April 26, 2013

The Not Yet Corrected Part Of The Pricing Model

It’s Friday desk clearing time for this blogger. “No one has to tell Stacy Brannan and Adam Smith that central Ohio’s housing market is hot. In the past two weeks, the couple missed out on three Clintonville-area homes despite touring the homes almost immediately after they came on the market and, in one case, offering full price. ‘The housing market has been picking up, but we didn’t expect it to be this insanity, where we didn’t even have a fair chance to get anything,’ said Brannan, who is planning a June wedding to her fiance, Smith. ‘It’s hard to not get discouraged.’”

“Bidding wars, same-day sales and offers above the asking price — unheard of a few years ago — can now be found in pockets throughout central Ohio where buyers outnumber sellers. Doug Turlo, an agent with in Gahanna, found out firsthand how alive the market is when he listed a two-bedroom, 1,100-square-foot home in Grandview Heights earlier this month. By noon, within three hours of listing the home, he had scheduled seven showings, and by 3 p.m., he was in contract for slightly more than the $229,900 asking price.”

“‘That’s the single-hottest market in central Ohio,’ Turlo said. ‘As soon as anything comes available, it’s a race to get there.’ The buyer of that house started writing the offer with his agent, Lauren Swieterman, before even leaving the house. ‘I tend not to be pushy, but at the end of the day, I want my buyer to be happy, so I say, ‘If you want this house, you’ve got to move,’ said Swieterman. ‘It’s crazy.’”

“South Florida’s housing market is on a tear, and that’s reducing many first-time buyers to tears. Increased demand from investors and a shortage of homes for sale have left many first-timers struggling to find a place. ‘The first purchase by far is the most overwhelming,’ said Ken H. Johnson, a real estate professor at Florida International University. ‘It’s a daunting process anyway, but now they’re coming into the market at a time when they have to be competitive with a lot of savvy buyers paying cash.’”

“Aside from the overheated market, first-time buyers face strict lending standards that make it difficult to qualify for mortgages. Agents and analysts strongly recommend that buyers meet with lenders before they begin looking so they know exactly how much house they can afford. ‘Our biggest hurdle is getting buyers to buy into that,’ said Chip Rowand, an agent in Broward County.”

“Getting preapproved for a specific mortgage amount allows buyers to act quickly once they do find homes. Well-prepared buyers may be able to win over sellers by agreeing to pay more than investors, who typically look for discounts, Johnson said.”

“Economist Edward Deak, Connecticut Forecast Manager for the New England Economic Partnership, said that the Connecticut market is on pace to expand throughout the rest of the year. One of the main issues confronting the Connecticut and even parts of the national market is income growth among families. Simply put, if housing prices continue to increase while income stagnates and the job market remains muted, fewer people will be able to buy homes.”

“He said he expects the state median price to climb into the range of $250,000 to $255,000. But to get there, lenders will have to loosen their standards, he said, like they have in other areas of the country.”

“Looking for signs of a housing bubble? Check this out: Vienna-based Navy Federal Credit Union is marketing 100 percent financing, no-money-down mortgages. ‘This product is phenomenal for homebuyers,’ said Katie Miller, VP of mortgage products, adding that it was geared toward creditworthy ‘first-time buyers who don’t happen to have $40,000 in cash sitting around.’”

“Housing starts are now inching up. Mortgages are easier to obtain. Even the ‘piggyback loan’ has returned. And time to lock up friends and relatives with short memories. While we’re at it, let’s lock up the government and its compulsion to push homeownership.”

“Last year, the liberal-leaning Urban Institute came out with a truly awful plan to help struggling young people buy a home. It would expand the federal government’s Housing Choice voucher program to include homebuyers. Housing Choice now gives low-income people vouchers to help them pay rent. It’s a good program. But handing out vouchers to buy homes?”

“‘In many ways,’ its report says, ‘this represents the worst of all worlds for these families: a ‘buy high, sell low, but don’t buy low’ prescription …’ But if you can now buy low, and still can’t afford a home, perhaps you should be renting. In good times and bad, the soundest investment advice must be heard over the bullhorns of the American Dream marketing machine. ‘They’re not making land anymore,’ the promoters still say. Well, they weren’t making land in 2008.”

“Blithely ignoring the lessons of the housing bubble, Obama has rehired many of the Clinton hands who inflated it in the first place, pursuing the same misguided policies that try to force people into homes they can’t afford in the name of ‘fairness.’ There are ‘affordable housing’ mandates aimed at getting Fannie and Freddie to take on even higher-risk borrowers. Through the Federal Housing Administration, houses are being offered to some low-income subprime buyers with minimal down payment and heavy subsidies.”

“The administration also is making it easier to sue a bank for not giving a loan, using a legal strategy called ‘disparate impact.’ Officials don’t have to prove that the bank is being racist in its actions. ‘It’s particularly galling that the people who are using the crisis to extend regulation are the same ones who sponsored the government policies that created the crisis,’ said Peter Wallison, former member of the Financial Crisis Inquiry Commission, a government group created to look into the causes of the 2008 crash.”

“The original cast of the financial disaster are back starring in a bad sequel. So here we go again. Thanks to a failure of accountability, the same social engineers who caused the crisis have wormed their way back into power. And they’re doubling down on their monstrous mistakes, inviting another housing calamity.”

“The Federal Reserve is continuing a loose monetary policy that is very similar to the one that got our nation into the housing bubble of 2005 to 2008. The reality is that neither fiscal nor monetary policy is effective any longer in dealing with the systemic structural issues in the Western world’s economies. The Federal Reserve’s policies are borderline negligent and irresponsible. It is creating the next bubble, which will make the bursting of the housing bubble look tame.”

“The value of allowing an economy to correct for excesses is that it encourages people not to engage in that behavior again. When irresponsible behavior is rewarded by irresponsible actions on the part of the Federal Reserve, the stage is set for the next economic calamity. As with the housing market, all of those who benefited on the way up will be seeking additional federal bailouts. This time, however, the sole responsibility for the disaster will belong in Washington.”

“Nevada’s construction defect law is being challenged by builders and the construction industry at the Nevada Legislature. Chapter 40 gives lawyers representing homeowners almost automatic payment for attorney’s fees and expert-witness costs from developers in settlements and decisions against developers.”

