The Housing Bubble

“If something cannot go on forever it will stop.” This of course applies to the growth of the world’s human population. How do you think it will stop? Will it level off with just short-term, minor increases and decreases? Will there be a gentle, controlled decline over many decades or centuries (think of the economic implications of that)? Or will there be some kind of apocalyptic event that results in a very rapid decline of 20% or more? 50%? 90%? 99+%?

It would be interesting to see a treatment of the decision making process at this time for those who are inclined to default on their loan.

A short list of items to consider:

1) local rental rates
2) expected further deflation in housing prices
3) tax hit if house fails to foreclose by end of 2012
4) credit hit
5) increase in cash flow for X months due to non-payment whilst still in the house.

Can we establish an appropriate flow chart for this decision?

Looking at the World Economy and how it will impact US. With major RE bubbles in Canada, Australia, China, Hong Kong, Israel, India, Brazil, Korea etc. and deflating of RE bubbles/massive spending in Spain, Italy, Portugal, Greece etc., how all this would be for US investors and Americans. Maybe in a few years, US will emerge as best among the worst with all South Asia going into a decade of recession and US RE market getting back on its feet again.

Is the slowing rate of foreclosures and notices of default due to decreasing numbers of homeowners who have stopped paying their mortgages, or due to lender discretion?

And finally, given widespread reports of foreclosures and notices of default, is there coordination from the top of the banking system (aka collusion)? Because I am reading a similar report to the one posted below in today’s San Diego Union-Tribune, though I have not been able to find the online version, due to so many similar reports from many other local papers across the U.S. I thought collusion was illegal, but I suppose in the current financial system, whatever happens is legal by fiat.

Foreclosures Decline Again in May as Banks Struggle to Keep Up
By Daniel Indiviglio
Jun 16 2011, 3:15 PM ET

The numbers are way down from last fall, but this doesn’t indicate that delinquencies have plummeted

In May, foreclosure activity declined to a level not seen since November 2007. Last month, it fell by 2.0%, according to foreclosure tracker RealtyTrac. Unfortunately, this drop isn’t likely tied to far fewer borrowers experiencing trouble paying their bills, but to banks failing to process foreclosures quickly enough to keep up with severe delinquencies.

Here are two charts showing foreclosure activity by type of action, first with lines and then with stacked bars:

[CHARTS SHOWN HERE IN ARTICLE]

You can see that only auctions rose in May, while default notices and bank seizures both fell. Default notices have actually fallen to a level not seen since December 2006.

RealtyTrac CEO James J. Saccacio interprets these results:

Foreclosure processing delays continue to mask the true face of the foreclosure situation, although there were some clues in the May numbers of what lies behind that mask. First, activity spiked in May for various stages of the foreclosure process in some states, a pattern that has occurred in several states over the past few months. This pattern provides evidence that lenders are somewhat unevenly pushing batches of bad loans through foreclosure as they overhaul their paperwork and documentation procedures and as they determine that some local markets are able to absorb more foreclosure inventory.

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Ric Sharga seems to be of the opinion that slowing foreclosures are a bad thing.

Why wouldn’t fewer foreclosures be a sign of housing market recovery, green shoots, etc?

June 16, 2011, 9:27 a.m. EDT
Foreclosures slowdown only extending the pain

Foreclosure activity dropped to a three and a-half year low in May, according to RealtyTrac’s latest count. But RealtyTrac’s Rick Sharga says that is not something to celebrate.

What’s to like (or not) about Shiller’s “preplanned workout” mortgage? Has something like this never been tried before? I recall when there was such a thing as private mortgage insurance, in the days before federal guarantees were summarily offered in amounts up to $729,750, but I believe this insurance was only to protect the lender in event of default; it sounds like Shiller’s approach would protect homeowners.

But for some reason, I catch a whiff of moral hazard. Wouldn’t less responsible homeowners be tempted to game the system, living profligate lifestyles in the good times and triggering the “preplanned workout” provision in a pinch? It seems like these mortgages would have to be designed carefully to make them bulletproof against moral hazard; perhaps a deductible to make sure the homeowner has skin in the game would help?

