Forcing Buyers To Become Desperate
A reader in Florida asks this question. “Should I buy a house, stop paying the mortgage, pay the taxes and… wait?”
The Jacksonville Business Journal. “There are still bank-owned properties coming on to the market, mostly at the same rate they’re being absorbed, Florida Realtors chief economist John Tuccillo said. One-third of the nation’s shadow inventory — homes owned by banks that haven’t yet been put on the market — is in Florida, but the fear that the banks will flood the market with those properties is unfounded. ‘This is not a knockout blow,’ he said. ‘This is a death of a thousand cuts. But this is a market that will be us for a long period of time.’”
“But the investor-fueled home price increases — which are occuring much more dramatically in other parts of the state — have led to speculation that the state’s headed for another real estate bubble. ‘History never repeats itself,’ Tuccillo said. ‘We might pass the same way, but it will look different. We’ll make a new mistake by 2017 or 2018.’”
CBS Sacramento. “Home prices in the state are on the rise, but some experts argue it could be an indication of the beginning of a new bubble forming. Holly Brickner, who works for Lyon Real Estate in Natomas, is benefiting from the market bump. But she’s concerned about how quickly prices are rising. She says buyers are now willing to pay tens of thousands of dollars above appraisal or asking price because inventory has plummeted.”
“Last March, there were 551 homes listed in Sacramento County. That number has dropped to just 95 listed in May. She believes government foreclosure assistance programs are shrinking inventory, forcing buyers to become desperate. ‘I do believe there are government programs that are allowing the banks and incenting the banks to hold on to their homes that would have been foreclosed on already,’ she said. ‘I would say there’s a bubble risk right now. Inventory is rising too quickly, so it has to cool off a little bit.’”
From ABC 15. “On February 9, 2012, Attorney General Tom Horne held a news conference boasting that Arizona was part of a $25 billion national settlement with five of the nation’s largest banks. At the time Horne announced they had put a stop to the robo-signing and forgery of foreclosure documents. And the Attorney General announced Arizona’s share of the settlement would be $110 million. Horne said that money would be used to compensate the victims. But more than a year later, the ABC15 Investigators have found Arizona victims are still waiting for help.”
“Attorneys Dan McCauley and Beth Findsen are two of a small handful of lawyers who go to court to fight for the victims of illegal foreclosure. Dan McCauley said, ‘I’ve seen nothing go to the victims, nothing from the state of Arizona at all.’ Beth Findsen told us, ‘I have yet to see one dollar awarded to a homeowner. The banks are getting away with murder.’”
“Mike Brosnahan is a husband and father of two. He is fighting to stay in the home he built in Sedona. He has fought all the way up to the Arizona Supreme Court. Brosnahan told ABC15 Investigators, ‘All they’re doing is breaking up the American dream and leaving it in shambles.’”
“Rocky Coronado served in the U.S. Air Force. The veteran and his wife have been fighting for their home for three years while raising a teenage son. Rocky said, ‘I think it demoralizes him.’ His wife Brenda said, ‘It consumes your waking life.’”
“Both the Coronados and the Brosnahans insist they are not deadbeats and are not seeking a free house–they just want a fair deal. They say they paid their mortgages until they were told to stop so they could get a modification. And now their lawyers say their banks are using fraudulent documents to foreclose and take their homes.”
“Horne admitted it’s too late for victims who have already lost their homes. Nobody who has already been foreclosed on and evicted is going to get their house back. And who gets help may depend on how much money is left because last year the legislature swept $50 million of the $110 million settlement into the state budget—a budget that already had $400 million in reserves. Horne told ABC15 he fought against the sweep but in the end he had to abide by what the legislature decided. He points out they could have taken the entire amount of the settlement. Horne also said he plans to spend another $30 million of the settlement on outreach and marketing. He said he is also setting aside $4 million to provide legal assistance to homeowners fighting foreclosure.”
“The victims of illegal foreclosures we spoke to say every penny of the $110 million settlement should have been used to compensate them. Rocky Coronado said, ‘It just blows my mind that they could have the nerve to take that money that should have gone to homeowners like us.’”
It seems the used house salespeople are talking about shadow inventory a lot these days. There must be a memo out.
‘Both the Coronados and the Brosnahans insist they…are not seeking a free house’
They’re right about that; they want a free house AND some free money.
‘It just blows my mind that they could have the nerve to take that money that should have gone to homeowners like us’
‘…that should have gone to homeowners like us’
Gotta love the entitlement mentality that has sprung up among wealthy Ownership Society members…
How do you think such tactics would work out for renters? You call up your landlord and say, “I want a rent reduction. Either give me a reduction, or I will stop paying rent.”
