Housing Bubble Bursting?

[moh malekpour]

This Is the Sound of a Bubble Bursting

This Is the Sound of a Bubble Bursting

This is the vernacular of the moment for a nation reckoning with the leftovers of a real estate boom gone sour. From the dense suburbs of northern Virginia to communities arrayed across former farmland in California, these are the days of pullback: with real estate values falling, local governments are cutting services, eliminating staff and shelving projects.

Families seemingly disconnected from real estate bust are finding themselves sucked into its orbit, as neighbors lose their homes and the economy absorbs the strains of so much paper wealth wiped out so swiftly.

 

[moh malekpour]

Pop Go the Bubbles

Pop Go the Bubbles

 

[Lloyd Bonafide]

Ganging up on Treasury Sec. Paulson

Treasury Secretary goes 15 rounds with L.A. Times editorial board:



http://www.latimes.com/news/opinion...0,0,3576037,full.story?coll=la-opinion-center

Tom Petruno: Is there a list of the investors who have signed on?

Henry Paulson: I don't know if there's a list. The American Securitization Forum has 36 investors, and so there's...

Tom Petruno: Individual?

Henry Paulson: Yes. Oh, absolutely.

Tom Petruno: I don't think they've been quite forthcoming with that.

Jon Healey: Many of the people we speak with don't like this because they see the results of the government's work being sustaining housing values that should have been allowed to come down.

Henry Paulson: Again, I've given my answer to that. I think what we're doing is avoiding a market failure that would have forced housing values down in a way that was not in the investors' interest, and in a way that the market wasn't intended to work.

Tim Cavanaugh: How can you force values down? Why aren't values finding their natural level?

Tim Cavanaugh: Well, wait a second, they had the resources to do it and handle the volume when they wrote the loans in the first place.

Henry Paulson: Well, it's different than — these were securitized. I'm not going to defend what went on, but I haven't talked to anyone out there, who is knowledgeable about the industry and is in the industry, who says they have the resources to handle all the underwritings to handle the modifications.

Tom Petruno: Some would argue that it was lax underwriting that got us into trouble in the first place: no assets, no income, no problem. So we're asking the underwriters to go to fast-track — not ask too many questions and give these people a break. It's...

Henry Paulson: Well again, the lenders are giving themselves a break also. They're acting in a way that's in their interest. This is not — I think you all — I see I've got a skeptical group here. It's amazing: I've spent my life in the private sector, and it's amazing how many people I've met who've never spent a day in the private sector who think any kind of government involvement is somehow hurting market.

Tim Cavanaugh: This ain't Stockton!

Tom Petruno: We're all in the private sector here!

 

[Riick]

Next leg down

Next leg down starts on 1/15/08

In declining markets, FNMA cuts LTV / CLTV by 5%

https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2007/0722.pdf

--or--

http://appraisalnewsonline.typepad.c...-mae-anno.html
.
??? What happened to Bush/Paulson "bailout" ???

 

[Randolph Kinney]

I think what we're doing is avoiding a market failure that would have forced housing values down in a way that was not in the investors' interest, and in a way that the market wasn't intended to work.

Yeah sure. The real estate market goes up and home values always goes up. People cash out refi and spend the money they got from investors. That works as long as the home values continue increasing.

Whoops! Home values are declining. That is the way the market wasn't intended to work. That is not in the investor's interest.

 

[Austin]

This is all very confusing at the present stage of events. I was watching Fox Business Channel with Neil Cavuto again this week. Cavuto is about as honest as they get and tells it like it is. He was leading the argument for the confused. He had four guests that said things are bad and will get worse. Cavuto then went into a rage of confusion. He stated the unemployment rate is 4.5%, the market is up, retail sales are good, 95% of people are paying their mortgages on time, and then he presented a new guest that backed him up. This pundit stated that the banks have ample money, fundamentals are sound and the credit and house crisis is a minor disruption. Jokingly he then told the 4 negative guests he would never invite them back on the show again.

I see all kinds of conflicting data and it is totally opaque. Friday night we had our two close friends for our weekly meal together, one the current president and the other the former president and board member of the bank I do work for. I didn’t bring it up but the discussion was about you known what. The bank will make the highest profit it has ever made and has some kind of earnings ratio banks use at 1.85. That is one of the highest success measure ratios in the nation and has been at that rate for as long as I can remember. The Feds use this bank to train examiners because they can find nothing wrong.

