Crisis Noninterruptus
Readers suggested a topic on what happens next. “1. How will whatever comes next compare to 2008? 2. How do we get rich Lahde-style off this thing?”
A reply, “We don’t know, but we have the prototype under a microscope. To paraphrase the Amish; expect the best, prepare for the worst. Consider that this will just be the second step in a flight of stairs. One thing we know is that tens of millions have been washed out of the mania and will not participate in the next stage.”
The Sun Sentinel. “During the first quarter, 68 percent of Broward County homebuyers paid cash, up from 47 percent in the first quarter of 2013, according to RealtyTrac Inc. And that number was higher than the year before, when cash accounted for 42 percent of sales in Broward. Investor Lex Levinrad said there’s ‘an absolute feeding frenzy’ among cash buyers looking for deals. He heads a club for real estate investors, and buys 15 to 20 homes a month in Palm Beach, Broward and other nearby counties.”
“Cash buyers are coming from Europe, Brazil and Russia, he said. A hedge fund contacted him recently about buying 350 houses in Palm Beach and Broward counties over the next 18 months. ‘If they have cash to invest, people feel like they will miss the boat if they don’t buy now,’ Levinrad said.”
The Tribune. “President Obama is going to make me rich. That’s because the Obama administration, which has done everything in the government’s power to hamper economic growth, just loosened lending standards so that people with poor credit can buy homes. Why not? It worked out well for some people the last time the government loosened lending standards.”
“See, back in 2002 or so, just as the housing bubble was forming, I was about to buy a townhouse for $165,000. I had the money. The owner was eager to sell. But my Midwestern cautiousness gave me cold feet and I backed out of the deal. If only I had known that government stupidity was about to cause the value of the joint to soar over the next five years.”
“The insanity of that time caused the townhouse I didn’t buy for $165,000 to soar to $525,000 in 2007 — before falling to about half that value following the collapse. I won’t miss out on a deal like that again. This time, I’ll ride the boom to its peak and sell just before the inevitable market correction!”
The Santa Cruz Sentinel. “The late, lamented housing bubble was inflated by a huge influx of borrowers who could not meet traditional standards for mortgage loans. These traditional standards included down payments of 20 percent as a safeguard against property values falling below loan values and borrower incomes of at least three times principal, interest, tax and insurance payments to insure buyers could afford their houses.”
“The influx of non-traditional borrowers was driven by Congressional quotas imposed on mortgage guarantors Fannie Mae and Freddie Mac. In 1992, 30 percent of Fannie/Freddie-backed mortgages had to be issued to borrowers with below-median incomes. By 2007, 55 percent of mortgages had to be issued to borrowers below the median with 27 percent issued to those in the lowest 20 percent of incomes. As private, profit-driven enterprises, it is no surprise that Fannie and Freddie chose to pump up their volume by relaxing their standards.”
“Did the government see the error of its ways and return to traditional lending standards? It did not. The Federal Housing Administration picked up where Fannie and Freddie left off with minimal down payment requirements. Low down payments, low interest rates and low prices stabilized the housing market. Prices finally turned higher in 2012. Now, with higher interest rates and higher prices making housing less affordable, prices appear to be stalling and may even be declining.”
“Will the government resist the temptation to loosen today’s standards? Stop making sense. Under the leadership of newly installed director Mel Watt, Fannie and Freddie plan to re-open the spigots to ‘help’ more borrowers enter the market. Specifically, Fannie and Freddie will not reduce the size of loans eligible for insurance, will shelve plans to increase guarantee fees and will again accept 100 percent of the risk on most new sub-standard loans.”
“Of course, we’ve been down this road before with disastrous consequences for the economy as a whole and underqualified borrowers in particular. As Ed DeMarco, Mr. Watt’s less feel-good predecessor, warned in a speech last week, ‘Do not confuse weakening underwriting standards and underpricing risk with helping people or promoting market efficiency.’”
The Durango Herald. “The ‘official’ dates of the U.S. financial crisis were 2007-08. Since then, we’ve had a few additional crises, in particular, the Euro crisis. But overall, the global financial crisis seems to have been contained. But I’m not so sure. Contained it might be, but the effects are long-lived.”
“For example, the Federal Reserve often discusses weakness in the labor markets, particularly as the Fed Chairwoman Janet Yellen is a prominent labor economist. And the federal officials often discuss weaknesses in housing markets. In January 2009, the Fed began an aggressive policy of loading the economy with easy money – quantitative easing – and continues to do so. The largest European economies and Japan followed suit, more or less, later that year.”
“And yet, the U.S. economy is still about 4 percent below where it should or could be. Herein lies the heart of the ongoing crisis. The Fed has done all it can to pump up the economy. The Fed’s balance sheet has gone wild and has been since the early days of the crisis. Housing remains anemic – this scares the federal government. New regulations put in place after the most recent housing bubble burst to prevent a three-peat are being relaxed. It’s déjà vu all over again.”
“For better or worse, I tend to think a little worse, the U.S. economy has become overly dependent on real estate markets as an engine for growth. But it does so for a couple of reasons. First, is the obvious impact on the real economy. You need wood, plaster, bricks, microwave ovens, etc. to make a house. There is a direct impact. Second, gains in real estate prices increase wealth and spur consumption via the ‘wealth effect.’”
“But neither of these comes without a cost. Investing resources in housing means other sectors are losing out. Wealth effects could be driven by speculation – just ask a Los Angeleno. But speculative gains could just as easily, and quickly, turn to losses. So, the standard relationship between financial markets and the real economy seems to have been severed. Crisis noninterruptus.”
“So, the standard relationship between financial markets and the real economy seems to have been severed.”
“… relationship between financial markets and the real economy …”
Rats! Some people are still making this distinction.
I can see that much, much more work needs to be done in this area.
Today the wallet, tomorrow the world.
This and other blogs are a reflection of what it means to be free, please take time this Memorial weekend to reflect on the lives of the men and women of America and the Allies who paid the ultimate price.
Here’s a TED video that touches on the subject of what it’s like to be a combat vet:
https://www.ted.com/talks/sebastian_junger_why_veterans_miss_war
Combotechie… I know this is a housing discussion and don’t want to get to deep, but this was very true on your link. My family never really talked about the battles, only how they missed watching the others persons back to keep them going and alive.
Combat vets have this thing it can’t be explain, I guess they are always wondering why they made it and the others didn’t.
For many of them the war never ends. They are lost in that they don’t seem to fit in anywhere.
Not vets in general but combat vets; Once they go there, once they get fully engaged in combat, there’s no going back.
‘I, _____, do solemnly swear (or affirm) that I will support and defend the Constitution of the United States against all enemies, foreign and domestic; that I will bear true faith and allegiance to the same; and that I will obey the orders of the President of the United States and the orders of the officers appointed over me, according to regulations and the Uniform Code of Military Justice. So help me God.” (Title 10, US Code; Act of 5 May 1960 replacing the wording first adopted in 1789, with amendment effective 5 October 1962).’
http://www.army.mil/values/oath.html
‘The Fourth Amendment originally enforced the notion that “each man’s home is his castle”, secure from unreasonable searches and seizures of property by the government. It protects against arbitrary arrests, and is the basis of the law regarding search warrants, stop-and-frisk, safety inspections, wiretaps, and other forms of surveillance, as well as being central to many other criminal law topics and to privacy law.’
http://www.law.cornell.edu/constitution/fourth_amendment
Ben I know you put a excellent effort in your site, whether we all agree or not I appreciate your time.
