August 24, 2012

The Problem That Got The World Into This Predicament

It’s Friday desk clearing time for this blogger. “The Obama administration has little fear of ’shadow inventory.’ Shadow inventory is the spooky name the real estate industry gives to a secret supply of homes on bank books or headed into foreclosure. In a meeting with Los Angeles Times editors and reporters, Shaun Donovan, secretary of Housing and Urban Development, said the volume of distressed and lender-owned homes was down at Fannie Mae, Freddie Mac, the Federal Housing Administration (which is part of HUD) and in bank portfolios. With an improving market, the worst appears to be over, he added. ‘It’s hard to see where these properties are hiding,’ Donovan said.”

“The vacant, fire-damaged house on Maryland Street in northeast Rochester is wasting away. Neighbor David Samuel L’Bron calls it the ‘animal house’ because of the raccoon family that lives there and greets him nightly. Other than that, and the group that gathers out back for dice games, he pays it no mind.”

“But it has the city’s attention. One in five Rochester houses that have gone into mortgage foreclosure the past two years are vacant today, according to the city. And of those that are vacant, two in three are not being maintained. Many of the vacant houses in mortgage foreclosure are in relatively good condition. But city officials suspect some banks are stalling the foreclosure process, wanting a buyer lined up before a judgment puts them on the hook for property maintenance.”

“‘We need to probe into the banks, and see what is holding these up,’ said city Corporation Counsel Robert Bergin. ‘We’ve pushed some, and it takes a lot of effort to do that.’”

“Locally, there’s been rumblings for months that the Obama administration is manipulating the housing market to make it appear more stable than it actually is. Redding agent Curt Largent said, ‘We had a conference call with one of the banks that told us they did not expect the actual foreclosure process to pick up until late in the year, which in my opinion is code for after the election.’”

“Shasta County Association Board President Doug Juenke is convinced the administration is putting pressure on the banks to slow the pace of foreclosures, and reiterated this to me an email. ‘Of the eight or so REO (foreclosure) agents I spoke to locally and out of the state, three were 100 percent adamant that the administration was manipulating the housing market to make it appear more stable for the run-up to the election.’”

“Some 46 percent of younger homeowners are underwater, a much higher rate than with older mortgage holders. Zillow chief economist Stan Humphries notes that younger buyers tend to have bought their homes more recently, just as the housing market was falling apart. ‘Many of these young homebuyers may have been purchasing a [Federal Housing Administration] mortgage with a 3.5 percent down payment, for example,’ he said. ‘It doesn’t take much of a drop in home prices to put a homeowner with a 3.5 percent down payment underwater.’”

“There is a silver lining for younger homeowners, though. ‘The younger homeowners are in shallow water relative to their older cohorts,’ Humphries said. ‘And you’re seeing higher delinquency rates with older homeowners.’”

“Low interest rates have created a class of ’serial refinancers’ and given them new opportunities to spend their freed up cash. Refis, as they’re known, have changed the face of Ellen Sandler’s Chevy Chase, Md., neighborhood. Over the years, savings enabled Sandler to double the size of her house and remodel it a few times. ‘I have neighbors who are also doubling the size of their house,’ she says.”

“Shelley Hall, who lives in Brea, Calif., has refinanced four times. But she says she’s careful about bringing up the subject. ‘I don’t mention refinancing to some of my friends, because if they bought in the last couple of years, they’re either underwater or they just don’t have enough equity to do it,’ she says.”

“Rising home prices are often welcomed as a sign of a country’s economic health and vigor. But in New Zealand, concern is growing that prices have risen so high they are instead an economic anchor, sucking resources from those who can afford a home and prompting those who can’t to consider moving overseas. Economic commentator Bernard Hickey said young families who want to buy homes are delaying decisions like having children, while those who have purchased recently have saddled themselves with so much mortgage debt they are less willing to take on entrepreneurial risks, like starting a business. He said that in turn stifles the country’s productivity and dynamism.”

“‘Because interest rates are low, and house prices are not falling, people feel justified in borrowing more than they can afford,’ said Hickey.”

“Craig Ebert, a senior economist at the Bank of New Zealand, says there’s a more fundamental problem: interest rates are too low. ‘We’ve become highly dependent on low rates,’ he said. ‘This is the problem that got the world into this predicament.’”

“Chief Minister Paul Henderson has defended Labor’s My New Home scheme after economists from the Reserve Bank of Australia warned about no-deposit home loans. The RBA economists say borrowers should have to fund part of their property themselves to help prevent housing booms and busts, and reduce the risk of defaulting. Mr Henderson says the My New Home scheme is needed to get homes built in the Territory and precautions will be taken before loans are approved.”

