The Housing Bubble

The pattern shown on the daily trading charts at the link above is definitely NOT a pattern produced by a free market.

You are free to believe what you want to but the evidence of manipulation is overwhelming IMHO.

I also think that automated orders by institutional investors get filled at certain support levels. That would explain this “movement at once” stuff, I think. They could buy/sell huge quantities just looking for a slight move up or down based on news, events, etc. A bit like day-trading, but with large volumes. Perhaps…

Like you, I’m short these guys (quite a bit of $$$, actually), so hate these days!

Dawnal-

What are the patterns produced by a free market?

You call a chart evidence? Because a stock or group of stocks gap up they are being manipulated? Absurd….your opinion or interpretation of an event is not evidence of anything. And if it’s so overwhelming why not take your findings to the SEC? Or are they all in on this, too?

The PPT does sound ridiculous, but I’m no longer willing to count anything out.

If a fantasy PPT keeps me from being overconfident on my shorts then hurrah for the PPT!

For those who care to look further into the PPT:

http://www.sprott.com/pdf/TheVisibleHand.pdf

garcap is the PPT’s mole — just ignore his posts.

Yes. The Exact. Same. Dynamic.

I made the call in 2001 on home prices being too high. In 2004 I wished I had bought in 2001. So I own gold right now. I am a greedy flipper who knows there will be a greater fool.

It does feel tempting, doesn’t it? for that exact same dynamic reason lol!
I admit knowing nothing about anything of this, but ‘buy gold’ is already getting out there as a ‘thing to do’, ya know. Did people catch it at the ‘buzz log’ level on the yahoo front page today?

And to think I got blasted for this same line of thought the other day by that Dior idiot go figure

All I can say is, mrincomestream, you seem to be comfy with RE investments, God bless you, and good luck. Everyone is profficient at something, no problems with me.

Max…
You might be interested in a free trial membership here.

http://www.lemetropolecafe.com/guests.cfm

I have gained a great deal of insight into the gold market from reading this over several years.

I agree with this:

I follow this rule - don’t try sh** you know nothing about.

So the best strategy is to go out and learn.

Gold is money. Since forever.

Every paper currency in the history of the world has eventually returned to its intrinsic value (zero). Since 1913, we’ve gotten 96% or more of the way there.

What’s to stop the value of the dollar, and other paper to return to zero? Is it “different this time”? Are we in a “new era” with a “new set of economic laws”?

Yep. As a commodity bull, I like seeing all of the housing bears on this blog who think the commodity bull is like the housing bubble — it tells me we are years away from a blow off top.

Marc Faber had an interesting article recently looking at the Dow, housing, etc. priced in gold and pointing out that in “real” (i.e., gold) terms, the Dow and housing prices have been declining.

on the odds and ends note, fast food restaraunts take personal checks in slc.

try doing that in LA

I was assuming 400K avg. mortgage size. Which is probably on the large size, but these mortgages were used most aggressively in the high priced areas.

Are all ARMs teaser rates? I thought most of them were just 5 year fixed then floating or whatever…the 5 year was maybe 4% or so.

400K so maybe a 500K house with a 100K piggyback. The family is prob. making 70K in CA for that size house. What do you think?

I miss read your post then I thought your average was 1 m. I’m having a problem with some of the doom and gloomers, the calculator cowboys on this blog and the press in their representations on the reset problem. Just from what I know about the different products available if there is a reset problem it will be gradual and not as explosive as some want to believe. If someone is astute and has any amount of get up and go about themselves they can head off any problems. The problem with that is that many americans would rather shine seats with their aSS than work hard. IMO

The ARM’s vary you can go 2-10 yrs fixed, Interest only, P & I or option arm. My problem with the current anaylsis is the lumping of all the products in the same bag. Someone with a 2 yr interest only who bought within the last three years is done for IMO. Someone who bought using an Option Arm roughly 4-5 years ago may be somewhat safe if they did what was suggested to them when they were sold the loan.

