This Is The Payback
Some housing bubble news from Wall Street and Washington. CNN Money, “Home prices fell 6.7 percent in October, compared with a year ago, according to the S&P/Case-Shiller 10-city home-price index, a record drop as housing markets continued to deteriorate. It marked the 10th consecutive month of price depreciation and 23 months of decelerating returns. Large inventories have created an 11-month supply of homes for sale; a spike in foreclosures has added to the supply; and the increase in sellers of vacant homes desperate to move.”
“Miami was hit with a 12.4 percent decline in the month, the most of any area. Tampa fell 11.8 percent and Detroit, 11.2 percent. Sun Belt cities have suffered deep losses with San Diego down 11.1 percent in the past year, Phoenix off 10.6 percent and Las Vegas 10.7 percent. In Los Angeles, a huge market, home prices have fallen 8.8 percent.”
“Lawrence Yun, chief economist for the National Association of Realtors and among the most optimistic of industry insiders, conceded that large inventories will mean further price declines. ‘Price growth during the boom was clearly unsustainable. This is the payback,’ he said.”
The Star Ledger. “Hovnanian Enterprises has grown into the nation’s sixth-largest homebuilder, snapping up smaller businesses and expanding into a total of 19 states. Riding the great housing boom of the past decade, the company built developments as fast as it could, with homebuyers queuing up overnight to sign sales contracts like groupies camping out for Hannah Montana tickets.”
“The credit crunch and a glut of unsold homes has put an end to those glory days, however. Hovnanian last week reported dismal results for the fourth quarter and fiscal 2007, which ended Oct. 31 for the company.”
“Hovnanian has a large exposure to the southwestern Florida housing market, where demand has plummeted. In the Fort Myers-Cape Coral area, the company has an unusual arrangement in which homeowners buy lots, then arrange for third-party financing to build their home. In some cases, homeowners are backing out of the construction loans, and the defaults are eating into Hovnanian’s profits, analysts said.”
“In California, another big market for the company, home prices have begun to slide dramatically. In one Northern California community, average sales prices have fallen 28 percent in less than a year, once Hovnanian’s sales discounts are factored in, CEO Ara Hovnanian said on a conference call last week. In a second town in Southern California, average prices have slipped 35 percent.”
“‘I wish I could say these are the exception in California, but they are not,’ Hovnanian said.”
“One selling point for the company is that the family has been in business since 1959, and has seen its share of down cycles. ‘2007 is a very sharp correction, but it’s not unprecedented,’ Hovnanian said.”
“In both 1975 and 1981, housing starts also plummeted. But in both cases, the economy was in recession and interest rates were much higher than current levels, Hovnanian said.”
From Bloomberg. “Look at almost any major homebuilder’s balance sheet these days, and it practically screams at you: ‘Don’t believe Mr. Market. Trust me!’”
“Either homebuilders as a class are grossly undervalued, or their assets are worth much less than their financial statements say. Odds are it’s the latter. Home prices still show no sign of bottoming.”
“Hovnanian Enterprises Inc. last week reported a $466.6 million net loss for its fiscal fourth quarter ended Oct. 31, including $382.7 million of pretax writedowns. The company said it had $3.5 billion of inventory at Oct. 31 and a $1.3 billion book value. Its market value is just $448 million. Hovnanian spokesman Jeff O’Keefe declined to comment. The company’s stock is down 79 percent this year.”
“So, to believe Hovnanian’s balance sheet, Hovnanian’s inventory is worth almost eight times more than the stock- market value for the entire company.”
“One investor on Hovnanian’s Dec. 19 earnings call asked: ‘Can you believe the book value?’ Hovnanian’s chief financial officer, Larry Sorsby, replied: ‘We are just not in a position that we are going to make a projection.’”
“Pulte is one of five companies in the Standard & Poor’s 500 Homebuilding Index; the others are Centex Corp., D.R. Horton Inc., KB Home, and Lennar Corp. While the five companies have a combined book value of $22.7 billion, the stock market says they’re worth just $15.2 billion. Put another way, the market is signaling that their net asset values are inflated by more than $7 billion, mostly because of frothy inventory values.”
The New York Times. “The number of mortgage fraud cases has grown so fast that government agencies that investigate and prosecute them cannot keep up, lenders and law enforcement officials have said.”
“Reports of suspected mortgage fraud have doubled since 2005 and increased eightfold since 2002. Banks filed 47,717 reports this year, up from 21,994 two years ago, according to statistics from the Federal Bureau of Investigation and the Financial Crimes Enforcement Network of the Treasury Department.” “In 2002, banks filed 5,623 reports.”
“‘I don’t think any law enforcement agency can keep up with mortgage fraud, because it’s such a growth industry,’ said Chuck Cross, vice president of mortgage regulatory policy for the conference of state bank supervisors, an organization of regulators and bankers. ‘There’s too many cases, not enough agents.’”
“‘I could hire a dozen investigators and a dozen prosecutors and only scratch the surface,’ said David McLaughlin, a senior assistant attorney general in Georgia who coordinates prosecutions of mortgage fraud.”
“Losses involving federally insured banks totaled $813 million in the 2007 fiscal year, more than double the $293 million lost in the 2002 fiscal year.”
“These figures most likely represent ‘the tip of the iceberg,’ said the Mortgage Bankers Association, because they do not cover mortgage brokers, who arrange more than half of new mortgages. The industry estimates the total loss this year at $4 billion.”
“‘Law enforcement is just absolutely overwhelmed,’ said Corey Carlisle, senior director for government affairs for the Mortgage Bankers Association, which has lobbied for more money to fight fraud. ‘Lenders say they have to market their cases to law enforcement,’ meaning showing extraordinarily high sums or multiple criminals.”
“Cases are likely to multiply, said Constance Wilson, executive VP of Interthinx, which develops fraud detection tools for the lending industry.”
“‘The cases we’re seeing today are from 18, 24, 36 months ago, when the market was still good,’ Ms. Wilson said. ‘Now we’re going to see an increase in mortgage fraud, because all those loan officers, brokers and appraisers who were making six-figure incomes, now their back is against the wall. If that loan doesn’t close, they can’t make their home payment.’”
