April 19, 2013

Questions About A Bubble

It’s Friday desk clearing time for this blogger. “Is New York in the midst of a new real-estate bubble? It can appear that way. In early March, my friend Ellen asked me to come with her to see a co-op she was hoping to buy. She’d already lost one bidding war, and we met the broker at a two-bedroom in the West 100s. The kitchen needed a redo, the walls a once-over. The asking price was $1.2 million, the kind of number buyers used to go past 100th Street to avoid. Ellen and her husband offered $25,000 over the asking and pledged to cover the difference if the apartment didn’t appraise for the sale price. They lost to bidders willing to pay more than $150,000 over the asking price.”

“In late March in Windsor Terrace, more than 60 house-hunters converged on a showing of a sweet little house—two stories, nothing grand—priced at nearly $1.5 million. Within days, six buyers had put in offers. A week earlier in Park Slope, 90 people converged on a duplex asking over $1.5 million, double what it sold for in 2011. And on a recent Sunday, at least a dozen people passed through a $795,000 Morningside Heights two-bedroom fixer-upper, its walls gutted to the studs, within the first ten minutes of its open house. Daniel, a banker looking in the West Village, told me he’s lost five bidding wars in the past year. ‘The last apartment, every person who saw it made a bid,’ he said.”

“Jon Maddux, a San Diego-based house flipper, found luck in Atlanta, Georgia. Last year, Maddux and a business partner bought two single-family homes. The first they bought for $62,900, put in about $28,000 of renovations, and sold for $139,000. The second house they purchased for $79,000, chipped in $25,000 to rehab, and sold for $149,000.”

“‘In some ways, this is a dream environment,’ says Andy Heller, author of ‘Buy Low, Rent Smart, Sell High: Real Estate Investing for the Long Run’. ‘You would be crazy to be on the sidelines.’”

“In Westminster, Colo., broker Chris George reports listing prices that seem ‘almost egotistical.’ In Denver, Andrea Lard says homes are selling within a few days, and ‘I have heard of two listings selling within hours.’ In Grand Haven, Mich., ‘We list them and they’re gone,’ says Realtor Lisa Franklin. In San Francisco, Coldwell Banker Real Estate agent Herb Alston said every agent in his office is worried that the market’s in a mini-bubble. One home in San Francisco’s Marina District that Alston recently wrote an offer on for clients received 15 offers and closed for $2.02 million, about 20 percent over asking, Alston said.”

“Charles Roberts, co-owner of Your Castle Real Estate, said that, given ’skyrocketing prices,’ he’s starting to get questions from buyers about whether there’s a bubble. Roberts tells them yes, Denver is in a bubble, but he thinks it will be at least two years before prices start to go down again. ‘In Denver, we’re four years past our bottom. We’re almost certainly going to surpass our highs from 2006-2007 this year,’ Roberts said. ‘Clearly the market’s going up, but given the record low inventory, we think we’re at least a couple years away’ from price declines.”

“Florida Realtors Chief Economist John Tuccillo told a gathering of Gainesville Realtors that the opportunity to sell a home in Florida real estate is now. Tuccillo joked that new Realtors are required to learn to say ‘it’s a great time to buy.’ ‘Once you can say that with a straight face, you can get your license,’ he said.”

“Unlike the investor flipping with fast-paced buying and selling at the height of the market, today’s investors are fixing up the properties and renting them out so they can sell them when the market value returns in five to 10 years, Tuccillo said. ‘This is a sort of sleeping issue,’ he said. ‘Ultimately the investors are going to go away, even if they last 10 years. If by that time we haven’t restored the access to financing to owner-occupants, there is going to be a problem in the marketplace.’”

“Foreclosure activity in Fairfield County jumped 52 percent in a single month in March and was up 40 percent from 2013. Foreclosure activity was high throughout the state and was up 48 percent in New Haven County in March. It’s affecting ‘people with jobs, people with homes that are underwater: Some people who have been struggling for years and just realize they’re not going to make it,’ said Tim McLaughlin, VP of Weichert Financial Services.”