“‘The reality is we have too many homes in Nevada, and until that surplus is worked off, homebuilders are not going to come back,’ said state Sen. Tick Segerblom, D-Las Vegas. ‘But it will come back. The same laws were on the books in 2005, 2006, 2004, and homes were being built like hotcakes. So why is it now that the law prevents them from being built?’”

“Some neighborhoods are still feeling the aftershocks of the housing bubble bursting. According to a Newport News reassessment report, some neighborhoods — especially condominiums or townhomes — were again hit with double-digit decreases in property value. Warwick Townhomes in Denbigh, which suffered a loss of 22.55 percent for the 2013 re-assessment. Single-family home neighborhoods that suffered double-digit declines included Beaconsdale Deer Park, and Peach Orchard.”

“Foreclosures continued to be the story for financially distressed neighborhoods, city officials said. ‘We didn’t have one (non-foreclosure) sale in Warwick Townhomes,’ said Earl Scott, a city assessor.”

“Earl Wynings, appraisal supervisor for the Newport News assessor’s office, said often a neighborhood will avoid steep declines for years, then suddenly experience a substantial downswing. Wynings said he believes Hilton Village has fallen more sharply because prices in the village rose quickly during the boom years of the mid-2000s. ‘I remember those homes going up mighty fast,’ Wynings said. ‘People were buying 1,200-square-foot homes that were built in 1918 for $200,000.’”

“Marin foreclosures declined by nearly 56 percent year-to-year in the first quarter of 2013, and far fewer homeowners in the county entered the foreclosure process, according to DataQuick. ‘It appears last quarter’s drop was especially sharp because of a package of new state foreclosure laws — the ‘Homeowner Bill of Rights’ — that took effect January 1,’ said John Walsh, DataQuick president.”

“But Robert Bradley, CEO of Bradley Real Estate in San Rafael, said, ‘I believe there remains a significant number of homeowners that are underwater that have been making their mortgage payments. Many of them are going through their retirement funds and other savings to make payments. I have been encouraging these homeowners to think of a short sale as a sound financial planning and business decision.’”

“The city was a tale of two crises Thursday. On one end of Broad Street, the sing-song voice of an auctioneer echoed through Newark Symphony Hall as about 100 hopeful investors bid on 79 foreclosed properties at bargain-basement prices. Down the street, at City Hall, local leaders and community advocates spoke in somber tones, debating a way out of a foreclosure crisis that continues to ravage city coffers and the pocketbooks of its residents.”

“‘It’s as if my life, security for my family, a roof over our heads is a game to them,’ Newark resident Grace Alexander said, referring to Bank of America, whom she said would not modify her mortgage when she fell behind on payments. ‘Our impending homelessness is not a game to us.’”

“A report published by the real estate industry in the Netherlands states that the average home price is now 18% lower than it was at the peak in 2008, while detached homes lost 20%-25%. A separate, earlier, report estimated that 20% of homes, or over 1 million, are now underwater. Today’s report comes hot on the heels of a study issued Wednesday by a government commission, which took a full year to prepare and 121 pages to explain what went wrong in the Dutch housing bubble, and what should be done now to correct it.”

“The core problem is simple: from 1995 to 2008 home prices more than tripled (rose 200%+). Hence, if we round off to a 20% drop from peak levels, or 60% from 1995 levels when prices were a third of what they were in 2008, there’s still an increase of about 150% from the starting levels that needs to be dealt with. We can discount for, and let’s be generous, perhaps 50% for overall price inflation, but that still leaves us with a 100% increase, which is quite a bit more than the 60% absorbed so far.”

“You see the problem by now, of course: like many other nations, the Dutch today feel quite strongly that they have suffered enough already, and someone somehow needs to revive the housing market. But like everyone else, the Dutch wish to wish away the problem of the not yet corrected part of the pricing model. In their case, they want 200% (1995+100%) to be the new normal (a.k.a. the new black).”

“Not surprisingly, the government report says that A) all parties are to blame, and B) the government needs to get more involved, i.e. make sure loans become available for people who now can’t get them, a.k.a. people who are not the most likely prime candidates to buy a home that’s still some 33% overvalued. Though, admittedly, sucking in those last remaining suckers would prop up moribund builders, agents and lenders for a while longer. Whether that’s a government’s task is at the very least highly questionable (obviously, other countries, including the US, work on similar resuscitation efforts).”

“Throughout the western world it’s been an active collaboration of the governments and the banks and the real estate industry and the builders. It’s a very simple story really: this is a widespread tale of western societies transforming themselves into pyramid schemes; or perhaps we should say one big global Ponzi scheme. And these Ponzi things collapse, and there’s nothing anyone can do to ‘fix’ that: the poisoned chalice must and will be emptied to the last drop. Only, the politicians - legally - have their hands in everyone’s pocket, so they can throw around trillions of dollars and euros to hide the process of the plunging system for as long as it lasts. That’s where we’re at right now.”

“And it’s not that all of these folks have evil minds; the intelligence level of politicians in the Netherlands approaches zero as much as it does in other western countries. The issue is that the entire system has blinders on. They can think in only one dimension, and that one-dimensional thinking can in the end lead to one end only: complete and utter disaster. It’s everything on red every time and every day, and that’s not how the world works. Every time black comes up is, for these people, nothing but another reason to put it all on red again next time. A surefire recipe for mayhem. But it’s all they have ever learned.”

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Comment by scdave
2013-04-26 07:17:11

has rehired many of the Clinton hands who inflated it in the first place ??

Really ?? It was Clintons fault ?? How ??

Comment by Whac-A-Bubble™
2013-04-26 07:41:28

It really began in the mid-1990s

Financial crises just do not happen overnight and for no special reason. The changes to the GSE system that really enabled the financial crisis began in the mid-1990s. No one change, especially at the beginning, caused the crisis by itself, but all the pieces were essentially in place by the wind down of the Enron scandal in 2001. At that point, it became a matter of reversing course in Washington, which can be a curiously difficult thing to do.

