Housing: 'We're About to Have a Big Problem' 80 comments
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Morris A. Davis of the University of Wisconsin seems to have hit the nail on the head in his assessment of the next wave of foreclosures in this NY Times report.
In the latest phase of the nation’s real estate disaster, the locus of trouble has shifted from subprime loans — those extended to home buyers with troubled credit — to the far more numerous prime loans issued to those with decent financial histories.
With many economists anticipating that the unemployment rate will rise into the double digits from its current 8.9 percent, foreclosures are expected to accelerate. That could exacerbate bank losses, adding pressure to the financial system and the broader economy.
“We’re about to have a big problem,” said Morris A. Davis, a real estate expert at the University of Wisconsin. “Foreclosures were bad last year? It’s going to get worse.”
First it was the flippers, then it was the subprime borrowers, and now it's the prime borrowers - those who have lost their job or some portion of their income or, for whatever other reason in a souring economy, can no longer afford to make their mortgage payments. From November to February, the number of prime mortgages that were delinquent at least 90 days, were in foreclosure or had deteriorated to the point that the lender took possession of the home increased more than 473,000, exceeding 1.5 million, according to a New York Times analysis of data provided by First American CoreLogic, a real estate research group. Those loans totaled more than $224 billion.
And it should come as no surprise that prime mortgages are defaulting at the fastest pace in all the former housing bubble states. 
It should be an interesting summer for the housing market and the days ahead hold some intrigue as well - the S&P Case-Shiller Home Price Index will be released later this morning, followed by reports on both new and existing home sales later in the week. 
During the same period, subprime mortgages in those three categories increased by fewer than 14,000, reaching 1.65 million. The number of similarly troubled Alt-A loans — those given to people with slightly tainted credit — rose 159,000, to 836,000.
Over all, more than four million loans worth $717 billion were in the three distressed categories in February, a jump of more than 60 percent in dollar terms compared with a year earlier.
Under a program announced in February by the Obama administration, the government is to spend $75 billion on incentives for mortgage servicing companies that reduce payments for troubled homeowners. The Treasury Department says the program will spare as many as four million homeowners from foreclosure.
But three months after the program was announced, a Treasury spokeswoman, Jenni Engebretsen, estimated the number of loans that have been modified at “more than 10,000 but fewer than 55,000.”
In the first two months of the year alone, another 313,000 mortgages landed in foreclosure or became delinquent at least 90 days, according to First American CoreLogic.
“I don’t think there’s any chance of government measures making more than a small dent,” said Alan Ruskin, chief international strategist at RBS Greenwich Capital.
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This article has 80 comments:
I am with you and Mr. Davis. The looming problems in the prime market are going to make the subprime problems look like a picnic.
Think about how things would change if prices started to increase. I have already seen bumps in median prices in diverse locations such as San Diego, Sacramento and on this site today, Northern Virginia.
You can't get a JUMBO right now. So all the houses that are moving are in that $415K and below range, the banks don't have a problem righting those mrotgages becasue they are FHA backed. This will not move the needle on home prices in the near future.
The ALT-A thing I cannot understand because it tells me that the people that are in the ALT-A's can't qualify for a re-fi under the FHA program and tells me that there is a real potential problem looming there. Because if you were in an ALT-A and had the option of a 4.5% loan, why wouldn't you fix the loan even if you were planning on moving in a couple of years. Very troubling that these people haven't locked in. I cannot believe people were still being put into these instruments.
Indeed this will be a tough winter for many. Food and gas prices will increase and housing (the piggy bank) will not recover nor help anyone. 2010 will make 2008 look good. Too much debt and over-leveraged with limited upward mobility. (no cash outs any more).
Short the home if you want it sold-or fix it up and stay for good.
Sales prices and numbers will stay down until rates and incentives get better for the rehab landlords-who buy more homes than 1st timers. Renting will be the best option-expect rents to rise w/ demand.
In three years they would face balloon payments of more than $10,000 a month(!) on their completely average home, just west of L.A.
Obviously, they will not be making those payments, as the intended scenario - sell their house for more than the purchase price before the balloon payments kick in - is not going to be possible. In fact, they are completely underwater as it is... This is a perfect example of a foreclosure just waiting to happen.
What I'm not seeing are the idiots who financed this stuff feeling the pain they so justly deserve.
I've written extensively on this subject, for anyone who is interested. Here are two of the more recent pieces:
"A Revealing Look at U.S. Housing Propaganda" www.bullionbullscanada...
"U.S. mortgage-crisis to get MUCH worse in 2010-11" www.bullionbullscanada...
On May 26 09:56 AM Steven Hansen wrote:
> the issue is volume and not prices. volumes are very low making
> housing a very unliquid asset. it is a buyers market. until this
> changes sellers will be left with the choice of waiting a long time
> to sell at the price they want.
People will give up if they are hopelessly under water because the loans reset massively to a full payment past a certain level of underwaterness. Ah, underwaterness, the state of being underwater.
Obviously, the natural consequence of a new batch of nicer homes in better neighborhoods selling for deeply discounted prices will be that homes in more modest neighborhoods that haven't sold since last year will be even less likely to sell unless their asking prices are slashed even farther than they've already been slashed. Another consequence will be that new home construction will be an even smaller part of the the housing market.
