It Will Soon Be Raining Shoes
Some housing bubble news from Wall Street and Washington. Reuters, “Corporate America is pouring money into the U.S. presidential campaign at an unprecedented rate, with a torrent of donations coming from the businesses behind the subprime mortgage crisis. Facing a government crackdown over predatory lending and a troubled housing finance system, Wall Street and the real estate industry were among the top political givers in 2007, a campaign finance watchdog group said on Sunday.”
“Leading all corporate donors in campaign donations as of the end of last year was investment banking giant Goldman Sachs, based on an analysis of Federal Election Commission records, the Center for Responsive Politics said.”
“The next four largest corporate donors were Citigroup, Morgan Stanley, Lehman Brothers and Merrill Lynch, according to the center’s fourth-quarter preliminary analysis, which is subject to revision.”
“Senators Clinton and Obama have each taken in more than $5 million from securities and investment firms; Republican Mitt Romney, over $4 million, and rival John McCain, $2 million.”
“Real estate has not been far behind, donating $4.8 million to New York’s Clinton and $3.7 million to Romney, the former governor of Massachusetts.”
“Illinois’ Obama has raked in $2.7 million, and Arizona Sen. McCain $1.9 million from real estate interests including mortgage brokers, homebuilders and property developers.”
The San Francisco Chronicle. “Congress is set to rush through an increase in the mortgage loan limits for Fannie Mae and Freddie Mac (and Federal Housing Administration insurance, too) - from $417,000 to $729,750.”
“Those same lawmakers won’t mention the fact that they get paid far more by real estate lobbyists than they do from our Treasury.”
“I’ve spoken with borrowers who stopped making mortgage payments seven or more months ago. None has received a default notice. Defaults may be much higher than banks are letting on. The data lags are growing suspiciously long. Nobody knows what’s going on. Seven months without making a single payment!”
“Will Fannie guarantee those loans because they aren’t in formal default yet? Nobody wants to know, because if they know, they might be called to testify next year. That’s why lawmakers want to raise the limits now and ask questions later.”
“In support of the economic stimulus bill, Bush will have to face ‘working American families’ and explain that some of their tax money is going to be spent guaranteeing $730,000 mortgages on $1 million homes. It’s like some sort of upside-down communism where the poor pay the rich welfare.”
“Why should taxes from families earning $48,000 a year be used to support expensive mortgages in New York, Los Angeles and San Francisco? Welfare for the hungry and homeless is evil, but welfare for million-dollar homeowners facing a tough refi … well, that’s called ‘helping the economy.’”
“I can imagine the president’s radio address playing in the heartland: ‘We have some families with million-dollar homes on the coasts who are really hurting and so we need you, the working families of America, to stand together with them and help them avoid the kind of home price depreciation that might leave them without a new Lexus for years.’”
The Ventura County Star. “For the past few months, America’s subprime mortgage drama has dominated the news, but its threat to the overall economy puzzles some people.”
“If mortgage providers unwisely extended credit to unqualified borrowers, they must refinance or repossess the properties, as they have in the past. Why on earth would this situation threaten the world economy?”
“Banks package their loans into financial products like Collateralized Debt Obligationss, selling as investments the cash flow and interest profits from the mortgages. Theoretically, this dilutes default risk through diversification; many different types of loans are mixed together.”
“How does such an instrument end up achieving the exact opposite of its intended outcome?”
“Our knee-jerk response is to quote Berkshire Hathaway Vice Chairman Charlie Munger: ‘When you mix raisins with turds, you’ve still got turds.’ But bad loans are just bad loans, even if banks make more bad loans than usual.”
“Knowing that subprime mortgages were pigs, bankers applied enough lipstick and rouge to make the loans attractive to investors. But the banks made these packages so attractive that they bought them from each other. CDOs were invented so banks could transfer risk and earn fees in the process, but when banks started issuing multiple CDOs based on the same securities and buying them from each other, things got out of hand.”
“Those watching the subprime debacle and waiting for ‘the other shoe to drop’ are in for an unpleasant surprise: it will soon be raining shoes.”
From Business Week. “We’ve been reading a lot lately about how subprime mortgages have submarined the economy. But, while there’s no denying the subprime problem, on closer look it’s clear that even prime borrowers were taking on more debt than they could afford.”
“How bad is it? In Arizona, between the third quarters of 2006 and 2007, there was a 902% rise in foreclosures started against homeowners who had prime adjustable-rate mortgages, known as ARMs, according to the Mortgage Bankers Assn.”
“ARMs, whether prime or subprime, are the real culprit in the housing crisis because they’ve allowed too many people to buy homes with almost no money down, with the hope that they could flip the properties or have rates drop before the loans reset.”
“The rise in prime ARM foreclosure starts isn’t isolated to a few states. Nationally, foreclosure starts related to prime ARMs jumped 253% in the third quarter of 2007 when compared to a year earlier.”
“‘The fact is the pain of the changing real estate markets is affecting more than just subprime borrowers,’ says Keith Gumbinger, VP of a financial information publisher. ‘It’s more important to think of it as perhaps an ARM problem and a rate reset problem, not just a subprime problem.’”
“Arizona, Florida, Nevada, and California, which all had the greatest rise in prime ARM foreclosure starts in the third quarter of 2007, also have a heavy concentration of investor-owned properties.”
“Maryland prime ARM foreclosure starts increased 229% during the 12 months ending in the third quarter, 2007. Virginia, which like Maryland includes high-priced Washington, D.C., suburbs, had a 369% year-over-year increase.”
“Oregon, Massachusetts, and New Jersey also saw huge jumps in such foreclosure starts, in part because buyers with good credit in those states used ARMs to pay for homes that might otherwise have been out of their reach.”
“Of course, nobody would be complaining about ARMs if home prices were still rising.”
“‘There was so much competition for mortgages over the last couple years that the definition of prime became less and less stringent,’ says Addison Wiggin, publisher of Agora Financial, which publishes investment advice for individuals. ‘Even in the prime market, you had people taking on larger loans than they historically were able to handle.’”
“One type of mortgage that was popular with prime borrowers during the boom was the so-called option ARM. As a result, with unpaid interest accumulating and house prices falling, some homeowners have seen the equity in their homes disappear and even head into negative territory.”
“Jay Brinkmann, the Mortgage Bankers Assn.’s VP for research, says the slumping home prices simply uncovered problems that borrowers could sidestep in the days of home buyer bidding wars and double-digit annual price increases.”
“‘Before, if somebody had a divorce or the main wage earner was injured and couldn’t work, or some other issue, you would not have seen it because they would have sold their house and satisfied their mortgage, ‘Brinkmann says. ‘Now if there’s still the same level of job loss, more of those people end up in foreclosure because they can’t sell.’”
“‘The magnitude of the [prime ARM foreclosure start rate] increase is somewhat large because we had a lot of activity in the last few years,’ says Robert Kleinhenz, deputy chief economist with the California Association of Realtors. ‘We thought the prime side of the market would be a steadying influence and what we had to focus on is the subprime market. That’s not exactly true as the events are unfolding.’”
“Mortgage bankers, industry experts and nonprofit officials say that the impact of the Option ARM, involving hundreds of billions of dollars of loans, has yet to be felt. And, they say, it will hit prime borrowers and subprime borrowers alike.”
“People like Bruce Rose who never should have got a loan. Rose bought his home in Boston in 1986. After stress and depression forced him to retire as a state employee in April 2006 he ‘maxed out’ his credit cards on his annual income of around $16,000.”
“On medication, he refinanced his debts through the largest U.S. mortgage lender, Countrywide Financial Corp. The new loan totaled $439,000. Rose said he did not know his mortgage broker and Countrywide used a stated income loan, also called a ,liar loan, because no proof of income is required, and that they claimed his monthly income was $12,166.”