“‘I make no apologies in stepping in where the market has failed, and the market is failing Territorians,’ he said. ‘We will not be lending money to people who can’t afford to repay those loans.’”

“In a sign of weakness in the holiday-home market, the rate of mortgage arrears has continued to rise in key beachside areas in New South Wales and Queensland, according to Fitch Ratings. The figures, collected in March, showed arrears rates rose in several suburbs around the Gold Coast including Surfers Paradise and Tweed Heads, and the report said there was ‘no sign of stabilisation’ in the area. Prices of units in Cairns have fallen 22.2 per cent from their peak, while units on Victoria’s Surf Coast have lost 6.8 per cent.”

“On the Gold Coast, for instance, Fitch analyst James Zanesi said many of the borrowers who were falling behind on their repayments were investors, rather than owner-occupiers. ‘When house prices are going down you might have a borrower who is trying to hold onto a home because they don’t want to make a loss.”’

“Hard on the heels of The Economist Research Unit’s just naming this British Columbia metropolis one of the world’s three best cities to live — just behind Melbourne and Vienna — comes word from the provincial government that ‘young people are fleeing B.C. in big numbers,’ as one daily’s headline put it.”

“This is happening just as Vancouver’s red-hot housing market — easily the priciest in Canada — is finally starting to cool, with sales stagnant and prices finally starting to drop a bit. The price of an average single-family detached home is still hovering around C$800,000. For some, home prices here just weren’t dropping fast enough. The chief economist for Central Credit Union 1, confirmed that B.C.’s out-migration ’seems to be accelerating.”

“Every time I visit here, which is often, more and more ‘For Sale’ signs have popped up in front of Vancouver homes and condos. I’ve seen this movie before — in pricey Sonoma County where my wife and I sold our home and decamped to a town in Washington state just south of B.C. We’re California ‘equity refugees.’”

“I don’t think Vancouver has the same kind of housing bubble California and the U.S. had. For one thing, this city’s seen, and is still seeing, a huge wave of cash coming in from China, boosting home values. Many of the homes bought by Chinese immigrants here are second homes. ‘They’re insurance policies for wealthy Chinese in case things in China turn south,’ a Vancouver realtor told me recently. ‘Some of them are vacation homes, and sit empty. They’re seen as insurance policies for a rainy day.’”

“While it’s true this makes B.C.’s housing market reliant on the Chinese economy, many of those homes bought by Chinese were bought with hard cash. Still, many keep insisting Vancouver has a housing bubble that’s about to burst.”

“Speculators in the housing sector from Wenzhou, Zhejiang province, are likely to be weeded out of the market by the ongoing changes in housing regulations. But close attention needs to be paid for a possible chain effect, says an article in Guangzhou Daily. Excerpts: As a dominating force in the real estate market for the past 10 years, speculators from Wenzhou have played a leading role in creating the housing bubble.”

“But it’s necessary to be alert against any possible financial risks that could be triggered by the huge losses these speculators suffer when they are forced out of the market. The speculators’ capital structure shows 70 percent of their funds come from borrowings, including bank loans and private loans with usurious interest rates. In fact, more than 50 percent of their funds are borrowed by mortgaging houses. Such a weak capital chain and the strict rules the government has imposed have already forced some speculators into insolvency.”

“This year, many speculators from Wenzhou have defaulted on their loans, increasing the rate of non-performing loans for local banks. The rate was 2.69 percent at the end of June, more than seven times that in the same month last year. If the market for speculative funds collapses, it could increase the security risks of banks that give housing loans, which is about 11.32 trillion yuan ($1.78 trillion) across the country.”

“The combination of a property price bubble, demographic changes and rapid loan growth heightens the chance a country will face a financial crisis, a Bank of Japan deputy governor said. Kiyohiko Nishimura noted that there were similarities between Japan’s asset-price bubble of the 1990s and the U.S. housing market bubble of the 2000s. ‘If a demographic change, a property price bubble, and a steep increase in loans coincide, then a financial crisis seems more likely. And China is now entering the ‘danger zone,’ he said, according to the text of his speech.”

“His speech, titled ‘How to detect and respond to property bubbles: challenges for policy-makers,’ analyzed in theoretical context the historical trends of asset bubbles. Nishimura also said policymakers themselves sometimes sow the seeds of property bubbles by nourishing overly optimistic expectations about the economy among the public.”

“‘It is extremely difficult to persuade people who (want to) believe ‘this time is different’ and are convinced they are now on the foothills of eternal prosperity, just as long as their path is not blocked by some stupid policymaker,’ he said.”




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69 Comments »

Comment by Pimp Watch
2012-08-24 06:09:33

‘It’s hard to see where these properties are hiding,’ Donovan said.”

It is?

