Housing Bubble Bursting?

[Brad Ellis]

Greg,

Why don't you do the math for us? I haven't seen any math at all from you on this question. I did see you denigrate the opinion of the JP Morgan Chair at ASU and he used math. Where is yours?

Now I sure hope your projections are wrong and I suspect they are.

We shall see.

Brad

 

[Randolph Kinney]

There may be a different cause today of the foreclosure and short sales than historical causes. Historical causes are economic dislocations. Today's causes are simply new loan products and lower standards, namely exotic sub prime loans with 100% LTV. Once these exotic sub prime loan people get flushed through the default and foreclosure pipeline, and if more of these people that could not qualify for loans of that magnitude historically are taken off the market of buying homes, and if the economy can hold at a slow growth rate, then the stress caused by the exotic sub prime defaults will subside. Home prices will stabilize and the transaction volume will be reduced to a new equilibrium level.

Of course those are a lot of "IFs". The bigger danger is the economy spins down.

However, if lenders continue to fund exotic sub prime loans to people who historically could not qualify at 100% LTV because the DTI is too high, no one really knows the overall effect that will have on the total housing market. Brad suggests that the lending volume to sub prime borrowers is too low to impact the over all housing market.

 

[Greg Bell]

Brad..Enron used Math.All those wonderful talking heads in 1929 used math.Many economists cook the books to support the pie in the sky scenario.
Just go to google news and type in Home sales and see what you get.I know I will be labeled as chicken little and the sky is falling type , however , I don't predict a fast crash.This time it will be the slow painful crash of perhaps several years as all the goofball government safety measures kick in and prolong the pain so the recovery will take a decade.Maybe we will exerience
the decline housing like Japan and strech it out over ten years or so.Any way , meet me back here in six months and we shall see , I suspect the "Soft Landing" will be in full decline by then.

Greg

 

[moh malekpour]

Brad,

I will shortly own a second home- part of my Father's estate. I'll keep it and rent it for at least a while. I'll be getting a 100% I/O loan on a 5/1 basis (interest rate will not reset for 5 years). Are you worried about me defaulting?

No I am not worried about you defaulting at all but are you telling me that most homebuyers with 100% financing in the last few years had many years of experience in real estate sales, appraisal and lending business and were responsible member of a major residential lending institution or were correctly educated prior to accepting that adjustable rate loan and were aware of its ramification? If you think so, please read the CFA proposal for new federal guideline for sub-prime lenders and tell me if you agree with their points of view or not and if the Fed is in the process of adopting that guideline to sub-prime lenders or it has already been adopted or should be adopted. http://www.federalreserve.gov/SECRS/2006/April/20060411/OP-1246/OP-1246_44_1.pdf

 

[JSmith43]

I skimmed the CFA article that you posted, Moh. Thanks.

They are in favor of regulation taking the place of common sense among consumers and/or investors. The insulating layers of regulation already dull the signals of risk vs reward in the marketplace. They numb the senses

Such market distortion schemes work to lessen choice for consumers and financial services providers. Another mini-step toward centralized planning that turned other countries away from (for example) wonderful pre-Soviet Union buildings to uniform floor planned concrete and limestone easy mini storage for it's citizens.

There is a famous Russian movie about a guy in Moscow that gets drunk in a sauna a day before his wedding with his drinking buddies. They are so ripped that the friends put this guy on a plane for Leningrad (where one of them-they couldn't rember which, for sure- had to go the next day).

The drunken guy stumbles off the plane, gets in a taxi and slurs out his address. He gets to what he thinks is his apartment & falls asleep. The owner comes home shortly thereafter (a cute single gal, of course). Apparently, even the streets have the same naming conventions, so the guy couldn't tell the difference!

Personally, I'd choose another path for our future & let the chips fall where they may. Regulation and government/political over reaction has already cooked in enough damage, with self fulfilling schemes.

 

[moh malekpour]

Personally, I'd choose another path for our future & let the chips fall where they may. Regulation and government/political over reaction has already cooked in enough damage, with self fulfilling schemes.

Hey Roger,
What do you think about Regulation Z (Truth in lending) that you deal with all the times? It is a government regulation

 

[JSmith43]

What do you think about Regulation Z (Truth in lending) that you deal with all the times? It is a government regulation

You mean the ones that cause MB's to talk in "Airplane" dialect so as not to use trigger words?

Or, the part where APR includes interim interest for mid-month closings and the title company fee, etc? Actually, APR is still the most helpful, but in standard practice, it still has flaws, as noted.

I'd prefer an endorsement from Underwriter's Lab, myself.....especially, if they used real underwriters

I find disclosure legislation the least offensive of all and sometimes useful, especially with food products......But I am glad I don't have to read on the side of my cereal box the number of acceptable insect parts per serving.....at least, so far.

 

[moh malekpour]

I am glad I don't have to read on the side of my cereal box the number of acceptable insect parts per serving.....at least, so far.

I assume you are libertarian politically. Am I right?

 

[JSmith43]

I assume you are libertarian politically. Am I right?

I might be considered a bad Libertarian since I have a libertarian default philosophy, but am not an ideological purist. The default settings can be overridden, when a truck load of common sense and survival instincts say to do so, for instance.

Just an hour or so ago in the lounge, I identified my strain of thinking as ILL. (Independent Liberty Lover)

 

[Brad Ellis]

Greg,

Interesting that you first cite 1929 and then say this sort of decline has not happened since the 30's. But, there is a lot of info in there that you fail to address.

First, did real estate run up at all similar to the extent it did in the last few years? No. That decline was fueled by the great depression. Want a real problem in real estate? Engineer another great depression. Oops! Looks like the economy is not headed that way.

But, if the liquidity is taken out of the market, the situation changes.

When was Fannie Mae formed and for what purpose?

Randolph,

Perhaps yes and perhaps no. I listened (and believed) all the hype back in the late 90s about the internet changing the face of business investing forever, but, alas, that was not to be. I remember all the talk about the new paradigm and the like, but in the end, the market crashed for those dot.coms. Why? All the betting was "on the come" as we say in craps. Few, if any, of those firms actually made a profit.

The basic economics of investing were ignored.

So, does this level of exotic lending mean that all these guys will default? Of course not. What we do not yet know, as you pointed out, is whether or not the causal effect of exotics will really substantially exacerbate the overall market.

So, it may come to pass or it may not- but it is certainly still too early to tell.

100% financing is really not new. Today, however, it is being done with the 80/20 vs. the PMI, and that costs the consumer less vs. more. So, the next question will be whether or not historical rates for foreclosure for the former 100% financing type vs. today's financing type would be where I would look. So far, we have not seen a material difference.

Basic forces in real estate economics continue to exist.

Moh!

The Consumer Federation of America? I had lots of contact with them back when licensing was being debated. Of course they were fully in favor of licensing. Did not work.

Neither, I suspect, will more federal regulation.

BTW, the feds, AFTER looking at the default rates. decided to not issue the stringent requirements that were/are being proposed.

What is different now from the way it used to be is Wall St.'s ever growing investment in these products. If something were to happen with the exotics it will be Wall St. who occasions the change rather than the OTS or the CFA.

They have already shied away from the 20 portion of the 80/20s but have shown no signs of backing away from the other exotics- yet.

Brad