The demographics of the people turned out due to foreclosure in the year to come will be a little different than last year. That being the case, we might ask if there will be a new wave of stimulus spending to restore and improve our nation's infrastructure that will be allowed, this time around, to create jobs for the demographic groups most heavily represented by Alt-A and Prime rate mortgages.
______________________...
The other side of this coin is why would anybody buy as long as prices are falling? And the further prices drop, the greater the likelihood of mortgage repayment problems......compounded by unemployment. This is a textbook deflationary trainwreck characterized by falling prices, shrinking demand and rising supply.
As Steven Hansen notes, volume may have something to do with it. Invetory is frequently expressed in terms of monthly sales, if consumers are more confident and start buying houses things could look different.
It could be a sign the market is headed up, to shrug off bad news.
On May 26 09:13 AM Tim Plaehn wrote:
What
> if prices start to increase? How will the mindset of buyers, homeowners,
Overall Case-Shiller clearly indicated we still have a very long way to go.
On May 26 02:09 PM Tom Armistead wrote:
> I am puzzled at the market's reaction to the Case Shiller report.
> The homebuilders index and the several homebuilder stocks I own are
> all up on the day. Maybe consumer confidence is more important.
>
>
> As Steven Hansen notes, volume may have something to do with it.
> Invetory is frequently expressed in terms of monthly sales, if consumers
> are more confident and start buying houses things could look different.
>
>
> It could be a sign the market is headed up, to shrug off bad news.
______________________...
The other side of this coin is why would anybody buy as long as prices are falling? And the further prices drop, the greater the likelihood of mortgage repayment problems......compounded by unemployment. This is a textbook deflationary trainwreck characterized by falling prices, shrinking demand and rising supply.
The other element that is often cited is the population growth relative to builds. Builds are at their lowest levels, on a sustained basis ever. Even lower than in the early 90s recession. Although the population is 22% higher. One consideration, however, that people often miss is what is the buying power of that new population? Is it diminished by a multitude of factors including a largely immigrant population increase.
Jeff- please don't get mad at me as it happens sometimes when I ask this: but where does your 20 million unit number come from? One reason I ask is that where I am, a smaller Midwestern city, there really is no significantly higher overhang of housing. So it's hard to get the overall national perspective- it's hard to see the forest from the trees so to speak. Places like Milwaukee, Minneapolis, Denver, Portland, Seattle just don't seem to have the kind of empty houses you indicate- at least not by any published account.
For the guy inveting in Home Builders Ithink you must be crazy. The future is not with the big builders of the last 10 years. Houses will be built by smaller "mom and pop" shops and built to suit with financing coming directly from the "new" owner from bank. The idea of Big Builders building on spec is just so far removed fromt eh future of the next return of housing that I just wonder what is propagating the purchase of stock in big builders, save really dumb money managers.
1) is your 20 million number and how you get there
2) the millions of over built homes- as of now starts are sub 500k on an annualized basis. There are approximately 500k in teardowns a year. So in effect we are running a net zero on housing inventory. Moreover the US population grows at approximately 3 million people per year- or 1.5 million households.
3) most estimates puts the housing, for sustained unit builds, at 1.5 million a year to achieve sustainability.
To get your 20 million number, you would have to go back to 10 years and say every house built for the last 10 years did not have a buyer or an occupant?
I see your from Canada. The Canadian housing market has been "stable" compared to ours. Would the same analysis for canada be true for the U.S. as well. That all the housing in downtown Toronto and all the building in Calgary, Edmonton and Vancouver been for not. Did none of those homes have a buyer or get sold?
The number of empty, U.S. homes is all over the 'net. This link is for the END of 2008 (www.bloomberg.com/apps...).
This year alone, there has been over 2 million more foreclosures and repossessions - and the U.S. banks are not coming CLOSE to selling those as fast as they take possession.
And here's something NO ONE is talking about: the homebuilders are STILL building 50% MORE units than they are SELLING - EVERY MONTH! Can anyone explain how inventories "decline" with those parameters? LOL!!
Last year, they were building TWICE as many units as they sold - just check the stats. However, you will NEVER see the propaganda outlets (i.e the "media) publish new home CONSTRUCTION and new home sales TOGETHER - EVER!!
This is how they hide their B.S. about "falling inventories"! LOL!
As for Canada, we've been saved by three things:
1) No tax deduction for mortgage interest, so no artificial flows of capital into this sector
2) Virtually NO "subprime" housing market - because of higher lending standards
3) Very little "securitization" of mortgages. Canadian banks HOLD their own mortgages - so there was almost NO mortgage-fraud in Canada.
On May 26 03:06 PM HardwoodFlooring wrote:
> Jeff- I checked out your website and I'm confused about a few things.
>
>
> 1) is your 20 million number and how you get there
> 2) the millions of over built homes- as of now starts are sub 500k
> on an annualized basis. There are approximately 500k in teardowns
> a year. So in effect we are running a net zero on housing inventory.
> Moreover the US population grows at approximately 3 million people
> per year- or 1.5 million households.
> 3) most estimates puts the housing, for sustained unit builds, at
> 1.5 million a year to achieve sustainability.