That said, just a take from you if I may, do you think if America had another combat world war (probably not likely with the weapons today) Americans would fight again for freedom and values for all?
This entire weekend is sanctimonious enough without having to come here and read your pious bull$hit.
‘After 35 years in uniform, retired three-star says he will explain where U.S. war strategy failed’
‘Recently retired Army lieutenant general Daniel Bolger, who played key roles in Afghanistan and Iraq in his 35-year career, wasn’t coy when it came time to titling his upcoming book Why We Lost. “By next Memorial Day, who’s going to say that we won these two wars?” Bolger said in an interview Thursday. “We committed ourselves to counterinsurgency without having a real discussion between the military and civilian leadership, and the American population —’Hey, are you good with this? Do you want to stay here for 30 or 40 years like the Korean peninsula, or are you going to run out of energy?’ It’s obvious: we ran out of energy.”
“Once you get past that initial knockout shot, and decide you’re going to stay awhile, you’d better define ‘a while,’ because in counter-insurgency you’re talking decades,” Bolger says. “Neither [the Bush nor the Obama] Administration was going to do that, yet I was in a military that was planning for deployments forever, basically. An all-volunteer force made it easy to commit the military to a long-term operation because they were volunteers.”
‘There was a belief in some quarters of the U.S. government that Washington and its allies were going to remake that troubled part of the world. “Don’t be so arrogant and think you’re going to reshape the Middle East,” Bolger says. “We’ve basically installed authoritarian dictators.”
‘Bolger said his views on the wars grew more sour during his three tours. “My guilt is not having earlier figured out what was going wrong, and making a more forceful case and working with my peer generals to make a better military recommendation,” he says. “What eats at me the most is the 80 dead people I had in my command over my three tours, that eats at me a hell of a lot.”
‘What would he tell the families of the fallen? “I’d tell the families we need to unscrew ourselves and make sure we don’t do this again,” Bolger says.’
This subject is relevant to this post. What is the true purpose of the military? Or the FHFA/GSE’s? What is a soldier to do when confronted with a government that violates the constitution? What are the real loyalties to be when the constitutional freedoms you mention are undermined by enemies, foreign and domestic?
We’re told the purpose of Fannie and Freddie are to provide liquidity, make housing more affordable. Yellen gives it lip service too. Yet after all the QE and keeping the GSE’s alive, prices have gone back, in some areas, to unaffordable. And then prices stop going up, and the “consumer protection” everyone made so much of goes right out the window.
The BLM thing I posted the other day is a good example; Oxide said “Fed Gov” has a right to sell at top dollar. Is the BLM a business? Who does this land belong to ultimately? Is it just that the BLM holds out for top dollar when that means the developers then take a cut and the public pays for the whole thing? With a government backed loan, of course.
I think the disconnect in a lot of this is purpose. The problem is that purpose can be converted to interests other than intended. That’s how we end up with GSE’s who are supposed to be helping houses be affordable, openly working to create the exact opposite.
What’s the purpose of the BLM owning so much land? To make a buck selling to developers? Lease it to ranchers and miners? With these guys, I don’t even see a purpose.
Is the US military there to protect the citizens and their constitution? Or are they serving the MIC, or some not-too hidden dreams of empire? We know what the purpose is, but are we being honest with ourselves about the outcome?
“We’re told the purpose of Fannie and Freddie are to provide liquidity, make housing more affordable. Yellen gives it lip service too. Yet after all the QE and keeping the GSE’s alive, prices have gone back, in some areas, to unaffordable.”
I have no doubt the original purpose was to provide affordable housing for the less fortunate. But now Fannie and Freddie are being used as a vehicle to bail out bankers. Imagine that: An institution created to help the financially repressed, which has morphed into a vehicle to funnel wealth to the richest people in the world. Only in America.
So Rolling Thunder is rolling onto the National Mall. Basically a group of thousands of motorcyclists riding around the rectangle of roads which ring the Mall for the entire weekend. They are doing it to remember the veterans, but I think it’s just an excuse to rev their hogs. The noise is so deafening that I couldn’t hear myself think, much less remember the fallen. I long gave up on going downtown. Of course, if you point this out to them, then you hate America.
You mean rolling around on a gutless, ear-popping two-wheeler during the day, then getting falling down hammered at night isn’t a proper salute to veterans?
You know, oxy, I’m starting to think you don’t have enough red meat stuck in your colon to qualify as a real ‘murkan.
Since I’m already a dirty lib-rul donkey, there isn’t much chance at my being real ‘murkan material no matter what I do.
“Is the BLM a business? ”
Conservatives like to say that we should “run the government like a business,” usually in the same breath and trying to get rid of the “crushing debt” (as long as it doesn’t interfere with their tax loopholes). So, yes, I guess the BLM is a business.
‘the BLM is a business’
A business of selling us our own land. Nice work if you can get it.
Maybe…. maybe these tax dollar sucking entities served a noble purpose at one time but they’ve been co-opted and re-purposed in that their function is the inverse of their charter.
I’m of two minds about the amount of land the federal government owns in many western states. On the one hand, it seems an absurdly large amount of land that they hold. But if you look at the history of why they own so much, it kind of casts a different light on the subject. These western states were some of the last to be admitted to the union, and people recognized at the time that their admission meant the end of the ¨frontier¨, which many saw as an integral concept in American life. America would now become a series of settled states, from sea to sea. A lot of people, including many that we would call ¨libertarian¨ today, were freaked out about the loss of the frontier, and America becoming a continent-wide country in which all the land would belong to some private entity.
For that reason, they decided to hold huge tracts of land in these states to keep some of the frontier as it was, and not just more farm and ranchland. The idea was to keep part of the country wild, and accessible to anyone who wanted to go there. And today, when the survivalist types talk about camping, hiking and checking their ammo dumps out the backcountry, I bet theyŕe talking about federal land. The ability to access these great open areas is part of what makes the West such a great place to live. If this land were all privately owned, you couldn’t use it in such a manner. You mostly couldn’t use it at all. That’s why I’m not so sure they should just sell it and get out of the way.
‘If this land were all privately owned, you couldn’t use it in such a manner. You mostly couldn’t use it at all.’
I’m sitting in a privately owned house on private land right now.
‘they decided to hold huge tracts of land in these states to keep some of the frontier as it was, and not just more farm and ranchland’
No, the feds lease it to ranchers, miners, solar farm operators all the time. And it’s often at a loss, so that more subsidizing.
Let’s quit beating around the bush. The feds hold on to this land at the point of a gun because it gives them power, and it keeps us poorer. Same as the kings who used to own all the land.
I meant you couldn’t use it to hike and camp on. It probably would be somebody’s house.
“Let’s quit beating around the bush. The feds hold on to this land at the point of a gun because it gives them power, and it keeps us poorer. Same as the kings who used to own all the land.”