“Daren Blomquist, VP at RealtyTrac, said there is something jarring in the Connecticut and Fairfield County numbers. Blomquist said the bulk of home reposession is centered on mortgages originated between 2003 and 2008, during the real estate boom. Only about 14 percent of all foreclosures nationally, were for loans originated after 2008, he said. In Connecticut, 22 percent of the foreclosures are on loans originated after 2008. ‘That’s a little bit scary, because presumably, the lending industry and lending standards were much improved,’ he said. ‘Seeing that high of a percentage is a little scary.’”

“The number of people in the Seattle-Tacoma-Bellevue metro area who lost their homes to foreclosure in March jumped 67 percent from a year ago. Statewide, the number was even higher – 88 percent, according to RealtyTrac. Even as the economy gets better, people who have slipped behind on their mortgages may have a hard time saving their homes, says Marc Cote, who heads the Washington Homeownership Resource Center, which runs the statewide foreclosure hotline.”

“‘If you can’t afford to reinstate the loan, you still have to be able to work out some solution with the lender,’ Cote said. ‘Even though the economy is picking up, (if) you’re already behind on your mortgage, how do you fix that problem?’”

“Analysts say the number of Nevada properties entering the foreclosure process has almost doubled compared with a year earlier. And while we often think of foreclosures leaving families on the street, realtors say this glut is more with homes sitting vacant. ‘But the reality of it is that we have a very transient workforce in Reno. We always have. And a lot of people have had to leave for legitimate reasons - a death in the family or a move to another state or a job transfer, they’ve stopped paying their mortgages and what that’s done is leave us with vacant houses all over town,’ says Marc Sykes.”

“According to a report from the Federal Housing Finance Agency, the northwest state is experiencing a boom in underwater homeowner refinances, as the average borrower from Oregon is saving more than $4,000 per year following the implementation of the revised HARP 2.0 program last year. According to Portland, Ore.’s Capital Hill Mortgage Branch Manager Douglas Jacobson, HARP has other advantages aside from helping families get out from under debt.”

“‘(HARP) also provides a financial incentive toward items like college funds, a new pool, or a family vacation, things that previously seemed like luxuries,’ said Jacobson, regarding the program’s other benefits for homeowners.”

“In a reckless gambit, FHA is asking lenders to relax lending standards, while assuring them it will back home loans down to a 580 FICO score with a minimal down payment and high debt-to-income ratio. In fact, loans purchased, insured or guaranteed by either Fannie Mae or Freddie Mac, as well as FHA, are automatically designated ‘qualified mortgages’ under new mortgage rules issued by the Consumer Financial Protection Bureau. The new rule offers some legal protection to lenders pressured to make junk mortgages. Although FHA is the government’s new anchor subprime program, Fannie and Freddie are still backing subprime mortgages.”

“What’s more, the biggest mortgage lenders in the country, including Wells Fargo and Bank of America, are under federal mandates to advertise in minority media and offer loans to people on ‘public assistance.’ The government is actually forcing them to target high-risk borrowers for 30-year debt under threat of prosecution. They have to adopt minority-friendly loan programs over the next several years or face investigation for discrimination.”

“Some of these programs include setting aside millions in prime mortgages for minorities who, according to government documents IBD has reviewed, would ordinarily not qualify for reasons including ‘the lack of required credit quality, income or down payment’. ‘The obligation that I have is to ensure lenders using the FHA program are lending to as full a spectrum of the credit box as possible,’ FHA Commissioner Carol Galante recently said.”

