The Housing Bubble

FYI, I think we figured out the comments problem and fixed it yesterday afternoon. If you are seeing things like error messages, please copy and paste the message and email it to me.

http://www.washingtonpost.com/wp-dyn/content/article/2009/03/07/AR2009030702257.html?hpid=topnews

“With the surge in new loans, however, comes a new threat. Many borrowers are defaulting as quickly as they take out the loans. In the past year alone, the number of borrowers who failed to make more than a single payment before defaulting on FHA-backed mortgages has nearly tripled, far outpacing the agency’s overall growth in new loans, according to a Washington Post analysis of federal data.”

“Many industry experts attribute the jump in these instant defaults to factors that include the weak economy, lax scrutiny of prospective borrowers and most notably, foul play among unscrupulous lenders looking to make a quick buck.”

Is there any amount of failure that could convince people that subsidizing housing is a bad idea?

They are rediscovering history in New York, according to the New York Times.

http://www.nytimes.com/2009/03/08/realestate/08condo.html

“Some industry observers foresee market drops of 40 percent, while others think that is too extreme and suggest that price reductions of 25 percent will more be likely the new norm… Large drops in prices are not new in the city. The last decade-long increase in prices was followed by about seven years of falling prices starting in the early 1990s, said Ingrid Gould Ellen, the co-director of the Furman Center for Real Estate and Urban Policy at New York University School of Law. Prices fell about 29 percent.”

Ah, but what was inflation during those years (1990 to 1997)? Another 19 percent give or take, according to the CPI. And prices were flat with inflation rising for three years prior to that, for another 13 percent real decline. Total loss in inflation adjusted dollars? More than 60 percent.

And this time, at least for now, the inflation rate is zero, meaning the entire drop must come from nominal price declines — something the federal government is trying desperately to avoid by creating some inflation.

Angry homeowner floods foreclosed Grand Rapids home

http://www.wzzm13.com/news/local/story.aspx?storyid=106467&catid=48

The most interesting part of the article is that banks/police are starting to play hardball:

“They blame the mortgage company, they took it out on the mortgage company but what they have to understand is they’re still liable. They are still responsible for that house.”

The Johnston Street house is the second flood ERA Realty encountered and they’ve had two arsons.

In September of 2007 a Gaines Township home burned. The home owner, 38 year-old Sheryl Christman, was charged with and convicted of arson.

Christman set the fire four days before it was to be foreclosed upon and sold by ERA realty.

This latest destruction made Blowers call WZZM to warn people the bank will press charges.

“They’re going to without a question. If they don’t then I will ask permission to go after them myself because it hurts the entire neighborhood.”

Observations from New Brunswick. Market has slowed down considerably, and not just because of the weather, which has been crappy since December.

I got my tax bill. My assessment went up 12.7% but my town reduced their tax rate by 2.9% so my taxes actually went up 9.5%. Of course assessments were done a few months ago when everything was still frothy, bubbly, etc.

There was an article in the paper with people complaining about their tax bills. Someone suggested assessment increases be limited to 3% per year. Ironically one time I had calculated what my assessment had gone up in the last 20 years, and on average it was…3% per year. (and since assessments roughly track the changes in the real estate market, that’s another data point showing that real estate basically matches inflation.)

The people next door have their house on the market. They put it on the week before Xmas. Their assessment is $ 185 K. Their wishing price is $ 295 k…

Dean Calbreath’s columns are one of the reasons I have not yet canceled our SD Union-Tribune subscription. This one is really good.

Bear market in full growl, and the end isn’t in sight
By Dean Calbreath (Contact) Union-Tribune Staff Writer
3:00 a.m. March 8, 2009
Call Dean at 619-293-1891

… no matter what happens with Obama’s stimulus packages, it’s doubtful that we’ve hit the bottom yet.

We are, after all, dealing with the after-effects of a series of investment bubbles that have been percolating and popping over the past 20 years, including the biggest bubble in recorded history: stratospheric home prices and the insane array of Wall Street-engineered derivatives that were attached to them.
…
A chart of the Dow over the past 45 years shows an almost flat line from the mid-1960s through the early 1980s, which then evolves into a more diagonal line that moves at a slow but steady upward pace from mid-1984 to mid-1994.

