First let me qualify this post. I am not an economist. However I do have more than the average “Bear Sterns” experience in the real estate world and lending. So here, I like to project some of my own theories as to the culmination of the US economy, turning a 180 because of the effects of what many like to call the subprime mortgage crisis.
I say it’s a “perfect storm” because it took several events together – over more than decades – to create the problematic housing bubble. And without some, we may not be even having this discussion today. So first…
HOME PRICES – MORTGAGE LENDING – FORECLOSURES
What everyone must remember is that foreclosures are not a new entity in the real estate world. In the not so long ago past (pre 2004), if a borrower with a 100% LTV (loan to value) mortgage defaulted on a $300K home… which was worth $300K… that borrower was merely booted out (foreclosed upon), and a new qualified buyer purchased, recouping the lenders cash output. The lender’s loss was confined to the costs of foreclosure.
But one of the largest contributing problems to foreclosures today is something the media doesn’t speak of… and that’s that unnatural and unsustainable housing price inflation that took place most notably between 2004 and 2006. A buyer who purchased a home for 100% LTV in that period bought at the peak of values. If that buyer defaulted, the home was upsidedown in value… with a mortgage far more than the home was worth.
If that is over valued an average of 30% (which isn’t far off, as you’ll see when you observe the rise in prices starting in 1996-97 below), then that $300K home is more realistically worth $210K. This means a default by a buyer incurs the lender a $90K loss, PLUS the foreclosure charges.
When you compound the upside down value on the defaulted loans with the foreclosure charges, you can see why the mortgage industry is taking such a hit. They can no longer just replace one buyer with another, and recoup their losses at a minimum.
What was happening with house prices in the last decade or so? Below is a graph of US housing prices since 1975 to 2008, courtesy of some guy named Vodka Jim. [Mata Musing: See update below…]
The above chart estimates the market value of today’s median-priced house over a 33-year period.
The red line represents real house prices. For those unfamiliar with economic-speak, “real” prices are prices that have been adjusted for inflation. The blue line represents nominal house prices.
Notice that in the 25-year period from 1975 through 1999, real house prices stayed roughly within the range of $132,000 to $171,000. Only since the year 2000 have real house prices risen above the top of this range. The United States median price was at approximately $206,500 as of the second quarter of 2008. This is 21% higher than the previous housing boom peak of an inflation-adjusted $170,900 in 1989.
UPDATE Mar 2013: Vodka Jim’s site is “locked”, ergo above chart doesn’t display. Below is the housing prices data from jparsons, reflecting US home prices from 1970 thru 2011.
Note that the base of the rapid increase in prices begins in 1999-2000. Coincidentally around the same time that Fannie/Freddie relaxed credit standards under pressure from the Clinton Admin. The result was that the GSE’s cornered the mortgage market, piling on the risky loans, starting in the year 2000, as evidenced below in the CBO chart. The private lenders did not jump on the high risk bandwagon until 2004, surpassing the GSE’s share only for two years…. but never reaching the high volume of risk the GSEs held.
END UPDATE
Using the red line on the graph (inflation adjusted home pricing) we see a distinct, beeline rise that started in 1997, and continued until the much needed deflation started occuring in 2007. Between 1997 and 2000, the interest rates were higher than what we had, which did help keep the prices in check. However post 911, interest rates lowered, and stayed low, which translates to the price increases that shot up sharply between 2000 and 2006.
I say “much needed” because I don’t believe we are having a home value crash. I have always said this is a required market correction. The home values were rising astronomically, and vastly out of proportion to income.
This same fact is often hard for sellers to swallow. They have it in their mind, after this boom of the past decade or so, that their homes are a veritable piggy bank…. something they can constantly draw out equity and spend on anything but improvements on their home. They bank that, despite an aging and depreciating asset, it will still continue to be worth 10-20% more annually. This is, and has always been a bad risk, as housing – and mortgage rates – has always fluctuated.
Lest ye think this is confined solely to the US, and a Bush created problem, there’s ample evidence to prove your wrong. Another graph below, courtesy of the UK’s The Market Oracle, shows a similar pattern in a similar time frame.
The US Housing market turned lower in late 2006, the down trend to date is accelerating as the number of unsold properties passes the 4 million mark creating a large over hang of supply. There is no technical or fundamental sign of an imminent bottom. US house prices could easily fall another 15% and then be subjected to many years of consolidation before prices can start to rise higher again. This despite the clear inflationary strategy of devaluing the US dollar as evident by the currency adjusted gap developing between US and UK house prices (green line). The US housing market is clearly in the grips of a vicious cycle of house price falls, leading to more foreclosures leading to further house prices falls. The impact of each turn of the cycle is an greater credit squeeze as leveraged banks losses and risks escalate.
The UK housing market peaked in August 2007 and to date is declining at an annualised rate of 7.5%, which is inline with the two year forecast for a 15% price drop from August 2007 to August 2009. Whilst there are many fundamental reasons for why the UK house prices have been more supported than the US i.e. limited new builds and recent influx of immigration from eastern europe. However the degree to which the UK housing bubble has been inflated gives ample scope for a serious price correction that would extend to a period well beyond the initial 2 year house price forecast period, especially if the recent immigrants flow outward during a UK recession and therefore contributing towards a glut of empty rental properties amongst the sizeable speculative buy to let sector.
Not only have UK house prices risen by 170% since January 1999, against US house prices that currently stand at up 111%. But the currency adjusted increase is 225%, where much of this increase has taken place during the past 2 years. The UK housing market seems destined to give up all of the gains made during 2006 and 2007 and therefore targeting a nominal price decline of at least 19%. Declines beyond these are dependant upon inflation and currency trends which could see a real terms inflation adjusted decline of more than 33% over a 3 year time frame (from August 07).
In Jan of 2007, an article in the Director of Finance Online documents the housing inflation’s progress, ranging from low of 7% in the West Midlands to a high of 17.5% in London.
By August of this year, that appreciation had slowed… running approx a year behind the US housing market. The Independent reports that gross mortgage lending is down about 65% from the previous year.
“The monthly numbers of approvals for house purchase, which have fallen by some two-thirds over the last year, levelled off in July,” said David Dooks, the BBA’s statistics director. “It would, however, be premature to think that the housing market will now start to recover, because overall approval activity continues to be very low. The pressures on household budgets are reflected in the relatively weak rise in individuals’ deposits and, with consumer borrowing growing only slowly it seems that consumers are acting prudently.”
~~~“We continue to anticipate a modest recovery in house purchase activity [in the second half]. But the still very low level of approvals points to falling house prices – we currently expect an 18 per cent drop by year end, and a further 9 per cent decline by the end of 2009.”
The UK did something the US did not between 2000 and 2006… they used their interest rates to attempt to control their prices… raising them for awhile before reducing them again.
This leads me to two conclusions. First, had the housing prices not risen out of control, and become over valued, the high rate of foreclosures from risky subprime ARM loans would not have had the same effect on the overall lending industry. Defaulting buyers would merely be replaced with qualified buyers for a home worth the note value.