>
> To get your 20 million number, you would have to go back to 10 years
> and say every house built for the last 10 years did not have a buyer
> or an occupant?
>
>
> I see your from Canada. The Canadian housing market has been "stable"
> compared to ours. Would the same analysis for canada be true for
> the U.S. as well. That all the housing in downtown Toronto and all
> the building in Calgary, Edmonton and Vancouver been for not. Did
> none of those homes have a buyer or get sold?
But when you read that article there is one important message:
"The U.S. had 130.8 million housing units in the fourth quarter, including 2.23 million empty homes that were for sale, the Census report said. The vacancy rate was 3.5 percent in urban areas and 2.6 percent in suburbs, the report said.
In addition, the report counted 4.1 million vacant homes for rent and 4.8 million seasonal properties. "
If 19 million number includes rentals AND second homes, doesn't it seem like that pushing the stats a little? It clearly says there are 2.23 million homes for sale. Ok, let's say there is as some claim 3-4 million in "shadow" inventory. That still brings us to 8-9 million units. So by including the rentals and second homes that's how we get to 19 million.
Seems to be sensationalizing the numbers a little.
I don't know something seems off here. I'm not an advocate for a "turn around in housing" story I'm just saying the numbers don't make sense as they are being used. To include rentals properties and second homes is pushing it.
I have no diea about your claims about the big builders building...Do they have the money to do that? Where I am the big buidlers are shut off. There is a little building going on but by people who have finacing from their bank who are directly contracting with a builder. Permits are less than 500K- they are being pulled by builders who have contracts in hand.
On May 26 02:35 PM CautiousInvestor wrote:
> the issue is volume and not prices. volumes are very low making housing
> a very unliquid asset. it is a buyers market. until this changes
> sellers will be left with the choice of waiting a long time to sell
> at the price they want.
> ______________________...
> The other side of this coin is why would anybody buy as long as prices
> are falling? And the further prices drop, the greater the likelihood
> of mortgage repayment problems......compounded by unemployment. This
> is a textbook deflationary trainwreck characterized by falling prices,
> shrinking demand and rising supply.
Your comment about a Home Mortgage Interest Tax Deduction makes little sense. Why would that mean there was "false" capital. If you are allowed to take a deduction that is real income you are saving and putting into your pocket. You can use it to pay principle or paint your kitchen or whatever. There is nothing fales about the capital you save it is a real savings...sorry you don't get that benfit in Canada. If you had it you might appreciate it- seriously.
On May 26 11:18 AM HardwoodFlooring wrote:
> Steve is right. There is no one on the buy side right now because
> no one wants to sell their existing home into a "down market". Why
> would you. Instead you decide to "get by with what you have". You
> fix up that kitchen, You tear out that carpet, replace the tile
> etc. You don't necessarily "move up". As a result sales are at
> their current pace something like 4 million annualized units this
> is 1/2 the pace of previous years for sales. So although inventories
> are down they are not down relative to the sales volume (therefore
> we still have a 9-10 month supply of housing when in a "normal" year
> it would be a 3-4 month supply).
>
> You can't get a JUMBO right now. So all the houses that are moving
> are in that $415K and below range, the banks don't have a problem
> righting those mrotgages becasue they are FHA backed. This will not
> move the needle on home prices in the near future.
>
> The ALT-A thing I cannot understand because it tells me that the
> people that are in the ALT-A's can't qualify for a re-fi under the
> FHA program and tells me that there is a real potential problem looming
> there. Because if you were in an ALT-A and had the option of a 4.5%
> loan, why wouldn't you fix the loan even if you were planning on
> moving in a couple of years. Very troubling that these people haven't
> locked in. I cannot believe people were still being put into these
> instruments.
To get back to the long term trend implied by the long term annual growth rate housing prices must fall another 15% to 20%.
On May 26 09:13 AM Tim Plaehn wrote:
> As most of the country and especially commenters on this site are
> married to the paradigm that home prices will continue to fall. What
> if prices start to increase? How will the mindset of buyers, homeowners,
> construction companies change? Will someone with good credit walk
> away from his home if he starts to see the value increasing? Will
> homebuilders start to add jobs if they can sell more homes? Will
> real estate and economic "experts" be proven wrong once again? With
> Uncle Sam and the state of California giving buyers up to $18,000
> to buy a home will sellers start to realize they can hold out for
> more money?
> Think about how things would change if prices started to increase.
> I have already seen bumps in median prices in diverse locations such
> as San Diego, Sacramento and on this site today, Northern Virginia.
Don't know if you read my piece on the U.S. "pension crisis" (it's on my blog), but U.S. seniors will needing to raise $1 to $2 TRILLION to finance their retirements - thanks to the collapse in their investment portfolios (just over the next 5-10 years). The only thing they have to sell is real estate.
The Bloomberg number on units for sale is simply WRONG - the number is well over 3 million units. And the "shadow inventory" estimate isn't even in the ball-park - it's closer to 10 million units.
There are 1 to 2 million units in the "exurbs" which will NEVER be sold - and will have to simply be bulldozed, as has already begun (see "U.S. Banks bulldozing NEW homes" www.bullionbullscanada...).
