Housing Bubble Bursting?

[Big ole Boy]

I like the possiblity that a bubble may be happening; because it will validate my gut if it happens.

I hope there is a very hard landing. I am biased about the bubble.

Everything that has been allowed to go on in real estate has been biased the other way ......

I hope it pops and lands hard; otherwise I will be dissappointed.

I thrive on bad news; its my fuel.

I am a psychological vampire for fruits who believe in this economic system.

There ..... at least Mike can carve people me out of the wood work ...

I hate my economic system and my country .....

But, somehow, I hope it will get fixed and get better ....

But, frankly, I don't see it .....

All I see is the great sin called the love of debt which is backdoor slavery.

 

[xm72mhd]

You know I've dropped enough hints over time...even in this thread as to where I get my information. I was about to launch into another long list of information from which I draw my conclusions, but realized; here it is 2006 & we're still rehashing the SOS. I've gotten nowhere...convinced not one Bubble Head...I've not had my views changed, and this all takes up my valuable time.

So I've got to ask...what's in it for me? People usually pay me for my insights.

But..what the hell;

Thanks for settling the argument in favor of sharing the informtion. If you feel you need payment, let me know what you charge. I did ask where to turn to learn your side of the "bubble" and owe you for telling me where to look. I'll look through most of that and see if I come to the same conclusions.

 

[moh malekpour]

Get familiar with your States Chief Demographer & learn everything you can about their estimates & projections

How's the health of your job market in your region in relation to population growth estimates?

Rate of population growth projections

Employment Growth (historic & projected)

Pay attention to the consumer confidence series

Revolving consumer debt

Most Appraisers don't pay enough attention to building permits vs. population growth (housing demand)

Track Permit Activity (past & present)

New & active listings coming to market (historical & current)...go back 5 years if you have the data (if not...begin tracking this data in a spreadsheet yourself)

Marketing times (historical & current)...go back 5 years

Affordability Issue (Index & 1st Time Affordability Index)

Mike,

How can you call yourself a wise investor or real estate market analyst when you are missing an important factor which is behind all of your above list of items. All the listing that you put them on are symptoms but the cause of those symptoms are something else that you either don’t see it or you don’t want to see and that cause is not only nationwide but all around the world
When low interest rate or easy financing is not available, like it was in past three years, corporations have no motive to borrow and expand therefore their growth and their employment rates decline.
When people are out of job or have difficulty to borrow money because of higher interest rates, they don’t spend money in stores and their confidence declines.
With high interest rate and difficult financing, builders or homeowners have no motive or capability to build new constructions or upgrade their existing homes and permit applications decline.
Lack of housing affordability is not only as the result of high prices but high interest rates too therefore the listing inventory increases
The first thing you need to know is to fin out the cause and then define the symptoms not other way around

 

[Randolph Kinney]

Bernanke's risky business

Are the Fed's hawks going overboard in their zeal to slay inflation?


"If the FOMC persists in raising the fed funds rate under current circumstances, it runs the serious risk of precipitating a U.S. economic recession either late in 2006 or early in 2007," said Paul Kasriel, head economist for Northern Trust.

Nearly 20 central banks have acted to raise interest rates, or signaled they're about to do so, in the past few months.

The rosy 3% scenario is based on economists' best guesses that housing will slow, but not collapse, and that consumers will be able to keep spending at a healthy rate, bolstered by decent wage gains. Capital spending by businesses is expected to fill some of the gap left by housing.

The danger, of course, is that growth might be much weaker than 3% if housing prices fall rather than just level off, or if energy prices go higher, or if wages continue to stagnate, or if the dollar collapses. Or if the Fed overtightens.

"The risks are on the downside," said Robert McGee, chief economist for U.S. Trust, who says the dangers of a housing collapse are underappreciated.

Very few economists are talking about a recession at this point, but the risk of recession rises with each Fed rate hike. "If the Fed follows inflation up, it runs the danger of overreacting and pushing the economy into or near recession," said David Wyss, chief economist for Standard & Poor's. "Usually, that is what the Fed has done at these inflection points."

In 1997 and 1998, the Asia financial crisis helped lower U.S. inflation rates, but also led to a global crisis that had the Fed cutting rates in emergency sessions.

http://www.marketwatch.com/News/Story/Story.aspx?guid=%7BF8D35F07%2DC493%2D4111%2D8FDB%2DFA09645A5F83%7D&siteid=mktw&dist=

 

[xm72mhd]

Are you guys saying that Fed interest rate manipulations combined with commission driven mortgage brokers may have influenced the market appreciation and may be instrumental in its deflation as well? Makes me wonder whether interaction between aggressive and innovative mortgage marketing and increasing interest rates will bring about adjustment, bust or continued expansion.

Is it possible that whether one calls it a bubble breaking or an adjustment depends on perspective and market segment? Maybe adjustment and bust are different names for the same thing. Or is there a point where adjustment becomes bust?

 

[Steve Owen]

While youse guys...

...on the East coast, except maybe some areas in upper New England, the folks on the West coast, except for parts of Washington, Mike tells us, and other hot spots, including Northwest Arkansas, Las Vegas, and maybe even some places in Montana worry about the bubble... things seem pretty normal in large parts of the country:

http://www.brokeragentnews.com/news/nahb/2006_5/5_20_2006_ke_1148151059.html

Meanwhile, nationwide housing affordability remained virtually unchanged from the end of 2005, as slightly lower home prices and higher household income helped offset an upward movement in mortgage rates to keep the index almost flat. The HOI rose marginally from its lowest level on record, 41.0 at year-end 2005, to 41.3 in the first quarter of 2006.