I wonder what the landlord would do?
Depends on the strength of the market, whether you are paying significantly over market, and how lazy the landlord is.
If you were over market, it would be a pretty easy decision in any event…cut the rent.
If it was a strong market (ie. low vacancy rate), and you wanted a reduction to significantly below market, they should call their attorney and start the eviction process.
“I wonder what the landlord would do?”
In poor neighborhoods, there’s a good chance the landlord would do without the rent. Of course, he’d look for a replacement tenant. The slumlords either find one that he still doesn’t care about, or he endures a lack of rent. Add in absentee landlordism, and this can really stretch out.
As long as you don’t mind your shit being put out on the curb every three months, then you can live for free, all year.
New trick: Some worthless tenant moves out, but they arrange a sublease to a new piece of shit. The landlord figures he didn’t have to find the new guy, but the new guy almost always pays very little or not at all. So there’s a subtle trickery involved that leads to being evicted about 4 times a year.
The deflationary pressure in the poor neighborhoods around here is very strong. Rents have dropped, but nowhere near enough for what people are capable or willing to pay. Renovations from the buy-and-rent boom are slowing down. There are more instances of renovations followed by immediate looting of the copper. I don’t know why people around here keep using copper; it just gets bent out and hauled to the recyclers. Our recyclers seem to be doing as well as ever.
A short distance to the north, Mr Orr has put the brakes on debt and pension payments. I’m loving it. Something has to give in all of this. The Midwest is still Falling. The big fall.
“As long as you don’t mind your shit being put out on the curb every three months, then you can live for free, all year.”
My understanding is that some of the credit ratings agencies are starting to use making good on rent obligations part of their analysis.
You might get away with living free for a time…but after a while, only the slummiest slumlords will take you as a tenant.
CoreLogic and another firm (can’t recall right off)
tracks your rental history, utility bills, and other
obligations not found on your Fair Isaacs Co (FICO)
or Advantage history. The problem with CoreLogic is,
incorrect or subjective info has no dispute mechanism
(at the time I learned about them).
Hopefully, now you can add your side of the story.
“They’re right about that; they want a free house AND some free money.”
But the every next sentence says, “They say they paid their mortgages until they were told to stop so they could get a modification.”
‘They say they paid their mortgages until they were told to stop’
They should have plenty of money then. Just pay what you owe and quit the whining.
If they paid their mortgage, then why did they need a mod?
If they were in good standing, they could have refi’d a mod from any competing bank or credit union.
But they needed to “stop payment” for a mod?
Nope. They want a free house and some free money.
But they needed to “stop payment” for a mod?
Apparently a lot of the banks would tell you to do just that. Then sometimes they would foreclose after you followed their advice.
“Both the Coronados and the Brosnahans insist they are not deadbeats and are not seeking a free house–they just want a fair deal. They say they paid their mortgages until they were told to stop so they could get a modification. And now their lawyers say their banks are using fraudulent documents to foreclose and take their homes.”
Bankster scamming 101…
Nobody has any money/savings. This is a disaster!
http://www.nytimes.com/2013/06/16/your-money/suddenly-retiree-nest-eggs-look-more-fragile.html?partner=yahoofinance&_r=0
You mean the Baby Boomers didn’t save any of that free-flowing cash they have been earning for the past 45 years? Sucks for them. I’m sure they will need a bailout.
Why would they save? There was too much stuff for sale, which is why we ended up with a massive glut of housing, cars and used products. Arguably we have an equally massive glut of services.
And it still wasn’t enough to just spend. They had to borrow, to spend even more. The entire system is now in default. It’s going to take a long time for Americans to admit any of this.
Inflation, jobs offshored and 5 recessions in the last 40 years.
Maybe you’ve heard of these?
What free flowing cash?
Oh wait, was that sarcasm?
http://www.nytimes.com/2013/06/16/your-money/suddenly-retiree-nest-eggs-look-more-fragile.html?partner=yahoofinance&_r=0
Apologies on the double post. Outside of housing and cars, median net worth is just under $11k???? No wonder why the govt wants to keep housing prices artificially propped up. If old FB’s can’t sell their crap boxes to younger FB’s, they will be dining on Purina. Of course somebody is eventually going to be left holding the bag….
“Outside of housing and cars, median net worth is just under $11k????”
Reading that almost makes me wish that another wave of housing price declines wasn’t about to wash over U.S. markets.
somebody is eventually going to be left holding the purina bag
That’s a good one…
$11,000 millionaires!