Between the empty houses without for sale signs scattered across entire neighborhoods and the number of people I know personally who haven’t made a mortgage payment in years, it doesn’t take much effort to see them.

Of course, Donovan is from a particularly vile strain liars who are paid to misrepresent the truth to keep the failing confidence game going.

Comment by Ben Jones
2012-08-24 06:32:10

These reporters and editors for the LA Times should drive around and look for these hidden properties. Actually they don’t even have to get in their BMW’s. There have been reports in their own paper describing this.

Comment by GrizzlyBear
2012-08-24 07:48:19

There are houses on every street in every city. To not see them, one would have to have blinders on.

 
 
Comment by Arizona Slim
2012-08-24 06:33:17

I can take you to several shadow inventory properties in mine own neighborhood. One of them hasn’t been lived in for almost a year. But no “for sale” sign or even a Notice of Trustee Sale. Uh-uh. Nothing like that.

Comment by Ben Jones
2012-08-24 06:37:31

‘As many as 90 percent of REOs are withheld from sale, according to estimates recently provided to AOL Real Estate by two analytics firms. Analytics firm CoreLogic provided an even lower estimate, suggesting that just 10 percent of all REOs in the country are listed by their owners, which include mortgage giants Fannie Mae and Freddie Mac as well as the Federal Housing Administration. As of April 2012, 390,000 repossessed homes sat in limbo, while about 39,000 were actually listed for sale, said Sam Khater, senior economist at CoreLogic.’

‘Daren Blomquist, vice president of RealtyTrac, said that he was surprised by his company’s finding, especially since a similar analysis in 2009 found that banks were attempting to sell nearly twice as much of their REO inventory back then. “It was surprising to see that that percentage had come down,” he said, noting that many agents that his firm has spoken to “have mentioned that there’s actually a shortage of foreclosure inventory — and they’re wanting more.”

http://realestate.aol.com/blog/2012/07/13/shadow-reo-as-much-as-90-percent-of-foreclosed-properties-are-h/

Comment by Rental Watch
2012-08-24 07:08:10

Ben,

A few posts of mine have been lost recently. The gist is this:

While 10% of REO is far to low to be reasonable, 100% is impossible.

The reason is that after title is transferred, but before listing, the new owner needs to deal with:

1. Evictions
2. Redemption Periods
3. Repair

And depending on the lender, a home may even be removed from being listed, but before title is transferred, once it is in contract, or non-contingent.

The this mean the max reasonable percent listed is 20%? Absolutely not, but it could be 60-70% (or even lower). The article I posted (which ended up in never-land) noted that about 50% of Fannie’s REO fell into these categories (couldn’t be listed).

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Comment by Housing Wizard
2012-08-24 07:14:20

In my neighborhood they actually put the foreclosures up for sale within a year usually . Two more foreclosures just came up .
One was due to a lady dying and the family didn’t want a upside down property and the other was a lady who bought in 2009 who was up-side down by about 30k who wanted to move back where her children live up North .

The lady who died took every bit of equity she could to live life
like she was rich (going on vacations and buying crap ) and the other Lady just changed her mind where she wanted to live .Now two more properties in which the grass and plants will die . I hate looking at foreclosures .

Another foreclosure was put on the auction block , it sold real quick and the speculator made a 30% profit on a resale within 6 months .

 
 
Comment by Professor Bear
2012-08-24 07:16:36

“Between the empty houses without for sale signs scattered across entire neighborhoods and the number of people I know personally who haven’t made a mortgage payment in years, it doesn’t take much effort to see them.”

The effort requires integrity and imagination, two things which often seem lacking inside the Beltway.

 
 
Comment by Arizona Slim
2012-08-24 06:29:08

From Ben’s delicious post:

“Shasta County Association Board President Doug Juenke is convinced the administration is putting pressure on the banks to slow the pace of foreclosures, and reiterated this to me an email. ‘Of the eight or so REO (foreclosure) agents I spoke to locally and out of the state, three were 100 percent adamant that the administration was manipulating the housing market to make it appear more stable for the run-up to the election.’”

To which I say:

You know the market manipulation is pretty blatant when stuff like this sees the light of day. Especially when the above-noted association is made up of real estate agents.

Comment by GrizzlyBear
2012-08-24 07:51:10

Realtors are starting to get pissed because their transaction numbers are dying on the vine.

Comment by Pimp Watch
2012-08-24 08:01:03

Correcto!

Demand was pumped by subsidies and pimped by realtors and it was still only 50% of the peak.

Now demand is cratering once again.

 
Comment by nickpapageorgio
2012-08-24 21:33:41

The realtors were lobbying in Washington begging for help, now help has come in the form of foreclosure moratoriums, cram downs and modifications. All of which cut the number of transactions, thereby rope-a-doping the realtors. Serves them right.

