Housing Bubble Bursting?

[Greg Bell]

Ah..good.Canadians buying falling assets.Downturns always bring the so called bargain hunters that start snapping up these make believe "Bargains".
A year from now they will lose money and need to sell to the Japanese.There is always another sucker..

 

[Riick]

There is a spider that lives in Africa that has an unusual poison it uses to subdue its victim. The spider injects the poison into its victim, then it takes the victim by the leg and it willingly follows the spider into its den and patiently waits to be eaten. This poison completely suppresses the will of the victim to live and turns it into some kind of zombie.

Guarantee you...It won't be the French Canadians that eat the poisoned apples.

 

[Jozsef Poor]

Last week I appraised a house with the sales price of 169,000. Across the street the same size/ similar condition house sold in the end of 2005 for 350,000. I think this particular neighborhood already hit the bottom. It must be a terrible feeling living in a house with mortgage twice as much as the new sales in the neighborhood/across the street. If this trend keeps up, people will walk away from the mortgages

There are still a few neighborhoods where the prices are still going up very slowly.

 

[Austin]

Last week I appraised a house with the sales price of 169,000. Across the street the same size/ similar condition house sold in the end of 2005 for 350,000. I think this particular neighborhood already hit the bottom. It must be a terrible feeling living in a house with mortgage twice as much as the new sales in the neighborhood/across the street. If this trend keeps up, people will walk away from the mortgages

There are still a few neighborhoods where the prices are still going up very slowly.

This is the point the pundits can't seem to grasp. Two million subprime loans are in real trouble and most will go belly up, but that is just the tip of the iceberg. When values fall like 25% them millions more houses lose all equity then you add a recession with job loses and inflation on top of that and two million will seem like a minor problem. This thing is just beginning to unwind. It will take years for this all to unfold.

The Asian markets tanked this morning and the Dow is down 50 as of 10:41AM. Keep your eyes on California. Surf is up dude but the water is full of sharks. Hungry sharks.

 

[Couch Potato]

Last week I appraised a house with the sales price of 169,000. Across the street the same size/ similar condition house sold in the end of 2005 for 350,000. I think this particular neighborhood already hit the bottom. It must be a terrible feeling living in a house with mortgage twice as much as the new sales in the neighborhood/across the street. If this trend keeps up, people will walk away from the mortgages

There are still a few neighborhoods where the prices are still going up very slowly.

A smart lender will do all they can to keep the guy in the house and minimize their loss on the loan. The loss in value alone is not enough to cause someone to walk away. They still have to live somewhere. The real reason to walk away is the person can live somewhere else much cheaper. If they can rent the house across the street for one-third the cost of their mortgage payment, there is a high probability they would move across the street. If the rent across the street is 90% of their mortgage payment, they will likely stay put in anticipation of rents rising over time. The market value of an owner occupied residence is really only important when one is trying to sell it. The value could drop to $1, but I would still make my mortgage payments on a $1,000,000 loan if those payments were cheaper than renting a similar place to live.

 

[Randolph Kinney]

A smart lender will do all they can to keep the guy in the house and minimize their loss on the loan. The loss in value alone is not enough to cause someone to walk away. They still have to live somewhere. The real reason to walk away is the person can live somewhere else much cheaper. If they can rent the house across the street for one-third the cost of their mortgage payment, there is a high probability they would move across the street. If the rent across the street is 90% of their mortgage payment, they will likely stay put in anticipation of rents rising over time. The market value of an owner occupied residence is really only important when one is trying to sell it. The value could drop to $1, but I would still make my mortgage payments on a $1,000,000 loan if those payments were cheaper than renting a similar place to live.

Things are different in California. There is a report out from Foreclosure Radar. Interesting reading.

California Foreclosure Report today which showed a total of 12,282 properties with a loan value of $4.91 Billion dollars sold at auction in November.​

“A notable sea change occurred in November. Lenders are starting to aggressively discount properties” said ForeclosureRadar founder, Sean O’Toole. “As the only service that tracks opening bids at auction, we were surprised by the size of the discounts, and even more surprised that most still go back to the bank with no investor bidding.”​

The ForeclosureRadar report noted that the average lender discount was $48,000 in November, up from $9,000 at the beginning of the year. Also noted was the percentage of sales being discounted, which has doubled to 66 percent. Lenders are clearly becoming anxious to avoid taking on more real estate owned (REO) assets.