June 16, 2011, 1:40 PM ET

Shiller: Need for Mortgages With ‘Preplanned Workout’ (Video)
By WSJ Staff

In an interview with the WSJ’s Simon Constable, Yale economist Robert Shiller says the global economy is at a “tipping point,” and the U.S. faces a “substantial” prospect of a double-dip recession. Shiller also had plenty to say about housing, including his idea for a private mortgage with a “preplanned workout.” “It wouldn’t reward the complainers,” he says. “It would be there for everyone. It’s not a bailout. It’s like an insurance contract that’s built into the mortgage.” (Image from Associated Press.)

Good thing the Greek thing is over. That was close! Money-printing… who would have thought?

How about a once and for all, battle royale over used house salespeople? Are they as bad as some here say? Just some rotten apples; an industry too corrupt to be worth salvaging? Or a group of professionals that help people navigate a complex process?

‘Charlie Young, president and CEO of ERA Real Estate, was in Brevard County this past week. While here, he and Barbara Keller, owner of ERA Showcase on Merritt Island, met with FLORIDA TODAY to talk about the housing boom and bust, lessons learned and what’s next.’

‘Q: One of the biggest problems is that in Florida, more than 40 percent of homeowners are under water, that is, they owe more than their homes are worth. Some of these people have also seen their incomes shrink because of the recession. That’s a hard position to be in.’

‘Keller: For most people, the short sale is their least negative option to dig out of the situation and get on with life. I think that is tough advice to give people, but it is what they need to hear.’

‘Q: What are the lessons to be learned from the housing boom and bubble? Young: We saw that runup from ’95 to 2005 sort of change the whole cultural dynamic in this country on how we view housing. You saw these huge price run-ups happening. It was very abnormal.’

‘I think the positive outcome of the real estate recession is that we’ve gotten out of the mindset of, ‘My home is an investment like a stock’ and rather it’s a long-term investment over time and the primary purpose of buying and selling and buying residential real estate is for a lifestyle purpose.’

‘Keller: Greed. We had absolute, pure unadulterated greed in 2005. People were buying three, four, five, six (condo units) at a time because they were going to flip them and make $100,000 on each one. I would hope that’s a lesson that as a people we have learned.’

‘Q: Do you see the role of Realtors changing at all in the coming years?

Keller: It’s not going to; it has. I think our role of what people want from us has changed tremendously. I think the consumer today has access to all the information in the world, but what they then do is get into information overload. And that is where I think they want to turn to a professional Realtor to help them evaluate all the information and to make a wise, good decision for themselves and their family.’

‘Q: The criticism I hear most often about Realtors is that they always seem to say, ‘Now is a great time to buy a home,’ no matter the circumstances. How do you respond to that?’

‘Keller: I ask people to prove it. We should be able to stand behind any of our opinions and statements with facts that support that opinion. I think if all of us would start asking for that from people we are working with in any industry, it would uplift what’s happening.’

‘Young: It is always the best time to buy a home when it’s right for you. You can’t time the market in real estate. The right time to put your home on the market or the right time to buy a home is when it is the right time for your personal needs.’

‘It happens to be a really affordable time to buy a home. That oftentimes gets translated into, ‘It’s a great time to buy.’ Historically, it is a very affordable time to buy, but if you don’t need a house today, I wouldn’t buy a house.’

‘Young: It is always the best time to buy a home when it’s right for you. You can’t time the market in real estate. The right time to put your home on the market or the right time to buy a home is when it is the right time for your personal needs.’
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There it is. You goddamn liars haven’t learned anything. Even your doubletalk is doubletalked.

Good sound advice is in short demand these days but I’m going to advise you lying bastards this;

Just shut up. Shut your stupid pie holes. You people have developed a culture of stupidity and doubletalk for yourselves that you just don’t know when to STFU. It’s time now. Keep your @$%ing clueless *OPINIONS* to yourselves for EVERYONES benefit. Your corrupt culture that YOU created has completely enveloped all of you and you’re to o#@$%ing blind, arrogant, self-entitled and greedy to see it.

Why is Megabank, Inc suddenly getting a case of cold feet on offering reverse mortgages? Don’t they ultimately gain possession of the homes in these financial arrangements? Could this be a tacit acknowledgment by Megabank, Inc that they see no home price recovery over the foreseeable time horizon?

Or is the problem that HUD has regulated these mortgages to the point where they don’t pencil out for lenders?

