremendous financial burden on the small shop,’ said Pete Ogilvie, president of the California Association of Mortgage Brokers.”
“But he said he’d welcome stronger penalties for the industry’s bad apples. ‘I’d like to see some real prison time,’ he said. ‘If you rip off people, if you take their equity and put it in your pocket, and do some of the things that have been done, that’s stealing.’”
The Merced Sun Star. ” Ads describe the Bellevue Ranch development in North Merced as a place where ‘children ride their bikes along meandering tree-lined streets and wide sidewalks intersecting with expansive parks.’”
“Residents are wondering when that statement will come true. Four years after construction first started on the massive planned community, Bellevue Ranch is home to a few hundred new houses, dozens of new streets — and zero parks.”
“Bellevue Ranch residents, like Greg Ybarra, want to know when reality will catch up with those claims. He bought his house on Tolman Way for about $300,000 a year ago. He chose the house in part because the neighborhood’s site map showed two green squares, future parks, nearby.”
“‘We were excited, because there was supposed to be a park down the street and another one two blocks over,’ said Ybarra.”
“Now, the Ybarras are still waiting for a park where they can take their 2-year-old daughter to play. ‘We’re a little disappointed, because the front yard is all we have for her to play in,’ said Ybarra, gesturing to his dining table-sized front lawn.”
“The city has fielded some complaints about Bellevue Ranch’s missing parks, and the city’s director of development services, Jack Lesch, said he tells all the callers the same thing: ‘We can only build at the rate that we receive the revenue through building permits.’”
The Fresno Bee. “The subprime mortgage meltdown, wild gyrations on Wall Street and slowing retail sales are all taking a toll on the Valley’s economy.”
“Businesses and consumers are tightening their belts, and shifting the way they spend money, economists say. Shoppers are choosing used cars with good gas mileage instead of oversized SUVs, clipping coupons and looking for bargains at their local stores, and cutting back on luxury brands in favor of less glamorous, and cheaper, alternatives.”
“Bill Rice, a marketing professor at California State University, Fresno, said he sees it happen with everything from food to gasoline to cars. He said he regularly buys gas at Valero stations for their low prices, and until recently, ‘I don’t think I’ve ever seen a Mercedes Benz in the Valero that I can remember.’ Nowadays, though, ‘All of a sudden I’ve seen several in there,’ he said.”
“Keitaro Matsuda, senior economist at Union Bank of California in San Francisco, calls it the flip side of the ‘wealth effect.’”
“‘When home prices or the stock market start to go down, the short-term wealth effect is negative,’ he said.”
“Nationwide, foreclosures reached record levels in the fourth quarter of 2007, with Central Valley cities among the hardest hit. That has forced many Valley mortgage companies to fire staff and even close their doors.”
“‘I’ve been doing this 27 years, and this is the worst it’s ever been,’ said Doug Heffner, owner of Integrity Lending Group in Fresno.”
The Burbank Leader. “Home prices in Burbank declined sharply in December, and more than 300 homes in the city are in various states of foreclosure. The median home price in Burbank in December was $540,000 — down from more than $613,000 a year ago.”
“That nearly 12% drop is slightly more than the 11.5% drop in Los Angeles County, according to DataQuick. Meanwhile, a Los Angeles County home that cost $529,000 in December 2006 now costs about $470,000, an 11.5% decrease.”
“The Financial Services Department has established a website to offer tips and information for residents who may be feeling the housing squeeze.”
“‘All we’re doing is providing sources,’ said director Bob Torrez, adding that there are no plans to bail out homeowners with financial assistance. ‘We should not be in the business of banking, especially with general-fund money.’”
The Orange County Register. “Nobel-prize-winning economist Vernon Smith was welcomed to Orange County on Thursday with a luncheon sponsored by real-estate mogul George Argyros.”
“Smith sat down for a short question-and-answer session with Argyros and Chapman President Jim Doti, an economist by training.”
“Asked how long he thought it would take for the housing market to get back on its feet, Smith said he expects it will take longer than the previous housing slump, because this bubble was bigger when it burst, and there is a larger backlog of unsold homes.”
“‘We have to work our way through this big lump in the middle,’ Smith said.”
“Argyros, a real-estate-investor, and Doti each said they expect it to take 10 years for the market to rebound to last year’s prices.”
“Asked about the volatility in the recent stock market, Smith said he was surprised by the New Year crash because he believed stock prices ‘were actually very reasonable’ except for housing and mortgage companies. ‘And it isn’t as if nobody knew about that.’”
“‘What kind of blindsided us is the extent to which that (housing crash) has bubbled over into other areas of the economy,’ he said.”
“Proposed federal stimulus packages to jump-start the economy aren’t the right way to go, Smith said. ‘What do you do after you mail out the checks?’ he said.”
The Desert Sun. “With about 512 homes in foreclosure, Palm Springs is seeing the effects of a national housing crisis. The city is fourth among Coachella Valley communities with the most foreclosures. Only Indio, Desert Hot Springs and Cathedral City have more with 935, 896 and 601, respectively. About 4,530 homes valley-wide have been foreclosed.”
“But buyers who have lost their homes aren’t the only ones effected. Many neighbors of foreclosed homes have become unsuspecting victims as their property values decline.”
“‘If a foreclosure ends up selling below market value it sets a new low price and brings the value of every home down,’ said mortgage broker Sandy Edelstein.”
“‘Especially in the area of Palm Springs, where a lot of the homes are non-residences and are second homes or vacant fix-and-flips, there is less incentive to maintain because you don’t have to see it every day,’ Edelstein said. ‘So before you stop paying the mortgage, you stop paying for the pool guy and the gardener. If you see a house in disarray, odds are it’s in foreclosure or is going to be.’”
‘Asked how long he thought it would take for the housing market to get back on its feet, Smith said he expects it will take longer than the previous housing slump, because this bubble was bigger when it burst, and there is a larger backlog of unsold homes. Argyros, a real-estate-investor, and Doti each said they expect it to take 10 years for the market to rebound to last year’s prices.’
Notice no one calls these guys doom and gloomers.
Ben: about being called a “d & g”
“The power of accurate observation is commonly called cynicism by those who have not got it.”
George Bernard Shaw
The surest way to become an outcast is to be honest.
sad, but true
I pointed something out to co-workers two weeks ago. We all love the fact that little kids are so honest. We view it as being so cute. But we absolutely hate it when adults are honest. It is viewed as a personality flaw or even worse. Adults, unlike children, are petrified by honesty and truth. Why is that?
Adults, unlike children, are petrified by honesty and truth. Why is that?
Because adults have a “vision” or set understanding of who they and the world around them, them are which may or may not be based in reality.
In general, people who have been honest with themselves are okay with anyone else’s honesty. After all, people can have honest differing opinions simply from differing experiences and sets of motivations. It’s not “scary” if someone expresses a truth because in time the truth can be absorbed into their world, too.
However, if someone’s understanding is based on a series half truths or outright lies, an honest adult creates a serious problem. To acknowledge one truth would be to let go of many lies. And then the carefully constructed house of cards on which their mental world rests would collapse into one big heap.
Unfortunately, my experience is that many people fall into the later category.
And most of them vote liberal democrat (global warming, ALL repubs are racists, slick willie NEVER did anything wrong)
(not that bush doesn’t deserve alot of blame) It just seems to me that many dems believe a whole lot of half truths and lies and if called to explain their beliefs they just go off in an ad hominen attack.
Problem with telling the truth is the timing and the words.
If you wife asks you does this outfit make my ass look big, you lie as say “no”. You should NEVER say the truth: “Hell YES but no as big as the item you are now wearing”. What you say and think are different.
I’d stopped talking D&G in the wrong company. At HBB, I am typing to fellow people who see the same oh F*** situation.
Albeit D&G, we should add a B to that (Boom).
Is it end of the world? No. Just need to adapt and change.