“‘If I had known what I was signing I would never have agreed to the loan,’ he said. ‘Now I may lose my home.’” “Rose’s minimum payment rose from $1,200 a month to $2,800 and his loan now totals more than $500,000. He is fighting foreclosure.”
“‘No reasonable lender would have given him a loan like that,’ said Virginia Pratt, a foreclosure prevention counselor at a Boston nonprofit group, who is seeking legal counsel for Rose.”
“Rose’s is an extreme case, but industry insiders say Option ARMs, also called Payment Option ARMs, will be the next chapter in the U.S. housing crisis and could push hundreds of thousands more subprime and prime borrowers into foreclosure.”
“‘So far the public is largely unaware Option ARMs are going to cause problems,’ said Scott Stern, CEO of Lenders One Mortgage Cooperative, whose 100 members originate $40 billion in mortgages annually. ‘But mortgage servicers know what’s looming in the pipeline.’”
“Option ARMs have existed since the 1980s, but according to a U.S. Federal Deposit Insurance Corporation report, as recently as 2002 they were still quite rare.”
“Industry insiders say a skewed system…paid mortgage brokers more to sell Option ARMs than traditional loans. ‘If you’re a broker and you can get $4,000 commission for a traditional loan and $12,000 commission for an Option ARM, which one are you going to pick?’ said Michael Lefevre, CEO of trade group the National Association of Mortgage Professionals.”
“‘This product is suitable for people with a lot of money who are financially astute,’ said David Zugheri, president of First Houston Mortgage, which offers loans in 18 U.S. states. ‘But very few people fit that category and that’s why we didn’t make many of these loans.’”
The Star Telegram. “In the past few months, as elected officials and regulators examine the meltdown in housing, more are focusing on appraisals. These independent assessments of a home’s value are required for every mortgage, and they set the parameters on a loan.”
“Lawsuits have been filed recently against major lenders, alleging that they pressured appraisers to trump up home values so borrowers could get bigger loans.”
“And appraisers are accusing lenders, home builders, mortgage brokers and real estate agents, the major parties who rake in most of the fee income, of threatening to blacklist them if they don’t play ball.”
“‘No place has been immune to inflating the numbers, and bad appraisals lead to bad loans,’ said John Brenan, director of research and technical issues for The Appraisal Foundation, an organization authorized by Congress to set standards and qualifications for the industry.”
“Appraisers have always felt some pressure to deliver the magic number, the appraised value that enables a loan to be made and a home to be sold. But long ago, appraisers worked on staff for a bank or lender, and Brenan says their primary job was to make sure that the bank wasn’t saddled with a bad loan.”
“Today, most of the work is done by independent appraisers, who are usually paid $275 to $400 for each appraisal. And they’re often hired by mortgage brokers, the independent middlemen who bring together homebuyers and lenders.”
“Brokers don’t just gravitate to appraisers who happen to provide higher numbers; they often seek them out.”
“Techniques used to be fairly subtle: a broker would say that an appraisal had to hit a set value and if that wasn’t going to happen, the appraiser shouldn’t do the work. More recently, some brokers have sent out mass e-mails, asking which appraisers would OK the price.”
“‘I have an e-mail that went to 200 appraisers,’ said Pamela Crowley, who has been in real estate since 1970 and has been an appraiser since 1995.”
“She even tells stories of appraisals being altered, with higher values inserted, after the appraiser has turned in the report. Such allegations help explain why investors remain so skittish about the housing problem — it’s hard to tell just how far the market may fall.”
“In an industry survey last year by October Research, a stunning 90 percent of appraisers said they were being pressured to inflate values, up from 55 percent in 2003. Three in four respondents also said they faced negative ramifications if they didn’t deliver.”
“More than 10,000 appraisers have signed an online petition, urging the federal government to step in and stop the abuses that they say are corrupting the system.”
“‘A lot of people have money riding on this, and if a deal falls through, there’s hell to pay,’ said Harry Davis, who’s in Austin and has been an appraiser for more than 30 years.”
“He says that real estate agents are the root of the problem. Brenan points to mortgage brokers, because their numbers grew rapidly and they became a primary source of business. Others say that lenders hold the most responsibility.”
“Big finance companies are key players, too, because loans are bundled into investments sold around the world, with the blessing of credit-rating agencies.”
“The bottom line is that all these parties get paid, and paid well, only if the loan closes. If it goes bad a few years later, well, that’s someone else’s problem.”
“Now that the house of cards is crumbling, the excesses are coming to light. ‘Appraisers are supposed to provide the checks and balances in the system,’ said Brenan of The Appraisal Foundation in Washington. ‘But the housing market was going crazy. It was party time.’”
The New York Times. “Is it finally time to believe in the housing bubble? And how much should the average American care?”
“Barbara Corcoran, real estate maven: ‘There’s a hell of a lot of noise out there right now that would scare anyone away from buying real estate. Not me. I’m yahoo-ing, low-bidding, and snatching up deals wherever I can find them.’”
“So until everyone else decides (always at the exact same moment in time) that the worst is over and it’s safe to invest, I’m grabbing as many over-priced, over-stuffed, and over-rated homes as I can get my greedy little hands on.’”
“Lawrence Yun, chief economist of the National Association of Realtors: ‘All real estate is local, and there are many local variations. As to the bubble, quite a number of local markets have not seen any price decline. The ‘correction’ has been in home sales, mortgage lending, and new home construction, all of which are all down significantly.”
”Some bad lenders have gone bankrupt, and aggressive hedge funds are hurting as a result — and I, for one, do not care. What I do monitor carefully is a factor that matters to consumers and homeowners: home prices.’”
“‘The national median price was 1.1% lower in the second quarter of 2007 than its comparable period the year before. That drop comes after a more than 50% rise in home values during the boom. If people want to call the 1% price decline a bubble collapse, well, everyone has an opinion.’”
“David Lereah, the N.A.R.’s former chief economist: ‘Bubble is the wrong imagery for today’s housing markets. Bubbles inevitably ‘pop.’ A more useful image for the housing markets is a balloon. Balloons expand and deflate.”
“‘It is clear that air has come out of a number of local balloons across the nation, particularly in California, Nevada, Arizona, Florida and some selected metropolitan areas in the Midwest and Northeast regions.’”
“‘From a home sales perspective, the magnitude of today’s real estate downturn is not meaningfully different from our two most recent real estate downturns — 1990/91 and 1980/81…However, unlike real estate recessions in the past, today’s downturn offers two unfortunate residuals — a drop in home prices for the nation as a whole, and a serious run-up in foreclosures.’”
“‘If a national bubble had burst, the nation would have experienced a meaningful double-digit drop in home prices. To date, we are experiencing maybe a 3 to 4% drop, at most. But for some post-boom metros like Las Vegas, Miami, and Phoenix, double digit price drops are not out of the question. So the answer is that there have been some local housing balloons that have popped, but no national balloons.’”
Goldman Sachs &The 4 housemen of the financial apocalypse…
“The next four largest corporate donors were Citigroup, Morgan Stanley, Lehman Brothers and Merrill Lynch, according to the center’s fourth-quarter preliminary analysis, which is subject to revision.”
Hmm..the same suspects that were in the last public statement of Fed ownership from 1982.
Nice, or should I say scary, biblical reference…
‘More than 10,000 appraisers have signed an online petition, urging the federal government to step in and stop the abuses that they say are corrupting the system.’
I posted on this when it happened in 2005. Absolutely no one, no one, in the main-stream media or government even acknowledged it.
And IMO, it’s an important thing to note why, because it highlights why we got in this spot. Everybody; government, media, lenders, trade groups, the whole lot; in the spring of 2005 they all openly praised soaring housing prices as some new national bonanza that would never end.