“The Wall Street Journal had an interesting story Thursday about signs of life in the housing market, applauding the good news that ‘the very long housing recession is finally over, and that prices in most of the country are rising again.’ But the Journal warns there is also ‘a less desirable side to this new boom’: ‘It is fueled by the same kind of government super-subsidy for housing that drove the boom and bust a decade ago. Through Fannie, Freddie and the Federal Housing Administration, the feds now underwrite some 90% of all mortgages. Meanwhile, the Fed’s rock-bottom interest rates and its QE policies are both intended to reflate the housing market. The Fed’s goal is also to keep rates so low that investors will dive back into real estate in a search for yield they can’t get from savings accounts or financial investments.”

“The current Administration seems to think a housing boom brings prosperity, rather than being a result of wealth creation. A large home (assuming the occupant can afford it) is a manifestation of wealth, not a creator of it. Every dollar of capital that policy makers drive into housing is a dollar that won’t be spent creating the next great innovation in software or medicine or something else. Housing does fine when people are employed and wages are rising. In other words, sustainable growth in real-estate values is a symptom of a vibrant economy, not a cause.”

“It really is the 2008 bubble all over again: loose, cheap money flooding the market – and not just for low-income housing or starter homes, because Fannie and Freddie are still dishing out mortgages of $600,000 and more. This is the ‘cargo cult’ approach to economics – build the symbols of prosperity, and prosperity will swoop down to take up residence. Are we really going to learn nothing from the last time this all happened?”




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41 Comments »

Comment by Housing Analyst
2013-04-19 06:21:37

“Foreclosure activity in Fairfield County jumped 52 percent in a single month in March and was up 40 percent from 2013.”

This is true across the northeast and new england. Massive, growing inventory of excess, empty, defaulted and delinquent properties much like California, Oregon and Washington state.

If you sign up for a mortgage today at these grossly inflated asking prices, you’ll never escape the crushing debt repayment and you’ll never recover the losses when you attempt to sell.

Comment by Mo Money
2013-04-19 07:13:30

“If you sign up for a mortgage today at these grossly inflated asking prices, you’ll never escape the crushing debt repayment and you’ll never recover the losses when you attempt to sell.”

People should never ever take your horrible jelousy based advice.

Comment by Pimp Watch
2013-04-19 07:21:18

MoMonkey,

Don’t take things so personal. It’s just dollars/cents.

Comment by Whac-A-Bubble™
2013-04-19 08:35:35

It’s just hundreds of thousands of dollars in future losses per overpriced California debt shack…

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Comment by Pimp Watch
2013-04-19 08:51:56

Oops… you’re right….. Thank you for correcting my oversight Whac-A-Bubble.

 
 
 
 
 
Comment by Whac-A-Bubble™
2013-04-19 06:26:25

“In a reckless gambit, FHA is asking lenders to relax lending standards, while assuring them it will back home loans down to a 580 FICO score with a minimal down payment and high debt-to-income ratio. In fact, loans purchased, insured or guaranteed by either Fannie Mae or Freddie Mac, as well as FHA, are automatically designated ‘qualified mortgages’ under new mortgage rules issued by the Consumer Financial Protection Bureau. The new rule offers some legal protection to lenders pressured to make junk mortgages. Although FHA is the government’s new anchor subprime program, Fannie and Freddie are still backing subprime mortgages.”

Last time around, subprime was privately financed through the likes of subprime lenders like Countrywide. When they blew up, American taxpayers were left holding the bag on bailouts.

This time, the subprime lending is coming directly from Uncle Sam, wrapped in federally-guaranteed mortgages which put the taxpayer on the hook for insuring the principle up front.

Is subprime likely to turn out better or worse when the government does it than it did when the private sector was in charge? I guess time will tell…

Comment by Ben Jones
2013-04-19 06:33:45

‘automatically designated ‘qualified mortgages’ under new mortgage rules issued by the Consumer Financial Protection Bureau. The new rule offers some legal protection to lenders’

Consumer protection bureau.

