‘The Good Days May Be Over’ For Housing ‘Piggy Bank’
The California press reacts to the foreclosure data. “First-quarter foreclosure activity in San Joaquin County hit the highest level in two years as the slow housing market made it tougher for owners to sell homes. San Joaquin County’s foreclosure notices jumped nearly 30 percent year to year.”
“A crunch over mortgage defaults hasn’t shown up yet, although mortgage-related credit counseling inquiries have been increasing, said Richard Pittman, coordinator for a nonprofit counseling service in San Joaquin County. Many homeowners refinanced four, five or six times, using the fast-growing equity as sort of a piggy bank from which to pull cash, Pittman said.”
“‘So from that standpoint, the good days may be over,’ Pittman said.”
“In Santa Cruz County, 108 homeowners received notices of default in the quarter, according to Andrew LePage, a DataQuick analyst. That’s a 61 percent increase from the first quarter of last year, when there were only 67 notices sent out, said LePage.”
“DataQuick President Marshall Prentice said the hike was largely driven by the slowing of annual home price increases, which makes it harder for homeowners to sell their homes and pay off lenders.”
“A rise in default notices would probably not directly influence home prices in Santa Cruz County, but it could contribute to the number of homes on the market growing, said (realtor) Gary Gangnes. ‘If a lot of people are in default and they can’t make the payments, the next thing is to try to sell the house,’ said Gangnes. ‘It would affect pricing if unsold inventory index gets abnormally high. If it gets to be a 12 months’ supply, that could put downward pressure on prices.”
“Economist Stephen Levy agreed the jump is not worrisome in itself but said it could be a sign of building stress in the housing market. He said he believes that many home owners will be at greater risk for foreclosure in the coming months, as teaser rates on the adjustable-rate or other riskier loans that helped fuel the recent real estate boom adjust to higher minimum payments.”
“The percentage of East Bay buyers who opted for adjustable-rate mortgages increased from 3.4 percent in 2000 to 28.2 percent in 2005.”
“An increasing number of Sacramento-area residents are behind in their mortgage payments, putting them on a track to foreclosure. ‘We’re definitely seeing the number of calls increase related to foreclosure,” said Jennifer Harris, of Sacramento’s Home Loan Counseling Center.”
“She said people who stretched themselves too far to buy a house are seeing payments rise $150 to $200 a month and asking, ‘What am I going to do?’”
“Many lack easy options to get themselves out of trouble, said Vicky Henderson, loan consultant in Sacramento. ‘I can’t tell you the number of people who call who want to finance into a fixed-rate loan, and I can’t. They don’t have the value,’ she said.”
The Washington Post. “A greater proportion of mortgage refinancers tapped their home equity for cash in the first three months of this year than in any other quarter in the past 15 years. About 88 percent of people refinancing their homes took out loans for at least 5 percent more than their original balances.”
“‘If you are watching and listening, the Fed is telling you interest rates are going to climb,’ said Amy Crews Cutts, deputy chief economist at Freddie Mac.”
“‘Our policy of using our homes as our banks is bad public policy, and we need to think of the long-term implications of the debt we have. It’s a homeownership economy where people don’t really own their homes,’ said Ira Rheingold, general counsel of the National Association of Consumer Advocates.”
“Mahesh Desai decided that because interest rates were about to rise, it was time to refinance his house in Darnestown. ‘I’m still going to have sticker shock in my next payment, but I’ve enjoyed lower rates for a while,’ Desai said. ‘Guess the party’s coming to an end.’”
“His new rate is 6.625 percent, and the monthly payment will jump 72 percent. It is an interest-only loan, but he will be pressed to afford the new payment, even without paying down the principal. ‘I’m going to work harder and sell more,’ he said. ‘I don’t have a choice.’”
Thanks to the readers who sent in these and several other related links today.
ARMs and fixed mortgages are FAIAP the same now. I’m seeing 6½ to 6 5/8 fixed rates and 6 3/8 to 6½ on 5/1 ARMs.
“A greater proportion of mortgage refinancers tapped their home equity for cash in the first three months of this year than in any other quarter in the past 15 years. About 88 percent of people refinancing their homes took out loans for at least 5 percent more than their original balances.”
Oh yeah this is a good thing. I guess this is really the double down/all-in bet point in the bubble deflating scenario.
“His new rate is 6.625 percent, and the monthly payment will jump 72 percent. It is an interest-only loan, but he will be pressed to afford the new payment, even without paying down the principal. ‘I’m going to work harder and sell more,’ he said. ‘I don’t have a choice.’”
LOL! He doesn’t have a choice? I’m going to be laughing for the next four hours with that quote!
He could chose to sell.
People are so convinced that things will all work out in the long run, they don’t even consider the possibility they may be digging themselves in deeper. It’s all about plugging leaks and short term fixes.
When in a hole the first rule is to stop digging should be tattooed on this guys forehead.
why would he sell when prices will be up 100% in 4 years. Just hang on baby!!
‘I’m going to work harder and sell more,’ he said. ‘I don’t have a choice.’”
He’ll really need to bust azz to sell his wares in the coming recession.
One of the very early quotes in the Franklin Day Planner pages: “No matter how far you’ve gone down the wrong road, turn back.”
Reading this article I thought;
“THERE ARE NO COINCIDENCES”…anywhere, anytime…this mess was preordained and orchestrated.
In time you too may agree with the second part of the above conclusion…
Preordained and orchestrated is right. Greenspan knew what was happening and just kept pouring gasoline on the fire. Remember his comment about ARMs? And he dropped interest rates to a level only appropriate in a time of crisis. By doing so, he created this crisis that we now face. We should all demand that TIME magazine publish a retraction of the laudatory cover of Greenspan. His place in history will be as a legendary brigand!
OT…
Brookfield Homes
Yet another report from an HB this week that took the company to a 52 week low…
http://finance.yahoo.com/q?s=BHS
Could it be TOL’s turn on Friday???
OMG! Is this Desai guy a complete moron or a reflection of the majority of past home purchasers? 72% more than what he is paying now and on an I/Owe. I am completely in shock. I would love to see this guys payment in relation to his take home pay. Get a clue people. It’ just not worth the sacrifice.
My rent has never increased more than 3% in a given year.