 
 
 
Comment by OK_Land_Lord
2012-08-24 06:59:05

The realtors in Vegas are pushing the “Inventory is down and prices are going up” montra.

Does’t that also mean sales are down and realtors are starving? I hope as many of thoes dirt bags go broke and live in boxes downtown - in some other city.

Comment by Ben Jones
2012-08-24 07:20:50

‘Inventory is down and prices are going up’

Don’t forget; interest rates are at historic lows!

‘Craig Ebert, a senior economist at the Bank of New Zealand, says there’s a more fundamental problem: interest rates are too low. ‘We’ve become highly dependent on low rates,’ he said. ‘This is the problem that got the world into this predicament’

We used to talk about how artificially low interest rates were contributing to the bubble. Now, it’s a lot worse. Above the Australians discussed 100% loans and the risks. But we’ve got that beat in the US:

‘Las Vegas Mayor Carolyn G. Goodman and community stakeholders will engage in active dialogue on how to better educate the public on the resources currently available for home mortgage refinancing. KXNT talked with Dr. Lisa Morris-Hibbler about how things continue to change in the foreclosure and refinance process. ” The biggest change is that the loan to value, which before was a barrier, because we have substantial loss here. That has been removed and people who are underwater can qualify for refinancing.”

So Dr Hibbler, who is backing these loans should they default? After all, if some strategically default when underwater, what’s the chance that a person in Las Vegas is going to pay off a house that’s 50% underwater?

‘About 68.5 percent of Las Vegas Valley homeowners with mortgages were underwater — meaning their debt exceeds the home’s value — during the second quarter this year. That’s compared with the U.S. rate of 30.9 percent, according to Zillow. In North Las Vegas alone, 79.2 percent of homeowners are underwater, says Zillow.’

‘In the valley as a whole, 36 percent of underwater homeowners owe more than double their home’s value; nationally, it’s 14.5 percent.’

Comment by GrizzlyBear
2012-08-24 07:54:12

“The biggest change is that the loan to value, which before was a barrier, because we have substantial loss here. That has been removed and people who are underwater can qualify for refinancing.”

This is absolutely insane. Hey government, get the bleep out of housing!

 
 
 
Comment by Professor Bear
2012-08-24 07:12:12

“While it’s true this makes B.C.’s housing market reliant on the Chinese economy, many of those homes bought by Chinese were bought with hard cash. Still, many keep insisting Vancouver has a housing bubble that’s about to burst.”

Will that river of Chinese cash continue to flood into the Vancouver housing market against the backdrop of a crashing Chinese economy?

ft dot com
Global Market Overview
Last updated: August 24, 2012 2:39 pm
Shanghai stocks slump to three-year low
By Jamie Chisholm, Global Markets Commentator

Friday 14.30 BST. The Chinese stock market has slumped to levels last seen near the depths of the global financial crisis as fears build about waning economic growth and uncertainty reigns over the prospect for central bank support from Beijing and Washington.

Weakness in the Shanghai Composite index, which on Friday fell 1 per cent to its lowest close since March 2009, is reflected in a risk averse mood across asset classes.

The FTSE All-World equity index is down 0.6 per cent as Europe’s FTSE Eurofirst 300 slips 0.3 per cent. The FTSE Asia Pacific index lost 1.2 per cent, also pressured by 1.2 per cent falls for both Tokyo and Hong Kong.

A 0.8 per cent decline for Wall Street on Thursday did not helped sentiment in Asia, and the S&P 500 in New York has opened with a further 0.2 per cent decline for the final session of the week, suppressed somewhat by disappointing July core durable goods orders.

The dollar index, which tends to firm when traders are more cautious, is up 0.4 per cent and US Treasuries are finding support with yields on benchmark 10-years 3 basis points softer at 1.65 per cent, nearly 20 basis points lower than seen just three days ago.

Growth sensitive commodities are also struggling, with copper off 0.4 per cent to $3.48 a pound and Brent crude adding just 3 cents to $115.04 a barrel.

The current pullback needs to be put in context, however.

Here is some context for you financial journalists: THIS TIME IS DIFFERENT.

Comment by Cantankerous Intellectual Bomb Thrower©
2012-08-24 16:37:30

China has other “collapse” problems besides the stock market.

Collapse of New Bridge Underscores Worries About China Inrastructure
By KEITH BRADSHER
Published: August 24, 2012

HONG KONG — One of the longest bridges in northern China collapsed on Friday, just nine months after it opened, setting off a storm of criticism from Chinese Internet users and underscoring questions about the quality of construction in the country’s rapid expansion of its infrastructure.