Mr. Jay, where do you get off making half-baked generalizations about “liberal dems.” Got an ax to grind? Let’s talk about “conservative GOPs”… could name a few who are plenty delusional. Inability to acknowledge truth is a human affliction, not a political affiliation. I’d say you just made your own ad hominem, i.e. “attacking or appealing to a characteristic or belief of the person making the argument or claim, rather than by addressing the substance of the argument or producing evidence against the claim.”
“If you wife asks you does this outfit make my ass look big, you lie and say “no”.”
I have, actually, known men who would say “Hell yes” with the sound of ringing approval in their voice…
No, the surest way is to be stinky. Maybe you’re just not energetic and cute enough.
Adults aren’t scared of honesty and truth. They just don’t want anyone else to point it out to them. They want to acknowledge it to themselves under their bedclothes at 4am in the morning.
Yeah, I’m just a “bunker monkey”… but my dead reckoning estimate was: 7-9 years…so I guess that makes me an “Optimist” ;-)…once again, I’m too early…but hey, really…”I know NOTHING!”…except what I learned in 1982 & 1991
Don’t forget the 1974 recession. I was brutal in the SF Bay area/CA.
RE: Don’t forget the 1974 recession.
Ouch…nastiest of the nasty.
I graduated from college in ‘75.
Even the best and brighest in business and engineering couldn’t score a job that year.
This one will be infinitely worse.
I too graduated from college in 1975 and bought a nice Condo on Upand ,Calif for $18,000. Interest rate was 7.25%. We really live in UGLY times.
Graduated in ‘77 and aero/defense companies were just starting to rehire a bit.
Graduated in 73 and never got work in my field. Ended up going back for a Masters in a different discipline where I have worked for 20 years.
ben….I would not label you a doom and gloomer. Naa….Hey bro….you’re a FUTURIS….and a damn good one at that.
Hey Ben:
For me, a doom-and-gloom scenario would have been one in which house prices never went down. That would have pretty much ruined my life.
–
Ben was right. The CA Realt-Whores didn’t want to put out the resale data before the weekend to let some more people be sucked into buying.
Also, the weekly tables for Silly.con Valley were not posted. With local Scams taking big hits I can’t wait to see how the high-priced areas do coming spring.
Needless to say, all the data was already out during the mid-week.
When housing prices and Scam prices both fall it must be bad for psychology of home buyers as well as other purchases by consumers. 2008 will make 2007 look like a walk in the park.
Jas
Where did you see that they were supposed to release it yesterday at 10AM?
–
That was the historical pattern for a long time — it is posted on the day, or the day after, the national resale data and no later than the Friday of the week. As you know, all the data is ready when the national report comes out.
In the past I will check car.org site and at 9, or 10, AM the link is posted on the main page.
Jas
I just don’t see why the used home salespeople or the financial journalists who chronicle their situation so quickly reach the questionable conclusion that higher conforming loan limits will somehow save the market from the price correction that is underway. Don’t they realize that the high prices were driven in part by appraisal fraud and lending to buyers without sufficient permanent incomes to repay their loans? Or that the entire subprime sector has pretty much vanished from the landscape in a puff of smoke? Or that there is a credit crunch which has shut down the great loose mortgage lending spree of the early 2000s, when anyone who could breath could borrow pretty much however much money they wanted, provided they were willing to lie about their income on the mortgage loan application? What part of unsustainably-high price levels do they not understand??
Proposed mortgage plan could aid markets
By ALAN ZIBEL, AP Business Writer Fri Jan 25, 6:08 AM ET
WASHINGTON - A component of the government’s tentative economic stimulus package announced Thursday would give an immediate lift to buyers and sellers in higher-priced housing markets.
http://news.yahoo.com/s/ap/20080125/ap_on_bi_ge/economy_stimulus_housing_3;_ylt=AqVmXmjQHwdNTHGsPK8fCICz1g4B
From article…
“It’s good for homebuyers who have prime credit, have some money to put down and can meet tougher underwriting standards that are in place now,” said Guy Cecala, publisher of Inside Mortgage Finance, a trade publication. For homeowners with blemished credit who are struggling to pay their mortgage bills, the change offers little benefit, he added.”
This statement alone renders the proposal impotent. It’s this type of borrower that made the bubble what it is. Plus, in onther 4 months, no one will have “good credit”.
“The higher cap, to be effective until the end of December, would breathe life into housing markets in New York, California and other pricey areas because lenders would feel more comfortable knowing Fannie and Freddie can buy and package the loans into securities that investors consider to be relatively safe”
By the time the lenders “feel safe”, the potential buyers will be petrified. The only folks that’ll come looking for help are the refi-ers (most of whom won’t be able to refi) who acually WANT to save their homes (imagine that!)
“Michael Cosgrove, a spokesman for McLean, Va.-based Freddie Mac, said the change “would be in the best interest of the economy and consumers,” but noted that extra capital the company is required to hold on its books “creates a significant challenge for Freddie Mac as we continue to operate under severe capital constraints.”
Oh, just a minor detail they forgot to mention. YEAH RIGHT!
Folks, the monkeys are humpin’ the football at 10,000 rpm. Pass the popcorn Neil……..oh, and hand me a poncho, this could get messy!
Just catching the re-fiers will help stall defaults.
“The trade group calculates that borrowers could save $3,000 to $5,000 per year in reduced interest costs as a result and projects up to 210,000 foreclosures could be prevented since refinancing into lower-rate loans would be easier.”
LMAO! Oh that’s rich. 210K foreclosures prevented? Big Fing deal! A drop in the bucket! Do you realize how many people are currently behind and sinking that will not qualify for any of this help? The numbers are staggering. Okay, so instead of getting hit by a 200 foot tsunami, it’ll be a 195 feet instead. Yeah, that helps. A fraction are going to be aided by this cluster-fck package that they call “stimulating”.
Quite comical and tragic all at the same time.
My friend.
210k is 1% of the projected total.
So that’s a 199 foot Tsunami.
But maybe instead of seven waves, we’ll only have six… Don’t forget, a Tsunami is never only one wave… Just as this bust won’t be fixed with one wave.
Got popcorn?
Neil
“It’s good for homebuyers who have prime credit, have some money to put down and can meet tougher underwriting standards that are in place now,”…
——————–
People with high incomes, high FICO scores, and high down payments were ALWAYS able to get “jumbo” loans in the private/secondary market. The rates were slightly higher than pre-August, but not enough to really affect the truly qualified “high-end” buyers.
Oh my, and someone else actually gets it. Speak up so these hand-wringers can get some sleep.
BTW, some folks have occasionally accused me of being a handwringer (and I apologize if I have come across that way), but I can say I have never slept better in my life than these past few months.
Actually, exnnvmtbrkr, I am one of said “hand-wringers”.
Not because I think the market can be propped up indefinitely, but because they will throw perfectly GOOD money (ours) at fools. In the meantime, I think it will slow things down, but not stop them. They will make the recession/depression worse because they will make it grind relentlessly on for years and years and years, IMHO.
Hope I’m wrong…
I like the part where the Secretary of the Treasury says it’s a bad idea (they didn’t even mention what the GSE regulator has to say about it, which we already know is a big NO). It’s like, OK, all the real experts surrounding the situation are saying no, and all the private money-making interests are saying yes, and so all the politicians are saying yes too? How dumb!
and it’s the reverse-wealth effect (poverty effect) is what will (is) throwing this ecomony into recession. Except unlike a wealth effect which is purely psychological caused by a paper-profit when equity rose, the poverty-effect is real and tangible, as the FBs REALISED REAL debt with real debt repayments by tapping out the house ATM.
The ugly side of debt is about to show it’s self. Not only do “
citizensconsumers” have less real income today adjusted for real inflation, but they are now also saddled with massive debt. There will be scant little consuming going on for the next decade.GH I am on day four of no shopping.
I am scared that two months won’t be enough.
What if female shoppers stop going to Target?