In comparison, the past 15 years have been shaped like a volcano. Starting in the mid-1990s, there was a dramatic, irrationally exuberant drive upward, skyrocketing to never-before-seen heights in the late 1990s, plummeting after the bursting of the dot-com bubble in 2000, skyrocketing again to its all-time high in late 2007 and then dropping like a stone.

Staring at that chart, it seems clear that the past 15 years have been a historical anomaly, marked by bubbles in Asian currencies in the mid-1990s, dot-com stocks in the late 1990s, home prices (accompanied by financial stock prices) in the early part of this decade, and oil, gold and other commodities in the past several years.

The chart indicates that the stock market might be just returning to the much more reasonable trend that it set during the late 1980s. If you take the 1984-94 movement as a trend line and drag it forward to today, it ends up around the 6,000 point. Which is where we appear to be heading now.

The problem is that when out-of-whack markets return to their historical trends, they often overshoot the mark. When a bubble bursts, prices can dip far lower than the historical trend. And that could happen now.
…

SD Union-Tribune
Stemming the tide
Plan may prolong economic downturn
By David Felsen
3:00 a.m. March 8, 2009
…
The Obama housing plan calls for $75 billion to keep 4 million homeowners in their homes. The effort is intended to ease mortgage terms to ensure more affordable monthly payments for homeowners through modifications to be paid jointly by the federal government and lenders. An additional $200 billion will go to Freddie Mac and Fannie Mae, whose regulations will be changed to permit additional refinancing of conforming loans. This will reduce payments for 5 million more homeowners.

Will this plan succeed in stabilizing the housing market, get lending going again and help boost confidence in the broader economy?

Clearly the plan carries risks. Specifically, one of the plan’s measures gives authority to bankruptcy judges to implement mortgage “cramdowns,” rewriting loan terms for mortgage holders who seek bankruptcy protection. This not only poses short-term problems for lenders, but it may have a longer-term detrimental effect on the wider financial system and serve to prolong the economic downturn by diminishing the incentive of lenders to lend, resulting in higher interest rates for mortgages and other credit.

There is another risk that has to do with the public’s perception of the plan’s fairness. Unlike the administration’s $787 billion stimulus bill, which is directed toward the entire economy, the housing measures are perceived to be benefiting only a targeted few households. Despite the president’s current popularity with voters, a Gallup poll released Feb. 25 shows that Americans feel the housing plan is more unfair than fair by a margin of 51 percent to 46 percent. There is also reason to suspect that the plan may not save as many homeowners from foreclosure as projected. Previous Bush administration efforts to rescue homeowners delayed by several months — but did not prevent — eventual foreclosures. Also, the current plan is not likely to stabilize home prices since the full housing correction has not run its course. In short, the public’s expectations may soon come to be unrealized, and ebbing public confidence in the administration’s economic measures may forestall the recovery.

Well, before I get banninated by WP again–

I was wondering if other Florida posters could comment on the relative merits of different kinds of Florida house construction. I am looking for a house with some land starting in the 2012 timeframe. I was playing with the NYT rent/buy calculator, which of course doesn’t include the big sticking point–utility bills!

So here is what we have in GNV, NOT counting total crap post 2004 construction:

Concrete block, midcentury, about a 3/2 is typical, single story.

Old Florida bald cypress, peaked roof, single story (unlikely to buy one of these–most of these are tiny lot b/c the original occupants had to walk to work. Since I bike, I can go further out. Bikes rock.)

Nicer bald cypress, better construction but still old, typically partial 2 story, naturally will want lot with oaks and pines to shade the h*ck out of the place. This means no chance of getting free loan to put in solar panels & sell energy back to GRU (local utility), BUT should mean lower bills in the first place?

“modern” style (=fugly from curb) split level or single story 1980’s house on tree’d lot. typically some sort of vertical clapboard cladding. Often have nice features like lanais/screened porch and open floor plan. (only issue is these tend to be TOO far away from work–or anything, really. I refuse to drive everywhere)

chert 3/2. my wife loses all reason when she sees one of these houses. I am thinking chert = spiders. These tend to be priced at a premium to all other houses.

brick 2/1, early 20th century (real brick, not that crappy facade stuff)

How do these stack up? I kind of like being inside the wooden houses better–I did rent a room in a concrete block-er once and it was like living inside a cave. However, deep summer is muggy and hot and those wooden houses were built before A/C. I have a lot of, er, paper (books, music scores, etc), and a very touchy computer that hates humidity (woe is me). I know those wooden houses were designed to be cooled by fan, at least the small ones.