A nearly 330-foot-long section of a ramp of the eight-lane Yangmingtan Bridge in the city of Harbin dropped 100 feet to the ground. Four trucks plummeted with it, resulting in three deaths and five injuries.

The 9.6-mile bridge is one of three built over the Songhua River in that area in the past four years. China’s economic stimulus program in 2009 and 2010 helped the country avoid most of the effects of the global economic downturn, but involved incurring heavy debt to pay for the rapid construction of new bridges, highways and high-speed rail lines all over the country.

Questions about the materials used during the construction and whether the projects were properly engineered have been the subject of national debate ever since a high-speed train plowed into the back of a stopped train on the same track on July 23 last year in the eastern city of Wenzhou. The crash killed 40 people and injured 191; a subsequent investigation blamed in particular flaws in the design of the signaling equipment.

Photographs on Chinese Web sites on Friday appeared to show that the collapsed section of the Yangmingtan Bridge’s ramp had fallen on land, not in the river.

According to the official Xinhua news agency, the Yangmingtan Bridge was the sixth major bridge in China to collapse since July 2011. Chinese officials have tended to blame overloaded trucks for the collapses, and did so again on Friday.

Many in China have attributed the recent spate of bridge collapses to corruption, and online reaction to the latest collapse was scathing.

“Corrupt officials who do not die just continue to cause disaster after disaster,” said one post on Friday on Sina Weibo, a Chinese microblogging service similar to Twitter.

Another Internet user expressed hope “that the government will put heavy emphasis on this and investigate to find out the real truth, and give both the dead and the living some justice!” A third user was more laconic, remarking, “Tofu engineering work leads to a tofu bridge.”

 
 
Comment by Housing Wizard
2012-08-24 07:18:40

Didn’t they delay foreclosures while the Banks were hashing out the
title transfer scandal ?

 
Comment by 2banana
2012-08-24 07:30:13

Serial refinancers or serial home equity loans???

HUGE difference.

——————————-

“Low interest rates have created a class of ’serial refinancers’ and given them new opportunities to spend their freed up cash. Refis, as they’re known, have changed the face of Ellen Sandler’s Chevy Chase, Md., neighborhood. Over the years, savings enabled Sandler to double the size of her house and remodel it a few times. ‘I have neighbors who are also doubling the size of their house,’ she says.”

Comment by Ben Jones
2012-08-24 07:33:29

Yeah, I wondered about this. Let’s say they cut the payment even as much as $1000 a month. How do you double the size of your house and remodel ‘a few times’ on that?

Comment by oxide
2012-08-24 09:11:01

Cash out.

Chevy Chase is one of the toniest neighborhoods in the DC area, if not THE toniest. I’ve walked through some of it.

Good collection of HBB red meat today, Ben. :-)

Comment by polly
2012-08-24 10:56:12

Chevy Chase is both a neighborhood of DC and is used as a postal designation for a bunch of small areas (villages) that may or may not have Chevy Chase in their name (like Town of Sommerset). You couldn’t walk through all the areas that are called Chevy Chase in a weekend. Some are very tony. Some aren’t. All are expensive.

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Comment by polly
2012-08-24 09:17:11

Do they mean that they refi at the old mortgage amount and then use the extra cash flow to pay for the remodel? Or do they mean that they refi the old loan and use the extra cash flow to pay for a Heloc? Cause I’m with Ben on the first, but the second is at least a plausible way to pay for doing work on the house. Of course, the second requires both refinancing and a home equity loan.

You can’t double the size of anything in Chevy Chase without a lot of money.

 
 
Comment by Rental Watch
2012-08-24 09:13:56

I guess I could qualify as one of those serial refinancers…I’m in the process of refinancing for the second time (my third home loan, within 18 months of buying). I haven’t taken cash out once. In fact, the lenders said that the rate they were offering was so low BECAUSE they were not cash out (if I were to take cash out, the rate would have been not worth the refinance).

Here’s the interesting thing, from my first loan to last:

My interest cost will have been reduced by nearly 25%, but my payment was only reduced by 14%.

Because of how amortization schedules work, the amount of principal I’m paying down each month went UP by a bit over 25%.

Every time someone lowers their rate without substantially extending the maturity date of their loan without taking cash out, they are accelerating principal reduction.

Comment by jbunniii
2012-08-24 09:44:15

Every time someone lowers their rate without substantially extending the maturity date of their loan without taking cash out, they are accelerating principal reduction.

Even more so if they are disciplined enough to keep making the same monthly payment as before, with the excess applied to principal.

 
Comment by GrizzlyBear
2012-08-24 19:09:27

How much money have you been giving the banks for these refi’s?

Comment by Rental Watch
2012-08-24 20:49:49

No points, just title costs. I’ll be whole after about 7 months.

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Comment by 2banana
2012-08-24 07:34:50

This is easy.

Does the average home cost 2.5x the average salary or LESS?
Does the average homes cost 110x the average monthly rent or LESS?
Does the average person spend 30% or LESS of take-home pay on housing?

If not, you are in a bubble.

To prevent a bubble:
20% down payment
Verified income or job
Review last 5 years of income taxes
Have banks EAT ANY BAD LOANS.

Wow - that was easy.

———————–

“His speech, titled ‘How to detect and respond to property bubbles: challenges for policy-makers,’ analyzed in theoretical context the historical trends of asset bubbles.

Comment by Pimp Watch
2012-08-24 07:37:06

Pretty good Banana.

Stay on ‘em.

 
Comment by Cantankerous Intellectual Bomb Thrower©
2012-08-24 07:48:28

Once you leave the subject of two-party politics, your posts have much to admire…

Comment by Pimp Watch
2012-08-24 07:56:11

Indeed they do.

Comment by AmazingRuss
2012-08-24 08:24:40

A-hyup

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Comment by Rental Watch
2012-08-24 09:21:03

“Does the average home cost 2.5x the average salary or LESS?”

Show me a single year where this was true in the US. I looked back to 1967 and haven’t found one yet.

Comment by Pimp Watch
2012-08-24 09:27:54

Pimp,

Show us a single year where it wasn’t true in the US excluding bubble years.

Comment by Rental Watch
2012-08-24 11:11:35

http://www.census.gov/const/uspriceann.pdf
http://www.davemanuel.com/median-household-income.php

Here is the data for every year going back to 1967. Pick whatever non-bubble year you want. They are all over 2.5x.

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Comment by Housing Is Falling
2012-08-24 14:47:57

You goddamn liar…. Those are NEW housing units.

How many times are you gonna lie here?

 
 
Comment by Rental Watch
2012-08-24 11:17:44

And this is for ALL homes (not just new):

http://www.census.gov/hhes/www/housing/census/historic/values.html

This admittedly is lower than 2.5x for 1970, but is over 2.5x for 1980, 1990, 2000.

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Comment by Pimp Watch
2012-08-24 16:21:43

You only backpedalled half way you damn liar.

 
 
 
Comment by jbunniii
2012-08-24 09:46:27

I’m sure you will find that it was true prior to the bubble years, if you consider the average salary among those buying houses, instead of the average across the entire population.

Comment by Rental Watch
2012-08-24 11:09:36

“among those buying houses”

I agree with this. Comparing average area incomes with average area home prices is faulty.

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Comment by calcan
2012-08-24 09:55:30

It depends where in the US….

I used to live in Ventura Ca, which has housing at a (delusional) 7.45 times income.(used to be much higher (10 1/2 X))
I now live in a Des Moines suburb that is 2.53 times income.

The locations that are within a healthy income to house cost ratio, tend to stay far more stable than those without. There was no real “bubble” in the places where people live(d) within their means. That kept people from a false sense of wealth (IE- equity parasites), and over spending.

All in all, the (financial) America of the 50’s still exists, you just have to look for it. As for me, I did a TON of research before making this move. I was pleased to learn that there are MANY wonderful parts of the country that have low crime, low unemployment, and stable housing. FYI - They may not be flashy, but most of our blog friends aren’t that way anyway)

Links -

http://www.city-data.com/city/San-Buenaventura-(Ventura)-California.html
http://www.city-data.com/city/Urbandale-Iowa.html

 
 
Comment by oxide
2012-08-24 16:04:38

No, you don’t have to be in a bubble to spend lots of money on housing.

All this means is that housing is simply starting to cost a higher % of income now than it did in the past. It’s a new normal, and it’s the way that “needs” industries operate these days.

In parts of the Middle East and Southeast Asia, food is something some godawful % of income — like 40-70%. Is this food “bubble” ever going to pop? Of course not. It’s normal.

Comment by Pimp Watch
2012-08-24 16:17:42

lmao….. you’re hoping and praying it’s a “new normal”.

Hint: It’s not.

 
Comment by nickpapageorgio
2012-08-24 21:37:32

Wow, you sure have flipped your bits.

 
Comment by Blue Skye
2012-08-25 06:03:26

Wow. I’ve heard the “it’s the new normal” thingy somewhere.

This is the first time I have heard of hunger in Asia as a justification.

 
 
Comment by Darrell in Phoenix
2012-08-24 16:16:36

$5T not created from the bubble. $5T not available to fund the trade imbalances and widening wealth disparity. 5 years sooner that government would have had to be running $1+T a year deficits just to have the sluggish economy we have now.

The housing bubble was a tool to allow the private sector to create the $1+T a year new debt/money that our imbalance plagued economy needs to function.