In today’s enviroment you probably need about 90k to 100k a year to feasibly handle a 600k 100% down loan and still be able to eat and keep the lights on but that will be all your doing. Top Ramen will be your best friend

You are correct if they bought the house more than 2 years ago. But some of these ARMS are 2 year and are adjusting 5% higher. We are deaaling with unprecedented numbers of subprime borrowers.

Hoz-

If you have a $2000.00 note if your payments go up 5 or lets say 7.5% which is on the Option Arms as an annual increase or hell for the sake of argument let’s say 10% the most your payment is going to increase in any three of those scenarios is $200.00 In that situation if people are that strapped I think they would go get a second job or start some sort of side business before they lost their house. Will they be underwater yes, will the lose their house and be on the streets I find that hard to imagine for 200.00.

MRincome;….still be able to eat and keep the lights on but that will be all your doing. Top Ramen will be your best friend

But in this changing inviorment of outsourceing, job reductions in the middle class (GM) and inflation is there upside in his income over the next 3-5 yeras that allows him to graduate from “Top Ramen” to lets say “KFC” ??

I am quite concerned that the ball & chain to the house does not provide a sufficiant quality of life most people will be able to handle for a prolonged period of time IMHO…

Mr income, I thought they said the ARM period was expiring, in which case your loan payment can go up by more than 7.5% (I think). I though that was only an option ARM going up by that much from one year to the next, while you’re in the initial period.

After the deferral period, your payments go up by alot more than 7.5%. They have to otherwise you’ll never pay down the principal.

brianb-

My understanding is this during a period of 5 in some cases 10 yrs which Countrywide has right now payments can only go up by 7.5% of your payment during whatever term you had whether it be 5,7,10 yrs no matter what your index does that the loan is based on. Keeping in mind like that poster said below it’s really hard to make a general statement because it depends on the lender. Then after that period your payment based on a index (MTA,COFI,CODI,LIBOR) plus a predetermined margined for the remaining loan balance amortized somewhere between 20 to 25 yrs typically 2.25 to 3. Now during the course of the year again depending on your index and margin your interest rate can only raise by one percent on the remaining balance. Now for sake of argument lets say that after the term your index is 2% and your margin is 3 that would give you a rate of 5%. Lets say you index raises by 3 points in the first quarter making the rate at the time 8% you should have a annual cap in your mortage in most cases it’s 1%. Which would make your new rate going forward 6%.

Typically the neg-am portion of these loans are only supposed to be used in case of layoffs or cash flow problems to prevent foreclosure. But as you have seen from this board it has been abused.

you are all wrong

$300,000 IO loan with a 4% teaser is $12000 in interest a year or $1200 monthly payment.

Say it goes to 6% after the first adjustment 3 years into the loan then the payment goes up to $1871. 7% the next year and it’s $2071. the rate you pay is per year.

Now add in $600 a month for 2 car payments, property taxes of $400 a month, food and whatever and your average family with a $75000 year in income has no money left or is negative.

dba-

Are you talking about a strict IO or an option arm. I’m trying to figure out where I’m wrong based on your explanation

scdave-

“But in this changing inviorment of outsourceing, job reductions in the middle class (GM) and inflation is there upside in his income over the next 3-5 yeras that allows him to graduate from “Top Ramen” to lets say “KFC” ??”

Not that I can see from my tea leaves. The Middle Class and the Educated who are wage slaves for corporate entities are on shaky ground right now it’s not looking good and I don’t really see an upside in the near future. Someone mentioned here the other day that they were glad I stuck around after some of the criticism. The criticism doesn’t bother me. Because I understand the frustration behind it. Frankly, Had I not changed paths early in my working yrs and lucked up on a few pieces of bargain basement property that worked out extremely well . I would be in the same boat. It has to be disheartening to wake up everyday and realize your screwed. You educated yourself, made the right moves, dropped to your knees and kissed a$$ and some corporate bean counter can lay you off at the blink of an eye because some corporate VP is cooking the books and sending your job overseas all to protect himself, his boss and his stock options.