The retired president says the banking system is grid locked and we are basically in deep dodo and will end up robbing the retiree accounts to bail the system out with low interest rates as they did in the early 1990’s when they essentially crashed. He did state that a bank with capital problems could be profitable to purchase by another bank with capital because of the franchise value over time meaning a lack of capital may not be as critical as it sounds to the general system if they merge. The current president sees no problem. Where is the beef he says? Things have never been better and keep getting better. So, what is the answer? I think it depends on your point of view as this affects you. If you have the capital and didn’t make bad loans this is a golden opportunity. If you are anemic and over extended the earth will open up and swallow you. The macro view is bleak; the micro level is filled with opportunity for the wise and thrifty. Remember in the great depression 80% of people had jobs and many got rich because they had capital when no one else did. As the old adage goes; it depends.

 

[sunnycal]

If people walk away from their upsidedown mortgages the lending industry will deserve much of what it gets. Predatory lending practices, deceptive loan programs, greed, absolutely gross CEO salaries/bonuses and obscene "golden parachutes" given for failure do not instill confidence in the banking system.

What the lending industry has done is created an environment of greed. If a CEO runs the company profits into the ground and gets a multi million dollar golden parachute then why shouldn't borrowers who've been screwed simply walk away? A recent survey taken revealed how even CEO's think that their pay is too high. It's a "dog eat dog" world and "two can play that game."

 

[Mark K]

Out of pure curiosity I ran MLS Market SOLD Stats for my entire County.
Despite the fact that I know some sub-markets have been hit (minimally)
in the 10%-15% range, the Averages show little change here;
even Days on Mkt still currently averaging well under 90 days,
and volume is fairly stable with MLS calculating 5 mos of inventory.

(( Periods: 6/06-11/06 -vs.- 6/07-11/07 ))

~~Price Range~~~Avg Change ~% Change
~~~$100-250k~~~+$3,804~~~-2.04%
~~~$251-400k~~~-$1,381~~~-.44%
~~~$401-550k~~~-$4,916~~~-1.08%
~~~$551-750k~~+$11,374~~~+1.78%

On the other hand, we never exactly saw bubble appreciation here,
my take is that prices rose 4 yrs from late 2002 to late 2006 by about 50% -- or about 10.7%/yr compounded.
~~~
The Stats look good, the reality is less good - ask any local Broker.
~~~
NAR:~~~"All Real Estate is Local"
ME:~~~"Figures don't lie, but Liars figure"
.

I'm not certain that comparing average SP for price ranges is telling a true story.

Wouldn't a comparison analysis of homes with similar amenities/size/etc. year-to-year be more accurate?

Someone with a better statistical background than me might shine some light on this but it seems that comparing prices within specified ranges year-to-year is not a reliable statistical sample. I wouldn't expect an average within a specific range to vary significantly from year to year.

 

[Terrel L. Shields]

If people walk away from their upsidedown mortgages the lending industry will deserve much of what it gets

but it won't get it if the Fed bails them out and that only encourages them to make even riskier bets next time...Austin hit on something i have noticed too. Our local banks were pretty uptight over losing so much mortgage biz to the savings banks like CW, WaMu, Stagecoach, whatever. But those are the ones who are having problems. My local banker told me that they hadn't seen any increase in foreclosures, in fact, the mortgage companies frequently were poaching their very worst deadbeats because they would look the other way. In other words, teaser rates and subprime loans drew off the worst borrowers and left the small and medium banks with only the cream of the crop. They are in a win win situation because they don't have to deal with the deadbeats and good clients with money are pulling it out of CW, etc. and taking it to a 'safe' bank.
There is a ton of money in the system. But the problem is that there is no good collatral to loan it on. They aren't just going to hand it out. Whether 2% or 20%, it has to be paid back and these savings banks are left with people who don't have such a hot track record or folks who are so secure they have no reason to refi. Why would I refi? I have only $20K to pay back and its at 5.175% interest, locked. You are not going to loan me any money on my house. Driving interest rates down isn't doing us any good except to fuel inflation which is exactly what i think the Fed wants despite what they say. THey need the inflation to 'catch' money up with the real value of the houses. If inflation is 10% next year then your house is 'worth" 10% more and you might not be as upside down in it. And the NAR would be happy with that because they could claim that houses were still rising in price. Inflation is a neat way to pretend you are gaining equity.

 

[Riick]

I'm not certain that comparing average SP for price ranges is telling a true story.

Wouldn't a comparison analysis of homes with similar amenities/size/etc. year-to-year be more accurate?

Someone with a better statistical background than me might shine some light on this but it seems that comparing prices within specified ranges year-to-year is not a reliable statistical sample. I wouldn't expect an average within a specific range to vary significantly from year to year.

You're RIGHT. But that's exactly what you'll see in the average report
that sasy -- Stable market -- here are the figures.
Which is exactly why I said:
"The Stats look good, the reality is less good - ask any local Broker."
again: "Figures don't lie, but Liars figure"