Regarding the tax deduction for mortgage interest, any and EVERY tax loophole must (by definition) cause an artificial flow of capital into it - which was aggravated by rampant mortgage-fraud and Wall Street's Ponzi-scheme.
Lastly, re: the homebuilders, check the numbers: right now they are building nearly 500,000 units per year, and only SELLING a little over 300,000. Last year, they built close to 1 MILLION units and only sold half of them. Most U.S. homebuilders are doomed to going bankrupt or being eaten-up for next to nothing.
On May 26 03:49 PM HardwoodFlooring wrote:
> Hi Jeff:
>
> But when you read that article there is one important message:<br/>
>
> "The U.S. had 130.8 million housing units in the fourth quarter,
> including 2.23 million empty homes that were for sale, the Census
> report said. The vacancy rate was 3.5 percent in urban areas and
> 2.6 percent in suburbs, the report said.
>
> In addition, the report counted 4.1 million vacant homes for rent
> and 4.8 million seasonal properties. "
>
> If 19 million number includes rentals AND second homes, doesn't it
> seem like that pushing the stats a little? It clearly says there
> are 2.23 million homes for sale. Ok, let's say there is as some
> claim 3-4 million in "shadow" inventory. That still brings us to
> 8-9 million units. So by including the rentals and second homes that's
> how we get to 19 million.
>
> Seems to be sensationalizing the numbers a little.
>
> I don't know something seems off here. I'm not an advocate for a
> "turn around in housing" story I'm just saying the numbers don't
> make sense as they are being used. To include rentals properties
> and second homes is pushing it.
I agree the Bloomberg number on units for sale is wrong it is closer to 3- 3.5 million units. However, the "shadow" inventory number is probably close to 3-4 million units. Listen, foreclosures are running about 1.5% of all homeowners. That could go to 3% with the Alt-A and the rest that is the point of the article. There are other points you need to acknowledge however if you are going to be an authority on the US housing situation. For example, 50% of all homeowners don't have a mortgage. Of the other 50% some 75% have been in their homes for 10 years or more. I agree with the article that unemployment will drive up foreclosures. But where from here I cannot say but I can say it will be a problem. That is why I don't see new home starts escalating anytime soon. And, despite your wild assertions and unsubstantiated claims, starts have been below 1 million for the longest time in American History (US history I know how you Canadians get upset over the "American" thing)
I understand that you think that pensioners will have to raise a bunch of money to fund their retirements and I think you are right- to some degree. I cannot vouch for your 2 trillion number but I think you probably took loses in the stock markets and then applied that over all people etc. The truth is that people, 92% of all people are still working and contributing- for better or worse- to their 401Ks and IRAs etc.
Second homes should not be included in any calculations in regards to inventory- neither should rentals. Both are totally utterly and significantly different than primary houses. For example, I don't know what the population of Vail Colorado is but let's say it's 5,000. Well there are probably 30,000 second homes/rentals/condos etc in the valley. By your measure there is an oversupply of 7,000%. Does that make sense?
Jeff, no disrespect but you’re a bit off the rails here…There is no big building conspiracy going on. If there was then all the Canadian lumber companies that are going out of business wouldn’t be. All the kitchen cabinet factories wouldn’t be closing and truckers, like the one from the story that this article is based on, would be shipping lumber all over the country to build these phantom houses you assert are being build by the millions. It’s absurd.
Your building 500K units and selling 300K units. I have no idea what you are talking about. Sales on houses existing and new will end up being around 4 million this year. Yes we’ve all seen the video of the houses being bulldozed. So? The carrying cost offset the cost of finishing them. Duh? Seems like your typical decision made in an office somewhere…
No you say there are 10 Million units of “shadow” inventory. Well where. By worst estimates there are maybe 100,000 units in California this might increase by 80,000 if the foreclosure trend continues there. California is our most populated sate. If we replicated that over all 50 states that would only take us to 5 million units. So let’s say there are 5 million units for sales and 5 million units in “shadow” inventory (10million units total)- both numbers are greatly exaggerated- that still leaves you 10 million units short of your 20 million number.
Now whose numbers are BS?
On May 26 03:30 PM Jeff Nielson wrote:
>
> And here's something NO ONE is talking about: the homebuilders are
> STILL building 50% MORE units than they are SELLING - EVERY MONTH!
> Can anyone explain how inventories "decline" with those parameters?
> LOL!!
>
> Last year, they were building TWICE as many units as they sold -
> just check the stats. However, you will NEVER see the propaganda
> outlets (i.e the "media) publish new home CONSTRUCTION and new home
> sales TOGETHER - EVER!!
>
They never spent on anthing. Never. When they died, both owed about 10 homes all paid for.
We have 2 homes. One paid off, the other with 7 years to go. I have gone "out" in ten years. Go for a long walk and save your money. God bless Scotland.
On May 26 01:32 PM Jeff Nielson wrote:
> Correction: the "real problem" is INVENTORY (starting with the 20
> MILLION vacant homes in the U.S. - and rising rapidly). While this
> commentary is a step in the right direction in acknowledging reality,
> it still only "scratches the surface" on the magnitude of this catastrophe.
>
>
> I've written extensively on this subject, for anyone who is interested.