What’s misleading is the possible implication that he switched to a fixed-rate loan. If he went to interest-only, then by definition he is into another ARM — you can nit-pick by calling it a alloon loan, but it still is an ARM because the borrower later will be offered an extension at a different (lower?
) rate.
If he went to interest-only, then by definition he is into another ARM
Not true at all. You can add interest only to any type of mortgage, even a 30 year fixed. Very popular now as well.
I wonder if that jump in refinancings in the first few months of this year was due to people pulling cash out to pay their property taxes. If so, the irony of that is too much.
How much you want to bet that it is? Property taxes and paying off the holiday expenses on the credit cards. That is how all the FB’s I know have been making their tax payments… refi.
Some folks in SoCal have been making their mortgage and tax payments for years with the HELOC loans, and it was possible with appreciation rates climbing so fast. Think about it…a payment free place to live in SoCal for a few years, and then sell and pocket $50k+ on the way out! It’s all over when the lending industry prevents the new players from buying.
(“The percentage of East Bay buyers who opted for adjustable-rate mortgages increased from 3.4 percent in 2000 to 28.2 percent in 2005.”)
“I can’t tell you the number of people who call who want to finance into a fixed-rate loan, and I can’t. They don’t have the value.”
While there was something of a political reaction to the losses after the stock market bubble, there was also a recognition that the investors were trying to get rich and made their own decisions. One wonders what will happen this time.
This is what kills me. Of course, the finance industry would want to make fixed rate loans when rates are high, and variable rate loans when rates are low. But the borrowers? I guess this raises a moral/political issue, as to whether the sheerers have an fiduciary duty to the sheep.
“the finance industry would want to make fixed rate loans when rates are high, and variable rate loans when rates are low”
So did Mr. Greenspan, who recommended Adjustable loand to all herds. I can’t believe that Greenspan advised the public to take adjustable loans. Could you say “public manipulation”?
What FEAR drove him to make such recommendations?
Senilty? Or was he just trying to keep the bubble,…err economy flowing until he stepped down? He retired about 10 years too late.
“Many homeowners refinanced four, five or six times, using the fast-growing equity as sort of a piggy bank from which to pull cash, Pittman said.”
Most actual piggy banks are full of cash savings unless you empty them out. This one is chock full of IOUs, many of which will never be repaid.
U-know…. I would love to see houses come back down to realistic, historic values as would many here. But the thing that worries me most isn’t home prices going down, or losing my job in a down-economy. It’s the worry that there are going to be enough FBs out there that some sorry-arse politician will take up their cause and bail them out with public funds, thus essentially penalizing all of the fiscally prudent/responsible through taxes to bail out the greedy ignoramuses (ignorami?) and their poor decisions.
One of the serious beefs my folks had back in the day was that they were frugal, and sacrificed their lifestyle for years in order to pay for my and my sister’s education. Thus come financial aid time, we didn’t qualify. Their friends/co-workers spent every penny they ever earned and since they had no money saved, their kids all got a mix of free hardship grants and very low interest loans (about 50/50).
And that’s socalism in a nutshell, isn’t it? the folks who are irresponsible with their money get bailed out while the frugal get taxed higher or pay more for services because they are the “haves”.
You got it reversed. There will be no ‘bailout’ for the middle class. Its capitalism for the middle class- socialism is reserved for business class.
In my above example, I believe auger’s definition fits more appropriately. There will be plenty of lower, middle, upper-middle, and even upper-class folks (depending on your definition of “upper-class”) who will be pointing fingers and screaming for some sort of bailout once the doodoo hits the fan.
This also reminds me of when I was a kid, our church group signed up to volunteer and provide a nice Thanksgiving dinner for an underprividged family. We showed up at their apartment with a big bird and all the trimmings and the family had a couple ATVs in their parking space, a big-screen TV, nice stereo, nice furniture (all better than what was in my folks’ house). The lady takes one look at my expression and quickly explains “we’re injured and can’t work”. Needless to say, that was the last time we volunteered to do that. Today, that same couple probably bought a house with an IO loan and will be the loudest to complain when their social security benefits checks won’t be enough to cover their payment.
Point taken. There is bailout, then there is subsidy, then there is just plain crime!
I’ve had similar experiences. A friend talked me into doing a Habitat for Humanity project in inner-city Baltimore. The volunteers were all white, young, and enthusiastic, while the residents of the neighborhood were black, indifferent if not surly, and didn’t offer to lift a finger to help one of their own. It seemed every resident in the ‘hood sat on their porch all day, often drinking, when they weren’t disappearing into a nearby alley to do God-knows-what (they’d all scatter when a cop car did a drive-by). Kids would just casually toss candy wrappers and bottles into the street, instead of dropping it into the trash can they walked right past. The new home-owner-to-be was supposed to put in “sweat equity” as part of the deal, but mostly complained that she wanted better fixtures, appliances, finishing, etc.
It didn’t take long to see that the residents of the neighborhood lived in a blighted neighborhood for a reason: they were lazy and shiftless. I put a hard day’s work into the project, then said, no more. I’ll reserve my do-gooder projects and assistance for the DESERVING poor.
Just wondering, what’s the relevance of skin color to the point of your vignette? Youth, enthusiasm, indifference and surliness know no ethnic/racial boundaries.
Why should he leave out some of the facts of the story?
If they were black, then say so. If they were white, then say so. Why sugar coat it for the ACLU types.
First, my apologies to all for wandering far off this blog’s topic. John, you touch on the essence of my question: what does (or does not) make physical characteristics relevant to a story? If those details were left out of the story, how might that influence your impressions of the volunteers, neighbors and Sammy’s conclusions about volunteering?
My questions are less about political correctness than curiosity about how people build memories and the details they select to relate events to others.
Is it any wonder why a number of us here devote outselves to animal rescue?
Diogenes,
This is not intentional. Vision is the most acute sense - and it clouds emotional judgements. It is very hard to keep it out
In addition there is one thing that is common to this blog’s topic and what you are asking - the deep desire for human beings as social animals to conform to the standard. The same thing that creates the ‘keeping up with Joneses -lets also buy a house’ desire also creates the desire to conform our conclusions of what is observed to beliefs right or wrong - ie. interpret the raw data to fit a commonly held belief. It is also the reason behind the dumanization of the other i.e. that which do not conform to us is somehow inferior.