All my hobbies are being suspended.
Instead of photography (Epson Ink is 120.00) I am painting!
Speaking to this, I have a theory that the slowdown will be a huge boon to Open-Source efforts, enough so that it may spell the end of the dominance of Microsoft. See, like you, I’m cutting way back on hard-money hobbies. As an IT guy I do already own a computer or 6 and ISP service is a core utility cost for me; one of the last that would go if things got really bad. Imagine all the hobby programmers (or out of work real programmers) that will be flooding the internet with code; most of it ugly but some gems will be there…
I wish… But MS has actually gained market share. One downside of this slowdown will be fewer OLPC* sales. In a way, that is helping drive Linux ‘desktop’ market share.
For the record, both my Dad and Brother have made their contributions to both Linux and other open source projects. I utilized Linux for scientific computer during grad school.
But I’ve tried various MS office clones. None have the power I need day to day at work. But if a new office product comes out…
Got popcorn?
Neil
*One laptop per child.
I use Linux almost exclusively at both work and at home and have found Open Office to work quite well. The only disclaimer is you may actually need MS Excel if you have existing spreadsheets with complex macros.
I run Windows XP in a virtual machine for those rare instances where I actually need Windows. VMware’s vmware-server is free and works quite well.
What are you painting? And with what media? I used house paints for my last show. Latex, and I got all of the colors at yard sales. ‘Ace Hardware’ was the predominant source, interestingly. One buck a gallon or less was my usual price, but no more than that. I painted on canvas nailed to warped pine boards. I have standards, you know.
I disagree that the wealth effect of the housing bubble was only psycological.
Thea ability to borrow against those values allowed the M3 value to be converted into real spendable M1.
When stocks go up, and you save less becuase your 401(k) has a larger balance, that is a psycological wealth effect. Stocks go down, no big deal. Just save more again.
When you take out a HELOC and spend it, that is not psycological….. That is real short-term wealth effect and horridly destructive to the economy long-term. Not only do you have to stop spending to stop going further into debt, you have to spend even less to make the payments on your debt.
I will expound.
When I got divorced 6 years ago, I got stuck with $800 a month alimony for 5 years. I started drifting a couple hundred a month into debt on credit cards. No big deal… after 5 years I’d have no more than $10K extra debt which I can pay off in a year….right.
Well… after 2 years, I had $5K extra debt. Instead of dirfting $150-200 a month further into debt, now I’m drifting $200-250 a month further into debt because of the $50 a month interest on that debt. After 3 years, $7.5K in debt and drifting $250-300 furteher each month. After 4 years.. $11K, falling $300-$350 a month further.
By the end of the 5 years.. I was actually $15K in debt.
Okay… now I have that extra $800. Oh, wait.. tax on the $800 = $300. So, I really have $500.
So, I can pay down that $15K in 30 months… right?
WRONG. I started with $200 a month too little income… So $200 goes to just not going further into debt. I also have an extra $150-200 in payments on that $15K debt.
So, really, I have $100 a month to use to pay down the $15K debt.
AND, that is where the U.S. economy is, but without the extra money.
We’ve been drifting $8000 per household further into debt. Now we have to stop going further into debt, AND start paying on that $8000 debt.
It is impossible without mass wage increases, which is not going to happen.
See my post under today’s bits buckets anout the choices. Global depression, or some form of indireact or direct nationalization of the debt.
Darrell,
You have just described what Jas and I would call PEAK DEBT! You see, there comes a point at which the debt is no longer serviceable (a word I hate since the point should be like you, to pay it back, not service it. That is what you do to a car or when you use a Freudian Slip.)
Therefore, I agree with you and esp. the last sentence of the above post. However, we might also see mass personal bankruptcies like we have never seen before. Just a thought.
The thing for which I am most grateful for this blog in particular, and the housing stupidity in general, is that it has taught me how evil debt is. We get brainwashed on the concept of “good debt”. I no longer believe that. In some cases there may not be other options but people should get out of debt as soon as possible. Last year a co-worker told me, “I’ve never seen anybody as adverse to debt as you”. I now take it as a great compliment. Spread the word to everybody you love. “Debt is slavery!” Some day they will thank you for it.
Debt is slavery!
Sometime way, way, way back before I found this blog, I remember thinking the same thing. We worked very hard to get rid of debt starting out. Most everyone I know is so resigned to it. It’s just a “given”.
We got caught up into that a little bit of the “good debt” stuff, too. My husband, especially, took on a lot of debt for his education. (Although thankfully not nearly as much as you can take on..)
Debt *is* voluntary slavery and we are complete free of it. My husband and I now only need to come up in income with what we consume for daily living expense and we are truly free in all the ways that matter.
*sigh* Where would the politicians and the bankers be if everyone in the country decided that they wanted their freedom more than overpriced degrees, houses, cars, and crap from china?
Vermontergal,
Bingo, on where the bankers and politicians would be…
This country is run exclusively by those who profit by keeping the masses in debt. Everything in our country is geared toward it — marketing, the general national psychology regarding houses, businesses, cars, etc.
I tend to think unconventionally, and when I asked people why debt was good, they’d reply that we needed debt or else people could never buy cars or houses.
I thought on that and concluded that if everyone SAVED IN ADVANCE for these things, or used family money (interest-free money passed back and forth between extended family members), etc. we’d all be spending FAR less by avoiding interest payments. We’d actually be able to save and OWN things.
I sincerely believe this entire credit bubble was engineered from the beginning (in 1982-ish) and what we’ve just seen is a sort of “blow-off top” in the credit markets, where everything had to accelerate or die. It is now dying, and it’s possible that we might not see a floor for some time, IMHO.
we might also see mass personal bankruptcies like we have never seen before
Interestingly, corporate debt obligations mirror personal ones, only on a much bigger scale. It is my understanding these are defaulting in ever growing numbers. What happens when so many are not paying their bills that there are not enough collection agencies in the universe to collect the money and banks are going bankrupt in huge numbers.
Great analysis. I am one that finally kicked the “carrying a balance” on my credit card three years ago. It is amazing how much extra money has been freed up. Now when I want something I just put money aside for a few months, then put it on the credit card where I can carry the loan free for up to 55 days and then just pay off the balance on the card. If it is something that I can’t put on the card I just save a little longer and pay cash.
It is impossible without mass wage increases, which is not going to happen.
Raise the taxes on the wealthy, especially those holding property and otherwise cashing in economic rents.
Thought experiment: what would home prices look like if everyone paid DOUBLE in taxes?
Hint: HALF.
Hey Darrell, I’m agreeing with you! “, the poverty-effect is real and tangible, as the FBs REALISED REAL debt with real debt repayments by tapping out the house ATM.” The point I was trying to make was that the moment they actually borrowed against this psychological wealth it became REAL tangible debt, and thus caused a REAL poverty effect.
I think the wealth effect was more than just psychological. People were actually able to extract $$ from their houses. Now, they can’t get the cash anymore AND they have to actually pay back the stuff they already borrowed. Oops.
“What should be one of the sunniest times of their lives is instead turning out to be a very dark year for a Visalia couple. Married for 58 years, the two are packing up their belongings and, on March 13, will leave their home of 18 years. The reason? They no longer can afford to make the payments and are losing their home in a foreclosure.”
“His pension, $2,500 a month, should have been enough to live on. But the couple took $100,000 in equity from the house for what turned out to be one seriously bad investment and a series of short-term needs, like travel expenses and car-repair costs.”
This couple has to be in their late 70’s, and what in the world would they need to invest a big chunk of $100k, at their advanced age?
I suspect we’ll be seeing lots of stories like these, people in their golden years being taken advantage of, along with a healthy dose of gullibility on their part, thrown in for good measure.
Sad.
