The Decks Were Stacked With Aces
A report from the Idaho Press Tribune. “We all knew the housing market was going to rebound at some point, and now that it has, developers are ramping up plans to start building more large subdivisions. So now the question city leaders in Nampa and the Treasure Valley’s other cities have to ask themselves is, are we prepared to handle it? Remember the subdivision boom of the mid-2000s? It was a time when home values were rising at astonishing rates. Some properties saw their values double within a year or two. People were buying and selling homes, making tens of thousands of dollars in profits — it was Las Vegas and the decks were stacked with aces; the slot machines were rigged to come up triple cherries with every spin. Only instead of cards or cherries, it was houses.”
“Farmers were selling their fields for astronomical sums to developers eager to take their turn at the casino table. Remember all those tracts of agricultural land that were being prepped for new homes here in Canyon County? You know what happened. It was an artificial bubble. Nobody’s income was doubling, so there was no way buyers could afford houses of those spiraling values. The bubble eventually burst, and everything came crashing down.”
“Now that values are back up to where developers believe they can make a profit on new homes, there are five monster subdivisions planned in Nampa alone — 381 homes, 385 homes, 216 homes, 178 homes and 254 homes.”
The Bend Bulletin in Oregon. “New plans for apartment complexes in Bend submitted this year bring the total number of proposed units in a rental-starved market to more than 1,500. However, most of those applications remain on the drawing board, or in some phase of plan review at the city. The surge in applications is still lagging behind the demand for new rental housing. The numbers still apply for units of about 1,000 square feet, said Kevin Restine, general manager of Plus Property Management and an association board member. Above that size, and above rents of $2,000 a month, the market has ‘gone quiet,’ he said.”
“Properties that rent for more than $2,000 are less in demand for an obvious reason, Restine said: ‘Folks that can afford those things have probably moved into the purchase market.’ The leasing slowdown in properties priced at $2,000 a month and more may indicate the start of an overall market slowdown, he said.
From Leesburg Today in Virginia. “When Tim Nuhfer and Natasha Schuh-Nuhfer began their hunt for their first home, they jotted down a list of priorities. The husband and wife wanted at least 2,000 square feet of space, two to three bedrooms and a garage with space for their outdoor gear, and they didn’t want to pay much more than $450,000. Their search led them to a neighborhood that’s considered one of Loudoun’s real estate hot spots. They found their new abode, a four-bedroom, 2,100-square-foot house with a two-car garage, on the far east end of Sterling.”
“‘With the Silver Line coming, now is the time to buy here,’ said Schuh-Nuhfer. ‘People are on to it now, and the prices are really going to go up.’”
“If there’s any part of the market real estate agents might call a ‘cold spot’ in Loudoun, it’s the houses priced at seven figures. There are 200 homes for sale at $1 million or more, and just 16 are under contract, according to Pamela Jones of Long & Foster Realtors. So far this year, 67 at that price range have sold—just 1.5 percent of the county’s overall home sales. ‘So we currently have a 21-month supply of homes over $1,000,000,’ Jones said in an email. ‘Yikes!’”
The Tampa Bay Times in Florida. “Even for Tampa Bay homeowners who plan to stay put, steadily climbing home prices are a reason to cheer. After all, rising water floats all boats, right? Not exactly. Despite the continuing recovery of the housing market, 18 percent of all Tampa Bay homes lost value between August 2014 and August 2015, according to Zillow. In some areas, including Dade City and eastern Hillsborough County, more than 30 percent of homes were worth less this summer than they were a year ago.”
“Among the four bay area counties, Zillow found that Hillsborough had the most ZIP codes in which at least 18 percent of the homes declined in value over the past year. That’s a roughly accurate reflection of how values are faring in Hillsborough even though its property appraiser’s office, like that in Pinellas, examines sales in much smaller geographic areas. ‘We have 300 neighborhoods and looking at the overall change in price, the data suggest that approximately 25 percent dropped in price, while 75 percent increased,’ said Tim Wilmath, Hillsborough’s director of valuation.”
The Houston Chronicle in Texas. “Weeks after buying his first house, Anthony Escobedo got word that his company planned to close the California oil equipment plant where he works as a mechanical design engineer and ship him and his co-workers to headquarters in Houston. Escobedo, 26, wasn’t surprised. With domestic crude fetching less than $50 per barrel, fewer oil companies are clamoring for the products churned out of the Bakersfield factory, forcing his employer to cut costs and pare back operations.”
“But he’s not upset either. While the move across the country may come at an inconvenient time, the Golden State native says he’s looking forward to putting down roots in Houston, where the cost of living is cheap, the people are nice and opportunities abound to advance his career. ‘I’ll do the whole house search again, meet new people and work with new people in the company,’ said Escobedo, who has listed his Bakersfield home for sale and plans to move to Houston soon.”