I’m not considering the out-and-out Victorians. They are money pits and not suitable to this … or really any … climate. Yes, I have lived in one and I think I know what I’m talking about. Pretty to look at, not to own bemoan.

PS–Of course I will investigate energy bills on any potential house before I make an offer, and I’m not jumping up to buy this year as prices have a ways to drop. I would just like to benefit from y’all’s opinions and experience. The idea of going from $70/mo GRU bill to $250/mo kind of scares me.

Several posters were asking what the long term trend for Florida was. Well I would suggest that every one in South Florida should sell their home by 2020 as by then enough ice will have melted and most of the homes will be underwater again! By 2030 most of Florida from a line from Silver Springs - Daytona Beach and south will also be under water.

I know may may doubt this so go out and look at the latest projections on Global Warming in the recent UN report.

I would like to see a few scraps of evidence that foreclosures are somehow like disease vectors in causing falling prices of neighboring homes. My impression is that price declines are a function of demand for owner-occupied housing, which has largely dried up, and that foreclosures are a symptom of a lack of demand coupled with sellers who are unwilling or unable to lower their asked prices to market clearing levels. If anything, the effect of nearby foreclosures would appear to be negligible.

But I am willing to consider contrary evidence

SD Union-Tribune
Stemming the tide
Foreclosure rates must be lowered
By Dan Seiver
3:00 a.m. March 8, 2009

In Frank Capra’s iconic movie “It’s A Wonderful Life,” George Bailey (Jimmy Stewart) was a community banker who made mortgage loans to the likes of Bert the policeman and Ernie the cabdriver so they could live the American dream of homeownership. George knew exactly how much his borrowers earned, and what they could afford to pay.

And he would keep that 30-year, fixed-rate loan on his books for three decades, just as his father did before him. If Ernie’s cab needed to be replaced, putting Ernie in danger of falling behind on his mortgage payments, he could go see George and together they could work out a new payment plan, perhaps by stretching out the payments or reducing the interest rate. Ernie doesn’t get foreclosed on — which would be costly for Bailey Building and Loan — and thus Bert’s house does not fall in value because it is next door to an empty, foreclosed home.
…
What happens to the value of your home, responsible taxpayer, when all of your foolish neighbors are foreclosed on? What happens when you, responsible taxpayer, want to borrow to start a promising new business but your bank won’t make the loan, because its capital has been dangerously depleted by the cost of all those foreclosures and writedowns?

What this argument seems to miss is that money spent rescuing FBs from foreclosures is money not available for new qualified entrants to the housing market to borrow. Or does he believe money still grows on trees, and the macroeconomic budget constraint does not exist?

there’s never been a better time to buy in Montana! Just ask a Realtor!

http://missoulian.com/articles/2009/03/08/news/local/news02.txt

Alan Blinder, former Fed vice chair, makes the case to keep the big bank protection racket going. On the other hand, Hoenig argues Too big has Failed. Is there mutiny at the Fed: As public and political support for Zombie banks falters, are insiders using outsiders to make their arguments public?

NYTimes: Nationalize? Hey, Not So Fast.

I watched “Wall Street” last night - I had never seen it. I am not a fan of Oliver Stone as a director, but it is actually a pretty good flick. (Charlie Sheen is also pretty good, sad that his career has devolved to the point where he stars in “Two and a Half Men”.)

Although offering some unintentional comedy with the clothes, “art”, and interior decorating ideas on display, the real laughs were in the morality on display, as the film seems almost as idealistic as “Mr. Smith Goes to Washington” in light of current events.

Look, Wall Street types actually fearful of the SEC! Even more unrealistic, look - the SEC is arresting somebody! Leading them out of the office with handcuffs, even! BWAH HAHAHAHA! Oh, and a Wall Street trader actually giving a passing thought to the people who might be laid off due to the stock manipulation he engages in! Ha! Or how about a Wall Street trader who has a working-class dad, or once worked as a baggage handler? Quotes like “Stop going for the easy buck and start producing something with your life. Create, instead of living off the buying and selling of others.” It’s just too much!

I’m laughin’ to keep from cryin’.