These follow from deep seated human tendencies of insecurity and survival and nobody, nobody can really get over it in a primordial sense. In a very threatening situation 100 % of humans will behave this way.
What can be hoped for is that in normal human interactions we amy be secure enough to consciously conquer such emotional drives.
This is why courage of the moral type is much more difficult than the physical one - it requires one to overcome a deep seated fear of not conforming to the norm.
And we are all here on this blog, because we are non-conformists. We were not afraid to stand alone when everyone called us bubbleheads. But if you really look back at those times. were’nt there times you felt alone and wrong?
Not conforming is really hard. And most of us get by conforming on some irrationalities and refusing to do so on others. Each one picks their battle.
Thanks,
Yet another human
Yes, I see what you mean. Thank *you*, Bubbagump for the perspective and additional food for thought.
Who are the deserving poor?
I’ve been to places in China, Thailand, Mexico…. where people eat gruel twice a day when they can, much less have access to basic services - most have never seen a dentist in their life. Keep in mind, they also stand in line in hopes of finding employment for that day and when they can’t, try to find other ways to generate enough to feed themselves. I’m no socialist, but I believe that no person should be forced to go hungry.
1. As I’ve said before… there has to be a crisis for the politician to act. That is your time to act. Buy then and let the politician’s easy money hyper-inflate YOUR asset.
2. You are absolutely right. I intend to look like a pauper when the kids get to college age. The key is to look poor without being poor.
1. Not sure I follow your logic here. So I buy when there is a crisis because the politicians’ easy money will hyperinflate my house after I buy?
2. Again, not sure if you’re just being flippant or are in the “can’t-beat-em-so-i’ll-just-work-the-system-too” crowd. Either way, the real problem with all these FBs is that they are all trying to look rich without being rich.
This is a disaster.
I understand why all of us look and hope/pray for the end of the mania to finally come. But then I rethink it and get a little scared.
Like someone else said: it’s kinda like a roller coaster, where you are eager to get on the ride, but then you have second thoughts when you hear the clickety clack of the ride, and then pure terror as you plummet down the first hill.
Except with this ride I’m not sure that we’ll all survive the drop.
I make great money and am very fortunate. But I come from very humble beginnings. Will I be able to keep MY job, MY income, MY savings if the crash causes a depression? How about my brothers and sisters who barely subsist as it is? Will they be ok? Will I be even able to help them if they’re not?
I hear the clickity clack. Finally the concerns I’ve been ridiculed for 3 years about are coming into existence. I should feel happy. But I also feel…
Terror.
Makes me kinda wish for that soft landing, if I thought it would help (but delaying this won’t help I know)
clouseau
I’ve had the same worries and in a similar position, but my wife and I (being natural savers) have enough money put aside to last us many years with zero income at our current expenditures. Now, my hope is that any problems manifest into deflationary pressure, otherwise if there’s hyperinflation, there go those savings!
But I always do remind myself that the $$$ in one’s bank are really just pieces of paper. Those who are able bodied, smart enough, and aren’t afraid of hard work will be fine come rain or shine. It’s like what Mark Cuban says - the average person will get a better rate of return taking the time/money he “invests” in the stock market and spends that effort/$$$ on bettering himself (his skills, knowledgebase, strengthening ties with family/community, etc.). I tend to agree.
We’re pretty young (32 and 28). Big savers too, but we did buy a house.
Currently, we have money stashed in INGDirect, HSBC, and Emigrant (I split them in case one or two becomes insolvent… how do you know how much RE exposure/hedges etc they have?) yielding 4.15, 4.8, and 4.5% respectively
Also have bought CEF the last 3 months. (gold and silver fund)
and we have our regular checking accounts.
Looking at our yearly outlays, we have 2.5 years worth of expenditures at our current rate of spending in the above vehicles.
If we pared down (cut out eating out, sold our cars, no more travel, etc) and added in having to pay for our own insurance, etc, we would have 3.25 years worth of expenditures (not including income from selling the cars)
If deflation: we’d have more
Inflation: we’d have less
Of course we have our 401ks and IRAs too… another 5 year’s worth maybe (cause we’re so young…)
Then the house: how much would it be worth???? We have a lot of equity (that we PAID down!) but that can evaporate faster than you can say “GM is in BK”. So I don’t count that. Plus, maybe we’d keep it, so we can house several families here!
would it be enough?????
But then: what about my extended family (brothers sisters parents). They’re razor thin.
I don’t want to have to start thinking “Sophie’s choice” here! Which one lives, which one dies.
clouseau
Don’t forget the his and her’s AK’s…
Invest in 7.62×39 ammunition. Better than gold.
Prices have doubled in 12 months.
I know you are joking about the AK’s, but I’ve thought about a gun related currency scenario in a warped sense of the future. If everything really goes to sh@t, then guns and ammo will be the true currency and about the only thing you will be able to trade (or use to get what you want). Forget about paper money and shiny rocks like gold. Maybe I watch too many futuristic sci-fi movies.
You do what is necessary for family. Always has been the case. Sacrifices are sometimes necessary and you will be rewarded.
First thought on your post: if you really are that financially sound, with all those savings and prudent financial decisions made, congratulations. You’re a rare couple in this country. I have married friends who are equally thrifty, and they like the INGDirect thing too. Probably not a coincidence.
As for the family, it depends entirely on the family culture that you come from… is it one of “everybody pitches in”, where if needed you’ll all live in a big house together, Waltons-style, or is it one where you lend a hand on a temporary basis, with the understanding that utimately they’re all adults who can make their own way?
Another way to put it: have they ever asked you for money in the past?
that kind of talk just brought back so many memories of ozzie & harriet, leave it to beaver, my three sons. that was all they talked about in those shows. its good to see nothing has a changed. your my kind a guy. happy days are here again.
Make sure you have some cash & PMs stashed at home, too. Should a banking crisis develop, all of your electronic funds could be frozen and/or highly restricted right when you’d need them. Otherwise, kudos to you two!
Agreed. i’m really starting to feel that this thing is gonna turn so hard and so fast that we won’t even know it. Like the Ameriquest closures today, there will not be a long, slow rear guard fight. I think a hard capitculation to a drop is closer. Bad quick and bad large.
