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The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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Name:Ben Jones
Location:Northern Arizona, United States
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Who needs jobs.
Disabled Americans Shrink Size of U.S. Labor Force
The number of workers receiving SSDI jumped 22 percent to 8.7 million in April from 7.1 million in December 2007, Social Security data show. That helps explain as much as one quarter of the decline in the U.S. labor-force participation rate during the period, according to economists at JPMorgan Chase & Co. and Morgan Stanley.
More than 99 percent of all SSDI beneficiaries remain in the program until retirement age, David Greenlaw, a managing director in New York at Morgan Stanley, wrote in a March research note, citing government data.
The number of people collecting disability surged as the economy contracted, with the share of the U.S. population between the ages of 25 and 64 on SSDI climbing to a record-high 5.3 percent in March from 4.5 percent in 2007. Applications per 1,000 working-age people rose to 18 last year from 8 in 1990.
http://finance.yahoo.com/news/disabled-americans-shrink-size-u-040103492.html
I want disability and a free house too.
That must be some great living high on the hog getting $800/month of disability. Cue the meme that food stamps and earned income tax credits are bankrupting this country, while the 1%er pigmen get billions in taxpayer bailouts.
+1
A lot of the new “disabled” were people who were working in spite of their disability. I know several people like this.
Now, even a healthy 50 year old can’t find anything other than Lucky Ducky jobs. And the cull of the “over 45″ demographic is continuing (a 60 year old pilot friend of mine was laid off a couple of weeks ago).
So a lot of the people who could qualify for Disability before the SHTF, are now applying for it, because they have no other options.
People are going to do what hey need to for survival.
Agreed.
You get Section 8 too!
How many years long is the wait list?
In Orange County, California they stopped taking names for Section 8 (I know someone who tried to apply). In neighboring counties the wait is up to 5 years.
“I want disability and a free house too.”
Be glad you’re healthy. It’s the one we all take for granted, until it’s gone.
“I want disability and a free house too.”
“Be glad you’re healthy. It’s the one we all take for granted, until it’s gone.”
I know 2 guys from my last hood that are healthy and receiving SSDI while working on boats and playing with their kids who also receive SSDI because they are the children of someone who is on SSDI. To be fair they both were paying for their houses which were purchased at pre- boom prices.
The University of Maryland says that nearly 80% of the lowering unemployment rate is due to adults dropping out of the labor force.
This applies to one of my friends. He’s a retired USAF fighter pilot.
In reading his CV, I noticed that his post-service jobs got progressively more menial. To the point where he finally gave up on the job market. And he’s not a dumb guy.
I’ve been trying to encourage him to develop his writing talents into a paying career. He’d be a crackling good writer on military and political topics.
But I can’t get past his discouragement.
It’s also been reported that 550,000 fewer adults were employed in April as in March.
If true, that’s a horrific number this far into a recession.
No wonder your pal is discouraged. Tens of millions of educated people are.
And it’s not even January 2013 yet. I expect plenty of people on this board to join the unemployment ranks by this time next year.
Better save your pennies, folks. Even you guys who work for the Feds. That everyone but you is being gutted right now bodes very badly for you in the not-too-distant future.
Better save your pennies, folks. Even you guys who work for the Feds. That everyone but you is being gutted right now bodes very badly for you in the not-too-distant future.
And the powers-that-be wonder what’s making people take to the streets and protest. Methinks that May Day protests will be overshadowed by others in the coming months.
“Better save your pennies, folks. Even you guys who work for the Feds.”
HA! What a joke. You think Romney and Paul Ryan and the teabaggers are gonna touch the army of federal contractors?
No they won’t, cus contractors are “free market” capitalism, paid for with your tax dollars. Loosers!
“HA! What a joke. You think Romney and Paul Ryan and the teabaggers are gonna touch the army of federal contractors?”
Correct, regardless of who wins, the big spending and deficits will continue. The Bush tax cits will be renewed and while our “trading partners” will complain about our deficits and endless QE’s, they will put up with them. What other choice do they have? And besides, they’ll just buy up more choice Bay Area real estate with the inflated dollars we keep sending them.
I expect plenty of people on this board to join the unemployment ranks by this time next year.
Why all the suggestions to up and leave two well-paying union jobs with seniority and benefits in order to find cheaper housing aren’t really all that helpful.
Housing at any price is too expensive if you don’t have a job.
Any real revolts won’t come from some inconsequential Occupy dweebs. That group already have proven inept and lacking in coherent vision. Destroying property is not visionary and does little to change Wall Street or Washington.