It’s snowing here, and it’s beautiful. The forest is completely different with snow falling down through the dark trees. I lit a fire and then I made scrambled eggs and buttery toast and ate them off a pretty plate I got yesterday at a church sale, it’s got a celadon green band, surmounted by a chocolate brown ring, and the middle is ivory colored. Also a fork I engraved the other day. I engraved a bunch of little stars on it, and a moon, and on the back I wrote ‘As big as the sky’, I had a thought and it was, I’m going to engrave words and stuff on my boring plain forks and then toss them back in the drawer and they can clatter around in there reading each other and being mystified. Huh huh huh?

Oh, yeah, but I started to say I went to a church rummage sale over on the east side, and it was packed! Tons of people. Tons of stuff. I overheard several people talking about the difficulties they were having. We’re most definitely joining the Hard Times party around here.

http://tinyurl.com/afjyt8

‘The Recession’s Green Lining’

‘It is no coincidence that some of the dirtiest industrial operations are falling victim to the global recession. Over the past two decades, much of the world’s manufacturing moved to where pollution standards are little more than mild suggestions. Since small, corner-cutting, inefficient facilities tend to both flout pollution laws and be most vulnerable to a sudden drop in demand, the global recession has hit such operations especially hard…
…In India, enough small steel-rolling mills around Delhi have closed that levels of sulfur dioxide (which forms acid rain) fell 85 percent in October 2008 compared with a year earlier….
…In 2008, the number of days with dangerous levels of air pollution in Dongguan fell by 65 from the year before, mostly in the final months of the year.…
…The rate of deforestation from last November through January, the institute just announced, fell 70 percent from the same period a year before…

———————————————————————————-

And THIS, this, my dear HBBers, is all that my wee little heart could hope for, and has been hoping for, for the last several years. Gosh, I am so happy to read this, I can’t even tell you!
Primey, sleepless, Lionel, you other PNWers, do you realize!? We may get out of this with some forests and wetlands and farms after all!!
*squeals with joy *

Now all I want is for the local ex-developers and ex-builders to be rounded up, flung into one of those thermal depolymerization thingies and turned into useful substances, and then….

*starts to loudly sing “Heaven on Earth” *

I

Went to the local mall this afternoon; Arnot Mall in Corning-Elmira. Very few cars, very few shoppers. Lots of loney, bored, glum looking clerks minding empty stores. It looked like 7AM on a week day, not a warm March weekend afternoon.

They were having a boat show inside the mall, not just in the open, but boats backed into all the empty stores. I walked the whole line and saw only three people even looking. Stopped to talk to one upscale operator and as soon as he realized I was not a buyer he brushed me off quite rudely. Grump. I didn’t mention I was buddies with his dad.

What a waste of time and money for these guys. Just increases their burn rate (cash and patience).

See today’s NY Times Magazine about boarded-up communities in Cleveland.

Trump story in Mexico and apprentice sequel in Chicago.
Ben you should move this on the front line

Apologize if somebody already posted before this link about Trump ripoff: Enjoy:

http://www.google.com/hostednews/ap/article/ALeqM5jFRzjWESyiOXDLYKHNzQJ7CS6fAgD96ONQO00

NEW YORK (Reuters):

“Representative Paul Kanjorski told Reuters on Thursday that he had been informed that a large number of AIG’s counterparties were European.

“That’s why we could not allow AIG to fail as we allowed Lehman to fail, because that would have precipitated the failure of the European banking system,” said Kanjorski, a Democrat from Pennsylvania who chairs the House Insurance Subcommittee.”

So now it’s the American taxpayer’s responsibility to prevent a failure of the European banking system? I think it’s time to march on the capitol and string these guys up. This is insane.

Welcome to Landlord Nation. Or maybe Section 8 Nation.

http://www.detnews.com/apps/pbcs.dll/article?AID=/20090308/BIZ03/903080323

This is gonna pi*s off the locals, lol:

http://www.detnews.com/apps/pbcs.dll/article?AID=/20090308/AUTO01/903080313/1148

Just finished watching the documentary American Dream (1991) about a disastrous strike at a Hormel plant in Austin, MN.

First management forced wage cutbacks, then they hired a contractor to operate the plant, cutting wages even more drastically (to $6.50/hr). I’m sure the employees are illegals now (if they still run that plant). The whole meatpacking industry has gone that way. Speed the lines up, run with illegals at min. wage, call INS if they complain, oh well if they lose a few limbs.