Comment by Whac-A-Bubble™
2013-04-19 06:34:56

Are lenders “consumers” in this Brave New World (kinda like how corporations are people in Romneyville?)…

Comment by Whac-A-Bubble™
2013-04-19 06:36:30

P.S. How does Uncle Sam finance so much free insurance for everybody?

- Lenders
- Farmers
- People who live in the path of future hurricanes
- Wall Street Megabanks
- GSEs

etc etc etc

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Comment by robot
2013-04-19 08:30:39

“The new rule offers some legal protection to lenders”

How can these lenders trust the gov? when things goes wrong, the gov will try to find scapegoat and go after them, just like they used robosign scandel (and many other excuses) to punish the lenders.

 
Comment by AmazingRuss
2013-04-19 14:27:52

“We had to destroy the consumer in order to save him.”

 
 
Comment by PeakHubris
2013-04-19 18:06:53

“In a reckless gambit, FHA is asking lenders to relax lending standards, while assuring them it will back home loans down to a 580 FICO score with a minimal down payment and high debt-to-income ratio. In fact, loans purchased, insured or guaranteed by either Fannie Mae or Freddie Mac, as well as FHA, are automatically designated ‘qualified mortgages’ under new mortgage rules issued by the Consumer Financial Protection Bureau. The new rule offers some legal protection to lenders pressured to make junk mortgages. Although FHA is the government’s new anchor subprime program, Fannie and Freddie are still backing subprime mortgages.”

This is absolutely DISGUSTING.

 
 
Comment by 2banana
2013-04-19 06:53:00

The obama housing bubble v2.0.

$7 Trillion in deficit spending

46 cents of dollar the government spends is BORROWED

Yes we can. Forward. Four more years.

Did we learn anything from the last bubble?

Nothing. Except kool-aid drinkers will defend obama to their last breath no matter how much worse he is than Bush.

—————

The Fed’s goal is also to keep rates so low that investors will dive back into real estate in a search for yield they can’t get from savings accounts or financial investments.

“The current Administration seems to think a housing boom brings prosperity, rather than being a result of wealth creation. A large home (assuming the occupant can afford it) is a manifestation of wealth, not a creator of it. Every dollar of capital that policy makers drive into housing is a dollar that won’t be spent creating the next great innovation in software or medicine or something else. Housing does fine when people are employed and wages are rising. In other words, sustainable growth in real-estate values is a symptom of a vibrant economy, not a cause.”

“It really is the 2008 bubble all over again: loose, cheap money flooding the market – and not just for low-income housing or starter homes, because Fannie and Freddie are still dishing out mortgages of $600,000 and more. This is the ‘cargo cult’ approach to economics – build the symbols of prosperity, and prosperity will swoop down to take up residence. Are we really going to learn nothing from the last time this all happened?”

 
Comment by macboy
2013-04-19 06:53:41

It would have been nice for the first bubble in NYC to pop before the frakkin’ second one started…

Comment by Rental Watch
2013-04-19 09:07:24

They’ve got to change their foreclosure process…they’ve been among the slowest in the country to clear the inventory. If you cleared the inventory, you would see prices fall as all that washed through the system.

 
Comment by snowgirl
2013-04-19 10:20:11

NY: the land of Wall St and the NY Fed. How could you expect anything there besides an iron clad controlled descent?

 
 
Comment by Mo Money
Comment by Whac-A-Bubble™
2013-04-19 08:34:27

Other than trying your best to insult those who have pointed out why the supposed housing recovery is nothing more than a slow-motion dead cat bounce, what is your point?

Comment by macboy
2013-04-19 12:07:54

I see no insult. I mean, how many times per day can people read “your losses will be incalculable”, when most here really can calculate pretty well…

Comment by Whac-A-Bubble™
2013-04-19 16:38:56

If addressing others as ‘fools’ is not a deliberate insult on your planet, then I am glad I don’t live there.

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Comment by macboy
2013-04-19 21:34:12

Whacky sounds so sensitive. Must be why he seeks external validation in an Echo Chamber.

