Housing Bubble Bursting?

[moh malekpour]

Banks want new rules to exclude 'hybrid' loans
http://www.latimes.com/business/la-fi-hybrids21dec21,1,7064087.story?coll=la-headlines-business

 

[Randolph Kinney]

Banks want new rules to exclude 'hybrid' loans
http://www.latimes.com/business/la-fi-hybrids21dec21,1,7064087.story?coll=la-headlines-business

"Reducing the availability of these products by precipitously imposing new underwriting requirements risks denying many borrowers the opportunity for homeownership or needed credit options," the groups wrote in a letter to the regulators.

Those mortgages, which represent about a quarter of the mortgage market, have been criticized by consumer groups for offering a "teaser" fixed interest rate that rises after an introductory period, resulting in "payment shock" to borrowers.

25% of the mortgage market excluded if they tighten up and put in the same guidelines. Not only will that cause unemployed MBs, Realtors, appraisers, etc., but it will also cause housing to fall even farther in volume and price. Can't do that.:new_all_coholic:

 

[Terrel L. Shields]

Yep, much better to let a whole buncha people go belly up.

 

[Brad Ellis]

Austin,

I do not think I missed a thng. Your seem to miss my joking, but OK.

So, apparently, all these economists who are predicting a soft landing on the RE market are all wrong. OK, you are entitled to your opinion. Forgive me if I choose to believe the past chair of the Fed over you.

I have openly admitted that I do not know what will happen. I have said that, in my view, prices had to come down 10-15% at least before I'd call what we were in a bubble and have repeated it many times. It is clear that this market is in a correction; I just cannot call 3% +/- a bursting bubble. I call it a correction.

I have seen no evidence yet of rising unemployment; in fact, the most recent reports indicate the opposite.

I just got a funny birthday card from my daughter (a staunch republican) that quoted Cheney as saying to Bush they were getting Brazillain troops for IRAQ only to have Bush reply, "how many is a brazillian?"

Well, I do not how many that is but I'd bet there are at least that many stories printed on the "bubble".

Now your local market may be in a bubble- I do not know and do not much care since I focus on the national picture; in fact I did not glean from your post that you weretalking about only your local market. Still, negative impacts on the economy are national as well, and the econometics guys seeme to have that part figured out- 1-1.5 decrease in GDP due to housing.

However, even with that, the economy still grew. So, are you willing to offer us your basis for a prognostication of some wild increase in unemployment?

Brad

 

[Randolph Kinney]

Brad, I am borrowing from another post about sub prime mortgages but I would appreciate your comments on the following and how this impacts the national scene:

A new study by the Center for Responsible Lending found 2.2 million home buyers nationwide will lose their homes due to foreclosures in the sub prime mortgage market.

According to the nonprofit group, risky lending practices have played a part in "the worst foreclosure crisis" in the modern mortgage market -- projecting that one of five sub prime loans issued in 2005 and 2006 will fail.

Is that level of foreclosure enough to drive prices down?

What do you believe the NAR is going to report next week on existing home sales? Will median home prices on a national level continue their decline?

I have noticed a trend by the NAR and security brokerages to claim that the bottom of this decline in housing is about over. Do you agree?

 

[Greg Bell]

Another SUBPRIME lende about to bite the dust..

Another subprime mortgage lender appears to be teetering.

Fieldstone Investment Corp., a real-estate investment trust based in Columbia, Md., told investors late Wednesday that in anticipation of downbeat fourth-quarter operating results, it has restructured its financial covenants -- or restrictions -- with three lenders in exchange for lines of credit under four lending agreements totaling as much as $1.8 billion.

The new terms with JP Morgan Chase & Co., Credit Suisse Group and Lehman Brothers Holdings Inc. require Fieldstone to maintain its tangible net worth at $365 million, as opposed to the $400 million set previously. In addition, the lenders agreed that the operating loss projected by Fieldstone for the second half of this year will not result in a breach of agreements. Fieldstone said it is continuing to negotiate with the lenders to extend the current terms beyond Jan. 31.

 

[Brad Ellis]

Randolph,

I have been unable to find any sort of reliable hard data on historical foreclosure rates. Perhaps your searches will yield something. Absent that, I cannot really put this group's statement about the worst foreclosure rate in history into any sort of context.

So, I cannot judge the overall extent of this impact nor can I judge its accuracy. I do know that these groups and others have taken to sensationalism over the housing markets and would not be surprised if they were exaggerating or even if they are wrong.