I suspect we’ll be seeing lots of stories like these, people in their golden years being taken advantage of
Just because someone is old should not make them non responsible for their actions. They got the $100K and enjoyed the use of it. Should the money ever have been offered to them? Probably not, but then meet todays credit bubble. There will be an awful lot of people with bad credit going forward. I am not even sure credit scoring will much matter in the years to come as more and more folks who previously had solid careers are pulled down the drain.
It’s sad on a personal level because they do not have the time to start over and recoup.
It’s their own fault, though. He blindly fell for sales talk on the bad investment, and on the HE loan. They sold in Harbor City for $240k, and bought in Visalia for $102,000. They then took out a $100,000 HE loan. That’s $202,000. A prudent person would have stashed some of that money for ’short-term’ needs. He speculated and lost (the motto of the FB). A prudent person know that debt needs to be repaid. A prudent person would have run the numbers and found out that he couldn’t make the payments. We are not talking about difficult math. Simple middle school calculations would have done it.
You can’t get out of debt by taking on more debt.
On the positive side, they will be dead soon.
Oh, you know you were all thinking it.
That’s cold. No positive side about old people dying. My mom died at 65 and my dad died at 78. I miss them. Do you love your parents?
“No positive side about old people dying.”
Really? So Castro staying alive is a blessing? What about Arafat before he bit the big one? The list of people whose death would make the world a better place is a long one. We will all die at some point. Some people provide this world with more benefit than others. That’s just reality.
One of the Facts of Life: No one can escape death.
Yep, not even the Big “J”. And he had connections…
NYCityBoy, that made me choke on my GT…………..LOL
I heard a report recently about a scientific study that said something happens to old people’s brains that make them more gullible. Sounded like kind of a PC way to say we get more stupid as we age. My father was nobody’s fool, but he didn’t need to borrow anything either. My mom would have gone for the pitch in a minute, but she didn’t have anything to leverage.
I vaguely remember my grandfather. He had been a lifelong farmer in southern Minnesota. He was 85 when I was still a little kid (5 years old). He would have known a snake oil salesman a mile away, even at his age. I think most people that are fools in their 70s were probably also fools in their 30s and 40s.
Think of how stupid the people around you are. They won’t increase their common sense when they get old. The will just have a better excuse for being idiots.
Yep - some oldsters ARE a$$holes, greedy, stupid, worthless wastes of oxygen…
Just because someone is old doesn’t make them decent.
Heh. My MIL definitely proves the people don’t necessarily get smarter as they grow older theory. It’s a little a freaky to wake up one day and realize that you’ve accumulated more wisdom than some of your elders because you’ve also realized you don’t know jack either.
I agree. Some oldsters certainly are a$$holees, etc. I also agree some youngsters are too. I know one 32 year old in my family who sits around all day watching sports. Worked one year in his life. Is he younger than you?
Is he younger than you?
If you’re asking me, yep, he’s younger but only by a couple of years. Fools come in all age brackets.
Usually people without anything to leverage has been relieved of their funds at a much earlier age throught the same sort of gullibility. My mother was only slightly more gullible that my father, who would not give the proverbial nickel to see a grasshopper eat a bale of hay, but my mother is 83 now and I think the day is coming when I am going to have to start actively watching her finances a little. My husband’s parents were both more gullible than mine ever were. My now deceased MIL could blow through money faster than you could put it in the bank for her.
People grow wiser as they age?
I think a lot of us to grow older.
I suspect there is more to this story.
Cinch
There is. It’s called “greed”.
“I suspect we’ll be seeing lots of stories like these, people in their golden years being taken advantage of, along with a healthy dose of gullibility on their part, thrown in for good measure.”
This is already a recurring theme on the HBB, and the party’s just getting started.
Credit Card companies considered senior citizens a target market after they exploited the college market. A good number of stories of senior citizens getting their offer letters, with the thought that the credit card company (via pre-approval) had already determined that they were worthy and could pay their card. After all, who would give you a loan you can’t repay. I read about this in the book “Credit Card Nation.”
“His pension, $2,500 a month, should have been enough to live on. But the couple took $100,000 in equity from the house for what turned out to be one seriously bad investment and a series of short-term needs, like travel expenses and car-repair costs.”
This is the standard MSM-story paragraph that always makes me say Hold On A Second and ask: “Where did the damn money go?”
Reporters never seem to dig very deep into that question, because they 1) “Don’t want to be rude and ask about such personal things” and/or 2) Doing so would ruin the victim aspect of their story, and they’d have to go find some other “victim” to fit into their thesis.
“One seriously bad investment” … such as what? What was it, and how risky/stupid was it for 2 senior citizens to attempt it? Was it so risky/stupid that it would cause readers to not feel sympathy, but ridicule or comtempt for these people? My guess it is would make them look just as greedy as everyone else.
“A series of short-term needs, like travel expenses and car-repair costs” … such as what? Where’s the breakdown? What travel expenses? A cruise to the Carribean? What car-repair costs?
In other words, show us how you pissed away $100,000. Otherwise, I’m not interested in your half-hearted “I screwed up” admissions, and I certainly have no sympathy for the jam you’ve put yourself in.
First, they were home owners:
They brought their windfall to Visalia, paying $102,000 in cash for the home here.
Then, they became home debtors:
But the couple took $100,000 in equity from the house for what turned out to be one seriously bad investment and a series of short-term needs…
Now, he is home moaner:
“‘I can’t blame anybody but myself,’ the man said. ‘But it’s so embarrassing.’”
he is = he is a
“home moaner”……yep, that’s a keeper
At least the guy had enough character to admit he was responsible, unlike some of the others we’ve read about. That one last week about the protestors on the courthouse steps made me heave.
I don’t think this old couple really qualified for the loan guidelines . So, some form of fraud was committed to get this loan ,and I suspect it was on the part of the loan agent on that deal .
I would like to know what investments and car repairs took 100k of this couples cash . The point is that this couple decided to gamble with taking out money on a loan that was to high for them under even liberal underwriting standards . Also, what happened to the rest of the money they got as a windfall after they sold their other home and bought the next place for cash .
I know a lot of older people ,and I can testify to the fact that most of them have short term memory problems . Older people can be really gullible these days . My next door neighbor (who is 80) is as sharp as a tack and goes out into the world and helps people with medical problems get assistance .Than I know some older couples that bitch and moan all the time (and sometimes I think it’s because of all the medications the doctors are giving them ).
People that prey on older people or sick people are pure scum .The parties that steered this old guy into unsafe investments at his age are really evil . That being said , this couple will pay for their mistakes ,even if it means going to a cheaper town and renting for the rest of their lives ,and the humans that made money off them should go to hell .
“‘When home prices or the stock market start to go down, the short-term wealth effect is negative,’ he said.”
For some. For others, including may that read Ben’s blog, its a great opportunity for prudent, responsible ppl to make a killing. Some of us still believe buying low and selling high is the best investment strategy. We have been patiently waiting for a low. I can smell it now, and it gives me hope. When I advised everyone to go to 5% cds on other sites a few months ago, I was told I was an idiot. The market was 15% higher then. Hmmmm.
Houses aren’t stocks! When the price of a necessity goes down, it should be a net win for consumers.
Any attempt by our Government to keep house prices inflated is an immoral scam.
The government’s been keeping the prices of agricultural products inflated for decades… they’re just moving into a new market now.
This is going to be the second “emergency” tax rebate in less than a decade and the the rebate amounts are increasing. They’ll be paying us to occupy houses pretty soon…
And Reuven, I keep trying to point this out to the idiots at work, we have been spending billions per year on programs for “affordable housing”. So now we, the suckers of the U.S.of A. are funding “affordable” and “unaffordable” housing. We must have “dip$hit” tattooed on our foreheads.
“…responsible ppl to make a killing.” An image comes to mind. Boiler room, fly-by-night con men. I’m sorry but when I hear that you ‘can make a killing if you buy this investment scheme’, it sounds to good to be true, or the person who is saying this is incredibly naive.