 
Comment by Whac-A-Bubble™
2013-04-19 23:17:01

Troll alert

 
Comment by macboy
2013-04-20 19:28:07

Tactic 2 from the Losing Debater’s Manual: “When you have nothing of substance to offer, cry ‘Troll’”

 
 
 
 
Comment by perkonkrusts
2013-04-19 13:35:29

Last time in CA, how long did the craziest part of the bubble last, the 300-person open house, week-long bidding war, 30% over asking part? 24 months (2004 and 2005) or was it longer?

If this is just getting started again, it could be 2015 before it ends in another spectacular disaster.

Comment by Ben Jones
2013-04-19 14:54:11

‘If this is just getting started again’

I’ve been posting about it for probably a year and a half, when people started doing crazy stuff again. And I don’t think any timeline would necessarily mirror what happened in the past. But anything can happen. What’s interesting is that if this is a bubble, it will be a disaster for the economy and millions of people. Yet the media is calmly mentioning bubble here and there, while the government and central bank are throwing fuel on the fire.

Comment by PeakHubris
2013-04-19 18:17:54

The gasoline on the fire approach is gravely concerning. These policies are reckless and grossly irresponsible.

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Comment by Bigsby
2013-04-19 07:25:25

Bay Area And Alemeda County Housing Price Correction Resumed And Trending Down Again

http://picpaste.com/pics/3a0bf912e42e8c06bccff308694ece29.1366303165.png

Demand is cratering too.

 
Comment by snake charmer
2013-04-19 07:41:16

“Are we really going to learn nothing from the last time this all happened?”

_______________________________/

Yes. We are going to learn nothing. We have bet everything we have to revive this state of affairs: our democratic institutions, the rule of law, and people’s trust and faith in just about everything, including their beliefs in honesty, saving, and other virtues upon which a strong society is built. Those weren’t things which were meant to be wagered, but we did it and now all that’s left is consequences.

David Stockman is correct: we’re not just financially bankrupt. We’re intellectually bankrupt too.

Comment by Carl Morris
2013-04-19 08:08:57

We are going to learn nothing.

I think “we” learned a lot…but it was exactly the wrong things. We learned with even more surety that housing really does always go up if you just hang in there and make your payments. Which is exactly what they wanted us to learn. Which will make unlearning it all the more painful.

 
Comment by brother_jimmy
2013-04-19 10:01:39

And morally bankrupt. I relayed earlier a story about being at a dinner party, listening to a first-Gen immigrant bragging about his strategic default to screw the banks, because he wanted his bailout too in form on an unneeded loan mod.

 
 
Comment by Ben Jones
2013-04-19 08:48:57

‘Only about 14 percent of all foreclosures nationally, were for loans originated after 2008, he said. In Connecticut, 22 percent of the foreclosures are on loans originated after 2008′

Only?

Comment by Pimp Watch
2013-04-19 08:54:18

Let me tell you brother…. it’s a mess in the NE and NE. There are houses all over the place, empty, being maintained by some servicer, not on MLS, no for sale signs, etc. And I mean everywhere.

 
Comment by Rental Watch
2013-04-19 09:04:12

To see if “only” actually makes sense, you need to figure out how many loans that represents of the whole.

If 35% (complete WAG…no idea if it is right, etc.) of all loans in existence were issued after 2008, then I think it’s safe to say “only”.

However, if 14% of all loans were issued after 2008, then 14% would be the share you expect from those loans, and it would be a pretty bad sign given how much distress there is out there.

 
 
2013-04-19 08:54:19

very interesting insights…do you really think we’re heading for another real estate bubble?

Comment by Rental Watch
2013-04-19 09:05:36

I’m hopeful that after the initial bounce, things flatten out as new construction picks up.

However, I’m fearful that Obama’s new push to restart subprime, and the Fed keeping rates too low for too long quickly inflates another bubble.