In 1995, the Clinton Administration changed the law governing GSEs’ mission — the Community Reinvestment Act (CRA) — to encourage more lending in poor neighborhoods. Previously, the CRA directed government to monitor banks’ lending practices to make sure they did not violate fair lending rules in poor neighborhoods. With the 1995 change, the government published each bank’s lending activity and started giving bank ratings based primarily upon the amount of lending it performed in poor neighborhoods. These changes empowered community organizations, such as ACORN, to pressure banks to increase lending activities in poorer neighborhoods — which involved reducing mortgage loan standards — or face backlash from those organizations’ private and political associates. For instance, if Chase made 100 mortgages in a poor Chicago district, and Countrywide 150, the government would likely give Chase a lower CRA rating, and community organizers could pressure politicians to make it more difficult for Chase to get licensed to do full ranges of business in new areas of the country. Low CRA ratings could also disadvantage Chase with regard to government lending programs and make it more difficult for Chase to participate in mergers and acquisitions.

Through Fannie Mae, the government controlled banks’ mortgage lending activity rates. As long as Fannie was willing to buy these mortgages, banks had no problem lowering their standards if necessary, making the loans and selling them off to Fannie Mae. Banks could even buy the mortgages back from Fannie Mae, with Fannie’s payment guarantee, thereby eliminating the credit risk (as long as Fannie was government backed). Now, if the US federal government is behind Fannie – and the government has a perfect credit record – there is really little worry for banks, so they might as well make all the mortgages Fannie Mae is willing to buy, and purchase all the guaranteed debt Fannie puts up for sale. However, to the extent investors ever believed Fannie was just like any other company — without the US government guaranteeing its debts, at least in bulk — well that would be a different story. The risks involved would go from theoretically near zero, to well, who knows… Throughout the Congressional debate on GSE regulations in 2003-2005, senior Congressional Democrats repeatedly inferred — even directly stated on at least one public occasion — the US federal government would bail Fannie Mae out if required.

In written law, the US government only 100% guarantees Ginnie Mae. The other major two GSEs, Fannie Mae and Freddie Mac, exist in more of a grey area. Nothing explicitly states the federal government is 100% behind them, but it has always been implied. That is why statements of top government officials in the run up to the bubble are so very important, as are actions like the US President personally appointing Fannie’s CEO and directors.

From 1993-1999, the Clinton Administration replaced many of Fannie Mae’s key executives, including the CEO, the CEO’s number two, and nearly half the board of directiors. As a government sponsored enterprise (GSE), the President had the authority to make those appointments. The board, which increasingly consisted of Presidential appointments, then worked with the new CEO to change Fannie Mae executives’ salary structures in order to incentivize them to reach higher mortgage targets. More specifically, the board promised senior executive millions in bonuses each year as long as Fannie reported certain earnings figures. Just a quick reminder… Fannie’s ability to reach earnings targets is directly related to the number of mortgages it buys, as long as those mortgages do not default or as long as Fannie executives do not recognize negative changes in the payment flow.

Between 1994 and 2004, Fannie executives improperly reported $10.6 billion of earnings. Franklin Raines, the Clinton-appointed CEO, received over $90 million. Jamie Gorelick — a top Clinton Administration lawyer whom he appointed in 1997 to be Fannie Mae vice chairman despite having no formal financial experience – received over $26 million. Just by way of reference, in 2002, 21 senior Fannie Mae executives received over $1 million each.

Comment by scdave
2013-04-26 10:54:44

I thought consensus was that it really started here…And, although Clinton signed the legislation the votes were there to override a veto so he had nothing to gain by vetoing it…

Some economists state that the 1999 legislation spearheaded by Gramm and signed into law by President Clinton – the Gramm-Leach-Bliley Act — was significantly to blame for the 2007 subprime mortgage crisis and 2008 global economic crisis.[11][12] The Act is most widely known for repealing portions of the Glass–Steagall Act, which had regulated the financial services industry.[13] The Act passed the House and Senate by an overwhelming majority on November 4, 1999.[14][15]

Comment by Steve J
2013-04-26 12:29:58

Funny how nobody on Wall Street saw this happening and figured out all the mortgage based CDOs they couldn’t buy enough of were worthless.

Comment by PeakHubris
2013-04-26 18:30:13

The greed was too powerful.

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Comment by 2banana
2013-04-26 08:50:23

Government buying votes - errr - I mean helping people buy homes…

Just like they help keeping college costs affordable.
Just like they help keeping health care affordable.

Under the Clinton administration, federal regulators began using the act to combat “red-lining,” a practice by which banks loaned money to some communities but not to others, based on economic status. “No loan is exempt, no bank is immune,” warned then-Attorney General Janet Reno. “For those who thumb their nose at us, I promise vigorous enforcement.”

The Clinton-Reno threat of “vigorous enforcement” pushed banks to make the now infamous loans that many blame for the current meltdown, Richman said. “Banks, in order to not get in trouble with the regulators, had to make loans to people who shouldn’t have been getting mortgage loans.”

This threat combined with the government backing of Fannie and Freddie set the stage for the current uncertainty, because the “banks could just sell the loans off to Fannie or Freddie,” who could buy them with little regard for negative financial outcomes, Richman said.

Comment by scdave
2013-04-26 10:55:58

Check out my post above 2-fruit….

Comment by inchbyinch
2013-04-26 10:06:54

I hear ya.
The two headed snake is responsible.
Way too much Kool-Aid on both sides.

Comment by Whac-A-Bubble™
2013-04-26 07:32:58

Is the current parabolic bubble price blowout in the U.S. more or less extreme than the one that led up to the big crash in 2007?

Comment by scdave
2013-04-26 07:47:24

This one is worse at least in my area…This one has a frenzy component that the other run up did not…A recent sale close to me had a $180,000. over-bid on a $899,000. asking price…As a comparison, I would say the mind set is simular to the Dot-Com run-up…How did that play out ??

Comment by Whac-A-Bubble™
2013-04-26 07:49:27

We’re seeing it in our ‘hood as well — i.e. homes selling for more than $50K above the current Zestimate™. It sure seems as though there is a shortage of homes on the market relative to the number of prospective buyers!