“The global crude slump battering oil towns across the country has created a paradoxical effect in Houston, home to more than 3,700 energy companies, including some of the world’s largest. While the city has lost thousands of oil and gas jobs since oil prices collapsed by half over the past year, its energy capital status makes it a logical place for companies to consolidate operations as they shutter far-flung plants and offices to save money.”
WGRZ in New York. “For a couple of months now, Assemblyman Michael Kearns has been doing his ’shame campaign,’ calling out banks for holding onto foreclosed vacant homes. He goes to those homes and puts a sign on the property letting everyone know that he thinks it’s the bank’s fault that a home sitting for up to several years has fallen into disrepair. Now he’s taking that effort a step farther by trying to get the banks to work with local developers.”
“You can see how widespread the problem is online, where his ’shame campaign’ map of foreclosed homes shows more than 500 vacant properties throughout Western New York. While the house on Franklin Street is a success story, Matt Fisher who works in the Old First Ward on housing issues, is all too familiar with a different outcome.”
“‘There’s a big wall the banks put up. You know, there’s one [in South Buffalo] for example, the owner has been dead for seven years, and the house is still vacant. I reached out to the bank and they said they can’t talk because of privacy concerns. Well, the owner’s dead,’ Fisher said.”
‘Former Fed Chairman Ben Bernanke told CNBC on Monday that slow productivity growth is weighing on the economy, and there’s too much reliance on the central bank. He said other policymakers in the government need to step up.’
‘With the Fed considering an interest rate hike that would be the first in nine years, he said it’s not evident that monetary policy is too easy because inflation is so low and full employment is only starting to emerge.’
‘The lower growth in the U.S. economy is not a hangover from the Great Recession, Bernanke said, noting that more capital investment is needed to boost growth.’
‘In the long term, low or no inflation has risks, he warned. “If inflation is so very, very low that it’s close to deflation, the risk is that ordinary interest rates will be low all the time. … What happens where there’s a recession, there’s no where to cut.”
‘However, he insisted that the Fed should not have hiked already. “That doesn’t make any sense. If you raised rates too early and kill the economy, that doesn’t help you,” he said.’
A quarter point increase in an internal interest rate would kill the economy? And what is the “risk” of printing up 4 trillion bucks and blowing it on MBS and treasuries? Holding “crisis” level interest rates for what, 5, 6 years into the “recovery”? No risk or downside there, at least not one ever mentioned by you or the media.
‘more capital investment is needed to boost growth’
Yeah, revive the A shares Bernanke, benefits to the people. Over-capacity has been the result of globalism and money printing. We don’t need more empty cities and factories.
‘Growth has certainly been slower around the world, but the U.S. economy has been doing better than others, Bernanke said, evidence the Fed’s monetary policy since the financial crisis has been correct.’
‘But he said no one can’t guarantee the Fed will foresee future bubbles.’
“The Fed has been using easy money because the economy has needed a lot of support,” he argued. “A better policy would be a better mix of monetary, fiscal, and other policies. The fact that the Fed is the only game in town means the Fed has to do too much.”
‘the Fed is the only game in town’
Think about that statement. What ever happened to capitalism Bernanke? You know, the basis for the entire economy. Oh, higher house prices and stocks were going to fix everything. Well we got those higher prices. Did you see the jobs report Friday?
I was listening to the radio yesterday, and these guys were chewing rags about the jobs report. Why oh why are things so anemic? It’s like this; capitalism requires certain things to function. If you are a stupid, greedy, debt-laden corporation you need to go away and let the adults work in that place. Bernanke also said he was “seething” about the practices at AIG, but insisted they had to be given BILLIONS of dollars! Just handed to them.
Yes, let’s squabble about trickle down, yada-yada. There’s only one economic policy; central bankism. It isn’t working and yet we have to listen to these lectures from a guy who said there was no bubble, that subprime was contained and darn it, why doesn’t some one in the government DO something!
Capitalism doesn’t need a wizard behind the curtain. Just get the F- out of the way.
Maybe he does not really understand capitalism and how things work in the real small business economy creating jobs on main street USA. I think he thinks the answer to this economic problem is saving the FIRE sector.
It just isn’t possible for any of these guys to say something that makes sense when the simple truth is that they are institutionalized thieves.
My life would have gone on just fine if AIG and the rest had vanished. I would have paid less for the necessities of life as well. A lot less.
‘But he said no one can’t guarantee the Fed will foresee future bubbles.’
https://www.youtube.com/watch?v=INmqvibv4UU
Bernanke, liar or imbecile?
and there’s too much reliance on the central bank.”
WTF ?
‘However, he insisted that the Fed should not have hiked already. “That doesn’t make any sense. If you raised rates too early and kill the economy, that doesn’t help you,” he said.’ ‘full employment is only starting to emerge.’