Funny how they all forgot that.
Revenge is a dish best served cold.
‘Revenge is a dish best served cold.’
…with mustard, and a salad, and perhaps a nice Sauterne. And a napkin, and that napkin should be folded into a swan, because that’s pretty.
You MUST be Jack Handey’s sister….
Here’s what Jack has to say about the FB’s sob stories:
“It takes a big man to cry, but it takes a bigger man to laugh at that man.” - Jack Handey
roflmao
Ben,
The question should be asked, how many everybody; government, media, lenders, trade groups, the whole lot; owns a house? How many of them are just as scared to know the truth? How many of them don’t want the truth to get out? Gawds, I’m beginning to sound like an X-file episode.
I don’t think it matters about owning a house or not. Many of the earliest posters here were homeowners, but they could see that a disaster was forming. IMO, these other players should have as well.
FriscoBayGirl read my mind. I know many owners who owe nothing on their shack who were absolutely, unequivocally, etched in granite betting their entire life on the inflated prices of 04-05. The pain associated with the truth is waaaay too much for them to bear. It’s the best application of the adage “whistling past the graveyard” I’ve ever seen. One year ago we heard arrogant denial from these folks. Today it’s a gnawing fear that just won’t let go of them co-mingled with a minimizing logic that sounds something like “it’s gone down but only a little bit”. I’m talking about folks in the Northeast where many folks economic outlook is quite grim such as under-employed family men who formerly earned a good living in manufacturing or paper making. The denial is more insidious now. “It’s those damn sub prime borrowers” they bemoan yet refuse to acknowledge the entire underlying asset class demand is plummeting.
Sorry but nobody wants your 30 year old shack anymore. They did but only for a small window of time. It’s over now.
They can still sell it for 50-75 cents on the dollar. Any who bought before the bubble, it’s not yet too late.
Bye…
Just how many houses have you sold, lately?
None, I am not a realtor nor do I own a house. But for those that do and still have “equity” they need to undercut the market and get out before it’s all gone.
How do you know you “can sell for 50-75 Cents on the $”, then?
perhaps Bye meant they can “probably” sell for fity to seventy-five cents on the dollar. That is probably true in many places but the reality is that at this point, the sale would be closer to the fifty cents on the peak-price dollar value.
Case in point, I was working in IT during the .COM boom (and then bust). All my friends asked where they should invest, and I always told them “Stay away from tech”, even though, at the time, much of my salary was in the form of stock options (in, of course, a tech company).
Just because you benefit (or not) from something should NOT blind you to the reality of what is actually happening around you. I was enjoying an inflated salary, and the perks of working in IT. Didn’t mean that I thought is was my “right” to earn that kind of money.. In fact, just the opposite, it showed me how skewed the market really was..
Too bad all these RE agents with an IQ of 10 couldn’t figure that out for themselves.
LOL said the same damn thing, probably got hundreds of kilobucks in options among all the places I worked, but not a one of them was above water by the time I either quit or they vested..
I’d tell anyone who’d listen to not put a dime into any of the companies I worked for, the only one I made any money off of was IBM (paid $21/share presplit with employee discount, sold @ $110)..
Many of the earliest posters here were homeowners, but they could see that a disaster was forming.
One could see the disaster clearly was going to happen in the fall of 2003. However, the state of the union address in January of 2003 clearly showed how the president was going to prop up the downturn in the popping of the dot com meltdown with the housing market, which was the basis for the formation of the bubble.
I sold my house in Nov., one year and about 4 months ago. I don’t own a TV, and at that time, I didn’t know Ben’s HBB existed. I wasn’t even on the internet, and I didn’t get newspapers, etc.
In short, I was about as removed from the media as you can get, also from other humans, pretty much (I work in the backcountry). But I did notice prices when I was in town, read the RE mags, and my gut said something was wrong, get out while you can make some money. I sold.
Point being, if I could sense/smell/see it, in my state of isolation, NOBODY has an excuse. Nobody.
Actually, your isolation probably helped! You didn’t get brainwashed from all the media.
Even three years ago I was reading about this in the Elliott Wave subscription I had. No surprise… it’s been noted - just not acted upon.
It was presumed that bubbles were better to clean up after then prevent in the first place.
That may be true for bubbles fed on savings and specualtor cash. It certainly is NOT true for bubbles fed by debt.
In a stock bubble, most of the gains remain unrealized. If people try to realize the gains, it instantly kills the bubble.
This housing bubble, not so much. People were able to borrow against the inflated asset prices, turning the unrealized gain into real spendable cash… at the expense of the banks that can never be paid back.
The .com bubble did not create systemic risk since money going poof was not borrowed. It was just savings going poof. It did not create systemic risk because people weren’t spending that bubble money.
The housing bubble DID create systemic risk because the money as borrowed. It won’t be paid back, and inability to borrow more WILL force consumers to cut back.
Good post Darrell ,and so true . The public was buying debt with overly inflated values to establish the basis of a bogus loan. Same thing happened with the stock market in 1929 when buying on margin was widespread .I say how dare the REIC make the loans they did .
I’m not sure I buy this distinction. Ultimately the borrowed cash came from some investor somewhere. That investor bought a bond using cash, and now that bond is worthless. He is analogous to the investor in a dot-com company and the company itself is analogous to the deadbeat borrower, right down to the unsustainable parties thrown with other people’s money.
“The next four largest corporate donors were Citigroup, Morgan Stanley, Lehman Brothers and Merrill Lynch, according to the center’s fourth-quarter preliminary analysis, which is subject to revision.”
“Senators Clinton and Obama have each taken in more than $5 million from securities and investment firms; Republican Mitt Romney, over $4 million, and rival John McCain, $2 million.”
“Real estate has not been far behind, donating $4.8 million to New York’s Clinton and $3.7 million to Romney, the former governor of Massachusetts.”
Sounds like my earlier question is answered (Which candidate is most likely to clean up the real estate mess?) by this information: NONE OF THEM.
I saw on, I think it was Fox, a short report that Ron Paul had collected more campaign donations from indiviudal donors than any other Repub candidate (I assume the same is probably true comparing him to Dem candidates, but I don’t know).
While that fact is interesting, its more interesting IMO to consider that the likely winners (Romney,McCain) are bought by other donors; special interest groups, corps, industry interest groups, etc. The candidate who individuals most support (in terms of dollars contibuted, not votes) doesn’t have a chance of course.
America has been for sale (lease?) for a long time. Right now it seems the financials are the winning bidder. Individual citizens are out of the running.
It’s government of the corporations, by the corporations, and for the corporations.
The same with Edwards. He decided early on not to take the huge corp donations. His is all from the “little people” us.
too bad we can’t choose from a more diverse crop
Ron Paul?
Ron Paul.
I would rather vote for Ron Paul than vote for any of the other candidates. Media tells us that it’s either clinton/obama or romney/mccain. There are other candidates, but the media is steering the sheeple towards one of these, and appears to be rather giddy when it’s queen hillary or prince obama.
If the two front runners mentioned above from either side is all i have to choose from by next Nov elections then I’d rather vote for BOBO the monkey!
Go Ron Paul!
“then I’d rather vote for BOBO the monkey!”
Do you have a link to the website?
“So until everyone else decides (always at the exact same moment in time) that the worst is over and it’s safe to invest, I’m grabbing as many over-priced, over-stuffed, and over-rated homes as I can get my greedy little hands on.’”
Instead of grabbing your ankles?………. either way.
Yoga!
Leigh
That worthless bag is a regular on the Today Show. She pretty much sums up what we’ve all come to adore in rah-rah realtwhores. Just once I’d like to see Matt ask the right questions. Perhaps after the suffering becomes impossible to ignore.