“‘So you have a desperation cycle,’ she said. ‘There’s a lot of push for them originate volume.’”
The Union Tribune. “After more than a year of watching the real estate bubble pop and spatter over the economy, the Federal Reserve finally decided to pull the reins in on the mortgage industry.”
“Under new guidelines, borrowers will have to prove they’re making money before they can get a loan. What a radical concept! Lenders will be barred from making loans without first considering whether borrowers have enough money to pay them back. Amazing!”
“And get this: Lenders will also have to tell the truth about loans. Under the Fed’s new rules, you can’t advertise ultra-low ‘teaser rates’ for mortgages or issue loan documents for adjustable rates without clearly warning borrowers how high their interest payments might pop.”
“Why didn’t anyone think of that before? If the Fed had enacted those rules three or four years ago, many of our current problems could have been avoided. These rules are about three years too late to do much good in fixing the current mortgage crisis. And in today’s lending environment, they seem hopelessly retro.”
From Broker Universe. “As Boston was getting ready to celebrate another World Series victory, the mood at the Mortgage Bankers Association convention was pensive.”
“MARK: The question on everybody’s mind is when will we get to the bottom of the mortgage recession and how long will it take for the market to get back to a good, thriving, level of business?”
“BOB: I don’t think we’ve addressed the option ARMs. We tend to talk about the resets on the 2/28s and 3/27s, but the option ARMs, we have a lot of those loans that are going to cap out in a little while too, and that is going to be a real nightmare.”
“MARK: Can any of these borrowers be refinanced into a 30-year fixed? The rates for those loans are still extremely attractive.”
“RON: The problem is the collateral. The value of the collateral has been declining before this whole thing started and I don’t see that rebounding. A lot of the markets were overpriced to begin with - California, the Northeast, the Detroit area - those are going to be problem areas geographically for refinancing.”
“RON: I think it is going to be a real problem, I think we are going to still see an increase in foreclosures. It will be like it used to be in the ’80s in Houston where during the oil crisis people just walked away from their houses.”
“MARK: Mailed in the keys. It wasn’t an expression; it actually happened.”
“BOB: The surprising thing was that 6% delinquency wasn’t the amazing number but that 94% of the people whose houses were worth half of what they paid for them were still making their payments. That happens in Texas, now I don’t know if in California we are going to have that same kind of customer.”
‘BOB: The surprising thing was that 6% delinquency wasn’t the amazing number but that 94% of the people whose houses were worth half of what they paid for them were still making their payments. That happens in Texas, now I don’t know if in California we are going to have that same kind of customer.’
One other thing Bob; that was 20 years ago. I doubt people in Houston would stick it out today, much less any of the flipper crazy markets.
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“…94% of the people whose houses were worth half of what they paid for them were still making their payments.”
I seriously doubt that 94% number. Did all of them (those who didn’t default) bought at the top and all of them financed to the hilt? People in the media are really loose with their numbers when they want to make things look not as bad as they really are.
Jas
Interesting factoid:
“70% of all statistics are completely made up”
another factoid:
“84% of factoids are made up”
And I’ve read where 20% of the factoid makers are responsible for 80% of the factoids.
51% of statistics wear make-up
I’m 100% sure the housing market is f#cked
you can bank (or de-bank) on that stat
crush
Read the sentence.
It does NOT say 94% of all homeowners. For the sake of example, call it 100,000.
It does NOT say 94% of all homeowners with mortgages. As an example, if 60% of homes have mortgages, that would be 60,000.
It refers to a subgroup of those with mortgages - the group whose houses are now worth less than they paid for them. That would probably be about 1/5 - 1/3rd of all mortgages so in the example, that would be 12,000 -20,000 mortgages.
The commentator is saying that of that subgroup, 6% have defaulted. He is attributing the defaults to not being able to refinance the house because of a loss of value. In the example, that would 6% of all mortgages or 3,600 mortgages.
He seems to be referring to the 3,600 as a subset of 12,000 -20,000 but his math is not clear.
He is correct in wondering when the other 8,400 - 16,400 are going to default. (But those are not 94% of all home or even all mortgags - just 94% of those who bought in the bubble and now have a house worth less than they paid for it.)
Oh Ann, everyone here can read. Judging from the replies, not one poster has had a difficult time reading that sentence except for you.
1/3 to 1/5 eh? Where’d you find those nice fractions? Do you write factoids for a living?
Hey, lay off Ann!
Don’t make me come over there, mister!
They might if they thought the bottom was near.
The NAR and their MSM shills will keep the hope alive that the bottom will soon to be in and for them to keep hanging on just a little bit longer.
Yeah, nice backhanded slap. There is as much trash in California as Texas.
lol
But I look at it this way. In the 1980’s most customers had 20% down. They were trying to protect those years of savings. It was possible to deny that their neighborhood was down 50%. Most probably bought enough before the peak that they were only underwater 20% of of the homes value. Since they would have had to come up with that 20% again plus pay a BK penalty… it was worth holding out.
Now, a Californian knows to ‘throw the keys on the roof’ and walk away. You save yourself the postage that way.
Got popcorn?
Neil
lol, not even on the roof, just drop on the floor, less work for the lazy **s FB.
Wow..Is this what’s left of make a killing on RE 2007 or a Muppet Show re-run?
Lock your seatbelts and adjust your helmets, the RIDE has just begun . Err.. Hold the popcorn for now Neil, I’m already feeling slightly queasy
Muppet Show re-run?
ROTFLMAO For that is what this is. Grouch, Elmo, and the gang all went into real estate flipping (Big Bird is the Realtor and Cookie monster is the mortgage broker). Well now everything is falling apart on sesame Street. Cookie Monster had to turn the keys over on the Cookie mansion, the Cookie mobile, and the cookie Ferrari. Big bird still talks the market up, but instead of a Mercedes convertible, BB is driving clients around in a minivan. Chef has left town in disgrace.
Got popcorn and hand grips for this ride?
Neil
Ever heard of Ave Q? Its a fun musical about grown up muppets.