Cinch
One major difference is that I am not looking for investors nor have anything to sell. I have been wanting to buy a home and to be able to invest my money at a time at which I feel I could reasonably expect a decent return. Prices have been to inflated for me to do that in the last few years. Things are changing though. Timing is not right now, but I think the next couple of years, the time will come. I think we will go through a once or twice in a life time correction. Those on the correct side will do well.
RE: Boiler room, fly-by-night con men.
These were the boyz who moved post haste into the mortgage game.
So WTF does anybody expect?
Garbage in-garbage out.
5% - Wish I could get that now. I was getting that in a MM at American Century for a good part of last year. Now I am in the Long Term Treasury at Vanguard. Thanks to this blog!
Key Bank, Chase and others have promotional 5% rates from time to time. There are also still some out there that have 4.5% or higher money markets. At least they did a few weeks ago.
Tim: So how do think these genius’ get above market returns?
it is called risk…
I invest less than 100k per bank and follow the news. Since I have money in 7 different banks, if one goes down i may be actually better off. If major FDIC banks are closing their doors, asset valuations will be going down so fast I would probably be better off. Stick the remaining 85% under my mattress and buy in the darkest of times.
“‘And burning incense and sacrificing chickens,’ Adamson wryly continued, as Jones and loan processing manager Gloria Martin chortled with the dark humor that characterizes many mortgage-industry survivors lately.”
Sounds so Jonestown-ish…
What flavor kool-aid are they serving?
Grape…. Sour Grapes that is.
Cherry…busted cherries, that is.
…a series of short-term needs, like travel expenses …”
Let me guess: this “travel” involved squandering thousands of dollars going to Hawaii and Las Vegas, rather than any actual need to go someplace.
Following the death of a friend, I once had to jump in my car and drive over 1,000 miles to make it to his former home. THAT was a travel “need,” and I don’t recall gas, food, and a night in a La Quinta Inn being all that expensive.
Might have been travel for medical care. I have to make an 800 mile round trip 4 times a year for chronic pain care. And no, until 3 months ago, there was no one in my state who had observed the surgical procedure being done -let alone having done it.
May be able to reduce the round trip to 300 miles. A pain specialist who was trained for 5 years post-residency at the medical facility I go to just became the head of the state university chronic pain department.
May have been travelling to attend to family affairs - ill sibling, even parents who made it to their 90s……
Possible…but I’m guessing most people’s “travel needs” are more accurately called “travel desires.”
Hey Sammy, stick it in your ear.
Sincerely, Big V.
Yeah, possible but anyway you slice it $100K is a lot of money to blow through on medical travel expenses. (I know there were “car repairs” and “bad investments” as well.)
Bottom line is that most people are just not careful with their money, especially on travel. We’ve planning a trip down the Walt Disney World - most of the resort prices per night are insane. $300 a night for a “deluxe” hotel room? Come on, I spend most of my time in a hotel room unconscious. Clean and safe is enough.
Obviously, though, Disney can fill those $200+ and $300+ per night rooms. There’s a clearly a whole world of people I’ve never met who seem to think it’s an okay deal and can afford $2100 a week for a place to sleep and store their stuff.
My family went down to Disneyland in the mid-80s and rented a hotel room at a little hotel just about a block from the Disney hotel. $80 a night, two queen beds and a fold-out bed— and seven people in the room, my parents and five kids. Older sisters in the second queen, one brother on the floor and the other and me in the foldout, head to toe.
We slept there. The rest of the time we were at Disneyland, Knott’s Berry Farm, the LA Children’s museum… you know, out. Alas, that hotel has since fallen to Disneyland hotel expansions. But it was clean and safe and perfectly acceptable.
Ann Scott ….Have you tried light therapy ? I know a few people who tried it for chronic pain and it worked ,(of course I don’t know what condition you have ). Anyway ,one of the people I know that tried light therapy had a chronic pain in the neck for years and it was relieved after just 30 days of self-treatment with light therapy .I don’t know very much more about it but it sounds interesting .
a series of short-term needs, like travel expenses …”
and the “investment” that went bad could have been “double down” in Vegas……:-)
I have a coworker who now has $550k of debt due to his travel desires on a home bought for $70k.
Every trip has been a luxury trip (business or first class the whole way, luxury suite hotels, etc.).
I understand medical travel, my sister did her residency at the Mayo clinic that does a tremendous amount of ‘travel medicine.’ If it had been medical travel, the article would have clearly noted the condition and everything to gain sympathy. No mention… it has me skeptical. I’m betting luxury vacations.
I’ve done last minute travel for bereavement reasons. It would take a tremendous number of trips to run up a $100k bill. I’m with Sammy on this one… it doesn’t pass the smell test.
Got popcorn?
Neil
“If it had been medical travel, the article would have clearly noted the condition and everything to gain sympathy.”
Precisely - anyone who doesn’t believe this is crazy. This includes previous posters on this thread.
“‘I guess it’s my fault,’ he said. ‘When you’re drowning, you reach for any twig.’”
Yes, dumb-ass, it’s your signature on the loan form. That means it is indeed your fault.
cupiditas ex homine, cupido ex stulto numquam tollitur
Hey Hoz…….you speaking in tongues?
What did you think of this latest German bank blow up?
Who are you calling a homo?!
A man can be cured of lust, but a fool can never be cured of his greed
Thank you, it has been too long since HS Latin at Father Judge.
Have you stuck it in your ear yet?
cur ominum fit culpa, paucorum scelus? :
why should the wickedness of a few, be laid to the account of all?
then there’s also:
cum quod datur spectabis, et dantum adspice:
while you look at what is given, look also at the giver (Seneca)
words of wisdom for would be knife catchers…
I have heard that a person falling from great height will clutch even the smallest thing all the way to the ground.
Debt is not an answer for our economy or as individuals.
Did anyone actually survive to test this thesis?
Personally, I’m thinking the old ticker gives out long before then…………..
Those Visalians getting into serious debt…I don’t recall either of my parents ever talking about older people taking out mortgages. I never ever want to make a mortgage payment after age 65. If I have to get a different house after that, I will buy it with cash. My parents were influenced by the Great Depression and had few indulgences. The only indulgences I remember were when they got a new car (one car family) or the new color television (one television family). Simple living was the best.
Ads describe the Bellevue Ranch development in North Merced as a place where ‘children ride their bikes along meandering tree-lined streets and wide sidewalks intersecting with expansive parks.’”
I will never understand these ‘tards who buy a house or make any major financial commitment, based on conceptual or paper plans drawn up by people with a vested interest in “selling the dream.”
So often the artist’s conceptions of developments I see around my city are funny in and of themselves. The prices, of course, are the funniest but that’s another story.
I laugh at how they’ll leave out adjacent buildings and play up the trees so as to make it look as though the building is on its own in space.
Sometimes they use muted colors and downsize objectionable features. One billboard gave this treatment to the subway tracks running right alongside it. It made it look like it was somebody’s toy train and not a full sized subway.
Yeah, buying from a picture or a map is pretty risky, not to mention that the building or subdivision might not sell out too. Until this bust runs its course it is probably better to buy something existing.
There is an ugly yellow “luxury” apartment complex next door. The folder they handed out at the public hearing had a watercolor painting of the buildings.
To keep this on topic, the original owners of the building (a Texas company building in Salem, MA) sold the complex three years after it was built. Not that there was a market top or anything.
The most the developers ever do with those “parks” around here is plant bluegrass. Oh, maybe plant totally non-native shade trees, all in a row of course. Bo-ring..
At least this took some effort. Many of the brochures for 500k plus new condo projects contain stock photos unrelated to the actual building. On more than one occassion ive seen the same photo used for different projects. It great now that many condos or back to or below pre-construction pricing so you can see the actual building before you buy. It’s so hard to tell quality construction from an unrelated stock photo.
It seems to be the thing here for brochures and signs show people riding mtn bikes. Like, buy this place and you’ll finally get out and exercise! I can do that right now, no condo needed.