Higher forclosures rates do mitigate price increases and contribute to price declines, but they tend to be localized. I'll bet, but cannot prove, that this is happening in your county right now.

As to projections, I have no data to suggest the national downward trend is over but do see data that suggests that price declines will moderate, i.e. that continued declines may well be at a slower rate. I am looking for the correction to be over by end 2007. I think it will be slow since I do not see rate interest decreases happening too soon and I do see the possibilty of increases if employment data stays strong.

I think we need to be careful on employment projections since many of the larger firms, including those in the mortgage industry, have already occured.

Brad

 

[Pamela Crowley (Florida)]

Just keep in mind Brad, that those 'averaged price' figures INCLUDE the multitudes of fraudulent and way above what they were listed for 'sales'. I have appraisers from all over the country reporting these kinds of fraudulently inflated transfers, not just the few 'selected' areas. Many are $100K to $300K plus above what they were listed for, many listed at those lower prices for many months.

Skewed data????? What would the stats be WITHOUT those sales included???

 

[Terrel L. Shields]

I just cannot call 3% +/- a bursting bubble. I call it a correction.

In march you said

But sales of existing homnes incrreased 5.2% last month.

Call it a correction for now. I would, too...but 'bubbles' relate to more than mere % change in one factor. Are sales still increasing like 9 mo. ago when this thread started? Who has been closer to right? Bubbleheads like Austin and me? Or, the optimistic, this is just a hiccup crowd. Time will tell. If you are a builder and about to go bust...does your view differ from the Realtors..some are now seeing incomes plunge...ditto for appraisers...bank layoffs...It took a long time for the housing sector to overheat. It is not going to cool off overnight.

Everyone is agreed that sales are slowed, housing is slowed, and regardless what prices do....the net activity is much much less.
If 1,000,000 houses sell a month for $200,000 each and 2 years later only 800,000 houses sell per month for $194,000, is that a 3% reduction in market or is it 22% reduction in total market activity??

We really haven't hit the liquidity phase yet....and if we get there it will be a major crisis..not a very bad recession. By liquidity I mean the lenders, like Greg's example, Fieldstone, starts sucking up the surpluses from the J. P. Morgans and Suisse's of the world; the Asians give pause to investing here [which they currently are standing in line to buy mortgage backed securities from the U.S.]; and, the regulators are forced to tighten the monetary supply and raise interest rates, then the crash is really on. That can happen. It can happen in degrees from bad to disasterous.
IMHO, when market activity slows, average price times number of sales has to be compared. And nationwide, not just in the coastal 'hot spots', activity is slower. Bankers are visiting Realtors. I don't know a builder in our market that will not throw in a Plasma TV with a sale right now. And certainly, my biz is off well over 20% in gross sales and I am being pressured for shortcut appraisals from bankers who used to not care what I charged [because it is often appraisals they are paying out of their own pocket in repos', foreclosures, work out deals]
We are clearly in a rapidly deflating bubble and the NAR, as pointed out above, is trying to claim each month that this is bottom or we are, as the NAR economist put it "within 90 days of bottom"...which means he will point to typical spring sales figures (which will be higher every year) as 'proof' the worst is over. We won't know until fall.
The economist also hedged claiming the assumption is interest rates will fall and gas/oil prices will fall due to the predicted warm winter (or as one wag put it, "the same people who forecast a record hurricane season are the same ones who are predicting an El Nino warm period.)

And I agree with Pam. Fraud and concessions are propping up prices. Take those away and the figures would be much worse.

 

[moh malekpour]

Brad,

I am looking for the correction to be over by end 2007

If fixed mortgage rate was 7,8, or 9% and we had that high rates of foreclosures, I wouldn’t be worried because I knew that the problem was high interest rates and the fed could solve that problem if they wanted to as they did it in 2002 but with this low interest rate and so many foreclosures, there is something fundamentally wrong that the fed cannot do any thing about it. All the fed can do is to keep the rates low but the rates are already lower than ever and the market is not moving and it doesn’t appear that is going to change. There are so many homeowners who are looking for the market increase to save them from foreclosure but it is not going to happen. I don’t know what do you think is going to happen in 2007 that gives the real estate market a jump start that can turns this market around and gets it rolling again. The fed is not going to take the rate lower than what it is now. We are lucky if they don’t increase the rate next year. So, what would be new in 2007 that may surprise all of us except more foreclosures? May be you know something about 2007 which no body is aware of, so give us a hint. what is it?