One of the songs is called: Schadenfreude. The words in this song are hilarious.
“Sesame Street teaches kids how to judge people, and label people. That’s right. They got a character on there named Oscar. They treat this guy like shit the entire show. They judge him right in his face - ‘Oscar, you’re so mean’, ‘Yeah, you’re such a grouch!’
Oscar: “Bitch, I live in a fu*kin’ trash can! I’m the poorest mother fu*ker on Sesame Street!”
- Dave “Bunky” Chapelle
How do you find the words for the song in the musical?Schadenfreude, that song made my mother blush! Oh wait that was another song, something about internet addiction and ladies.
That was back when ppl had equity at stake. Welcome to the brave new world. As for the insinuation that ppl in Texas are better than the ppl of other areas, I will restrain myself. Such extreme ignorance doesnt deserve a response. It’s ironic that the prejudiced believe they are holier than thou. I stopped trying to get into heaven as soon as I figured out who told me they were invited.
Tim, if there ever was a myth about the greatness of Texans, George “Buckaroo” Bush has relegated it to the trash heap.
Hey, now. Texas used to be a great place with great people. That’s like blaming New Yorkers for Hillary Clinton.
You know how I can prove George isn’t a Texan? He got a DWI and lost his Maine drivers lic. Ain’t one single real Texan has a Maine DL.
Thanks, Ben.
I feel better now…
“Lawrence Yun, chief economist for the National Association of Realtors and among the most optimistic of industry insiders, conceded that large inventories will mean further price declines. ‘Price growth during the boom was clearly unsustainable. This is the payback,’ he said.”
Funny, the NAR was calling the boom “clearly unsustainable” while it was happening. Seems to me they were giving their usual mantra: “It’s a great time to buy!”
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“Lawrence Yun, chief economist for the National Association of Realtors and among the most optimistic of industry insiders, conceded that large inventories will mean further price declines. ‘Price growth during the boom was clearly unsustainable. This is the payback,’ he said.”
Didn’t he forecast a 0.7% price gain (or was it 0.3% increase?) for 2008 just few weeks ago? The payback time will only last for a year or two, Mister Yun? How about 4-5 years??
Jas
Still, it’s pretty impressive that FunYun has been punched around enough by reality that he’s willing to admit prices will fall further finally.
I doubt Yun can be reformed. Probably he further said (and the reporter neglected to mention) that ‘this is a great time to buy a house.’
It may be more significant than that. He has almost certainly seen the NAR numbers due out Monday.
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Good point, Ben. Thanks.
Jas
This raises a point… are these numbers subject to any kind of regulation? they have a big impact on financial markets.
Would seem an easy opportunity to make ‘mistakes’.
I wonder how long it will take before prices go up off the bottom. 4 to 5 years matches my current estimate. Back to peak prices? Not before 2017 and that assumes a LOT of wage inflation.
Do look at today’s Case-Shiller release. I always download the spreadsheet and do a little analysis.
http://www2.standardandpoors.com/portal/site/sp/en/us/page.topic/indices_csmahp/0,0,0,0,0,0,0,0,0,1,1,0,0,0,0,0.html
The number of cities losing 2% ‘of a home’s value’ per month is staggering. Phoenix, LA, San Diego, San Francisco, Miami, and Las Vegas. A few are taking a ‘loss breather’ (Tampa *only* lost 1.79% this month…) and other cities are catching up. Every single city in the Case-Shiller lost ‘value’ in October.
It is still a waiter’s market. I blogged how *everyone* I met over Christmas is waiting a year before buying. (Me? Two years, but the wife isn’t ready to look out that far.)
Got popcorn?
Neil
The faster it goes down, the faster it can return to normal appreciation, assuming that the mortgage finance system continues to exist (I’m starting to worry about that). With numbers like these, I’m beginning to think that reasonable prices will be in place by late 2009 or 2010, though bargains may arrive thereafter.
WT, read this…it should give us all pause
http://business.theage.com.au/americans-walk-from-loans/20071223-1iqr.html?ref=patrick.net
v/r
crush
From the article: As many as twenty-million householders may walk away from their homes.
That is a stunning number leading to devastating consequences.
“Obviously relations between the bastions of Wall Street are cascading into cataracts of ill feeling and anger. J Kyle Bass, the highly respected authority on the housing industry, recently released details of a study his company has concluded on the vast “Inland Empire” region of California where millions of new homes have been built in the past decade, and said he found the situation far worse than he expected, with over 90% of housing loans containing some sort of fraud.
He said “50% of applicants overstated their incomes by more than 50%” in what is the starkest condemnation of the “liar’s loans” this correspondent has seen.
The relationship between capital and insurance, and the trust between them is as old as capitalism itself. One cannot survive without the other.”
The Whores of Wall Street had their wild orgy, and are now discovering that they all have the equivalent of financial AIDS. And there is no vaccine or cure. We are in the watching, waiting, and “see who buries who” mode at this point.
Did you read where the author asserted that the companies insuring the CDOs were in fact investing the insurance money in more CDOs? Can they possibly have been that stupid?
“50% lied more than 50%”
And it wasn’t just the Inland empire. For flippers there moved into the beach cities. Flippers in the ex-urbs of DC moved into the beltway. Need I even discuss Florida?
Not only to they have financial cooties extreame, but they also have a variety of other conditions. Not to mention God and Country saw them take home the Hippo.
It is a watch and wait to see who buries who. The winner will almost be a new-comer or buy out partner (Dubai, AbuDhabi, Singapore, or other foreign source of funds). Cest la vie.
Got popcorn?
Neil
well put mormon
“50% lied more than 50%”
“Its called Sex Panther. 60% of the time, it works every time”
RE: Lewis’ comments came as a new expression - “jingle mail” - referring to the growing trend where Americans mail the keys to their homes to the lenders before vacating, entered the US lexicon
Gonna have to change my nomenclature.
WE ARE DEAD-BEAT NATION!
B of A executive predicting 20 million Americans will walk from their homes. Combotechie, I had to see it myself to believe it. Who is this David Hirst (author of the article)? The U.S. is in deep doo doo if this happens.
Also about the amount of liar loans in the IE. Maybe some of the Demoncraps who never blame the little guy but only the big business will say nothing about it. But it takes two parties to make a transaction. Common sense. If one of them does not understand the terms, it’s his fault. He should have hired an agent to do the understanding for him and make the agent responsible. By that I mean real estate attorney. Lots of “little guys” were greed hounds looking for the pot of gold and they deserve to eat from trash cans.
Australia is so starved for a way to understand this debacle that they can write the sentence “head of one of America’s largest banks” and “straight-speaking” in the same sentence.
“Payback’s a bitch, ain’t it.”
Russell Casse, “Independence Day”
This is a watershed moment in NAR’s smoke and mirror campaign. Can anyone recall if and when (fun)Yun or Pinocchio Lereah “conceded” to anything but a redhot market irrespective of the truth? Such a statement from NAR would have been blasphemous just 30 days ago. I think the language in his latest press release is significant. Very significant.
I’ve also noted that the MSM now seems to be qualifying his every quote with “one of the most optimistic” or some such qualifier. It’s as if they’re saying we are quoting this “industry expert”, but none of us really believe it. A major sign that the NARs credibility has been shredded.
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““Miami was hit with a 12.4 percent decline in the month, the most of any area. Tampa fell 11.8 percent and Detroit, 11.2 percent.”
Even after this decline the home prices are up 130.0% & 93.5%, respectively, from their level of 7 years ago, when the prices had already started to go up. Another 30% decline will put prices back to historical norm, but why should they stop at the historical norm?
Jas
This 12.4% drop in Miami has got me! My ex-buddy is probably still in denial saying his Biscayne Bay waterfront condo is immune to it. Let’s go for another 12% by October 2008! LOL
otimistic = delusional!
“This is the payback,’ he said.”
That has a double meaning for me. I’m not sure how many of you on here feel this way, but the housing market in the Bay Area has had me pissed off for YEARS now. The whole situation has been so stupid and out of whack with anything close resembling rational economics that I think the populace was brainwashed into thinking that “it was a-ok.”
Stupid and irritating because after all- aren’t people in the Bay Area supposed to be smart? The attitude and stupid financial decisions I saw people make debunked that theory. So as nasty as this sounds, hell yeah- I’m ecstatic about the bust and hope there is a lot of pain- enough for people to remember it- for years to come. Lastly- that prices come down to a level that not only the average person can afford, but also for people like myself who makes an income in the upper 10% of the populace.
People need to be humbled. Feed them humble pie for all I care. It is indeed payback time.
You are not alone. I relocated in 2005 and had about 600k to put down on a new place, and made a substantial salary. Everyone at work told me how stupid i was for not buying a McMansion and getting a $60k plus car, and instead renting an apartment for $1k a month from which I could walk to work (keeping my 8 yr old Accord in the garage). I went to the open houses and even hired a few realtors (I fired most after a day or so if they could not keep up with me; not that they had to agree with what I said, but if they couldnt speak intellegently about the biz they were of no help to me). I was amazed at the ppl lining up to pay 800k on a 100k a year salary. It was if everyone lost their mind. These were the same ppl that were bragging about the deal they got on their new car or plasma TV. I never understood why they would spend days trying to save a few 100 dollars on a small items, but buy a 800k house with little or no due dilgence. I gave up trying to understand, and decided to trust my own instincts. There are millions of stories of renters that endured stories from others regarding how much money they made doing nothing because they bought at the right time (although they liked to think of themselves as brilliant investors), while the renters got further behind each year and worked 60 or more hours a week like suckers. I too look forward to the fall in prices. The only reservation I have is that it got so out of control even many of the renters will lose everything as they are laid off, while those at the top will retire rich on the backs of others.
Living in the Bay Area is doubly difficult for someone like myself who came from TN, where in any of it’s metro areas like Nashville, Memphis and Knoxville, what would go for a million dollars in SF would be 150k in Nashville. I have worked for years, climbing the ladder as I go and reached the 100k mark 3 years ago. My wife does about the same. Yet even once we got there, basic mathematics showed us that buying the median priced home would cost us our comfortable living situation. If we were to have bought a huge portion of our paychecks would go to the mortgage.
What bugs me most is the fact that in most societies, you work your ways up into financial success so that you can secure your future, live a life with less debt or no debt at all, and invest into retirement. In the Bay Area, this all becomes rather counterintuitive.If you’re making a big salary, working hard, yet would be living like a lower middle class citizen if you were to buy a ho-hum house,then it in a ways corrupts the entire workforce. It’s sort of like reverse communism: If what I make will never afford me the bare essentials… then why even bother? Perhaps I’m in the minority here for thinking so. But I would be curious to know how many upper level professionals like myself have made this conclusion?
The difference between here and other places is night and day. My Aunt lives in a historic, artistic, culturally interesting part of Memphis. It is considered a safe neighborhood. The homes are all historic arts and crafts beauties with full-on front porches and beautiful windows. Her house is currently valued at under $160,000. Its days that I hear things like that and reconcile the whole notion of value versus the work and effort required to attain things like a house. As it is now, I could easily buy a home there with cash, put the rest in retirement, take some stupid 9-5 job, and be done with it. The fact that I even consider such extremes in lifestyle and profession is in my mind telling of how seriously out-of-whack things are in certain areas like NY, CA, FL, and MA. One wonders if places like CA will be able to retain their competitive edge is the working populace becomes as disenfranchised as myself.
Hopefully you enjoy the area, or your salary is sufficient such that, although you might not be able to buy a nice home today, you can set enough money aside each year while renting to retire early and move to a lower cost area. If you are not crazy about the area and you are not compensated in such a manner that you can save and plan your early retirement elsewhere, I would consider moving. That said, it will be interesting to see what the next few years brings first as Cali will be one of the biggest decliners. As for others that feel the same way, there are stories everyday about ppl leaving Cali because the cost of living no longer makes it an attractive option.
I have been wanting to move back to DC, but it is crazy too. In the areas I like (Bethesda, Chevy Chase, certain parts of Alexandria, Arlington or the District, a decent small single family home in a good neighborhood is in excess of a million). I have not moved back because it would interfere with my plans for retirement and I can not enjoy the lifestyle that 10 years ago was considered middle class making several hundred thousand dollars a year. Kind of sad.
I’m also in the mindset that given current inflation ( housing) and the fact that the more highly paid professions are still concentrated in areas that I cannot justify the housing costs, then the next best asset to invest in is retirement.
If I continue to work as I am doing for another 4-5 years, I will have enough to retire to another lower cost area… that is unless everyone else my age has the same idea. I have absolutely no problem living in the boonies if I am given the choice. My rationale is that if you have enough saved up to live fairly comfortably in a lower cost area and have all of your major assets paid off, then the professional and economical climate around you are less of a concern.
The other reason I’m sticking around is that admittedly, if prices got more reasonable in CA and the job situation remains favorable, then it would be more advantageous for me to stay put. The only factor involved with my irritation in the region is housing costs.My gut feeling tells me that housing prices are going to be falling for years and by the time things start to go up again,people will be more at least initially more cautious. In the meantime, I’m saving around 65% of my income per year. So living in our setup now is cheap and we get to do a lot of things that I wonder if those trapped in mortgages can afford.
Why not move back to Nashville?
I’ve contemplated moving back to Knoxville. It would be a big step down, career-wise. From a professional point-of-view, it would be very dissatisfying (but on the other hand, I would be the big dog on the block). But, from a family point-of-view, it would make a lot of sense. I didn’t get a professional degree to just scrape by. I want to thrive — I want to have fun — I want to be rewarded for hard work. Life should be easy, not a struggle.
Now, if my S.O. could get a job in Oak Ridge, then we might just choose to “drop out” and move to Knoxville.
One wonders if places like CA will be able to retain their competitive edge is the working populace becomes as disenfranchised as myself.
The answer is they can not.
Classic pattern - employer is in a location where its workforce can not afford housing. Employer has trouble getting and keeping employees - result: high turnover rate and those job candidates with better options turn down the job.
Doesn’t matter if it is computer tech or retail.
People will not take or will not stay in jobs if:
(1) they can make an equivalent amount elsewhere and have a better lifestyle; or
(2) they can’t afford to live there.
For point 1 - it all depends on how one defines “lifestyle.”
If “lifestyle” is owning a big house on a lot of land, then the Bay Area is a tough place to be. If “lifestyle” is living in a place where everyone grew up there and that’s comfortable, the Bay Area is not good for that either.
If “lifestyle” is having opportunities for a variety of recreation, Bay Area is great. Opportunities for different jobs, it’s great. Meeting people from around the world, it’s great. This means giving up the 3000 sqft house, but that’s ok for me and for many other Bay Area residents.
Well said. There is a strange tension between my friends who also own in the Bay Area because we were ready to buy a few years earlier and those who continue to rent. This is especially problematic when trying to hire promising young people because they are too smart for this and are either signing up for the short term only or they work remotely and those are the only options.
Recently a heating engineer told me about a couple who purchased an Eichler in the Willow Glen area of San Jose for more than $800k. For such a large purchase they had a number of inspectors look everything over first, so everything seemed solid. They were forced to open up part of a wall for a replacement heating system, since the first generation of slab hydronic radiant systems tended to fail. When the wall was taken back a whole pile of river rocks mixed with various garbage and also sand came pouring out. Then more work exposed large subsided areas underneath the foundation. Fortunately there were dozens of massive termite mounds holding up the house. Can you imagine paying nearly a million for a structure in serious trouble that should probably be entirely rebuilt? Lawyers will start with the inspections and insurance will cover some of this, but once a home becomes an investment and also a work of art everything else starts to go haywire.
Driving through Tennessee not long ago I saw a place on the Cumberland Platau near Knoxville that seemed like a dream home to me in the form of a cute old house with as much porch on it as anything else. It was clearly a fixer, but that is what I prefer. The asking price? $38k. With a good internet connection and a information based job the comparison becomes pretty stark. For better or worse TN is too far from ATL to be in the direct path of “megaregion” growth.
It’s sort of like reverse communism: If what I make will never afford me the bare essentials… then why even bother? Perhaps I’m in the minority here for thinking so. But I would be curious to know how many upper level professionals like myself have made this conclusion?
Here’s our view. We like living in the Bay Area. We make enough money that we can enjoy what it has to offer professionally and personally. Financially speaking, we plan our work, and we work our plan. So everything is going fine there too.
The Bay Area has been very good to us, warts and all. We are financially responsible in that we have a goal, but my wife and I are hardly at the “bare essentials” to meet it. If people are making $200K and think they’re anywhere close to “bare essentials,” they need to get out more often. We’ve been there before; we remember what it was like. We know exactly how good we have it now.
We could afford to buy a house in the Bay Area that meets our requirements. But buying a $400K house for $800K would undo the work that we’ve done. So, we rent out an equivalent house instead. I’m losing long-term housing stability, but I don’t value that enough to pay that much more to own. That’s fine.
If happiness is tied to owning a home, then the Bay Area is a terrible place to be for a first time home buyer because you have to sacrifice a mind-boggling amount of useful assets to do it. But a good chunk of our happiness index is the financial freedom to make our own choices and meet our financial goals. Buying a massively inflated home, even if we could technically afford it, would dramatically reduce that freedom. So, we choose to pass.
Renting does that nicely for us and we like the place we’re renting. We will just continue to build wealth while waiting for a price more to our liking. If that never comes, that’s fine. There are things far worse in life than renting a nice house, enjoying the Bay Area, and building your financial independence.
I live in the East Bay and prices here too are really expensive and not going down. There are just too many people here chasing the same thing. It is expected over the next 10 or so years a growth in population in California. Millions more. Already it is very crowded here so I can’t imagine what that will look like. I don’t want to be here for that. I bought myself 3 acres in the Hudson Valley in NY and plan to build a really small house and move there when my kid goes to college. The Bay area is terrific, but the future is uncertain. I look forward to moving to a smaller berg with trees all around me and good air quality. California is difficult.If I were you i’d save and get one of those 150 k homes in Memphis. Prices here are ridiculous and what you get for the money is beyond absurd.
RE: Living in the Bay Area is doubly difficult for someone like myself who came from TN, where in any of it’s metro areas like Nashville, Memphis and Knoxville, what would go for a million dollars in SF would be 150k in Nashville.
Mike Savage sure doesn’t paint a glimmering pic of SF.
I’d be packin’ up the plantation if it were me. Life’s way too short.
Just dont’ lose your $100k Dolly Dagger!
That’s really when the S can HTF!
jetston_boy:
I’m in Gwynster’s line of work, and I’ve contemplated the same idea may times. Why not just say “screw it”, stop climbing the rat-race ladder, move away from the coasts, say “screw-it”, but a whole house for cash, and take an “easy” job where the expectations are much less?
CNBC just did a “Government gone wild clip”.
Topic: AZ employer sanctions law.
Debate between AZ state legislature that sponsired the bill, and an FL based imigration lawyer.
Intro by CNBC flapping head: “needed regulation, or a Governor Nepalitano recenlty said, Business Death Denalty?”
The state legislature just devistated the lawyer. Lawyer says it is unconstitutional because of some Pensylvania law that says states can’t require more doucmentation of right to work than federal government. State legislature cuts out his liver and serves it to him in that this does NOT require more documentation. This law uses EXACTLY the same documentation, just makes it easier for the state to verify that documentation. The intent of the Pensylvania law was to deny work to people in the country legally. This law creates no burden that the federal law doesn’t already provide.
Well, why are businesses so against it then? asks the flapping head.
Because businesses want to keep using illegal laborers to undercut the wages of people here legally. In AZ alone we spend $2 billion educating the children of people in the country illegally. We have the longest emergency room wait times at the hosiptals where the illegals use the ER as their primary care physician, largely at tax payer expense. And, businesses don’t want those costs transferred back to them.
“But what about the lettuce growers that won’t be able to find enough workers?”
We have study after study showing there are plenty of workers. It will just cost the farmers double the wage. This is about farmers not wanting to pay a fair wage needed to get citizens to do these jobs.
Back to the lawyer: “It is the fault of congress for not passing comprehensive imigration reform.”
Stop it, says the legislator. You use lawyer speak like comprehensive imigration reform to hide what you really mean. Amnesty! What you blame congress for is not allowing these criminals to stay here and benefit from their crime. The reason amnesty didn’t pass is because the citizens of this country SHUT DOWN the phone banks with calls threatening the representative and senators if they passed any law that allowed these poeple here illegally to stay.
Look, in AZ last election there were 4 issues on the ballot denying different state benefits to people in the country illegally. This is a poll of the electorate with 0% margin of error, and these issues passed with an average 75% voter approval.
AND…. this is not just a failure of the federal government. All levels of government have an obligation to enforce fedeal law. Since 1986 it has been a felony to knowingly hire someone that is in the country illegally. It is the job of the federal, state, county, and city government to enfore federal law.
The legislator left the lawyer and CNBC flapping head stammering for some kind of response.
Wow.
Too bad I missed the live report but thanks for the great play-by-play. Glad to hear that someone is calling BS on the illegals.
I have no sympathy for illegal aliens, but I think if you are sincere then in the same breath you should be attacking WalMart, Microsoft and all the stores that help outsource products to China, India and other nations with easily exploited laborers. They are stealing more of the “real” jobs than the illegals are.
Otherwise you just come off as a flag-waving patsy.
It’s encouraging to hear Rush’s sub blasting the government for complicity in the mortgage mess this morning. He used the old privatize profits, socialize loss idea and said government should stay out of it. No bailouts!!!
At the end of the tech bubble, I had a brief e-mail exchange with his brother, who was writing a column for WND then.
I brought up the monetary inflation, the fake CPI, the Austrian economic cycle … I may as well have talked to a lamp post.
PS. As to Case-Schiller’s Miami numbers, they’re grossly inaccurate because the inventory mix always changes. Along the beach’s best, the asking prices were $900-$1,000/ft in 2005. The closing prices in the same buildings are now in the low-mid-$400’s and occasionally dip into the mid-300’s.
Given the multi-year inventory levels and a bunch of unfinished high rises that are nearing the end of construction, there’s a loooong way to go.
When I moved to SoFla in 2001, the market was still soft and there were many “below the builder’s cost” ads in the local papers. That “builder’s cost” was ~ $300/ft.
And we haven’t reached that number yet.
We will.
“Under new guidelines, borrowers will have to prove they’re making money before they can get a loan. What a radical concept! Lenders will be barred from making loans without first considering whether borrowers have enough money to pay them back. Amazing!”
What!!! This clearly discrimantes against people with no money. I forsee Supreme Court intervention, class action lawsuits and perhasps the involement of Jessie and Al.
The infuriating idea is there are “no penalties” for dereliction of professional duty.
The Fed sat back for 3 years and cheered because the economy was looking prosperous as the lenders gave mortgages, refi’s and HElOC to people who clearly could not repay them.
Bank and brokerage officers were paid huge bonuses. Appraiser’s licenses are still valid even though most lied on appraisals.
Now that the wheels have come off the Housing gravy train all those involved can keep all their ill gotten gains and pay no penalty for their contribution to this mess. The only ones who will lose are the tax payers who will be forced to bail them out.
A recovering RE cheerleader friend of mine admitted to me the other day that he expects SFH prices in southern California to decline by 20-30% versus summer 2005 before they “bottom out.” Then he hit me with a jaw-dropper. He said (I kid you not) “My investment properties increased 50% between 2003 and 2005, so I’m still way ahead if prices drop by 30% before I unload them.”
I couldn’t resist, so I whipped out a napkin (we were at lunch), and we calculated the percentage increase of theoretical commodity “A” as it rose from Price 1 to Price 2. Then I showed him how it took a relatively smaller precentage decrease to drop the price of the commodity from Price 2 back to Price 1. I used the most blatantly obvious examples I could think of (Price 1 = $100, Price 2 = $200, etc.), and never even mentioned inflation - but all I got in return was a blankish stare. This dude ‘owns’ a 4-plex, three houses, and a small strip center near downtown L.A.
Maybe we need to ask people to pass an 8th grade math test before thier mortgage application can be approved. I can hear the protests now “Mortage companies are excluding the mathematically illiterate from the dream of home ownership!” If only that were true.
I have run into people that also don’t understand this concept. ITS AMAZING. They even have college degrees.
Sheesh, a 50% gain is almost completely undone by a 30% drop: 1.5 times 0.7 is 1.05, i.e., a total 5% gain, hardly worth it when you consider the carrying costs versus the far cheaper option of renting.
Most lawyers can’t do math. When I was back in law school as a non traditional student, for the Family law final exam we had to calculate child support. This was relatively simple. I didn’t even have a calculator. Only two of us in class got the question right (out of about 35 people) Both of us were over 40.
Your friend is a lot like people I know who think they make money selling horses. They will say “Oh I bought this horse for $5000 and sold it for $8500,” neglecting to mention the $4500 they spent on maintaining the horse before they sold it.
Hah! Or like the futures traders who make “10,000 percent profit” on a trade, not mentioning the 8 million dollars they have in the bank to back up that deal. Or the peole who “paid their own way through college”, forgetting to mention that apartment and car that mom and dad bought!
Took a course in percentages in college…that’s all it was, just “percentages”! How to work them, how to understand them. Worth every penny!
Seems to me there is a lot of “thinking” going on where these FB’s are concerned. Even if that 94% number is correct (which I doubt) we are getting closer to a tipping point. Remember, a lot of people have school age kids. Many work in the area. They have pets which are part of the family. Possibly both have jobs in the area. It’s a tremendous upheaval to simply pack up all the crap one has accumulated like furniture, fridges, etc, throw the family and pets into a pick-up and drive off into the sunset.
Added to that is the bankruptcy factor which will follow if they walk away. Of course, for many FB’s, they still cling to the sad hope that the market will re-bound and the Dream will awaken from hibernation. You can be sure there has been a lot of husband and wife conversations around the kitchen table in the homes of these FB’s about what they should do if things get bleaker and plenty of conversations on the possibility that, “The government won’t let it happen.” This is partly true. One of the reasons government likes people to buy into the “American Dream Of Home Owning” b.s, is because it creates a stable society which can be tracked (and taxed) and they will do all they can to keep that control by any means possible. The government is now in a collateral damage situation and the bean counters are probably working on the numbers to see what has to be done to rescue, say, 50% or 30% or even 20% of the FB’s. However, this is a pretty big mess and a bankrupt government (which the US government is) is in no position to start printing large amounts of confetti money again to bail out banks and FB’s. Of course, you can guarantee that when push comes to shove, government will bail out the banks and Wall Street before the FB’s. That’s how the food chain works.
However, it might take just a single event to get many of that (unreliable) 94% to decide it isn’t worth the hassle, pack up Tyler and Brittany, dump Rufus off at the local dog pound because the apartment they have rented doesn’t allow animals (ones with paws anyway), hand in the keys and move on. A strong recession might do it.
Along those lines, the person in this article (http://money.cnn.com/2007/12/24/pf/moneymakeover_january.moneymag/index.htm?postversion=2007122411) would just need to realize that, not only is she precluded from additional saving by her mortgage, but a 15% decline in home values wipes out all of her past savings. With probably $30k plus in “negative equity,” it is totally irrational for her to keep paying the bank. If she sticks with her albatross, she’ll be in her early 40s before she resumes saving for retirement.
Is anyone else getting a little sick of watching HGTV? You know those shows where Bill and Sue are pulling all the the equity out of their current home to buy a bigger one because they want to have a baby and three bedrooms just isn’t room enough? or even worse, they are pulling all of the equity out of their home to add granite countertops, stainless appliances and new bathroom so their house will be “worth more” when they sell it and move on up?
Are you talking about “What’s My House Worth?” This show has to be underwritten by NAR. Without having put the house on the market, the realtor gives the homeowners a listing/wishing price. Then they take the purchase price, any remodeling money spent, and then subtract that from the wishing price. No mention of taxes, insurance or costs of buying/selling.
The show is an outrageous attempt to lure more people into the housing market. Disgusting.
Now we’re going to see an increase in mortgage fraud, because all those loan officers, brokers and appraisers who were making six-figure incomes, now their back is against the wall. If that loan doesn’t close, they can’t make their home payment.’”
“If that loan doesn’t close, they can’t make their home payment.’”
That quote makes no sense to me.
The loan officers and brokers who work on commission HAVE to close the loan or they don’t make anything.
If they don’t make anything, they can not pay the mortgage on their own home.
Translate: Because most loan officers/brokers work on commissions paid BECAUSE they closed the loan, if they dod not get the loan donw, they do not get a paycheck. No paycheck means the loan officer/broker has no money and can not pay their own mortgage. To get money to pay their own bills, the loan officer/broker will do whatever it takes to get the loan approved and made - even if it means committing fraud on the documents they send to the loan underwriters.
(Appraisers being put in this group is an overstatement. They get paid whether or not the loan closes by the one who ordered the appraisal.)
“even if it means committing fraud on the documents they send to the loan underwriters.”
I can’t believe these fancy loan officers don’t get a fancy salary plus comission?
My new word is “house pimp”, or should I say Used House Pimp?
RE: They get paid whether or not the loan closes by the one who ordered the appraisal.)
LMAO…You think so?
Obviously, you’ve never run an appraisal biz.
It always amazed me how all those appraisal invoices somehow would get lost for months whenever the value number didn’t meet expectations.
“If that loan doesn’t close, they can’t make their home payment.’”
“That quote makes no sense to me.
“If that loan doesn’t close, they (the mortgage broker) can’t make their home payment.”
Make sense now?
But what about San Francisco, San Mateo County and Santa Clara –
what was the price performance there? I am just curious.
“If that loan doesn’t close, they can’t make their home payment.’”
That quote makes no sense to me.