Secondly, this is not just a US problem…. Considering the UK’s eerily parallel path, and the reality that George W. Bush has nothing to do with British regulations of lending, it’s difficult to simply tie this to a sitting POTUS or British PM. For whatever reasons the UK experienced their housing inflation, it is having the same economic effect.
EASY MONEY LED TO INFLATED US PROPERTY PRICING
So why did those home prices get driven up so high? Two reasons… first the availability of money to risky borrowers who did not have access before. And secondly, that easy money coming at a cheap rate.
As Dan Danning, editor or Strategic Investments, wrote in his article for the Daily Reckoning, The New Serfdom”, 2003 was a banner year for refinancings and rock bottom rates. By April, the refinance market dropped 30% “on a week-over week basis. That was not long after short-term bond prices cratered – and yields spiked up. Rates went up, healthy borrowers lost the incentive for refinancing and purchasing, and the run at the ARMs by the more risky homeowner began in earnest.
Now there was the opportunity for cheap money at the entry ARM rates, or taking advantage of the no-doc/low doc, stated income or interest only exotic loan packages. The new buyers did not think 3-5 years into the future at the adjusted pricing.
Regulations mandate that lenders disclose the adjustment will occur and payments will be based on a capped percentage off the prime rate. But since no one has any idea what rates will be 3-5 years in advance, it’s almost impossible to tell them what a future loan payment will be. How do you demand disclosure of a number based on a rate pulled out of the hat? Such are the pesky details of reality….
Interest only loans only work when you are guaranteed equity growth… a risky proposition if you’re in a 100% LTV mortgage. You might as well bet you’ll always have at least a full house in the local poker game with every hand.
In 2004, Federal Reserve Board governor Ed Gramlich credited the innovative prime and subprime packages for some 9 million new homeowners. In a speech to the Financial Services Roundtable in Chicago, May 2004, he also noted that “Subprime borrowers pay higher rates of interest, go into delinquency more often, and have their properties foreclosed at a higher rate than prime borrowers.”
At that time, the delinquency rates ran at around 7 percent, compared to 1 percent with prime mortgages. But the subprime borrowers were higher risk, and had less margin for area. Compound that with subprime mortgage lending increasing 25% annually between 1993 and 2004, and that 7% was starting to represent a serious percentage of notes packaged and sold on the secondary mortgage market.
With the easy money, and a drove of risky buyers flooding the market looking to purchase, sellers and listing agents commanded more dollars for the existing inventory… the ol’ finite supply vs increased demand syndrome. Builders were pounding out houses that were selling before the roofs were put on. Nothing could stay on the market long, and bidding wars became the norm, driving prices up.
But, as we see, the price inflation itself was a major contributor to the downfall… the influx of so many high risk buyers may have been somewhat managable without the increased prices. But the two together? Major components of the perfect storm.
EASY MONEY A FAULT OF NO REGULATION?
Today the instinctive rallying cry is the demand for more government regulation. Odd and rather disjointed solution when you consider you’re asking the very entity – Congress – responsible for creating and overseeing the largest secondary mortgage companies (Fannie and Freddie) to take over control and add even more regulations. Especially since they’ve had oversight, and Fannie/Freddie problems were apparent at the end of the 90s.
But let’s take a closer look at that regulation vs degulation – or the removal of government controls on an industry – argument. Curt brought you up to speed on that story with his Sept 20th post, Jimmah at fault for this financial mess. He tells of the Community Reinvestment Act that was established in 1977 by Congress, and signed into law by Carter.
From a very well written article in the winter of 2000… note PRE-GEORGE BUSH era… by Howard Husock:
The Act, which Jimmy Carter signed in 1977, grew out of the complaint that urban banks were “redlining” inner-city neighborhoods, refusing to lend to their residents while using their deposits to finance suburban expansion. CRA decreed that banks have “an affirmative obligation” to meet the credit needs of the communities in which they are chartered, and that federal banking regulators should assess how well they do that when considering their requests to merge or to open branches. Implicit in the bill’s rationale was a belief that CRA was needed to counter racial discrimination in lending, an assumption that later seemed to gain support from a widely publicized 1990 Federal Reserve Bank of Boston finding that blacks and Hispanics suffered higher mortgage-denial rates than whites, even at similar income levels.
But it was a different lending world in Carter’s era. Banking then was small, local savings banks, prohibited by regulations from interstate lending activity, and sometimes being confined to certain areas within the state. Since banking is like any other industry – it must make a profit to survive – the risk was controllable as they knew their risk areas more easily, and competition was minimal.
But upon the arrival of commercial banking in the 90s, the heavy competition caused the collapse of the small banking institution. They could not survive the competition of the national and international business lenders. But they also didn’t know the local ‘hoods, either… thus an increase in risk by being blind to the actual specifics.
Then comes Bill Clinton. Again, from Husock’s article in the winter of 2000.
The Clinton administration has turned the Community Reinvestment Act, a once-obscure and lightly enforced banking regulation law, into one of the most powerful mandates shaping American cities—and, as Senate Banking Committee chairman Phil Gramm memorably put it, a vast extortion scheme against the nation’s banks. Under its provisions, U.S. banks have committed nearly $1 trillion for inner-city and low-income mortgages and real estate development projects, most of it funneled through a nationwide network of left-wing community groups, intent, in some cases, on teaching their low-income clients that the financial system is their enemy and, implicitly, that government, rather than their own striving, is the key to their well-being.
One of the examples of the left wing community groups (and obviously their “community organizers”) is ACORN. On one of their releases, they have a report/press release proudly touting their battles against CRA reform that may exempt banking institutions from the CRA examinations of compliance – ala mandated redlining lending – for those with aggregate assets of no more than $100 million…. HR 1858.
When the House Banking Committee considered the bill, ACORN was there in force. Denied the right to testify on the proposed legislation, ACORN president Maude Hurd stood up when mark-up began and demanded to be heard. Subcommittee Chair Roukema (R-NJ) called the Capitol Police who took Maude and four other ACORN leaders to D.C. central booking where they were charged with disrupting Congress. Requests from Rep. Joe Kennedy and Sen. Edward Kennedy to release the ACORN activists failed, and it was not until Rep. Maxine Waters (D-CA) showed up at the jail and refused to leave that they were released late that night. Meanwhile, as mark-up continued in subcommittee, ACORN members again displaced the industry lobbyists who were forced to watch the proceedings on closed circuit television. When the full Committee took up the measure ACORN supplanted the lobbyists once more, this time packing the overflow room as well, leaving many lobbyists in the hallways.
Amazing they spit out the word “lobbyist” with such venom. For when you think about it, what is ACORN but just another “lobbyist” organization?? oh well… They seem to live in a alternative universe.
The problem with Clinton’s reforms is he did not take into consideration the face lift on banking. Now the bank’s efforts to prove they weren’t redlining – or showing discriminatory practices – had to be shown with “the numbers”…. In essence, having high risk loans now became mandatory. These reforms commenced Jan 1st, 1995.. just before the GOP majority Congress took over after their midterm election sweep. This was a desperate act by Clinton, rewriting the regulations, knowing it would be rejected if he submitted it to the new GOP Congress.