So it seems the reason for only $11k is due to these people fiddling like grasshoppers and living the upscale life they could not afford. Like the commercial “I am in debt up to my eyeballs…”
Well television commercials and internet ads show young families on vacation in Bermuda. That’s how it was in the 80s, 90s, 2000’s and this decade. Even though the reality might be that Bermuda vacationers are 70 year old geezers, the advertising is there and says you are entitled to live like you can afford it!
“A reader in Florida asks this question. “Should I buy a house, stop paying the mortgage, pay the taxes and… wait?”
Well, sheeeeit. Now the NSA knows that I am a potential premeditating strategic defaulter.
Based on the lesson we recently learned from our government, I’d say the answer is “yes”. You should serially buy houses, stop paying, and live for free for several years at a time. You will have to pay rent between free houses, but you will come out ahead in the long run.
“but you will come out ahead in the long run.”
This is what I’m thinking.
Is Florida a non-recourse state?
Will the IRS exemption on forgiven interest be extended?
‘Is Florida a non-recourse state? Will the IRS exemption on forgiven interest be extended?’
Do I detect a little annoyance that people might want to take advantage of the free s@#* situation the government has set up in housing? Because if it bothers you, get prepared to be seriously bothered. If a poster here can come to that conclusion, millions of people all over the country have already done so.
“Is Florida a non-recourse state?
Will the IRS exemption on forgiven interest be extended?”
Who cares about any of that.
“Do I detect a little annoyance that people might want to take advantage of the free s@#* situation the government has set up in housing? Because if it bothers you, get prepared to be seriously bothered. If a poster here can come to that conclusion, millions of people all over the country have already done so.”
FWIW, and for the record, I consider myself a hard worker that plays by the rules. We’ve reached a point where gaming the system, all systems, may be the only way to succeed.
My wife and I both work, have health insurance blah blah… we live month to month and are one catastrophic hospital visit from bankruptcy.
If you can beat ‘em…
can’t
‘gaming the system, all systems, may be the only way to succeed’
I was talking to a UHS the other day and he mentioned these bank settlements. I replied about how odd it is that if you stop paying your mortgage, you can live for free a year maybe three, and might get a check. But if I stop paying my rent, I know exactly what’s going to happen in 30 days or so. He sighed and told me he knew a FB in Las Vegas who had moved on and didn’t have anything to do with the settlements, yet opened his mail recently and there was a check for $6,000.
Incentives matter, and the government has created a huge moral hazard on the corporate side and with the public.
“If a poster here can come to that conclusion, millions of people all over the country have already done so.”
The irony of this statement is this…..
Yesterday I talked to my sister in Denver who’s renting a condo from the bank. We breached the topic of housing which is a painful one for her because she’s so far underwater…… She says, “housing is ‘coming back’ but everyone here knows it’s bull$hit. This is coming from someone who is a financial idiot but educated and street smart.
I think it’s self-evident to anyone willing to be honest that what we’re seeing is price fixing to extents never seen in history.
“FWIW, and for the record, I consider myself a hard worker that plays by the rules.”
I.e. a sucker. (Don’t feel alone — I’m in the same boat.)
“We’ve reached a point where gaming the system, all systems, may be the only way to succeed.”
Cheaters rule; honest folks drool.
The banks and the government rewarded the sinners. As it turns out, the correct play was to buy an overpriced house funded by Megabank, Inc., and stop paying the mortgage and bank all those payments for, oftentimes, 5 years. That is A LOT of cash. Then, purchase a new house at a greatly reduced price, maybe cash, and live happily ever after.
‘the government rewarded the sinners’
I don’t see any winners. I do a lot of foreclosure work. Many times I’m the first in the house after it’s vacated, and I see signs of misery. Hand written notes to family members, piles of unpaid bills, a general disregard for anything and everything that most people would consider civilized life. Sure, the system gets played by some. But from what I see, it’s a whole lot of hurt all around.
“…and there was a check for $6,000.”
That’s the 3% down payment for the next $200k home.
Who cares about any of that.
Well, you will if the IRS comes collecting on a couple hundred thousand in forgiven debt income. They’re pretty good bill collectors.
“I don’t see any winners.”
Maybe the winners are those who didn’t get caught up in the game and are just quietly living below their means.
“Well, you will if the IRS comes collecting on a couple hundred thousand in forgiven debt income. They’re pretty good bill collectors.”
What if I stuff my loot into retirement accounts, then declare BK?
Can debt to the IRS be so easily discharged through BK?
Retirement accounts are executable assets for satisfying obligations to the IRS.
Taxes can be discharged in bk, but only under very narrow circumstances. The general rule is that they are not dischargeable.
