I guess housing doesn’t always go UP!
Yes, I know, it has been way too long. But at least we are starting to see some signs that we were in a real estate bubble…right?!?!? I guess when major a major Wall Street investment firm gets bought for $2 a share, something bad happened. But more on that later…
I don’t even know where to start right now. So many ‘experts’ said so much ‘crap’ during those booming 5-8 years (depending on where you lived), that I can’t even begin to wipe the egg of all of their faces. Remember the SoCal real estate experts that said ’soft landing’ and worst case things will ’stay flat’ for a year or two then take off again? Remember all the big financial guru’s on Wall Street using mathematical equations and fancy derivatives to make crap loans look like ‘gold bars’ as they sold them to everybody who would listen? Remember when 70% ‘home ownership’ was a good thing? Remember when you could just refi every year and never have to worry about paying off your house because it always went up? Remember when ‘everybody’ was a real estate investor, agent, or mortgage broker? Remember when all was right in the world?
Come on people, as big of a mess as this is, it is REALLY very simple. By lowering the standards and using the stupid ‘American Dream’ tagline, millions of people who should not have been able to buy a home, entered the marketplace. These people had to use ‘creative’ financing (I/O, stated income, NINA, Option-ARM, I/O ARM, SISA, etc.) to ‘afford’ their property. This had the effect of pushing property prices higher which is ‘good’ for the people already in the game, but bad for families and others that had to ’stretch’ to be able to purchase a home they otherwise would have been able to afford. Once we hit that ‘70% home ownership’ (don’t get me started…more like ‘70% home mortgageship’), the standards couldn’t really be lowered ANY further to accommodate any more borrowers.
Personally, I could care less what percentage of the population ‘owns’ a home. Just like not everybody has the ability to be a doctor, not everybody has the ability to own a home. What if medical schools applied the same ‘ownership’ logic to med school??? I know they might want more doctors, but how far are you willing to lower the standards to allow 70% of the population to enter medical school???
Sounds crazy doesn’t it. But this country did the exact same thing, just with home ownership. They lowered the standards and let MILLIONS of people buy homes when they didn’t ‘deserve’ that privilege. So you have a millions of homeowners playing in a game that a few years ago they would not have been allowed to play in. They used their creative financing and depended on annual price increases to ’save them’ when they sold for profit when those payments adjusted beyond their reach. The only problem is that real estate did NOT continue to appreciate on an annual basis. In fact, it did something it ‘never’ does…it went down!!!! (insert big gasp here)
With refinancing out of the question (Got Equity?), and selling for a loss not an option, people started foreclosing. So as fast as many of these people entered the market, they started to leave. Now we are seeing foreclosure rates up 400% in many ‘untouchable’ areas. Moody’s has said there are almost 9 million homeowners that have mortgage balances equal to or greater than the value of their property. I see that number growing every month for at least the next few years. Property values are still NOT in line with income. Based on the lack of savings by the ‘average joe’, I don’t see many having the typical 10-20% down payments that are going to be required to purchase homes in the future as ‘risk assessment’ has returned to the market.
Another nasty little side effect of all that ‘easy credit’ can be seen in the auto industry. Here is a good article that covers the amount of people ‘foreclosing’ on their cars by just ‘giving the keys back.
Here is another gem for Gary ‘In the Bag’ Watts and the rest of the California ASSociation of Realtwhores. Looks like SoCal is down 17.9% from last year, and even the Bay area is down in the double digits as well. Since the median income in California is about 48k, does it suck when your clients property loses 80-100k or more in a year? Inquiring minds want to know. Do you just give them old copies of your newsletters, and tell them it will come back in the ’summer’? After all, I wasn’t so fortunate to own property that appreciated more in a year than I made from working. Who knew condos and tract homes wouldn’t continue to go up 50-100k per year forever?? Ok, maybe I did…but bloggers didn’t know what they were talking about.
Not really much I need to say about Bear Stearns. They were the life of the party…while it was still going on. Now they are like the life of the party that drove drunk into a tree and got killed, and everybody at the party is ‘wondering’ how it happened. Duh…
A quick side note: lowering interest rates is NOT going to save housing. Housing rates were where they were because the banks quit pricing in risk. By pricing in the risk according to a borrowers ability to pay, interest rates could be zero, but the banks will have to charge a premium for the risk they are accepting by making the loan. It might feel good and help some people out, but all it is doing in the mean time is devaluing the US Dollar in the international market place.