Then you go out and see someone doing a job that you perceived to be beneath you that you’ve looked down at for all these years, would never succumb to because of your “education” and “status” or as some would say a low barrier of entry with a Mercedes and a McMansion and it throws you for a loop and the scream of “Your Fu****” becomes loud and clear. Especially with the extreme prices of housing, energy, etc.. I know this because me and a relative started our working careers at the same time for the same type of company. I got laid off and said never again. He got laid off worked minimum wage jobs sent out the resumes and it took him 8 yrs to get back on track in the corporate world. He just bought his first house a month ago commutes back and forth to work a hr a day and when the war is over and they lay him off, and the many others who think they are safe, he’ll be screwed because he’ll be buried. Me on the other hand well I’m semi-retired and he hates me for it I can see it in his eyes and he resisted me greatly when I told him not too buy, I tried to show him Ben’s blog and he refused to look and accused me of not wanting him to succeed. Whatever perish if you must.

What some don’t realize is that many of the realtwhores came from industries that they are currently working in and in some cases have more education/advance degrees than they do. I worked in one of the largest commercial brokerages in the nation and you would be surprised how many attorney’s, cpa’s, MBA’s, ex corporate mucky mucks are in there working as agents with that being their sole and only source of income. I hear it’s the same way on the residential side as well. They didn’t just get in the game either a lot have been there since the Reagan years and the fiasco’s and layoffs of that era. I don’t hold lawyers in real high regards cpa’s either for that matter, but always thought that if I had a Law Degree there would be no way in hell I would be selling real estate untill I found out that there are only a few making top dollar. I almost passed out when I found out that an assistant D.A. here in L.A. only made 60k a yr a few yrs back. Too me thats shameful based on the education and time invested. But I understand it’s common.

So they say yea when the bubble busts that realtwhore he’ll be working at McDonalds knowing in the back of their minds that they will be there before him if things don’t change and change quickly. The VP will be flipping burgers after he finds out those layoff’s he orchestrated included him, the CPA will be on the register and the Corporate Lawyer will be sweeping the floor. All the while getting their marching orders from some english as a second language foreigner overseas is running the sqawk box. Globalization and Outsourcing is killing America slowly, Levi’s been here since the 1800’s laid off all their employees and tranferred all the manufactoring jobs overseas owner runs the company now from his home in the Denver mountains with a high speed line and a computer, Computer programming jobs overseas I remember not too long ago during the dot com bust reading about an employee of one of those companies working as a bartender and a referee on the weekends he had a pretty good pedigree but he couldn’t find a job, A good portion of the drawing and paperwork for Archticual jobs are done overseas now for pennies on the dollar from what I understand.

I look at all the posturing and chest puffing of the calculator cowboys and arm chair economist on this blog and laugh. Some know what they are talking about and are dead on the money, some have half the story and try to pass themselves off as experts by filling in the blanks with best guesses, others are just complete idiots.

While they are puffing their chests and screaming about what good deals they are going to get and when they are going to jump in the market and wishing the demise of realtors and the current crop of FB and flippers and I agree a lot of them deserve their demise. They have to be careful what they wish for that job they have now may not be there tommorrow those prospects and moves they are going to make probably won’t be available. A lot of them are not going to be able to weather the storm and they will never admit they already see the writing on the wall. If the last downturn was any indicator of how this one is going to turn out start practicing bending over and grabbing your ankles now.

It’s not looking good on any fronts if you don’t already have it.

“I am quite concerned that the ball & chain to the house does not provide a sufficiant quality of life most people will be able to handle for a prolonged period of time IMHO… ”

IMO whether you have the ball and chain of a house or not I think a sufficient quality of life won’t be in the cards for a quite a few folks whether renter flipper buyer seller whatever. The storms clouds are brewing and the popping of the bubble is a damn good sideshow but it’s far from being the main event if the last downturn was any indication of whats too come.

mrincomestream: With regard to NegAms you are kind of correct. That is not the loan program I discussed. I am poiting out that subprime borrowers bought with 2 year (fixed) ARMS initial rates of 5.5% that are now expiring with the new rates 10.5% or more. As values come down on realestate appraisals, it will be even more difficult to help these subprime borrowers get into a decent loan program.