Comment by Bigguy
2013-04-26 07:57:05

Can you overbid if it is borrowed money? Wouldn’t there need to be an appraisal to support the loan for the overbid price?

Sure if its cash that’s another matter.

Comment by scdave
2013-04-26 08:02:43

Can you overbid if it is borrowed money ??

Answer is no unless the house was priced well below market to begin with which is typically not the case…So, its buyers with strong down payments that overcome the over-bid…

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Comment by Bigguy
2013-04-26 10:55:21

So, its buyers with strong down payments that overcome the over-bid…

I don’t understand what you mean. Could you spell it out more for my dense self?

Comment by Steve J
2013-04-26 12:31:08

Buyer must make up the difference between appraisal and sale price.

Comment by PeakHubris
2013-04-26 18:36:51

So the real question is: Where is all this money coming from?

Comment by Rental Watch
2013-04-26 08:40:02

The moves up seem just as extreme…time will tell if prices flatten out before we get to the same level of insanity as before.

Comment by scdave
2013-04-26 10:58:52

same level of insanity as before ??

IMO, we are beyond it already….At least around here…If I showed you what one million bought around here you would up-chuck…

Comment by Rental Watch
2013-04-26 18:38:51

I know. I’m on the mid-Peninsula…it’s madness.

We are not yet beyond madness farther inland.

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Comment by 2banana
2013-04-26 08:53:24

Who would have ever imagined that the obama housing bubble would eclipse the insanity from 2000-2006.

Hope and change.


Yes we did.

Comment by perkonkrusts
2013-04-26 09:18:27

The frenzy may be worse, but the numbers say home prices still haven’t come close to their all-time high. Down 33%, then back up 12%. So a $240,000 home dropped to $160,000, and is now only back up to $180,000. Doesn’t seem right, but that’s what Bloomberg says.

“The median U.S. home price hit bottom in 2012 after a 33 percent drop, as measured by the National Association of Realtors. In February (2013), the median price was up 12 percent from a year earlier, the trade group said last week.”


Comment by Pimp Watch
2013-04-26 09:25:03

It doesn’t much matter what NAR says. Besides….. housing demand is collapsing.

You did know that demand is at 17 year lows right?

Comment by perkonkrusts
2013-04-26 09:56:25

“You did know that demand is at 17 year lows right?”

Which would mean housing prices should be going down. Is that what you’re saying is happening, prices are dropping on average across the U.S.?

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Comment by Whac-A-Bubble™
2013-04-26 10:05:54

“Which would mean housing prices should be going down.”

Not necessarily, as anyone who passed freshman microeconomics with a grade of C or better can explain.

Comment by perkonkrusts
2013-04-26 10:15:21

Then educate me. When you said “housing demand is collapsing” and “17-year lows”, what were you trying to say about home prices, that they were rising? If that’s true, then there’s no bubble and we have nothing to worry about.

Comment by Whac-A-Bubble™
2013-04-26 11:35:14

Have you ever opened an undergraduate economics textbook?

Typically by around page 3, they provide the first exposure to Marshallian market analysis, the one with price on the vertical scale and quantity on the horizontal scale. There is a line which slopes down from left to right, called the “demand curve,” and another which slopes up from left to right, called the “supply curve.” Where they cross is called “equilibrium,” which determines the quantity sold and the price at which it is sold under conditions of perfect competition.

Later in the book, you might find an example of what happens in a market where supply is artificially constrained and demand is artificially goosed (like in today’s U.S. housing market). You can do this on a piece of paper: Draw the constrained supply curve as a vertical line near the vertical axis and shift the demand curve to the right to reflect the various measures in play to goose demand ($40 bn monthly QE3 MBS purchases, 100-year low mortgage rates, etc).

You will find that prices go much higher than in the world of perfect competition and transactions flow much more slowly — pretty much what we currently see around the U.S.

P.S. I assume whoever keeps saying “demand has fallen to 1997 levels” is referring to what demand would look like based on fundamentals (i.e. without all the artificial support from on high).

Comment by Nancy Hoffman
2013-04-26 16:15:17

The idea that housing demand is collapsing is difficult to believe. I offered on a house that received over 30 offers, all over asking, many cash buyers. The house went to a cash buyer. It remains to be seen how high over asking they paid. It’s crazy in California. Not that crazy is anything new here!

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Comment by Whac-A-Bubble™
2013-04-26 16:42:26

“Not that crazy is anything new here!”

It can pay to avoid buying a home on the wrong side of the crazy cycle, though…and the current one is the biggest one since the gold rush!

Comment by scdave
2013-04-26 11:02:07

prices still haven’t come close to their all-time high ??

They have here and beyond…

Comment by Pimp Watch
2013-04-26 12:22:21

Of course they have!….. But they haven’t.

Even in SF area, prices are at 2004 levels. The peak was June 2007 which is roughly 45% higher than current prices.

Why misrepresent?

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Comment by Beachchic
2013-04-26 15:27:49

Bidding wars again here in the OC. In the condo complex where I currently rent, the same 2 bd/ 2 ba model sold for $300K last year, and now the asking is $400K. I thought $300 was still too high. I also received a note from a local realtor representing a prospective buyer couple who would be willing to pay close to $600K for a 3 bed townhome. Gag…

There is an illusion of great demand because the manipulated supply is limited. There are not many units for sale for this time of year. Maybe 3 total in a complex of 100 units and townhomes. I also see some units which have been empty for at least 2 or 3 years.

Comment by Pimp Watch
2013-04-26 16:08:37

… suckers…. lmao. Imagine their losses.

Comment by Pimp Watch
2013-04-26 07:44:06

“if housing prices continue to increase while income stagnates and the job market remains muted, fewer people will be able to buy homes.”

Another profound statement by a paid housing crime syndicate operator but here’s the real problem with this particular liar….. prices are falling across the state of CT.

The housing criminals will try anything to slip BS under the door.

Comment by Whac-A-Bubble™
2013-04-26 07:44:14

“‘The housing market has been picking up, but we didn’t expect it to be this insanity, where we didn’t even have a fair chance to get anything,’ said Brannan, who is planning a June wedding to her fiance, Smith. ‘It’s hard to not get discouraged.’”

How could you fail to prosper by marrying a man named Adam Smith?