Those are interesting statistics about Burbank, ca. I have a friend who owned (or should I say the bank owned for most of the 30 year loan) a SFH in Burbank in 1990 during the previous property bubble. That bubble was just on the edge of bursting but, of course, nobody wanted to believe it. (I might add that the bubble during that period was NOTHING like this horror story which really is the Mother-Of-All bubbles.)
My friend listed the house, thinking it would be an easy sale at that point and unaware of what was around the corner, at $315,000 because of all the upgrades. He was paying the mortgage but had recently split from his wife who remained in the house with their teenage daughter. Eventually, in 1991 after zero interest and getting divorced, he decided to let it go into foreclosure seeing as he was paying for a rental apartment and for a SFH property which was financially underwater, had little chance of being sold and he wasn’t even living there. Of course, as is happening now with many FB’s, he had sucked all the equity out of the property.
By 1997, property had started to move up slowly again so I guess that SFH eventually reached the $315,000 price where, previously, it didn’t sell. I never heard what the property sold for when it was foreclosed but I guess around the $250,000 range.
Now I see numbers like $550,000 to $600,000 for the same kind of house. Apart from the fact that Burbank is NOT a very desirable place to live (as far as I’m concerned) I’m shocked that these houses are actually on the market for those ridiculous prices.
Folks, we have a looooong way to go and a lot of pain for FB’s before prices get back to what they are worth. My guess: Around $250,000 to $300,000 and even then they will be too expensive.
“Now I see numbers like $550,000 to $600,000 for the same kind of house. Apart from the fact that Burbank is NOT a very desirable place to live (as far as I’m concerned) I’m shocked that these houses are actually on the market for those ridiculous prices”
Burbank is a pretty pedestrian ho hum plain little burg. Nothing there to get excited about. Only the very south edge along the forest lawn green belt area which also has the Studios might be OK but as U go north Burbank descends in desirabilty.
Glendale slightly better.
Re burbank:
the main shopping/central commercial/civic center district which is off the 5 fwy btween burbank and olive avenues is pretty dismal as well. Glendale’s is better as far as dwtn ambience along brand/central aves south of 134 fwy, though the city planners are trying their best to destroy Glendale dwtn thru “improvement projects”.
Pasadena has the best dwtn ambience of the three, maybe in all of LA, though not 100% perfect.
I’m with you all the way…
Burbank isn’t the worst place to live in LA, but it’s far from “desirable.”
Those houses would be reasonable in the $200’s.
In late 2001 I stayed in Burbank for a week. I think I was at the Holiday Inn, if memory serves me correctly. I couldn’t get bank on the airplane soon enough. We had worked with one client in Santa Paula, I think it was called. I liked that area. California definitely has some places that I would move to in a heartbeat if the situation were right. I add this just so it doesn’t seem like I’m doing too much California bashing. It’s definitely a state with a lot to offer when the local politicos aren’t f—ing things up.
“In late 2001 I stayed in Burbank for a week. I think I was at the Holiday Inn, if memory serves me correctly. I couldn’t get bank on the airplane soon enough. We had worked with one client in Santa Paula, I think it was called. I liked that area. California definitely has some places that I would move to in a heartbeat if the situation were right”
Many mid-boomers on this blog probaby remember the 70’s TV comedy show ” Laugh in” where burbank was the butt of jokes, refering to it as bland, dull, bad air,ect. And this was when they still had some large manufacturing & and areospace companies. Today, there is a sizable entertainment industry in Burbank but the entire city still is dull. Most of the executives and hi rollers probably commute the hell out of there to Glendale, Pasadena, or to the far west SVF areas of Agoura hills, Westlake, 1000 oaks, Newbury park, hidden hills, which are the crown jewels of the valley.
Also remember the Hillside Strangler(s)’ working out of that area around ‘77-’78.
Santa Paula is very nice at least I liked it. Its in a West East running valley uncommon in CA most run North South. It gets nice air conditioning from the Pacific and blows all the smog to Valencia.
Lived in Ventura, CA from 1998-2005. Some parts of Santa Paula were nice, but the bad areas outnumbered the good areas way too much. SP definitely had a competition going with Oxnard, CA for gang activity.
–
“‘If a foreclosure ends up selling below market value it sets a new low price and brings the value of every home down,’ said mortgage broker Sandy Edelstein.”
Isn’t this good news? The price of my Chatsworth home, and all homes in the area, fell during 1990s and I was happy to have my tax bill reduced by a large amount. My tax bill shot up 40-50% in 2002. I sold and left.
Falling home prices are good for most just as falling gas prices are good for most. Maybe, I don’t get it.
Jas
I thought that Prop 13 in CA established your property taxes based on the value at the time of purchase. Or maybe you were in a Chatsworth in another state ..
–
It put a limit on increases of future purchases (after 1973?) at something like 3% a year for appraised value of the property for tax purposes. Anyway, if the taxes are not raised at 3% appraisal rate due to price declines they can go back and calculate the 3% increase from the purchase date as along as the appraised value is below the current market price. That is my understanding. Can someone clarify?
Jas
I can not clarify as I’ve never lived in Cal.
But WOW! YOU are asking for help? Gosh, mountain moving to … etc, etc. Guess the housing bubble MUST be for real.
Sorry, couldn’t resist.
I thought they could only do that if, for example, they wanted more money for the nearby schools - then the entire neighborhood gets a small bump in taxes. At least thats what I’ve been told.
Proposition 13 limits the increases to 2% per year.
Homes are assessed at their purchase price and are taxed at 1% initially.
Other “add-on” taxes are usually added, but must have a 2/3rds vote to pass. This is why it’s wise to calculate at least 1.25% when trying to determine the first year’s tax amount.
I also believe they can lower taxes in the event of a declining market, but can increase over the 2% if the market rises again — will calculate based on your purchase price, plus 2% per year owned, to current year. There is no limit to the increases in this case, I believe.
———————–
BTW, Prop 13 was passed precisely because of a previous housing bubble in California — so people wouldn’t continue to be priced out of their own homes due to foolish speculators. It was, and is, the right thing to do, IMHO.
I also got a roll back in appraised value of my Townhome in Moorpark CA year 1992 or 1993? This lowered my property tax until around 2002 and then it jumped back up as far as allowed by prop 13. Yes I was happy with the lower tax.
I was also happy to sell at an Idiot high price but would have been just as happy to sell at what I paid for the Townhome 160K and bought a SFH in the area for 250 to 300K. Does prop 13 hold up values in Ventura county CA?
Its great for the old timers but move up buyers like me ? Not so good. And brand new buyers? God only knows how they afford it maybe they are all firemen ?
It is not good if it results in all banks going insolvant and the economy stopping.
And why wouldn’t new banks spring up? Banking isn’t rocket science. You get together a group of people that has $10 million in capital. You get a banking charter and boom, you are a bank. You can now open some branches, throw out some ATMs and start opening DDA and savings accounts. You market yourself to the local market and start making loans for projects that make sense. Soon, your bank is doing quite well, as the loans you make are good loans. You have friendly staff that brings in those deposits that are so necessary to grow the bank.
Banking is just another business. This bulls–t that we “need” them so bad is just bulls–t. Strong companies survive. Weak companies die. Why do we look at banking and finance so differently from every other industry? Oh, that’s right, they have a “Federal Reserve” to protect their interests. There is no Federal Reserve to keep bad pizza joints and massage parlors open.
Yeah, but I don’t keep my money at the pizza joint or the massage parlor.
We don’t need the fed to keep banks from going under per say, but I thought that one of many problems in the great Depression is that was a general reluctance to deposit money into any bank for fear of failure. Thus there was no money to lend, etc,etc.
Of course deposit insurance helps solve a lot of problems I mentioned - we don’t need the Fed for that.
You don’t keep money at a massage parlor? Fool!