What fish bowl do these people live in? Full employment is getting further and further away. What economy? People are back spending money that they don’t have (debt). More jobs are being cut.
“People are back spending money that they don’t have (debt).”
It’s the new welfare.
‘I’ll do the whole house search again, meet new people and work with new people in the company,’ said Escobedo, who has listed his Bakersfield home for sale’
26 years old and he’s angling to buy a second house.
787 nearby properties found Bakersfield, CA Real Estate and Homes for Sale
233 nearby properties found Bakersfield, CA Price Reduced Homes for Sale
136 nearby properties found Bakersfield, CA New Homes Construction for Sale
Not only that, but even if he can get what he paid for his Bakersfield house, he’s gonna lose a lot of money on the commissions and closing costs.
…. and depreciation.
‘As home values rise, homeowners are gaining more equity on paper — and they’re taking it out in paper. Cash-out refinances jumped 68 percent in the second quarter from a year ago, according to Black Knight Financial Services. This is the highest volume of this type of refinance in five years.’
‘Cash-out refinances were most popular in California, accounting for 30 percent of all volume, according to Black Knight. The next closest was Texas, accounting for 7 percent. These states have seen the most home value appreciation.’
I just got this email:
Hi Ben,
I am working on a project researching about buying a holiday home abroad.
Would you like to share this research on your site about information on buying your holiday home and making some money from it .
Let me guess, luxury car sales are on the rise again.
This has happened before and will happen again.
84 month financin,yo
The roads in my neighborhood and surrounding environs are chock full of shiny new trucks — mostly 4-door Tundras and some heavy Chevys. A quick check of Edmunds/Bankrate says ~$35K… 84 month at 3%, 0 down = $500/month.
The banks must be selling this crappy paper up some greater fool food chain. But fear not… a year from now, the Dodd-Frank rules kick in for auto loans. After that, you have to have serious % down and good credit, or the bank keeps 5%.
I was thinking more along the lines of people buying $50K+ cars and SUVs with HELOCS. That monthly payment is not only lower than the 84 month loan, it’s also tax deductible.
Remember during the previous bubble, when 40% of car sales were financed with a HELOC? If it’s happening again (and I really don’t know if it is) then Bubble 2.0 is not long for this world.
That monthly payment is not only lower than the 84 month loan, it’s also tax deductible.
It’s only tax deductible if you break the law.
I think Colo means cash-out refi, not a real HELOC. You re-buy the house at the higher price, re-start the 30-year clock, and pocket the profits. Then use the profits to buy the car cash. The interest on the new 30-year mortgage is still deductible, right?
IMO it’s foolish to finesse with the MID now. Sure, MID was a major deal when principle was low and interest rates were high; and a huge amount of PITI was deductible. But at these low interest rates, MID is nearly useless.
I think I saw the phrase “it’s beginning again” with regard to this article.
Here is the Mortgage Monitor that provides the cash-out data. Specifically page 11:
http://www.bkfs.com/Data/DataReports/BKFS_MM_Aug2015_Report.pdf
Up 70% year on year.
That’s big.
Still down 80% from the peak.
That’s also big.
“It’s beginning” indeed. Definitely something to keep close tabs on…
‘Cash-out refinances were most popular in California, accounting for 30 percent of all volume’
Yup.
I’d like to say that I’m surprised. But I’m not.
I’d expect a big number, since CA has 14% of the population, and high home prices in addition, but 30% is a flashing yellow light.
The prices have been a flashing light for quite some time. Lowest disposable income of any state in the country.
At first I thought those refis were 2005-era buyers who are finally above water and taking advantage of refi. Makes sense. But cash-out? How the heck much cash is there to take out? Is there a Plastic Surgery index we can check?
‘How the heck much cash is there to take out’
Some areas of California are at all time highs. And it is well known that refinancing is more generous than straight lending.
I was driving yesterday and listened to that REIC devil channel out of Las Vegas. It was a guy and gal, who were practically excoriating listeners who weren’t taking cash out. For a car, pay off credit cards or just to hold as a “buffer.” After 20 minutes I realized that was all they were going to talk about and changed the channel. BTW, it was 2.9% for the first year and 3.9% afterward.
The prices have been a flashing light for quite some time. Lowest disposable income of any state in the country.
I was in Silly Valley two weeks ago. They sure like their fancy cars. I felt quite the plebe driving my rental Toyota around the place.
‘How the heck much cash is there to take out’
According to Fannie Mae, their CA average LTV is about 53% on total unpaid balance of $546 Billion. So, there is about half a Trillion of equity to tap…and that’s only the Fannie Mae portfolio (not jumbo loans). Even if they are off in their values by 10-20%, there is quite a bit to take out.
