Housing bubble.... not over yet

[Stjudeprayforus]

scribd.com/doc/14166113/T2-Partners-Presentation-on-the-Mortgage-Crisis4309-3

 

[7_Sorrows]

i wasn’t able to read much, but this is not good news.

i still don’t understand how all of this could have happened. where were the safeguards?

didn’t anyone learn anything from the big depression of 1929?

 

[Stjudeprayforus]

I have been in the mortgage biz for 20 years…

Greed… pure greed… and stupidity in thinking that housing prices could go up and up and up and up and up and never stop.

Started under Clinton… and just kept going.

Although… I blame our congress… not a President.

 

[7_Sorrows]

I have been in the mortgage biz for 20 years…

Greed… pure greed… and stupidity in thinking that housing prices could go up and up and up and up and up and never stop.

Started under Clinton… and just kept going.

Although… I blame our congress… not a President.

well, you probably understand better than i do about what is happening. i also believe greed had a lot to do with it, but why weren’t there any safeguards. it is wrong that those of us who have owned our houses for 20 years are suffering because of how the market has devalued.

i had to rent my house out because i could not sell it and i needed to move. i am thankful it is rented, but this is a situation i did not want to be in.

i just want it to be over and everything to be normal again and be able to put my house for sale and sell it!!

 

[Stjudeprayforus]

Our congress in the early 90’s wanted everyone to own a home. Nice thought but…if they cant afford the home. … uh… what is nice about that?
So… building went crazy.
With all these homes in trouble (I now work in foreclosures… its UGLY)… who is going to buy all these homes?

Its is a travesty that those who played by the rules are the ones who will pay for all this.

Greed… is ugly.

 

[7_Sorrows]

i agree. greed is ugly and it took over everywhere from the auto industry to the housing industry to the banking industry. i think greed goes hand in hand with capitalism i am afraid to say.

i live in arizona where we have been hit the hardest. the housing boom in arizona started over 20 years ago.

i have heard talk that there are still people who are behind in their mortgages and they expect that there will still be more foreclosures to come.

in phoenix, it will take quite some time to clear all of the foreclosures off of the books and then how long will it take for the prices to go back up?

it is really sickening.

 

[Ridgerunner]

I recall how back in the early 1980s, house values dropped. But it was even more dramatic with land. To the best of my recollection, land prices dropped from about $600/acre to about $400 or $500.

However, in the upper midwest the best farm land imaginable that had been selling for around $3,000/acre couldn’t find buyers at $500.

It was due to an inflationary cycle that caused people to go into “tangibles” like land. Money was “cheap”, so everything just spiraled upward. But then it crashed.

In my opinion, that’s just exactly what we have here. More entrants into the “demand” side of the market due to CRA and “special loan programs”, combined with a Fed that overstimulated the money supply based on the belief that deflation was a threat. Remember what commodities looked like last summer? Same thing happened in the late 1970s and early 1980s.

Back then, of course, it was more common that banks and S&Ls kept their home loans “on the shelf” or sold “participations” and retained part of every loan, than it was to sell them whole, without recourse to the original lender.

In recent years, FNMA and FHLMC had “political protection” from reforming themselves, and just kept buying whole loans with abandon. Banks and mortgage companies were only too happy to oblige.

One thing too. In a way “no one” is to blame, exactly. Or at least no one participant is. When a housing market is hyperactive, appraisals tend to spiral upward too, because they’re based on the last few “comparable” sales. That, ALONG WITH a desire on the part of appraisers to value houses as desired by lenders, causes perceptions of value to ratchet upward. It gets unreasonable, and then it collapses. I don’t think any government program they can devise will change that in any significant way.

Since overvaluations come from a million sources, I’m really not sure how this can all be prevented in the future; certainly not without a savage devaluation of housing and demanding more of borrowers. The government is not equipped to oversee the appraisal process.

 

[JimG]

One thing too. In a way “no one” is to blame, exactly. Or at least no one participant is. When a housing market is hyperactive, appraisals tend to spiral upward too, because they’re based on the last few “comparable” sales. That, ALONG WITH a desire on the part of appraisers to value houses as desired by lenders, causes perceptions of value to ratchet upward. It gets unreasonable, and then it collapses. I don’t think any government program they can devise will change that in any significant way.

It doesn’t really stop until buyers stop thinking “I’ve got to buy now before the price goes higher,” and instead say “hey, that’s way too much, and I’m not paying it.” Then when prices do start to drop, those who bought at the top of the market soon find themselves underwater.

 

[Stjudeprayforus]

i agree. greed is ugly and it took over everywhere from the auto industry to the housing industry to the banking industry. i think greed goes hand in hand with capitalism i am afraid to say.

i live in arizona where we have been hit the hardest. the housing boom in arizona started over 20 years ago.

i have heard talk that there are still people who are behind in their mortgages and they expect that there will still be more foreclosures to come.

in phoenix, it will take quite some time to clear all of the foreclosures off of the books and then how long will it take for the prices to go back up?

it is really sickening.

From my perspective… we havent seen anywhere close to the worse.

Part of my business is checking on homes that the homeowner has missed payments…(starting with the fist midssed payment)…they are not in foreclosure yet. In Normal market days… 90 days of no payments and the bank foreclosed.
Now… I have been checking on hundreds and hundreds of homes that a payment hasnt been made in close to a year. (I just cover a few counties in Indiana)
Its like the banks cant handle any more foreclosures right now so they are waiting to clear out inventory and add more.

This is going to be ugly for a long time.