I was thinking about this a lot. So many of my friends (and some family) have purchased in the past 3 years. I don’t have much hope for them. But it goes so far beyond that. If our worst fears (and greatest hopes in some cases) are realized and the housing market regresses to mean, so many people will be burned. Not just the lenders (who clearly deserve a hyding) and borrowers (who were greedy and stupid), but so many other people and industries that touch all those others. If those people sink low enough, then they become a weight around all of our necks (not even taking into account any government bailout). This moment and this time HAD to happen, and I’m so glad it’s come (coming), but we are going to see so many unintended consequences of loose lending and looser spending. Hang on tight.
The folks that worry me the most are the young pple at the office who have NEVER seen a down market of any kind. These kids are buying homes TODAY. At the top. Based on what their REtors tell them. Yes, there have been 20% YOY appreciation. Yes, a nice I/O ARM will get you into the house. Yes, you can use the $5k in your 401k for a ” down payment” wink, wink…
It’s all just too terrible.
One came to me yesterday and asked about future promotions in her dept. I explained as nicely as possible that she lacked the skills and that she would need to continue her education to make any headway in her career. She broke down in tears because taking classes is virtually impossible for her. She is treading water thanks to her housing costs - there is no cash or time - for education!
We will pay for classes but she needs a BA not just an excel class.
The BA is not likely unless soemthing changes.
Free money pple… get it here… forego your education… free money here….
That’s ironic - a real estate agent told me last year that going to college was for chumps and that the only way to riches was to flip houses.
My husband thought we should buy a house when we got married and I was 23. So we did. But it forced me to switch jobs after a few years as I was fed up with the commute and no time to exercise. I also gave up my Master’s degree pursuits. I was frustrated and wanted very badly to move, but of course he was sentimentally attached to “our home”. I think buying a home in your 20’s kind of sucks.
You will not feel that way 30 years from now.
Who lives in the same place for 30 years??
I have.
We may - have been in our home since 1987.
Coloradan,
You’ve touched on a subject not discussed enough here.
IMHO, this boom will wipe out an entire generation for at least a decade. These young FBs will either be underwater for years to come, or have their credit destroyed right when it starts to matter again.
Nah, it will just wipe out the morons. The economny works better when morons are on the bottom rung anyway.
in my opinion the disaster started long ago already. I’m self-employed and during the bubble years I have seen more and more small business owners get into financial trouble because of the housing bubble - except of course for those who lived from real estate like construction, RE brokers, mortgage mob and other financial services, gardeners, home improvement etc.
Just like in the US, the Dutch economy has become extremely dependent on the housing bubble, cash-out refinancing etc. Many small companies have seen their turnover decline and their cost skyrocket because the housing bubble sucks up all the liquidity in the economy.
It’s about time that this parasite and all that goes with it gets removed for good, before the economy goes down with it.
So no, I’m not hoping for a soft landing; unfortunately, in Europe there is no end in sight yet for the housing/credit bubble and even a soft landing would be better than what is going on now.
The problem with a “soft” landing (which I take to mean stagnant prices for many years as opposed to a quick drop) is that it prolongs the misallocation of resources. Instead of encouraging all the RE agents, lenders, builders, flippers, etc. that are “in the business” to actuall look for greener pastures elsewhere, a soft landing will allow them to cling to their hopes a bit longer. So, instead of reorganizing workers into more productive areas–R&D, healthcare, you name it–we will lose GDP and productivity by prolonging the exodus.
The eocnomic problem with bubbles is not that some get rich and some get poor. The problem is that there is too activity in buying and selling things instead of making things.
yes, totally agree; you said it much better than I did
What? Do you mean a strong economy is not built on buying and selling houses to each other along with the ancillary industries (Home Depot, Ethan Allan, etc)?
As much as I hate to see the aftermath of this bubble I’ll be glad when housing reverts to it’s traditional role as “shelter” instead of a get-rich, can’t lose, everyone wins ponzi scheme.
I share your concerns. The things mentioned in these articles have all been discussed here at length. Additionally, as people here have mentioned, during the last RE downturn rates started high and dropped, to help soften the blow. Now we have people taking adjustable mtgs. (and IO) during a period when rates have been unusually low. This scares me. I hope for a soft landing as well.
Furthermore, extracting equity via cash out refinancing is like repurchasing your home at a higher price. How stupid is that? I guess each time you do it you get “incentives”, like new cars and vactions!
Clouseau, I’m right there with you and totally agree. What we are seeing is, IMHO, the perfect storm. Soaring energy prices with no end in sight, out of control consumer and US debt, weak substantial job creation (McJobs don’t count), massive illegal immigration, ineffective and incompetent leadership in DC, a war without end, global decine in the confidence/value of the dollar and finally the impending implosion of the RE market. I’m sure I’ve missed other areas due for massive correction but just one or two of these things happening will be enough to send us spiraling into recession or worse, out-right depression. What it boils down to, is that our entire global economy is just one big house of cards (no pun intended).
I dare say we are watching the waning days of the once mighty US industrial/consumer machine. The clackity-clack you are hearing is very real. All imbalances will be corrected.
Everytime I bring up any of these issues (especially the housing bubble), I am scoffed at and ridiculed. I’ve felt the same terror you feel. However, I take solace in knowing that the durabilty of the human spirt is something far beyond what any finacial market could ever measure.
Thanks! I’m glad I’m not alone… sometimes I just feel like I must be crazy or something.
Most of my close friends and family don’t understand. Not because they don’t want to, it’s more like they can’t understand… they can’t put it together. Either it’s too complex for them, or that the end result is just too horrific for their minds. I try to explain the concerns to them… and I can see the glint in their eye where they are SO close to getting it… and I see the concern… but then some sort of subconscious wall of protection goes up and they can’t go all the way. It’s like child sexual abuse. We know it’s out there… but we can’t bring ourselves to believe that it could ever happen to our children… it’s just TOO much.
My wife knows I’m worried… and thank god for me that I have her. She also doesn’t quite get it… but she sees something is terribly wrong… and she goes along with my hairbrained money stashing plan!
I know that sometimes you gotta be a maverick and believe in your principles no matter what others may think… but it’s nice to know you’re not the ONLY crazy one out there!
