Is There A Credit Bubble In Your Non-Bubble Area?
Several readers think the non-bubble regions may have a price problem. “Any thoughts on what might happen in those areas of the country where there hasn’t been a lot of investor/flipper activity? For example, I live in Cincinnati. Not a whole lot of appreciation here the last couple years, but it still seems like an awful lot of people are stretching to buy huge houses, and I know a lot have ARMS, IO’s and HELOC’s.”
“So we probably have a credit bubble here too. And Ohio for some reason seems to have a high foreclosure rate too. Would like your opinions on what to expect in this area and others like it? Flat? 20% drop?”
One reader looks at Indiana. “I am originally from Indiana and I am curious about there like you in Ohio. Obviously, Indiana hasn’t been over run by speculation. I do wonder if there is a bit of a credit bubble with the financing for homes. If I remember, wasn’t Indianapolis one of the few undervalued areas?”
On Vermont, “I have similar questions about northern Vermont, where I’m thinking about relocating. Will prices be flat or down in places off the beaten track?”
A reply, “If it’s truly out in the boonies, away from a ski area, you should try to buy land at ‘farmer’s prices,’ not out of stater prices. Sometimes you find this two tiered rate card. If you shop carefully, you could do well. And you might be able to get a very large amount of acreage for about the same price you’d pay for a developed lot in with a lot of McMansions.”
“As for ski area prices, beware. The realtors will show you 90% of the lots are sold. They’ve been sold alright, to developers.”
Another, “The price pressure here is mostly from out of state speculators and retiring/retired baby boomer fantasyland dreamers. I don’t see anything relieving that pressure, outside of monetary/economic crises, unless fuel prices continue to explode making the commute from ParasiteLand (NJ/CT/NYC) to VT cost prohibitive. Weekends here are still like a bastardized version of Halloween for adults.”
On Ohio, “I went to college in Ohio and I still have family there (I’m in CA now). I visited them last summer. EVERYONE wanted to talk about real estate while I was back there. There is tons of new construction in the Dayton area. People told me that, ‘No one wants to buy used houses.’ And they also wondered who was going to buy all the news houses since there were so many.”
“I visited the CEO of the company where I used to work. He went on and on about the I/O loan problem and about how his employees were taking out loans they couldn’t afford. He thinks OH is in for a world of hurt, especially when you add the problems with GM and Delphi.”
“My husband and I REALLY want to move back to OH. But we’re waiting 2-3 years for various reasons. I can’t see staying in CA unless we can find a decent house for $500k in the Bay Area eventually. Best of luck to you in the Buckeye State!”
“I believe that the housing prices will fall in all areas before the bottom is reached, even in areas that have not had such high increases in prices. Since the economy is so dependent on the bubble for jobs (in construction and jobs related to selling and buying) and refinance spending money, when the bubble goes, the economy will suffer a nation wide recession, probably more like a depression, and this will affect the housing prices in the ‘non-bubble’ areas as well as the extreme bubble areas.”
“Another factor that will help to cause the recession/depression is the coming high amount of default which will affect the finances of many people, even those who are unaware that their investments are tied up to some degree in the secondary mortgage market, and also the banks and other institutions which will be in trouble from the defaults. It will be like dominoes knocking each other over.”
One reader ties the risks to the lending. “I suspect that all regions of the US will be impacted by a popped real-estate bubble. The entire economy has been propped up by housing. Also, my pet theory right now is that the degree of pain a given region will feel from a housing crash will correlate to the number of new ‘exotic’ loans that have been issued in the last few years. Regions that had high numbers of option arms and 100% interest loans would see the biggest price declines.”
“What’s scary about this theory is that even some of the supposedly ‘non-bubble’ regions have seen the use of these new loans balloon as well.”
One reader noted the relatively lower price increases. “Syracuse was recently cited as one of the least ‘bubbled’ areas in the country. Lest I get too lulled into any sense of security, I just call to mind the prices when we first scouted this area in 1998. Prices were about 40% lower then. I see no reason w/the financial situation coming why we couldn’t return to 1998. In fact the local news reported 3 manufacturers shutting down in the local area just this week.”