Great question! Maybe I’ll just keep wads of cash stuffed in PVC pipe and buried… there are a lot of options here.
‘you will if the IRS comes’
Truth is, if you just throw their letters away and show up in their system every 5 years or so asking for forgiveness, you can avoid 90%+ of the taxes.
But we’ve discovered something hilarious here folks! Alpha is really hurt that people might take advantage of the free s*it feast government has laid out for us. Never mind that it’s exactly what millions of FB’s have done and continue to do. Help me out here; what exactly about this bugs alpha? After all, once I buy a house, aren’t I a put upon victim of the evil 1%er’s? The banksters? Mersy-mersy me! Help Obama, I need a check!
Or are you saying, the victim hood is only for the poor house buyers and refinancer’s of the mid 2000’s? No more readers! If you buy a house now alpha and the IRS are gonna drop on you like a ton of bricks. Watch out, there’s loan recourse now.
Now that’s a very interesting turn of position, would some of you agree?
Now that’s a very interesting turn of position, would some of you agree?
it IS comical. the people that were all in favor of the government’s various attempts at price fixing housing never see the damaging effects coming from the moral hazards that were erected. they unintentionally made criminality less hazardous and more profitable.
government’s cash-for-clunkers was another attempt at price fixing, only this time it was for cars. and why? to save the unions! yes, let’s save the biggest thing that’s killing the car companies!
the same thing is beginning to happen now with obamacare. many people that were for it are getting hit with higher rates. they have this puzzled look on their faces as they look at their bill. or worse, they’re getting fired as employers try to escape the consequence of having ‘too many employees’..
it is also a pure joy to watch members of congress retire because of the coming forced removal from their present cushy health care plan if they stay. and then they claim ‘it isn’t fair’. ‘we shouldn’t be forced to quit because we have to have the same health care plan as you poor slobs’. “there will be a ‘brain drain’”. more like a brainless drain. 95% of the politicos have room temperature IQs, low morality and giant egos. they deserve everything that’s coming.
But from what I see, it’s a whole lot of hurt all around ??
I agree Ben….
“I don’t see any winners.”
I do. I know a guy, we’ll call him Bob, who bought his house near the peak, and who is grotesquely underwater. I’d say somewhere in the vicinity of $100k. He keeps paying though, because he can and feels obligated to. His neighbor was in the same position. His neighbor (whose wife is a mortgage broker and was making the decisions) stopped paying the mortgage 4 or 5 years ago, and was banking the money, while saving on top of it.
About a year ago, they finally left the house, and moved to a new, nicer house on a few acres that they purchased for about half the price of the old place. He invited Bob to the new place for a BBQ. Bob told me he is really angry. He feels like he should have stopped paying his mortgage years ago, and wishes he would have done just like his neighbor. His neighbor is one of the winners. They have a much nicer house, with a much lower payment, and this is because they were allowed free shelter for years. There were no repercussions for them. The poor credit wasn’t even an issue since they had a lot of cash.
the winners are those who didn’t get caught up in the game and are just quietly living below their means.
DING DING DING! We’ve got a winner!
‘His neighbor stopped paying the mortgage 4 or 5 years ago, and was banking the money’
I guess I should say in my line of work I don’t see winners. I do know people who bought some good rentals a while back that were foreclosures. I make money working on foreclosures, but I don’t consider that winning; it’s just some work that’s available. I’m sure there are some that got away with playing the system, but almost every foreclosure I walk into shows signs of unhappiness.
So why don’t we all get a loan, never make a payment and maybe even try to flip the house before we get evicted? IMO, a lot of what we read of this crazy buying in California, Florida, Massachusetts, etc, is some variation of that. I know of some people who just bought a house in Flagstaff for $300k. They are putting $30k down, and pretty much borrowed the maximum they could. They won’t have that mortgage paid off until 2043. Sure the interest rate is low. But the debt to income is high. Why would they take that on? I can’t say, but the prevailing wisdom in Flagstaff is that house prices are headed way up.
“Now that’s a very interesting turn of position, would some of you agree?”
Very.
And stepping back from this, one has to ask the question;
Why are there a good number of characters here championing and apologizing for massively inflated housing prices?
You know who they are.
You’re misreading my emotional state, Ben. I’m not angry about the Free Sh*t Army, or whatever, I’m just telling the Mugster that the time of living free in a foreclosure may be drawing to an end.
I agree with you, I don’t see many winners in this, except the big boyz on Wall Street. The Free Sht Army has always been largely a figment of the right wing imagination.
“Why are there a good number…”
It is difficult to be analytical once you’ve placed your bet.