“I’m grabbing as many over-priced, over-stuffed, and over-rated homes as I can get my greedy little hands on.’”
Future FB sob story in the MSM
We have no proof that she is really buying these properties . For all we know Barbara is pumping up people to buy her overpriced shit-boxes .
why would anyone want to grab an over-priced home?
This will be like something the country has never seen before, and years ago people did not believe the predictions, they did not see the common sense but very simple…when you have millions of property owners purchasing way beyond their means, and all of them must let go of their home(s) within same 1-10 year time frame, it is a recipe for disaster that no pres. candidate will be able to save them from…there were many 10 yr interest only loans taken out as well, heck, I was almost one of them! For the first time, I am proud to be a renter. Thank goodness I cannot seem to get along with any realtors or lenders or I would be stuck in a hole today. Just cannot tolerate the bologne they dish out.
You hear about companies (say auto manufacturers) using promotions to time shift sales from the present into the future. It occurs to me that the US economy has done this on the grandest scale possible. Through the use of (temporarily) cheap debt, we have time-shifted huge volumes of economic activity (consuming) forward. It’s time to pay the piper- we’ve already booked a lot of activity that would normally have occurred this, and in upcoming years.
Adding to the problem, not only has economic activity been shifted into the past; but by financing it, we’ve reduced it- resources being used to service that debt rather than for additional sales.
$600 rebate checks ain’t gonna fix this. We’ve been in a consuming bubble; and just like the housing bubble, it’s collapsing under it’s own weight.
Doh! that first sentance is exactly backwards. Should read “from the future into the present”. Apologies to all…
Not to mention time-shifting profit from deferred interest from the future to the present. Or time-shifting five years for demand from the future to the present (2003-2006).
Every CEO has done this to make the balance sheet look good collect the platinum parachute, and get the heck out of Dodge.
And we’ve done the same with natural resources like CO2, water, oil.
We’re toast.
Carbon dioxide is a natural resource? Yes, of course! You need it for carbonated beverages. Every green plant would die without it. What’s the futures symbol for it? I wanna buy some March calls unless a bubble
has already formed.
And WHY would “I” want to use that $600 for paying off bills when I could
1.save
2. buy something I really need, spa wknd. (lol)
3.and so on..
but seriously,the numnuts who will use that dough to pay a bill are nuts. That is money in the hand when they obviously do not have money in cash form.HIDE IT.
“Will Fannie guarantee those loans because they aren’t in formal default yet? Nobody wants to know, because if they know, they might be called to testify next year. That’s why lawmakers want to raise the limits now and ask questions later.”
Without knowing the details, this sounds like a measure intended to move toxic debt liabilities off the books of the private corporations responsible for creating it and on to Uncle Sam’s already-stressed balance sheet. For many reasons discussed here at length, the prospects of this plan working seem dubious at best.
Above all, it makes absolutely no sense to put in place an insurance program once the proposed insured event has already occurred. By analogy, there would have been no rationale for creating a federal hurricane insurance program to insure all New Orleans households in the months following Hurricane Katrina. Once homes (or the mortgages which fund ownership thereof) are underwater, insurance is not a viable option.
“Above all, it makes absolutely no sense to put in place an insurance program once the proposed insured event has already occurred.”
Excellent insight, PB!
An Option One representative stopped by my neighbors Sacramento house last month. The rep was surprised to see the occupants were renters, not owners, since the loan was approved 9 months ago as Owner Occupied financing. The buyers paid $670,000 and got $50,000 cash back at COE. Now that the market value is $400,000, they quite making the payments and listed it for sale at $519,000 (idiots… priced to sit). My guess is the Option One directive from above is to find all these Spec-vestors who filed for O.O., cash back loans and go after them for fraud, making the loan recourse. It is worth about $250,000 to $300,000 to Option One in this case and the borrowers can pay it, though it should finish them off for a while, because they did it twice on the same block!! If anyone knows an Option One wholesale rep or loan officer, will you check into this and report back to us? Here-to-fore I have never seen a loan rep canvassing the defaults. Also, Option One has NOT filed a public NOD, maybe to keep the issue hidden. It is going to get very interesting in 2008. Soon, people will be saying, “I am never going to invest in SFR houses ever again.”
The loansharks should enlist a citizen’s informant network! Know any deadbeats? Turn ‘em in to us for a bonus!
Question: If you’re taking out a mortgage and say you’re going to live on the property, but you rent it out instead, isn’t that mortgage fraud? I seem to recall that investment property loans are a bit pricier and have more restrictions than residential property loans.
Anyone care to bring me up to speed?
I should think that would qualify as fraud. However, not all forms of fraud constitute criminal activity. Depending on state law, It might be something that only the lender could enforce through a lawsuit, which of course isn’t going to do them much good against an underwater FB. In other words, I expect most of the lying SOBs to get away with it.
When I bought in 95 it was as a 1031 exch and then I couldn’t find a renter…I had to live in it. Fraud?
WOW! Your posting says it all…the fraud is endless.
Bear, Excellent post !!
“Above all, it makes absolutely no sense to put in place an insurance program once the proposed insured event has already occurred”
2 words my friend. Election Year.
“To date, we are experiencing maybe a 3 to 4% drop, at most. But for some post-boom metros like Las Vegas, Miami, and Phoenix, double digit price drops are not out of the question.”
Sorry to learn he has taken to drinking since leaving the NAR.
What’s to say that he’s not feeling the after-effects of the NAR Kool-Aid? That stuff is pretty strong.
Something that has already happened is “not out of the question”.
I suppose the 3-4% drop may have been true when the article was written (August 2007), but it’s certainly much more than that now. BTW Ben, what’s the significance of posting this article now?
“‘If a national bubble had burst, the nation would have experienced a meaningful double-digit drop in home prices. To date, we are experiencing maybe a 3 to 4% drop, at most. But for some post-boom metros like Las Vegas, Miami, and Phoenix, double digit price drops are not out of the question. So the answer is that there have been some local housing balloons that have popped, but no national balloons.’”
He talks about this like it’s a thing of the past and he’s characterizing it for the history books.
It’s like the captain of the titanic saying “the iceburg hit wasn’t all that bad or we would have taken on water much faster” a half hour after the iceburg hit.
Good call skippy. Go back to school.
I like how he says that bubble isn’t the right term for the housing markets, that ‘balloon’ is, because balloons ‘expand and deflate’ rather than pop. He then goes on to say that “there have been some local housing balloons that have popped”. Even retired, he can’t keep his own BS straight…
Those guys should write for the Onion. Their statements read like satire.
I hate to say it, but I may have to agree(some) with his analogy. When the tech bubble “popped” there were huge losses literally overnight in many cases.
With housing, it seems the Fed is choosing to follow the Bank of Japan’s lead and send us into a protracted deflationary cycle(in housing) instead of “ripping the bandage off quickly with one hideous scream.”
So the imagery of a balloon, say one of those big weather balloons you can get from Edmond Scientific, deflating vigorously with a brazen, trumpeting flatulence, may be very fitting indeed.
Of course this doesn’t change the fact that this idiot apparently thinks this is something that’s already behind us and it’s all smooth sailing from here on out….
Once again, this blog reduces me to a much-needed fit of laughter.
Here here! The people on here are a great source of reassurance and humor(not to mention information) for me as well! I enjoy giving back whenever possible….
Someone should remind Liereah that the Hindenburg was a balloon.
Oh hell, was that LIErah that said that? I guess I should have read it closer. Well then. Maybe I should take that back?
I mean after all, he’s an expert, right? He is the former chief economist for the mighty NAR, so he would never lie about anything related to real estate, right? He couldn’t possibly ever be second guessed by some unannointed bloggers on the internet right?