Comment by Whac-A-Bubble™
2013-04-26 07:47:58

“Bidding wars, same-day sales and offers above the asking price — unheard of a few years ago — can now be found in pockets throughout central Ohio where buyers outnumber sellers.”

This is awesome, as we are visiting central Ohio this summer for a family reunion. It should be fascinating to witness the reflated Central Ohio housing mania up close.

Comment by CincyDad
2013-04-26 08:58:09

I keep tell all of you…

Columbus and Cincinnati are nothing like the rest of the state. Everyone thinks all of Ohio is like Cleveland. Cleveland, Toledo, Dayton, and Youngstown are like Detroit where-as C’bus and Cincy are more like Nashville economically speaking (but larger).

Here in Ohio, School district is everything. When things pick up, the best school districts get red-hot. When things slow down, the best school districts still do well.

Cincinnati and Columbus… the Steady-Eddies of the country.

Comment by scdave
2013-04-26 11:05:30

School district is everything. When things pick up, the best school districts get red-hot. When things slow down, the best school districts still do well ??

Ditto here but we have a boat load of private school alternatives…

Comment by Whac-A-Bubble™
2013-04-26 07:53:39

“Aside from the overheated market, first-time buyers face strict lending standards that make it difficult to qualify for mortgages. Agents and analysts strongly recommend that buyers meet with lenders before they begin looking so they know exactly how much house they can afford. ‘Our biggest hurdle is getting buyers to buy into that,’ said Chip Rowand, an agent in Broward County.”

This is a huge policy concern, which fortunately appears soon to be remedied.

Comment by Whac-A-Bubble™
2013-04-26 08:01:22

Will Mortgage Lending Standards Become Looser?
By Steve Cook on April 17, 2013

loanA major cause of the housing crash in 2006 and 2007 were poorly documented mortgages and very loose lending standards that contributed to the 4.9 million defaults that ended up in foreclosure, costing families their homes.

Mortgage lenders who made bad loans paid dearly with massive losses that drove some, like Countrywide and Washington Mutual, out of business. The survivors changed their lending practices dramatically, raising standards on credit worthiness and ability to repay, and requiring better documentation. The result is that many homeowners who qualified for a mortgage to buy or refinance a home in 2005 could not qualify today.

With the housing recovery underway, pressure is growing to loosen credit, debt and income requirements. Currently, for example, the percentage is in the 50 percent range. Economists at the National Association of Realtors estimate that an additional 500,000 to 700,000 home sales could be made if credit conditions returned to normal.

Experts on mortgage risk have advised that the worst is over. Dennis Capozza, Professor of Business Administration at the University of Michigan remarked: “mortgage lenders can comfortably loosen credit for newly originated loans. Important factors in the more favorable outlook include low mortgage rates, the Federal Reserve’s loose monetary policy, and lower house prices now at or below fundamental values in many locations.”

Some policy makers, led by Fed Chairman Ben Bernanke, have repeatedly urged lenders to lay down the law on the tight lending standards that have made it difficult for home buyers with moderate credit and income to qualify for mortgages.

“Certainly, some tightening of credit standards was an appropriate response to the lax lending conditions that prevailed in the years leading up to the peak in house prices. Mortgage loans that were poorly underwritten or inappropriate for the borrower’s circumstances ultimately had devastating consequences for many families and communities, as well as for the financial institutions themselves and the broader economy,” Bernanke said in December.

However, it seems likely at this point that the pendulum has swung too far the other way, and that overly tight lending standards may now be preventing creditworthy borrowers from buying homes, thereby slowing the revival in housing and impeding the economic recovery.”

Comment by Ben Jones
2013-04-26 08:36:04

‘it seems likely at this point that the pendulum has swung too far the other way’

They always talk about “the pendulum” with this credit thing.

Comment by Whac-A-Bubble™
2013-04-26 10:07:06

It seems likely that the pendulum has turned out to be a wrecking ball.

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Comment by Neuromance
2013-04-26 08:55:04

The government determines the lending standards, as they are the only ones who will assume the risk for mortgages.

The wrestling match in the Qualified Mortgage (QM) and Qualified Residential Mortgage (QRM) debate is what is the lowest quality loan for which the government will assume the risk.

None of this silliness would occur in a private system.

Comment by Whac-A-Bubble™
2013-04-26 07:54:41

Ruh-oh — there appears to be a fly in the mania reflation soup.

Comment by Whac-A-Bubble™
2013-04-26 07:57:00

Growth falls short of forecasts, weakness ahead
By Lucia Mutikani
WASHINGTON | Fri Apr 26, 2013 10:45am EDT

(Reuters) - Economic growth regained speed in the first quarter, but not as much as expected, heightening fears an already weakening economy could struggle to cope with deep government spending cuts and higher taxes.

Gross domestic product expanded at a 2.5 percent annual rate, the Commerce Department said on Friday, after growth nearly stalled at 0.4 percent in the fourth quarter. Economists had expected a 3.0 percent growth pace.

“It wasn’t the bang-up start to the year we had hoped for, and the signals from March suggested that we will only decelerate from here,” said Avery Shenfeld, chief economist at CIBC World Markets Economics in Toronto.

Comment by scdave
2013-04-26 11:08:35

Yep…I don’t think we are going into the mid 6% unemployment rate anytime soon…Q-me-up…

Comment by Whac-A-Bubble™
2013-04-26 08:04:50

“Well-prepared buyers may be able to win over sellers by agreeing to pay more than investors, who typically look for discounts, Johnson said.”

End-users have to be insane to go head-to-head with all-cash investors, given the latter group will dump their ‘holdings’ on the first sign of an imminent crash, leaving the Mom-and-Pop household type buyers holding the bag on still more underwaterness.

Comment by Whac-A-Bubble™
2013-04-26 08:07:46

“But handing out vouchers to buy homes?”

So long as they can use federally-guaranteed FHA loans to get these people into the Ownership Society club, where is the problem?

Comment by Whac-A-Bubble™
2013-04-26 08:11:01

“The Federal Reserve’s policies are borderline negligent and irresponsible. It is creating the next bubble, which will make the bursting of the housing bubble look tame.”