Wanna change Washington? Don’t pay your taxes. A tax revolt implemented by several tens of millions of people on a given date would get DC’s attention in a real hurry. I’d love to see a President encourage it one day. That would mark a real change to DC m.o.
BTW, are both of you federal workers/contractors? You sure act like it (bragging about $125/hr. jobs not withstanding). Your “big spending and deficits are baked in the cake” position sounds like many othersI’ve met that are interested in protecting their taxpayer funded jobs. That people rely on such posture for CYA purposes is not wise.
Your own job is increasingly becoming too expensive, sf renter. This perception is growing among the jobless and homeless, both of which are increasingly represented by the well educated.
Do you understand that? Do you really? Do you understand the implications for you and others like you who make 50% or more of what the average person makes?
There’s lots of people who have succumbed to the notion of 99 percent versus the 1 percent. If things continue to get worse, that 1 percent number could grow drastically to include you, the 51 percenters.
.
Aren’t you a teacher, posers?
Wait, I bet you work at a charter, don’t you?
Yes, I am a teacher. Public schools. Non-unionized and no tenure. There are many non-unionized, no tenure public school districts around the country. Just not on the coasts.
Is it good for the unemployment rate picture when people drop out of the labor force like flies?
April jobs report: Hiring slows, unemployment falls
By Annalyn Censky
@CNNMoney May 4, 2012: 8:47 AM ET
NEW YORK (CNNMoney) — The unemployment rate unexpectedly fell in April as workers dropped out of the labor force and hiring slowed.
The economy added 115,000 jobs in the month, the Labor Department reported Friday, down from March when the economy added 154,000 jobs.
Meanwhile, the unemployment rate fell to 8.1% as 342,000 workers dropped out of the labor force.
Economists surveyed by CNNMoney had expected to see employers add 160,000 jobs and the unemployment rate to remain at 8.2%.
…
According to zerohedge, birth death adjustment was +220000 jobs…
They assumed the creation of 220,000 jobs that they couldn’t confirm because of companies so new they didn’t get in the stats? Isn’t this number was from the household survey? I thought the birth/death numbers were for the stats extrapolated from company numbers.
Here’s the link.
addbacks +22k seasonal, 206k birth-death
My understanding is that birth-death is applied to the non-farm payroll, based on employer stats, not the household survey…
The “birth” number out here in Flyover is about zero.
Good thing the rest of the country is going like gangbusters.
How are the prospects for GSE principal reductions shaping up these days?
House Republicans urge housing regulator to remain steadfast on principal reductions
By Vicki Needham - 05/03/12 05:37 PM ET
Two House Republicans are urging a federal housing regulator to resist pressure by Democrats to offer mortgage principal reductions on government-backed loans before completing an evaluation of its merits.
House Government Reform and Oversight Committee Chairman Darrell Issa (R-Calif.) and Patrick McHenry (R-N.C.) on Thursday wrote to Federal Housing Finance Agency (FHFA) Acting Director Edward DeMarco urging him to “carefully evaluate relevant information prior to making a decision that could cost taxpayers billions if the government were to pay down the principal value of underwater mortgages for select homeowners.”
“As conservator of Fannie Mae and Freddie Mac, you have a unique obligation to preserve and conserve the assets and property of [Fannie and Freddie],” wrote Issa and McHenry, chairman of the Subcommittee on TARP, Financial Services and Bailouts of Public and Private Programs.
Earlier this week, DeMarco said he would need more time to complete an examination of the policy and make a decision about how Fannie and Freddie would proceed.
House Democrats and the Obama Administration have been pressuring DeMarco to clearly show why he has, so far, been reluctant to consider principal reductions, especially when some preliminary data shows savings for taxpayers.
“We regret that the tenor of the housing debate in this country has become increasingly politicized and that your integrity and independence of your office have been directly challenged,” Issa and McHenry wrote.
The GOP lawmakers argue that principal reduction programs have not demonstrated added benefits to homeowners and has undocumented costs.
…
The Democratic Congress critters who advocate principal reduction as a cost saver seem to consistently overlook the cost of $3.8 bn in Treasury funds proposed to support the program. Grade school arithmetic isn’t rocket science, folks!
There also is a blatant willingness to ignore the fact that anyone who has weathered the Great Recession this long without walking away from their mortgage is unlikely to walk away, period. So the claim the purpose of these principal reductions is to keep people in their homes who would otherwise walk away appears to be a straw man.
Finally, what are the special qualifications that determine who is eligible for the principal reductions? Does it matter how much you used your mortgage as an ATM machine during the boom years? If anyone can provide a reference on proposed qualification requirements, please post, as I would like to know what it takes to qualify for $51,000 in unearned, tax-free income.
Tierney blasts housing official
Jesse Roman
The Salem News, Beverly, Mass.
7:20 a.m. CDT, May 3, 2012
It was a happy day for members of the Cruz family in 2006 when they bought a house in Salem for $380,000 at the height of the housing bubble.
“It was a good time to sell, and not a good time to buy, but I didn’t know that,” said Cruz, who was 21 when he bought the home for himself and his immigrant parents.
But when the housing market collapsed in 2008, the house’s value dropped $120,000, the refinance the bank had promised fell through, and Cruz was hit with a dose of harsh reality.
“I was upside down very quickly; I had no equity, I couldn’t refinance and I had these crazy interest rates,” he said, noting the rate on his adjustable rate mortgage jumped from 5 percent to 9 percent. “My parents are from the Dominican Republic and don’t speak much English, so I took it upon myself to do it and I had no idea what I was getting into. I felt completely scammed.”
An estimated 12 million Americans currently owe more on their mortgages than their homes are worth. Foreclosures in Massachusetts totaled 850 in March, a 36 percent increase from a year ago. Many people like Cruz throw up their hands and walk away, unwilling to be shackled to a loan so out of whack with the value of their house.
How to deal with the complex problem has been an ideological flash point, which bubbled up again this week with Congressman John Tierney on the front lines.
In a harshly worded letter, Tierney accused Edward DeMarco, the acting director of the Federal Housing Finance Agency, of misleading Congress and withholding documents about the potential effectiveness of principal-reduction programs — forgiving a portion of the home loan for underwater homeowners.
Tierney favors principal reduction, arguing it keeps people in their homes and is less costly than the foreclosure process. According to internal documents obtained by Tierney and Democratic Maryland Congressman Elijah Cummings, Fannie Mae’s internal research suggests he’s right.
The government mortgage giant — which DeMarco oversees — conducted an analysis of the effects of principal reduction and found that a principal-reduction pilot program, which was abandoned for unclear reasons, would have cost about $1.7 million to implement, “while the benefits could total more than $410 million,” according to the documents cited in Tierney’s letter. A former Fannie employee said the program could have saved “tens of billions of dollars.” Tierney’s office said Tuesday that it would not release the internal documents.
…
Somebody is going to have to explain to me how writing off principal “saves” money, compared to a foreclosure. Either way, somebody’s bottom line is taking a hit.
Unless “Save” = “Smaller Loss”
Without having seen the analysis, I am pretty sure it is predicated on the assumption that handing the underwater borrower unearned income of $51K in loan forgiveness will significantly reduce the risk they will send jingle mail to the lender. This may have made sense before millions of borrowers went into default on their mortgages, but I don’t see how it can be relevant at this point; presumably anyone who has continued making payments this far into the Great Recession and its aftermath is willing and able to continue, regardless of whether they receive a helicopter drop of a year’s worth of tax-free income.
If I am correct, and the write downs would have little effect on underwater borrowers’ propensity to default, then the program could cost* up to $35 bn in direct payments.
* This estimate is based on two numbers I have seen thrown around in the MSM:
- 690,000 potential write-down recipients
- $51,000 on average per write-down
690,000 X $51,000 = $35.2 bn.
“690,000 X $51,000…..”
The bill will be known as the “Fart in a Hurricane Act of 2012″
What I don’t get is what will qualify the lucky 690,000 (5.75%) out of a reported 12M underwater borrowers for a principal write down. Does anyone have information on criteria to qualify?
I think the idea is that if they can keep FBs in their houses, those house won’t be put in the market, dragging house prices down and causing even bigger loses.
So the claim the purpose of these principal reductions is to keep people in their homes who would otherwise walk away appears to be a straw man.
Here in Tucson, a lot of the people who bought homes that are now in some stage of foreclosure are…
…in-VEST-ors.
Yeah, there I go with my bustin’ on that word. Again.
But around here, the “keep people in their homes” thing just isn’t flying. Because the in-VEST-ors have already bailed on them and the tenants have moved on.
“Because the in-VEST-ors have already bailed on them and the tenants have moved on.”
That gets to my point above, which is that the folks who are still paying their mortgages at this point are not likely to be influenced much on the stay-or-walk decision by a paltry $51,000 shot in the arm.
Gold is normally an inflation hedge, while higher unemployment is normally not a leading indicator of inflation. Does the rising gold price on dismal employment figures suggest the market soon expects QE3? Or is this merely a flight-to-quality out of stocks?
May 4, 2012, 8:42 a.m. EDT
Gold futures turn higher after U.S. jobs data
NEW YORK (MarketWatch) — Gold futures turned higher on Friday, erasing losses after the government reported that the U.S. economy added 115,000 jobs in April, fewer than economists expected, but job gains for February and March were revised higher.
…
Is a 20% stock market correction in the coming months a realistic prospect? And if so, would the tail end of the correction offer a good opportunity to buy the dip? Or is this the Wall Street onset of the Japonisme?
Gold could test $1,400 to $1,500 says Marc Faber, aka ‘Dr. Doom’
May 4, 2012, 10:59 AM
“Dr. Doom” is feeling some pain about gold. Marc Faber, publisher of “The Gloom Boom & Doom Report,” said gold prices could test the $1,400- to $1,500-an-ounce level sooner than not.
“Gold may not perform very well in the near future,” Faber said, venturing that the price “probably overshot” when it topped $1,900 last August. Gold (GCM2 +0.58%) was higher in Friday trading, as was the exchange-traded SPDR Gold Trust ETF (GLD +0.41%).
“The gold market has performed so well,” Faber said, “we could have some setback.”
But Faber added that the doctor is “in” when it comes to his gloomy outlook for U.S. stocks and sovereign debt.
U.S. stocks, Faber said, “may correct more than what people expect.” Market leadership is narrowing, as happens in poor quality, mature rallies, he noted.
A 20% downturn for the U.S. market in coming months wouldn’t be surprising, Faber said.
“Someone very bullish about stocks should be very concerned,” he said.
…
Even a 20% correction is still DOW 10000.
Could anyone who believes Treasurys are not a good investment kindly explain? It seems like they consistently produce better than average investment returns these days.
I suppose this point would be far more apparent if bond prices were reported instead of yields, as falling yields = rising prices.
May 4, 2012, 2:29 p.m. EDT
Treasury 10-year yields fall under 1.90%
Long-term yields have longest run of weekly declines since 2008
By Deborah Levine, MarketWatch
NEW YORK (MarketWatch) — Treasury prices rose Friday, pushing 10-year yields to their lowest level in three months, after a report on the U.S. labor market in April.
The data reinforced worries about the outlook for economic growth, boosting interest in safer assets like U.S. bonds instead of stocks that have pushed yields down for the longest weekly run since the depth of the U.S. credit crisis more than three years ago.
Yields on 10-year notes (10_YEAR -2.84%), which move inversely to prices, fell 5 basis points to 1.89%. A basis point is one one-hundredth of a percentage point.
A close at that level would be the lowest for the benchmark yields since Feb. 2.
Yields on 5-year notes (5_YEAR -4.84%) declined 4 basis points to 0.79%, their lowest since early February.
Thirty-year-bond yields (30_YEAR -1.60%) fell 5 basis points to 3.07%, the lowest since early March.
Yields have hovered this week near their lowest level since February as more recent data left investors disappointed and worried about the U.S. economy’s growth potential.
..
One way to clear up the foreclosure backlog of property and get rid of the non-paying squatter owners is for the agency to whom they are assigned to pay their mortgage send them (and cc to IRS) a 1099 for their non-paid free rent while having the IRS audit their tax returns for any declared non-paid interest.
What rent? Until there is a legal foreclosure, they own the house.
Is there any chance the I.R.S. will eventually treat the mortgage payments which squatters did not make as unearned income?
It is called cancellation of debt income. This is what I found (not pdf):
http://www.irs.gov/publications/p4681/ch01.html
Honstly, I’ve never heard of including the interest portion of the payments in the total amount of debt forgiven. It is in the context of a business expense, but the publication says that cancelled debt that would have been deductible is not income even it it is recourse debt. How that interacts with the fact that the person probably would have used the standard deduction anyway, I have no idea. And honestly, I’m not sure if the interest portion of a mortgage payment is consided recourse debt even in non-recourse states. This is all very mixed up in the legal rights that are included in the terms of the morgage. There are actually words written in all those pages of fine print. No answer is possible unless you really know the details of the contract and the law of the state.
How’s that for no answer?
That is a much better answer than flat-out insisting that in no way do defaulted mortgage payments by a current owner-occupant qualify as income.
Yes, they own the house but they are getting free rent from the bank or mortgage holder that should be counted as a gift by the IRS under 1099. If we can find creative ways not to pay one’s fair share of housing and push it off on the tax payers then let’s get creative and help the tax payers who actually pay their rent or mortgage.
That’s a good point, Ron. If the mortgage holder forgives some loan balance in a short sale, that is eligible for 1099. Free rent is a sort of forgiveness of mortgage principle.
Except, what if the deadbeat had an I/O loan and never paid a lick of principle? Is forgiving interest a gift too? My guess says no, since it’s not a gift during a refinance.
There is no “free rent” if they still own the house. Money becomes owed when there is a legal obligation to pay it. Not when you personally decide that it wouldn’t be fair unless they had to pay it.
Deadbeats owe the money that they are not paying under the mortgage, but it is all controlled by that private contract. If you want the government to impose some other fee on that private relationship, you go right ahead and ask your reps in Congress to propose a bill to do that. Hey, call them now. It is Friday afternoon. I’m sure the junior staffer who answers the phone could use a laugh.
If you want the government to impose some other fee on that private relationship, you go right ahead and ask your reps in Congress to propose a bill to do that. Hey, call them now. It is Friday afternoon. I’m sure the junior staffer who answers the phone could use a laugh.
I hear ya!
BTW, in my experience, those junior staffers who answer phones on Capitol Hill are pretty good. Wanna hear some hot gossip and find out where the phone answer-ers aren’t so good?
The White House.
Yep. That’s right. The White House. 1600 Pennsylvania Avenue.
I’ve called into that corner of the universe and have found that the people on the other end could really use some telephone training. And I’m not talking about the main switchboard.
Polly, who is “they?” The bank?
My understanding is that if the bank chooses to forgive some principle debt, that is considered to be “income” to the mortgage holder and is therefore subject to 1099, private contract or no. (or at least was subject; I think Congress suspended that for a couple years).
What if the bank allows the mortage holder to live in the house and not pay X in principle, but then the bank forecloses anyway. Let’s assume non-recourse. Is that non-payment of mortgage principle still income for the (former) mortgage holder?
“Deadbeats owe the money that they are not paying under the mortgage, but it is all controlled by that private contract.”
If I understand this point, then one purpose of principal writedowns would be to handle a select group of home owners a couple of year’s worth of mortgage payments. I still haven’t heard whether one needs to be current on a mortgage to qualify for a F&F principal writedown, though.
“Deadbeats owe the money that they are not paying under the mortgage, but it is all controlled by that private contract.”
Was that meant to distinguish failure to pay a mortgage from other forms of income? Because I have been paid income many times from private contracts over the course of my working years, with the understanding that I owed income tax on the proceeds.
Topic for the weekend: As the bubble drags out and fails to unfold in a logical financially sane manner some hostility has arisen on this board between those who have chose to buy and those who have chose to rent. As the life of the bubble continues the shift has gone from those eager to enter the housing market to those renters chiding those who entered the market while wishing to see them go underwater. What forces are at work here? Is it sour grapes? Is it frustration that they have taken action? Is it that they have now become part of the problem of keeping prices elevated? What would be helpful is the reasoning both sides can offer to those setting on either side of the fence. Remember RE is local and everyone predicted that Fl, Nv, Az, Ca would crash first so why couldn’t some buyers find an entry point in these states. In Ca it is easier to find an entry point in the central valley while idiots still bid up along the central coasts.
Question? As foreign buys suck up RE from local buyers with all cash deals, how will they be welcomed into the communities? As the percentage grows I would think tolerance will go in a negative direction.
I dunno but it seems there is a natural human urge to sell others on what you’re doing. “I’m doing X, so you should do X also.”
Never understood it really.
“those who have chose to buy and those who have chose to rent.”
Scenario 1
Rent and house prices go up
Scenario 2
Rent and house prices go down
Scenario 3
Rent goes up while house prices go down?
Which one is it?
It all depends on the sustainability of the current inventory squeeze.
Scenario 1 prevails in the event the inventory squeeze continues indefinitely.
Scenario 2 would result in the event the inventory squeeze abruptly segued into a glut.
Scenario 3 applies so long as the inventory squeeze continues as foreclosed former owners join the Rentership Society and purchase demand remains weak.
Scenario 3 Muggy, at least temporarily.
As FBs lose their homes, demand for rentals increases, thus driving up rents.
House prices continue to drop, some rising with multiple market offers and others sinking like a stone with the floodgate now opened or demanded by new laws for short sales by lenders.
Perfect storm to cause the majority of wannabees to rethink what is possibly the most crucial decision of their lives.
I predict equilibrium in about 14 months. Quote me, please -
The 1%er Vampire Squids worldwide are counting on a USA Safe Haven.
Soon we’ll see bidding wars for our politicians.
Buy now, or be priced out tomorrow.
“Soon we’ll see bidding wars for our politicians.”
Don’t forget that Free Speech is Consitutionally protected.
Anybody notice that Japan has abandoned nuclear energy? Rather be poor than irradiated. Amazing. We’ll follow in 20 years or less, I hope.