On the one hand, it’s frustrating to see people who seem to expect the employer to mysteriously ‘provide’. On the other hand, somebody has to do those jobs. Is it really worth it to have super cheap food on the backs of labor? Eating too much Spam will put you in an early grave anyway.

Most developed countries try to protect their jobs and labor. In the USA, though, anyone who works for a living is some sort of a–hole.

Oh, and here’s a nice object lesson: who has the stronger economy, the Federal Republic of Germany, or Great Britain? Answers due on Monday.

updated 19 minutes ago
Not even renters safe from foreclosure storm

* Story Highlights
* About 40% of people facing eviction from foreclosure are renters, coalition finds
* Many times, evictions hit renters who are working and financially up-to-date
* Only New Jersey and D.C. offer renters any protections during a foreclosure
* Former mortgage underwriter Maria Stephens was forced to go shelter with her boys

From Rachel Streitfeld
CNN

RICHMOND, Virginia (CNN) — Maria Stephens barely flinches when her three rambunctious young sons strike up a baseball game in her living room. “I thought you boys were going to play in the front yard,” she laughs while Christian, 2, swings a black plastic bat near the kitchen table.

Maria Stephens went from making $80,000 a year to being homeless with three boys to care for.

It’s hard to imagine all that energy cooped up in the small room where Stephens and her children spent seven months last year — in a homeless shelter.

Stephens, a mortgage underwriter who made $80,000 a year, faced a reversal of fortune so swift and devastating she still can’t quite fathom it. The single mom went from paying $1,900 a month in rent to bunking at the shelter, an unexpected victim in the foreclosure crisis.

And she is not alone. While the foreclosure rate across the country has grown dramatically in recent months, often lost in the statistics are numbers on Americans made homeless through no fault of theirs — renters.

About 40 percent of people facing eviction from foreclosure in the United States are renters, according to the National Low Income Housing Coalition [NLIHC]. Yet regulations on the rental industry vary by state, and often there are no protections for those living in rental properties.

For Stephens, the ordeal started with bad news from her landlord.

“My landlord came and told me that his property was being foreclosed on,” Stephens said. She moved her children, one then a newborn and the other two under 7, to a cheaper rental but had to leave there, too, when she lost her job and then her new landlord decided to sell the property.

This is from Friday and most likely commented on already. Still, in case anyone missed the news: Yahoo Finally Publishes The RE Word

http://realestate.yahoo.com/promo/5-reasons-renting-still-beats-buying.html

5 Reasons Renting Still Beats Buying
By Jack Hough
Mar 6th, 2009

This weekend I’ll throw $1,100 down the drain. That is to say, I’ll pay my rent. Pop-finance pundits have long used the drain cliché to describe how renters like me waste money, while homeowners with mortgages “pay themselves” and “build equity.”

Interesting in the valley of the sun. This Gilbert, AZ house is one I stayed with a friend in after they bought it. It was purchased for $1,019,902 in July of 2006. My friend put money down with the builder on this property about the time I was selling my Chandler home. He put about 40K down on this house. He lost it to the bank a year or so later. It sold in Jan 2009 for $550,000. This also includes the pool and landscaping that was another 100K+ put into the house. Nothing like a 50% + haircut. To top the story off - this person worked for countrywide mortgage at this time.

http://carriemaes.homesandland.com/Listing.cfm?MagId=ANY&ListingId=12112761&WebsiteId=105629

Seeds of its own destruction
By Martin Wolf
Published: March 8 2009 19:13 | Last updated: March 8 2009 19:13

Another ideological god has failed. The assumptions that ruled policy and politics over three decades suddenly look as outdated as revolutionary socialism.

“The nine most terrifying words in the English language are: ‘I’m from the government and I’m here to help.’” Thus quipped Ronald Reagan, hero of US conservatism. The remark seems ancient history now that governments are pouring trillions of dollars, euros and pounds into financial systems.

“Governments bad; deregulated markets good”: how can this faith escape unscathed after Alan Greenspan, pupil of Ayn Rand and predominant central banker of the era, described himself, in congressional testimony last October, as being “in a state of shocked disbelief” over the failure of the “self-interest of lending institutions to protect shareholders’ equity”?