JUNE 16, 2011, 6:53 P.M. ET

2nd UPDATE: Wells Fargo To Stop Originating Reverse Mortgages

(Updates with comment from National Reverse Mortgage Lenders Association in eighth paragraph)

By David Benoit and Al Yoon

Of DOW JONES NEWSWIRES

NEW YORK -(Dow Jones)- Wells Fargo & Co. (WFC) is the latest lender to exit a controversial product known as the reverse mortgage, saying it no longer felt comfortable lending to seniors when it wasn’t able to determine whether they could stay in their homes.

The San Francisco bank, the nation’s biggest mortgage originator and the top issuer of reverse mortgages, said Thursday it would stop originating the loans, a special type of home equity loan available only to homeowners over the age of 62.

Franklin Codel, the bank’s head of national consumer lending, said the bank no longer felt the financials of the product made sense.

“Quite frankly the inability to take a look at the seniors’ financial situation to assess their ability to sustain home ownership as we are giving them the reverse mortgage is really an issue,” Codel said in an interview. “That’s a concern that seniors aren’t able to meet their obligations of maintaining home ownership.”

The loans are run through a program by the U.S. Housing and Urban Development department, or HUD, which sets the parameters for them. The products are known for having high upfront fees, and consumer advocacy groups have warned the complex loans are fertile ground for scams and deceptive marketing. With a reverse mortgage, the loan and its interest are due when the borrower dies, sells the house or fails to pay property taxes or homeowner’s insurance.

Codel said instead of the reverse mortgage program, the bank would rather lend to seniors through more typical home equity products. He said the financials, and not criticisms of the product, led to Wells Fargo’s decision.

In February, Bank of America Corp. (BAC) also exited the business, saying it wanted to concentrate on other mortgage areas.

HUD declined to comment Thursday. The National Reverse Mortgage Lenders Association, or NRMLA, said in a statement that demand remains strong for the loans, and though Wells Fargo would be missed, the loans are still available. The organization also said has been working with HUD to develop procedures to let lenders assess the loans, and that “it is anticipated that the Department will be issuing a rule change in the future.”

Fred Arnold, a mortgage broker with American Family Funding in Stevenson Ranch, Calif., lamented the move as yet another restriction in credit in the housing market, which has yet to recover from the worst bust since the 1930s.

“To get out of that market is surprising, and disappointing for consumers,” especially baby boomers who are entering retirement years, he said. “Because of the reach of big banks, the average senior citizen isn’t going to have access.”
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Upshot of that article I just posted, stating that Megabank, Inc is exiting the reverse mortgage business: Seniors who may want to keep living in their homes but don’t have sufficient savings to keep paying for food, etc., may find themselves in a position where they have to sell their homes and downsize their living situation in order to cover other expenses.

Of course, this will also add to the inventory of homes for sale in the coming years, putting further downward pressure on home prices. Seems as though Megabank, Inc may be shooting itself in the foot on this one…

Now that it is pretty much common knowledge that home prices are dropping at one of the fastest paces on record, housing is already in a double dip, and the rest of the U.S. economy is at a red alert level of double-dip recession risk, what kind of stupid morons are out buying houses at the moment?

And won’t HBB posters enjoy the God-given right to mock these people severely down the road for their boundless stupidity?

Can anyone spot any green shoots of recovery this spring?

How long do you expect the present economic malaise to last, and what will eventually bring it to an end?

June 17, 2011, 1:26 p.m. EDT
U.S. recovery could take until 2018
Former presidential advisers debate U.S. economic future
By Russ Britt, MarketWatch

SAN FRANCISCO (MarketWatch) — Two former presidential advisers faced off Friday in San Francisco over the nation’s economic future, with one saying the U.S. could see a decade of slow growth, while the other argued it doesn’t have to be that way.

Laura D’Andrea Tyson, who chaired the President’s Council of Economic Advisers during the Clinton administration, said historical patterns show that when the U.S. is hit by a major economic downturn such as the one that struck in 2008, it can take 10 years to pull out of it.

“History suggests that the recovery period will be long and difficultM,” Tyson told a crowd at the annual gathering of health professionals, put on by the insurance-industry trade group America’s Health Insurance Plans. “The new normal might be the old normal, which is that it takes time to recover from difficult economic slides.”
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