After all, I’m sure his track record is impeccable when it comes to predicting events in housing/RE, right?
I mean that’s why the media always swarmed to him for his opinion - he’s the EXPERT. Bone fide, graduated cum baya and all that, right?
It’s not like a bunch of bloggers are on record being 99.9% more accurate about where the real estate “situation” was heading, years in advance or anything like that…..
I for one am a bit surprised at his relative silence. Wasn’t he hinting that he would let the cat out of the bag, so to speak, once his tenure at the NAR was over and done with?
I don’t remember anything about that, but that doesn’t mean anything since I don’t follow the guy closely at all. I wonder if that “Learahwatch” site is still around - if anyone would know they would…
“trumpeting flatulence”
That is a great description of a realtowhore propaganda/cheerleading I have ever heard. Concise and accurate……I wish I thought of it.
“brazen, trumpeting flatulence”
OMG! Funniest thing I’ve ever read.
I wonder why he chose a balloon as an image? Balloons also pop and they’re much louder and scarier than bubbles when they do. Bubbles are cute and floaty. Anyway, whatever happened to the “souffle” meme?
Jeez…he’s as bad as Greenspan, whining and needing to be noticed. Trying to explain away the horrific shit that happened on his watch.
balloons don’t pop.
What an idiot.
“On medication, he refinanced his debts through the largest U.S. mortgage lender, Countrywide Financial Corp. The new loan totaled $439,000. Rose said he did not know his mortgage broker and Countrywide used a stated income loan, also called a ,liar loan, because no proof of income is required, and that they claimed his monthly income was $12,166.”
He obviously knew he could never repay the loan in his lifetime, but took the money, anyway.
Where’s the money, Bruce? What did you do with the money? Have a nice party? Lot’s of new stuff??
You need to pay it back or give up the Collateral, your house. Pay the debt you owe.
This story is unbelievable. He never knew the “stated income” was $12,000 per month???
Yea, I believe that one. His medication has him in a blur.
These thieves need to be treated like the bank robbers that they are.
No, he’s a “physically challenged” victim, who needs Hillary to save him. After all, his annual income (read, lifetime compensation) is only 16k, and how can anybody enjoy Jerry Springer without a really BIG plasma?
“People like Bruce Rose who never should have got a loan. Rose bought his home in Boston in 1986. After stress and depression forced him to retire…”
Yeah, and it was probably stress and depression which “forced” him to sign those mortgage papers.
And I always find it odd that these people are cashing out the ENTIRE “value” of the house. Did anybody cash out, say, half the value, just enough to pay for the medication but no toys?
I read one — one — story about a couple who was comfortable only cashing out what they paid for the house and not the appreciation. Smart people.
“David Lereah, the N.A.R.’s former chief economist: ‘Bubble is the wrong imagery for today’s housing markets. Bubbles inevitably ‘pop.’ A more useful image for the housing markets is a balloon. Balloons expand and deflate.”
When you are down to parsing whether it’s a housing bubble or housing balloon, you just might have run out of things to say…
I hate to break it to David, but balloons do pop, a lot of the time.
Yes they pop, when they hit the upper atmosphere… See the case-shiller chart?
dumbass.
“…It’s like some sort of upside-down communism where the poor pay the rich welfare.”
In California, this way of “thinking” has resulted in the building & financing of a great societal needs: Toll Roads & Sports Stadiums
Welfare:
“a governmental agency that provides funds and aid to people in need, esp. those unable to work.”
http://dictionary.reference.com/browse/welfare
Rich people don’t look good when they sweat, that says a lot about their sex life…hey who said that…Jean Simmons?
“It’s like some sort of upside-down communism where the poor pay the rich welfare.”
Hasn’t that been the Bush administration’s strategy all along?
Exactly, and in exchange the poor get $8/hr service jobs for the rest of their lives. We should all feel blessed that trickle-down Reaganomics is alive and well.
“Trickle down economics is where the rich……trickle down all over the poor and middle class.” -Weird Al
The New York Times. “Is it finally time to believe in the housing bubble? And how much should the average American care?”
Pull your head out of your ass, NYT.
One can clearly hear a mocking tone in those questions. Is it really in the NYT’s best interest to urge its readers to slumber through such a huge event?
When they depend on real estate for most of their revenue? Of course it is.
Self invalidation by the NYT as a news source. We all expected it and here we are. Hmmph.
Thought I saw a UFO, but it was just a housing balloon…
“David Lereah, the N.A.R.’s former chief economist: ‘Bubble is the wrong imagery for today’s housing markets. Bubbles inevitably ‘pop.’ A more useful image for the housing markets is a balloon. Balloons expand and deflate.”
“In support of the economic stimulus bill, Bush will have to face ‘working American families’ and explain that some of their tax money is going to be spent guaranteeing $730,000 mortgages on $1 million homes. It’s like some sort of upside-down communism where the poor pay the rich welfare.”
Isn’t this the darn truth. Why on EARTH do we want an agency designed to setup “affordable” lending touching loans for 3/4 of million dollars? If your buying a 750K home, you should be making about 200-300K a year. And these people need a taxpayer subsidy? That’s just total horses__t, and one that more people would jump all over if they realized how much income it really takes to run a 3/4M dollar home.
Frankly, even 400K is too high, that’s lowering loan prices for people making 100-150K; again, not exactly low income.
And, before anyone says it (that it’s not a subsidy), just can it already. If Fannie was paying market rates for the loans there would be NO need for them to exist, because, of course, the market would just absorb all the paper. This is a govt subsidy, no matter how you want to look at it, albeit one that has been profitable (well, who knows) in the past.
Given the current climate, they are NUTS to push these guys to underwrite more; in fact, they should be doing exactly the opposite (raising standards, pulling back on lending amounts). Of course, that doesn’t fit in the model of “ever increasing debt spiral of doom”, so we don’t like that..
But that is what the CrimeSyndicate running this country has turned things into. A means to benefit the wealthiest by burdening those with the least.
Nice system huh?
exeter, you may want to check your sources. As of now, it’s the Republicans that DO NOT want to increase the Fannie limits, and the Democrats who DO. Now why would the Democrats want to increase taxpayer bailouts for people living in million-dollar houses in California, New York, and Massachusetts? Hmmm, I wonder.
Denial doesn’t help you anymore than FB’s. When billions in treasury robbing tax “cuts” are bestowed on the wealthy elite while shifting the burden J6P, there is little in the way to defend the insane policies of the white house crime syndicate.
Slick. He never even acknowledged his error. Typical liberal.
But, how likely is this?
The walk away revolution has begun.
Perhaps their mandate should be changed from promoting affordable housing to promoting low priced housing. Most of us here understand they’re the same thing. TPTB seem to think high priced + crazy financing is a suitable substitute for affordable.
It’s to bail-out the banks and wall street people, not to help the proles.
Exaclty, it bails out the lenders.
“In support of the economic stimulus bill, Bush will have to face ‘working American families’ and explain that some of their tax money is going to be spent guaranteeing $730,000 mortgages on $1 million homes. It’s like some sort of upside-down communism where the poor pay the rich welfare.”
He’ll never face ‘working American families’ unless his handlers decide to let them into one of his pre-screened audiences.
OTOH in a year he’s no longer in office. Who cares what his fate is then. His handlers will melt away in the night. Then he can babble all he wishes, who’ll listen?
“But for some post-boom metros like Las Vegas, Miami, and Phoenix, double digit price drops are not out of the question.”
Yeah, especially considering they’ve already happened, asswad.
What a moron. I was looking at homes the other day; and every SINGLE one of them was down 10+% (wishing prices) from the last sale. Actual selling prices in S. FL are definitely down close to 20% in most areas. Give it time, we will be down 30% before the end of this year, I have absolutely no doubt.