> Here are two of the more recent pieces:
>
> "A Revealing Look at U.S. Housing Propaganda" www.bullionbullscanada...;view=article&...
>
>
> "U.S. mortgage-crisis to get MUCH worse in 2010-11" www.bullionbullscanada...;view=article&...
>
>
> On May 26 09:56 AM Steven Hansen wrote:
In the comment you site the guy says alludes to 500K units being built but only 300K being sold. Well, the 500K number is annualized. Sales per month of new and existing home is the number he undershoots and calls 300K (it's closer to 400K but he is tying to prove a point by masturbating the numbers). The 300k number needs to be annualized. We are on trend to build 500K units this year and on trend to sell approx 4 million new and exsiting homes.
As someone often says onthis site "liars figure and figures lie".
On May 26 09:13 AM Tim Plaehn wrote:
> As most of the country and especially commenters on this site are
> married to the paradigm that home prices will continue to fall. What
> if prices start to increase? How will the mindset of buyers, homeowners,
> construction companies change? Will someone with good credit walk
> away from his home if he starts to see the value increasing? Will
> homebuilders start to add jobs if they can sell more homes? Will
> real estate and economic "experts" be proven wrong once again? With
> Uncle Sam and the state of California giving buyers up to $18,000
> to buy a home will sellers start to realize they can hold out for
> more money?
> Think about how things would change if prices started to increase.
> I have already seen bumps in median prices in diverse locations such
> as San Diego, Sacramento and on this site today, Northern Virginia.
bigger boat", to quote richard Dreyfuss in "Jaws".
On May 26 09:13 AM Tim Plaehn wrote:
> As most of the country and especially commenters on this site are
> married to the paradigm that home prices will continue to fall. What
> if prices start to increase? How will the mindset of buyers, homeowners,
> construction companies change? Will someone with good credit walk
> away from his home if he starts to see the value increasing? Will
> homebuilders start to add jobs if they can sell more homes? Will
> real estate and economic "experts" be proven wrong once again? With
> Uncle Sam and the state of California giving buyers up to $18,000
> to buy a home will sellers start to realize they can hold out for
> more money?
> Think about how things would change if prices started to increase.
> I have already seen bumps in median prices in diverse locations such
> as San Diego, Sacramento and on this site today, Northern Virginia.
The couple in the NYT article amazes me. Hello??? Stuff happens in life, and it's hard but maybe you'll have to face the unspeakable horror of renting. And her job was "scrapbooking"?
Especially while reading NYT housing articles, which land somewhere between advocacy journalism and agitprop, I really wonder what happened to the work ethic in this country. It's awful to say but I really think we deserve what's happening to us.
A little nitroglycerine for the bonfire...
On May 26 09:13 AM Tim Plaehn wrote:
> As most of the country and especially commenters on this site are
> married to the paradigm that home prices will continue to fall. What
> if prices start to increase? How will the mindset of buyers, homeowners,
> construction companies change? Will someone with good credit walk
> away from his home if he starts to see the value increasing? Will
> homebuilders start to add jobs if they can sell more homes? Will
> real estate and economic "experts" be proven wrong once again? With
> Uncle Sam and the state of California giving buyers up to $18,000
> to buy a home will sellers start to realize they can hold out for
> more money?
> Think about how things would change if prices started to increase.
> I have already seen bumps in median prices in diverse locations such
> as San Diego, Sacramento and on this site today, Northern Virginia.
away not because of jobs but devaluation. The house is mortgaged
for 400K + but the value established by several auctions on near by
properties effectively has reduced the value to $250--275, plus
the property taxes in this Chicago collar county are relatively high.
Unfortunately this is not an 'isolated' situation throw in the escalating
job losses and his becomes a nightmare.
On May 26 04:42 AM Buy and Hold Plus wrote:
> I think you're exactly right. If someone loses their job -- and unemployment,
> even under the most rosy predictions, isn't expected to start declining
> until 2010 -- then how will they pay the mortgage. Alt-A, prime,
> subprime, it doesn't matter. Lose your job and it becomes really
> tough to pay your mortgage.
>
> I am with you and Mr. Davis. The looming problems in the prime market
> are going to make the subprime problems look like a picnic.
If people had good paying jobs they would be buying these houses, prices would rise and this article would be titled, "Buy real estate, they aren't making more land".
So load all of your junk in your Honda and drive past the forclosed sign and wonder why it is happening to you. Well, the "buy American" crowd has been warning you for years.
Therefore, inventory is not being whittled down?
What is the growth in new household formation? Is that eating up the inventory?
On May 26 07:09 PM HardwoodFlooring wrote:
> Living4Dividends- They aren't really building. Starts are sub 500K
> annualized units. There are 500K houses lost to attrition a year.
> They are building for contracts they have in hand not on spec as
> some propose. Building has been below household creation for nearly
> 2 years and will remain so for a while. It's the lowest number in
> history(records started right after WWII). It's the lowest trend
> number since the 90s and we have 22% more population.
>
> In the comment you site the guy says alludes to 500K units being
> built but only 300K being sold. Well, the 500K number is annualized.