During the seventies and eighties, CRA enforcement was perfunctory. Regulators asked banks to demonstrate that they were trying to reach their entire “assessment area” by advertising in minority-oriented newspapers or by sending their executives to serve on the boards of local community groups. The Clinton administration changed this state of affairs dramatically. Ignoring the sweeping transformation of the banking industry since the CRA was passed, the Clinton Treasury Department’s 1995 regulations made getting a satisfactory CRA rating much harder. The new regulations de-emphasized subjective assessment measures in favor of strictly numerical ones. Bank examiners would use federal home-loan data, broken down by neighborhood, income group, and race, to rate banks on performance. There would be no more A’s for effort. Only results—specific loans, specific levels of service—would count. Where and to whom have home loans been made? Have banks invested in all neighborhoods within their assessment area? Do they operate branches in those neighborhoods?
~~~The CRA’s premise sounds unassailable: helping the poor buy and keep homes will stabilize and rebuild city neighborhoods. As enforced today, though, the law portends just the opposite, threatening to undermine the efforts of the upwardly mobile poor by saddling them with neighbors more than usually likely to depress property values by not maintaining their homes adequately or by losing them to foreclosure. The CRA’s logic also helps to ensure that inner-city neighborhoods stay poor by discouraging the kinds of investment that might make them better off.
Written in the winter of 2000… sounds like it could have been written yesterday.
In 2003 and on, the Bush WH was actively pursuing Fannie/Freddie reform since they could see the handwriting on the wall for potential massive default. By then, they had issued $1.5 trillion in debt.
Yet supporters of Fannie/Freddie (uh… DNC…) argued that tighter oversight with the changes may make it more difficult to finance loans for the lower income families. Yet it was these very loans that were at the source of the problem.
Significant details must still be worked out before Congress can approve a bill. Among the groups denouncing the proposal today were the National Association of Home Builders and Congressional Democrats who fear that tighter regulation of the companies could sharply reduce their commitment to financing low-income and affordable housing.
”These two entities — Fannie Mae and Freddie Mac — are not facing any kind of financial crisis,” said Representative Barney Franof Massachusetts, the ranking Democrat on the Financial Services Committee. ”The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.”
Representative Melvin L. Watt, Democrat of North Carolina, agreed.
”I don’t see much other than a shell game going on here, moving something from one agency to another and in the process weakening the bargaining power of poorer families and their ability to get affordable housing,” Mr. Watt said.
Will those words return to haunt them today? With our research-deficient MSM…. unlikely.
UPDATE: Now, what Congress members would like you to believe is that securitization, or the bundling of loans to sell interstate as MBSs (mortgage backed securities), then repackaged yet again for resale, is the problem. Yet intersale of assets is necessary to provide opportunity for more buyers.
The reality is that had non-risky loans been packaged, and risky loans had been avoided, none of this would have happened, and the MBSs would be stable. Thus, the problem is not that loans were bundled, but that BAD risky loans were bundled.
So here’s the point. Before we scream for “regulation”, we need to realize it was *regulation* that put us in the quandary that placed the final component into the perfect storm…. the mandated increase of high risk loans. The specifics of any regulation/deregulation really need to be poured over carefully…
THE PERFECT STORM
The Clinton “improvement” of CRA was done in 1995. Now… look at the charts above one more time. Notice that from 1989 to 1995, the home prices remain relatively flat. Now notice that the increase in home prices corresponds to Clinton’s revamping of CRA, and his new mandates to prove compliance by firm numbers.
Now we see a clearer picture to “the perfect storm”.
The mandated easy money (documented by actual loan numbers and not intent) to high risk lenders was accomplished by the creative loan packaging…
The influx of so many buyers from the low rates and exotic loan packages flooded the inventory with ready and able buyers…. this led to overinflated prices of homes and the big boom of 2004-2006…
… which led to the inevitable foreclosures of the high risk buyers. They were unable to refi because of the inflated value…
…finally setting the stage for the high lending losses today – money the banks put out for inflated property values that can not be recouped in a resale in today’s market.
Not so much of a surprise when you see the overview, yes?
Now, let’s reconsider that $700 bill bailout in bad notes… is it really that much? How many of those homes can be resold for a realistic value? Let’s say the average overinflated value in the notes is 25%. That’s $125 billion in lost equity. And that’s considerably less than the $700 billion.
Are we “over bailing” the boat??
Vietnam era Navy wife, indy/conservative, and an official California escapee now residing as a red speck in the sea of Oregon blue.
Barack Obama and Democrats blame the historical financial turmoil on the market. But if it’s dysfunctional, Democrats during the Clinton years are a prime reason for it.
Mata, here are two interesting articles in the subject:
THE REAL CULPRITS IN THIS MELDOWN
http://www.ibdeditorials.com/IBDArticles.aspx?id=306370789279709
ORGANIC MARKET
http://www.forbes.com/opinions/2008/09/18/market-organic-regulation-oped-cx_rr_0918roberts.html
Yup, Craig… I definitely pull both Bill Clinton and the DNC into all this in the post. The DNC dabbling with their choices of regulation were definitely one component of the perfect storm.
However, also add to the mix sellers, listing agents and appraisers that helped drive up the housing prices. For if the housing prices stayed reasonable, despite the flood of buyers on the market, the lending industry would not be in the red. So consumers and other real estate professionals also lent a hand.
Like I said, a perfect storm coming together. The environment was ripe for it.
But to demonstrate that it’s not all the Dems and Congress, you need only look at the UK, in the same pickle. And that actuall raised interest rates thru their boom to try and control the housing prices to minimize the damage. Just not enough…
Watch out for your next market collapse… lol
See this video:
ECONOMIST WARN ANTI-BUSH MERCHANDISE MARKET CLOSE TO COLLAPSE
http://www.theonion.com/content/video/economists_warn_anti_bush?utm_source=embedded_video
There’s plenty of blame to go around (especially on the DemocRat’s side) but we need to fix the problem, instead of assigning blame, which is what all current politicians are doing.
The point of the post, thebronze, is to help assess how the problem originated. You have to understand that before “fixing” the problem.
And obviously, more government intervention is unlikely to “fix” anything. They should not concentrate on getting the house prices back to reasonable levels… a free market task. They may put caveats on the bail out that fester the economic boil.
Frankly, I think they’re all running around like chickens with their heads cut off, and clueless to boot.
The house prices need to be at a realistic level, the mortgage money has to flow, and the interest rate has to keep the housing prices from flying up unnaturally again.
Not one of these fixes are the job of government. Whatever they do, they need to stay out of the way to allow these events to return to normal.
But Mata,
You said “For if the housing prices stayed reasonable, despite the flood of buyers on the market, the lending industry would not be in the red.” With a flood of buyers you’re going to have either quickly rising prices or government regulation that prevents many of those buyers from even being able to “bid” on a house the lenders are telling them they can qualify for. Unless you repeal the law of supply and demand, or depend on ACORN, real estate people, “community organizers” and the Democrats to act reasonably. And if you believe that will happen I’ve got a bridge back east I’ll sell you, special for you just today, one bridge for the price of two.