“So why don’t we all get a loan, never make a payment…”
To avoid the unhappiness. To avoid the decent into squalor. To avoid an empty and false win.
“I do. I know a guy, we’ll call him Bob…”
I betcha Bob’s neighbor has a prettier wife too.
The Free Chit Army is not imaginary. They are called “federal contractors” and “Wall St” and their take is FAR larger than all the J6Ps combined gaming the system.
http://www.nytimes.com/interactive/2009/02/04/business/20090205-bailout-totals-graphic.html?_r=2&
http://www.forbes.com/sites/traceygreenstein/2011/09/20/the-feds-16-trillion-bailouts-under-reported/
“I’m just telling the Mugster that the time of living free in a foreclosure may be drawing to an end.”
Then proceed along those lines you liar.
take advantage of the free s@#* situation the government has set up in housing?
To be fair, Ben, recourse or non-recourse didn’t really matter until people could get mortgage for less than 20% down (or even 10%). The bank/REO could always get 80% (or 90%) for the house, even in a fire sale, so chasing assets for the remainder usually cost more than it was worth.
So it’s not like the government “set it up” to be a moral hazard. It guess it was a moot point status quo, which will never change because
the voters would fight for their right to jingle mail.
“…but you will come out ahead in the long run.”
+1 And you’d be performing god’s work — keeping home prices up.
A question I have pondered for some time now is which side of the housing market is more motivated when rates lurch upwards from record low levels?
The standard Realtor™ answer is that the buyers are the ones who are under pressure from rising rates, due to fear they will never be able to get such a low-interest mortgage again.
But if most buyers follow their Realtor™’s advice to buy the largest house they can ‘afford,’ then wouldn’t higher rates actually augur for sellers to hurry up and unload? If rates truly never are this low again, then buyer incomes would have to go up by alot to offset the effect of higher mortgage rates to curtail purchase budgets.
Isn’t it actually the sellers who should be feeling desperate about now?
What the heck does logical analysis have to do with it? Nothing, that’s what.
But it’s all good, as a dearth of logic makes the sheeple far more susceptible to panic.
And panic is good in turn because it makes the prices of almost all assets more affordable.
So basically it’s all good.
Fear may lead the investor to dump assets, but not the lonely home debtor. The home debtor will live in fear as long as possible and only liquidate when forced to.
Apparently the bond market vigilantes have tried their best to get a jump on the QE3 wind down.
Suppose the Fed decided to retrench on increasing long-term interest rates, and implemented QE4 to tamp them down. Would the markets accept this, or is the long-term-rate increase genie permanently out of the bottle at this point?
Another way to state my question:
Is the Fed’s current position reversible, or is it more like where JPMorgan found itself once the London Whale debacle started to play out, with no way to exit its position without incurring massive losses?
no way to exit its position without incurring massive losses?
The Fed has no need to exit, as its pockets are limitless. It can sustain whatever losses it needs to sustain, and can paper them over by manufacturing as many gains as needed to offset them.
So why do they keep insinuating that they will have to soon exit QE3, then? Why can’t they just keep propping up the Treasury bond and MBS markets indefinitely?
“So why do they keep insinuating that they will have to soon exit QE3, then? Why can’t they just keep propping up the Treasury bond and MBS markets indefinitely?”
Half of the sneetches need stars added to their bellies while the other half need their stars removed. Commissions.
I could have sworn the Federal Reserve said they were going to start losing money this year. I don’t think they have the ability to continue accepting MBS as collateral at bloated valuations. I think the rate increases are inevitable.
The Fed is losing the driver’s seat because they realize that discounted bonds are future losses and the burden they are placing on their owners is limited by their net realizable value at any point in time.
If marked to market I wonder how many banks would still be around.
Gov and banks do not have enough money to put out this fire.
Deflation appears to be the only animal that can right so many wrongs.
I agree that our robotic economy needs less workers to produce goods and services. But only marginally fewer because the increased average education level is making more advanced jobs possible.
Offshoring is a culprit. That is why tariffs should be reviewed.
Gov and banks do not have enough money to put out this fire.
The Fed seems to be capable of electronically printing any quantity that it desires…
Speaking of desperate buyers, there is an open house in RB today with some very puzzling statistics. For one thing, it is a closet-sized 2/2 home with an HOA, which I believe is half a duplex. It wouldn’t sell for $400K a couple of years back, but now that the market has “come back,” I guess the sellers’ optimism is running high, as they are asking 15% above the Zestimate®.
And check out the assessment history — very puzzling! It suggests the home may actually only be “worth” slightly over $300K, at best.
15958 Big Springs Way, San Diego, CA 92127
For Sale: $459,000
Price Cut (Jun 13): -$10,000
Zestimate®: $398,083
Est. Mortgage:
$1,709/mo
Bedrooms:2 beds
Bathrooms:2 baths
Single Family:1,240 sq ft
Lot:3,902 sq ft
Year Built:1980
Last Sold:Apr 2008 for $400,000
Heating Type: Contact for details
Agent: Suzanna G. McDowell
Days on Zillow 10
Zestimates
Value Range 30-day change $/sqft Last updated
Zestimate What’s this? $398,083 $287K – $458K +$16,346 $321 06/10/2013
Rent Zestimate What’s this? $1,990/mo $1.7K – $2.3K/mo – $1.60 06/10/2013
Owner tools
Zillow predicts Rancho Bernardo home values will rise 7.8% next year, compared to a 8.4% increase for San Diego as a whole.
Price History
Date Description Price Change $/sqft Source
06/13/2013 Listed for sale $459,000 14.7% $370 Suzanna McDowell, Broker
02/26/2010 Listing removed $400,000 – $322 Dominion Enterprises
12/22/2009 Listed for sale $400,000 – $322 Dominion Enterprises
04/04/2008 Sold $400,000 – $322 Public Record
fewer
Tax History
Year Property taxes Change Tax assessment Change
fewer
2012 $4,487 – $337,000 -17.8%
2011 $4,487 0.6% $410,096 0.8%
2010 $4,458 122% $407,032 -0.2%
2009 $2,006 6.6% $408,000 126%
2008 $1,882 – $180,173 2%
2007 $1,882 2.7% $176,641 2%
2006 $1,831 6.4% $173,178 2%
2005 $1,722 – $169,784 –
…
Hey Whack:
Maybe you should flip it.
With long-term interest rates climbing skyward, my next investment move is to buy long-term bonds. The tricky thing is timing: How can one predict at what point it is safe to get back into the water?
my next investment move is to buy long-term bonds.
Huh? Buy long-term bonds, when we are this close to a 50-yr cycle’s low-yield point?
That sounds like financial suicide—unless you have some reason to believe that rates will decline again shortly.
It does sound like financial suicide — except that I do have some reason to believe that rates will decline again shortly.
Bill Gross: All Assets Are Risky, But I’m Buying Treasuries
By Aaron Task | Daily Ticker – Tue, Jun 11, 2013 9:33 AM EDT
When PIMCO’s Bill Gross declared last month that “the secular 30-year bull market in bonds likely ended” on April 29, it was the shot heard around the fixed-income world.
But many people wrongly assumed that dramatic declaration meant Gross was turning outright bearish on bonds. As the manager of the $293 billion Total Return Bond Fund explains in the accompanying video, that isn’t necessarily the case.
“Investors should look at the yield on at 10-year…and see whether that legitimately in this environment provides some type of return,” Gross tells me. “Six weeks ago at 1.6% [the 10-year yield] was more than skinny. Where we are now, [over] 50 basis points higher, is a much better situation than where we were then.”
In other words, price matters, and the recent drop on Treasury prices – which move in opposition to yields – has made Gross a buyer again, at least in recent weeks as the yield moved above 2% to this morning’s 14-month high of 2.27%.
This is a “decent environment to earn your carry,” Gross says. “The Total Return Fund…is not as vulnerable as investors believe it to be as witnessed in May,” he said, a time when the fund fell 1.9%, its biggest monthly loss since September 2008, and its first month of outflows since 2011.
By the same token, Gross isn’t wildly bullish either, reiterating PIMCO’s house view that we’ve entered a ‘new normal’ of sluggish economic growth and low returns.
“Investors are going to have to know [yields are] being repressed and what they’re getting for their money is not what they should be getting,” he says. “But it doesn’t mean they should go home and put it in a mattress.”
…
Related: QE “Quicksand” Puts Bernanke in a Corner, Says PIMCO’s Gross
…
Related: Fed Will Taper Later This Year, But Not For Obvious Reasons: Bill Gross
Is “ham-handed” really a word?
“…buying…continue…at least until September.”
Why is the MSM so fawking lazy? As I posted a couple of days back, the Fed has announced its intentions to dial back QE3 when the UE rate hits 6.5%. Unless there is a major shift in the trajectory of UE rate declines, that isn’t going to happen until circa October 2014.
So why entertain the strawman of a QE3 dialback as soon as September 2013?
Lazy slobs.
June 16, 2013, 8:00 a.m. EDT
Homing in on housing, Fed’s latest moves
Effect of higher mortgage rates, bank’s bond buying in spotlight
By Jeffry Bartash, MarketWatch
WASHINGTON (MarketWatch) — The housing market has been one of the rising stars in the U.S. economy lately. With mortgage rates marching higher, are sales about to stumble?
Most economists say no, but we’ll get fresh clues after the latest looks at home construction and existing home sales. Other reports this week are likely to confirm inflation remains low and manufacturers are stuck in a rut.
Then there’s the elephant in the room: Ben Bernanke. What is the Federal Reserve chairman going to say in a press conference on Wednesday after another gathering of central bank bigwigs?
Investors are dying to know. The Fed’s ham-handed efforts to convey its intentions about its low-interest rate strategy have confounded Wall Street and fueled a two-week slump in stock and bond markets. Bernanke is expected to clarify the Fed’s goals in attempt to bring calm to the markets.
The overwhelming consensus: Sluggish U.S. growth doesn’t justify talk that the Fed might scale back its monthly purchases of $85 billion in bonds. The buying is expected to continue at least until September.
“The economic data simply haven’t been strong enough,” wrote analysts at Capital Economics.
Indeed. The U.S. is on track to grow less than 2% in the second quarter, down from 2.4% in the first three months of the year.
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June 14, 2013, 6:15 a.m. EDT
The Fed won’t taper as long as inflation is low
Commentary: Fed’s targets are further away than when QE3 began
By Rex Nutting, MarketWatch
WASHINGTON (MarketWatch) — The markets have jumped the gun again: The Federal Reserve will not back down anytime soon.
The biggest financial story of the past month is the big selloff. Investors began to price in their expectation that the Federal Reserve may soon declare “Mission Accomplished” and begin to taper the amount of its monthly bond purchases.
In particular, yields on bonds (UST +0.49%) have soared on the belief that the Fed will no longer be buying so many Treasurys, and on the parallel belief that any tapering by the Fed must mean the economy is getting closer to normal.
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June 14, 2013, 11:00 a.m. EDT
U.S. economic risks ‘tilted to the downside‘: IMF
By Steve Goldstein
WASHINGTON (MarketWatch) — Risks to the U.S. economic outlook “appear modestly tilted to the downside,” the International Monetary Fund said Friday as part of an annual review into member country’s finances. The IMF said higher tax rates and the spending cuts from the sequester “might prove to be a stronger headwind to consumer demand over the next few quarters.”
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19 % ROI
So the previous owner was able to unload it to some sucker in 2008 for $400K (2 to 3 years after the peak of the housing bubble and a few months before the crash of the financial markets). A year and a half later, that sucker tries to unload it but gets no takers, then asks for a reassessment around 2011/12. This year, it’s back on the market at $450K because they have to make a profit.
Hey Greg, thanks for weighing in!
The problem they face is that interest rates just lurched upwards, right before they tried to cash in their flip profits. Now unless a greater fool all-cash Canadian or Chinese buyer shows up to take it off the owner’s hands, they are up a creek without a paddle, as mortgage-financed purchase budgets are receding.
P.S. The last time my wife and I bought was in the wake of the 1994 mortgage interest rate spike. There was a fair amount of inventory on the market (in the SF East Bay) and we managed to find a place that met our housing needs at an affordable price.
I’m guessing a fair amount of investor-owned property may hit the California market if investors become convinced their best selling opportunities are receding with rising rates.
Rising interest rates could mean good news for homebuyers
By Dan Nakaso
Posted: 06/15/2013 06:33:28 AM PDT
Updated: 06/16/2013 04:22:55 PM PDT
Mortgage rates inched closer to 4 percent last week, but in a strange twist, that could be good news for homebuyers.
Higher rates tend to dampen the fervor of investors, who have been snapping up what few Bay Area homes there are for sale. That would give more typical homebuyers a better chance to get in the market.
“We don’t want an investor-driven marketplace,” said realtor John V. Pinto, who has offices in Silicon Valley. “We want an owner-occupied marketplace. With interest rates rising, for people that are first-time homebuyers there will be more opportunities.”
But at a higher cost.
Freddie Mac announced Thursday that the rate for a traditional 30-year, fixed mortgage climbed to 3.98 percent
– its highest level since April 2012.
Last week, a 30-year, fixed-rate mortgage averaged 3.91 percent, according to Freddie Mac. A year ago, the same rate was 3.71 percent.
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The assessment history may merely be a Prop 13 artifact - the house was built in 1980.
There was that — before the sale at $400K, at least.
Google maps confirms that it’s half a duplex. The structure on the satellite pic has two parallel driveways.