> Sales per month of new and existing home is the number he undershoots
> and calls 300K (it's closer to 400K but he is tying to prove a point
> by masturbating the numbers). The 300k number needs to be annualized.
> We are on trend to build 500K units this year and on trend to sell
> approx 4 million new and exsiting homes.
>
> As someone often says onthis site "liars figure and figures lie".
One more "Bubble & Crash Preventer:" In some countries the homeowner is personally on the hook for the entire mortgage. So if the mortgage doesnt get paid, the bank can go after the other assets of the homeowner. We should implement this in the U.S.as well.
We would then go back to old days when the term "safe as houses" was a true statement.
On May 26 03:30 PM Jeff Nielson wrote:
>
> As for Canada, we've been saved by three things:
> 1) No tax deduction for mortgage interest, so no artificial flows
> of capital into this sector
> 2) Virtually NO "subprime" housing market - because of
> higher lending standards
> 3) Very little "securitization" of mortgages. Canadian banks HOLD
> their own mortgages - so there was almost NO mortgage-fraud
> in Canada.
Every region of the country is different.
Some areas have no more foreclosed homes at all.
Why not talk about Tourism instead ?
Job loss does not discriminate based on mortgage loan type. You can have your house paid off and lose it to a tax sale after you lose your job. Local taxes are going up. The vulture funds will make a killing. It happens every recession. Prime borrowers are equally vulnerable and what is unfortunate this time, you can't sell your house because of the sub-prime housing surplus on the market. Everyone will pay for not dealing with the sub-prime mess early on. People were too self-centered to help their neighbor, now they will get their reward. The banks will recoup their losses and the long term home owners will take it in the shorts as they lose 20 years of equity. Vulture funds will be buying homes for nickels on the dollar as many of these homes will have been substantially paid off.
Inventories of previously owned homes jumped 8.8% at the end of April to 3.97 million available for sale. That represented a 10.2-month supply at the current sales pace, compared to 9.6 in March.
Inflation will dictate if nominal value also declines.
You'll be paying back the bank with Monopoly money.
On May 26 04:06 PM HardwoodFlooring wrote:
> One more thing Jeff:
>
> Your comment about a Home Mortgage Interest Tax Deduction makes little
> sense. Why would that mean there was "false" capital. If you are
> allowed to take a deduction that is real income you are saving and
> putting into your pocket. You can use it to pay principle or paint
> your kitchen or whatever. There is nothing fales about the capital
> you save it is a real savings...sorry you don't get that benfit in
> Canada. If you had it you might appreciate it- seriously.
On May 27 08:26 AM Living4Dividends wrote:
> I agree these three things help prevent bubbles. And we yanks should
> definitely implement them in the U.S. to lessen the occurrence of
> future bubbles and resultant post-bubble crashes.
>
> One more "Bubble & Crash Preventer:" In some countries the homeowner
> is personally on the hook for the entire mortgage. So if the mortgage
> doesnt get paid, the bank can go after the other assets of the homeowner.
> We should implement this in the U.S.as well.
>
> We would then go back to old days when the term "safe as houses"
> was a true statement.
>
> On May 26 03:30 PM Jeff Nielson wrote:
On May 26 09:13 AM Tim Plaehn wrote:
> As most of the country and especially commenters on this site are
> married to the paradigm that home prices will continue to fall. What
> if prices start to increase? How will the mindset of buyers, homeowners,
> construction companies change? Will someone with good credit walk
> away from his home if he starts to see the value increasing? Will
> homebuilders start to add jobs if they can sell more homes? Will
> real estate and economic "experts" be proven wrong once again? With
> Uncle Sam and the state of California giving buyers up to $18,000
> to buy a home will sellers start to realize they can hold out for
> more money?
> Think about how things would change if prices started to increase.
> I have already seen bumps in median prices in diverse locations such
> as San Diego, Sacramento and on this site today, Northern Virginia.
On May 27 04:42 PM yellowhoard wrote:
> For those who can hold out long enough, the home mortgage is going
> to become a valuable asset as the dollar is trashed.
>
> You'll be paying back the bank with Monopoly money.
However, it really depends on the political dynamic of your state and local jurisdiction.
In CA, the libs will vote down any proposal to cut spending. In FL, you'll probably see more cost cutting than tax raising, TX too.
On May 28 02:23 AM punk_ash wrote:
> Its not the mortgage that is scary to pay. What is real scary is
> the real estate taxes on top of the mortgage.
And for free too! I'm not sure that's a plus either, if you work using your mind...bad omen for the rest of us in the service sector.
On May 28 08:34 AM yellowhoard wrote:
> Yup. Property is a hostage to the tax man.
>
> However, it really depends on the political dynamic of your state
> and local jurisdiction.
>
> In CA, the libs will vote down any proposal to cut spending. In FL,
> you'll probably see more cost cutting than tax raising, TX too.<br/>
www.census.gov/hhes/ww...
I'm sorry, I cannot locate the actual report but another interesting statistic is that Americans are just not moving around any more. A well documented situation was that owners in the Northeast were selling their homes from $300M to $500M and then buying newer homes in the Southeast / Southwest for cash at $175M to $350M. That pattern has esentially disappeared and that is why those areas were growing. I believe this ties into some of the comments that were made about Baby Boomers wanting to sell and retire (or work part time). The nation is essentially stuck due to the inability to sell or locate work at the other end (so there is no need to move), and residential property equity (most person's biggest investment) is declining as they stay put.