Propping up bad banks is what makes banking so dangerous to the economy. Look at the situation now. The government is doing everything it can to allow banks to hide the true nature of their financial conditions. That is why bankers don’t trust each other and won’t lend to each other. I trust my local pizza joint a heck of a lot more than I trust the local bank. That is because banks are getting away with all manners of deceit. I blame much of this on the Fed.
NYcityBoy — Agreed, banks that can’t cut it should die. But the problem is that the entire system now “banks”. We have pension funds that must get 12% (and more!) annually in order to be solvent. We have social security & medicare. Every single labor dispute for the past 50 years has been settled with big bonuses for the management, and a promise of luxurious retirements for the workers. Everything in our entire system is built around banks — and the expectation/promise of high returns. And there’s the rub. If we let the banks fail, we literally let our society fail. America’s largest generation of retirees is all “banking” on the system working for them.
And the really horrible part of the whole thing is that the bankers and the corporate management all tacitly knew this to be an unworkable equation all along. This is fraud of historic levels.
It’s no surprise that last year’s bonuses on Wall Street were the biggest ever, and that this year’s losses among banks are also the biggest ever. That single contrast describes America for the past half century. Take now and forget about later. Those who didn’t get paid up front were/are screwed. Always.
I’d love to let the banks fail. But what do you say about the 70 year old librarian who won’t be getting her pension when she retires next year? That 20 years ago when her union settled its trade dispute that management lied to her? And that her pension was always a financial fantasy dependent on a fund with rates of return that could not be maintained until her retirement?
Merrill Lynch pulls no punches with this one.
“all the kings horses”
warning pdf file
http://www.mediafire.com/?c12xxpzemyn
Humpty Dumpty sat on a loss
Humpty Dumpty could not recover it’s cost
All the day traitors and all the pigmen
Couldn’t put Humpty together again
Hey Luvs, how’s the weather?
OK? When I read this, the first thought that came into my feeble brain was how the Eff did Merrill lose so much moneys with Ms. Sheryl King as an analyst. She wrote in early summer 2006 “If the stimulus is withdrawn, it provides a notable danger to economic growth.” In a report estimating half the growth in the economy is housing related. I guess the Merrill mopes ignored her.
Hoz…….this is the German bank thing…………..
http://www.reuters.com/article/rbssFinancialServicesAndRealEstateNews/idUSL2651648120080126
Bogus
It is just a cover up for another rogue trader.
Just kiddin’
Yeah right
Did I see that The Packers went down?
A sad day in the frozen tundra. It took many beers to place the loss in the past. Fair maidens walked down Lombardi Blvd with tears freezing to their faces. Favre’s restaurant was a mausoleum for 15 minutes. The streets were quiet, the wind died down. Party on, off to the casino!
Hoz…
I heard the German Rogue Trader was named Hans Solo.
Does anyone really believe a low-level person who could not trade big stuff (no access) accomplished this - or, if so, without knowlege by many others up the chain?
C’mon - he is a patsy and serves the purpose to divert attention from the real story: Soc Gen is in trouble
“Merrill Lynch pulls no punches with this one.”
Do you need an ML account to get this report, or is it available through other brokers?
That Merrill Lynch pdf is well worth the read and I’m only on page 7!
They note in the pdf that “exponentially rising or falling markets do not correct by going sideways.”
Prediction that the discount rate will be 1.25% by 4Q 2008! Wow!
“Home prices to decline 25% by the end of 2009: more to come.
Ugh… ok, which of us wrote that report?
I’m going back to re-reading that report!
Got popcorn?
Neil
“Keitaro Matsuda, senior economist at Union Bank of California in San Francisco, calls it the flip side of the ‘wealth effect.’”
“‘When home prices or the stock market start to go down, the short-term wealth effect is negative,’ he said.”
Have any of these clownish eCONomists ever heard of the word “poor”
The poorhouse effect. Has a nice ring to it.
“Argyros, a real-estate-investor, and Doti each said they expect it to take 10 years for the market to rebound to last year’s prices.”
I am going out on a limb here and assuming they mean ten years to rebound to last year’s nominal prices. I doubt we will ever return to last year’s real (inflation-adjusted) prices over the next hundred years.
“Asked about the volatility in the recent stock market, Smith said he was surprised by the New Year crash because he believed stock prices ‘were actually very reasonable’ except for housing and mortgage companies. ‘And it isn’t as if nobody knew about that.’”
Reasonable compared to what? I guess Nobel Prize winning economists don’t have enough time after conducting their esoteric research to read The Economist, The Financial Times or The Wall Street Journal, all of which talked of a so-called credit crunch beginning last August whose implications clearly extended far beyond the housing sector.
“‘What kind of blindsided us is the extent to which that (housing crash) has bubbled over into other areas of the economy,’ he said.”
He could have taken it from us bloggers beginning early last year that the ’subprime is contained’ line amounted to economic propaganda.
I meet someone the other day who told me stocks were really cheap and he wished he had a million to invest.I looked at him and just thought how nuts this guy is.He also told me how great whole life insurance policies are.He has been drinking some spiked kool aid for sure.There has been a classic rotation into defensive stocks going on as the economy slows.
Look at the defensive names,they seem to be highly valued to me.Anything related to housing has been shorted to death.
Explains why he doesn’t have a million to invest.
Mission acCOMPLished
“‘If a foreclosure ends up selling below market value it sets a new low price and brings the value of every home down,’ said mortgage broker Sandy Edelstein.”
Plus, in an open market, “selling below market value” is an oxymoron.
yes, it should be
selling below the comps
Little OT, but I wanted to get your guys reaction to this: Last weekend the wifey and I went out looking at open houses for fun (NOT considering borrowing for a home at this point) and only four out of the ten places we went to was occupied… Can those with more experience please tell me if this is normal? At least one house was billed as a short sale, and it too was vacant…. This is in San Pedro. Oh, by the way EACH used house salesperson without exception made sure to let us know that the sellers were “in need of a quick sale” or “entertaining offers”, etc. Prices ranged from $549,000 to $765,000 (all 3bd/2ba or 4bd/2ba).
Thanks in advance for your feedback about the seemingly high number of empty houses for sale!
“This is in San Pedro. Oh, by the way EACH used house salesperson without exception made sure to let us know that the sellers were “in need of a quick sale” or “entertaining offers”, etc. Prices ranged from $549,000 to $765,000 (all 3bd/2ba or 4bd/2ba).”
If this refers to San Pedro CA then they are nuts asking those prices. Even the Homes way up the slope away from the harbor and bordering PV with nice views of the Pacific are overpriced
and oversold. Down in the flats closer to the port there are gritty slum areas with section 8’s, rough longshore and immigrant apt tenement areas. Also going north/northeast toward The vincent thomas bridge and 110 fwy are some really blighted zones.
Only the far southern tip around and west of point ferrmin , and entire SP area west of rte 213 (western ave)might be ok as that area is more like PV, but even PV is way overpriced as well. Ditto for entire Southbay region of LA.
SB and LA Westside are still in stratospheric wishing prices . These will be the last regions of LA to fall hard YOY % wise.
San Pedro, “Where the ghetto meets the sea.”
There are some rough spots (as in virtually all L.A. ‘burbs); but that being said I LOVE this town. When prices start hitting the $350k mark I’ll be singing:
Rollin’ rollin’ rollin’
get that lowball rollin’
rollin’ rollin’ rollin’
prequalified!
Look at Craigslist Real Estate: Look real close at the house featured photos, in a lot of houses you do not see any furniture.
No furniture, most likely a foreclosure!
Two opinion pieces in the LA Times today,
‘American dream’ goes political.
How owning a home turned into just another investment.’
“A new elite is emerging: the “smug renters.”
http://www.latimes.com/news/opinion/la-oe-rutten26jan26,0,3198695.story
‘A house is more than an ATM’:
http://www.latimes.com/news/opinion/la-oe-daum26jan26,0,6128151.column
A new entitlement class was born in the years between 2001 and 2007: Those goofball home buyers who took out ARMs and signed the contract to do so, with the entitlement being an always increasing home value.