And afterall…. lets cut through the racial bull$hit and get right down to brass tacks about this slavery thing. Economic slavery is a reality imposed on the masses irrespective of color, gender or anything you can think of. Kings, slavery, paupers, pittances, paltry sums. It’s a matter of keeping the masses right on the edge so that when push comes to shove, you’re shoving your neighbor instead of the knights that run this thing.
Oregon beaches are public and frankly I am glad. Back in the ’50’s some forward-thinking people helped in this effort, and now we can access virtually all what are the best beaches in US (IMHO).
Like someone said in a post I did not long ago; have you noticed nobody at the central bank or government mentions moral hazard anymore?
‘Here’s a blast from the past: Impac Mortgage is planning a home-loan securitization. The Irvine, Calif., operation — a prolific issuer of bonds backed by alternative-A mortgages prior to the credit crisis — has focused almost entirely on conforming home loans in recent years. But with a new mortgage-origination program rolling out in the next few weeks, it once again plans to tap securitization for funding.’
‘The origination push is focused on loans that fall short of “qualified-mortgage” guidelines established by the Consumer Financial Protection Bureau. Among other things, the guidelines for qualified mortgages cap a borrower’s monthly debt payments as a percentage of income at 43%, limit loan terms to 30 years and prohibit interest-only loans.’
‘Impac’s planned bond offering is expected to hit the market in the fourth quarter. The lender already has talked to several leading mortgage-bond underwriters, and is working closely with rating agencies.’
‘Even the Consumer Financial Protection Bureau believes its standards for what qualifies as a Qualified Mortgage are too strict, proposing on Wednesday some “minor adjustments” to mortgage rules many in the industry have called restrictive.’
‘The CFPB is proposing two changes meant to help certain nonprofit organizations continue to provide mortgage credit and servicing to underserved populations.’
‘Additionally, the proposal outlines “limited circumstances” where lenders that exceed the points and fees cap can refund the excess amount to consumers, with the loan still considered a Qualified Mortgage.’
“Our mortgage rules are now helping to protect consumers all across the country from debt traps, runarounds, and surprises,” said CFPB Director Richard Cordray in a statement. “Today’s proposal would maintain those strong protections, while making minor changes to ensure consumers have access to credit. This includes helping nonprofits that provide working families with important pathways to affordable homeownership.”
Moral Hazard… isn’t that a country singer?
Why’d they even start the CFPB? Its not like you couldn’t predict regulatory capture in only a few years anyway.
The only solution to a Gordian Knot is an Alexandrain solution.
‘Bove notes that mortgage lending isn’t profitable for three of the four largest banks, citing JPMorgan Chase & Co., Citibank and Bank of America Corp, which have lost over $100 million per year making mortgages. But its not just big banks having difficulty. Bove cites a as yet unpublished studies by regional banks that show they are not profitable originating mortgages.The regional banks, however, “won’t publically state” the results of the study findings Bove notes.”
‘Harvard educated career civil servant, policy wonk, and lame duck CFPB director Richard Corday articulates it well, “The core of the ability-to-repay rule rests on two basic, common-sense precepts: lenders have to check on the numbers and make sure that the numbers check out. Borrowers no longer will be sold mortgages that are predestined to fail.” Common sense as a cognitive process is non-existent in the corridors of our government. What if banks comply with the minutia and verifications, and ratios and the loan gets approved and funded. Is there a legal “safe harbor” provision providing immunity from prosecution if the loan that wasn’t supposed to fail, fails anyway. Yes, maybe or it depends.’
‘Even our feckless government with all their common sense could see two chess moves ahead to comprehend, that on pain of death, no lender would ever stray outside the prime QM guidelines……where even then there are no guarantees of impunity. So the CFPB announced that if a loan met the underwriting criteria of loans insured by GSE’s, Fannie Mae and Freddie Mac, then the debt to income ratio (of 43%) would be allowed some “flexibility” either for seven years or when Congress passes comprehensive housing finance reform. My money says we go the full seven years.’
‘My prediction is that this much heralded “Qualified Mortgage Rule” will serve as a paradigm for the law of unintended consequences. There are some (not me) who could with some dispassionate rationale, assert that these Dodd-Frank provisions are reasonable well intentioned efforts to protect a “defenseless” consumer against predatory lending practices. Yet under current proposals there is no protection for a bank. In our no fault society, with its ethos of no responsibility, banks natural caution will bite them. Borrowers will start suing banks for not making loans.’
“Not profitable” eh?
I’d give my first born for the opportunity to have a constant stream of skim coming in month after month for eternity.
Become a banker and you can easily make it happen WITHOUT giving up your first born.
Isn’t that the price to get into the banker club?
“…lenders have to check on the numbers and make sure that the numbers check out. Borrowers no longer will be sold mortgages that are predestined to fail.”
Why introduce all these machinations into the middle of what is fundamentally a private transaction between borrower and lender. Let the lenders underwrite the borrowers competitively, and work out the losses themselves for borrowers who can’t make payment.
Wouldn’t that be better than the moral-hazard ridden system that we enjoy today of free-ridership on the backs of taxpayers who fund the federal mortgage insurance?
Initially, I thought QM was a good idea. But it’s just a marginally safer way to take heroin - the lender is still be separated from repayment risk and the government is still insuring private debt, for the profit of a small group. A trickle up policy at its purest - pushing debt on the citizenry and government guaranteeing profit for big donors and taking any losses. See also, “Privatize the profits, socialize the losses.”
Also, you can bet it will be hammered away (as has already happened) until it becomes irrelevant to any ability to pay.
‘Here are the top reasons that the real estate market could fail soon, in no particular order:
‘11. Rates are dropping. What? Aren’t rates dropping a good thing? Actually, no. The market is telling us based on macroeconomic reports that the economy is not cooking and jobs are not being created to make people buy homes. The only good news that will come from this is that those who forgot to refi, especially the HARP2 eligible, will be able to get better rates. Speaking of HARP, it’s being reported that FHFA Director Mel Watt may waive the eligibility date!’
‘9. 43*. No, it’s not about a home run record. It’s the magic arbitrary number that the people at the Consumer Finance Protection Bureau (CFPB) felt would be the maximum debt-to-income ratio for mortgages under the Dodd-Frank “qualified mortgage” rule. So let’s see. There are no more “no docs,” no more option ARMs, practically no more interest-only rules, but they felt that 43 percent of your income should be the maximum for your mortgage payment plus other qualified debt.’
‘8. 580 credit score with 3.5 percent down and 50 percent ratio. Yes, folks, the same CFPB that decided on 43 has let the FHA do 3.5 percent downs with 580 credit scores and 50 percent ratios! Talk about disaster! What will happen is that more and more and more deals will go FHA and because of the low scores, there will be defaults. Inconstancy in underwriting standards where the people with bad credit get high loan-to-value loans and the person with great credit and a lot down may not get a mortgage at all. Oh, and I don’t want to forget, FHA has lowered just about all the maximum loan amounts around the country shutting out many potential homebuyers (and refinancers). DUMB.’