Please also remember, no one can predict the future.
People are just now waking up to the fact that Residential Real Estate (RRE) is a non-liquid liability (not an asset).
Your house produces no income. It costs money to maintain.
Liability, not an "asset".
Renters already know this, most, if not all, BubbleFlippers do not.
Here's your healthcare in America, sister:
Aetna CEO gets 2008 pay package worth $17.4M
news.moneycentral.msn....
Your healthcare is just an "expense" that can be reduced
and put into a very, very rich person's pocket.
Why is this NOT A FELONY WITH A DEATH PENALTY?
Basically, the Aetan CEO is murdering people for his personal gain.
Sixty miles from my home town, housing is now selling for $65.00 a square foot. where i live, it is still around $200.00 per square.
I plan to buy a second home, right here in my home town, just as soon as prices come down to $65.00 per square foot.
You can have your gold, silver and other commodities to hedge against cataclysmic economic events. I'll put my retirement savings into a well situated single family dwelling. It has to be priced right first though.
People will keep coming to Southern California, because of the weather, and because it is a politically protected state due to its size and political clout. No matter what comes from the politcal mismanagement of our resources, state and federal, California will survive and keep growing in population.
People survive calamity. I don't see our economy getting back to where it was in the 1960's, not as far as real growth is concerned. It doesn't need to. A large percentage of what we call necessities are, in fact, luxury items.
We will have to adjust the way we consume and the amount we consume. We will also have to stop being some kind of safety net for every person who decides he or she doesn't really want to work to support themselves or their children.
I blogged about this on my website, but today the Mortgage Bankers Association released a report that showed 12 percent of all loans are delinquent.
In what can only be a shock to the pundits who contribute more to climate change than an entire fleet of Hummers due to the hot air that comes out of their mouths, this is due to rising unemployment.
Duh. On what planet do the pundits live on where they didn't see this? Hello? When people lose their jobs, they have a real hard time paying their mortgages.
Unemployment isn't projected to peak until early 2010. If that is the case, then we'll likely see delinquencies peak at around the same time.
On May 27 04:42 PM yellowhoard wrote:
> For those who can hold out long enough, the home mortgage is going
> to become a valuable asset as the dollar is trashed.
>
> You'll be paying back the bank with Monopoly money.
The other thing to consider is that if a homeowner can cover interest on the mortgage while loooking for a job, a rental, or a sale, the bank is ahead. As higher end homebuilders stop building (and virtually none of my homebuilder friends have built anything for over a year now), and population growth and household formation continue, inventory will eventuallly resume, inflation will take hold (the Fed is discussing keeping short term rates low for years now), and housing prices will recover- and the bank can escape whole.
One last consideration- many of these houses can serve dual-use for small business and telecommuters. I'm personally less bullish on commercial real estate than on houses- because even unemployed people have to live somewhere.
It is based on systems analysis in contrast to existing financial solutions. Submit your solution for the Affordable Dream Challenge, a competition for the best solution reducing foreclosures.
With investors bailing out of treasuries and taking on more risk, will this bump back up be the beginning of rising rates? Or just a temporary phenomenon?
Investors couldn't stay in treasuries forever, and now with the idea of rates scaling back up, and unemployment still escalating, affordability becomes even tougher than it already was. There just isn't enough buyers out there right now to soak up all this excess inventory.
Someone mentioned the "vulture funds" which will come online and buy up property for major reduced rates, but unfortunatley, something like that is needed to clean up this mess, just like the savings and loan fiasco from years back. This will be very painful, but it may need to be done. Besides, even in nature, "vultures," along with other scavengers, do serve an important purpose in the food chain, as they clean up the mess so that other life can grow and thrive.
On May 28 07:02 PM JJJ wrote:
> This is the closest comment I've seen to what could be the biggest
> shoe yet to drop yet on the housing market that I haven't seen really
> discussed much anywhere. If the Fed does lose control of inflation
> and more importantly interest rates(which is almost certian), what
> will happen to mortage rates? If they double then that will crush
> affordability to the very market of already overleveraged consumers
> who are expected to be soaking up all this excess inventory. I have
> a feeling what we are seeing this summer will be the greatest headfake
> to a massive plunge in housing prices. Sell now if you can.
Should be good news ?
Furthermore, banks are finally doing loan modifications that will actually make a difference. For example, giving a homeowner a 5 year fixed at 4% interest only so he can stay in his house. This will prevent his house from going into foreclosure when it otherwise might have. While he's not a seller, it will help to not add fuel to the high inventory problems.
On May 26 11:18 AM HardwoodFlooring wrote:
> Steve is right. There is no one on the buy side right now because
> no one wants to sell their existing home into a "down market". Why
> would you. Instead you decide to "get by with what you have". You
> fix up that kitchen, You tear out that carpet, replace the tile etc.
> You don't necessarily "move up". As a result sales are at their current
> pace something like 4 million annualized units this is 1/2 the pace
> of previous years for sales. So although inventories are down they
> are not down relative to the sales volume (therefore we still have
> a 9-10 month supply of housing when in a "normal" year it would be
> a 3-4 month supply).