Looking at the listings here in SD, I’d say about 40% or better are underwater from what the paid — looking at the tax info, many of these people are asking 350 on a house they paid 500 for, 599 on a house they paid 750 for, etc. — so those aren’t even wishing prices, they’ve already come down 20-30% from what they actually sold for! And they will come down much much more.
“…in for an unpleasant surprise: it will soon be raining shoes.”
Dang it…there goes my rain to hail motto…From what I observed lately…most “shoes” come from China…there must be a connection between Wal-Fart & those silly little commies…I wonder if they are an “Olympics” corporate sponsor?
“David Lereah, the N.A.R.’s former chief economist: ‘Bubble is the wrong imagery for today’s housing markets. Bubbles inevitably ‘pop.’ A more useful image for the housing markets is a balloon. Balloons expand and deflate.”
See what happens when you pay illegal immigrants to set up your childs birthday party…you never learn… the balloons too can “POP”
“A more useful image for the housing markets is a balloon.”
Wasn’t the Hindenburg dirigible a sort of balloon? Apparently, not all balloons gracefully deflate.
http://www.youtube.com/watch?v=F54rqDh2mWA
Balloons, however, make lots more noise than bubbles when they pop!
Sort of like those weather balloons from Edmund Scientific?
Balloons make a HECk of a noise, lots more than bubbles.
You got that one right.
I despise Barbara Corcoran. She is not human. Keep buying Barbara and keep flapping that giant sub-human mouth of yours.
Genus: Real Estatus
Species: Shillus Extremis
She’s Suzie Orman’s long lost, even more unwatchable twin.
I wonder if she’ll be considered an expert once she declares bankruptcy ?
Bankruptcy sure doesn’t stop Donald Trump!
I have to agree about Orman. Her books have a few good sections with checklists for women. Get a lawyer, get insurance, set up X financials, etc. Good advice, actually. I recommend checking out her books — from the library.
It’s when she goes into her Oprah mode of empowerment, and tells us not to “fear” money that I start thowing bricks at the TV. Positive thinking and empowering yourself ain’t gonna help when you make minimum.
amen oxide.
PT works when you are at the gym and you want to go home.
“…Welfare for the hungry and homeless is evil, but welfare for million-dollar homeowners facing a tough refi … well, that’s called ‘helping the economy.’”
One way or another… it comes down to distribution of individual taxes:
Re: ““Why should taxes from families earning $48,000 a year be used to support expensive mortgages…”
Remember? (And as Prof Bear noted: include & add with that 34% group… those tax paying US of A renters!)
“Federal aid ‘would come at a cost,’ said Douglas Duncan, chief economist at the Mortgage Bankers Association. ‘It has to be paid for and the question is would the 34 percent of homeowners who have no mortgage be willing to pay taxes to support the bailout of people who traditionally have not managed credit well?’”
Yest a year all a person knew about buying a home was how much down and if the loan was for 15 or 30 years you got a book in the mail and made sure the payment got there by the 15th of the month end of story.
Today it is all about arm’s,sub-prime,write downs,1yr,3yr 5yr loans,little or no down,comps,short sales,hoa dues+ the word nobody ever wanted to hear forclosure. Welcome to the 21st century where in debt and forclosure are now in vogue instead settled down and payoff date?
Oh, I think those things will be back in vogue, and sooner than you think.
the whole real estate system needs to go to a paycheck-over-time deal. if the homeowner has to make payments for years, why not make all the parties involved in the transaction accept similar time-structured graduated payments for their services over a set time period? what got everyone so effin greedy & reckless was the huge bags of money dangling over the closure, payable right away, with no long term responsibilty by anyone except the borrower. that needs to change or everyone just stop whining & pointing fingers because they are all guilty.
I say make all the agents, brokers, appraisers,etc, accept a down payment for services rendered, then give ‘em the rest later in payments. heck, I’d even make the payments small to begin with then rise to a much larger ballon-type final paycheck later, say 6-9 months . . . or longer depending on the amount involved.
there will never be meaningful change until the huge instant rewards are taken away. of course that will never happen, as too many players with political clout are involved, but something substantial has to change to avoid a repeat of this mess in the future. the current system just grossly enriches too many short term deal makers with no lasting responsibility for the outcome.
hillaryious - actually
“I’ve spoken with borrowers who stopped making mortgage payments seven or more months ago. None has received a default notice. Defaults may be much higher than banks are letting on. The data lags are growing suspiciously long. Nobody knows what’s going on. Seven months without making a single payment!”
If an FB doesn’t receive a NOD, does it make a sound?
Well, it probably should come as no surprise that has been utter chaos in the financial world this past year.
Still, one has to wonder how banks that can’t send a NOD in seven months still manage not to miss charging a single overdraft fee.
edgeh20john
damned spot-on observation about the not ever missing an overdraft charge. ironically hilarious, isnt it , how business’ charge us consumers financial penalties for any reason yet we the people are forced to take an ” apology ” from said corps over any of their wrongdoing.
I tell ya its such BS that the relationship between buyer & seller is setup to heavily favor the company in disputes. been yammering on forever to my spouse that if the day ever arrives (HA!) when corps are forced to financially compensate consumers for their non-performance, ie; slow/bad cust service, delayed returns from IRS( govt bs also) and the like, then & only THEN will you see some serious improvement from our overlords.
I say whats good for the goose is good for the gander: since the consumers must pay penalties in cash, force the bidness’ /govt to pay US cash in return for any BS they perpetuate. I know, good luck with that, but measurable results & not empty promises are what gets action.
(ya know, just to rant a bit further, what really sucks about modern times is that most people aren’t asking for anything extraordinary, or special …. they just want decent, reliable, civil treatment in their everyday affairs. and they can’t even get that! Hell, you have to become an expert in virtually every facet of yer life nowadays just to keep from getting ripped off. and that’s what has people in such an uproar regarding this whole housing mess: the so-called real estate industry experts, from top to bottom, who previously could be trusted to give us a square deal on the BIGGEST MAJOR PURCHASE of our lives, have instead given in to unbridled greed and taken advantage of the american public without a second thought, hesitation, or moral misgiving. no apologies offered, just finger pointing & buck passing to shift the blame. wall street metality at its finest. so admirable.
What a sad, sad trend this country has ridden into the ground. is there any hope for an honest citizen to have a good life in the future without getting ripped off at every turn?! at the rate things are going it doesn’t look promising)
just my 2 cents. 3 if you add inflation.
rant off - for now
This is the downside to a highly organized society, that has the computing power and the man-hours to try and wring every last cent of potential profit from every transaction.
One of the six-hundred-odd commandments of the Torah is a mandate not to cut your wheat all the way to the corners of your field — the idea being that the poor can come in afterwards and pick up what you missed. Not a bad concept — especially since, in order to squeeze out the last drop of profit, you often have to leverage yourself up so much that if something goes wrong the whole system can fly apart.
“Lawsuits have been filed recently against major lenders … And appraisers are accusing lenders, home builders, mortgage brokers and real estate agents, the major parties who rake in most of the fee income, of threatening to blacklist them if they don’t play ball.”
And falsified income statements and alleged cash-back schemes and broken contracts and sub-standard construction, and fraud, misrepresentation, greed, corruption, ad infinitum…
Arise legal eagles…I see an enormous flock of fat, stupid pigeons!
Credit. What a boring day. Been asleep all afternoon.
http://www.minyanville.com/articles/C/index/a/15790
I need a couple more Dow down days like this.
“…as weak credits tend to draw down available lines first…”
Those with marginal finances are indeed amongst the most heroic of consumers, stepping into the breach with borrowed money.
