Will housing bring down the economy?
Nouriel Roubini of Roubini Global Economics is making the case. (See also here.) Blame those nasty subprime mortgages that we've been hearing so much about lately.
Roubini writes for financial pros, so these posts are loaded with technical language. But his argument is pretty simple: Mortgage borrowers with the worst credit are defaulting, and the financial institutions that own these loans are taking a hit they didn't see coming. That's going to make them more cautious about lending money--and not just to subprime borrowers, but even to those of us with sparkling credit scores. What's more, Roubini observes, even many prime borrowers are low on savings and haven't had a serious raise for a while. And falling real estate values have taken some of the air out of their home equity.
Stir this witches brew together long enough and you get a very unhappy consumer. We're about due for an economic slowdown as it is. Roubini thinks the credit crunch might turn that slowdown into a "hard landing."
Roubini's a bigger bear than most, for what it's worth. UPDATE 2/23: And here's an opposing view from Morgan Stanley. Richard Berner writes: "...the balance sheets of most prime lenders are strong, investors are differentiating among rungs of the mortgage credit ladder, and a limited incipient spillover into prime loans and other asset classes signals that a credit crunch is remote." Again, here's the translation: As long as the bankers and Wall Street are still making good money, you'll still be able to get a mortgage at a decent rate.
In other news: Lou Dobbs rips into the "New Rules" report on the middle class that drew so much comment on this blog. He's taking this "Lou Dobbs Democrat" thing pretty seriously. As Nixon asked Rather, "Are you running for something?"
I don't understand how it could have come as a surprise to anyone that borrowers with poor credit would have a higher rate of mortgage default. I thought this was built into the general concept of creditworthiness. Shouldn't the lenders have built in protection for themselves in the form of higher rates or fees?
P.S. Pat, can you explain what an "ABX index" is (referenced in one of your links)?
A Lou Dobbs Democrat is synonymous with lazy American dumbass..
This is no surprise to me. Until recently, there was a significant interest-rate gap between fixed and adjustable mortgages. Borrowers were able to get money with little or no income/debt documentation. Lenders competed for borrowers with ultra-low teaser rates and 125% loan-to-value programs. Talk about the "perfect storm". Sounds like another round of the S&L meltdown was saw in the early 90's.
What do you mean "they [lenders] didn't see it coming? Rather than hunker down and save our strength, bankers, with the support of our government, encouraged Americans to live beyond their means. The Party is indeed over but the war continues and many Americans are too exhausted and broke to fight on.
Fortunately Roubini is exaggerating. The hyper-competative mortgage market will always make a deal for the strong buyer and if you have good credit you will always get great terms. The subprime market is getting hit with greater losses than they anticipated and there will be a culling out of the weaker lenders. That's Darwin's law of economics and thankfully it doesn't affect the great majority of mainstream buyers out there so it won't be great enough to affect the the market in a macro or micro sense.
We are already seeing a strengthening in the Real Estate market in Central Florida so what small percentage of properties may be affected by defaults here will undoubtebly become good investment rentals for the lucky ones that snatch them up.
For those of us who don't own a home, we can hardly wait for prices to crash. They are unreasonably high as it is. If housing prices keep going up without wages growing accordingly, more people will be priced out of the market. If wages do grow to keep up with housing, that leads to a cycle of inflation. So price stagnation or even decline is a good thing. Finally, all commentation by so called experts should distinguish between rising home prices and rising home values. Price and value are not the same. Home prices are rising, not value. If a home stays the same without improvement but sells for more after time, that is not an increase in value, that is inflation. Experts need to note the difference in their commentary.
Real Estate will defenitely bring down not only US but Global economy. All these financial proffesionals have been saying on CNBC that real estate is not a problem or problem is already behind us, are ignorant. The problem has been looking in our faces since the end of 2005 and now, when lenders are filling for bankruptsies, people are stuck with many investment properties they can't get rid off and foreclosing at the record pace, and construction companies have seen their order Slump, we are saying that "well, maybe there is a problem?"
I am no body and I have been saying samething for over a year now. Last couple years were flushed with money. Prime borrowers, using Home Equity to buy second, third house to flip for quick bucks, see high increase in luxury items? Subprime borrowers paying insanely low monthly rate and spending the left over instead of paying down more on mortgage. 20-100% gain of house market dream has ended and the nightmare is starting for many. Sure there are 5% or less in Subprime market but adding 5% inventory to already slow market will crush it. You are already seeing the trend, retailers are slowly hurting, I would say possible global recession.
Its the early defaults that are hurting them. If the sub prime customer can make it 2 years with good payments the Investor is ok because they are protected with the higher rate. But when a loan defaults in the first 6 months they take a beating. Yes all of this was predicted but these companies are publicly owned and are asked to perform so they started signing up riskier borrowers and paying the price.
I don't feel one ounce of sympathy for the people who are defaulting on these subprime loans, nor the lenders who are actually giving it to them.
They're partly responsible for attributing to the record run-up in home prices, putting them out of reach for the rest of us.
They knew darn well what they were getting themselves into and assumed home prices would keep spiraling up, which to the realisitic person knows that you can't sustain that kind of appreciation. But people tended to believe anything the lenders tell them. Now they have to pay the price.
If it ends up hitting the real estate market to where the prices fall back to "normal" levels in high-priced areas (like here in south Cali), then I'm all for it.
Herds don't see what's coming unless they 're the first ones falling down the cliff. Only a few saw what was coming in late 1990s of the Stock Market mania. Yet again they're repeating the old fool saying, "this time it's different."
"In July, Paulson Credit Opportunities Funds raised $147 million in equity and promptly put it to work on a leveraged $1.8 billion bet that home owners are going to have a very difficult time paying their mortgages."
""The U.S. housing bubble is deflating, and bulls hope average house prices will not drop the 20 percent or more we foresee," Schilling predicts. "With [house price] appreciation evaporating, refinancing will dry up and foreclosures leap.""
Funny thing is their economist they hired only predicted the stock market crash before the dot.com bust.
"A. Gary Shilling has often been way ahead of the crowd in forecasting some of the recent significant trends in the economy and stocks. In the late 1990s, he predicted the demise of Internet stocks leading to a U.S. and global recession"
Regarding Blue Dog's statement,... I agree. They are synonymous and one in the same. Good call! Lou truely is.
Tons of Nuts bought 3 four homes in FL thinking that they could sell it in a week for double -- dot com in late 90s ring a bell. As if it can continue at that rate.
I just makes me sick, how so many of these articles on the housing market do not mention the substandard construction going on with the major builders. You have arbitration clauses in tons of new houses being built effectively removing your 7th ammendment rights. When you move in and the house is falling apart in 3 months, you cannot sue the builder or get a trial by jury. Everything goes to binding arbitration and the builders are most of the time in cahoots with the (fair) arbitrators. Most people do not know what I am talking about and why would they? don't even think about mentioning "that is what insurance is for" Then you get to the it was a builder defect, and the catch 22 begins. So, just go to Hobb.org, or check torte reform on google and take a look. Some terms most people ar not familiar with:
"If you live in Texas, an ADR State you no longer have seventh amendment rights. You are told to go to the TRCC for RCLA and SIRP because you no longer have the DTPA and you will end up in AAA. Now, do you have any idea what I am talking about?
ADR � Alternative Dispute Resolution it means you don't get a trial by jury and you cannot sue the builder.
TRCC � Texas Residential Construction Commission� a new state bureaucracy that regulates homebuyers.
RCLA � Residential Construction Liability Act� a state law that regulates homebuyers. Also known as Requires Considerable Legal Assistance.
SIRP � State Inspection Resolution Process� a mandatory state procedure that requires homeowners pay a fee of $350, $450 or $650 for the SIRP complaint process.
DTPA � Deceptive Trade Practices Act� and act that once protected homebuyers from deceptive business practices, which was nullified by the passage of TRCCA.
AAA � American Arbitration Association� works well among equals in business.
So in Texas:
AAA conducts business like a collection agency at the request of a builder. Beware; it is not a fair playing field. If you go into their process have a minimum of $50,000 on hand and be prepared to pay $100,000. You have to pay dearly even to file, and someone I know their filing fee was $6,000.
Then you must pay an arbitrator $2000 plus, per day, plus an hourly fee for pre and post study. AAA does not provide a maximum limit on costs, so they ask for a credit card authorization. The entire burden of proof is on you � the homebuyers. You pay for all expert testimony, depositions, a stenographer, and even the rent on the room to conduct the arbitration. Of course your attorney�s fees are on top of that.
The courts uphold binding arbitration, not having a clue as to what is going on behind closed doors. People come out of arbitration broke, bankrupt, and under secrecy agreements. It is not a level playing field."
Quotes Borrowed from Homeowners for Better Builders hobb.org
Just funny how bad builders and arbitration are not mentioned at all.
Here's an article about ABX:
They, the borrowers, didn't see it coming? Please. They just didn't care. As long as they could make this quarter's balance sheet look good and collect a commission they could register now, they couldn't care how many possible lives they ruined under the guise of home ownership.
Anyone who says that real estate is going to have a soft landing usually works for the real estae industry...cheerleading...and Gerry in Orlando..I'm not sure what you see in Central Florida but 100%appreciation in 5 yrs followed by 1 flat appreciation year is not strengthening. We will have at least 2 yrs of declining value in my opinion.
Blue Dog Dem: Someone who'd like to be a Republican but doesn't have the b*lls to call himself one.
As a young single still in an apartment, I hope the majority of posters are right and the market slumps; I would like to be able to afford a home. While I tend to agree, with the predicted recession, I would like to draw attention to the fact that location (desirable or undesirable) plays a role. When you bought a share of Enron, it did not matter if you were operating a military radar station in Alaska or lived in Queens. Same share. Also, with homes, while I do not think it justifies the runup experienced in most areas, you have population growth as a viable driver of price realization, especially since we are in an era when the children of baby-boomers (such as myself, being 24) are coming of age and considering buying a home, once we can afford it.
It feels just like August, 1929.
Lou Dobbs Democrat? He was a registered Republican and palled around with Rush Limbaugh before Rush moved to Florida. Dobbs is a neo-populist, as one of his guests defined on Thursday's show.
The subprime market has already started tighting their guidelines and the major players in this market are not going anywhere. There is money to be made and they do expect early default in a percentage of loans, they are lending 100's of thousands to people most of us would not lend a $1.00 to. Some people have legitimate excuses, unforseen medical bills, nasty divorces, etc can cause some ones credit to go from stellar to the dumps and then there are the others who never thought they actually needed to pay the bills. The saying is anybody can get a loan, can they afford the loan they get?. In most cases not, there will be a period of adjustment and the lenders that got too close to the fire are getting burned now. We see this is in the business all the time, here and then gone and so are their remarkable get anyone approved programs.
My wife and I make over one hundred thousand a year and we can't afford a 2 bed, 1 bath fixer in So. Cal. Am I crazy, or are we headed for a big fall?
The biggest problems in lending are in 2 areas:
1) Subprime - Borrowers who have gotten loans in the last 2 years are going to see their Adjustable Rate Loans adjust and new tightening of guidelines will not allow them to refinance and their payments will skyrocket forcing foreclosures.
2) Option ARMs - These loans will see their payments skyrocket when they deffer the maximum amount of interest, usually 15% of their starting balance. I estimate this will take betwee 2-3 years and hopefully wages inflate to meet increased payments or we will see more foreclosures.
Both these problems are escalated by 100% Financing. With the market slowing down, these people will not see the growth necessary to keep their equity intact.
The people in the industry have assisted in the demise of a borrower with a chance to own a home. The option arm with a 3 yr prepay while the loan agent makes 3-4 pts on the back not to say what they may charge on the front...people fully indexing in less than 2 yrs and now cannot afford their home. They are gravediggers and helped in the total picture of default as well. The S&L's that have made their portfolio on this product have ill trained employees selling this loan to their own banking clientele and when they realize the loan they've chosen, they find out later their stuck with a prepayment penalty to get out. Makes it tough on everyone. Subprime is definitely taking a hit. "A" credit borrowers will always have an opportunity as long as they have the equity. But the interest only loans and no qualifier loans will tighten as well. These things happen...its all cyclical. Having done mortgages since early '82; Ive been through a few rounds. We need high integrity realtors, loan agents and great programs. Most of the country has seen property values increase across the board. Some areas have gone crazy and now completely out of reach for most. Lucky thing these programs are made available...otherwise who could afford them?
People are really dangerous when they assume!! The mortgage and housing market have been in need of a correction for the last two years, the latest cycle or run up has now been going on since 2000. Several issues that are not currently being discussed are the tax base for the local governments, they have been spending and developing there budgets based on this increase as well, and from my observation not at all prudently!!! In the Florida market, property taxes and insurance costs are the two top political topics that every canadate stumped on this past year. The market will correct, the values will reduce (15-20%), the greedy and gambling sub prime lenders will be culled, the lesson will be finally understood about "stated" income loans and Pigs (second mortgages) will go away, for now, and in 6 months to a year balance will return to the housing market. Lastly moving forward the sub prime market hopefully will unite on the now proven fact that the spread on sub prime loans must be a minimum of 4% net while maintaining a 1.50% cost to produce or its not worth the time or effort!
These buyouts of mortgage companies that are being reported are are misleading. Most of these transactions result from companies not being able to sell their loans and the company that fronted the money from the loans taking over their Company. For ResMae it is Credit Suisse and Merrill Lynch, for Mortgage IT it is Deutsche Bank, watch for others to follow. Investors are tightening up and lenders are going to get cought holding bad loans. Encore Credit had to pay $33 million to sell their company to Bear Stearns, sounds like a bailout to me.
A few subprime lenders with warehouse lines going out of business is no big deal. Where the bigger problems lie is in cases where mortgage fraud was used to obtain the loans. After this round of losses, standards will be and should be tightened for mortgage brokers, real estate agents, appraisers and title companies.
If you think this will lead to a huge housing crash, you are mistaken. History shows that even in the 80's when interest rates skyrocketed, both the number of homeowners and median housing prices went up. Further, more people are buying houses now than ever before. Here's why
Housing prices and values are always appreciated over the long haul because of the limitation in land to ill-sustain population growth and migration. The best bet is keeping up with your housing market news and personal finance when making an investment decision.
Judging from the Northern Virginia housing market things are rapidly improving. This is the beginning of the spring selling market and Northern Virginia is only a fraction of the the national market but my guess is that the pessimism in the article is overblown.
I am so glad this issue is finally coming to light, especially since we are foreclosed on homebuyers. We bought one of those new, all the eye candy, thrown up, big builder dumps,for $360,000. We had a 6% fix mortgage, and we could afford the payments.
What we couldn't afford were the repairs..$150,000. There are hundreds of thousands of us out here no one will acknowlege or help.
Look at the foreclosure records, in Texas alone over 153,000.
Over 12,000 complaints to the Attorney General, and he has not investigated one.
A 41% increase in complaints, to the commission that is surpose to protect homeowners, TRCC. In 2006 TRCC had a 49% increase over that 41% in 2005.
The FBI is the only one here that realizes, and admits there is an elephant in the room. Mortgage fraud is so rampid, they had to set up a special task force right here in our builder friendly city.
Where is the outcry. We have no rights we the people are no longer citizens, we have become subjects.
Please google my name for national articles and information that may prevent you, from having to lose your home, your money and go though the hedious excuse for justice provided by AAA, the American Arbitration Ass. They are a demented collection agency and justice is not a part of their 'non profit" vocabulary.
While you are sitting there thinking this can't happen to you. And thinking, oh if those poor people had done this or that, this just couldn't have happened, here in the United States of America... Read and become informed, because my builder is building right down the street and he may just be waiting for you.
Subprime lenders are defaulting more and more on their loans. In other news, the sky is still blue.
Bottom line is, the lenders wanted to make a quick buck off the subprime borrowers, but underestimated how many of these people would default. But an equal share of the blame goes with alot of the borrowers. There is PLENTY of educational material on the net for free that teaches how to go about obtaining a mortgage. And one piece of advice that is oft-repeated is: don't borrow a huge amount just because the bank says you can.
Lou Dobbs is a biased reporter presenting opinions as fact instead of editorials. Should he lose his job or decide to seek employment elsewhere he would fit in nicely at The New York Times, The L. A. Times, or Newsweek.
Being in construction I know it costs an average $125 per sq.f to build new houses. When the credit cruch hits the market it will bring current pricing to reality, prices should drop over the next few years 30-50% to reflect what they are really worth.
The Feds should have rung the alarm bell a long time ago and should have done something to influence tightening-up the lending practice. It's unforgivable for them to do this to the real estate market. Remember what they did to the stock market in the late 1990's and early 2000's. Alan Greenspan...what a great job he did for our time!
I agree with John. People forget to mention the population growth.
There are 1 million immigrants coming to this country every year. These people need a place to live whether they're legal or not.
Add to that the natural growth and you have another million or two.
Those who loose their houses by defaulting on their loans move to the rental market creating more demand, thus keeping real estate values high.