So long as they don’t admit to seeing the bubble their policies are inflating, they can keep the ‘Nobody could have seen it coming’ plausible deniability defense in their back pocket.

Comment by scdave
2013-04-26 11:11:42

“The Federal Reserve’s policies are borderline negligent and irresponsible ??

I think they were scared $hitle$$….Thats why they did what they did and are doing what they are doing…With that said, there is going to be a price to pay sometime, someday…No free lunch you might say…Knowing what that price is going to be is the tricky question…

Comment by oxide
2013-04-26 08:19:46

two-bedroom, 1,100-square-foot home in Grandview Heights Ohio

This is the only house in Grandview Heights that comes close:


Location is about the only thing it’s got going for it. Cramped kitchen on a tiny lot. (Probably more than two bedrooms, though)

Comment by CincyDad
2013-04-26 09:01:42

Probably snatched up by parents of the near-by Ohio State University undergrads. 55,000 students equals a lot of parents.

Comment by oxide
2013-04-26 08:29:07

From the Newark article:

“Carol Meyers, a researcher at SEIU International and author of the Newark Homewreckers report, said the city should do more. She advocated the use of eminent domain, wherein the city could pay fair market value for homes in which the homeowner is behind on mortgage payments, “and create conditions for new sustainable mortgages at current home values, all while borrowers stay in their homes.”

Another back-door cram-down.
Not to mention the abuse of eminant domain. But then, after Kelo, pretty much anything goes.

Comment by 2banana
2013-04-26 08:58:50

Private property? What is that?

Legal contracts? Who cares?

Got to keep buying those votes with free government cheese.

How about the city of Newark takes the house of Carol Meyers, under eminent domain, and gives it to some poor deserving 47%ers?

Socialism is not so much fun when it affects you directly…

Comment by (Now that I'm "diversified") Jetfixr
2013-04-26 11:24:08

Neither is Galtian Capitalism.

Ask those folks down in Texas about their Galtian neighbors, who thought it was a good idea to park a fertilizer plant next door to a school and nursing home.

Comment by Steve J
2013-04-26 12:35:11

There is a big shortage of land in Texas.

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Comment by PeakHubris
2013-04-26 18:44:25

Just because the entire world’s population could live comfortably in the state of Texas doesn’t mean things aren’t getting a bit tight there, land wise. I mean, they aren’t making any more of it.

Comment by Hi-Z
2013-04-27 15:26:58

“Ask those folks down in Texas about their Galtian neighbors, who thought it was a good idea to park a fertilizer plant next door to a school and nursing home.”

The ferilizer plant was there long before the school and nursing home. Why were they allowed to be built close to a plant like this?

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Comment by ScallyWag
2013-04-28 06:50:32

Because its Texas.

Comment by Beer and Cigar Guy
2013-04-26 08:41:59

“‘The first purchase by far is the most overwhelming,’ said Ken H. Johnson, a real estate professor at Florida International University. ‘It’s a daunting process anyway, but now they’re coming into the market at a time when they have to be competitive with a lot of savvy buyers paying cash.’”

Oh, well this MUST be accurate info since it comes from the experts at Florida International University! I can’t wait until the professors at the nearby Motorcycle Mechanic Institute and Culinary Services Academy weigh-in!

Comment by Weed Wacker™
2013-04-26 12:54:23

If you are coming into a market that is too competitive for you (or just makes you uncomfortable or frustrated in any way) that is a sign that you should not be in that market. What is the big rush? Patience is nowhere to be seen.

Comment by Carl Morris
2013-04-26 13:02:09

If everyone were patient house prices would crash. So we must do whatever it takes to avoid that.

Comment by Beer and Cigar Guy
2013-04-26 08:57:15

“Bidding wars, same-day sales and offers above the asking price — unheard of a few years ago — can now be found in pockets throughout central Ohio where buyers outnumber sellers.”

This is so profound because EVERYONE wants to live in (drumroll, please)… Columbus, Ohio. The rich history of the Greater Columbus Megapolis, its vibrant theatre and arts scene, its renown as a center of culinary excellence, close proximity to some of the world’s most beautiful beaches AND just hours from Cleveland! Columbus truly has what everyone wants. And the job opportunities! Just go to Monster.com and look at the jobs available in that area. Go ahead- I dare you.

Comment by 2banana
2013-04-26 09:02:07

$7 Trillion in NEW deficits…

47 cents of every dollar the government spends is BORROWED…

The Fed buy $40/billion of worthless bank assets A MONTH under QE3…

The cheap obama money had to go somewhere…

To the stock market
To gas prices
To gold prices
and to real estate…(even in Columbus, Ohio)

Comment by CincyDad
2013-04-26 09:03:37

Have you ever been to Columbus Ohio?

Comment by Beer and Cigar Guy
2013-04-26 09:38:53

Absolutely. I was born and raised in flyover country. Have you looked at the jobs in that area? Do you think that, in the current surreal/fake economy that we have, there are ample jobs in that area which will support $250,000+ mortgages and escalating price wars? I certainly don’t.

Comment by oxide
2013-04-26 09:52:30

Columbus is not a lucky duck town. It’s a center for insurance and banking. All you need is $100K combined income to afford $300K+ housing. You could do that with a $70K insurance manager and a $35K clerk at Ohio State. Or two teachers(?). Or a $100K STEM job.

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Comment by CincyDad
2013-04-26 09:55:01

Actually, I do.

If you go to CareerBuilder, you should find several IT jobs paying $85-100k for an experienced person. If you have a spouse making $50k, then you could be looking at a household income of $140k.

Here in Cincy and Columbus, most employers are very steady. They don’t ramp up fast at all, they stay pretty lean, and during bad times, they let go only a few people. (if you are one of them, then you are out of luck because no one in town is hiring at that point).

With a household income of $140k and pretty stable employers, I can see bidding wars for desirable $250k houses, especially if they are in the better school districts (school district is everything around here).

The definition of “bidding war” is probably different here as well. There is a formula of sorts to house prices. Houses listed for under $150k will sell for $5k less than listed. Houses listed for 250-300k sell for $10k less than listed. It’s pretty much automatic, from my experience. So a bidding war means that the $10k discount gets called into question.