Mrincomestream………….That is a great post! I sold out by luck at the top last summer & rent now. My concern is more about quality of life than when I buy my next and last home. Things are going to get very ugly. And, the gov-ment will only make it worse.

MRincome;…Whew !!!..That was quite a mounthfull….Thank God I only ask you 2 questions….

Just kidding really…I enjoyed reading your comments and perspective and agree with much of what you had to say minus the end of the world tone….

My daughter graduated a few years ago from a very fine Lib Arts University…She is currently making 27K a year albeit doing something she enjoy’s….So, I hear ya Pal…..

I really related to that post Mr. IncomeStream. Everything you said rang true to life as I’ve experienced and see it.

Hoz-

Difficult don’t think so try impossible.

scdave-

Did I come off as end of the world LOL I didn’t mean it that way. The world didn’t end during the last downturn and it won’t this time. But a big shakedown is coming and it’s going to break quite a few hearts.

Upstater-

Believe me when I say you are not alone. Cocktails on Friday with a few ex-MBA’s, Corporate Lawyers, and CPA’s from the Reagan Era shakeout will really open your eyes if they were closed before.

Excellent post, mrincomestream.

From the stuff I have been signing over the past couple of years, most of them do have a cap on how much they can adjust. Some have a cap on only the first adjustment, some have a cap on each adjustment, and some have a lifetime cap. There are soooooooooo many different loan programs out there it’s hard to make a generalized statement.
A 2% adjustment DOES NOT equal a 2% payment increase, it’s much much more. I think this is THE biggest misunderstanding of an ARM. So many people, when signing their docs, don’t bother to read over the paperwork that explains how their loan works.

Even the smallest upward adjustments to the monthly payment are going to feel really ugly when the resale value of the place is sliding downward month after month. It’ll be something like being stretched on the proverbial rack!

Do any of you actually think millions of Americans will be out there getting second jobs to help pay their mortgages? I mean, there’s already a lot of competition for those fabled “second jobs.” You already have millions of Americans who work two and three menial jobs to make a living, not to mention 11 million illegal immigrants, 20 million American teenagers, and millions more elderly Americans trying to supplement SocSec.

Most of the people we’re talking about with resetting ARMs are professionals, people with careers and full time jobs. Yes, there are plenty of janitors who did no-doc zero down I/Os, but let’s get real: the vast majority are solid middle class citizens with good jobs already. How many of them are going to admit to their wives and neighbors that they need to pick up a few hours down at the Savon stocking shelves to make their payments?

My prediction: the vast majority gut it out using HELOC money and credit cards. Some will survive, some won’t. Those who don’t survive will have leveraged themselves so far to the hilt that a second job will be like putting a kitchen towel down to soak up a tsunami.

Remember, the average American savings account has $4000. Only 28% of American households own mutual funds, and the national savings rate last year was -1.7%.

It is going to get ugly.

mrincomestream,

if people could get second jobs or just earn more, why aren’t they doing it now? Not that there is a lack of incentive, is there?

I mean, if I or my family could earn $700.00/month more right now, I’d do it regardless of mortgage resets, because that’s significant money no matter how you slice it. So, if people aren’t doing it, what makes you think they will?

The impossibility comes with children, in our case. We simply cannot work around the clock and care for them.

Another reason 2nd jobs are tough when you have a significant first job….travel and OT required in 1st job. Nobody’s home at 5:30 anymore if you’re even in town, the state or even the country at all.

“the vast majority are solid middle class citizens with good jobs already. How many of them are going to admit to their wives and neighbors that they need to pick up a few hours down at the Savon stocking shelves to make their payments?”

This is the kind of prideful and idiotic thinking that got them in trouble in the first place.

Most of you missed the point. Did a lot of people step on themselves, Yes. Is the coming storm going to be nasty. Yes. Would it suck far beyond belief to have a second job, Yes.

But I for one would have no problem delivering papers for the L.A. Times at 4 in the morning for 800-900 a mo. or working part time at kinko’s or some other 24 hr shop I wouldn’t care if I was working at a donut shop. Before I would lose my home and file bk for a 700 differential in house note especially if I was underwater. Professional, Educated, Kids wouldn’t matter.