‘1.Employment to sales. Low job creation at the same time sales are skyrocketing is saying that it MUST come to an end. Good jobs are not being created at an alarming pace. Therefore, prices have to crash. And yes, there are the “stupid” markets such as San Francisco, New York City, the Westside in Los Angeles, but for a place that is dependent on regular W-2 jobs from large companies, this can be the killer.’
‘Reiterating comments made four years ago at an annual Mortgage Bankers Association conference, MBA President and CEO David Stevens this week said real estate finance is still stuck in the same “sick system” as it was during the throes of the housing crisis.’
“It is four years later and the government isn’t still just the backbone, but has become the entire central nervous system of the real estate finance market,” Stevens stated. “When the federal government is still backing nearly 90% of the mortgages made in today’s market, it’s apparent that the real estate finance system is stuck in the same place it was when I took this stage four years ago.”
“For the past four years, we have advocated for change. Here’s why—change is inevitable,” Stevens said. “It’s not a matter of if; it’s a matter of when. The status quo is not an option.”
“43*.”
Gov’t-sponsored subprime lending…
That does include your tax and insurance on the house, also your car payment, credit cards and child support obligations. The mythical median household should be able to qualify for roughly $1,000 per month PITI, which would let them buy a $125,000 house. That’s about half the price of the median new house.
Oops!
Is it pre-tax or after-tax income?
The regulations are based on pretax income.
‘Good news: the Senate Banking Committee voted to approve a compromise plan to reform the dysfunctional mortgage market. Bad news: the bill won’t see the light of day in this Congress…’
‘Unfortunately, despite strong bipartisan support in committee, the Senate majority leader is unlikely to allow a floor vote over the objection of some members of his caucus opposed to ending the government’s outsized role.’
‘Political opponents cite two basic objections. First, they note that mortgage credit will become harder to obtain for borrowers who are not qualified. Readers with a decent recollection of the subprime crisis and ensuing near-death experience of the financial markets might understandably respond with an “Amen.”
‘More curiously, the second objection is that reforming the system entails too much change to absorb at one time. Substantial reform, even to a system as badly broken as mortgage finance, must be done more incrementally they say. Sorry about that tornado, pal, but we can’t replace the windows and the roof in the same year. Here’s some duct tape.’
‘The main two options are keeping the status quo vs. gradually shutting Fannie and Freddie down. The bill just voted out of the Senate Banking Committee would replace the mortgage giants with a much smaller, focused operation. There would still be federal insurance for mortgage bonds to reassure investors and keep the loan money flowing. But the federal (i.e., taxpayer) responsibility wouldn’t kick in until private investors absorbed some losses.’
‘Who’s against this? On the right, Senator Richard Shelby, an Alabama Republican, calls the bill “a complicated government-run framework that I believe overexposes the American taxpayer and creates more problems than it solves.” On the left, Senator Elizabeth Warren, a Massachusetts Democrat, said, “This bill does not do enough for housing-market needs of middle-class America.” She added that the bill “would cut the pool of qualified borrowers by 20 percent.”
‘Who has the better argument? That’s a political question, of course. People who worry more about taxpayers’ exposure to losses tend to dislike any reform that continues federal insurance of mortgages, while those who care most about keeping mortgages affordable want to preserve a big role for Fannie and Freddie or some other government-backed institution.’
‘those who care most about keeping mortgages affordable want to preserve a big role’
AND we’re in La-La land. IMO, it’s the dishonesty in how these things are framed that keeps us stuck. It’s like Yellen talking about affordability!
https://www.youtube.com/watch?v=_3PUu88nOcw
“Sorry about that tornado, pal, but we can’t replace the windows and the roof in the same year. Here’s some duct tape.”
Replacing both the roof and the windows in the same year would create the risk of bringing down the entire global financial system. Unpaired tornado damage is too big to fail!
Good topic. The comment about losing out on a townhouse deal made me laugh. Who here wrote that? Now the $165k is $330k? Even if it was a better deal than throwing money into the vanguard 500 ndex fund, you have tied down your $165k. Over the long term, I would say by 2022 that condo would not beat the vanguard fund. That is 20 years.
You might consider you will be paying rent for the rest of your life, while the condo owner will be free and clear of mortgage debt by 2032, if not sooner. That could be a nice game changer.
“You might consider you will be paying rent for the rest of your life,…nice game changer.”
It certainly would be preferable to pay a low, affordable share of future earnings in rent for the rest of one’s life than to lose one’s shirt overpaying for Ownership Society entry at the Echo Bubble peak!
I think JM’s point is that the goal is to be free & clear…The issue of affordability is another matter…That is a choice one makes based on their conclusion that “yes” I can afford this…
All of us are different…Some are willing to take more risk than others…
“I think JM’s point is that the goal is to be free & clear…”
How can you ever get free and clear if you will end up hundreds of thousands of dollars in the hole even after you finish paying off your mortgage?
I guess one can always walk away to get free and clear…
“How can you ever get free and clear if you will end up hundreds of thousands of dollars in the hole even after you finish paying off your mortgage?”
And that’s exactly what you’ll get buying at current asking prices. A few hundred thousand in the hole.
Again….. Why buy when you can rent for half the monthly cost?
Yes sir rent and pretend you beat the system, and don’t forget all that money you saved not buying a home, after you die it goes to somebody else or the state.
They sure in hell aare going to remember to save it for the next go around yeah sure and it is snowing in Death Valley ?
Yes sir pay a 300% premium for a depreciating asset and pretend you beat the system, and don’t forget all that money you saved by signing up for 30 years of interest payments , after you die it goes to somebody else or the state.
They sure in hell are going to remember to save it for the next go around yeah sure and it is snowing in Death Valley ?
See how that schooling works kiddo?
So true. It is important to buy at the bottom.
I had breakfast this morning at Grant and Bush in the SF financial district. One of my friends at breakfast with me is buying a couple of blocks up the street from there. Hopefully the fact that he and his wife are selling in SLO will help save them from incurring massive financial losses…
Well sit tight because housing price bottom is a long way down.
“This time, I’ll ride the boom to its peak and sell just before the inevitable market correction!”
… says every speculator ever, but few ever know the peak when it arrives, and fewer still admit the peak has passed, since they just believe it’s a temporary relaxation and prices will go back to the “usual” climb in a few months. So they end up holding on while the prices ride their way down. Then they sell, bitterly, even if they make a simple profit. And the next guy just becomes the next bagholder. Etc.
I’m starting to understand the “mania” mindset a bit more. It’s an unreasoning desire to have a house because of the belief that it’s the “right financial thing to do.”
For people with kids, I can understand. Yard, don’t have to worry about noise. Someone who has excellent job prospects and won’t be forced to move around for work.
But everyone else? If you have to move for work to avoid a face-melter commute, in an apartment, you don’t have to worry about being underwater or anything else - you just find a new place and sign the lease. DC news radio has a segment called “Commuter Idol”, picking the most hellish commute of their listeners. These people have houses in remote regions and commute to DC. The winner this year had a 3.5 hour one way commute. If you have a house you’re selling frequently, you’re getting hammered on transaction costs.
I think the concept that “housing is the path to riches” is so entrenched - “Do what you need to in order to buy now, it’ll be worth more in the future” - that it’ll take a whole lot of societal experience to undermine it.
Also, the government and central bank, two behemoth economic actors, working together to engineer false market signals, wind up making a small group quite wealthy, but only ensnares the rest of the population in debt and financial loss.
From above:
‘Cash buyers are coming from Europe, Brazil and Russia, he said. A hedge fund contacted him recently about buying 350 houses in Palm Beach and Broward counties over the next 18 months. “If they have cash to invest, people feel like they will miss the boat if they don’t buy now”
‘President Obama is going to make me rich’
The last writer was spoofing I think. But the motivation is clear. Last weekend I was at a hotel and watched some TV. There was a flipping show; it was about a young woman, probably in her late 20’s. It said this was her second flip, a house in Houston she was fixing up and going to ask $500,000 for it. Of course the camera followed the UHS around, hanging on their every word. The atmosphere was like a gold rush. Hurry, get the floors done! If I could have asked, it would be, why the rush? Take your time and it’ll be worth even more next month. Maybe they don’t think so.
“There was a flipping show.”
AKA a commercial. A commercial in drag.
They are reality shows. From what I can tell, most reality shows are related to easy riches. I came across this:
‘Free money available for first time home buyers’
‘CHARLESTON, WV - Thanks to a project called Home Blend through the Home Program of the Mayor’s Office of Economic and Community Development, Timothy Knapp is now a first time home owner. He says rent is throwing your money away and he wishes he had done this years ago. He says he was surprised at how easy it was.’
‘Knapp says the process is worth it because it’s a privilege to know you own a home. He explains that even though you finance it, you know it will be your’s one day. It’s also investing in your future Knapp says because home markets go up and you may be able to get your money back if your relocate.’
I think it comes in a package deal.
Society or your peers expect you to marry, produce kids, and buy a house.
My work group is that way. When appropriate I explain why I don’t care for that package deal.
And then they make the boo boo face for an instant, realizing how they screwed up, before the “I’m so happy I s**t candy corn!” grin slides into place.
Society or your peers expect you to marry, produce kids, and buy a house ??
Thats a bunch of BS Bill….Society does not care what you or anybody else chooses to do in their personal affairs…I suspect you just say this so you can take the contradictory position of justifying your choice….
If you have to move for work to avoid a face-melter commute ??
I have know a gentleman for quite a long time…Right about 25 years…Heavy equipment operator for a large paving & grading company…One day talking to him out onsite (Santa Clara), I asked him where he lived…He said, I live in Anderson…Bought a nice house with a huge barn on 2.5 acres…I asked, are you married..He said yes with two young children…
I said, wow, thats a heck of a commute (four hours each way)…He said, yes, I come down for three days at a time…Drive my motor home and stay in that while here…I get to go home and stay for three or four days then come back…
Years went by and maybe 6-7 years later I ran into him again and asked how all is going…He said great…Kids are growing up, spend my winters screwing around with the acreage & the man cave barn..I said, yeah winters are tough with lack of work eh ? He said yes, but I have already paid off my house and got plenty saved so its no big deal…
So I think my point is, commuting is the sacrifice one may pay to be able to buy a home that they can “easily” afford…And in my friends case, be able to pay off in 6 years…Last time I saw him was maybe 6 years ago…Kids are out of the house and through college…He has been semi-retired for about 10 years..Picks & chooses what jobs he wants to do…Things get slow, he does not really care…I am quite sure with this latest construction boom around here he is going to the bank big time if he wants…I would say he is about 55…
Its nice that someone was able to do this 25 years ago.
Its nice that someone was able to do this 25 years ago ??
I am quite sure relatively, prices have not increased that much in Anderson so its likely this approach can still be achieved today…Its a matter of choice, strategy & some sacrifice…
Example; Have a young family friend thats almost like a daughter to me…Her & Husband are putting their house on the market shortly here because the prices have run up…They have a large mortgage so, although not a struggle they feel the pressure of meeting that obligation…
They are choosing to sell, relocate (without jobs) to Folsom California where they can take their equity and purchase a home free and clear…Choice, strategy & some sacrifice…
There’s another aspect to living in Santa Clara county if you’re in the tech industry.
We bought our house in Santa Clara in 1979 and had it paid off by 1989. I’ve changed jobs 6 times since 1979 and my longest commute has been 7 miles one way.
“We bought our house in Santa Clara in 1979 and had it paid off by 1989.”
+1 That’s quite a feat given the SF Bay Area. Kudos.
And I bet you’ve got yourself convinced you’re sitting on a pot of gold.
hint: It’s a pot of iron ore.
At least when they turns the key it is their home, not a renter who is making the landlord rich?
Renting is half the cost of buying at current grossly inflated asking prices.
Rent for half the cost then buyer later after prices bottom for 65% less.
Read my post on pasta and meatballs, the owner of the dinner house is also waiting for his rent to drop 65% ?
Read my post on developing a bid estimate for any construction discipline.
So I’m curious: What RE lessons did everyone learn after living through 08-09 bust and subsequent rebubble? Is there anything that surprised you about the bust, about how it all went down? What would you do differently? What would you do the same, next time round?
A few things that surprised me:
- Most of the good properties came available early in the downturn. As we got into 2011/12, the quality of the property for sale really dropped off.
- Price drops were not equal across price brackets. Just because some midrange properties dropped 30% from peak didn’t mean that premium or low-end properties also dropped by that much. The middle price brackets seemed to experience the steepest declines in my area.
- The people who paid the least for their properties long ago were the most attached to their phantom bubble gains. People who way overpaid at the peak were the most likely to believe that prices had gone down. Weird.
- It rebubbled FAST. 30% price gains in 3 months. Yet somehow, I just don’t think it will drop nearly as quickly. Bummer.
I was surprised the house prices did not fall to 1997 levels. I did not expect the banks to withhold millions of houses from the market. I did not expect the massive bailouts such as HAMP. I at nice shocked and angered by finding the government socialized the losses. Beyond plssed.
“I at nice” = I was both…
Yeah, but I think the scam ain’t gonna work. A lot of the properties that were released went to insiders and investors who claimed they were interested in renting them out but who were really interested in flipping, plain and simple. So they will come back on the market now at higher levels for a while but then chasing the market back down to where they try to get out with something.
Fog a mirror, no doc, interest only, option ARM, teaser rates, and massive fraud would be required to sustain the current prices because not only are there few real buyers, but also more inventory will come on through Boomer retirement and the current building craze.
Then you have the inevitable tax increases coming at all local levels as the cities slide into bankruptcy because of the massive debts they acquired in the last 15 years of gogo juice give aways.
I totally agree - it is criminal the lengths they went to (and are still going to) in order to prop up and prolong the bubble.
Your points 1, 2 and 4 were not the case for the PHX area. Where are you talking about?
West LA and SF.
Friends in London also noted a similar pattern, though their “bust” lasted literally 2 months in 2009 before shooting back to the moon.
Ignore West LA, SF and London. This is half the problem these days. Bunch of NPR trust founder types thinking the world revolves around places like these plus NYC, instead of understanding they are outliers.
“I just don’t think it will drop nearly as quickly. Bummer.”
And I think you’re in for a surprise.
I really hope you’re right!
In my market (Sacramento foothills) the best deals where made in 2009 & 2010. I bought one house in 2008 (too early), but in 2009 & 2010, I was often the only offer on a foreclosure or short sale. It took 3-8 months to get the bank to accept my offers. Sometimes I would make an offer and it would sit for months, then I would make a lower offer and it would be accepted.
I was able to choose only properties that had substantial upgrades, excellent floor plans and significant open space views. I left the boxed in, linoleum floored, tile counters for others. In a foreclosure market, all the upgrades are just flotsam and jetsam to the loan servicers. The lenders don’t know the difference as they just push around the paper. In stable or rising market, those same upgrades and views lots command a nice premium to a homebuyer. The upgrades also have value to the tenants and the average length of occupancy for the portfolio is now exceeding 4-years.
By 2011 & 2012 there were a lot of people in the market looking to flip houses. Foreclosure sales went from 1-5 people in attendance (often including the homeowner or renter of the property) to 20-30 people who would bid up the prices to unprofitable levels (for me). I bought nothing after 2010 and quite going to auctions in early 2011.
The properties acquired all cash flow significantly and rents are up about 5% since 2010, but have remained flat since mid 2013. Values are up about 30%. Buying the houses at the bottom is the best financial move of my lifetime.
Thanks Jingle, that is very interesting, and brought back some memories of what ‘09-10 felt like. Things are so different now, I was stating to think I had imagined that there was ever a no-bid market at all!
Your point that, early on, banks/servicers did not distinguish between prime upgraded foreclosures and not-so-prime ones is especially noteworthy.
Many on this board will probably disagree, but I wish I had done as you did and pursued short sales/foreclosures aggressively and early. (I had investigated a few in ‘09, but was too easily put off by bank stonewalling, and didn’t want to tie up capital in a short sale that might not come through for months or at all. Plus, I genuinely thought “something better would come along,” when in fact the quality if listings just got worse.)
Do you think the next downturn will shake out the same way?
Personally, I feel like this rebubble has caused a fundamental shift in perception of downturns. Now that everyone has lived through a bust and insanely quick bounce back, those in it just for capital appreciation have every incentive to go all-in at the first sign of the next downturn, which will result in a new group of people trying to catch a falling knife at each stairstep down (if they have/can get the money). I think the next bust will likely END with a no-bid market rather than begin with one, but I could be wrong!
The conditions present in 2006-7 are not present today. No fraud. Bank owned properties are still leftover from 2007. No new foreclosures. I see the slowdown as a correction and stabilizing factor.
Remember that there is nothing the PTB fear more than a ‘no-bid’ market. They will engage in every manner of easy money stimulus known to man in order to avoid that scenario.
How much did you lose on that house you bought in 08?
The properties acquired all cash flow significantly and rents are up about 5% since 2010, but have remained flat since mid 2013. Values are up about 30%. Buying the houses at the bottom is the best financial move of my lifetime.
How many did you buy total?
Rents up 5% since 2010 but flat since 2013, does that mean rents up 2.5 percent since 2010? Seems like a problem.
I have not lost anything. It is worth more that I paid, provides cash flow, and $400/Mon principal reduction. It has been an OK investment, but not great like the others. I have 9 houses now and will keep them for a long time.
If you bought in 08 and claim you haven’t let anything you are delusional. That wasn’t the bottom anywhere in CA and the REIC was still trying to convince people the bubble hadn’t popped and there was no bubble. You are a fraud.
Well J._Fraud…. If you thought there were “deals” in 2009, you’re gonna pass out when you realize you got ripped off as bad as you did.
What did you pay? 4x over construction costs right?
Build a house for $55 a sq. ft.??? My wife and I had dinner Sunday, I tried your prices are to high in 2014, told the owner pasta with meat balls $17.95 it should be $4.95 based on a theory by a guy on the Internet who thinks houses should be $55 a ft.
Have him talk to my landlord my rent use to be $1,900 now it is $4,200, guess I just sell you pasta for $4.95 and hope my rent goes down because some guy lives in the 1950’s?
refute it. Post a bid estimate for any discipline, any work item, any division.
I gave you 3 methods to substantiate yourself. Proceed.
Post a bid estimate for any discipline, any work item, any division ??
Your the one professing…You post it….Lets see it…$55. per foot…Labor, materials & profit…
It’s been posted over and over again. You just don’t like it.
I have been in this game a long time nobody is going to give away their houses anymore, that is why you see 55 and older taking on jobs, they will wait it out,buyers have to buy.
Renting is not a option for most folks, and 2016 election you will see a huge up string in the US ecomny the full cycle of gloom is over be prepared. That house that was $500k at 4.25% you don’t buy now, will be $750k at 6.25% and you will ask yourself what did I do.
There isn’t a house on the planet that can’t be built for a fraction of those numbers.
Yeah… You’ve been playing games for a long time.
the full cycle of gloom is over be prepared ??
Maybe but what is left is reality…And reality is that the job market is undermined on many fronts and without strong jobs & pay although not gloom, its just a get by economy for most at best….
And grossly inflated prices.
“…that is why you see 55 and older taking on jobs, they will wait it out,buyers have to buy.”
Nobody has to buy, and lots of stuck underwater owners have to rent.
And senior citizens taking on jobs to keep paying off seriously underwater mortgages does not make sense. Don’t they see they will still be underwater at the end of the day?
Comment By DOOM=
“Renting is not a option for most folks, and 2016 election you will see a huge up string in the US ecomny the full cycle of gloom is over be prepared. That house that was $500k at 4.25% you don’t buy now, will be $750k at 6.25% and you will ask yourself what did I do.”
Thats what i have been saying. Buy now or miss out in large REAL ESTATE PROFITS!!!
Ya gotta love real estate bulls whose predictions fly in the face of economic reality.
I have been in this game a long time …
Hence you are a shill
nobody is going to give away their houses anymore …
They were giving them away just fine until the entire government and banking cartel took unprecedented actions to put in a floor. And it still isn’t working. Supply and demand. See Gundlach.
“Crisis Noninterruptus”
More like coitus interruptus permenentas…
“Cash buyers are coming from Europe, Brazil and Russia, he said. A hedge fund contacted him recently about buying 350 houses in Palm Beach and Broward counties over the next 18 months. ‘If they have cash to invest, people feel like they will miss the boat if they don’t buy now,’ Levinrad said.”
Best possible outcome I can foresee: An army of greatest fools from abroad comes in to snap up U.S. investment properties at top dollar before it dawns on the world that these houses are only worth what end-user U.S. household buyers can afford to pay for them, which isn’t all that much.
I had dinner recently with a home builder in the SF Bay Area. A large percentage of their sales are to immigrants coming into the area for jobs in Silicon Valley.
They are multigenerational families and usually buy with substantial down payments (35-40%). About 30% are all cash purchases. The value they received compared to prices in Europe and Asia are very attractive to them.
That is what hear & see also…
The value they received compared to prices in Europe and Asia are very attractive to them.
That a million dollar Silly Valley “starter home” seems like a bargain to them just goes to show that the bubble is even worse overseas.
America has been a better value compared to Europe and Asia (better standard of living for less money) for a long time; this didn’t change in the downturn and probably won’t change in the near future.
But what does change is the availability of jobs to support that standard of living. I grew up in SF during the dot com bubble - the city suddenly got really crowded in the late 90s, and then it got a lot less crowded around 2001.
It is getting crowded again. 1 hour to go 15 miles today on I-80 onto the bay bridge. I would pray for another dot com bust…..but it might really happen!
Yikes! It’s definitely getting crowded - around Christmas I tried to go to a favorite Union Square restaurant for lunch and was told (with a straight face) the wait would be a 4 HOURS.
“1 hour to go 15 miles today on I-80 onto the bay bridge.”
Ha! We must have been in the same traffic. I missed a flight home thanks to that parking lot situation on I-80…
Dimmer with a home builder, eh fraud.
Best possible outcome I can foresee: An army of greatest fools from abroad comes in to snap up U.S. investment properties at top dollar before it dawns on the world that these houses are only worth what end-user U.S. household buyers can afford to pay for them, which isn’t all that much.
Yet houses back where they come from are even more expensive, even though wages are far lower over there. I remember years ago when I was in Barcelona on business. I saw the prices of small SFHs and was floored at the prices, which were about double what they were in San Diego at the time. I asked one of the locals at the office who could possibly afford that. I was bluntly told that only the very well off could afford a SFH. Everyone at the office except for the big cheeses lived in a flat.
When this global bubble pops, it’s going to be “interesting”.
“The insanity of that time caused the townhouse I didn’t buy for $165,000 to soar to $525,000 in 2007 — before falling to about half that value following the collapse. I won’t miss out on a deal like that again. This time, I’ll ride the boom to its peak and sell just before the inevitable market correction!”
How does one time the jump from the train just before it plunges into the river where the bridge washed out?
Pretty simple. You read the Housing Bubble Blog!
“…borrower incomes of at least three times principal, interest, tax and insurance payments to insure buyers could afford their houses.”
3X PITI = 33%, not 43%. Am I missing something in my arithmetic?
If a borrower has no other debt, or significant assets, or a strong credit history, you can push the limit to 43% of income. The problem in 2005-2007 is the borrowers were approved with none of the above! Not true today.
‘Not true today’
‘Today appraisers are suddenly getting much more favorable reviews. ‘My personal belief is not so much that the incompetent appraisers are gone,’ said Gary Kassan, a Los Angeles-area realty agent in an email, ‘but rather that they have better comps to work with.’ With prices on the rise, ‘they have more latitude and are more comfortable stretching the comps to bring the appraisal in at sales price.”
http://thehousingbubbleblog.com/?p=8391
Appraisers in 2005-6 were much worse than today, but you missed my real point: buyers today are qualified. No more NINJA loans.
And your “real point” is a fallacy. Appraisal fraud is rampant and 3.5% down payment loans are far more fatal than ninjas.
Get your $hit together J._Fraud.
Oh he has it together, he rather buy then rent, that makes all the sense in the world, always has always will.
BTW, are you enjoying that rented big screen, you know why buy it, you can rent it for 25% interest and give it back???
Why buy when current asking prices are inflated 300% over construction cost?
Many weekend shills crying because the decline in prices has begun again.
Home prices up in 20 cities and for March up again, what do you read, or do you always skip over positive news?
And not a buyer in sight.
Remember….. I can ask $60k for my 15 year old Chevy pickup but where is the buyer at that price?
“The influx of non-traditional borrowers was driven by Congressional quotas imposed on mortgage guarantors Fannie Mae and Freddie Mac. In 1992, 30 percent of Fannie/Freddie-backed mortgages had to be issued to borrowers with below-median incomes. By 2007, 55 percent of mortgages had to be issued to borrowers below the median with 27 percent issued to those in the lowest 20 percent of incomes. As private, profit-driven enterprises, it is no surprise that Fannie and Freddie chose to pump up their volume by relaxing their standards.”
Have the Democrats yet owned up to their role in blowing the housing bubble? I certainly hope this discussion gets a proper airing in the next Presidential race, as both of the main candidates seemed scared to death to discuss housing-related issues during the last campaign.
‘Have the Democrats yet owned up to their role in blowing the housing bubble?’
The ones that post here are not bothering to mention a fairly important bubble matter: that the White House and Democrats in congress are pulling all the stops to blow up house prices. Of course, most of the Democrat posters here have bought houses, but they couldn’t possibly be blinded by that. Nor can we believe what a more cynical observer might say; that Obama and Mel Watts are pushing credit to juice the economy before the next election.
Gosh, that would suggest these caring Democrats are willing to throw millions of buyers under the bus just to pick up a few GDP points. And even as they use words like “affordable”! I’m sure there are words to describe such a group and their actions. I’ll leave it up to readers here to work it out.
To put a finer point on it:
“…willing to throw millions of low income minority buyers under the bus…”
When folks drive by a big house with fine tuned lawns first things out of there mouth, must be rich conservatism 1% owners who don’t want the middle or lower class to get ahead.
It is stereotyping at its finest.
‘Earlier this month the U.S. Senate Banking Committee passed the so-called “Housing Finance Reform and Taxpayer Protection Act of 2013” by a bipartisan 13-9 vote. This cheerily christened piece of legislation purports to inject market reforms into the mortgage industry – while “re-privatizing” government-owned lending behemoths Fannie Mae and Freddie Mac.’
‘What supporters neglect to mention is taxpayers remain very much on the hook for public losses under this new proposed housing finance framework. In fact their legislation foolishly pledges the “full faith and credit of the United States” in the event a new government-run mortgage insurance fund goes belly up due to a worsening economy (or ravenous politicians).’
‘In other words Congress doesn’t have to approve the next housing bailout – it’s already written into the law.’
‘Additionally there’s a new fee subsidizing this insurance fund, which lending institutions will no doubt pass onto borrowers (including the 32.6 million Americans who either paid 20 percent down on their homes or whose loan-to-value rate is less than 80 percent). And to what end? So government can continue backing risky loans for people who shouldn’t be buying a home in the first place?’
‘That isn’t taxpayer protection – and it certainly isn’t permitting the marketplace to work. In fact it’s more of the same command economic nonsense that landed us in this mess in the first place.’
‘By July 1999 full-on politically correct, bureaucratic insanity had taken hold — with the U.S. Department of Housing and Urban Development (HUD) rolling out its plan to force government-backed mortgage behemoths Fannie Mae and Freddie Mac to buy $2.4 trillion worth of loans aimed at providing “affordable housing” to 28.1 million “low- and moderate-income families.”
‘It didn’t take long for the bubble — and the red flags surrounding it — to start rising. In July 2003 it was reported Freddie Mac had misstated its earnings by as much as $4.5 billion — prompting the administration of George W. Bush to propose what The New York Times called “the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis.”