And your comments about the arts/culinary/entertainment comments are outdated, particularly if you consider what’s within a 75 minute drive - Dayton and Cincinnati. Together the 3 cities area have close to 6 million people, so you get a lot of all those things you questioned withing a drivable distance. And Cleveland-Akron-Toledo-Lake Erie Islands/beaches are only 2 hours away if you want to make a long day of it.

Keep in mind.. people who are passionate about a hobby will find only a few cities acceptable. For most people and most activities, the standards offered in the C’Bus-Dayton-Cincy triangle will more than suffice: Concerts, dining, sports, etc.

If I was passionate about Ballet, I would not consider San Diego a place I would want to live. Yet many people find SD very desirable. If there is a ballet there, I’m sure it’s good enough for most people to take in once every few years.

Columbus may not be the greatest city in the world, but for 99.9% of Americans, it’s got all you need at a decent level of performance.

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Comment by Beer and Cigar Guy
2013-04-26 11:24:01

Easy there gents, I didn’t mean to call your baby ‘ugly’. I stand corrected. The housing bubble in central Ohio will undoubtedly continue ad infinitum and those many high paying jobs will sustain that area indefinitely. Thank goodness that the insurance and banking industries in the US and elsewhere are on such rock-solid ground. I was wrong to doubt the almost magical qualities of your particular geographic area. It is, after all, different there. Carry on.

Comment by localandlord
2013-04-27 06:23:00

There really does seem to be two real estate markets in this country. “Hot” or trendy markets and then the rest of us.

Locaville has trendy cities in 3 directions. Same climate, decent job market here - what’s the difference? Maybe it’s because we are fat and ugly? I think it is because the trendy cities have “walkable neighborhoods” with quaint commercial districts right next to the houses. I hear Columbus has a lot of this.

I’m not complaining. If there was a bakery within easy walking distance it would not be good for my health.

Comment by macboy
2013-04-26 09:24:54

Doesn’t really matter where people really want to live. Some people seem willing to live pretty much everywhere. And the process in place once again… enables… weak players to bid as if they are strong players. Bubble 2.0.

Comment by scdave
2013-04-26 11:14:53

LOL..B & C Guy…

Comment by macboy
2013-04-26 09:23:33

Guess we’re toast. We might not live long enough to see housing priced appropriately.

Comment by Beer and Cigar Guy
2013-04-26 09:58:55

Yeah, I’ve felt the same way, but I do think this time it will be different. When the bottom drops out this time, I think it will be FAST AND FURIOUS. Like, faster and worse than most will be able to believe. The memory of the burst in 2008 and the financial pain is still fresh in the memories of the ‘investors’ and when the first few get just a whiff of smoke in this crowded theater, then the stampede for the exits will be absolutely barbaric. Most of these participants are vain enough to ‘huff their own ether’ and they actually believe that they are smarter and faster than the next guy. Their secret plan is to discount very aggressively and sell at the very first sign of trouble. The problem is, they all have the same secret plan… It will be like a meth-fueled sprint into a brick wall.

Comment by Carl Morris
2013-04-26 10:18:56

It will be like a meth-fueled sprint into a brick wall.

Sounds like you’re saying it will be critical that we bail them out.

Comment by (Now that I'm "diversified") Jetfixr
2013-04-26 11:32:54

An informal poll leads me to believe that the 1%ers figure they will avoid the Zombie Apocalypse by getting on their jets, and flying to a safe haven.

Another informal poll tells me that this plan will only work if they can fly the airplanes themselves, and beat the regular pilots to the airport.

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Comment by Whac-A-Bubble™
2013-04-26 12:11:04

The U.S. taxpayer is already on the hook for the next lending industry bailout, as recent lending is almost all federally guaranteed.

Since the fix is already in, there will be no need for messy political wrangling at the height of the next housing panic.

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Comment by inchbyinch
2013-04-26 10:48:30

Yeah, it is my belief this manipulated housing and finance fiasco will outlive me, and I turned 56 last Sunday.

Our neighbor bought in the peak, lived free, walked, and are using their saved $, because of no house pymt to remodel their newly purchased w/ fha loan house. That seems to be the new neighbors story in our nice but modest tract. It seems to be viral around our neck of the woods. It sucks.

Comment by (Now that I'm "diversified") Jetfixr
2013-04-26 11:40:16

After the 2008 implosion, my hope was that a $hitload of chickens would come home to roost. Yeah, I took a big hit because my job went away, but I figured that some of these idiots getting theirs would be worth it.

If you subsidize something, you get more of it. If you penalize something, you get less. So far, it seems like everyone in business and government wants to subsidize criminal behavior, at all levels.

Comment by Pimp Watch
2013-04-26 11:50:52

“Our neighbor bought in the peak”

And so did you.

What did you pay for your debt-dump?

Comment by macboy
2013-04-26 14:20:13

So hostile. Pimpy appears to have anger issues

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Comment by inchbyinch
2013-04-26 17:21:07

We didn’t buy at the peak. We waited 6.5 years from the peak in So Ca and bought an affordable home all cash, remodeled the interior all cash, and still have a small rainy day fund. We were sick of paying a LL, when we could afford a humble home. We sold an oversized McMansion years ago, and got caught in this housing hell. Our timing sucked. Who knew!

You have issues with OPM.

We are the happiest we’ve ever been in our lives. This is our forever home.

You need to come up with another form of angst and drama. Yawn

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Comment by Pimp Watch
2013-04-26 17:52:00

What did you pay for your debt-dump?

Easy question. Go ahead.

Comment by Joe the patriotic bootstrapping IRA stuffer
2013-04-26 11:52:41

I think housing prices will have to come down alot (sic) in my lifetime, but the question is, will they truly crater or just drift downward in real terms?

If I knew it would take 5 or 6 years for this “65% off” thing, sure, I’d wait. I’d also wait if I actually wanted some ginormous house in a trendy neighborhood, but that’s not that important to me. I’m in walking distance of a few really good ones, I can let others pay the jumbo mortgages and property taxes.

Comment by (Now that I'm "diversified") Jetfixr
2013-04-26 11:29:09

When it comes to housing, I’ve become convinced that it’s a Pavlovian response, for people to act like lemmings.