I know there is no credit bubble, and CERTAINLY no housing bubble. Especially nowhere in California.
Suzanne researched this!
It’s a good thing Suzanne is a disembodied voice. She would be the perfect poster child for the snake-oil huckerism that has overtaken the RE “profession.”
The points in this post have interested me for a long time. There are a couple of non-bubble areas to which I’m interested in relocating, for family reasons. Neither are bubble areas, but my sense is the crash will affect them both for a few reasons. As noted above, a lot of people have refinanced into ARMs or have HELOCs that will adjust, right when their pay is not adjusting but many other monthly expenses are rising. Secondly, these non-bubble areas could be increasingly less attractive to outsiders as prices ease in the areas from which the outsiders otherwise would migrate. Finally, builders in non-bubble areas want to eat and they want to feed their subcontractors, so they quite possibly will be forced to build and sell at cost for a while in order to survive.
There could be a few small areas that remain unaffected, but it’s hard to imagine even that. I believe the crash will affect non-bubble areas less, but they will not escape a good amount of pain while it all goes down.
builders in non-bubble areas want to eat and they want to feed their subcontractors,
Why don’t they just eat their subcontractors? They’re full and no more subcontractors to feed. Problem solved.
According to the last report I saw from the FDIC, Americans’ HELOC debt was between 400-600 billion (in the 1990s -the figures were something like 70-90 billion). I am very interested to know how many long-time homeowners (you know, the folks who are supposed to be “safe” in a downturn because of all that equity — the folks who are supposed to keep our market from having a hard landing), have actually HELOCd themselves into a hole. I suspect that non-bubbly areas have fewer jobs, a problem that would probably make it more tempting for a homeowner to turn to the house ATM. If anyone has seen any reports on this, let me know.
People taking on more (stupid) debt to finance further consumption has not been limited to areas with crazy housing activity. A national herd mentality of sorts. And given how we are less geographically dependent and more globally connected in so many ways… yeah, I don’t think any place in the USA is going to escape the coming fallout without at least some economic pain.
Last weeks’ thread where I found that many of the posters here are being financially prudent / living under their means was greatly refreshing. In my daily life I seem to be surrounded by people who suffer have-not anxiety and exercise poor judgment or have no big picture financial sense. They’ll buy anything to relieve the pain I guess.
Thanks everyone for the positive reinforcement.
I was once an above the means consumer. I racked up credit card debt, didn’t pay my credit cards or school loans, my credit score was the same as my weight and I’m a thin gal. When I started paying my debt off and getting back on track, it felt so great. I started doing all kind of things to save money. My nickname among my friends was “grandma”. I now have a grandma car, free and clear, my credit is in the 800’s, and I am slowly building my cash reserves for a house once prices come back to reality. My friends on the other hand are in more debt than ever and constantly complain about the fact they live from paycheck to paycheck. So when I tell them what they need to do to get out of it, they say, “live without XYZ, are you mad”. Yes, I guess I am mad. The thing is, I don’t miss the stuff I use to have. I don’t miss the daily mochas from Starbucks, drunken nights, fancy dinners, expensive clothes, nice car, etc. Sure, at first I hated it. It was hard and it took all my strength to get loose of the consumerist attitude. Then suddenly once day while sitting at home on my porch drinking a cup of tea I realized that I was just as happy now with less as I was back then with more. I have no financial worries. If my car breaks down, no problem here’s X amount to fix it. Lost my job, fine, I’m good for six months at least.
My friends are great people who unfortuantely can’t or won’t get out of the “American Way”. It’s nice to find a group of people on this blog who are financially sane and don’t think of frugality as a disease.
I didn’t get cable until 8 years after graduating college. I have friends that are always complaining about not having any money. When I suggest ditching the cable and cell phone they always whine - ‘i can’t do without those!’