Try reading it this way: If the loan officers, brokers, etc… don’t close enough loans (and get their commisions), then THEY (the loan officers , brokers, etc…) will not be able to make the payments on THEIR OWN houses.
If the loan doesn’t close/ my house you must foreclose
(Sorry, Johnny Cockran, but it was the best I could do!)
If you don’t close this highpriced loan,
then my family gets thrown out of our big ole home.
About freaking time
http://www.dallasnews.com/sharedcontent/dws/dn/latestnews/stories/122707dnbushomeprices.496c4d9.html
lol
Dallas has only had four declining months (July, August, September, October). But wait… October through February are the *really* weak sales months of the year there too… Hmmm…
Dallas is barely down YOY. But they are down 1.6% from the peak and its accelerated to 0.7% per month. Only NY, NY, and Portland OR are holding on better than Dallas, but *everyone* is taking this ride down.
Scary? Yea. But we’re past due.
Got popcorn?
Neil
“Either homebuilders as a class are grossly undervalued, or their assets are worth much less than their financial statements say. Odds are it’s the latter. Home prices still show no sign of bottoming.”
I have seen a few analysts start to call bottoms in the HBs, including one (Steve Sjuggerud) whose opinions I usually respect. He now admits he was “early”. I can’t see how the builders don’t get hammered again next year.
I’m seeing Toll and others getting pimped as longs for next year. They probably will bounce in January but that should be temporary.
Yeah…I got a call the other day from a stock buddy of mine and he suggested the same thing (Long)….Maybe right if you can pick the survivors…
Yes, but it’s the timing problem too. The HBs could be dead money for years, depending on how long this all takes to play out, even if you did manage to get close to picking the price bottom.
The surprising thing was that 6% delinquency wasn’t the amazing number but that 94% of the people whose houses were worth half of what they paid for them were still making their payments
More like: last time around, 94% of the purchasers didn’t buy or refinance at the peak, so they weren’t underwater. This time around, what is that ratio in California, maybe 50%?
Bad news for REALTORS (TM) in Texas, here comes the stripper pole tax:
http://www.foxnews.com/story/0,2933,317896,00.html
But maybe good news for FBs, as the tax is supposed to go to help rape victims.
This is the kind of “flunked remedial economics” style thinking in the Texas legislature: Risk reducing 1.3 million in liquor tax revenue for 60k to fund a project (numbers from one establishment only). It is hard to believe that this bastion of discretionary spending isn’t one area where “elasticity” reigns.
Just for the archives, it is 1.3M/yr now for one business quoted in the report, plus an estimated 60k/MONTH of the new tax (0.720K/yr).
More leeches. Anyone hear of this before?
Legitimate Services Grow, Too
The growing number of people entering foreclosure in recent months has also sparked a growing business model for entrepreneurs looking to connect homeowners with certified professionals and legitimate services.
For instance, the Homeleafs.com Web site, set to launch in January, will be a place where homeowners can submit applications to reach a variety of licensed service providers who would be useful to homeowners at risk of foreclosure. Professionals include real estate agents interested in selling properties, investors looking to purchase homes, bankruptcy attorneys and financial institutions and mortgage companies offering refinancing options.
“We believe that by joining these two segments of the community, each can have their needs met — homeowners can prevent foreclosure and service providers can find a group of people hungry for their services,” says HomeLeafs.com CEO Wesner Michel. “During this sensitive time, we want to make the process as convenient and comfortable as possible.”
Sounds like a ‘cherry picking’ event. Only take out those properties with some equity or scam those already going down for a few extra dollars.
“Reports of suspected mortgage fraud have doubled since 2005 and increased eightfold since 2002. Banks filed 47,717 reports this year, up from 21,994 two years ago, according to statistics from the Federal Bureau of Investigation and the Financial Crimes Enforcement Network of the Treasury Department.” “In 2002, banks filed 5,623 reports.”
How does this work exactly?
Bank: Hello, FBI?
FBI: Yes, how may we help you?
Bank: Yes, we believe some borrowers have committed mortgage fraud and engaged in practices even the most greedy bastards would balk at.
FBI: Did you do due diligence on the loan application?
Bank: Our risk management practices are second to none in the industry.
FBI: That’s not what I asked.
Bank: Click.
Someone needs to get access to those fraud reports. A veritable goldmine of laughter…
MARK: The question on everybody’s mind is when will we get to the bottom of the mortgage recession and how long will it take for the market to get back to a good, thriving, level of business?”
Mark(translation)The question on the mortgage brokers minds are will I have to sell my McMansion, lose my home, return to a job paying 40K and bottom out by turning in my leased BMW or will we ever return to the days of lying and cheating to support our Warren Buffet wannabee lifestyles?
Note to Mr. Yun….
I agree the declines in prices we are seeing is payback for all the years of excessive appreciation in prices pumped by you and Mr. Lereah…but the thing you really need to know is payback is a bitch with a really bad attitude…
If I were you I’d be getting ready by rehearsing your answers for the Congressional hearings which will get into full swing when the bottom really falls out and everyone wants to know why the NAR doctored the numbers and pumped the market when you knew the whole thing…excuse the pun….was built on a house of cards..
RE: “Cases are likely to multiply, said Constance Wilson, executive VP of Interthinx, which develops fraud detection tools for the lending industry.”
These “after the fact” pronouncements and products aka “FRAUD DETECTION TOOLS” fookin’ kill me!
Guess what honey?
4 years ago thousands of experienced appraisers wrote letters and demonstrated in DC tellin’ their Congress people the RE game had become rigged and crooked.
Nobody listened.
You’re too late to the game.
But you’re damned right about the cesspool dregs still pimpin’ and pumpin’ dog-crap deals.
Imagine how you would calibrate a “Fraud Detection Tool” in the era of vertical haired bosses. “Dilbert, this can’t be right. It says you tested it against our own portfolio and it spit out 90%! Fix It!”
BOTTOM? 2010?
Bwaaaaahaaaaahaaaaaahaaaaa.
Pay Option Arm resets EXPLODE in 2010.
2007/8/9 will look like a picnic.
Check the Credit-Suisse chart.
Drink some more Koolaid.