 

[JimG]

From my perspective… we havent seen anywhere close to the worse.

Part of my business is checking on homes that the homeowner has missed payments…(starting with the fist midssed payment)…they are not in foreclosure yet. In Normal market days… 90 days of no payments and the bank foreclosed.
Now… I have been checking on hundreds and hundreds of homes that a payment hasnt been made in close to a year. (I just cover a few counties in Indiana)
Its like the banks cant handle any more foreclosures right now so they are waiting to clear out inventory and add more.

This is going to be ugly for a long time.

I have to agree with that. David P. Goldman, in the May issue of First Things magazine, writes an article entitled Demographics & Depression. He posits that the bursting of the housing bubble has much deeper roots than the obvious ones. A robust housing market results when young families need houses—not apartments or condos that are suitable for singles or couples, but houses with 3 bedrooms for couples with children. Such traditional families—mom, dad, and kids—have experienced nearly zero growth. The reason has a lot to do with cultural changes that de-emphasize the traditional family, and devalue parents staying together and having children.

Because of these cultural changes, the demand for single family housing may be depressed for a long time to come. It will take another baby boom generation to recover, and who knows when or if that will happen.

I’m not going to summarize the article here, but anyone interested should get the most recent copy of First Things.

 

[Ridgerunner]

I have to agree with that. David P. Goldman, in the May issue of First Things magazine, writes an article entitled Demographics & Depression. He posits that the bursting of the housing bubble has much deeper roots than the obvious ones. A robust housing market results when young families need houses—not apartments or condos that are suitable for singles or couples, but houses with 3 bedrooms for couples with children. Such traditional families—mom, dad, and kids—have experienced nearly zero growth. The reason has a lot to do with cultural changes that de-emphasize the traditional family, and devalue parents staying together and having children.

Because of these cultural changes, the demand for single family housing may be depressed for a long time to come. It will take another baby boom generation to recover, and who knows when or if that will happen.

I’m not going to summarize the article here, but anyone interested should get the most recent copy of First Things.

In general, I wouldn’t disagree. Nor would I disagree with StJudeprayforus above. However, I will add that there are a couple of things that I think could end up as a counterforce, at least in some places, and in part.

First, in many places the market value of a house is below replacement cost. Once excess inventory is absorbed, there is no place for prices to go but up. Some of the excess inventory is caused by unemployment or people being overextended; neither of which is necessarily a permanent condition. There is some “inventory attrition” as a consequence of fire, commercial development or condemnation, though it’s slow.

Second, around here at least, a lot of the older, “starter” homes are being purchased by recent immigrants; most of whom are Hispanics. Those homes have to move before the more expensive homes can be sold to those who are “moving up” from their “starter” homes.

As a consequence, there are still some new homes being built around here, even “spec” homes. And they readily find buyers if they’re the right kind.

What are NOT moving around here are “McMansions” or any kind of big custom-built “dream houses”. Nobody will buy them. I do think people have begun to think in more modest terms than they once did, which is why 2000-3,000 sq ft homes move briskly around here.

None of which is to say that I am unconcerned about the low U.S. birth rate. I guess it’s maybe just a trifle above replacement, but not by much. I have long believed the U.S. is terribly underpopulated anyway, and as I look around and see couples with only one or two children or even none at all, I get very concerned about the future.

 

[JimG]

I think it was not just the birth rate that the author was concerned with, but the rate of formation of new families of the type who buy starter homes and midsize homes. The breakup and the non-formation of families, single parenthood, and no-kid couplehood do not provide the same demand for such housing.

 

[Stjudeprayforus]

All this inventory and all the inventory to come has to be bought… and obtaining financing is hard.

All the people who have been late on payments or if they lost thier home… it will be a very long time before they qualify for a mortgage.

 

[7_Sorrows]

how long before those of us who have owned our homes for 20 years will be able to sell them at a decent price and keep the equity that had built up for years before this disaster happened? all of those years faithfully making mortgage payments each month, i thought i was making a good investment, now that turns out not to be the case. very disheartening.

as much as i love my country, i feel like what i was taught to believe about it, has been a big lie. if capitalism is so good, why were the greedy allowed to have so much power over the rest of us and why are those of us who played by the rules all of our lives having to suffer financially through all of this.

wasn’t it pat buchanan who wrote the book The Late Great U.S.A.? maybe i should read it.

 

[JimG]

No investment is guaranteed to appreciate, not stocks, not cash, not real estate. It can go up in value and it can also go down in value.

What led to the bubble is that many people from realtors to mortgage brokers to homebuyers got the idea that housing could only go up in value. But what goes up, can and usually does, come down.

 

[Stjudeprayforus]

Exactly… it was crazy to think values would go up by 20% or more a year.

California and Florida saw increases of 30-40% in a year.

realistically… it should go up 1-3% a year.

If you have owned your home for 20 years… your value should be what it was 6 years ago.

Its all the people who bought homes in the last 5 years… they are likely… under water.

 

[Ridgerunner]

No investment is guaranteed to appreciate, not stocks, not cash, not real estate. It can go up in value and it can also go down in value.

What led to the bubble is that many people from realtors to mortgage brokers to homebuyers got the idea that housing could only go up in value. But what goes up, can and usually does, come down.

All one has to do is live long enough to experience the ups and downs on their own hide. Years and years ago, when I was just a callow youth, I remember my grandfather saying “people expect everything to just go up and up, but it doesn’t. It always eventually goes down too.” I listened, but not well enough not to get caught here and there.