Walter M. Clark
You are so right Mata. Here is the conclusion of one of the article I linked in my comment #1 (Organic Market)
“Politicians and policy makers ignored the essentially organic nature of market forces and assumed that one piece of the market could be altered while everything else remained unchanged. But politicians always think they can design a market from the top down as long as just the right regulations are put in place. Unfortunately, the most recent actions of policy makers have already done immense harm.
By failing to highlight the role of government in creating the current crisis, they have encouraged citizens to believe that markets have failed.
Both presidential candidates will promise a risk-free world with high returns. But peddling that fantasy is the cause of the current crisis. We treat our children this way–we do our best to insulate them from harm and still allow them to grow. I’d like politicians to treat me as an adult, paying the price for my recklessness and reaping a reward when I am prudent. Returning to that world, the world of markets, is the beginning of a return to stability”.
Sorta yes, and sorta no, Walter.
There’s an adage in the real estate business that your home is only worth what a buyer is willing to pay. When that comes to a cash deal, it’s true.
However in real estate transactions, if a lender is involved, so is an appraiser. The appraiser is hired by the lender to insure that the property suits the loan value of the offer. If a home appraises low for the offered price, the buyer must put in more money, or the seller must agree to lower the price or the deal goes south.
If homes in the neighborhood have only been documented as selling for $300K, and the appraiser turns in a value of $450K for a similar home to support an offer, there’s some subterfuge going on. Once an appraiser establishes a false value like that, the next neighbor can come in with a higher price, and point to that house and say “see!”
Now if the bank carefully checked over the appraisal, and found the appraiser was ignoring nearby lower sales, and going out further into higher dollar areas to substantiate the offered price, they could have refused to lend the full offered amount, unless it was one stellar buyer with lots of cash down. They care only to cover what they have invested in the home.
So, if a buyer wants to over bid in a bidding war, the bank should still only lend on the house value amount, and the buyer must bring in the additional. And all should be noted in the sales history… appraisal value, and overage. Would entail some reporting changes, and that’s it.
So actually, remaining within reasonable guidelines of market sales history would keep the prices stable… as long as the appraiser and lender are straight up and honest. But lenders don’t know the neighborhoods, like in the old days. They depend upon an appraiser to be their eyes.
It only takes a few sales above and beyond the old norm to create a new “norm”. And during the days of bidding wars, this is what happened.
Mata, I meant that in general, not as a direct response to your post. Sorry I came across as such.
OHhhhhhhhh. Thanks for clearing that up, bronze!
Did you see Obama said McCain had no executive experience? I beg to differ.
http://thenewconservatives.blogspot.com/2008/09/obama-says-mccain-doesnt-have-executive.html
Obama said McCain had no executive experience I disagree
http://www.thenewconservatives.blogspot.com/
You left how how the bundling of these subprime loans infected the market. This is what really feed the mortgage companies with their “easy money” and spread the risk to the rest of the market.
As far I can tell no one was ever forced to purchase a bundle package of risky subprime loans. That was a free will, free market decision and just as stupid and reckless as the one made by Mr. Subprime Borrower and his mortgage company.
I am begining to think it would be best to not intervene and just let the market crash in order to correct itself. It’s what it wants to do. It’s what it’s been trying to do for years. The short term would be extremely difficult. However five years from now we would be in a much healthier place than if we go ahead with this bailout.
No, Fit… I did not leave it out. The selling of high risk loans on the secondary is obvious, since few if any banks keep the notes. It’s a standard practice to free up their assets to loan again.
However you are under the assumption they package all high risk loans together and find some dupe. Not the way it works. The subprime and prime are generally packaged together to spread the risk. You’re buying a trunk load of promissory notes. When you buy lots of these trunks, there will be the high risk loans in all. It’s not like one trunk is all losers.
When you have several trunks and an “x” percentage of bad notes, it doesn’t matter how they arrived in your portfolio.
“These reforms commenced Jan 1st, 2005.. just before the GOP majority Congress took over after their midterm election sweep.”
Shouldn’t that be 1995?
Yup Sedonaman… thank you for catching “my senior moment”… LOL I’ve corrected.
This story and thread got me thinking… Besides the predatory lenders, Wall Street, Dems like Barney Frank & Chris Dodd ignoring the dangerous trends and regulator feed back, Acorn activities with banks and stupid people either intentionaly or conned into buying homes they couldn’t afford. There are a few aspects that have gone undiscussed.
You see, not all of us home buyers were living beyond their means when we first purchased our homes. There are several aspects that have been wholly ignored that also contributed to the problem; Greedy local government officials, the Federal reserve playing with the interest rates, and several cost of living increases.
When I purchased my Virginia home in January 2000, my monthly payment was $714, gasoline was $1.31 a gallon, property taxes were around $400. Over the next five years, when the housing bubble topped out, interest rates raised my House payment by $200/month, Gas went to $2.19, all utility bills had hidden tax increases and jumped up by $40-100 (depending on the season), local property taxes nearly doubled & food prices have gone up %50. Yet income only went up 3% each year (15%). This was a heavy strain on everyone’s home budgets. That’s why the housing bubble burst in 2005. Since then Local government officials ignored the housing bubble burst and keep raising property appraisals on our homes so they could keep increasing taxes, Early 2007 gas prices increased another $1, then another $1 this summer. Throwing our corn away on Ethanol production to keep the environmentalists happy is kicking up food prices again, and it’s been a never-ending nightmare. As a retiree now on a fixed income it’s hell just keeping my head above water and I’m frugal as hell. Most people loosing their houses now are not those that made bad decision, it’s us regular folks that have been unable to maintain anything close to the same lifestyle we had in 2000. Now consider all of these factors mentioned above and ask yourself, “What is missing?”
What’s missing is who the Dems blame for all this; Bush. We’ve all clearing pointed out in these threads that it is the Democrats in Congress that messed up Fannie Mae & Freddy Mac. It’s the Democrats that are trying to force ethanol down our throats. The Democrats who have blocked drilling for more oil and natural gas for the last 40+ years. The Democrats who have tried to block construction of refineries and nuclear powerplants. And who has taken over government control in Virginia and been creating and increasing every local tax they can find? Democrats. Who has been limiting military base pay to only 3% per year when the cost of living has been going up by 5%? Democrats. So please explain to this Independent Johnny and the rest of the fly-by socialist posters here, why the hell I should put their poeple in power.
Rocky_B:
Re: “So please explain to this Independent Johnny and the rest of the fly-by socialist posters here, why the hell I should put their poeple in power.”
You want “change”, don’t you?
I assume the question was rhetorical, yet feel it deserves to be answered.
Not at the cost of our liberties, freedoms, rights, and social moralities we hold dear.
Not at the cost of the Constitution and Bill of Rights I swore to protect and was willing to give my life for.
Not at the cost of Oppression.
And certainly not the types of “change” the likes of Obama, Biden, Pelosi, Frank, & the numerous others would inflict on us.
Rocky_B:
My comment was intended to be sarcasm for Obama’s campaign line. Hence, “change” is in quotes.
Don’t forget State and Federal taxes in reguards to property, assets, and labor. Those are as critical to the situation of a new business building as well.