>
> You can't get a JUMBO right now. So all the houses that are moving
> are in that $415K and below range, the banks don't have a problem
> righting those mrotgages becasue they are FHA backed. This will not
> move the needle on home prices in the near future.
>
> The ALT-A thing I cannot understand because it tells me that the
> people that are in the ALT-A's can't qualify for a re-fi under the
> FHA program and tells me that there is a real potential problem looming
> there. Because if you were in an ALT-A and had the option of a 4.5%
> loan, why wouldn't you fix the loan even if you were planning on
> moving in a couple of years. Very troubling that these people haven't
> locked in. I cannot believe people were still being put into these
> instruments.
The loan modifications of which you speak are an absolute joke. There is no real financial relief provided to the home-buyer (sucker) with these mods. They favor the banks heavily, are a temporary fix, and have already been demonstrated to have a high re-default danger.
In other words sir, keep your eyes and mind open, your fingers still, and you might learn something on this and websites like it.
On May 29 03:00 PM dirtyharry wrote:
> Most of your comment is incorrect. First of all the conforming limit
> is $417K and not $415K. Secondly, lenders are writing "agency" "conforming
> jumbos" to $729K. Also, not everyone already owns a house. 1/3
> of the households out there rent, and for them this could start to
> be a buying opportunity. They have nothing to sell in this market.
>
>
> Furthermore, banks are finally doing loan modifications that will
> actually make a difference. For example, giving a homeowner a 5
> year fixed at 4% interest only so he can stay in his house. This
> will prevent his house from going into foreclosure when it otherwise
> might have. While he's not a seller, it will help to not add fuel
> to the high inventory problems.
There is no "broker spin" since brokers are not responsible for supplying the new conventional loans that go to $729K. It amazes me how everyone wants to blame brokers for the crises that we're in. Brokers don't create dangerous financial products, nor to they approve of them. They're the low-level sales people that push what the banks want. All of those terrible Option ARM loans, for example, were created by banks, not brokers. The banks approved them, and in the end, they wish to also blame the brokers for selling the very products they created. Ludicrous. Right now, the banks are writing $729K loans that are NOT considered to be true jumbo loans.
Therefore, the original commenter is simply wrong that people cannot qualify for a loan that is over "$415K". The qualifications to get a loan up to $729K is 10% down on an owner occupied property and about a 660 credit score. Compared to FHA, which would require a 620 score (sometimes lower) and 3.5% down. While this is clearly easier to qualify for, you characterization that 10% down and a 660 credit score is "MUCH more difficult to qualify for" is quite the exaggeration. Perhaps you need to find a better circle of friends and associates if no one around you has 10% down and a 660 credit score.
The loan modifications WERE a joke, but are a joke no more. For example: I know an individual who had a $3600 house payment between his first, second, and taxes and insurance. After his loan modification, his payments are now FIXED at about $2000. There are multiple reasons why this is relevant, and not "an absolute joke" as you so ignorantly stated. When someone is struggling to pay $3600 and you take $1600 off their backs each month for the next 5 years, to them, it's not "an absolute joke".
First, it allow a family to stay in their home. Second, it prevents that home from going into foreclosure and adding yet one more property to the rising inventory. Third, it's one less property for the bank to have to manage and it stop them from having a complete loss. Fourth, at a $2000 payment, not only is that payment lower than what a similar house would rent for - but it's fixed for 5 years. This means in the face of rising inflation, the borrower will not see rent payment increases. As the economy recovers, the borrower should see increased spending power because he's no longer saddled with a $3600 payment. This can allow for more consumer spending. Consumers, the general economy, and yes - even the banks, have something to gain for this. However, to say these loan modification "favor the banks heavily" is a mischaracterization of what is happening NOW (not 3 - 5 months ago but right now in the marketplace).
So you see, my simple friend, your knee-jerk, baseless CNBC-styled analysis won't play here. Amazing how someone comes out mud-slinging and talking about my "drivel" and then proceeds to provide outdated and misguided opinions himself. Have you thought about running for office?
On May 29 10:16 PM HomeyDDogg wrote:
> DirtyHarry, Most of the commenters on this website provide thoughtful
> analysis. You have contributed drivel. HardwoodFlooring said $415K,
> you state the "correct" figure is $417K. What's the difference? We
> know what the exact number is. Smart people can handle approximations
> when discussing an issue. Your claim that lenders are writing "conforming
> jumbos" sounds like mortgage broker spin. Qualifying for these loans
> is MUCH more difficult than it used to be. Most people don't have
> the assets to put down. Additionally, those properties are in the
> "move-up" segment, not the first-time buyer market. If the owners
> can't sell their current home, how the heck are they going to move
> up?
>
> The loan modifications of which you speak are an absolute joke. There
> is no real financial relief provided to the home-buyer (sucker) with
> these mods. They favor the banks heavily, are a temporary fix, and
> have already been demonstrated to have a high re-default danger.
>
>
> In other words sir, keep your eyes and mind open, your fingers still,
> and you might learn something on this and websites like it.
>
> On May 29 03:00 PM dirtyharry wrote: