The Housing Bubble

I was so surprised by the Union Tribune article that I’m going to repost the entire paragraph from it:

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“Between 2004 and 2007, more than 325,000 San Diegans took out home equity lines of credit, totaling around $40 billion, real estate tracker DataQuick reports. Borrowers make interest-only payments on the loan for 10 years. After that, the line of credit converts to a mortgage and must be paid back — typically at a higher interest rate. Had home values kept rising, paying back the loans might have been easy, through a refinance or another line of credit. Today, however, many who bought during the housing bubble are just glad their homes have regained their original value, which plummeted during the Great Recession. Their equity disappeared, but the lines of credit remained. Now the bills from that first wave of HELOCs, taken out in 2004, are coming due. Homeowners must start paying on both interest and principal on the outstanding balance, and often at higher interest rates of 5 or 6 percent. ”
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Years ago I saw an NYT map showing that 40% of southern CA had I/O or neg-am cash-out HELOCS. But I had no idea that this toxic paper had a 10-year grace period instead of the usual three years. And this is 2004! What is this going to look like in 2015 and 2016, when the loans from the crazy 2005-2006 prices kick in?

And even in the best case scenario, the only way to pay back the loan is to take out another loan? So no one ever intended to pay the loan back ever?

“Home equity loans were up across the Bay Area in the first six months of 2014.

“‘What’s causing the uptick (in loans) is that values have gone up so much in the area, people who couldn’t refinance years ago can now refinance and take advantage of the historically low interest rates,’ said Jeff Grady of San Rafael-based California Mortgage Advisors. ‘Now they can pull equity out of their house to do home improvement projects, pay for college, any one of a number of things,’ Grady said.”

No dollar escapes. The same people who were underwater and living sleeplessly at the edge a few years ago are now cashing in the equity that has magically returned to their (or rather the lender’s) houses.

One would think that people - people who are smart - would have somehow learned a lesson or two from their experiences but apparently they do not and they did not. If/when the next downturn comes around these same people will again end up living sleeplessly at the edge and will be pissing and moaning about all the ways they have been victimized by the ruthlessly unfair System.

Stay tuned.

Get ready for (1…2…3…) MASSIVE DENIAL AND REALTOR® SPIN.

Never forget: California real estate always goes up.

“Between 2004 and 2007, more than 325,000 San Diegans took out home equity lines of credit, totaling around $40 billion, DataQuick reports. Now the bills from that first wave of HELOCs, taken out in 2004, are coming due. Homeowners must start paying on both interest and principal on the outstanding balance, and often at higher interest rates of 5 or 6 percent.

‘It’s one of those ticking time bombs that’s eventually going to happen,’ said Bruno Lizarraga, a loan originator at San Diego-based Community Housing Works.”

No big deal. What’s $40 billion in loans to rich San Diegans?

Housing prices continue to rise, and 2014 is seeing the return of a ‘normal’ housing market, according to Bakersfield appraiser Gary Crabtree’s annual report. The number of houses available on the market has nearly doubled at 1,015, up from 515 one year ago.

It’s normal for the number of homes available on the market to double in one year? For how many more years is this normal pattern expected to continue?

‘Many of those homes were being purchased by investors,’ Crabtree said. ‘And we’re seeing investors now leave the market, which now opens the market up for the home buyer.’

Sounds more like the market is open for knife catchers. Try not to catch yourself a falling knife.

‘The last chunks of distressed property in Inland Southern California continued to push through the foreclosure pipeline in May, the second straight month for a spike in bank take-backs.’

‘Daren Blomquist, vice president of RealtyTrac, warned months ago that the lag in scheduled auctions and notices of bank repossessions, which seemed to begin when California’s Homeowners Bill of Rights took effect in 2013, would be the “second shoe to drop” once lenders adjusted to the new law.’

One provision in the Bill of Rights derailed a practice called dual-tracking, in which a bank representative or debt-service agent talked to a homeowner about a loan modification while personnel in another department took formal action to foreclose on the property. The new law set up specific steps to take. It also made lenders more liable for their missteps in a foreclosure process.’

“The increase in bank repossessions in states with shorter foreclosure timelines like California and Oregon demonstrates there is still some pent-up foreclosure activity there,” Blomquist said. California repossessions increased 26 percent in May from May 2013.’

Lawyers are liars.

‘Since the beginning of the Great Recession, an increasing number of young adults in San Diego County live with their parents, putting a damper on the housing market and the broader economy, according to a report released by the National University System Institute for Policy Research.’

‘The IPR report noted that San Diego’s population has grown by 4.2 percent since the recession began in December 2007, but the number of households has grown only 1.7 percent, suggesting that a lower percentage of people are living on their own.’

‘If trends in household formation had remained unchanged from 2007, the county would have 27,500 more households than it has, estimated Kelly Cunningham, who wrote the report.’

‘Instead, the trend translates into less demand for housing, meaning fewer job opportunities in construction and finance, as well as slower growth for the economy, said economist Kelly Cunningham, who also wrote the report.’

‘Last year, San Diego County added 8,315 new housing units. Although that was a vast improvement from the depths of the recession, it was less than half of the record-setting pace before the recession and nearly 30 percent less than the homebuilding rate between 1990 and 2006, when an average of 11,300 houses and apartments were added each year.’

‘Similarly, there are 25 percent fewer jobs in the construction, real estate and mortgage industries than at the peak before the recession, despite four years of recent growth.’

‘Cunningham said research indicates that the trend is largely tied to young people either “choosing or being forced by circumstances to remain in their parents’ home longer than they would have in previous generations.”

‘One reason may be that the bulk of jobs created in San Diego since the beginning of the recession do not pay enough for workers’ rent.’

‘IPR policy research analyst Vince Vasquez released a report in May showing that 37 percent of workers in San Diego earn less than $11 per hour, and 33 percent of those workers are between 22 and 30, including a significant number who appear to be living with their parents.’

‘A report last week by the San Diego County Taxpayers Association indicates that such a salary could not cover the rent. The association calculated that a worker would need $12.76 per hour to rent a studio apartment and pay for other necessities.’

“Many people opt to share two-bedroom apartments, regardless of income level,” said Sean Karafin, the association’s interim president, who drafted the report with the San Diego Regional Chamber of Commerce.’

‘IPR analyst Vasquez suggests that a lower wage may be appropriate for people who are in “a transitory part of their career” — for instance, college graduates just entering the labor force. But Vasquez’s statistics show that nearly half of the area’s low-wage workers do not appear to be in that transitional phase.’

‘Some 45 percent are older than 30; 32 percent are older than 40 and 18 percent older than 50.’

‘Statistics suggest that as with the younger people, some of those older workers appear to be doubling up with other workers to lower rental costs, translating into less demand for new housing.’

‘Jayceon Taylor, the rap musician and reality TV actor known as Game or the Game, has sold his gated house in Glendale for $1.63 million, the Los Angeles Times reports. ‘

‘He bought the house in 2005 for $1.9 million, public records show. He owns another property in Northridge.’

‘Today there’s just a fenced-off pit the size of a city block to remind residents of a time when Sacramento’s housing market seemed ready to reach for the sky and draw thousands of upscale buyers to downtown condominiums. Toward the end of last decade’s housing boom, developers promoted ambitious proposals to raise residential towers that would dwarf the existing skyline …Then, the housing bubble burst, flattening the bevy of high-rise proposals before any actually got off the ground.’

‘In recent months, as the housing market rebounded and plans for a new NBA arena spurred interest in downtown real estate, developers and city officials again have been talking about soaring towers and million-dollar condos with views of the Central Valley.’

“We’re actually quietly looking at some sites right now, because we do believe the market is coming back,” said Craig Nassi, the New York developer who at the height of the market in the mid-2000s planned to build a strikingly modern 38-story tower on Capitol Mall called Aura. It would have featured 265 units priced from $400,000 to $1.5 million.’

‘The developer said he took pre-orders on 78 percent of the units, with buyers signing contracts and paying deposits, before the market imploded. Nassi’s architect, the renowned Daniel Libeskind, quit the project after complaining he wasn’t getting paid. “We still have our lists of people who are highly qualified and highly interested,” Nassi said.’

‘Skeptics say residential towers remain a dream in Sacramento, a historically low-rise and leafy city with plenty of land to build on.’

“None of these projects is real unless there’s a crane in the sky,” said Sacramento City Councilman Steve Hansen, who represents downtown. “We’re dealing with aspirations. There’s no reality yet.”

‘A growing trend of banks placing distressed homes up for sale with online auctions has left Santa Clarita Realtors crying “foul,” claiming online auction sites are using “shill” bids to drive prices up. One company, Auction.com, however, does disclose on its website that it “may counter bid on behalf of the seller.”

‘The Irvine-based company’s reasoning is that bidding on a property they’re selling through auction helps to meet the seller’s reserve price. The company claims it does not continue bidding if the minimum sales price is met or exceeded.’

‘But the practice has prompted California Realtors Association – C.A.R. - to sponsor legislation to stop the practice.’

‘Even a few of Realtors say they don’t know if the some of the problems they’ve experienced are related to the online company – or the banks which have already been heavily fined for poor practices during the mortgage meltdown.’

‘Still, Realtors are suspicious of behaviors that aren’t transparent. Sam Weller with Keller Williams said a friend recently lost his home to foreclosure. Despite the comps showing the home should have been valued at $1.3 million, the house sold online for $1.05 million. He felt someone had some kind of ‘inside information,’ he said.’

“The bank foreclosed very fast without giving him a chance to short sale or make a payment schedule,” Heller said. “And neither I nor the title company can find any information of the listing on the Internet after it sold - like it never happened.”

Hey Sam, why didn’t your friend just accept one of those multiple offers and avoid the foreclosure?

‘the inventory of homes for sale has grown, with more traditional sellers wading into the market this spring. That’s giving buyers more to choose from, but without a flood of new buyers, it means homes that feel overpriced are starting to sit on the market a little longer.’

‘That’s an unpleasant surprise for some sellers, especially those who were finally lured into the spring market by tales of bidding wars and double-digit price hikes, and then valued their homes accordingly. Mona Cohen, an agent with Rodeo Realty in Brentwood, finds herself more often having to play the bad guy with sellers who think their home is worth more than the market will bear.’

“They still think they’re in that little bubble of 2013, where you’d put it on the market and have 15 offers,” she said. “That still happens in pockets. But buyers have become a lot more savvy.”

‘Indeed, Cohen and other market watchers say they’re starting to see more price reductions as sellers lower their sights to compete.’

‘Still, no one is expecting home prices to go down overall. There’s still more demand than supply, and well-priced homes are still selling quickly. Many experts just think the market will keep muddling along through summer.’

‘And in a region like Los Angeles, where the median-priced house costs seven times the median household income and housing affordability is a growing challenge, having a market that moves in tune with the fundamentals of the economy isn’t such a bad thing, said Appleton-Young, even if it’s growing a bit more slowly than it has been the last few years.’

“Whatever normal means,” she said, “I agree.”

Not sure I get your drift Leslie.

“no one is expecting home prices to go down overall”

Hey LA Times, I can think a few people.

‘His said his typical buyers are a husband and wife in tech, making a combined $240,000 a year, who still can’t afford a basic home in some parts of the valley. ‘When the median home price is no longer supported by the median income, we’re near top,’ he said’

I’ve been asking this of some posters here for a while: do you really think this is going to glide up to the perfect point of equilibrium and stay there? Or is it more likely to run a muck and get to crazy land?