“ARMs, whether prime or subprime, are the real culprit in the housing crisis because they’ve allowed too many people to buy homes with almost no money down, with the hope that they could flip the properties or have rates drop before the loans reset.”
FINALLY! Somebody gets it. Businessweek is one of the few MSM who at least tried to be a voice of reason.
Yes, but even ARMs aren’t a big problem when you can afford the price you paid for the house. The real culprit is people borrowed too much money and put way too little down on houses whose prices were way too high.
“Leading all corporate donors in campaign donations as of the end of last year was investment banking giant Goldman Sachs, based on an analysis of Federal Election Commission records, the Center for Responsive Politics said.”
“The next four largest corporate donors were Citigroup, Morgan Stanley, Lehman Brothers and Merrill Lynch, according to the center’s fourth-quarter…”
This is outright disgusting. Yet it has been going on for years and years. Anyone who knows the written work of the economist Mike Hudson knows his infamous lecture about turning homeowners into modern day serfs. But what’s more interesting is that he mentioned that the financial and lending industry are some of the biggest contributers to political campaigns. What’s more is that something close to 75% of all the money tied to banks is from mortgages. Correct me if I mis-quoted that, but I recall it being a surprisingly high percentage.
On any count, I had hoped that initially, the Democrats would have some sort of realistic political agenda. But all of them seem hell-bent on “saving homeowners”. So I hope they realize just how many people like me, who is less partisan and more financially practical will NOT be voting for them for the primary issue of saving people who do not deserve it and making lame attempts at salvaging a perilously corrupt system.
I have no clue as to whom I will vote for now because frankly, I’m now under the impression that ALL politicians are scum, easily swayed by external interests.
Welcome to the matrix.
There are many levels below the one you just discovered.
(FWIW - Ron Paul is the closest thing to Neo there is nowadays)
Re:”I have no clue as to whom I will vote for now because frankly, I’m now under the impression that ALL politicians are scum, easily swayed by external interests.”
Very true for sometime now. I usually vote Demo but now with all the Demo’s trying to “save housing” it amounts to little more than nationalizing housing. The gubmit already subsidizes much of housing as it is and now they want all in with this raising of the limits for FNMA and Freddie. Look for new tax incentives on real estate sometime in late 2008 early 2009. They are doing everything they can to reflate without realizing that it will break the bank and leave us ALL destitute!! I say vote for McCain as he seems the lesser of all evils at this point.
frankly, regardless of who is saying they are going to “save housing”…when someone gets into office, aint nothing gonna happen.
SOS and I don’t mean save our ship.
Watching cranes lift trees off condos today after wind storm.
This is an upscale neighborhood, I wouldn’t really wish this on anyone, but only IF it were to happen to seriously upscale neighborhoods instead of low income zones, perhaps.. no wait, nothing would happen.
LIke a few people, don’t like that to get into office you have to be paid off.
JUST 6Dollars.org
just an idea.
At least we’re not alone - we have each other FWIW. It’s not so much that they’re all scum, it that the only one’s who get play in the media biz are the ones who are easily swayed BECAUSE they are easily swayed and will do the bidding of the PTB(powers that be for newbies).
Yes, welcome to the Matrix. Can I be the Merovingian? I hear it’s a lot of fun to swear in French, and I really dig that GF of his….
Yes, welcome to the Matrix. Can I be the Merovingian?
You do realize he frequented clubs with a distinct Fetish/S&M flair right? Not that there’s anything wrong with that…
I met a guy at lunch today who is studying accounting at our campus, and has been a forensic accountant at a private firm in the Riverside area for some time. I told him to check out the blog and that we’d love his insights. Some of the things he told me from his investigations into pools of loans:
* Mortgage brokers were often selling the same person 4 houses and getting a loan from each of 4 lenders, telling them when they inquired that the person was just shopping the loan around (but in reality was taking the loan from each).
* Mortgage brokers were applying one downpayment check to each of the 4 loans (just photocopying the same check!)
* In a pool of 500 loans, there was fraud by the broker or borrower in each one.
I hope he can tell us more!
Seriously, I’d love to meet the guy. I practice law in Orange County, the Pentagon of the REIC, and I would love nothing more than to find a lead plaintiff for a novel private-attorney-general legal theory I’ve been researching.
All I need is someone with firsthand knowledge of mortgage fraud (either through research, like your newfound acquaintance’s, or through having worked in a shady mortgage shop) that resulted in fraud-tainted loans ending up in one of certain securitizations. If the theory is correct, I think we have a mechanism to push a whole lot of wavering lenders out of their present white-knuckled denial and completely off the cliff. (Taking lots of their ill-gotten money in the process, of course.)
them avoid the kind of home price depreciation that might leave them without a new Lexus for years.’”
I can see the realtors saying, Oh no! you can take my house, but don’t take my Lexus LS 460 or LS430, it’s the only thing I can afford to make payments on!
“David Lereah, the N.A.R.’s former chief economist: ‘Bubble is the wrong imagery for today’s housing markets. Bubbles inevitably ‘pop.’ A more useful image for the housing markets is a balloon. Balloons expand and deflate.”
Balloon is a more useful image. Some balloons expand and deflate but if you continue to blow air into an overinflated balloon, it doesn’t ‘pop’, it ‘bursts’. When bubbles pop only those watching the bubble notice but when balloons burst grown ups are startled and babies cry.
David Lereah and Lawrence Yun and the NAR have lost their credibility due to wrong information month after month.
The NAR is focusing on stamping out people like the bloggers on this site by providing false information to the public in their advertising campaign.
Let’s let the public know the real truth behind this mess and help the NAR lose more credibilty!
“Let’s let the public know the real truth behind this mess and help the NAR lose more credibility!”
Tell me the words to say and I’ll say them. The words I have been using up to now haven’t been working all that well.
People don’t listen to me because they can’t take the pain that goes along with what I have to say.
Yes but Yun wouldn’t make an unsubstantiated forecast. His forecast is this: “A meaningful recovery in existing-home sales could occur as early as this spring.”
He wouldn’t make a forecast that he wouldn’t stand by if it failed to materialize, would he?. Are you saying that he’s made previous forecasts that turned out to be bunk?
Didn’t Snaith resolve this dilemma a long time ago?
It is a SOUFFLE.
you mean that stink is from the cheese?
Comment by SiO2
2008-02-04 10:00:05
Bye Fl wrote:
“If houses prices go up even .5% above inflation annually, they become less and less affordable each generation.”
Historically wages have increased faster than inflation. That’s how the standard of living has increased over the last 100 years in the US. 1950 families didn’t have 2 cars, multiple TVs, access to a wide variety of foods, ipod, international travel, etc. So if housing was inflation + 0.5% but gdp was historically inflation + 2-3%, standard of living increased and housing got more affordable. It’s a little mixed because housing also got bigger and better and hence more expensive, but that’s the overall trend.
” The problem is compounded when wages don’t keep with inflation. ”
The last few years have been an anomaly. GDP has increased but that has not increased median wages. Compensation for the top 10% or 30% has gone up, compensation for the median has been flat. A higher %age of GDP has gone to corporate profits.
The home price vs wage situation is not as out of whack as it looks because the high-income folks (who are more likely to buy) did see an increase in income in the last 7 years.
(note that I am not equating renter to poor, I understand that many people across income range prefer to rent for mobility or for cashflow reasons. but it’s pretty clear that income and homeownership correlate.)
The income distribution may change with the changing administration which would affect higher end housing. But this explains part of what is going on with housing at least in Silicon Valley, where there are still multiple bidders for well-located homes
My comment:
Thanks for the reply. Will wages once again increase faster than inflation? Almost everyone I talk to agrees that house prices will go down before wages go up. Current wages would have to double to keep those house prices propped up and none of us see a chance of that happening so house prices are dropping. The fear is not whether house prices won’t drop but the fact the drop may not be enough.