In the case of 8215 Shay Circle in Stockton, the home was purchased new in January, 2006 for $481,000. The loan defaulted in 2007 and the lender discounted the opening bid at auction in November to $240,000. This particular property went back to the bank with no investor bids.​

Values are falling so fast with steep discounts to first mortgage amounts that it is causing some to walk from their homes. Investors are waiting for values to drop to "rent" levels.

 

[Austin]

Values are falling so fast with steep discounts to first mortgage amounts that it is causing some to walk from their homes. Investors are waiting for values to drop to "rent" levels.

That statement defines the problem. Real estate value should be correlated to the income requirement ratio of around 25% for a household. That is market analysis 101. A normal market is defined as one home for each household valued based at 25% of gross income plus 5% frictional vacancy plus new properties correlated to population growth. If they can afford to rent them they can afford to purchase them at a normal market price.

That is precisely why California is leading the plunge. Their affordability ratio is off the charts at around 50% or so I hear. That translates to a need for a 50% value decline. Problem is, California has a little political quirk that they can't seem to deal with. That is what got them into trouble. It is called living with reality.

PS: That is what got us all in trouble because most of the mortgage companies are based in Sunny California and they set the standard with their "progressive" thinking.

 

[Randolph Kinney]

Greenspan - Bubble? What bubble? There is no stink'in bubble!

Fed Shrugged as Subprime Crisis Spread

WASHINGTON — Until the boom in subprime mortgages turned into a national nightmare this summer, the few people who tried to warn federal banking officials might as well have been talking to themselves.

Mr. Greenspan and other Fed officials repeatedly dismissed warnings about a speculative bubble in housing prices. In December 2004, the New York Fed issued a report bluntly declaring that “no bubble exists.” Mr. Greenspan predicted several times — incorrectly, it turned out — that housing declines would be local but almost certainly not nationwide.

In addition, foreign investors were pouring trillions of dollars into American securities. Much of that money, often described as the “global savings glut,” flowed directly into mortgage-backed securities that were used to finance subprime mortgages.

Ben S. Bernanke, who succeeded Mr. Greenspan as Fed chairman, is now scrambling to head off a recession. Last week, the Fed lowered its benchmark interest rate for the third time since August, and officials now worry that the subprime crisis has inflicted deep damage on credit markets that could in turn derail the entire economy.

 

[sunnycal]

That statement defines the problem. Real estate value should be correlated to the income requirement ratio of around 25% for a household. That is market analysis 101. A normal market is defined as one home for each household valued based at 25% of gross income plus 5% frictional vacancy plus new properties correlated to population growth. If they can afford to rent them they can afford to purchase them at a normal market price.

That is precisely why California is leading the plunge. Their affordability ratio is off the charts at around 50% or so I hear. That translates to a need for a 50% value decline. Problem is, California has a little political quirk that they can't seem to deal with. That is what got them into trouble. It is called living with reality.

PS: That is what got us all in trouble because most of the mortgage companies are based in Sunny California and they set the standard with their "progressive" thinking.

First, not all of CA markets are experiencing the same problems. Silicon Valley and Los Angeles are not having the same major declines as some of the areas that appreciated due to speculation such as Stockton and Lancaster or other outlying areas from the major metropolitan centers. Second, the idea that housing cost would be 25% is based on the assumption that income keeps pace with inflation. That does not happen so the idea is inherently flawed. Income will never keep up with other costs so that the percentage of income to housing costs will slowly creep up.

 

[Riick]

Closing the Barn Door.

:icon_question: The fox has apparently closed the barn door--​

(( BTW: NINA = No Income No Asset ))​

http://www.blownmortgage.com/2007/12/13/indymac-makes-drastic-pricing-changes-to-alt-a-jumbos-and-option-arms/

IndyMac News Leak < ? > tightening up at last:​

"Major guideline changes just announced:​

* No Ratio and NINA has been eliminated on all products.​

* Stated income on jumbo is now limited to 75% max LTV.​

* Hybrid Option Arm is gone again.​

* The lot loan program has been discontinued.​

* Expanded approvals on Agency Conforming will be limited to 75% max LTV.​

No extensions will be allowed on any discontinued products. These loans must close by the original lock period.​

PLEASE read and note important changes:​

Secondary markets have tightened up again.​

Effective immediately:​

Pricing Update:​

The maximum price for Alt- A Jumbo, Alt-A Jumbo No MI and FlexPay Hybrid Option ARMs has been limited to 99.00 for all scenarios. That is correct, a one point borrower cost to fund these specific loan products"​