BTW, the “hold as a buffer” is about as stupid a reason as I’ve ever heard to cash-out refi. Borrow money at 3-4% so you can put it in the bank at zero–and when you probably need it (because times are tough), you will then also be seeing lower home values, a poor job market, and unless you can then pay that money toward the principal balance of the loan, and re-amortize the payments, you end up with a higher monthly cost as well.
If you want some potential liquidity, do as my parents did–they got a HELOC on their fully paid for house. It cost them a few hundred dollars to document, and if they ever need cash, they can tap it. But for now, it’s at a zero balance–costing them nothing for their “buffer”.
Ben, was that buffer from the HELOC or the cash-out refi? In this case it makes a difference. I can understand a HELOC buffer as long as you don’t use it. But cash of any kind will burn a hole in the pocket, that’s for sure.
Actually, my area roads are a good mix of shiny new trucks and “six-month” cars. I guess I shouldn’t feel so bad in my middle-of-the-pack low-mileage beater.
Why? That would make me or the normal person feel like King.
Oops, I didn’t mean “any” cash. I meant re-fi cash, and it’s bad. If you have the cash-money in your pocket, you think it’s free cash, when in truth you’re paying interest on it for 30 years.
I guess there are a few situations where the car would ultimately be cheaper via HELOC than an auto loan. But in the Mafia world of HELOCing a depreciating asset which was overpriced by 225%, the auto loan is cheaper. Actually a mob loan would be cheaper… Eh, just take the bus.
These were 30 year refinancing loans.
Donk,
My comment is directed at Colorado.
I think you’re taking my million + far too personally.
“cash of any kind will burn a hole in the pocket…”
Only for the mentally deficient. Normal is savings are a comfort.
Sell high, Buy low. Sell now!
The househunters in the Leesburg article are stretching, but as much as it seems by today’s crappy standards. Sterling is a long way from downtown DC, but these two aren’t commuting to downtown. They are driving only 10-15 miles from the outer burbs to the inner burbs, so it’s feasible.
Financially, they can probably afford a $450K house …but IMO it’s not wise. They would need to make $80K each (not unusual for thirty-something). But they also better NOT have college loans, big car loans, they’ll need a sizable down payment, no more than one kid in daycare, AND they need to keep both those jobs for the duration. IMO there’s just too much that can go wrong.
Look at her motivation:
‘now is the time to buy here…the prices are really going to go up’
What do you suppose she’ll say if they find themselves underwater? C-ya!
Can you imagine paying $450k for a depreciating asset thats worth maybe 40% of that amount? And then financing it for 30 years?
Ooooph.
In 30 years I might be dead.
I read that the word “mortgage” comes from the French “mort-gage” and literally translates to death-pledge.
The peasants worked until they died for the privilege of owning a house. Nothing has changed.
ehhhh… not really. Not at all.
Remember…. current asking prices of resale housing is 300% higher than long term trend.
You’ll be dead financially in 30 days of paying a grossly inflated price for a depreciating asset like a house.
Virginia is a recourse state. If you say C-ya, they can come after-ya.
She’s banking on that future Metro stop (Dulles Airport?). Given the environment around here, she may believe that she’s justified. In the past 15 years, people have suddenly realized that these dicey areas closer to downtown had… Metro stops! Those semi-blighted neighborhoods of abandoned stores with gravel parking lots have been gentrified with $300-$400K condoze, and Sbux, and a “vibe,” just minutes from downtown. It’s good to be near a metro!
Her area is too far out to have a vibe, but it’s MIC Central. If the government keeps up the war machine long enough to see that Metro stop open, her town is more likely to go upscale bedroom community, where Daddy takes the Metro 1 hour to downtown or to the Pentagon area. But if someone cuts off the MICbux, especially in the next 5 years, good luck to her.
Didn’t stop the strategic defaulters from walking away from those shanties 2007-2011.
That might be your next best move Donk.
“Virginia is a recourse state. If you say C-ya…”
That won’t keep your place from falling from the bubble price you purchased at in the least. Underwater debt donkeys usually have nothing visible to lose and can easily insulate themselves from the bill collector in BK. All perfectly legal.
Dc was dead last for case shiller 20 city yoy index
Another tax increase and dc area goes negative
Are you sure?
Arlington, VA Housing Prices Plummet 6% YoY
http://www.movoto.com/arlington-va/market-trends/
Dummies vvv
“Forget about camping out for the latest iPhone.
Potential home buyers in North Texas reportedly spent the night in line at a new housing development in order to get their pick of lots.
About a dozen buyers slept in tents in McKinney, Texas, this week to secure their first choice among about 80 new homes going for around $350,000, according to The Dallas Morning News. Median home prices in the region are about $285,000.
“It’s a good investment because the area is growing so much,” eight-months pregnant realtor Tawana Keah, who camped out with her teenage daughter, told the newspaper.”
Irving, TX Housing Prices Crater 6%; Housing Inventory Balloons 53%
http://www.movoto.com/irving-tx/market-trends/