If sales managers and sales people weren't such sharks and didn't push to get the loans approved through the lenders and ask people to jeopardize their integrity than we wouldn't all be in this position. Look at what Wells Fargo is doing, laying off over 200 people in the wholesale sub prime department. I think they should look at their sales people and put them on the hook for their integrity along with their Brokers. The amount of fraud these people commit on a daily/regular basis is ridiculous. You get the Regional Sales Managers saying that Operations are running too tight and they need to loosen up and look what happens, all your operations people get laid off and now the marke is crap and the underwriters are to blame. Does anyone not uderstand that Sales people out there run the operations department and push to get things done? Well they do and I have experienced it first hand. Sales people need to learn how to say NO instead of just caring about what goes in their pocket and not worrying about the complete domino effect that all of this has caused.
i am a sub prime underwriter in florida and other parts of the country. anywhere that saw more than 6% appriciation will see a major correction. very aggresive sub prime and alt A lending created way to many buyers and help create the inventory problem we have now and market rents are falling which take buyers out of the market as well. THE HOUSING SLOWDOWN IS VERY FAR FROM OVER. we have years to go before the bottom. also either wages need to go up or the median home price needs to go down. i vote for lowering the median home price and so does strong US dollar.
Many of these loans were made based on �stated income� and were appropriately called �liars� loans� in the industry. The industry knew about this. And now there are defaults? Surprise, surprise! I and other serious investors have been following this closely for years to see just who ends up taking the hit when these go bust. We have avoided investing in the subprime lenders.
The post on arbitration covers many good points but misses one key one: the secrecy. The results of arbitration are never disclosed. It is to the benefit of the crooks to go to arbitration because they can continue to cheat people and there will never be the trail that comes from a real trial and judicial review. If you cheat 50 people and they go to court, someone can follow these judicial cases. If they go to arbitration, the crooks can deny that there is any pattern of problems. Remember when they ask you to agree to arbitration, that you can always agree to it later, but once you waive that right, you can never go back.
The problem with the industry is that you have brokers sending false documents to the lenders for approval.and the lenders specially sub prime lenders look the other way. the investor should look closer at the loan portafolio that they are buying. the QC department of the sub prime lender more often than not look the other way and the consumer is held holding the bag
Do you think that the 1 million illegal immigrants coming to the US are buying 520,000 median houses in LA???
Population growth alone cannot sustain the current prices. In fact, I would argue that population has very little to do with the current state of housing. Builders have built far enough homes to make up for illegal aliens (not that they are buying instead of renting). To say that the market prices are what they are because of immigration is ridiculous.
They didn't see it coming? What a crock! Because of this mania, my kids won't be able to afford a home for a long time! They advertise specials for first time buyers for $300,000 homes. Hah! Not without losing that home when they can't afford the ARM reset or their first major family disaster wipes out their savings. Watching this greed the last few years has been really disgustin!
The weak in credit have lived by refinancing everytime they needed more money, including money to pay their mortgage. When they went to do it one ore time & found that this time the home had not gone up 15% in one year it didn't work....uh oh
I for one am so glad to see the sub prime lenders go broke and out of business. The multiple/extended families who used these loans to move into my neighborhood are distroying my quaility of live. My neighborhood looks like a junk used car lot.
back before 1990 I used to see busloads of Japanese tourists in LA but few now (they're still coming but much much less.) I see busloads of Chinese now. Japan's age 55 and over are currently double ours. A lot of them like to sell out for their retirement. But they have 100 year loans that have seen property value inched lower almost every year since 1990. And they said prices can't go down because of lack of land.
population growth will sustain the housing market? then did we just see a sudden 100% gain in population this last 5 years? or just that some people shouldn't be getting loans way over their heads the last 5 years?
if population growth is true then why did the stock market bubble popped in 2000? i thought there would be enough buyers to sustain the selling.
Who finds it a surprise that prime and subprime lenders are going to take a hit. Issuing millions of home loans with no downpayment, no closing costs, ARMS to boot, and you have a huge potential for losses. Add to that desktop underwriting, using "credit scores" as the primary underwriting constraint and it's the S & L debacle all over again.
Let's be blunt, greed and avarice will lead the money changers to this type of lending, except of course the tax payers will eventually foot the bill.
Who wants to sit with their grand children this evening and tell them, "Oh by the way kids when you turn 21 you will owe a cool million bucks to bail out the mortgage lenders, and you can forget about getting any social security when you retire. Now go get ready for bed, sleep tight."
CNN reported that refinance appraisals are included in the government housing price indexes as the same as a sale. With the less than tidy way appraisals are performed, this also added air to the bubble that did not belong.
They know that this is coming. However, it is bogus that Realtors(and their group) always say that it's getting back to normal. Well, I'm not sure about that. I just think that these people are just saying that so that they can still make money out of the boom so people might start spending money.How can people spend money? A lot of people just rely on their home equity. If a "hard landing" happens with the housing industry, there is noone to blame but these people who made it happen.
My two pennies. I�ve studied the market(as a potential buyer who is now a home owner by marriage) for the past 2 years. It never ceases to amaze me how there can be 99 pieces of bad news/facts/figures related to pricing and the market and 1 piece of �good� news, which is only good from the perspective of an eternal optimist, and realtors praise how the market has bottomed out and prices are turning around (David Lereah anyone?). Realtors represent the SELLER primarily with the exception of buyer�s only agents.
I personally don�t think the housing bust will be all that different from the dot com bust. From 2000 to late 2005 home prices were decided by good old-fashioned supply and demand. By supply and demand I mean supply of money to burn (dot com pull-outs/investors) and demand for houses. Dot coms and many other stocks in the late 90�s were fetching unheard of numbers with no statistical data to support their worth. Could speculators or investors with deep pockets and eyes for wealth be to blame perhaps? Now here we are 16ish months into an overall housing slowdown. How�s the stock market doing? Not too shabby last time I checked. With the return of the stock market, what investor in their right mind would touch the housing market? Remove the investor/speculator/weekend do it yourselfer and you�re left with: actual homebuyers. With no sound statistical data to support current prices, a huge excess of supply, and overall lack of investor monies, and home still historically stratospheric compared to wages, prices will correct even further to the tune of another 15% or more. Pop quiz: What�s a P/E ratio? Many potential sellers have held on to hopes a buyer will come and pay their price. As time passes and those monthly mortgage payments continue to add up, there will come a point where many sellers will do what they have to. Sell for less, and perhaps considerably less.
Sub prime lending is only part of a larger problem. It is (was) Wall Street money buying packaged mortgages fueling this pyramid scheme. Once the craziness stops with bulls*** loans, very few first time home buyers will be in a position to buy a home, at least here in California. Seriously, someone making the median income here can't be expected buy a $500K to $600K home. Even the price of homes in the unsavory parts of LA exceed the national median price. No first time buyers, then there won't be second time buyers, etc.
My wife and I are professionals in our 30's making $200K+ per year. We have saved about $150K in cash. You know the market is crazy when we feel that we can't even buy a starter home in a decent neighborhood given the crazy prices.
I don't the illegal immigrants are the causes of the sky rocket home prices. I am an IT professional in Silicon Valley and a PT realtor/loan agent with decent income, still can't really afford to buy a house in the Bay Area. The house price are so high just because the investors bid up the prices. The investors want to make 10%+ profits in a month. I agree with Frank. People didn't learn the lesson from dot com burst. A lot of houses in Fl, Ar, Tx, Nv and other areas are owned by investors. A lot of investors have no ideas what are they doing. They think house market won't collapse. In order to get the house, buyers and brokers provide a lot of false info to the lenders.
I work in the as a Senior Loan Officer for a mortgage brokerage, and lend to all credit types. I also have a wife who is a realtor.. now that you know where I'm coming from Let me throw in my 2 cents. We have four factors that are driving home prices up and down. Mortgage rates have an affect on all borrowers but its not the stimulator that most people think. 1.Job Growth 2. Buildable land 3.home inventory.
You need to ask yourself 3 questions. 1. Is my areas economy growing with high paying jobs? 2. Does my area have limited building opportunities? 3. Is my area flooded with vacation, second, investment properties-
If the answer for the first 2 is yes and the 3rd is no.. your going to see price appreciation for the next 5-10 years. If the answer was no to going to see price depreciation for the next 5 to 10. If your somewhere in the middle.. well your in the middle. Simple economics- demand drives price.
allan greenspan at bthe federal reserve caused the stock market bubble in the late nineties and the real estate bubble of today by keeping interst rates absurdly low.in fact he is the cause of the excess global liquidity whic is now threatening to cause inflation the world over.real estate prices not only in the us but the world over are hyperinflated--let them crash all over theworld and let teh speculators and real estate devlopers suffer and burn.
and greenspan was a moron and not the hero that our business media make him out to be.
The actual defaults and foreclosures in the industry have been blown out of proportion. The vast-vast majority of borrowers even in the sub-prime lending area are going to make their payments. These banks that are blowing up are a small segment of the entire mortgage market.. Going forward you are going to see tighter lending practices, and the lenders that were suckers enough to lend to people who couldn't afford the mortgage will go away. Big deal. The amount of borrowers this truly amounts to is such a small number compared to all mortgages in the US. If your thinking that sub-prime foreclosures is going to tank the economy.. you do not have a grasp of how small that market is compared to the entire mortgage market.. you just don't.
Our organization, Homeowners Against Deficient Dwellings, HADD Inc. www.hadd.com, has seen this coming for years. Serious structural defects in new homes with worthless warranties and mandatory binding arbitration clauses naming the arbitration service that must be used have caused thousands of homeowners to end up in foreclosure. The builders are repeat users of the arbitration companies. Guess who loses. Homeowners can't sell the house for enough to pay off the mortgage.
Mortgage fraud is a major FBI focus now and is rampant across the nation. The federal government is not indicting the criminals because of the fraud against the home owners, but they are doing it due to bank fraud. No one cares about the home owner who has lost everything. And before you post to say it is the home owners own fault let me tell you -- I worked with hundreds of families for 8 years who were victims of forged signatures, a crooked title company & appraiser, and the builders own mortgage company.
Why do elected officials allow this to continue? MONEY -- campaign MONEY. Our government doesn't care about the citizens anymore and it doesn't seem to matter which party is in office. Corporate America runs the country and destroy's families in the process.
I am a senior citizen and I remember the day when business cared about their reputation. Today they simply get legislation passed to protect themselves from the customers they rip off. SHAME!!
No surprise here. You have a combination of many things: house prices that were going up faster than people's earnings, loans based on speculation (i.e.being able to "flip" a house, make lots of money, then moving on to the next killing), and people who save nothing and spend more than they earn. Like all storms in the past, this too will blow over but I think more people will get hurt in this slowdown than in ones we've seen before. Keep your cash handy.
i did easy for me and for my family.Pack in move in east N carolina .From Orange County california to huntersville,Charlotte,the best choice.Buy 3000 sq feet home in huntersvilel for 250 000 ,
Let is slash and burn for now and let it normalize ... I'm seeing a pattern of the same thing exported to India and China ... looks like the big investors are dumping their $$$ there ... Soon the Indians and Chinese won't be able to afford their own country also.
Come on housing market don't go sour on me now need to flip 6 more houses!!!
live it up and burn your cash!!! because when you die you can't take it with you in your grave!!! Enjoy life and buy nice houses!!!
"We are already seeing a strengthening in the Real Estate market in Central Florida so what small percentage of properties may be affected by defaults here will undoubtebly become good investment rentals for the lucky ones that snatch them up."
Oh, yeah, big strengthening in the market in central Florida. The fact that you capitalize Real Estate as an adjective, don't know the word undoubtedly, and talk about distressed properties as good investments for rentals proves you are a real estate shill. Go snatch up some of those great investment properties - in the current market if you pay cash you can't even make the 3% inflation rate after taxes, insurance, and maintenance - and that's assuming that you can rent it out 100% of the time and have no capital loss.
Get real - prices are going lower - much lower.
Haven't seen anyone break the code yet: Of course the lenders knew what they were doing luring buyers into high risk loans with killer adjustments. They knew something most Americans don't -- namely that they aren't holding any risk, you are. The FDIC, FreddyMac, FannieMae, FSLIC all are insurance programs created for financial institutions to insure their loans (not your side of the loan) against their loss in the case of default. And you, as the taxpayer, back these insurance policies which insure thses loans for the banks so they won't loose money on bad loans (e.g. when they foreclose on a home and have to write down the home as a loss). These insurance companies, backed by taxpayers, guarantee the loans. You can thank your congressperson for selling you out to the banks by creating these taxpayer backed insurance taxes, protecting bank their assets, while putting yours at risk.
I am a southern California banker. I am not involved in residential lending. I have however been reading banking journals and statistics for three years now watching this train come down the tracks. Some here blame bankers others homebuyers. Greed is to blame with all,.. Bankers, Investors, real estate agents, brokers and buyers playing fast with cheap money. The Chinese have a saying, "fu bu quo san di". Translated,.. Wealth never survives three generations. There is a train wreck at the end of this track. We have all forgotten the hardship that our grandparents suffered during the great depression. No it will be our turn.
Like a few other bloggers who have commented, my wife and I are in our early 30s, have very good incomes for our market, have perfect credit and hold a savings account approaching 80k. Our home has nearly doubled in price since purchasing it in 2000. When the buying demographic like us doesn't feel comfortable about purchasing the next step up to house our growing family things will change RAPIDLY. We represent the safe investment for lenders and won't play ball now because of the mess that has been made.
You cry and you cry about the high cost of housing, I have lived in the most expensive housing markets in the country. From Manhattan to San Francisco, San Diego to Naples FL. I finally decided to come back to reality, Metropolitan Pittsburgh with the best price of homes for any major metropolitan area and the potential for significant increase in equities was the place to be. Corporate America wake up, quality of life issues are important to your employees. Pittsburgh gives young people the option of owning their first home at prices not seen in other cities since the 1970's.
Who are the poor and people with low credit scores? Arent they our fellow citizens? Housing for the poor should be subsidised. Foreclosure has been increasing leading to broken life and family finance. Food, clothing and housing are basic necessities; the economy shouldn't be dependent on these three essentials.
It's just like the dot-com bust. Nobody thought it was a big deal if pets.com or furniture.com went bust. It wasn't until about 6 months later that people realized that all of Cisco and Oracle's "sales" were financed to these same companies. All of this is connected, and we aren't close to the bottom.
I've been a Mortgage Broker in the Tampa/St.Pete area of Florida for the past 6yrs & it amazes me how many investors, brokers, & Realtors have not faced reality. For about 4yrs (refi boom/purchase boom) we all got fat on a flourishing market with appreciation double digits, favorable interest rates, escalating home prices, & "creative" financing. The subprime market has taken a hit because once one lender got creative they all had too in keeping up with the "Joneses". Now they are paying for their actions with higher default rates & fore closures. They are not the only ones to blame though.
How about the numerous brokers that pushed aside their own values to push these products to clients that didn't fully understand the ramifications that could follow. Brokers that were only concerned about how much YSP (Yield Spread) they could make without the borrower knowing & then hitting them with points as well to line their ever bulging pockets. Negative AM loans (1%) became very popular & were easy to get. The YSP that could be made on one of these loans especially if you tacked on a 3yr prepay made many brokers rich & became a product of choice no matter what the situation. I still here brokers today saying," wow, if I put them in a MTA I can make 3.5 pts"..makes me cringe. It also amazes me the number of brokers that don't disclose these products properly either to deceive or because they don't know how to explain them properly to their borrowers. It has been a relief for me to see the market slow down & watch the "slight of tongue" brokers slowly leave the business & climb back under the rocks they came from. As many brokers complained about a slower 2006 I watched my book of business grow by doing the right thing with my clients & in turn gaining the respect of the Realtors I work with. Their are many broker firms or mortgage companies that lack in the training & education they provide for newer brokers. You can't learn this business in two weeks from a book & just because you go get your Brokers license, it doesn't make you an expert. Takes time & commitment to truly learn & educate yourself on your craft. Too many fast talking sales people moved into the business & it created influx of very bad brokers. Enough on brokers!!
Of course the consumer has to take fault as well. Talk about keeping up with the Joneses!! How many people bought homes far more costly then they could really afford because of the numerous creative financing options that were available. The attitude of "I'll worry about my loan adjusting later" or the ill conceived notion that the bubble would never burst has put many of these borrowers in well over their heads. I guess it lends credence to the fact that many of us Americans just don't know when to reign it in. In Florida with the added problem of escalating taxes & insurance it has made the problem even worse. We are seeing more and more people moving out of the state to the Carolina's where they can actually afford a home. More & more retirees or transplants are stopping short of the Mason Dixon line & setting up home in more home owner friendly states.
Last but not least, every week I talk to a potential first time home buyer that has no chance of buying a home in this market. Good credit score, great job history, a little money in the bank but live on less than median income. People that just want the dream of home ownership & have done the right things to deserve it. When your paying $800 a month for rent but a 150k home is going to cost you $1500 or more a month with taxes & insurance many of them just can't afford to take that leap. Sure, we can possibly put them into one of these creative loans but are we doing them any justice down the road. 150k doesn't buy much at this time in this market unless you want to raise your kids in a less than desirable neighborhood. Yes, there are county assistance programs but the starting level in Hillsborough county with a household of 3 people..you can't make more than 27k in combined income. Tell me what house in this area anyone can afford with that? The county programs need to be adjusted or Governor Crist needs to get the insurance/tax problem under control fast so that more "good" people can afford their dreams.
In closing, their are many of us to blame for the problems in the home market we have today. It's time for the government to crack down on lending standards & make it tougher for a broker to get a license & to commit fraud. The lenders need to be held accountable for the quality of the loans they will approve. The so called investor/house flippers needs to be capped on how much more they can sell a house for after "real" improvements because they are partly at fault for the inflated home prices we now pay. The fore closure market is already becoming the investor/flippers next fountain of wealth. Hey, I'm all for people making money or a profit but it's gotten out of control. As an American public we need to learn to live within our means & set a better example for our children that will be in the market one day
I have seen the higher priced houses in my area (Chicago-Milwaukee) sitting on the market, and sitting, and sitting, the only thing that changes is the name of the realty company on the sign out front. This has been going on for over 2 years on some of these places. I agree with the person who said that the 'this is different' philosophy is incorrect, because it is. Regression to the mean is a fact of the physical world, 15-20% gains are unsustainable and will retreat to the average growth rate, which requires a drop beneath the average growth rate for a while. This is going to take 5 years to wash out, don't believe the person telling you to buy a property that 'all the excess is pretty much washed out of the market', cause it is not.
Saying that the housing slump will not bring down the economy is the same as insisting that a bite on the ankle by a cobra will not spread the venom through the blood system. As I said on www.alternativeanalyst.com last October in an article titled "Soft Landing and Wily Coyote", housing will bring down the economy as surely as winter follows summer. In my view, believing the "experts" who say there is no need to be concerned is like believing croupiers who say everything is alright even though a raging fire has broken out in the casino. What else do you expect them to say?
Lou Dobbs has it somewhat right. I wonder however whether the choice of free trade is not really a premeditated effort to give our emenies a reason not to fight us and for us not to spend inoxerably on defense. The problem is and Lou has it right; that in the process we gave them not only some of our suplus, not merely some food but also the silverware of the house. For that we have become financially weaker and it is the middle class that pays for the piper while the corporate elites are dancing. Yes a lot of people would even lose their houses because the low credit given by Bush was the opium that clouded our minds and fell into the trap which was set up for us by the elites. And so we now try to protect what is left to us, some decent jobs, but the elites are calling us stupid or hard liners on immigration etc etc. The churches are no better. They are interested in packing into their houses the illiteral immigrants, not because of some noble spirit of helping those who do not have. They are also interested in their own well being. So there will be famine on the land, housing would crash.
I've been watching real estate for 3 years now. People bying houses now can be equated to those who bought tech stocks at Nasdaq 5000. I would
not pay any more than a 2004 price
for a house(zillow.com). If you buy
now you're buying into the bubble.
I think there are a lot of different things going on in the real estate market right now.
You have markets like Florida, California, Nevada that have an oversupply of homes, but no buyers. These markets are going to hell in a handbasket.
Then there are buyers in these markets who are bitter because they can't afford to buy a house, or missed out on the flipping boom when their neighbor or brother in law cashed in 10 houses in a month....these people see 1 bit of bad news in 1 local market and magnify it 100 times in blog posts, news stories, anecdotal conversations etc.
All of this sucks for those of us in markets that always have been and always will be, stable. Like Chicago. The prices didn't go up like crazy and they wouldn't go down at all if it weren't for all the idiots from both coasts sounding the alarm. Our market downturn is a manufactured one....national media stories that scares off buyers and sellers. In reality, our market is sound but it will take another couple of months for the consumers to realize that.
Right now buyers in Chicago are siting on the fence reading stories about Florida and its real estate crash. This leads to sellers not putting their home on the market because with all the buyers sitting on the fence they are afraid they will have to lower their prices to sell.
Pretty soon everyone will realize that nothing is out of the ordinary and go about their business. For those of you in the bubble markets...you will get what you deserve....but let the rest of the country go back to normal.
There are and will be consequnces. The question is, will it be long and slow or quick and abrupt. The home prices will catch up to income, it may take years or a couple more at 20-30% drops. The only thing that may affect this is the overseas investor buying property in the US. The dollar is worth much less, and Europeans can afford what we cannot.
History, in this instance is unraveling a situation incrimentally,day by day, and by the volume of comments the situation has the attention of a growing audience and this alone should indicate that the situation is worriesome or should be worriesome. As in the past, events leading to financel troubles always gain the attention of a growing audience but as before there is a hoplesness involved by many of us observers because there are also many who want the status quo to continue and dismiss the building troubling situation as alarmist. When personal greed and lack of oversight is the support of the Ponzi scheme then when the elevator plunges, as in the past, it will have a full load. Even many of the cautious observers may be passengers in this Lemming plunge because we have become too "cushy" with our own portfolio valuations and prospects for growth.
I think many people here are filled with too much blame and hatred. I certainly do not condone any fraudulent activity by real estate investors, mortgage brokers, relators, builders, etc. In fact, I think intentional deception is despicable. However, to express such blame and anger and to call an investor greedy simply because that investor is trying to secure a solid future for themself and their loved ones, I think is unreasonable. I want to ask these people: Have you ever made an investment to try to make some additional money? If the answer is yes, I think you should keep quiet and I don't think you are greedy simply because you chose to make an investment. If your answer is no, then perhaps you are more risk averse than most, and that's OK, although it is certainly no reason to be angry toward someone who took the risk to invest in real estate over the last few years. Many of these people made educated decisions, researched supply and demand and other factors and made the best decision they could at the time. Many of these people made money on their investments. Many came into the market too late and they may loose money or default on their mortagges and such is the risk with ANY investment. I can undersatnd the frustration of many who can no longer comfortably afford a home in their area, although we need to accept that a home is still an investment, the largest investment many will make in their lifetime. I don't wish ill will on anyone and I am hopeful that perhaps real estate prices will not fall too much more and perhaps interest rates will decrease to make homes mor affordable for those folks who are strethcing to afford a home. I don't have a crystal ball, and perhaps I am overly optimisitc, although a recession might induce lower interest rates making homes more affordable, and if you add to that pent up demand and additonal demand due to the demographics of the baby boomers and echo boomers, and the fact that Florida is considering reducing its property taxes, perhaps things aren't so gloomy. It is certainly one feasible scenario. None of us here has the right answer or a crystal ball and psychology and confidence of the consumer, as well as the state of national security and natural disasters such as hurricanes (Florida) are all factors that could put a wrench in any prediction. So, I believe those that pretend to have the answers are really fooling themselves.
There are around 300,000 skilled immigrants with average income of $100,000 per year languishing in backlogs and quotas.
Fix this and this would indirectly lead to housing revival (atleast 100,000 new houses).
US is shooting itself in its foot by making it tough for skilled migrants to immigrate and buy houses unlike Canada!
Everytime I read a post by one of you "mortgage professionals", I have to laugh. I would submit that every one of you are crooks and predatory lenders. Every stated loan that you have done is a fraudulent loan. Why would anyone who is paid W2 need to do a stated loan? Oh, I forgot it's all the Ebay, or garage sale income that's hard to document..right. Predatory lending is inducing someone to take on more debt than they can afford. When your income is based on the loan size, what incentive do you have to look out for the borrower's interest? Throw in a YSP/rebate, which is nothing more that a bribe paid to you by the lender because you talked the gulible borrower into paying a higher interest rate. Add in a pre-pay so you can get more rebate, how do you sleep at night.
Placing a mortgage loan has costs involved and the service has value, but don't tell me that you have higher costs and add more value with a $400K loan versus a 100K loan. Speaking of value, can anyone explain to me how a realtor can add $24K worth of value to a 400K home purchase? One more example of the "rip-off" we've all come to know and love...home ownership.
It's too bad that Martinez didn't follow through on forcing you to clean up your act.
I agree with most of the comments here. The growth is not due to immigrants. its due to loose lending standards. My friend from Asia who has no green card or citizenship having an income of 100K / Year bought a home for 800K with 10K down payment. He was telling me that this house would become 1 mil in the next 2 years. I asked what if their is a layoff or some unforeseen situation and he told me he would drop the keys in the mailbox and leave the country. I make the same money (100k) and can not afford to buy a townhome in this part of NJ. In the end some one will pay and only the time will tell.
Will housing bring down the economy? Well it certainly won't bring the economy up any longer. So the real question is "How FAR down will housing bring the economy?"
I believe it will have a huge phsyolocial effect on consumer spending. And since the largest bubbles are in many of the largest US cities (Historical Home Prices of 50 US Metros), the decline in housing will push our economy into a recession.
I live in Panama City Beach, Florida.
I am a renter right now.
Home prices here have doubled since 2001.
I live on a street of sand that is mostly lots for sale at like $215,000.
My impression of the housing market is one of collapse. Prices would need to drop 40% to bring back the buyers. (This is an extremely desirable retirement locale.)
The housing boom was yet another bubble caused by the fed. It is dead dead dead and all sellers agree with me though they wont admit it.
Expect a 10% foreclosure rate.
I love Roy Orbison, a lot.
I am with you A Eriwn I hope all the sub prime lenders go out of business. My neighbor that had 10 people living in the house and 8 cars (junk cars) just moved out and the for sale sign is in the yard and I could not be happier. Found out today its in foreclosure I am thinking of having a block party.
Many of the borrowers have nothing to lose if things go bad in the real estate market. They have put nothing down. In the worst case they just walk away. And, of course, strip the house of all its kitchen appliances, etc., as I saw in Seattle recently.
The ones on the hook for the losses are the lenders. And/or their investors. I am waiting to see the fancy footwork and legal maneuverings between the lenders and investors to see who takes the hit. Charles Keating where are you?
The way some of the articles scream END OF THE WORLD you'd think the default rate was 50% of mortgages. The actual number is in the .05% as in 5 out of every 1000 mortgages are being not being paid on time.
Now imagine this doubles to 10 out of a 1000. You'll see headlines screaming "MORTGAGE DEFAULT DOUBLES". But come one, it went from a very very very very small number to a very very very small number.
Prices have fallen somewhat but this "5 more years before a bottom" talk is simply wrong.
Foreclosuree after six months? Did people not realize you don't just have a mortgage payment, you have to add insurance, taxes, maintenance, buy a lawn mower, have a good plumber, etc.? Do you have health insurance, a little set aside to get through a tough time? You can't blame it all on the sleazy lenders. Yeah, owning your own home is part of the American Dream, but it can also turn into a nightmare. If it sounds too good to be true, well, you know the rest. You may be renting right now, but you may be sleeping better than a lot of people. In this crazy world, especially after 9/11, Katrina, Oil issues, Iraq, Iran,etc. (and what's up with this Stock Market?!?) we seem to have a heap of troubles at our door, and this housing mess doesn't help. I don't believe for a second that our economy is as great as our leaders would like us to believe.
Most posters here seem to start off with a complaint that they can't afford a home. Because of that, they are somehow convinced prices will fall to a level they can afford.
OK then by that logic, I can't afford a $150,000 Porsche. But I really want one and damn it I deserve one. I am therefore convinced by 2009 the cost will be $40,000.
The housing market is dead, you could see this coming 5 years ago. I know people with horrible credit that have nicer homes, or do for now, than me. With the job market the way it is now and the "false wealth" of the stock market you can be sure that the worst is yet to come. One more big hurricane, or a war with Iran and you will see those with "good" credit but limited savings start to fall off the cliff too. This is good for people like me who have some cash and are waiting for the opportunities.
When people say "Bubble" they visualize property values dropping overnight or �pop�... hence the reason REALTORS say there is no bubble� because it�s impossible for property values to drop 20-30% overnight. So housing bubble is simply a misnomer and hence the talk of a �soft landing� vs. a crash... even while it's happening.
What currently happens is housing data used to determine if things are slowing down is 2-4 months old from closing. When looking at current home price statistics... these are buyers that started the process maybe 8-12 months ago� not today. Therefore it�s difficult to correctly indicate what is going on because the intent of those recent closings was established so long ago. The real estate market is a really big ship and it takes a long time to turn it around because the data is so slow to come in.
A good indicator as to what is happening is quite simple to arrive at. Look at the number of people searching REALTOR.com, the number one real estate site� (click here to view the Alexa chart on REALTOR.com) less people searching means less demand, less demand means drop in home prices. As you can see, the search volume of real estate listing is at a 5-year low� when last year79% of home buyers used the internet to search for homes and 5 years ago the figure was only about 25%.
So apply the basic economic rules of supply and demand and you already know home prices can only go in one direction� down� until buyers re-enter the market, which would be easily track able by the number of searches on realtor.com, which is not happening.
Now, combine this with lot�s of the other reason stated above like a credit bubble happening on wall street. Take away the easy financing and thousands of buyers who were buying are no longer doing so. Again, a further drop in demand.
Add in 2/28 adjustable rate mortgages which will adjust in record numbers this year and you can see from this 2/28 mortgage calculator many home owners will be in for a bad surprise. Especially, since they will no longer be able to refinance out of the situation. This leads to foreclosures and short-sales.
Then combine that with the pay-option ARMS with ridiculously low start rates that are now fully indexed at over 7.5% - 8.5% while clients are paying minimum payments of 2.00%, there is about 5-6% of negative amortization being added onto their mortgage loan balances. Many of these people don�t understand the �recast� clause of the mortgages, which state that if the original loan balance increases to 110% - %125% of the original balance, their loans will automatically switch to a fully amortized, fully indexed rate based on the remaining amortization term. This pay option arm mortgage calculator explains the picture pretty well. Again, more foreclosures or short-sales.
Foreclosures are �must sell� real estate listing inventory. This means, sellers will continue to drop prices until someone buys. Mortgage lenders cannot afford to wait-out the market like homeowners can. Therefore as foreclosures raise in numbers they compete against each-other to get sold, which leads to significant discounting by the mortgage lenders to off load the inventory. These same distressed properties then become a �comparable� and traditional home sellers are forced to compete against them if they really need to sell. The remaining buyers flock towards foreclosures and short sales looking for good deals. That leaves no option for traditional home sellers but to drop prices.
Then factor in the one thing that many don�t seem to acknowledge is the age of the average home owner. Baby boomers have the highest ownership. These same 100 million baby boomers (a full 33% of the US population) will be of retirement age by 2009 or so according to Harry S. Dent. They have been taught their whole life that your homes equity is your retirement nest egg. Recently they have viewed their homes as great �investments� due to value increases. As they approach retirement, thousands will watch their only real nest egg disappear as home prices drop. Many will panic and sell to save the equity they have at the moment.
There is an argument that states if properties drop, people will wait it out. From my conversations with boomers, they don�t feel that they have 8-10 years to wait for values to come back� especially if they are on a fixed income, they are not interested in scrapping by as they are going from their peak spending years immediately into the lowest spending years, in that transfer from older workers to retiree's.
The economy will slow since real estate has created hundreds of thousands of high paying real estate jobs like lenders, underwriters, real estate agents, escrow, title, appraisers and all of the related services like contractors, decorators, home depot, movers, furniture stores, etc all feel the pinch and downsize.
Remeber the US revolves around consumer spending... no spending... no US economy.
Keep in mind, if we only have about a 4% unemployment rate and people are already losing their homes� what happens when it goes to 6%? Factor in all the other items noted above and many people will have a few options like trying to sell their homes FSBO in order to try and save the 6% real estate commissions allowing them to discount their asking prices while not tapping into the remaining equity and many of those who have no equity will simply walk-away from the property they are upside down on.
Not a pretty picture.
A 30-year-old uninsulated, tract house in San Jose, or in Uplands, costs $750,000. This is criminal.
Well, to begin with, Realestate is a regional thing. Some markets are just fine right now. Others are hurting bad.
There are even differences in Price points within the same market.
The house I just bought I paid $40K less than it's peak value.
The house I'm selling is in a neighborhood still on the way up.
Of course, on the flip side of things, the people I just purchased this house from paid $170K in 2000. I paid $300K in 2006 and that was $40k off of the high appraisal.
The house I'm selling has gone from $140K to $170K in the same time frame. But at least that neighborhood is still going up.
My wife fell in love with this house and my first one wasn't ready to put on the market. On a whim I sat down with the realtor and within 20 minutes I had a mortgage commitment for a 30yr fixed at 6%. And that was without selling my first house. A total of $400K worth of Mortgages to go with my $1K of car payments,$1K of preschool tuition, and $1K of college tuition.
No one seemed to care how close I was cutting.
I was comfortable because I know I can sell my first house and hve about $75K in equity to play with.
Didn't put 20% down so I'm paying PMI. No big deal to me.When I told my old neighbor who is a mortgage broker, she was beside herself.
How could I possibly be paying PMI? Why didn't I call her. She could have easily fixed me up with an 80/20. 80 Adjustable rate and a 20% adjustable rate balloon. How could I not knowe how much i would be saving on PMI?
She couldn't wrap her mind around the fact thatI would only purchase a house if I could afford a single 30yr fixed rate mortgage.But I was surprised to find out...............That the 30yr fixed is not the norm anymore.
For those who think the sky is falling? It won't. It might a tight year or two, but the sky aint gonna fall.
FOr those think things are all roses and sunshine? Better wake up soon.
With the De-industrialization of the American work force, It's just housing and cars pushing the economy.Things haven't been great since 2000. But housing fueled by cheap and easy money.
So cheap and so easy as to drive the market to overheat. And cause speculation.
Sub Prime loans going bad?
Ok, wait until the combination of exotic loans and vacant houses for sale catch up.
Sub Prime loans are the least of our worries.
The first half of my adult life I made my living in construction. In the late 80's I was working in a development in NJ where houses were increasing in price an average if $2-$3K a week. Then in 87 thing went bad. A few months into it all, houses that were selling for $500K six months earlier were being dumped by the builder for $425K.
Imagine being the guy who paid $500k and had the builder devalue his house by $75K in a few months?
And it happened all over the place. And it hurt everyones value.
I see the same thing happening now in the $300K to $600K range in my area now.
One of the houses we looked at was marked down from $365k to $310 by the builder. How about the guy next door who paid $365K?
Couple that with all the young people who have zero interest or jumbo ARM's and it's real easy to see where this is going.
It sucked last time. Don't imagine it'll be any better this time.
Home prices will start to come down soon, and when they do.. they will come down FAST!
People just get sucked into any frenzy.
Thank goodness I've been in the same house 18 years and didn't refinance for any cash just a lower fixed rate.
When we bought a vacation home at the beach we did a 30 year fixed rate with 20% down. The bank tried very hard to get us into one of their "designer" mortgages. We stood firm for the fixed rate.
The banks are to blame for their own greed. Their adjustbale rate, 125% of value was just slop and now they're wallowing in it.
Most of the good news or opinions of optimism have been coming from trade groups that are very heavly entrenched in the real estate market ie Homebuilders, Real Estate Brokers Association, Mortgage lenders Association. What do you think they are going to say? This is a network of people with a very similar ideology. When the dot coms started having financial troubles in the late 90's, did they say the sky was about to fall? We are in the coverup stage.
Time to buy when the poverty pimps get up there and blame u know who....
I'm glad to see someone else put it too. The real estate market in Central Florida is going strong. I have seen my house that I purchased last year in March go up $20,000 and a few of my neighbors with the same model have sold for even $25,000 more then I bought a year ago. NO HOUSING BUBBLE HERE! With Nemours and the UCF Medical school being built, I see no Bubble in sight for many many years!
People don't learn from history! Unfortunately, history has a cruel way of showing us we are wrong by repeating itself.
Yes, it certainly will be different this time considering the magnitude of the boom from the exotic mortgages that made it all possible. After it all plays out, it will make the S&L crisis look like a parking ticket!
For those who bought without using a subprime/exotic loan, you will learn a very important lesson:
"Don't bid with real money against those who are using monopoly money"
Remember, when the prices fall for houses backed by a subprime loan, they fall for ALL real estate in the vicinity. Wkae up America!!!
The issues are complex ... so are the solutions. Demand is massive here and abroad. Resources are finite. One could argue that we need this slow-down. Our banks and decision and policy makers will need to hold tight to their integerty and decide in the best intrest of the people. Their is too much fear/greed!
LOCATION, LOCATION, LOCATION!
The mortgage industry is a cyclical business. Several people have mentioned how "one lender would get creative in order to drive up volume, and others followed". For the most part, this is true. However, the subprime companies that have survived thus far will continue to survive because they did NOT follow suit when other companies out there where whoring their products for volume.
The larger players in this market are doing just fine with lot's of liquidity, and lot's of cash in the bank. It is unfair to stereotype every lender out there by saying that they do not care about early payment default rates. That is absurd, the higher the EPD rate, the fast you go out of business. Regardless of how much money people think that we in the industry make, none of us are greedy to the degree that we would happily run ourselves out of a job. That notion is absurd.
You would be surprised to know that when looking at how mortgage products perform there are bands of high credit score borrowers that default just as frequently as those in the lower bands.
As much as everyone here would like it to seem, lending (prime and subprime) will never be an exact science. The strong companies that are still out there have leadership that understands the cycle, and understands the secondary market well. Those programs which have shown poor early payment history performance are being eliminated and/or are becoming more strict.
Blaming the lenders in these cases is not exactly fair. Have there been lenders out there who have sacrificed their credibility for dollars? Sure there have, but those are the players who are now out of business, on their way out of business, or up for sale. Throw in mortgage fraud, both perpetrated by the brokers and the borrowers, and you can see that we in the lending industry have quite a bit on our plate that we have to contend with. It is not nearly as cut and dry as those unfamiliar with the industry want to make it seem. To pretend for a minute that a reputable mortgage lender does not care about, or condones fraud is absurd.
The secondary market is the regulator of all of this. The bottom line is, if they feel that a particular area of the market is overvalued, then the appraisals on a lenders loans in that
area are going to be more scrutinized for correct valuation. When those loans dont' sell, or sell at a lower rate, the lenders begin scrutinizing future appraisals more closely, and begin scrutinizing those appraisers who constantly submit appraisals which value a house above and beyond what is realistic.
Mortgage lenders have to:
1) Ensure that everyone involved in a transaction is following all state and federal regulations.
2) Police for fraud from borrowers, brokers, title companies, attorneys, and real estate agents.
3) Have to navigate the current market with feedback from a secondary market that typically is 2 months behind today's business.
4) Ensure that their own staff have integrity, are underwriting their loans to their guidelines correctly, and are ensuring they are properly policing the customers that they deal with.
5) Ensure that now that competitors are going out of business in droves, that the bad loans that they were doing that caused them to go under do not find the way through our lending process.
While no one will argue that some of the products that have been introduced in the past have caused some issues, it is unfair to lump every lender out there together due to all of the negative press that is being thrown around. This industry is, and always has been, a cyclical business. All of this doom and gloom is really just slowing down the natural recovery of this cycle. The point being that it will recover. The people that are serious about doing good loans, which are ironically the same people that are STILL in business), will be fine. The educated consumers that know what they can afford will be fine. The brokers that don't sacrifice their integrity to make a buck will be fine. The people that need to watch their backs are the brokers out there who falsify documentation and who care more about the sell than the borrowers ability to repay, as well as those appraisers who frequently inflate home values as a means to maintain business from their local brokers. More and more states are looking at regulation on the broker side of things, and that is a good thing. Lenders should not be the only ones who are feeling the pain from early default rates. Especially since a large majority of the time, the picture that is painted for us has been misrepresented from the get go.
Good lenders must stay vigilant and see this cycle through.
Wow! A lot of emotion on this board. I wrote a post yesterday that may explain why this is happening. Take a look.
Real Estate is one giant bubble.
Its is just begining. It's not about Real Estate, this is actually an
"Easy-Credit Bubble" that drove home prices up to insane levels. It will not be pretty.
Very interesting comments posted here; most of the bases have been covered. The blame for America's predicament rests with all of us. We tend to believe, en mass, that the good times will never end, but those are very dark clouds looming! We cannot keep living in an economic environment spiraling out of control. I am not sure we will ever solve our economic problems mostly because we do not want to believe that individually we all contribute to and reinforce them. There are no free lunches and greed is NOT good. People's wants far exceed their needs and their ability to afford. Savings rates in America are disasterous. Financial planning is non-existent. Common sense is in extremely short supply. Only a small fraction of individuals have any clue as to what life is about. I worry, but my apprehension is opposite that of the vast majority. I scrimped and saved my whole life (I am 53 years young) at what has always been less than what would be considered middle class wages. At best, clinging to the lowest rung of the middle class ladder, would describe my situation. I also live in one of the fastest appreciating real estate markets on the map. However, in spite of the hurdles, I OWN my home, a very micro-business, a burgeoning portfolio toward retirement and have zero debt. It took something my parents and teachers instilled years ago; discipline, a commodity in extremely rare supply.
My apprehension; the fear of a down turn in the economy and not having the cash flow to maintain or pay the taxes associated with owning real estate and business assets. I have a much greater distance to fall than most. Having equity is a great feeling but if the resources required to service the equity suddenly evaporate I become a target. The possibility is very real to me because growth fuels a good share of my economy.
What I would like to see, is one hell of an increase in personal responsibility in this nation. I would love to see a substantial increase in interest rates to reward thrifty and consciencious behavior and penalize indiscriminate and consumer borrowing. I would love to see an extremely tight noose on credit but given todays mood I doubt that will happen. I'd love to see government borrowing cease and the national debt retired but I'll be long gone before that happens. These and other things could be the start of a turn around. However, my greatest wish would be to have every single individual in this country stare into a mirror and have a frank and honest discussion with the reflection about his or her part in the direction our nation is headed. We are all either part of the solution or part of the problem. Right now the problems vastly outnumber the solutions.
The U.S. is in big trouble. The FED can't raise interest rates because each adjustment will cause a bigger wave of forclosures.
But, oil inflation will slowly work through the economy and business activity has gone crazy at the current low rate. INFLATION IS COMING!
The FED can't stop this. It'll hit hard and take over-leveraged home owners down in waves with each adjustment.
I pity the fool that gets elected after Bush. Home prices will fall 50-60% in all those once hot markets.
the fed raised the interest rates about 100 times in a row and they turn around to tell us the market will be in recession. i didn't we pay our tax dollars to a bunch of idiots. keep up the good work fed.
Don't expect steep price falls in some area that has very low unemployment rate, but place far from decent job will be hit hard and roll back to 1990's. Anyway, just like I have said, and Greenspan comes out and says the same thing possible Recession. Today markets worldwide is bleeding...
As my momma taught me:
Oh, what a tangled web we weave, when we practice to deceive.
Words (and actions) to live (and die) by.
Buying retail RE is for suckers. Builders made billions selling retail, low quality homes. Everyone these days is a follower and too few can think for themselves. Amazing how people listen to realtors for advise and choose the mortgage jokers ( liars).People severely lack common sense. Expect a depression
As a commercial real estate broker, I feel quite positive at the outlook for the next few years at least. Look at where interst rates were 15-20 years ago. If you think these rates are an issue you have another thing to ponder. If anything, I feel the interest rate market is stablizing. Yea, you are gonna get hit every now and then with a new economic indicator that will raise rates.
My bottom line is this. I moved back to New Haven from Atlanta. I was mesmorized by the housing market in Atlanta and surrounding 168 counties (that is not a typo either). I knew people that were making $45,000 a year living in a $500,000 home on an interest only loan. The feds create a lending enviorment that does not benefit the people in which need it the most. Oh yea, North Fulton county (GA) has the highest load fraud in the United States. Yea, Rut-Row.
Americans only want what we can't have.
The Canadian that I am would just like
to say one thing. Judging by the huge
receptive comment response of this article tells me there is a huge problem. Up here in Canada we are having the same problem with real estate, ever higher prices with no real wage hikes in real terms. What will this cause in the near future. With no real inflation due to the global worker explosion and access to cheap labour, it can only mean one thing.
I cannot possibly see a continued rise in real estate values. At most a long drawn out plateu of flat to low pricing rises until wages catch up or a sudden fall in prices.
Personally the latter seems more plausible as more and more foreclosures
come on line keeping prices down.
A one bedroom apt in Vancouver is pushing a quarter million and a house is quickly on it's way to a million. Does this put futures workers with no wage rise in real terms into the market?
Probaly not. Recession Depression or
Inflation. Something has to give. People need to live some where and still be able to buy food, clothing, gas and a beer. Are we all going to be living and spending are paychecks just for a roof.
What happens when you pay a million for a house and it drops 10%. Look out
Exactly what is so bad about falling house prices. Unless you are selling to trade down or move to an apartment to retire in, it is not a bad thing.
My taxes are based on property value so if my property falls the most my taxes fall the most. If I want to trade up the much lower cost of the trade up house will be a great deal as my starter home would have only fell half that amount. My kids cannot afford a home of their own at these high prices so instead of living with me while saving up for million dollar starter homes they can buy a house right away. Investors who buy houses cheaper can charge less rent. Contractors will drop prices as flippers leave the market and I can get that new bathroom I have been hankering for!!! Sounds great. I hope houses fall at least 50%!
Like several other commenters, my hubby and I are early 30s with above-average salaries for our market (in excess of $230K combined). We have nearly $100K in savings, which we'll be using as a down-payment sometime this summer when we purchase a home (probably in the $575K to $650K range...but it will just be a modest 1500 sq.ft townhouse with 3 BRs).
Despite having a gross monthly income in excess of $19K, we feel as though we can't afford to buy a home, which is quite frightening when you think about it. If we can't afford to buy a home, depsite being well above the median income, then how can people at or below the median buy?
Looking forward. Tell the Feds to allow banks to sell/list its own REO's. Not for profit! Force excess funds above the funds needed to retire note/fees to be returned to the borrower...money will help some (not all) get restarted. This "push", in some ways, has to be better for the overall economy. Allowing this will lower loses/cost of REO's and further reduce (not stop) home prices from falling further (standard RE commission is still 5-7%).
Second, allow lenders who "short sell" to be able to limit the tax liability. Don't kid yourself, these "loses" do get paid for in others ways by you anyway. I'd rather give the credit to the Bank now and help slow this slide. There are more investors on the side lines than your aware. Once the feds treats this as a current issue instead of a "pending" issue the people with the money...lenders and investors will jump back in. Third allow the REO holders who do work with homeowners thru "work outs" to treat this "work out period" as a credit of some sort to entice lenders to work with distressed homeowners instead of trying to force a foreclosure or deed transfer. Start rewarding lenders who do work with homeowners. Fourth, (I'm only speaking for Florida properties) stop the mandatory collection on taxes and lenders title policies for these in distress sales. Allow folks in a "work out" status to refinance without the fees. (FL mandated fees can be as high as point when all are calculated.) Florida is only adding more fees as it stands forcing the lack of equity to be more of a problem. Force lenders to do a loan at PAR for "work out's" or "distressed" homeowners. I'm sorry to say that mortgage LO's will still take advantage of these folks. That in itself is a crime. What would we rather do? Allow folks to stay in home working etc or "walk" from the home and the state. I'd vote to keep the person in the home producing commerce�s.
I'm not thrilled with the current drop in prices but it's not happening everywhere. These are a few "reforms" that have been needed for a long time that have been stopped by the lobbyist for the same Realtors that still charge 5-7% of any sale regardless of your equity position or lack of. Most businesses would love a 5-7% profit margin on each transaction regardless of what price it sells for. (Can't wait for the Real Estate folks to start chiming in.) This is not the answer to this market correction. It's really all a market driven reaction to simple greed. But leveling the sales and commission playing field will be a win for all in the coming years. It's called "a free market" I thought.
Lenders are going to get these homes back regardless, why force an increase in the price to sell them. They will sell but again at a higher inflated price.
All this blabber about borrowers being 'victims' literally makes me SICK. Stop blaming banks for borrower's defaults. Joe American needs to start taking responsibility and stop abusing his credit. He's a grown up, he filled out the application, he signed the promissory note - PERIOD.
Can't make the payment? Move back into your apartment and give us the keys to your house.... and come back when you're a responsible adult.
Housing is one of the forces that will bring down the economy. On Feb 5th, International Institute of Management (IIM) published a research report addressing the U.S. economic risks for the next decade. The most interesting thing about the report is that warning signs listed in the paper are all coming true, including this month�s stock market meltdown, subprime pain, investment deficit and trade deficit report. The complete text of the report can be found on http://www.iim-edu.org/u.s.economyrisks/
What is disturbing about the subject is that few economists disagreed with the presidential state of economy speech on Jan 31st (citing strong Down Jones performance and economic growth). The author of the paper explains the interplay of U.S. and global economic forces in a detailed yet easy to understand logic for non-economists. According to the report, the worst thing that could happen to the U.S. economy is the loss of investor�s confidence. Med Yones, the president of the research, links current economic challenges to globalization forces and government policies. He recommends unusual strategies to mitigate the risks.
The market is full of noise and conflicting reports on the outlook of the U.S. economy, this paper cuts through all of the noise and focuses on the big picture rather than short term stock market behavior. It�s a sobering assessment of the future of U.S. socioeconomic health.
On March 11th, Reuters published the a story, citing the part of the report http://www.reuters.com/article/hotStocksNews/idUSN0925116620070311
Another supporting point of view can be found in an article written by John Freeland, PhD, Credit Card Nation - Should the Government Get Credit Counseling?
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