Comment by Ben Jones
2013-04-19 12:21:10

‘I’m fearful that Obama’s new push to restart subprime, and the Fed keeping rates too low for too long quickly inflates another bubble’

I’ve posted many reports of subprime lending that has been going on for a long time. Here’s one I forgot to include:

‘This resort community, where houses sell from around $200,000 to more than $1 million, enjoys another perk: easy access to no-money-down home mortgages, guaranteed by the U.S. Department of Agriculture…Reuters found at least 250 of the loans in the Ewa Beach area. It also found them in a lot of other places that aren’t very isolated or very rural: Los Angeles; Washington, D.C.; Austin, Texas; Seattle, Washington; and Tampa, Florida. The mortgages pop up near Silicon Valley’s Sand Hill Road, the main drag for high-tech venture capital, and a short distance from the headquarters of Google, Facebook and Apple, as well as in dozens of small to midsize cities across the United States, from Salinas, California, to Spring Hill, Florida.’

‘With banks’ lending standards persistently tight in the wake of the 2008 financial crisis, use of USDA-backed loans has ballooned, growing faster than any other type of government-backed loan. New lending under the program has risen to $16.9 billion in 2011 from $3.1 billion in 2003…The 51,600 loans that Reuters identified don’t cover all USDA-backed loans in urban areas. That’s because the analysis excluded loans in tracts that straddle urban-rural boundaries. More than 300,000 loans - totaling $38 billion - were located in these gray areas.’

‘The USDA has taken the place of the zero-down, or 100 percent-financed products that we had out there in the past,” says Todd Niizawa, vice president of Central Pacific Home Loans, which has done nearly 200 USDA-backed loans on Oahu since 2009.’

‘Top homebuilders like DR Horton, Lennar and Pulte have pushed USDA-guaranteed loans hard, plastering advertisements for them on their websites and coaching first-time buyers who can’t get conventional bank financing on how to qualify for the program. Midsize Florida builder Southern Homes says that nearly 90 percent of its business is in USDA-backed loans’

‘The inspector-general found that more than 37 percent of the loans it examined were ineligible for one or more reasons, including borrowers whose incomes exceeded program limits, who didn’t meet repayment guidelines or who already owned homes and could have gotten credit without the government guarantee. At one lender alone, 46 mortgages had been made to ineligible borrowers. Of those, 33 were in default’

http://www.reuters.com/article/2013/03/28/us-usa-mortgages-usda-special-report-idUSBRE92R0QC20130328

Comment by PeakHubris
2013-04-19 18:25:46

Subprime never left, it just adapted. Now there are articles all over about the FHA needing a bailout, etc. Nothing was ever learned from the collapse, and I am not sure anything will ever again be learned. I have no faith in mankind anymore. Greed has destroyed the moral fiber of humankind.

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Comment by brother_jimmy
2013-04-19 10:05:20

I believe we are 18 months into the bubble. If the earlier bubble started in Sept 2001, we would be at spring 2003 prices, which we seem to be.

 
 
Comment by Ben Jones
2013-04-19 11:36:52

I’m curious how this works:

‘(HARP) also provides a financial incentive toward items like college funds, a new pool, or a family vacation, things that previously seemed like luxuries’

 
Comment by Dave
2013-04-19 14:45:41

The original bubble hasn’t stopped leaking yet.

They put a giant TARP down over the hole and sealed it with duct tape.

 
Comment by Whac-A-Bubble™
2013-04-19 16:42:18

“Some of these programs include setting aside millions in prime mortgages for minorities who, according to government documents IBD has reviewed, would ordinarily not qualify for reasons including ‘the lack of required credit quality, income or down payment’. ‘The obligation that I have is to ensure lenders using the FHA program are lending to as full a spectrum of the credit box as possible,’ FHA Commissioner Carol Galante recently said.”

Got reverse redlining? Apparently lending discrimination is legal, provided it works in favor of specially-favored minorities.

 
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