Interesting article in Sarasota paper yesterday.
http://www.heraldtribune.com/apps/pbcs.dll/article?AID=2013130619730
Houses in my neighborhood are being sold like 2008 never happened.
Time to go run the Father’s Day BBQ grill operation. I have to admit that my fascination with the Echo Bubble runneth over, and I regret that I have to tear myself away from tales of the never-ending financial collapse.
I suppose we all owe the Fed a debt of gratitude for navigating itself into a corner quite reminiscent of Jamie Dimon’s London Whale position!
This is kind of cool: Jamie Dimon appears poised to profit on rising interest rates. Unless this announcement is a ruse, then I am betting otherwise: I expect the recent spike in rates to turn out to be a head fake, with another ramp up in QE3, or at least a reinstated commitment to keep it in place for “longer than expected,” before the Fed actually exits.
Time will tell who bet right (though I am sure JPMorgan will make lots more than I do, no matter what happens!)…
JPM Poised To Profit Massively From Higher Interest Rates
Will Farley
Jun 16 2013, 15:53
Disclosure: I am long JPM. (More…)
Out of all equity sectors, there is one that is positioned most precariously for an environment with rising interest rates: financials (XLF). Will higher borrowing rates discourage borrowing as much as expected? How will the big banks’ bottom lines be affected? In this sector, one bank has been making headlines recently for news concerning a massive bet on rising rates. With a humble valuation, longtime heavyweight bank JPMorgan (JPM) is the frontrunner when it comes to preparing for looming higher interest rates. Will this bet be the next ‘London Whale’ trade or will this result in a monumental payday to JPM shareholders?
The Background
JPMorgan CEO Jamie Dimon has seemingly been on the better side of every financial crisis since the late 1980s. With the Fed governors talking about trimming QE3 asset purchases as early as September, companies are preparing to deal with higher interest rates; JPMorgan is at the forefront of this movement. Dimon has expressed his views on the uncertainty of the future interest rate environment by explaining in his annual letter the possibility of “significant negative consequences” on the bank’s revenues attributed to rising interest rates. He also feels responsible to protect the bank from these consequences by stating:
Addressing this uncertainty from a risk management perspective is a nightmare, but JPMorgan has formulated a plan of attack.
The Bet
So what is Jamie Dimon doing to protect his bank and shareholders from the prospective damage of rising interest rates? Dimon claimed in the same letter to shareholders that:
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I don’t know how many of you saw this article in the WaPo about the shadow deficiency judgement buildup….
http://www.washingtonpost.com/investigations/lenders-seek-court-actions-against-homeowners-years-after-foreclosure/2013/06/15/3c6a04ce-96fc-11e2-b68f-dc5c4b47e519_story.html?hpid=z1
“The 42-year-old is among the many homeowners being taken to court by their lenders long after their houses were taken in foreclosure. Lenders are filing new motions in old foreclosure lawsuits and hiring debt collectors to pursue leftover debt, plus court fees, attorneys’ fees and tens of thousands in interest that had been accruing for years.
It’s an aftershock of the foreclosure crisis, and most homeowners don’t know it’s coming.
“When people take out a loan, they generally think the home is the security for the loan,” said Alys Cohen, an attorney in the Washington office of the National Consumer Law Center. When they no longer have that home, “people don’t expect that debt to follow them,” she said.
It’s all part of a legal process known as a “deficiency judgment,” which is allowed in the District and 40 of 50 states, including Maryland and Virginia. Since the start of the mortgage meltdown of 2008, at least 400 Maryland homeowners have been pursued in court, according to a Washington Post analysis of state court data. In the first four months of this year, 57 new court actions have been filed against homeowners — on pace to exceed last year’s total of 120.
“
Interesting! I know the circumstances are different in every case but I personally knew two coworkers who did several cashout refis, blew the money on expensive toys, gambling, etc., bought a new place and walked away from their original homes though they could have made the payments (this was in 2008 or so)…so some at least richly deserve this. Anyone know if this is done in California??
(and I do realize some people lose jobs, get sick, divorced, etc. and honestly can’t make the payments and keep their house…but this was NOT the case with my sleazy coworkers)
“Anyone know if this is done in California??”
You’re kidding, right?
The 125% cash-out refi’s, spinner wheels, breast implants and RE walk-away(s) are what makes the golden state function, so much so, that the fed is printing $ trillions to keep it going too.
Sorry, I now see that I wasn’t at all at clear on what I meant….what I described did indeed happen in the golden state, my question was if lenders go after strategic defaulters in California…the source article said laws in 40 of 50 states allow this but only listed 10 or so.
The first mortgage in California is non-recourse, refi-ing or a second mortgage are recourse, IIRC.