Comment by Joe the patriotic bootstrapping IRA stuffer
2013-04-26 11:32:16

“central Ohio’s housing market is hot”

I stopped reading after this, I got physically ill.

Comment by Nancy Hoffman
2013-04-26 12:47:03

A realtor friend of mine asked one of his colleagues how he was able to buy so many SF homes with cash. His friend told him it was quite easy. He offers all cash, effectively eliminating all buyers who required financing. Once he owns the home, he refinances into a conventional 30 year fixed loan with a low interest rate. He gets a significant portion of his original cash back and goes out and buys another house. Very interesting times we live in!

Comment by Whac-A-Bubble™
2013-04-26 15:07:00

So much for the wealthy all-cash investor meme…it’s just another Fed-funded tsunami tide of bad credit washing over the housing sector, which will leave behind a trail of financial destruction when it recedes.

Comment by Ben Jones
2013-04-26 15:13:23

‘Once he owns the home, he refinances…’

I’ve seen this from posters here. Try this; call up some lenders and ask them if you can do the same thing. I know people with good credit, already owned rentals,that have and were turned down flat by everybody.

Comment by Whac-A-Bubble™
2013-04-26 15:54:51

Sounds like there might be fraud involved (assuming the story is true).

Comment by Pimp Watch
2013-04-26 16:06:33

Sounds like Nancy is a fraud.

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Comment by Ben Jones
2013-04-26 16:14:14

I can’t say it is or isn’t, but I’d like for someone to tell us exactly who is making investment house loans besides hard money lenders (who ask for something like 10% interest).

Comment by Nancy Hoffman
2013-04-26 16:24:52

PimpWatch: You really are hostile. What’s up with all the nasty personal comments against people who are trying to have a civilized conversation. At least I use my real name…

Comment by Whac-A-Bubble™
2013-04-26 16:37:17

“PimpWatch: You really are hostile.”

I wouldn’t take it personally, as his hostility is shared equally with everyone who makes unsubtantiated pro-REIC posts here.

And I agree with Ben that you ought to back up your anecdote with some credible evidence.

Comment by Pete
2013-04-26 16:48:16

“PimpWatch: You really are hostile. What’s up with all the nasty personal comments”

Don’t let him drive you away, it’s just his version of performance art. He believes what he posts, but the hostility part is likely schtick.

Comment by Nancy Hoffman
2013-04-26 17:35:17

Thank you for the support, Pete. I’m familiar with bullies and their need to compensate endlessly for their personal inadequacies. The “schtick” has its roots somewhere, right Pimpy? Otherwise it wouldn’t be so comfortable…

Comment by Pimp Watch
2013-04-26 17:37:39

Oh how sweet.


Comment by Rental Watch
2013-04-26 18:47:18


I’m familiar with one bank who is making loans on rental homes. Only after they’ve been fixed up, only after they’ve been leased, and what equates to approximately 50% LTV, but with personal recourse to a high net worth individual that has a long-time relationship with the bank.

The loans are at a rate less than 5%, fixed rate for 5 years (not 30-year fixed).

I’m reluctant to name the lender, but needless to say, without the big balance sheet guaranteeing the debt (a significant multiple of the borrowings), low amount of leverage, and long existing banking relationship, I doubt the loans get made.

Incidentally, this person has tried to find alternative sources with the same metrics…very little luck (some luck, but not much).

Comment by Whac-A-Bubble™
2013-04-26 23:49:29

Nancy — are those lenders’ you mentioned identities a big secret or something?

Comment by localandlord
2013-04-27 05:53:26

My traditional source of funds has been the 2nd mortgage division of my local bank. They make 1st mortgages too. 70% ltv on rental properties, 1% origination, closing costs are what they actually pay to the attorneys, appraisers etc. Fairly painless process but of course I bank there so they know my bidness.

It’s been a while since I had to get one but the rates tend to be 1 1/2 -2 1/2 points more than you’d expect on a “sold” home loan. Rates don’t make such a big difference on a 15 yr loan.

Regions says they are making 75% ltv loans on rental properties at sub 4% fixed rates. I’m debating whether I want to go through the grueling process of getting a sold loan and locking in those low rates. And the closing costs - whoa - they nickel and dime you to death.

Maybe they are just blowing smoke. Last and only time I did a sold loan refi it was on my house and a rental property on the same day. Wouldn’t you know it the rental property showed up on my credit report as a primary residence. I don’t know if they could get away with that today.

Comment by Nancy Hoffman
2013-04-27 06:18:46


I’m not sure which lenders are doing this. This story was told to me by a friend who is a real estate agent. He was surprised that one of his colleagues could afford to buy so many SF homes with cash. This is the explanation his colleague gave him. Beyond that, I don’t have any of the details.

Comment by inchbyinch
2013-04-26 17:28:14

I understand the game plan, but I wish it wasn’t so. Not everyone has a wad of cash like we did to pay cash for a primary. I guess life really isn’t fair (unless you’re filthy rich or just financially savvy).

While I’m chiming in, “Silicon Valley” a documentary on PBS American Experience online was a great watch. Starts in the 1950’s.

Comment by JimO
2013-04-26 19:36:04

Hey I want some of this government assistance and free stuff too. I’m tired of working my ass off and then coming home to read this crap about all the giveaways. They’ll be printing a lot more vouchers for rent and mortgage payments since wages won’t be keeping up with the frenzy. Ok, so I’m gonna git some too. Maybe even some of that SNAP, SSDI, EICs, HARP2. You gotta be pretty stupid not to. It’ll be just one more pig at the trough. And one less idiot muppet paying taxes. Hey let BenB and the Chinese pay for it.

Comment by Whac-A-Bubble™
2013-04-26 23:47:23

Can’t wait to see the Chinese pay for our excesses by losses on their U.S. real estate investments.

They did it to themselves: Nobody put guns to their heads and forced them to buy!

Comment by Whac-A-Bubble™
2013-04-26 23:45:40

‘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.’

The future is here already. The current wave of international equity locusts have already eaten the next ten years’ potential gains. Any end user who buys now faces the prospect of watching his falling knife purchase depreciate for decades to come.

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