Still there is this to worry about:

http://www.bankrate.com/baw/graphs/graph_trend.asp?product=1&prodtype=M&ad=mtg

and that, together with some other economic factors, has led to this:

http://www.bankrate.com/baw/news/mortgages/BubbleMain.asp

Amid their diversity, bubble sitters have something in common: They think home values have risen too high, that they will fall, and that homeowners will get burned. So they sell their homes and become renters.

I think it was Mike Neff who challenged those who believe in the bubble to sell and rent. (Sorry, if I remembered wrong, Mike.) Well, I'm sure not going to do that in Joplin, Missouri. And, I advised my girlfried not to do it in Kansas City (at least not for now); sure wouldn't do it in Indianapolis. But, time will tell whether these folks in Denver and elsewhere are wise investors, or real estate fools.

 

[hastalavista]

Are you guys saying that Fed interest rate manipulations combined with commission driven mortgage brokers may have influenced the market appreciation and may be instrumental in its deflation as well? Makes me wonder whether interaction between aggressive and innovative mortgage marketing and increasing interest rates will bring about adjustment, bust or continued expansion.

Is it possible that whether one calls it a bubble breaking or an adjustment depends on perspective and market segment? Maybe adjustment and bust are different names for the same thing. Or is there a point where adjustment becomes bust?

Let me throw another thought into the matrix-

One assumption that a "bubble burst" is ready to occur is that since so many homes are financed using "exotic" mortgages (All adjustable and offering such features as Interest Only, Neg Am, "Pick your Payment", etc.), that when these mortgages begin to readjust (many, starting in 2007) the adjusted payment will exceed the borrower's ability to service the loan. This becomes problematic when home prices have stabilized or declined: The equity requirement to refi into a similar program no longer exists. (BTW, I am back reviewing (independent contractor) reports for a Bank that offers such programs- I have noticed that their LTV requirement for these loans have dramatically decreased; all that I've seen so far are at 80% or lower). If the equity no longer exists to refi, and the borrower can not afford the adjusted payment, the options are limited as to what can be done, but one option is to either walk-away, or try to sell the house and either break-even or negotiate a short-pay. At a point, if enough of these transactions occur, some threshold will be passed and it will create a "hard landing" (bubble burst).

However, here is an alternative possibility: If a 40 or 50-yr mortgage can be "swapped" for the existing exotic product, the lenders may look at this as the optimal choice/action. What I've read about these products is that they are high in fees and interest, and that the payment is similar to a low interest loan, so as a rule, they are not advantageous to the borrower. However, the key here is that the borrower cannot qualify for anything else. So, if the choice is to have bankruptcy or default on one's credit score vs. signing up for a 50-year mortgage, what is the likely choice?
Advantages to lenders/note-holders are:
1. Eliminates REO activity.
2. Generates new fees.
Advantages to borrowers are:
1. Maintains a low(er) payment, one that is assumed can be met.
2. Protects credit score.
3. Borrower keeps house.

This mortgage can be marketed with the same promise as the exotic programs-
"Look, this loan allows you to keep your payment affordable, protects your credit, and you keep the house. Sure, you will not build-up any equity in the first few years [more like the first 20] but once the market takes-off again, then you can refi into a 30-yr mortgage and recoup your equity. Yes, I know that was the plan with your interest-only loan, but its not your fault the market went south and the appraiser doesn't believe you and me when we say your house is worth so much more. In any event, the bank will start their foreclosure proceedings within the next 60-days, so I suggest we move quickly on this. And, remember, we can wrap all your fees into your loan, so there will be no out-of-pocket expense. When can you sign?"

What this does in real terms is switches a number of homeowners into something similar to a lessee. But, it does offer an alternative, albeit a costly one, to a borrower who simply cannot afford an increase in their mortgage payment.

 

[DTB]

Yes it was me and very few understood the reasoning or point behind it. I am bullish, always will be in some form or fashion, so I continue to buy, sell and rent. In other words my actions follow my thought process.

Bubblers should be held to their convictions as well. SO CAL market dropping like a rock to some? Why stay in it? Doesn't make much sense to me.


Denis' scenario is the most likely course in the near term. IMO

 

[Big ole Boy]

Get real - everythings going to hell in a handbasket - doesn't matter what the fed does ...... too late ....

 

[Randolph Kinney]

Some experts believe that a national housing bubble exists. Most economists don't perceive a national bubble, but agree that some local markets could pop. The most frequently mentioned markets include San Diego; Orange County, Calif.; Los Angeles; Las Vegas; Boston; New York City and Long Island; the District of Columbia; and South Florida, from West Palm Beach to Miami.

Most homeowner are like renters; they stay in their place of residence until they have to move for whatever reason, voluntarily or involuntarily.

If renting becomes that much cheaper where it becomes the volunitary motivation to sell (assuming they can sell at a higher price than they paid), then some will but most won't. It is the involuntary motivation to sell that the experts are worried about. And it is a problem when there is no equity or negative equity.