I don’t know if I’ve said it myself before… but THANK GOD for this blog…
clouseau
It’s funny you mentioned that! Just two nights ago (when I found this blog), my Fiancee and I had a serious discussion about the bubble and the over-all potential for a depression (one of our many discussions on this topic including preperation). I stated to her “I feel like I’m going crazy!”. It’s something she’s been hearing from me a lot over the last 6 months. I am a degreed, analytical, rational thinking person, who also happens to be a very “glass half-full” optomist and not a doom-and-gloom Cassanandra.
It’s very much a relief to know I am not alone.
Follow your gut instincts. Things just may work out well enough for you.
Operation,
I think you’ve hit the nail on the head. Things are not looking good for the U.S. There will be massive pain felt by all (even the most wealthy, IMHO). The best we can hope for is a **quick** end to the bubbles so we can get on with rebuilding, from the ground up, our country and society once again.
Don’t forget Social Security and Medicare. We have to make sure those cards are included.
I agree with you completely. It is just a matter of time before this house of cards disintegrates. Politics apart, this administration is a disaster. Our money is going south and nothing can stop it. We print dollars like there is no tomorrow and someone has to pay the piper really soon. Oil will reach $100+ a barrel before the end of the year and the dollar will plummet and so will our economy. Already, the RE market is folding along with the mortgage brokers and construction is slowing. RE has sustained the market and economy for the last five years but anyone can see that the tide has turned. They were the steam engine of this great over hyped economy and by late 06 and early 07 the effects will be catastrophic for many, many people. We are not alone, loose lending is persuasive in Europe, Australia, New Zealand and to some extent China. I think and I have said this before that Israel will take out Iran’s nuclear ambitions rather than GWB probably before 07 or early 07. What that entails who knows but it will not be good for the US. We already have two wars going that seem endless and a drain on our finances. Our economy cannot sustain spending $2 for every $1 we earn. Our manufacturing base is steadily eroding and our property values will plummet along with our economy. Hold on, it is coming and when it does it will be huge and long lasting. My only advice is get out of the $ as much as you can and hold your head down.
Looks like the “depression camp” is getting crowded.
In an odd way, that’s very good news. The more people that are prepared the better.
I remember my grandmother telling me about how my great-grandmother took in piecework during the Great Depression. One time her sewing needle fell in between the floorboards. She, and all the kids, got on their hands and knees, deperate to get it out.
My grandmother also told me about the chickens they would raise. She was so envious of the chicks, since they could peck at the grains of rice that had run-off in the rain water. My grandmother could only watch, belly twisting in hunger.
This was only one lifetime ago. We in the West have been so fortunate for so long. I don’t know how people will handle it, if things get even remotely as bad as they did in the 30s. (Read: I don’t know if I could handle it!)
I will never forget my Great-Grandfather looking out the airplane window at the sea of concrete which was once fertile farm land and saying “the sea of concrete will produce a tide of destruction which will drown many, many people”.
My Grandmother, who also witnessed the Great Depression (and who helped out many people by share-cropping their land out to poor farmers) has been saying this is been coming for a long, long time.
Yes, there will be tradgedy, great suffering and prolonged hardship. However, we will survive and become much better and stronger for it.
BTW, my father grew up during the Great Depression, and he’s getting all worked up about going into another one now. Even bought some farmland for my family (against our wishes) as a sort of “safety net” in case anything happens to us. He’s never been this way in all the years I’ve known him, so it’s telling that he’s feeling this right now.
Do the people who lived through the GD know something which most Americans do not? Seems we’re hearing more and more of them trying to warn them. Best that we not brush them off as useless relics of the past, and see them as the store of knowledge and wisdom that they are. Unfortunate thing about our country: we value youth and beauty to such an extent that we don’t understand the value of old age. It’s what makes our country great (by idolizing youth, strength and new ideas — it makes us more flexible and resilient), but it will also be our downfall, IMHO.
— George Santayana
Those who cannot remember the past are condemned to repeat it.
And those who remember the past will find new ways to make mistakes. –Anonymous Curmudgeon
My father, who is 81 years old and grew up during the Great Depression, is getting all worked up too. He keeps saying to me, ” Don’t spend too much money. Make sure you have savings. Stay on that good job you have. ” I keep assuring him that we have savings, we’re not spending too much money, and that I’m not leaving my “good job” for at least 9 more years — ( it’s not dependent on real estate, lol ) until I retire with full medical. It doesn’t pay a lot, but the benefits and 403b match are phenomenal, and it’s not dependent on private business. I’ve never seen him this upset.
I hope they pay out.
I helped my grandfather put a roof on his house a couple years ago. Every nail he hit wrong and bent he straightened out and used. I asked him why, he said there was once a time when nails were hard to get and to make use of everything wisely.
Moral of the story - although I don’t subscribe to this ‘economic armageddon’ theory, we are in for some turbulence. There are lots of lessons to be learned from those and we know a whole generation was scarred from the great depression. Will we or our children be scarred? In a way I desire a return to simplicity in life but I pray that we are not scarred, just taught a smarter way.
When the ILLEGALs finish sucking your Social Seccurity and Health Benefits up and completely ruin what decent public education is remaining you’ll think housing bubble. The Sheeple better wake up. It’s almost too late. I ask all the politicians who ask for my vote, ‘ Will you vote for AMNESTY?’.
Pismobear
I’ve seen a few of your comments about illegals, and I don’t want to quiz you too harshly (my own feelings are pretty ambivalent at this point) but don’t we as consumers get a benefit from lower cost labor (therefore your strawberries don’t cost $8, and your house costs $100K in labor rather than $250K since these are cash transactions and no contributions to social security etc)? I think there are reasons we should be paying a living wage to citizens, but then in turn our costs for everything rise as well. Seems like a zero sum game.
Assume it’s a zero sum game…then you have the rest of the country getting cheap strawberries and chicken parts, and the builders getting cheap (and cheaply made) houses, while the states with big illegal populations get to pay for it with poor schools and collapsing health care and social service infrastructure. Does that sound fair?
How about *you guys* pay for the education and the social services, it and *we* get the cheap strawberries??
nope, not zero sum. Heard an NPR story the other day…remittances from the US were $20 B, which before the current rise in oil prices, was about equal to the value of their entire oil exports.