It’s not just frugality, there’s also deferred gratification. I now spend at least as much as my peers from one year to the next, but unlike many of them I am spending my own money.
Way to go !!!
You’ve overcome the overwhelming peer pressure to spend spend spend. After recently moving to California its quite obvious that people here have this incredible need have the latest new car (Mecedes or BMW), big screen TV, ipod, BlackBerry (and associated services), Swimming Pools, Spas, Landscaping, etc. I haven’t witnessed this type of peer pressure since I was in high school. Bring it on. I find it entertaining. I get a kick out of watching people spend $3K+ to have a house painted. Don’t most people know that you can get a really good can of paint for about 30 bucks and if you hustled, you could likely get your house painted in a weekend? It usually takes me twice as long because my wife can’t pick the right color so I end up doing it twice. Two cans per room and it might cost you about $500 in materials for a 1500 square foot house. And if you didn’t, then finish it during the week or next weekend or do one or two rooms each weekend. If anyone needs any extra cash when the ARM starts to cost a leg payment, this would be a great weekend job. Also, think about the money you save because you won’t have time to watch that big screen TV that you didn’t buy.
Congrats on the conversion from spender to saver. The country will be much better off in the long term. Remember, BMW, Mercedes, Panasonic and Sony are not American companies. At the same time its questionable how American GM, Ford and Chrysler are these days.
I never get tired of thinking of things my wife can do without.
In some versions of the Lord’s prayer they say “forgive us our debts” instead of or in addition to “forgive us our trespasses”. In the Muslim religion, usury (interest) is not to be paid.
The more I read about these “exotic” type of loans, the more Biblical in proportion this mess seems. These loans are the product of the devil (or if you are non-religious they are bad for society…). They redistribute money to the people who don’t need it. They put you into your dream house, but what they really do is make less and less affordable for people and in the end “enslave” them to debt. Hence my opening sentence. Sad.
your point about muslim practice reminds me that I recently saw an article about some bank or lending institution that was set up to conduct real estate transactions for those muslims who live by the usury prohibition. It involves something sort of sale-resale scheme so that the notion of actual ‘interest’ is avoided as part of the contract, but somehow approximates it in reality. I don’t recall the details, but it was heralded as a nice thing for the many muslims who live in MI.
I remember that version of the Lord’s prayer from my Sunday School days in Scotland. That would have been in a (Scottish style fire and brimstone :)) Presbyterian church so maybe it’s a Calvinist thing.
However, jumping through hoops to avoid calling the time-value of money ‘interest’ is ridiculous. IMO the redefinition of usury as excessive interest was one of the great advances.
And OT but does anyone know why the prohibition on interest historically did NOT apply to Jews. AFAIK Judaism reveres the same Old Testament as Christians and Muslims.
The prohibition on interest does apply to Jews, but only when lending to other Jews.
Thank you for that information.
The obvious follow-up is to wonder whether the same applies to Islamic banks; I wonder if they use fees and workarounds with Muslims, but charge normal interest to non-Muslims (if indeed they do business with non-muslims at all).
The Islamic prohibition is generally considered absolute (it’s more of a cosmopolitan religion, covering many types of interaction with non-believers, with all the pluses and minuses that entails.)
these laons certainly have a spiritual tone to them. they are hooks in people’s noses. the devil has these poor shmucks right where he wants them.
millions of them.
I wonder if the relatively nonbubble rural areas of the midwest will be caught in the slipstream of crashes elsewhere. Will some small town banks, for instance, become financially unstable and perhaps have to close their doors because of what happens in bubble areas?
Well, from what I’ve learned on this blog, that depends on how many exotic or risky loans your local banks have. Evidentally, most banks rallied in the same non-sensical direction. Hopefully you have some bank owners that kept their loan officers at bay during this whole fiasco.
I’m not a finance person, so if I’m wrong, please correct me.