It’s a bubble. When you have prices going up double digits for almost 2 years, multiple offers, selling way over asking. love letters, jeebus you name it, it’s a bubble, not a “recovery”.

>>Bills from that first wave of HELOCs, taken out in 2004, ????? wtf

you don’t make payments for 10 years ?

‘Some leading central banks have become major players on world equity markets in a development that could potentially contribute to overheated asset prices. Evidence of an increase in equity-buying by central banks and other public-sector investors has emerged from a survey of publicly owned or managed investments compiled by the Official Monetary and Financial Institutions Forum (OMFIF), a global research and advisory group.’

‘The OMFIF research publication, Global Public Investor (GPI) 2014, launched on June 17, is the first comprehensive survey of $29.1 trillion worth of investments held by 400 public-sector institutions in 162 countries. The report focuses on investments by 157 central banks, 156 public pension funds and 87 sovereign funds. There are worries that central banks may be over-stretching themselves by operating in too many areas.’

‘The best-known example is the Norwegian sovereign fund, Norges Bank Investment Management (NBIM), with $880 billion under management, of which more than 60% is invested in equities. The fund owns on average 1.3% of every listed company globally, and 2.5% of listed companies in Europe.’

‘Rivaling NBIM is now the State Administration of Foreign Exchange (SAFE), part of the People’s Bank of China, the biggest overall public-sector investor, with $3.9 trillion under management, well ahead of the Bank of Japan and Japan’s Government Pension Investment Fund (GPIF), each with $1.3 trillion.’

‘SAFE’s investments include significant holdings in Europe. In a new development, it appears that the PBoC itself has been directly buying minority equity stakes in important European companies. Another large public-sector equity owner is Swiss National Bank, ranked the world’s No. 10 GPI measured by market assets, with $480 billion under management. The Swiss central bank had 15% of its foreign exchange assets — or $72 billion — in equities at the end of 2013.’

Print money, buy stocks. What could go wrong?

“it’s hard for families to be able to afford” lower commission to 1.5% to seller agents and 1.5% to buyers agent that may help these families afford a house?

While on my subject of RE agents and the must have 6% or “nobody will show your home” folks.

My niece ask us to look for a possible home in the 400k range. We made the mistake of doing this on Fathers day, I called at least 7 agents nobody answer the phone and when finally got a agent to answer she said, “can we talk Monday, today in Father’s day?”

Well there it is plain and simple, the real estate community has it all sewn up. They are the cartel running the show, the wake up call should be for buyers and sellers to get together and let these folks enjoy a perm ant Father’s Day?

crater

‘Argentina’s president is refusing to go along with a U.S. judge’s ruling requiring a $1.5 billion repayment of defaulted bonds, even though the U.S. Supreme Court rejected her government’s appeals and left the order in place.’

‘In a national address Monday night, Cristina Fernandez repeatedly vowed not to submit to “extortion,” and said she had working on ways to keep Argentina’s commitments to other creditors despite the threat of losing use of the U.S. financial system.’

‘Argentine markets were already reflecting fear. The Merval stock index dropped 11 percent after the court decision, its largest one-day loss in more than six months, and the value of Argentina’s currency plunged 33 percent on the black market.’

‘But a chorus of analysts said that if she complied with the ruling, it would become much easier for Argentina to borrow again.’

“Some people say, ‘Why don’t you pay them and end all this right now?’” the president said. “It’s because there’s another problem, even more serious. There’s another 7 percent who would be able to demand payment from Argentina, right away and now, of $15 billion. That’s more than half the reserves in the Central Bank. As you can see, it’s not only absurd but impossible that the country pays more than 50 percent of its reserves in a single payment to its creditors.”

“It’s our obligation to take responsibility for paying our creditors, but not to become the victims of extortion by speculators,” she said.’

I don’t see the problem Cristina. Just print the money. That’s what we do.