The new BK laws in my mind are very draconian and scary. Losing a little sleep and sweating a little bit is far more appealing than a 100k 1099 from the bank and the IRS compounding the debt annually and raiding my bank accounts.

I agree with you on avoidance of BK at any cost. But the speculator/investor was planning on flipping in a year or two and now they are stuck with a liability. As these 2 year and 3 year ARM’s reset with interest rates (not payment rates) increasing dramaticaly 4% to 5% is a 25% increase and in actuality rates will be increasing from 300bps to 500bps.
In many cases effectively 100% increases in interest rate which will double the monthly payment.

mr income stream,the world savings option arm has a scheduled annual payment increase of 7.5% that is called a payment cap.the rate can increase annually by no more than 2%,and the lifetime cap was 10% until feb this year and now 12% for an owner occupied 90% first.the limited amount you can go neg am is 15% of the original loan amount….5%to7% is a 40% increase.this is on a stated income loan that allows 50% dti and a 680 score.in my county median home prices dropped to $575k,median incomes are $50k.

Hoz-

IMO flipping houses is a very risky venture. The carrying costs alone have been enough to scare me off. Unless it’s a total no brainer ie: gutted to the core and I’m getting it a 50-60 cents on the dollar.

I haven’t seen any 2/28’s or 3/27’s that double in rate after the fixed period. Not saying they aren’t there. I have seen the caps that will allow them to raise to 9.5 to 10% but it typically takes a year or two or more to get there after the fixed period.

Your right my scenario or your scenario if you bought or refinanced past 90% LTV within the last 3 years you’ve got a hard road ahead.

Tom-

When I did a World Loan last year the dynamics were different. But as you know they change constantly. I hate World Saving btw and stopped using them after my last deal with them.

But when I did World last year you couldn’t get a 90% LTV. The annual cap was 1% the lifetime cap was 9% and the amount you could go was 10% neg-am. It actually for the gentleman I sold it too worked out pretty well. For some people these Neg-Ams are not the end of the world. But for most of the wage slaves out there it’s the kiss of death.

On 500K this is the amort.
a 4 % teaser rate P & I = 2,387.08
a 5 % teaser P & I = 2684.11 (assuming 30 years)
a 5 % teaser adjusting 300bps to 8% = 3668.82(assuming 30 years)
Now all can see how the disaster falls.

Appreciate it! I’m sure in the depths of my heart that all mortgage brokers and real estate agents have made this crystal-clear to their soon-to-be FB clients. Amazing!

“the USA is permaphucked as a world money power.”
And if that’s true that would mean we’d soon be the same as a military power…which would have its own nasty implications seeing how too many others would love to watch us sweat

we’d soon be the same as a military power

Haven’t you heard? The most likely nominee to run the CIA is a former General.

Do you even have a clue as to the difference between an oversight and actually not knowing something?

I’ll give you an example: It’s called KARMA. I doubt that your addition of an “h” was a typo - you actually cannot spell the word. Wakaru?

You still need to fix that “your” vs. “you’re” problem. It’s terribly difficult to read YOUR posts when YOU’RE constantly screwing up. Those aren’t typographical errors, dude.

Re the “your” vs. “you’re”: It’s a blog, we rent, not a dissertation. Practice your getting along skills for the Great Fall that is coming. (Why piss people off over things that don’t matter?)

Answer: Why not piss someone off who doesn’t matter?

LOL this is getting way to much play. Yes, bad habit but because I do a high volume of writing to clients. I find it in my best interest to put it all in the screen first. Then use spell and gramar check to correct unfortunately sometimes it doesn’t catch it all and I don’t have the luxury of it when posting on the blog plus a lot of times I’m on the phone while I’m posting here I find it a great distraction while talking to idiotic people on the phone. So bear with me.

P.S. “We Rent” it pisses my assistant off too but I pay her well and don’t take too kindly to being corrected and it’s her job to make sure it’s right. But I agree as far as your concerned ” why not piss someone off who doesn’t matter” so enjoy.