Throw in the med care cost, schooling, etc.,etc., etc. and note that I damned well don’t buy into the….”They pay taxes too!” line. Whatdaya fill in next to your name? SS #., right?
Assume it’s a zero sum game…then you have the rest of the country getting cheap strawberries and chicken parts, and the builders getting cheap (and cheaply made) houses, while the states with big illegal populations get to pay for it with poor schools and collapsing health care and social service infrastructure. Does that sound fair?
How about *you guys* pay for the education and the social services, it and *we* get the cheap strawberries???
at least most of the ‘illegals’ in the US work hard for their money. In my country (NL), most of the (legal or illegal) immigrants that get free housing and health care do not work at all.
Illegal immigrants result in higher population upon their arrival and higher birth rates while here. They threaten too change the very structure and society of America. Latin America civilization is not on a par with America. If that makes me a racist then I do not care. It is just a fact that few have the guts to admit.
If we want to keep our nation and society enjoying the benefits of our European heritage, we can not allow the lower classes from Mexico, Haiti, etc too flood into America. Their children and grandchildren will eventually out vote ours and the USA will be a third world nation.
Americans need too do their own work. Plenty of people will do the lower class jobs if paid a decent wage. It will cost more if the illegals leave but we will keep our nation. Even without the illegals the US population is too high. We need to provide incentives to reduce family size. If we do not take steps to controling our numbers we will no longer have “America the Bueatiful” and will need a ticket to enter a national park.
I have found the discussion today about concern about and family experiences with the great depression very interesting. You are a sharp group/blog. Thank you
European Heritage?
How about we just give back CA, AZ, NM and Texas back to Mexico?
My mother (born in 1930) tells of the story her mother related about their experience. Granddad worked as a lawyer in a brokerage in NYC after graduating from Drake U. in Iowa in the 20’s. When he lost his job, he left the family of wife and two small kids (including my infant mother) in NYC to find work back home.
When he got back several weeks later to get the family, Grandma was down to one quarter in her pocket. That’s all they had left.
Grandpa’s new gig? Delivering bread for his uncle’s bakery in Jacksonville, Il. He brought back just enough money to put them all on a train and leave. Lawyer => bread delivery. Kind of sums up the Depression nicely, doesn’t it?
The problem with that now is that you won’t be able to make that kind of move if a depression hits which is kind of scary. Especially if the amensty folks have their way. I heard a story the other day where a teen seeked out a job at McDonalds to raise money for her prom dress and felt there was no chance because she didn’t speak spanish.
We are encroaching on a very bad situation the housing bubble is just the beginning
The big misunderstanding I am seeing here is that everyone thinks that their money and portfolios are safe. IMHO I believe the person who can design and built various products is the one who will survive this coming storm. Skills and knowledge are most important at this time, not how much money you made off a stock.. those will be irrelevent soon enough(you cant eat or drink money).
My Grandfather’s family was so poor, that one day when a thief broke into the house, they robbed him!
Bwahahahahahahhahaa! I slay me….
I’m a Baby Boomer myself but I have a couple of neighbors that were in their youth during the Great Depression . I notice that these neighbors turn off lights, don’t waste water , and they are always ready to split things with me to save money .
SS - you continue to amuse. However, unlike others on this blog, nothing came out of my nose and sprayed my keyboard.
I’ll use that one, thanks!
“Foreclosures up; experts not worried
Despite rise, figure remains well below historic average; flat home prices blamed for defaults
By James Temple
CONTRA COSTA TIMES”
How many times will we have to read “Experts not Worried” over the next six years? Just keep whistling as you pass the graveyard, Dr. Levy…
I think the experts are right to some extent. In Europe foreclosure numbers started rising when the double-digit growth stopped 3-5 years ago. In my country foreclosures doubled every year for four years already.
However, reality is that the numbers were very low around 2000 and even now they are still moderate. And sales prices are still rising here, so it doesn’t yet have an effect on other homeowners or the economy.
I guess you need pretty big foreclosure numbers before it has significant influence on the average sales price and the economy; could be we are heading in that direction though …
What is the affordability index, median price, and status of the ‘fundamentals’ in your country. Perhaps ‘its different there’ than here. You may just be at the leading edge of the worldwide liquidity/bubble phenomeneon. ??
well, we have the biggest housing subsidies in the world (50% HMD, more than 50% rental subsidy for most renters, HUGE subsidies for developers, no tax on equity gains when you sell your home etc.). That explains part of the trouble.
In my area a very modest home costs 10x average income; that’s pretty extreme I think. Prices for individual homes in my area (similar to the OFHEO index in the US) have increased 600-1000% over the last 15 years, while personal incomes increased maybe 40%. And homes were considered ‘extremely expensive’ even when the bubble started.
leading edge? probably, the Netherlands has a tradition of speculation, manias (tulipmania in 1635 and some others) and financial volatility in general
I beg to differ. I think foreclosure is actually good for the economy as a whole. It releases a buyer on the brink of a disaster from lifetime of servitude and under-cosumption. It gives opportunity for a different buyer to buy a house at market price. The lender loses for sure in this process (but they are sitting sitting outside US any way), but the overall economy benefits.
The alternative is a buyer in the home he can not afford struggling to keep up with rising payments and cutting down on everything else. Then you have potential buyers who can buy because the FB can not sell at the market price so all transaction die.
I feel that recent overhaul of the bankrupcy legislation was probably the worst policy mistake. The lenders should not be saved from their own stupidity. If depression that everyone fears results, it would be because of that.
“I feel that recent overhaul of the bankrupcy legislation was probably the worst policy mistake. The lenders should not be saved from their own stupidity.”
Not that I don’t agree with this, but I would make an even stronger statement that FBs should not be saved from their own stupidity.
The courts will be taking this issue up I am sure, as well as the legislative bodies.
yes, good point.
the trouble is of course the last part: the lender often cannot loose, the looser is the taxpayer, a pension fund or some other anonymous party.
and the same goes for most of the ’speculator’ activity in the housing market: this CAN be good for the economy, just like hedgefunds can keep the financial markets healthy.
But this only works if risk is priced in correctly and although speculators probably face more risk than average homebuyers, I think in their case also a large part of the risk is transferred to society in general - and if that happens they start distorting the market instead of just trimming excess.