I can attest to the fact that this post having been made on Sep. 2009, this Jan we can all see the improvement on the housing and lending. We are not however yet to the 180 on your prediction.
@Foreclosure Cleanout, all you can attest to is that you are possibly successful by selling 108 pg reports and lead generation for those who may want to start an empty house cleaning service. Good business idea, but limited opportunities since most foreclosed homes need more repairs than cleaning to fit lending standards, and banks will not use anyone but licensed contractors for those.
And if you actually believe your own “improvement” statement, you’d better find a new idea and pamphlet to sell to the unemployed. (BTW, your website doesn’t work…)
I work in this business daily, battling with housing stats, upcoming foreclosures, constant and increasing short sales, and extreme difficult underwriting guidelines that change daily. I’m here to tell you there is no improvement in housing and lending. The new RESPA standards, plus the HVCC are already wreaking havoc just a month in with lenders. Closings are taking longer and the failure rate is up.
There was a boost over Nov because of the government subsidy of $8K 1st time homebuyer credits. The extension, plus widening the credit to current owners, until April hasn’t continued the rush that overbidding desperate buyers engaged in thru Sept-Oct. In Dec, existing home pending sales and closed sales both dropped just shy of 17%.
To update this impact in reality, you may reference my Jan 1st post on the new housing bubble built on the taxpayers’ backs. That would be about half the loans last year being FHA with 3.5% down. When you add back in the upfront mortgage fees at closing, these new sales have about 2% equity in them at best.
Setting aside closing costs and cost of sales, all it takes is another decline in housing prices for these new mortgages also to go toxic. I’ve predicted the continued decline in the above referenced post as a guarantee when Bernanke raises the rates… an opinion echoed by Douglas McIntyre at Daily Finance, Mark Zandi at Moodys estimates prices declining at least 5-10%… and perhaps over 30% in places like Miami this year. Barclay’s Capital’s Michelle Meyer and Julia Coronado say it’s more like 15%.
Can you say more toxic mortgages?
Now combine that with the reality of long term high unemployment and rising foreclosures getting ready to flood the market. Even the non-economic oriented, liberal PC rag, Time Magazine, is picking up on that reality. Bloomberg says foreclosures for 2010 are expected to pass 2009’s record figure, hitting 3 million…. using RealtyTrac stats.
Remember what our final nail in the coffin was, as I pointed out in this “perfect storm” post? The unsustainable and artifical rise in prices. When the mortgages are toxic, you can not simply kick out the defaulting buyer for a $200K mortgage, and put another one in because the house is only worth $180K. More money that banks have to eat, or come to the taxpayers with a tin cup for another hand out.
As the more current “housing bubble” post I did at the beginning of Jan points out, FHA and Ginnie Mae are leveraged to the max. And considering that Fannie and Freddie are less “insured” GSEs than “guaranteed” anymore, backed by the US treasury with taxpayer funds, a ton of foreclosures and toxic mortgages swings back by for a double dip recession driven once more by the housing market failures.
Ugly fact is, we’re going to have to go upside down, figure out a way to absorb the losses as corporations and households, then stablize for a more nominal and realistic slower appreciation… just as it should have always been. That natural market correction is being thwarted by a WH and Congress, not wanting it to happen on their watch. Every time they help, they delay the correction, and make it tougher to recover. Zandi calls it on life support.
Not even addressed in all these is another ugly fact… the resetting of the ARMS for both 2006-07 loans, and the commercial real estate avalanche for the same. That’s the good news for 2011, I guess.
I don’t know what fantasy world you’re living in. Perhaps your bank account is doing well selling tips and tricks to those who’ll figure out afterwards that just shampoo’ing a carpet, mowing the lawn, and windexing the windows isn’t a viable service to the banks since it won’t cut the mustard on most foreclosure repairs. Hang… the last thing they care about is cosmetics. They’re more worried about the stuff that stops a buyer’s lender from funding it… things like dry rot; ripped out walls with studs showing; and electrical wires cut; missing fixtures, furnaces, dishwashers and stoves; broken windows; bad roofs; and peeling paint.
So perhaps you should pad your mattress with your profits now, then you can pick up on buying some of the upcoming foreclosures as a cash investor. Just remember FHA flipping rules… be prepared to hang on to it for at least 150 days – 90 days before you can accept an offer, and about two months to close it… providing all goes well.
@Foreclosure Cleanout:
Now that Mata has thoroughly destroyed your argument by disassembling it at the joints, I will take the liberty of stacking your dry, brittle bones in the corner.
Your prognostications and attestations of an improvement in housing simply flies in the face of the facts.
Here, for example you can see the trend line of Freddie Mac foreclosures:
The picture at Fannie Mae is no more encouraging:
What were you saying again?
MATA, what an informative post for TODAY to recall at this time,
IT seems to me, that you where then, predicting the mess that the government put this AMERICA in.
IT’s a must revisit post. bye
A couple points seem to be consistently overlooked whenever it’s argued that the CRA brought about the subprime mortgage meltdown:
(1) Only a small portion of the total of all subprime loans issued were made because of CRA provisions. Of higher-priced loans–those which had the highest overall default rate–only 6 percent were extended by CRA-regulated lenders.
(2) Compared with all subprime loans, those that were CRA-related performed neither better nor worse than those loans that were not. Contrary to what is often implied, CRA subprime loans didn’t have a significantly higher default rate.
http://www.minneapolisfed.org/publications_papers/pub_display.cfm?id=4136
@Greg
But what the CRA did was proove to the Loan industry that they could put just about anything on a Loan app, and that Fannie and Freddie would buy it.
Fannie and Freddie were mandated to take those CRA loans off the hands of the Loan originator… and with the very loose standards, the banks saw that Fan and Fred would take just about anything… and in fact HAD to have the same standards to buy non CRA loans, as the CRA loans.
So the Banking industry lowered those standards… because with Fan/Fred taking those loans anyway, there was no real risk to the Banks themselves.
It was the divorce from Risk, which ended up creating an avalanche of money, which raised housing prices until they were unsustainable.
@% JAN. 2011, MATA, your POST, are done to revisit ,the future,as
they are always a reminder of the danger of continuing the problems’makers,,
possibilitys and will to maintain what their own interest are to, and naming one is
to continiue their restraint on the FREE ENTERPRISE SUCCESS , for the sake of keeping their voters,
on a downward trend, in order to show their interventions are the only way for them to subsist.
bye
Mata,A. C. and friends How is it you ” doom and gloomers” never talk about the stock market’s major indices all being up over 40% since BHO inaug. Bond market is also substantially higher.
Probably, rich wheeler, because I don’t see the stock market as a leading indicator… because it isn’t. As Mish’s Global Economic Analysis points out:
To again bring this reality home that it’s “useless” is Daniel Indiviglio’s article in The Atlantic last April:
I’d say Mr. Indiviglio may be revising his double dip optimism today, if not sometime this year. Better late than never.