What other options would you suggest to create the $1.3T a year new debt/money that we need to fund imbalances.

Comment by nickpapageorgio
2012-08-24 21:38:41

“concern is growing that prices have risen so high they are instead an economic anchor, sucking resources from those who can afford a home and prompting those who can’t to consider moving overseas. Economic commentator Bernard Hickey said young families who want to buy homes are delaying decisions like having children, while those who have purchased recently have saddled themselves with so much mortgage debt they are less willing to take on entrepreneurial risks, like starting a business. He said that in turn stifles the country’s productivity and dynamism.””

Its unsustainable…get it?

 
 
 
Comment by WT Economist
2012-08-24 07:39:07

“Some 46 percent of younger homeowners are underwater, a much higher rate than with older mortgage holders.”

Older mortgage holders should never be underwater. They should have a house that is, or is approaching, being paid off.

 
Comment by Cantankerous Intellectual Bomb Thrower©
2012-08-24 07:49:59

‘We had a conference call with one of the banks that told us they did not expect the actual foreclosure process to pick up until late in the year, which in my opinion is code for after the election.’

So it sounds like the race to the housing bottom will resume at some point after November 2012, then?

Comment by Ben Jones
2012-08-24 08:07:07

There’s no way to know what’s gonna happen. As someone asked before, why does one foam a runway?

‘Barofsky mused that Treasury didn’t care about the suffering of borrowers under HAMP, and the issue came up in a meeting with the Treasury Secretary, which was also attended by Elizabeth Warren, then the head of the Congressional Oversight Panel, another TARP watchdog.’

‘Warren asked Geithner repeatedly about HAMP. After several evasions, Geithner said about the banks, “We estimate that they can handle ten million foreclosures, over time… this program will help foam the runway for them.”

http://news.firedoglake.com/2012/07/20/barofsky-book-geithner-confirmed-in-2009-that-hamp-was-designed-for-banks-to-spread-out-foreclosures/

Comment by Cantankerous Intellectual Bomb Thrower©
 
 
Comment by Bad Andy
2012-08-24 08:15:58

Most likely all signs point to yes.

 
 
Comment by Stellaralliances
2012-08-24 09:03:49

A new analysis suggests Canadian non-mortgage debt rose to its highest level in nearly a decade during the second quarter.

The latest report of Canadian debt trends by TransUnion found the average consumer’s non-mortgage debt load rose to $26,221 in the second quarter.

That’s up 0.74 per cent from the first quarter of 2012 and up 2.41 per cent from a year earlier.

The credit reporting firm said that’s the highest average debt per person it has seen since it began tracking the variable in 2004.

Another consumer credit reporting agency, Equifax Canada reported that consumer indebtedness, excluding mortgage debt, grew 3.1 per cent year-over-year in the second quarter, down from 4.4 per cent in the same period of 2011.

The Equifax study also found that high-interest credit card debt fell by 3.8 in the quarter and consumer bankruptcies were down 4.5 per cent from a year earlier. Meanwhile, bank loans and lines of credit showed very moderate growth compared to a year ago.

Comment by nickpapageorgio
2012-08-24 21:41:36

If the US housing bust was a grenade, the Canadian, Chinese, and Australian busts will be nukes.

Comment by Cantankerous Intellectual Bomb Thrower©
2012-08-24 22:37:39

‘Twill be mere flesh wounds.

 
 
 
Comment by Bluestar
2012-08-24 12:44:04

Who controls the FASB??
As long as the Financial Accounting Standards Board lets everybody carry distressed assets at book value they can ‘hide’ trillions of losses. Go back to darkest days of the crash and you can pin point the bottom of the equities markets and the beginnings of a massive bond rally at the same time they suspended mark-to-market. The specific loophole was thinly traded MBS and CDO instruments that FASB declared could not be valued. They have not rescinded that ‘emergency’ temporary ruling to my knowledge so it will take an external event like a currency or bond crash to force a true mark-to-market event. You want to shake out the hidden inventory just re-instate that rule.

Comment by rms
2012-08-25 04:12:43

“Who controls the FASB??”

The people with money. They also control the president and congress.

 
 
Comment by cactus
2012-08-24 12:49:43

In order to report both sides of buying renting I have to relate my latest story, up late last night because I had a sprinkler main leak and was flooding my poor neighbors yard.

bailed the water and used a siphon to clear both yards mine and hers, her’s is lower so thats where the water went. Shut my water off at main.

Up early this am digging up the main sprinkler line and had my son glue it with a cap until I can dig up the leak, under a big pine tree , and repair it. No shut-off valve between sprinkler and main water supply how lame.

will test his glue joint when I get home this Pm hope it holds or the main will continue to be shut off, and a house without water is pretty useless.