‘The “overhaul” went nowhere, though. U.S. Rep. Barney Frank (D-Mass.) claimed Fannie and Freddie were “not facing any kind of financial crisis” — while then-U.S. Rep. Melvin Watt (D-N.C.) blasted Bush’s reform proposal as “weakening the bargaining power of poorer families and their ability to get affordable housing.” Of course both lawmakers led the “corporate greed” chants five years later when the market eventually collapsed under the weight of all that “affordable housing.”
‘You wouldn’t know it watching “bipartisan” Washington work, but there is a shockingly simple solution here: Letting the private sector determine who should (and shouldn’t) receive home loans – and removing any guarantee of taxpayer assistance in the event mortgage writers make bad decisions.’
‘Permitting government to re-inflate this bubble – and then obligating taxpayers to pay for it when it pops (again) – is the very last thing Congress should be doing.’
Nathan Mehrens is president of Americans for Limited Government.
I’ve told this story a couple of times, but it is worth repeating.
I was at a corporate event a while back and was talking with a former GSE executive. This was probably 3 years ago or so (maybe 4…definitely post-crash). He said that from time to time, there would be congressperson who would get newly elected and make statements about reforming the GSEs, etc.
The GSEs would then then take steps to open a lending office in the congressperson’s district.
The next thing you know, there were photo ops with the congressperson and new “homeowners”…and all talk of reforming the GSEs went away.
The GSEs didn’t care who brought up the idea of reform…they made it clear to the politicians that giving out the cheese was good for business (ie. re-election).
And we are seeing this play out yet again…although this time, front and center (with the GSE bill ending up DOA due to “affordability” concerns from the left–as if giving more money to people who can’t afford to pay it back makes homes “affordable”).
“The influx of non-traditional borrowers was driven by Congressional quotas imposed on mortgage guarantors Fannie Mae and Freddie Mac. In 1992, 30 percent of Fannie/Freddie-backed mortgages had to be issued to borrowers with below-median incomes. By 2007, 55 percent of mortgages had to be issued to borrowers below the median with 27 percent issued to those in the lowest 20 percent of incomes. As private, profit-driven enterprises, it is no surprise that Fannie and Freddie chose to pump up their volume by relaxing their standards.”
Non-traditional = subprime?
‘She chose her words carefully, but in her own way Federal Reserve Chairwoman Janet Yellen recently rang an alarm about the housing market. “Readings on housing activity — a sector that has been recovering since 2011 — have remained disappointing so far this year and will bear watching,” she told a panel of U.S. lawmakers.’
‘Home sales are trending below levels hit a year ago. The housing sector cut U.S. gross domestic product in the first quarter, following a drop at the end of last year, for residential investment’s first back-to-back subtraction since the first half of 2009. And shares of major home builders dropped over the past year.’
‘An explosion of headlines have proclaimed that housing is in serious trouble due to the market’s dreadful performance in recent months…Now, there are plenty of reasons to be down on housing. Affordability declined over the past year, and it’s hard to get a loan. Young families aren’t buying many houses. And a low number of residences available for purchase has been constraining sales.’
“The housing downturn was very deep and protracted. It takes time to shift resources back into this area,” William Dudley, president of the Federal Reserve Bank of New York, said this week.’
Hey Bill, please don’t put more “resources” into making house prices higher. Please stop using our houses as an economic throttle to goose consumer spending (and so you can keep riding around in limousines). Because here and there, people are borrowing vast sums of money to play in your little game. And guess what? Some of them are going to get an ass pounding as a result.
They’re telegraphing and it seems they’re using inversions like they have since Greenscum invoked them back in the 1980’s. Example; 2005- There is no housing bubble, reality? There is a huge massive bubble. Today- We’re concerned with housing. reality? Do nothing as demand craters.
It’s time to compete and liquidate. Hedgies are liquidating already.
gov rewards failure and gov programs always fail. Otherwise the gov workers would have to get real jobs.
a good half or more of government is just a jobs program.
a good half or more of government is just a jobs program ??
+1…Spot on….
when it snows 1 inch 300k fed workers don’t go in to work
how non essential can you get
‘After four days of voting in a sprawling election with nearly 400 million eligible voters spread across 28 countries, fringe political groups pugnaciously hostile to the European Union scored dramatic gains in voting for the European Parliament and delivered a blow to the bruised but still dominant mainstream parties.’
‘A series of televised debates between the leaders of rival political blocs and other efforts to engage with voters have had scant success breaking through a wall of public indifference to what many Europeans scorn as a remote and overly costly Tower of Babel. The legislature has 24 official languages and shuttles between Brussels, the headquarters of union’s administrative machinery, and the French city of Strasbourg, 270 miles away.’
“The European Parliament is predicated on the idea of a European ‘demos,’ ” Charles Grant, director of the Center for European Reform, a London-based research group, said, using a term meaning shared political culture. “But if this demos does not exist, the Parliament has a very hard time connecting with people.”
‘Aside from its efforts to restrict snooping by American intelligence agencies in the wake of revelations by Edward J. Snowden, Mr. Grant said, the European legislature “exists inside the Brussels bubble and doesn’t talk about things most people care about.” Its principal concern, he added, “has been to get more power for itself and more money for the European Union.”
Realtors are liars.
“But my Midwestern cautiousness gave me cold feet and I backed out of the deal.”
My Midwestern cautiousness has kept me out of the owner-occupied housing market for a decade.
But I have plenty of Midwestern relatives who threw caution to the wind and went all-in on housing. Case in point: My youngest sister’s household owns three Midwest SFRs free and clear. Housing is where they decided to concentrate their portfolio during the progress of the greatest real estate bubble in the history of the U.S.
Time will only tell how they fared by following the herd’s lead, only to later find themselves showered with spillover bailout gains.
1) As of 3rd quarter 2013, mortgage and student loan debt is again increasing along with overall debt (p. 3 numbered, 5 actual): http://www.newyorkfed.org/householdcredit/2013-q4/data/pdf/HHDC_2013Q4.pdf - interesting reading.
2) Debt to income ratio reached an all time high towards the end of the 2000s. I’d be interested to see what it is today: http://www.frbsf.org/economic-research/publications/economic-letter/2011/january/consumers-economy-household-debt-weak-us-recovery/
Real estate prices are directly related to the amount of debt a household can take on. “Peak debt” is what the financial sector was looking for. I think they found and slightly overshot it.
IF those DTI numbers are true - IF - then it doesn’t indicate any more big run-ups in real estate prices. There are a lot of forces who like the current system and will do everything they can to maximize debt and prop up real estate prices. However - this is all politically driven. In Britain, a recent Ipsos Mori poll showed 57 percent don’t think rising house prices are good for Britain.
Government can run trillion dollar deficits a year, the central bank can print money to buy government debt, but eventually, like agricultural subsidies, the financial sector subsidy will have to be re-evaluated.
Here is the more recent NY Fed Report:
http://www.newyorkfed.org/householdcredit/2014-q1/data/pdf/HHDC_2014Q1.pdf
3 quarters in a row now with increasing debt.
Here is the most recent Household Debt Service and Financial Obligations Ratios:
http://www.federalreserve.gov/releases/housedebt/
It’s not the DTI, but somewhat related numbers–brought to you by the largess of the Fed by essentially lowering everyone’s interest rate on their mortgage for the next 30 years.