Don’t get me wrong. I will always bank on US entrepreneurial spirit and the private sector being the ultimate “comeback kid”, but it happens quicker when the government doesn’t “help”. The stock performance, tho unrelated to main street kitchen tables, does affect those areas because so many are a part of the stock market with their 401Ks… perhaps even investors in that dreaded “big oil” tho not to their knowledge. So I’m quite happy that at least those with some investments aren’t talking a bath at the moment. And I am most definitely advocating caution when I say “at the moment”. i.e. perhaps you don’t want to revisit 1987 and the 35.9% decline when there was no recession?
There’s much about our economy that points to double dip. Last year, the Treasury was saying “no way”. But then neither the Feds or the Treasury want the onus of being fear mongers and being the cause of lack of consumer confidence. They are supposed to be cheerleaders, after all. Confidence plays heavily into market behavior… a gamble on the future economic recovery.
Yet read between the lines. With officials stating they expect unemployment to stay high for five or six years; the taxpayer/government infusion into the economy to buoy up the numbers for 2010 running out; the banks confident with their ultimate safety net of too big to fail and the feds willing to step in; and housing recovery continuing to be the weak link in recovery, I’d say your joy in the performance of stocks is apt to be a roller coaster for some time to come. My suggestion is you go to that last link in particular, and have a gander at what is coming our way in more foreclosures/short sales, piling on the already hefty shadow inventory you don’t see.
And that doesn’t include the homeowners trying to sell now, and spinning wheels for both values and qualified employed buyers. All the happy talk about housing is understandable. Why make everyone slash your wrists depressed with reality, eh? But I disagree with that. I think that’s not only shorting the intelligence of Americans, who can recognize hard times, but also extremely dangerous not to give them a heads up about what’s coming their way so they can do their best to batten down the hatches and ride this very long period of correction out.
I was with Lew’s assessment when, back in Sept last year, he said we wouldn’t be regaining losses and returning to positive equity on homes for 12 or more years. Simple math:
That’s 12 years of nothing but a short sale or foreclosure as your options to relocate. That’s more than 12 years of stagnant, status quo real estate trends that drastically affect other industries in a domino. That’s 12 years or more of toxic assets, still on the books, waiting to become a loss if that homeowner losses their income or… as is happening even now… can no longer afford the ever increasing property taxes, homeowner’s insurance, rising costs of utilities, groceries, etc. In short, everyone is sitting on a ticking time bomb, and we’re gonna be there for awhile.
Meanwhile, when Bernanke… itching to increase the rates… sees what he thinks is some confidence and acts to do just that, housing will again sink because it will drive the housing prices down further.
Let me say this emphatically… Without unemployment recovery, there is no housing recovery. Without a housing recovery, there is no economic recovery. A happy day at with the stocks may defray the damage somewhat, and that’s a good thing. Question is, how long will the market don a happy face without housing and unemployment rebounds? For those that play that game with serious intents, you do what you do with any investments… make as much cash as you can while the making is good, and get out before the next double digit percentage drop. But you might enjoy yourself more standing around the Lake Tahoe crap tables.
BTW, Rich… the mainstream media is finally catching up to my “doom ‘n’ gloom” outlook, as you call it. Me? I call it a realistic POV.
CNBC just today… how convenient… “Price Drop Points to Likely Double Dip in Housing Market”… and by Reuters, no less.
From Moody’s earlier this month: Moody’s says 2011 double dip damages U.S. banks
Dec 28, Supreme Lending Executive Director Rodney Anderson says banks contributing to housing double dip with low foreclosure prices, and difficult lending criteria. Nor are buyers racing to purchase with the beginning of the rate increase. Of course, David Bach, author of “Finish Rich” and “Debt Free for Life”, self help guru likes to disagree. Then again, one has to wonder if he made his own fortunes off of telling people what to do, or doing it himself. In other words, he’s just a prolific author of self help books… period. The Newsweek Dow journalist didn’t share Bach’s optimism, and agreed with Anderson’s assessment, save he didn’t want to commit to a double dip prediction.
Here’s a flip side of the “vulture” mentality on the double dip. This is Peter Zalewski of Condovultures in Varney & Co at the beginning of the month. This is the mentality of one who lined his pockets during the housing bubble, and also lines his pockets with the housing tanking. He’s delighted with the decline because it resulted in great sales in southern Florida for cheap housing product. Fair enough that this does provide “opportunity”, tho he’s forced into admitting that those buying are mostly foreign.
However while he’s busy making money on the steals of deals, those that aren’t selling, or are thinking of selling, and are into higher mortgages, now find that these low sales have tanked their values… Again, that brings us back to more toxic mortgages and bank losses, increased short sales and foreclosures. So while the “vulture” is happy, the effect on the market is extremely dangerous.
rich wheeler , funny that I received your comment as I was reading …MARKET CRASH at 1/31/11,
on GOOGLE add,right above your comment,
THAT SURELY IS AN UNTENDED CIRCONSTANCE, BYE
CNN reports:
Home price slump deepens
Nice graph.
As to stocks, businesses are looking flush.
They use up inventories and do not refill them all the way up, saving money….as long as demand is low.
They pay down their debt, making them financially healthier.
They merge with one another….a great way to shed jobs AND have their stocks go up.
ADD to all this, the baby boomers are all looking to recoop all their losses in home equity.
They have scant years left to feather their nest eggs.
Where else but the stock market to put their cash if they hope to increase their earnings?
That puts upward pressure on stock prices, too.
I wonder if the ups and downs of the stock market will be a matter of greater concern if Social Security is phased out and everyone depends on their investments for retirement?
Greg, why would you assume that the ups and downs of the stock market are NOT a matter of concern now? While they are not an indicator of a recovering economy, that citizen/homeowners aren’t losing their shorts on homes, jobs/layoffs in addition to their 401Ks is a good thing. I don’t root for a double dip housing and/or recession. And I don’t root for a tanking stock market. But I also don’t apply tangents that don’t belong, and ignore the evidence before my eyes on the real status of the economy.
Mata As you know I’ve been either a stockbroker or realtor for the last 40+ years.I’ve seen the cycles, made and lost money in both.I’ve done the same in Vegas and at the ponies.I’ve bet on all sporting events.
The only difference between the guy touting stocks and the guy picking Seabiscuit in the 5th or the Red Sox in 6 is the $700 suit.Take counsel wisely when it comes to your investments or your wagers.Be a healthy skeptic.When possible be a contrarianist.In the markets when you can get 8 of 10 “experts” to agree, bet the other side.
At current levels Real Estate is a buy.Even if it goes down another 10-15%, a good 30 or 15 yr fully amortized mortgage at these rates is the way to go.I believe the stock market IS a leading indicator and it’s huge gains portends a slow but steady recovery over the next 5 years.
People who bought homes in 2005-06 got sucked in by the hype and the easy money.80% of the pundits were calling for higher prices.In 1975 with the Dow at about 450 80%+ of the brokers around me swore it was going lower.Who’s gonna get the Repub. nod?
I will disagree with you that the stock market is a leading indicator. As the historic graphs show, and Mish’s plainly pointed out, it only looks like a leading or lagging indicator in retrospect. Thus why he calls it a coincidental indicator and completely useless as a harbinger of things to come.