Well, the locusts are on the move again. If you can stomach it, read this post from SDCIA about buying in North Carolina. It literally makes your jaw drop to read this, people have no idea, nor do they seem to care one bit about the fact that real estate can go DOWN, and it is illiquid in a down market…incredible…enjoy:
http://www.websitetoolbox.com/tool/post/sdcia/vpost?id=745141
That’s just great, they are going to overprice every single city in the country the way they are going!! I personally don’t understand these investors thinking they can rent out these places (speaking as a renter) I don’t want to pay someone else’s mortgage…might as well just get a house myself then. I hope alot of other people feel this way and doesn’t rent from them!!
What amazes me is that these people see NO risk at all in doing what they are doing. It is incredible…
This is why regulators need to step in and force any vacation/investment home buyer to put 20% down. Even better make the 20% down from savings, not HELOC or on margin from their brokerage account. End the madness before we are a nation of indentured servants.
Even the ones with a little self-awareness don’t seem to think the party will ever end, like the guy starting that thread in a subsequent post;
LOL, it’s funny (and scary) how one post on this board can create such a flurry of interest in a new spot. If the preconstruction group (in another thread) collectively agrees on the next market, we’ll probably push prices through the roof by ourselves.
Doesn’t it occur to any of them to wonder who exactly they’re going to sell to.
You can be safe or in danger anywhere. You also cannot escape taxes and make no mistake, no matter what taxes are going waaay up and they are going to find you. I guess 640 acres in Western Mass or Green Mtns or Adirondacks with wood heat and pirated Direct TV is fine for some. Me, I’ll be picking up some Jet Skis and motorhome, DVDs (5 for $20), iBooks, another mountain cabin (or two), maybe a newer motorcycle. Can’t do that behind the barbed wire, gotta be ready with wads o’cash and a trailer to wander the streets of Santa Clarita.
Someone mentioned cheap yachts, Robert, on another of these threads. I shall sail away, at least for a while, and leave the ghetto to the “owners.” Ahh……
If the housing bubble really is, at its core, a credit bubble, then I would imagine that all areas in the US have been affected. If a region is so weak that housing hasn’t appreciated wildly under these circumstances of loose credit, then what happens when the credit crunch comes? I wonder if they won’t be even worse off than the bubbliest areas.
If the only way you could keep up with living expenses in a place like, say, Detroit, is by taking out a HELOC or refinancing into an option-ARM because the local economy stinks now, what happens to you when your rate adjusts? And then what happens to housing prices there, even if they didn’t go sky high like San Diego’s?
I think the crash is going to be felt everywhere.
I live near Detroit, and most people that are prudent don’t have to take out HELOCs or refince into an option-ARM to live, unless they’ve lost their job already, and then they have a hard time getting a loan. The exception to that are the high-livers and big spenders. Some people have gotten too much house ( more than they can afford or want to heat or pay the high taxes on in some areas, and those puppies are just sitting for sale for months. Some of the true luxury homes around here that cost $1.2 million to build in 1998 are for sale now for $ 950,000 or less. A million dollar home here is a palace. ( Unless it’s on one of the Great Lakes — then you are paying for the scarce property ). But by and large, I don’t think most people in Detroit/Michigan as a whole are as extravagant as California’s population is reputed to be. They just are more conservative.
Does anyone have stats on exactly to what extent people are using their houses as ATM’s with home equity loans and refinancing? I get a sense that if one were to go on say a $25,000 spending spree with credit cards it would be regarded as reckless, but the same spending spree with a home equity loan doesn’t carry any stigma and is rather simply just a reward for being a homeowner.
So my qusetion is are we talking $10,000, $25,000 or $50,000 on average. Or better still, what % of the home’s value is being withdrawn?
If we knew that this wouldn’t be so scary. We are in uncharted territory. What I’m wondering is not how much has been withdrawn but how much CAN be withdrawn I’ve got a few grand in a HELOC as a bridge for some home improvements before paying it off from investment proceeds but they would have given me a half mil at the same terms. There’s people out there with a blank check. THe same people most likely to need a “hail mary” in the final seconds of the game.
I read Goldman Sachs estimate was 600 billion withdrawn last year, which is about 5% of GDP.
I’m not sure how much housing equity there is nationwide. If nationwide avg. prices are 300K on 100M houses that’s 30 TRILLION dollars. How much of that is equity? Maybe 10 trillion? So 6% in one year is alot.
As housing declines you could see nationwide equity go down disproportionally. For example if houses went down to 250K nationwide average, then that’s 5 trillion in equity, or a 50% drop.
GS also estimated that 50% of that was used for “consumption”. As opposed to what? Home improvements I guess.
“Home improvement” IS consumption. The “opposed to what” would have to be tuition, for that Masters in Engineering….
Oh, my, Houston, we have a problem….
Well home improvement might be classified as an asset, as in your house is now worth more. Depends on what exaclty you did. If you built a new room then that is an asset. How would painting and whatnot that you would have had to do anyway count? Don’t know.
Brian, not to split hairs, but, spending that does not lead to increased productivity is considered “consumption,” or “operating” expense. Updating the executive washroom at GM does not add value to GM’s bottom line. Lame example, sure, but those new tiles in Susie Q. Public’s bathroom only “add value” to the consumption “asset,” the house. There are no winners, over the long haul, except maybe the plumber with the exposed butt crack who used his winnings to re-tool his shop. My two cents…
Really? I’ve never heard that definition.
Suppose you buy an asset, another house, is that considered “consumption”? When you consume something it’s gone, an asset is an investment. Likewise if you increase the value of your house by “investing” in it, that’s an increase in capital stock, not consumption.
Are you buying the house outright or are you taking out a loan to purchase the house. If you’re taking out a loan, i would consider it a liability until you paid it off. The bank really owns the house until you pay them off.
In my example you are taking out a HELOC to buy a house. So it’s not really “consumption”.
The bank doesn’t really own the house, you do. You just owe the bank and it has collateral. But that doesn’t go to whether the new house is consumption or a capital asset.
50% on consumption is scary. I’ll bet that’s everything from bigger leases on cars to extra winter vacations in the islands to sending the kids to the most expensive private colleges. All soon to be vaporized - except for the extra money they owe.
I know a guy who has taken out a home equity loan to pay his mortgage. He feels it’s a safe approach as he’s got a civil service job and is pretty sure about higher pay in the future. Not for me.
WTF? …2pounce - I think I’ve had too much beer on this miserable, rainy, Saturday. You can’t be serious? This guy took equity to pay the underlying note? Wholly sheet.
This guy is a bureaucrat, to boot…and we wonder how the government runs our finances…
I did that too. Took out a HELOC to pay off all mortgage debt. No closing costs and the rate was 4% (prime) vs. 7%.
I finished paying off the HELOC about a year ago. It was smart, no closing costs, lower rate.
total US housing market is about 18 trillion (35% of the total US household wealth)..9 trillion increase has come about in recent times..In case of serious crash, that amount will vanish….since this is 85% of the GDP , it may take 5-6 yrs or longer..
A better scenario is 20-25 odd% decline than prolonged flattening for inflation to catch up w/ prices..
A reply, “If it’s truly out in the boonies, away from a ski area, you should try to buy land at ‘farmer’s prices,’ not out of stater prices. Sometimes you find this two tiered rate card. If you shop carefully, you could do well. And you might be able to get a very large amount of acreage for about the same price you’d pay for a developed lot in with a lot of McMansions.”
This is a load of crap. The flatlanders have let the property greed genie out of the bottle. The deals are gone!!!!!!!!!!!!
Everybody now thinks they’ve got a gold mine.
I remember sittin’ in a real estate office in ME and listening to broker’s handling phonecalls from out-of-state buyers looking for camps on prime lakefront for $30k….Not a friggin’ clue.
Try $500k now bozo…It’s what your idiot bretheren have bid the prices to.
VT’s no different. Everybody who’s got a hunk of land thinks they’re holdin’ a million dollar lotto ticket to fund their retirement.
NO DEALS FOR YOU! (said in Seinfeld soup Nazi tone)
Also bring a big bank account with you. Only jobs are washin’ dishes in the yupster restaurants. Or growing pot.
If the Land Use Regulation Commission allows Plum Creek to develop its proposed 975 lots, you may also get a chance to work as a house sitter for the NY and Boston yupsters who’ll visit their palaces maybe a week out of the year. Another high paying job will be maintaining their “no trespassing” signs.
Yes and no.
Here is a 1.3 acre in a new development next to a golf course with deeded access to a lake for $19,900:
http://tinyurl.com/zjsfz
Now, here’s 26 acres for $39,900 in the next town, It’s got paves road frontage. But since people wnat it all done for them, they’d rather pay a developer the huge cost per acre on the 1.3 acre developed lot than put a driveway in. BTW, you can still play the nearby same golf course and also use public access to get on the lake. The deeded access is a30′ communal strip of lake frontage and you can’t even leave a rowboat there.
Even still, the 26 acres for $39,900 is very expensive compared to even five years ago. But the cost per acre is still much better than the little lot.
Once you buy, if you get to know the locals, you’ll probably hear about the real deals. These aren’t advertised, they just get passed around in local conversation. “So and so is sick and has to move to Bangor and they’re selling their 125 acre “viewshed” with house and barn for $150,000″.
Oh, if you boys are right, I will amend my comment to Robert, above, and sail away, ahh…and back to my roots in New England…and leave the DC ghetto to the “owners.” Ahh…..for again, cash will rise, like the Phoenix, from the ashes of credit, gone bad…ahh…
Pot, now there’s an asset who’s price will never go down.
Hahaha. We live in the mountains of Southern California and call the people living “down the hill” flatlanders also.
Ooops, here is the URL for the 26 acres:
http://tinyurl.com/kbp64
OT: there’s been a lot of confusion recently over exactly who is holding the bag on these crazy mortgages. The conventional wisdom is that banks are chopping up all of these loans and selling them off as mortgage-backed securities. To some extent, that’s true, but banks are also holding a lot of the more risky loans on their own balance sheets (presumably because they can’t be profitably sold). Furthermore, some of the loans that are sold off are sold “with recourse”, meaning that if the borrower defaults, the bank has to buy the loan back. For example, here are a couple of excepts from Washington Mutual’s last 10-K:
“The Company’s loans held in portfolio increased $22.56 billion to $229.63 billion at December 31, 2005 from $207.07 billion at December 31, 2004. The increase was substantially due to the addition of the credit card portfolio from the Card Services Group and an increase in total home loan and home equity loans and lines of credit balances. Primarily all of the growth in the home loan and home equity loan and line of credit portfolios resulted from the origination of short-term adjustable-rate products. The Company’s short-term adjustable-rate home loans, which were predominantly comprised of Option ARM loans, increased from $75.38 billion at December 31, 2004 to $84.86 billion at December 31, 2005.”
[the 10-K further states that $34B, or 48% of the Option ARM loans held in portfolio were originated in California]
“A prolonged economic downturn could increase the number of customers who become delinquent or default on their loans, or a rising interest rate environment could increase the negative amortization of Option ARM loans, which may eventually result in increased delinquencies and defaults. Rising interest rates could also decrease customer demand for loans. An increase in delinquencies or defaults could result in a higher level of charge-offs and provision for loan and lease losses, which could adversely affect earnings.”
And this is from Accredited Home Lenders’ 10K:
“We bear the risk of delinquency and default on loans beginning
when we originate them until we sell them and we continue to bear the risk of delinquency and default after we
securitize loans or sell loans with a retained interest. Loans that become delinquent prior to sale or securitization
may become unsaleable or saleable only at a discount, and the longer we hold loans prior to sale or securitization,
the greater the chance we will bear the costs associated with the loans’ delinquency.”
“When we originate mortgage loans, we rely heavily upon information supplied by third parties including the
information contained in the loan application, property appraisal, title information and employment and income
documentation. If any of this information is intentionally or negligently misrepresented and such misrepresentation is not detected prior to loan funding, the value of the loan may be significantly lower than expected. Whether a misrepresentation is made by the loan applicant, the mortgage broker, another third party or one of our own employees, we generally bear the risk of loss associated with the misrepresentation. A loan subject to a material misrepresentation is typically unsaleable or subject to repurchase if it is sold prior to detection of the misrepresentation. Even though we may have rights against persons and entities who made or knew about the misrepresentation, such persons and entities are often difficult to locate and it is often difficult to
collect any monetary losses that we have suffered as a result of their actions.”
Wow — you think there might be a few of these “misrepresentation” type loans floating around out there among the billions of dollars in loans they’ve securitized?
The point is, don’t think that lenders are free-and-clear when the foreclosures start rolling in, just because they sold off all that crappy paper.
even better when the mort goes interest only the bank “Accrues” the future interest as income= ROFLOW !
face it if the borrower is going interest only now he’s headed for default later as there is no appreciation to pay his future debt.
There’s a Wells Fargo billboard in downtown Austin with two little kids on it saying “Can we have our own room now?” and the message “TAKE OUT A HELOC TODAY!”
Hilarious
I linked to an article a few weeks ago that said it’s a “Depression era” situation here. The 2005 foreclosures in Allegheny Co (Pittsburgh, PA) and surrounding counties were about 100% higher than in 2000, IIRC. People are still building condos all over, including in areas declared slums so govt can give the land away to developers. It is insane here, IMO. We keep losing population, yet the govt thinks if we just have condos & lofts, people will flock here. Then there are the 4000 sq ft homes in the suburbs. They’ve wedged homes into my parents’ neighborhood that look very out of place. It is tacky. Supposedly, this area has approx a 5.9% chance of price declines, IIRC. That of course comes from that stupid study which only looked at 20 years of data…
The new construction in Pittsburgh is a mystery, since they steadily lose population year after year. On the other hand, Google is opening an office in Pittsburgh this year, so maybe they figure the 200 new Google employees will each need dozens of condos.
the secondary mortgage market is a pretty sophisticated place. there are loss expectations that are built-in and there are various tranches within a bond issue that take on various amounts of risk. we’ve already seen the bid in second mortgages dry up. what needs to happen is for investors to become fearful of buying first mortgages, which will force originators to tighen things up. i don’t think we’re there yet, though that could change pretty quickly once we start seeing year over year price declines in property values.
the washington post article is important because this is the first mainstream media outlet to take such bearish view on prices. normally, the articles on RE try to be balanced–this one was very “in your face” in its presentation of the facts.
one thing i do find to be a hopeful sign for the “bubbleheads” is in recent wall street earnings reports. digging into some banks’ earnings, you’ll see that HELOCs are starting to go bad–not bad enough to crimp earnings, but i’d bet a few institutions out there are reassessing their underwriting standards and collateral requirements. this is the sort of thing that’s necessary to cease funding of this asset bubble.
did that make sense?
Maybe the PMI mortgage insurers will start to fail. They are on the hook for the whole thing if they borrower defaults. Or at least the last 20%.
That would open some eyes. But you need defaults first for that to happen. The holders of the 20% piggyback could start to get hurt.
If the OCC or Fed or whomever limits neg. amort loans (saying you need collateral in the bank at all times equal to the original loan value) or something like that…then that puts a big blow to demand in some of the highest markets. That could start the ball rolling. People who need to move or sell will be underwater, declare bankruptcy, and the PMI will get hammered.
College? Dayton? Did you go to Miami University? Oxford Ohio is one of the most serene places in the world.
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That’s like saying, “The trees waving make the wind blow.” Don’t confuse cause and effect, which are intrisically intertwined. The gigantic credit bubble/debt pyramid is the proximate cause of the housing bubble, and will ultimately be its undoing as higher inflation invariably brings higher interest rates, regardless of what was in the Fed’s last meeting notes.
Commodity prices are already in full-blown hyperinflation, and those price increases are going to get passed on to consumers. Considering how the average household is leveraged up to the eyeballs in debt — $8,000 in credit card debt alone — with little or no savings for a rainy day, the credit/debit bubble implosion is going to be spectacular to behold, and will bring down the housing and stock-market bubbles with it.
“So we probably have a credit bubble here too.
That’s like saying, “The trees waving make the wind blow.” Don’t confuse cause and effect, which are intrisically intertwined. The gigantic credit bubble/debt pyramid is the proximate cause of the housing bubble, and will ultimately be its undoing as higher inflation invariably brings higher interest rates, regardless of what was in the Fed’s last meeting notes.
Commodity prices are already in full-blown hyperinflation, and those price increases are going to get passed on to consumers. Considering how the average household is leveraged up to the eyeballs in debt — $8,000 in credit card debt alone — with little or no savings for a rainy day, the credit/debit bubble implosion is going to be spectacular to behold, and will bring down the housing and stock-market bubbles with it.
(Corrected post — sorry about the duplication)
Damn! I almost missed this thread… living in Ohio (oft-mentioned in the main post) I have a few general observations to toss out (sorry if I can’t match the level of raw RE data that some posters provide here).
I live in Dublin, Ohio (yeah, the Wendy’s place). I’m currently house-hunting. My previous stretch of doing this was in 2001-2, which was interrupted by my job being outsourced. Differences I see between then and now are mostly in the pricing, and the time to sale. I get the listings from a local realtor for selected zip codes in the NW Columbus area.
In 2001-2, the pricing was fairly linear; $100-110 a square foot for most places under $200,000; an active market, but no mania to be found. Today, prices are all over the place; whether by greed or lack of guidance, I see a lot of overly high initial prices; e.g. one listing I have in hand for a 1195 sq ft ranch with a “reduced” ask of $197,900, MLS #2608143 in case you’re interested. That’s $165 per sq ft, a number you’d never have seen here until now. (For what Zillow thinks of that price, click here.)
Sells are also popping up in bunches; one house or condo for sale seems to prompt another 2 or 3 signs in the same neighborhood or even on the same street, and at oddly varying prices (especially where condos are for sale). To me this says that people don’t want to be left behind before the buying ends. To my view, the selling was a lot more randomly-spaced 5 years ago.
Open houses: if I had to guess, I’d say that there are more open houses locally than there are buyers. Haven’t seen many other people when I go (I couldn’t go today due to work), but it’s supposed to be the buying season. For the MLS listings I get where a house is finally sold, in the past month the shortest DOM (days on market) I’ve seen was 41. One of the houses sold for over the ask (THAT was a surprise). They used to list DOM on all buyer sheets, now only the ones that get sold will show the DOM on the listings. Wonder why, hehe.
Realtor pressure is about the same (an occasional call checking up on me, no big hard sell), although the REMax balloons (the BIG ones) and planes towing RE banners over events has increased quite a bit. 5 years ago, those would have been advertising cars. And we know how the car makers are doing these days.
Then there’s Dominion Homes, which has received a lot of bad press over high foreclosure rates, deserved or otherwise. I’ll leave that one be, but you can check out their website… the home descriptions are vague at best (wouldn’t you like to know exactly how many sq ft you’re getting for $200-300K???) The new houses being built around here are all priced well above what is a median figure around here, mostly golf-course and estate-sized homes; pricing specials can be found on builder websites. There are few affordable homes being built; for those who can’t do the golf estates, there are the raft of overbuilt 2-bedroom flats and townhouse apts all over town. Rents are lower than they were just a few years earlier; my own complex frequently advertises new rentals for $200/month less than I pay (explaining it away as “oh, there’s just this one unit we have a hard time leasing”). And no, I won’t be putting up with that for much longer!
To sum up, this is probably the fastest-growing area in Ohio; people are moving HERE, and yet there is the tepid nature of what I see in the market. So you can imagine how it will be in the areas that more aptly carry the Rust Belt moniker (Cleveland, Toledo, Dayton, Youngstown/Warren).