BK is still available to ~90% of the people who could file before the law changed. AND IT SHOULD BE! Credit industry has made it an aggresive policy to target high school kids, people already drowning in debt, people on fixed incomes, etc. Let’s see. . . suicide versus wiping out their debts to multinational, multibillion dollar companies. . . . easy conclusion.
NHZ,
I am weary of telling you all the reasons why it is “different” over here than in the old country. But it is “different”…
You don’t invest in US RE, do you?
yes it is different in the US; but for real estate I still think it is basically the same in all of the anglosaxon world.
I only invest in some US gold stocks
http://www.gold-eagle.com/editorials_01/seymour062001.html
The “experts” of 1929-1933 weren’t worried either.
A number of CA newspapers carried the foreclosure story today, and noted that the current foreclosure numbers are about equal to the ‘average’ rate for this time of year. Last year almost nobody lost a home so FC rates were abnormally low, hence the dramatic jumps in percentages. But the rocket is still pushing this sled faster and faster, and what with CA prices and number of innovative loans we have, Folks we have liftoff.
You mean we have the first “mayday mayday, we’re going down in flames”.
Foreclosures in lift-off, housing in flames - whee!
Hollywood does make the best explosions!
marc faber’s new newletter has a chart that shows housing is down 20% in gold terms from the top.
http://www.gold-eagle.com/editorials_05/faber041306pv.html
Where are David Lereah and Suzanne?
Suzanne researched this and she says the retrenchment of Ameriquest means that more buyers will be prime borrowers and the reason for the company repositioning was because the CEO went to good local schools.
Nice.
10 year bond rate up. Foreclosures up. Inventory up. RE industry job losses up. Can someone say “perfect storm”?
Yeah, I’m surprised we’re not having more discussion about those yields. Does anyone know how much or when this is affecting the ARM people? I personally have no idea and haven’t looked into it, as it doesn’t directly affect me and my 5.3 fixed
…oil up, inflation up, saving rate negative, trade deficit up, gvt deficit up, natl debt up, consumer debt up. Yep, sounds like the perfect storm to me.
I just checked the housing bubble weather report and the forecast is; yup, a perfect storm!
More anecdotal evidence. We’ve received several foreclosure files in the past week where the borrower only bought the property within the past year. I don’t think they’ll be able to sell their way out of this, and most investors in the area are offloading inventory and waiting for the really good deals. Heading for the hills and watching the waters recede into the distance…
Can you provide more color around this story? ie, how does a borrower have such nearsightedness that they can get themselves in trouble in less than a year?
“We’ve received several foreclosure files in the past week where the borrower only bought the property within the past year.”
The loan origination and title fees are too often rolled into the mortgage, so they are upside down; here’s the keys, Countrywide…catch!
“DataQuick President Marshall Prentice said the hike was largely driven by the slowing of annual home price increases, which makes it harder for homeowners to sell their homes and pay off lenders.”
____________________________
That silly Marshall Prentice, giving homedebtors WAAAAY too much credit here. Anyone know of someone who couldn’t afford their house and sold it as a result, lately? No???
No, Mr. Prentice, people didn’t sell their ever-appreciating asset in order to get out of debt! Why would they get rid of their cash machine at exactly the time they are experiencing financial difficulties? Of course, they listened to the RE industry and “wiped away all that debt” by cash-out refinancing or HELOC-ing their houses! Must always remember: DEBT IS WEALTH.
The reason homedebtors haven’t been in foreclosure is because they took out HIGHER loans to pay off their loans…or something like that.
I am seeing a lot of fear on this blog. I am of the Howdy Doody era. Take all of this concern one day at a time. I have indeed seen the the dark side and have come out of it. There have always been difficult times in life and there will always be something to be concerned about. I have a good day if I get up in the morning. Try and relax.
Peter,
Agreed that there is much doom and gloom around here. I’m actually known for being an optimist, but cannot close my eyes to all that is going on around us. It’s screaming at us…
I can only hope that you are right, and that all will be well with just some minor and temporary setbacks. As much as I want to see the credit bubble collapse on itself, if there is a way that can happen without affecting most everything else too much, I will be exceedingly happy.
Look, this wonderful country has survived the revolutionary war, a civil war, the first world war, second world war, depression, second world war, Korean war, Vietnam war, stock market crashes and we will survive fundamentalist religions trying to destroy us. Best of all, I got up this morning and we will survive this latest hardship.
Yes, Peter you are absolutely correct. We will survive and be stronger for it.
Of course, the fundy religious types are the ones I am least worried about though! My biggest concern is energy/resource producing countries finally waking up to the fact that they don’t have sell their resources to the U.S.. First Venezuela, now Bolivia, and probably Peru will be next in renationalising their natural resources. It sucks to be an American when the world wakes up and realizes that we need their resources more than they need our dollars. It was a good gig while it lasted though!
Sometimes it seems like it would be easier if we could just have Gozar the Gozarian ask us to chose our destruction.
We have been through this before. And we have survived bigger and badder than ever before. This is all just a blip on the radar screen of history. The difference is, you are living it.
Nice hopeful words Peter, but the truth is you don’t know and neither do I whether this is just a blip on the radar screen of history. I wonder if the Anglo-Saxons considered the Battle of Hastings a blip by the time 1067 rolled around? If all of human experience can be relegated to blips then we might as well just become completely self absorbed and nihilistic. Uh-oh too late as IMHO we as a society are already at that point of self absorbed narcisism as individuals and as cultural identities.
There is always something that can cause strife and disharmony. Realize it but don’t let it control your life by either focusing on it too much or completely ignoring its existence.
This is the absolute truth. My family crossed the channel in 1066. We survived! Must have been horrible for my forefathers.
Those of us with young kids won’t let the country fall apart. We can’t. We’ll do what we have to do to make sure they have a future.
“Those of us with young kids won’t let the country fall apart.”
**********************************************************
I hope you are right but as I look around I see very few making any effort whatsoever to keep our country from falling apart. And it is falling apart….rapidly!
Have you called your Congressman and your Senators about any of the destructive steps being taken to dismantle our country? This country is being lost and far too few are doing anything to stop it. The Federal Reserve steals from us every day by creating massive inflation(far more than the government reports). The Pentagon can not account for over a trillion dollars in a recent audit and no one is doing anything about it. The President says he does not have to observe the laws of our country! Our young people are dying in far larger numbers in Iraq than we are told about! We have to borrow $2 billion a DAY to keep this country going!