I don’t disagree that it’s a buyer’s market now, abounding with opportunity. And in fact, I’ve been advocating the need for a house price decline for years… preferably done as a do’able correction and not a downhill ski run at breakneck speeds. But as I said, the problem with that is two fold. The low prices destroy the neighborhood appraisal values. If the owners of those homes had their house pre the late 90s/turn of century housing bubble, and didn’t refinance and suck all the equity out, they’ll be okay.
Unfortunately, a high percentage of foreclosures and short sales are those that took advantage of the low rates, pulled out the equity and refi’ed 100-120% of their home’s value. So for a few buyers to have great deals, and more reasonable prices, it’s domino effect on elongating the toxic mortgage position we’re in is still damaging in the long run. Why do you think that Lew is observing the obvious – that we won’t be returning to positive equity for over 12 years? Inbetween that time, how many more foreclosures, short sales and bank losses can we absorb? And how many more federal bailouts will be proposed?
But yup, as you and I agree, you might have more fun at a sporting event or casino than playing the stock market game. Houses? Integral… ya gotta live somewhere. Altho it’s on the minds of many that living anywhere… owning or renting… in the future is going to be a problem. If you don’t have income, the only real estate you can occupy is an old washer/dryer box under the local freeway ramp.
Mata You and I can remember when people bought homes to live in and raise families over 15-30 years.It wasn’t about flipping or using them as a piggy bank.”Greed is good” came along.People stopped making money the old fashion way.Who the hell needs 3 5000 foot houses and 3 car garages filled with exotic foreign cars when so many live below the poverty level.
“A free society that does not care for the many who are poor can not protect the few who are rich”JFK
Yes, in the good ol’ days, people did buy homes to live in for most of the life of the loans, rich. But it’s not flipping that changed that. The FHA govt insured loan has been around since the 30s. Low downpayment made for easier access to homeownership. Back then it was to help those that didn’t have the income resources to save up for the larger downpayment. But times have changed, and the average move is now more like 7 years. Again, not for flipping, but because of a family’s need to step up in space, then step back down in space as the kids grew up. ala, the first time homebuyers are young families just starting out. As they become more prolific in their income, and their family grows, they outgrow their first home… a stepping stone to the next (until now…). After the kids leave the nest, the parents then either move on to a dream home, perhaps with acreage. Then as they become older, they downsize in space, perhaps get rid of stairs in the multi story abodes, etc. It’s been somewhat a predictable cycle.
Heaven knows if real estate was turning back into the “live there for 30 years) mode, new buyers couldn’t get into the homes that growing families vacate, etc. Like a garage sale, one man’s cast off is another man’s treasure. It’s just a real estate barter system dependent upon fiscal stability at a moment in time, needs and desires.
Now using the house as a piggy bank? Oh my heavens. Yes… big contributor to the foreclosure world. Many saw the opportunities to refinance for a low rate, pull out equity, and then spend it on their credit card debt, a new boat or toys, a vacation… anything but improving their house. Ignorance led to complacency… that the home would appreciate in double digits even if left in the state of disrepair. Add the EZ loans, the increase of demand vs supply driving up prices, and we come to reality today. A point where even if you did everything right…. refinanced and improved the home… you’re still caught in the same toilet bowl flush.
You mischaracterize the marketplace today of 3500 sf homes. Are there young and middle age professionals who like those? Of course. But you can also look at the energy efficient construction of the manuf homes – double wide and tri wide – that offer the big rooms, fast placement, and really quite nice living. You will find these, combined with pole barns, dotted throughout rural American areas. (tho not advisable in the hurricane belts…. LOL)
Truth be told, it’s only in the last year that the jumbo mortgage homes have started hitting the foreclosure market. But the bulk of American living is not what you describe. Nor is the bulk of those experiencing fiscal woes the McMansion owners. Can I assume you’ve been out of the real estate game for awhile now?
BTW, rich… as a perfect example of the abusers of the rates, and “piggy bank” mentality, we need look no further than ACORN’s poster child back in February 2009…. Donna Hanks. I did a post on her at the time. Ms. Hanks bought in low, refinanced with a no doc/low doc/stated income type of loan and withdrew from her home’s “piggy bank” $175K cash equity. None of which went back into the home. Nor did she save any of that for the payments she could not afford to make.
What Ms. Hanks did with her cash, who knows. But ACORN made the error of using her as a “victim” of the real estate housing bubble. BWAHAHA HAHAHAHA
Problem is, lots of Ms. Hanks in our system have destroyed it for the legitimate and conscientious homeowner. But then, this is America. We can’t exactly put “intelligence tests” into place before you own a home, right?
I’ve been in our condo since 1988, that’s 22 years.
In that time I’ve watched as people tried to turn a little place (within our condo complex) by the beach into an investment.
Failures all.
Utter failures.
Widows who spent their late husband’s legacy buying up four condos only to have one rent-f’er after another trash the places until the widow died and left the mess (and squatters) for the bank to deal with.
Men who aspired to be millionaires by age 35 are now in their late 50’s with only woe to show for all their purchases.
Out-of-town absentee owners who get calls from police and city council about their problem tenants’ drug dealings.
Nope.
It does not work.
A home is a home, not an investment.
Buy it.
Live in it.
Not necessarily true, Nan G. Sounds like too many watched the late night “flip and get rich” come on shows. Those guys didn’t get rich flipping. They got rich convincing others to flip. LOL
But actually, investors purchasing homes, fixing them up and either selling or renting is a good business. It is, like anything, a numbers game. You have to buy in low enough that accommodates for the expenditures you layout in repairs. Problem is, most overestimate the finished value and “over improve” for the neighborhood and market. That is because they 1: do not have access to the data to assess a real market value after improvement, 2: they underestimate the repairs that are needed and the costs, or 3: the market takes a long term dump before their holding time is up.
But I assure you, real estate is a business as well as preparing properties for other people’s “homes”. It’s just too many have gotten into a business they are ill equipped to do profitably.
Mata I said no one needs 3 5000 square foot homes and garages filled with exotic cars.Agreed?
In S.Cal foreclosures are taking place across the board.Multi million value thru 200,ooo- value.My point was people started believing they could get rich by simply acquiring R.E. and watching it appreciate at unsustainable rates.Making it easier for working class families to obtain owner occupied loans was NOT the problem.Greed was the problem.
Can I assume you’ve never been a Realtor?
Agreed? Hell no. Who the heck are *you* with the idea you decide what they need? Or how many vehicles, exotic or not, are needed? Forget that crap. Not even close in “agreement”, rich.
To the last “can I assume”, you assume completely wrong. My living has been in real estate for the past decade, and my following of it for the past two decades. Your notion that “greed” is the problem holds true in some (very few) instances, but not in the majority of my experiences at all. To which I can only assume that your own personal experiences in real estate have to be very dated indeed.
Nan G, hi, LAST summer I went with my neighbord farmer to a place, milles out of the main road, and
miles of blueberry fields as far as the eye can see, deep inside the farmeland, and end up
at an old farm alone in the middle of nowhere, my friend was buying some rubber mats for her horses,
there was a house 3 floors very high, all in pink bricks and many windows, I aske the older woman
if I may ask her the age of the house, she became very talkative about it being 300 years old, and pass along all those generations to her being the final owner, she was slowly getting ready to leave the house,
and very sad that none of her children would take the farm, that beautiful house was very facinathing for me,and her story also. bye
Liberals sure love to tell others what they “need”, don’t they?