I am boycotting any location with inflated house prices and if everyone does the same, prices *must* fall as banks have to sell, as well as people who inherit grandpa’s cottage in another state. As long as people catch a falling knife, it will keep prices from recovering fully.
The simplified truth is that we as a nation no longer manufacture and export goods at the level that is needed in order to maintain the proper income versus cost of living that most Americans falsely assume still exists.
This is all the more amplified by the fact that during the boom and even now, the only “move-up” scenario that happened with great frequency was people trading their California/NY,MA, or FL house for ones in cheaper locations. A sort of horse-trading economy. This is why the current recession is going to be felt much more than others because the money that was supposedly made during the boom was not really made for the benefit of the consumer, but more for the financial industry who foolishly assumed that trusting debt from people with poor credit would actually yield profits.
The problem is that nobody ever addressed the real issue, which is that all in all, the middle class of the US is shrinking rapidly. No democracy in world history has ever survived permanently without a middle class or a manufacturing-export economy. We are approaching that danger level.
But who is buying those overpriced CA, FL, NY, NJ, MA houses? Foreigners account for maybe 5% from what I heard. So I guess the lucky few will be able to sell and relocate. The rest are priced in and will have to sell for a loss(or less profit depending when they bought said house) or walk away.
Meanwhile, this is causing house prices at the other states to start inflating. I remember one AD that touted “why pay $300k for that 1200 square feet south Florida house and high property taxes+insurance when you can buy a 3200 square foot house in NC with a fraction of the taxes+insurance?”
Well I checked prices there and many houses are around $100/foot for starter 1500 square foot simple houses in GA, Carolinas, TN, AL, VA. One can now get the same house for the same price in southwest and north Florida and we aren’t far off from $100/foot houses in southeast FL. The proposal to reduce property taxes recently passed and as for insurance, you can skip that if you buy the house in cash.
All those people who left FL for the southeast states must be feeling silly and stupid. Will they move back to FL? If the reverse occurs, I hope to see huge price cuts in those states.
Me? I am moving to NW Pennsylvania this summer.
I still think you might be incorrect in regarding other parts of the Southeast. I think you might also be miscalculating what you might be getting into if you move to SW PA. Why? because my Wife is from there. I’ve been there 3-4 times. There is nothing there. NOTHING. As far as jobs? nadda. Secondly, you should ask a few locals what their energy bills are in the Winter. Oil is not going to get any cheaper, and as it is now, many up in those frigid states are paying $4-$500 a month just for the heat bill.That’s now. Just imagine in the next few years when oil gets 3 and 4 times that expensive… which it will.That in itself is a house payment elsewhere.
It sounds like your big plan is based entirely on one singular event which is to ” buy a house for cash”, which in my opinion regardless of the price isn’t a good idea. The way it works is this: save up enough for a down payment, have a sizable amount for savings, have retirement at least setup, THEN put down a chunk of change on the actual house.
Look at it this way: A 100k house in TN,NC,or GA will require a 20k down payment. The payments on a typical 30 year fixed would run you around $466.00 a month or somewhere around that. If you can’t manage to afford that, then frankly, you shouldn’t be buying a house anywhere anytime. $450 bucks is less than rent costs in most places. With what you didn’t spend on buying the house you can invest in stocks and mutual funds, further fueling your retirement.
I guess if you reeeealllly reeealllly want to move to the rust belt and buy a crappy house somewhere in the middle of nowhere and just having a house is your life’s single biggest goal regardless of all the other important elements to a lifestyle such as work, climate, and so forth, then by all means do it. But I also think that you might want to consider alternatives, which is to either rent until you’ve saved up enough or improved your job situation to the point where you’re making more to give yourself more flexible options, or put off buying a home until what you can save allows you to do so in an area with more positive growth potential.
I guess I’m saying this because I’ve been there, done that. I made 20k a year 7 years ago. I know how it feels to not be able to afford close to anything. But if you keep working at it, you can earn more and work your way up. As you’ve correctly pointed out, wage inflation has not kept up with house prices. But the one thing you CAN do is improve your professional standing to the point where you at least have more options.I’m not criticizing at all. Just using my own experience as a thought.
Anyhow, I’m not trying to change your mind. Frankly, one less person in the Southeast in my mind is one less body to fill space that I would like to see remain fairly open. But I think you might want to think about housing and location as two of the same.
I am shocked that banks would take advantage of the holes they lobbied to put in the accounting rules.
This crisis is by design.
“This crisis is by design.”
Exactly!
“Barbara Corcoran, real estate maven: ‘There’s a hell of a lot of noise out there right now that would scare anyone away from buying real estate. Not me. I’m yahoo-ing, low-bidding, and snatching up deals wherever I can find them.’”
She’s good at writing real estate romance novels, isn’t she?
It will be raining keys:
http://www.youwalkaway.com/
If you qualify, this business will help you restart your life after ditching your house and lender.
That website wants $995 payment in order to tell you it’s “ok” to walk away. People are doing it on their own for free!
Lereah is our National Baboon…
“‘If a national bubble had burst, the nation would have experienced a meaningful double-digit drop in home prices. To date, we are experiencing maybe a 3 to 4% drop, at most. But for some post-boom metros like Las Vegas, Miami, and Phoenix, double digit price drops are not out of the question. So the answer is that there have been some local housing balloons that have popped, but no national balloons.’”
RE: “Today, most of the work is done by independent appraisers, who are usually paid $275 to $400 for each appraisal. And they’re often hired by mortgage brokers, the independent middlemen who bring together homebuyers and lenders.”
Take that $275.00 and divide it by 50% which is the typical split fee divy between the bucket shop owner and his or her field work flunky.
So…that’s $137.70 (less 30% expenses for double SS levy, state income taxes, auto expenses, computer gear, licenses, mandated continuing education courses, et., el.) or $96.39 for the talent of establishing valuations of six and seven figure properties which will serve as collateral for all the Wall Street gangster paper.
LMAO…Ya get what you pay for in this life-suckers!
“In Arizona, between the third quarters of 2006 and 2007, there was a 902% rise in foreclosures started against homeowners who had prime adjustable-rate mortgages, known as ARMs, according to the Mortgage Bankers Assn.”
While 902% may seem like a big increase, it’s a lot less than 2000%.
Try to look on the bright side!
There are lies, damned lies and hopelessly optimistic spin…lol
Neither president Bush, Congress nor the Federal Reserve is charting a course to a long-lasting economic recovery.
America’s “housing-bubble” recession has hit hardest precisely where the bubble has been most frothy. In Arizona, California, Florida and Nevada, housing prices have dropped precipitously, foreclosures are off the charts, and credit is gridlocked.
The U.S. Federal Reserve is most to blame for the housing bubble. After 9/11, Alan Greenspan’s Fed over-reacted with an ultra-easy monetary policy. Greenspan’s printing press artificially depressed mortgage rates and ignited a speculative housing boom. As prices spiraled upward, unscrupulous real-estate appraisers qualified lenders at whatever prices necessary, and mortgage lenders happily bought into the charade. Now, this bubble had to burst.
Though seemingly hard-hearted, the best “cure” for the housing bubble recession is to do nothing. A massive bailout will only maintain home prices at levels far above that which the market might otherwise bear — and above that which many people can afford. Any bailout would also fuel future asset bubbles because of the lack of “moral hazard”: Speculators will believe that the government will always bail them out and assume undue risk.
The good news about the housing-bubble recession is that it is short run — a necessary cleansing agent for an era of irresponsible speculation. That why no massive bailout or yet another round of the Fed’s ultra-easy money is warranted. Regrettably, in an election year, Washington is not getting this message.