Cmon, folks. DO SOMETHING!
Yeah, thanks Peter…
I’m usually not doom and gloom either… (really) I’m a happy go lucky person, and tend to think that all will be well. But then I probably overthink and get myself into a tizzy panic. It may last for a day or two, then subside, but not enough that I draw down my ING/Emigrant/HSBC accounts!
clouseau
I always remember a saying from the series “Kung Fu”:
“If the sun rises in the morning, is it not a new day?”
Loved that show.
As with CA Renter, I’m a very optimistic person. Researching the bubble these past few years has led to some rather nasty revelations, though. Hence my blogname… “tj” is my normal optimistic self, whereas “the bear” is my recently discovered bearish alter-ego.
Good-bye, salad days. Hello hardtack and biscuits.
peterbob wrote:
“Instead of encouraging all the RE agents, lenders, builders, flippers, etc. that are “in the business” to actuall look for greener pastures elsewhere,”
——————————————————————-
If a strong immigration laws come to pass, those “greener pastures” may be as actual farmworkers, we’ll have a shortage of those.
IMHO, that would be a good thing. It would eliminate our dependency on service industries and get us back to doing something useful. Not only that, we could get rid of the cubicle farms (which are the real reason for skyrocketing obesity, IMHO), and get us back to real work on real farms, which would keep our metabolism going at a healthy clip.
You first!
Yea, but the catch is will those laws pass and if they pass will they be enforced. After having a front row seat to the demonstrations on monday and watching the foot dragging of congress and listening to the president. You’ve got to be kind of concerned. If they pass some form of amensty/guest worker bill and the bottom drops out you could be picking grapes for a dollar a day and living under the freeway while big business continues to pay their executives 400 million dollar buyouts. Extreme yes / possibility high
almost anything is down in gold terms:
http://tinyurl.com/lf6ze
“Many homeowners refinanced four, five or six times, using the fast-growing equity as sort of a piggy bank from which to pull cash, Pittman said.”
———————————————————-
I finally figured it out. The more my house increases in value, the more I can borrow. And I don’t have to worry about ever paying it back because my house will never stop increasing. What a beautiful concept.
Look on the bright side. RE agents out of work can buy a truck, lawnmower, blower and edger and start their own gardening service. They will be replacing the illegals being sent back to Mexico.
Yeah, but will they want a 6% commision on each lawn cut ?
A real estate hen couldn’t last five minutes in a landscaping job.
Remember, folks … Ben does not get paid directly for hosting this blog, nor for spending every day of every week posting the great articles, quotes and observations on which we can chew like Bobby Flay’s grilled salmon. I have seen many other blogs rise and fall, due to the tremendous amount of work required to sustain them. Posts like “Way to go, Ben” are nice but do not help Ben materially.
Please support Ben in the way you (ought to) know works. When I was a bit more direct about this in the past, a well-meaning blogger or two noted that I shouldn’t be doing anything that could cost Ben sponsorship. So I won’t. This should be a no-brainer to enough of us.
I was thinking about how much Ben makes off this site.
Conservatively, probably does 500k page views a month. Gets at least a 1% click through, and let’s say .20 cents a click (some of these google ads pay much more, some as much as $5.00 a click)
Probably making a couple thousand a month.
Gee, do you think an illegal alien could do it for half of that?
Chip,
Thank you for your reminders!
My mother, an economist, generally discounts the prospects of another Depression. She lived through the last one and, old Roosevelt Democrat that she is, thinks that we have enough economic tools nowadays to prevent it. But when I talk about the kinds of insane financing that have allowed this bubble to grow she gets this startled and horrified expression on her face… I trust her judgment, but I’m not sure she’s really aware of the extent of the problem. On the other hand, I was just as afraid as I am now 25 years ago, and although the double digit inflation and massive deficits then were tough, we got through much better than I ever hoped.
(Ironically, that RE bubble was fueled by the expectation that high inflation was here to stay– so the credulous bought into the idea that you should buy with the largest loans possible because you would always be paying them back in ‘cheaper dollars’.)
The eulogies of John Kenneth Galbraith remind me that he was the one who coined the phrase ‘conventional wisdom’ — and that he had all the contempt for it that it deserves.
That we have excellent economic tools at our disposal and have institutions standing ready to use them make the prospect of another Great depression very small. I will get concerned if we get ahead of ourselves as a nation. The Fed is very concerned about housing prices (asset bubble). Don’t believe for a second this foolery that they don’t believe in it. Alan G and now Ben B can’t come right out and acknowledge it and throw the economy into the toilet with one flush. This kind of bubble has to be unwound or it will suddenly pop.
That’s one reason we have seen 1/4% rate hikes. This is the first time in a rate-raising campaign that a 1/2% rate hike has not been used. Last time (1994) Alan G used two 1/2% and 1 3/4% rate hike to slow the economy. It completely devasted real estate in 1995 and it didn’t recover until 1998/1999. This is one reason I strongly advocated a 1/2% rate hike in spring 2005 as a way to put a “shot across the bow” and let the housing bull idiots understand that the Fed meant business.
We can also get into a discussion about how the Fed is politically manipulating the economy and has been since 2000 to put and keep the GOP in power but I’ll save that for another day.
That we have excellent economic tools at our disposal and have institutions standing ready to use them make the prospect of another Great depression very small.
I’m sorry, but if we were so damned well equipped then we wouldn’t be in this fix in the first place. Get real.
“We can also get into a discussion about how the Fed is politically manipulating the economy and has been since 2000 to put and keep the GOP in power but I’ll save that for another day.”
This would make a nice weekend topic.
We can also get into a discussion about how the Fed is politically manipulating the economy and has been since 2000 to put and keep the GOP in power but I’ll save that for another day.
______________________________________________
It’s over for the republikkkan cretins.
test
Gary Watts already said that 15% was in the bag. Where is his followup to that? Or did the flying pig with lipstick on carry him away? Did Suzanne find the squirrels? Didn’t she research where they are?
RE agents doing lawn work. Would work off a lot of blubber that has accumulated around a few waists. But no homedebtor could afford to pay them. The lipstick flying pig days with the gold coins are now gone.