I buy gold.
Houses got compared to Members Only jackets in the 1980’s…
Not a bold fashion statement, either way.
Well, at least they’ve found a use for all those foreclosures in Antioch…
‘If you rip off people, if you take their equity and put it in your pocket, and do some of the things that have been done, that’s stealing.’
What sort of topsy-turvy mirror universe does the author of this quote inhabit? No one - not one person - “ripped off” the deadbeat borrowers. No one “took their equity”. The borrowers are the ones ripping off the lenders, not vice versa. If they would simply pay back the money they borrowed - or even simply make the installment payments that they agreed upon, then no nasty lender would knock at their door and demand the collateral that secures the loan.
I believe the term is “chasing the market down”…
500 W Harbor Dr #314
San Diego, CA 92101
Beds/Baths: 2 / 2
Square Feet: 1,225 sf
PPSF: $408
Price Reduced: 01/26/2008 from $525,000-$550,000 to $500,000
Price Reduced: 01/05/2008 from $585,000 to $575,000
Price Reduced: 09/06/2007 from $599,000-$609,000 to $585,000
Price Reduced: 07/02/2007 from $620,000 to $609,000
Price Reduced: 05/09/2007 from $650,000 to $620,000
Price Reduced: 04/12/2007 from $668,000 to $650,000
Please don’t get the violins out yet as there is still a ways to go. This person bought back in 2002 for $399K. That sweat equity is evaporating fast.
Wow. That’s shaping up to be about $200k in price reductions over a 12-month period. It looks like prices are declining about twice as fast as they went up.
From The Sunday TimesJanuary 27, 2008
Alan Greenspan: Don’t blame me. I couldn’t alter asset prices.
The former chairman of the Federal Reserve dismisses claims that he stoked up today’s problems by keeping interest rates too low for too long.
http://business.timesonline.co.uk/tol/business/markets/article3256280.ece
BS that Greenspan thinks that nothing could of been done about the housing cost inflation .Greenspan could of raised rates quickly to stop the frenzy while the regulators could of questioned the lending practices that were creating such volume . Even if you have a lot of money in a market that is looking for a place to park , it doesn’t mean you can’t stop it from going to unqualified buyers on no-down loans . Greenspan has even admitted that he didn’t get the sub-prime problem and the leverage it caused .For that matter ,the MSM ,the Realtors ,the Builders and the Mortgage Brokers and Lenders ,and Regulators , and even the Wall Street risk rating agencies didn’t seem to understand the the serious problem that was brewing by the faulty lending .
I have never seen anything so absurd in my life as full grown people becoming cheerleaders for real estate going up, with the idea of selling the shack to a greater fool in a short time to get tax-free gains .
greenspam is a jacka$$
I want to play devil’s advocate here. We don’t want the Feds to interfere in the free market, however, when they drop the interest rates, then they should put a stop to ‘creative financing’? Why would that be a fed responsibility as opposed to sensible banking practices?
Don’t get me wrong, I’m not supporting Greenspan or Bernanke, but they don’t operate in a vacuum. What about the rest of the people on their boards?
Even if Greenspan had to keep rates low (he didn’t, IMO), he could easily have said:
“There’s a tremendous housing bubble in the process of being inflated right now. Though rates are low, buyers would be wise to consider historical price/rent and price/income ratios when determining the value of a house. There is a strong possibility that housing prices could decline significantly from here if/when interest rates rise.”
IOW, he didn’t have to cheerlead the bubble, and claim that borrowers ought to get into ARMs literally a couple of months before he began raising rates. He also denied there was a bubble, and cheered on the increase in “home ownership”.
Total criminal.
I address this one to our old mate “hedge fund analyst.
The Sunday Times January 27, 2008
Crisis grips European hedge funds.
A RAFT of European hedge funds have been forced to introduce emergency measures to protect their businesses from collapsing in the wake of the turmoil in financial markets.
Up to 10 European hedge funds have suspended redemptions after investors clamoured for their cash when the managers made severe losses.
A London prime broker told The Sunday Times that even before last week’s extreme gyrations, nearly two-thirds of London-based hedge funds had lost between 4% and 10% of their value. A “significant number” had lost much more, he said.
http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article3256253.ece
Good news! Let these opaque parasites rot.
But buyers who have lost their homes aren’t the only ones effected. Many neighbors of foreclosed homes have become unsuspecting victims as their property values decline.
I totally agree. My car must have declined in value by at least 15% this year, so I too am a victim. The freaking car companies are STEALING MY EQUITY and I want to know what legislation will be passed to punish them.
Cars are always a depreciating asset……….
So are homes……..
depreciating asset
Is that like “negative growth”?
Not only that, but I was a lot cuter when I was 21. There must be someone out there to pay for this.
Jeesh!
LOL!
“…the dark humor that characterizes many mortgage-industry survivors lately.”
From laughing all the way to the bank at the gullibility of the American Dreamsters to nervously snickering at their own well-deserved financial demise. Karmic justice.
I just noticed a real estate applet on facebook. I went browsing through the Los Angeles properties. Lots of short sales / auctions. Tons of reduced advertised as ‘well below market’, the irony of which has been noted on this blog. I also noticed a lot of cheap rentals. It seems to me, rent is getting a little cheaper in la, if these posts were any indication.
“The higher cap, to be effective until the end of December, would breathe life into housing markets in New York, California and other pricey areas because lenders would feel more comfortable knowing Fannie and Freddie can buy and package the loans into securities that investors consider to be relatively safe”
And who the hell in their right minds would buy these securities knowing what just happened in the markets. Do we not remember the past our aur minds controlled by the media and government.
Stepford World we live in…….
Can’t believe what I just heard from the latest NAR TV commercial…”On average, the value of a home doubles every ten years…” Simply speechless
You can’t expect the used home salespeople to note:
“But we can only hope prices return to 2005 prices by 2017…”
That wouldn’t move the product!
Eventually people will realize they’re lying. Hence why the upticks from RE downturns are so slow. It takes years to bring back the momentum investors. And this time we have the baby boomer retirements…
Got popcorn?
Neil
If you can pick your time period, you can make the numbers look any way you want them to. Count on the NAR to pick their numbers carefully
I a bookstore today I happened across a book with the following cover:
http://tinyurl.com/37sk2n
Next time someone says houses double every ten years - direct them to this photo.
Yeah, real estate only goes up.
That is a haunting image. At least it doesn’t snow in CA (except for the mountains, of course). Even a picture of a lone, empty house looks cheerful under the bright CA sun.
Half the south side of Chicago looks like that, as do many rust belt cities. I’m sure every one of them had their boosters back in the day who thought the future could only grow brighter every year.
Even growing cities like LA have many neighborhoods full of formerly grand houses that have been carved up into slum apartments. West LA is the exception, not the rule. “West LA” used to mean the Vermont and Western corridors, and carried a similarly affluent connotation. Not so much anymore.
and a nickel is about all that house in worth
Wow. Reminiscent of the blitz in London during WWII.
Note to self. Must not be prolific on Ben’s blog at 10pm at night after a really strong gin/tonic (or two).
Hey Ben, thanks for your blog…………..I do direct people to it who insist on arguing with me about today’s housing……..:-)
I have just registered with an employment service to find a new job and spent about two hours talking to the executive placement rep at the company. I addition to talking about job prospects in the area, we talked a lot about the kind of people who have been coming through the door in the last six months.
She told me about the unbelievable number of former Realtors and mortgage brokers who are looking for work. According to her, these people have no skills to speak of (most can’t even really operate a computer) and are asking for a minimum salary of $80,000 / year to start. Needless to say, she has not been able to place any of them in jobs at that range. Most wind up empty handed, but the more realistic (and skillful) have been placed in jobs like administrative assistant at $12/hour. Very telling.