In a rental I would just let the water leak and destroy neighbors house not my problem right

no acually I probably would have done the same thing, have fixed many rentals in the past 6 years. landlords are sooo slow to respone to problems and water does not wait.

My old landscaping experience comes in handy. new phones are pretty cool as I could see pictures of progress and advise , like after you shut off main again ( turned on this am for shower, etc. ) drain house water or when you cut that main it will flood and fill up the nice big hole you dug this am.

So he’s learning some stuff. But owning a home is not for everyone, lots of work.

Used Christies Blue glue never had trouble with that Although I have seen other landscapers ( stupid ones ) fail over and over again trying to glue joints.

One trick use white bread to stuff up pipe to absorb water dripping while you make your glue joint, the white bread disolves in water no worries.

 
Comment by New Zealand Renter
2012-08-24 15:14:19

Thanks for the NZ article. You really have no idea how this country has been destroyed by the housing bubble. While some elite zip codes in the US are overpriced, most of the US has very cheap housing on a world basis. Our national average home price is $361,000, which includes condos, duplexes and houses in areas as socially and economically bad as Detroit, only on a smaller scale. Our houses are also mainly uninsulated, leaky, and typically have no heating or cooling system. Very few places have such luxuries as natural gas or broadband. Many places have no water or sewer connections.

As a result, a full quarter of our native born population has emigrated for a better life elsewhere. Can you imagine how bad it would have to get in the US for 75 million people to want to leave the land of their birth? It is that bad here. The aged 25-40 demographic in particular is vanishing, 1200 people a week are leaving. The immigration door is open to bring in a replacement population from India and China, but now even Asian immigration is not enough to replace the losses. I have been waiting for seven years for things to get better, but they keep getting worse, so I will probably have to emigrate and become a migrant worker, join the million rootless Kiwis in the global labour pool.

Comment by Pimp Watch
2012-08-24 18:55:53

“most of the US has very cheap housing on a world basis.”

Nonsense.

And who gives a crap about “world basis”? the world isn’t here. We’re “here” and prices are massively inflated.

Comment by New Zealand Renter
2012-08-24 21:34:08

Rubbish. I see a median US house price of $187k over a median US household income of $51k for a ratio of only 3.7. Plus gasoline at half price, and the possibility of 30 year fixed rate loans. Even in a global depression, US living standards are the envy of the world.

Comment by Ben Jones
2012-08-24 22:11:54

‘ I see a median US house price of $187k over a median US household income of $51k’

These are just statistics. Where I live, the median house is near $300k (this after falling a lot), and median incomes are far from $51k. A great number of people hold multiple jobs (no benefits, etc) to get by.

‘US living standards are the envy of the world’

Wages have been flat or falling since the 70’s. Yeah, poor people in Mexico will risk death to work here. But I don’t see that as relevant. In a race to the bottom, the laggard may appear to be winning, when in reality all are headed for the floor.

(Comments wont nest below this level)
 
Comment by Pimp Watch
2012-08-25 06:25:04

“US living standards are the envy of the world.”

You’re pimping now.

Why?

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Comment by BetterRenter
2012-08-24 22:54:22

Well, what are you doing about it, NZR? Sounds like your housing is too expensive. Why else are eager young people leaving? Drop the prices to match what the local base will support.

 
Comment by ahansen
2012-08-25 00:29:10

Thanks for this, NZ. It’s been 20 years since I lived in Wanaka, but was struck at the time by the California-like prices and the truly shoddy, almost amateurish caliber of the building. Auckland and Christchurch didn’t seem so extreme, but the bubble hadn’t hit them yet. Is it still the same?

 
Comment by rms
2012-08-25 04:19:31

“You really have no idea how this country has been destroyed by the housing bubble.”

So who runs the central banks there, the Māori people?

 
 
Comment by Muggy
2012-08-24 19:09:36

““The vacant, fire-damaged house on Maryland Street in northeast Rochester is wasting away.”

The Rochester I know and love. I have binders of black and white photos from high school. My buds and I used to go into the city and kick around abandoned structures, smoke cigs, and blast off rolls of film. I loved sifting through all of the stuff left behind, especially old photos and letters. It was someone asking to be remembered, which made it more sad, and more, I don’t know, intriguing?

Actually in the last two houses that I’ve rented we’ve found “lost” photos hidden on top shevles. In both cases, they were from the 60’s and show “Old Florida” well. A few amazing WWII photos, too.

 
Comment by Muggy
2012-08-24 19:14:31

“fire-damaged house”

Homage to the flame:
http://www.youtube.com/watch?v=3KB54p8_wh8

Comment by Arizona Slim
2012-08-25 05:15:46

I likey-likey! I want to play on radio!

 
 
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