@Hard Right, even more funny, they think we buy into their bizarre notions. :0)
Rich must not know you Mata………at all.
What’s really interesting is that when we don’t agree with them, they think there is something wrong with us!
@ilovebeeswarzone, one of my favorite things is the classic crop and/or equestrian farms. The homes, when renovated or restored, command good prices among the buyer market who feels the same about the architecture and history. But there is no denying that improvements can always be changed, but land always commands value.
Sorry to hear that you believe the home may lose it’s history, but the farmland, combined with the house has great value to the right buyer. Even if not, the land itself has great value to a prospective buyer. Whatever that woman’s joy in her lifestyle there, it can be recaptured… whether it’s that home standing, or a new home in it’s place.
Mata My California R.E license is current and has been since 1977.A “bizarre notion” that questions one’s need for multiple mansions and automobiles.There we truly differ.
…. and your active RE license status means just what, rich? I know many people that hold various professional licenses, and don’t use them. Big deal. That’s called pay a fee, and show a few hours of CE every couple of years.
More importantly, are you in the habit of telling prospective buyers you evidently pretend to “represent” that they have “no need” for the homes they choose to shop for? Do you congratulate homeowners, selling the homes you apparently personally disdain, as becoming more moral in your view?
Or do you just keep quiet and line your own pockets while sitting in judgment, silently?
Yes… you and I couldn’t be further apart on what America is all about, rich.
The market is telling us what people need. Apparently 5,ooo square foot homes aren’t quite so needed as was once widely believed. If someone actually needs one, now is certainly the time.
Maybe we should all downsize.
Greg, why don’t you document for us just how many of America’s homes are 5000sf? Do you guys think this is the norm, fer heavens sake?
It’s a good time to find anything from 600sf to 8000sf in a home, if you’re in the market to purchase with a lower rate, and feel secure in your employment or self employment. What difference does the size of the home possibly make to either you, or rich? And what business is it of either of your’s?
Yes Mata it appears you and I are definately far apart on what America is all about.
Note The median price for a SFR in Orange County is about $475,000 down from a high of about $690,000 in early 2007.
Well, obviously you aren’t hanging in Laguna, Newport or Villa Park, rich. Then again, your’re also not hanging in Anaheim or La Habra either. Fullerton areas are running about that price range. Larry’s HB is running about $140K higher than that as a Dec average… Yup… even we podunk country types have access to Trulia and Zillow for approx values out of the area, so yes… I’m aware of CA values. Often check in with them as CA is usually a bellwether for the rest of the nation.
As far as I can see, the celebration of recovering housing is way premature.
**Using your own supplied area specific figures, this makes Lew correct in assessing 12 years or more before even breaking even with 2007 values. In your case, averaging 3% annually starting this year – and no double dip housing recession – it would take 13 years to get back to $602K, and 14 years to get to $620K value. Way to go, Lew…. someone who knows his math. You’re not anticipating any double digits anytime soon, are you?
**UPDATED Correction: Saw two different numbers in my email version… i.e. $410K current to $602K past value. Using your replaced(?) numbers of $475K, down from $690K, it will *still* take 13 years to get back to $697,553. At 12 years, you’d still be below that 2007 value at $677,236…. Meaning, Lew is still right.
But going back to the size of homes, which is what seems to irk you the most, let’s take Fullerton… da heart of Orange County… for example. Trulia has their average price per SF at $282. From Oct to Dec, the average sale price was $376K, based on 295 home sales there. Hummm…. a $376K house at $282 per living sf. My my, that’s an average home size of 1333sf in size… considerably smaller than those that offend you, Rich.
Let’s move over to San Clemente, shall we? Average sales price per Q4 was $602,500 based on 238 home sales. Average price per sf? A whoppin’ $428 per living sf in price. ouch…. Dang those Pacific Ocean views are expensive. Now what does that make the average size of the home there? 1407 sf.
Where oh where, rich, are all these 3500-5000 sf homes you (and Greg) rail about? As I said, they are not your normal for the majority of American homes. Those who don’t want “the normal”? Hey, it’s America. Have at it.
MATA, yes your right, I value the land more than the house, because a house without land is missing,
and not complete, that is what is missing for many people, no matter how big their house if there
is no land, they will never fully appreciate their house,they don’t realyse it but it’s true,
better a humble house with big land than the other, that’s my view of observing other houses and the people living in it.
rich wheeler, AMERICA IS not as free as the people living in it, SHE demand that you earn
that freedom SHE is giving you, and not forget HER, otherwise SHE will be UNHAPPY,
and when AMERICA is UNHAPPY, the AMERICANS are UNHAPPY too.
bye
Mata Thanks for your studied response .Adjusted values reflect SFR vs “all homes” which includes condos.No question it will take a long time to get back to grossly inflated o7 prices.
I can assure you large communities like Newport Coast and Coto de Caza have a substantial % of homes over 4000 sqft.Newport Beach and Laguna Beach where I worked in res. sales have hundreds of mcmansions selling from 3 million to 15 million,still down 25-35% from 07 highs.I’ve been primarily in the mortgage business the last 20 years so missed the boom in values generally working in $100,000-$300,ooo range 1977-1990.
As a mortgage broker/banker in recent years I’ve funded loans from $50,000 to $3,ooo,ooo.
Believe me I find joy in helping families buy or finance as big and as expensive homes as they think they can afford to Live in.
People buying multiple homes on the flip or “greater fool theory”(someone will pay more in a year) do bother me.
The guy next door to me here in San Clemente in a 1700 sq.ft. home has a Porsche,a Vette,a Lexus and 3 Mercedes and asked to rent half of my garage which houses a 2000 323 i conv with 130,000 miles and a 2005 Mitsubishi S.U.V. which is for my wife and our 2 Goldens.So he often parks in front of my house.Sorry I’m venting.
Personally I kinda enjoyed the congeniality witnessed last night though I suspect it won’t last long.
Semper Fi and best of luck in your R.E. career.
We are in our 7th home in 30 years. Be bought, fixed them up and moved on, the home we sold in 2002, we had built, lived in it for 5 years and made $44,000, the home before that, we cleared $33,000 after 5 years, that was a HUD repo, nice home, didn’t have much to do other than a good cleaning and a few repairs. As we were pulling the plywood off the doors and windows our new neighbor came by and informed us that an armed bank robber lost that home, we later found out he was still at large so we added new locks and security doors to our plans. He never showed up, all we ever got was a note on the door from the FBI asking us to call, when I called the agent said he was just looking for the bank robber.
We basically were paid quite nicely to own all those homes, sweat equity. Don’t know if it would be possible to do what we did in today’s market. But, outside of our home we will move to in Missouri, none of the homes we purchased were ever considered a lifetime investment.
rich wheeler, hi, next thing your neighbord will want to by your house to put his extra treasures in it,, bye