I have more to talk about, but that will have to wait a bit longer. I have been terribly remiss in making new posts as I have been extremely busy, and this blog isn’t the priority or money maker it once was. This blog served it’s purpose for millions of readers BEFORE this collapse in housing started. Based on the thousands of e-mails I have received, it seems I helped out a LOT of people. I was upfront and honest the whole time. I didn’t get rich, but I sleep well at night. I don’t have the guilt of lying to property owners, investors, hedge fund managers, rating agencies, or the media so that I could make a buck. Heck, I guess some of them got so rich they probably don’t care. Guess I will never know.
Stay Tuned…
SoCalMtgGuy
March 18th, 2008 00:23
Good to see you back. Just a quick note, it’s Tract Home, not Track Home
http://en.wikipedia.org/wiki/Tract_housing
March 18th, 2008 04:45
Seriously.. you’re great.
thanks!
Thanks to you, I didn’t buy a house and I’m not in the mess all these people are in…
March 18th, 2008 04:54
Salute your sincerity and analytical power.
Ever considered presenting factual data and arguments in a form to prove Mr Greenspan and everybody in the know actually knew and consciously allowed the systemic risk for short term personal gains?
90% of the general public believes what happened was fate and no one is responsible.
From people who did the modeling and risk assessments, who passed on CDOs, who rated it to AAA, who did appraisals, who processed mortgage papers — everybody in the chain knew what was happening new it should not be happening but actively encouraged it, participated in it or at a minimum, looked other way.
Even FED’s congressional testimony was disingenuous - you predicted it with less factual data at your disposal than FED.
We need a truth commission.
March 18th, 2008 07:11
Don - You are correct, I missed that on my proof read!
Shelly - I am glad you saved some (or lots) of money, and probably a TON of stress! Again, that is why I started this blog. If everybody listened to the ‘experts’ they would be right in the thick of this mess.
Thanks!
SoCalMtgGuy
March 18th, 2008 09:24
Good to see your post!
Would love to see Greenspan get his due on this. It makes me sick if you go back and look at what he said (basically everything is going to be OK) over the last few years. Meanwhile the house of cards was already beginning to fall…
March 18th, 2008 14:03
i check in once a month to see what’s up so give us a post whenever you can.
a friend bought a house for $410K in 2005 with a 5yr IO ARM and i begged her not to.
now she wants to refi out of the ARM cause she’s 2 years away from reset…..the comps are coming in at $290K and in 2 years i bet it’s not gonna be much better and possibly worse.
it’s sad how us bloggers saw this coming years ago and it took the “experts” by suprise.
March 18th, 2008 15:08
threadkilla,
I don’t think it took them by surprise. I think they ‘play dumb’ while they are getting rich on both the up and down side of things.
They then say ‘they had no idea’ this would happen, as they laugh behind closed doors at the mess they ‘got rich off of’.
Sorry, but it doesn’t take a genius to see that ’stated income’ loans, and getting ARM loans when rates are at historical lows could cause problems.
Stay tuned….
SoCalMtgGuy
March 18th, 2008 16:04
A co-worker of mine (who leases his vehicles, need I say more?)continually rants that “the Fed has to cut rates to get us out of this housing mess so the economy can get back on it’s feet!!” I think SoCal said it best “lowering interest rates is NOT going to save housing”. Firstly, cutting the Fed funds rate does not assure that mortgage rates will go down. Secondly, with tighter lending standards, buyers are going to be required to come to the table with at least 10% down (more if they have bad credit) and we know how hard that will be for most Americans.
What we really have here is a leadership problem. Poor leadership permeating all levels of the political,economic and corporate spectrum of this country has created a “false economy” that is merely a house of cards in a windstorm. Hopefully, we can recover without complete devestation.
March 18th, 2008 20:26
SoCal, you sure saved our family. A big thank you from us.
In 2005, we had no idea the internals of the lending Machine were so out of whack (ARMs, NegAm loans, 0% down loans, 40 year loans, liar loans), and you explained things in a way that made perfect sense.
Thanks again.
March 18th, 2008 20:32
What’s with the media continually referring to the “Housing Crisis”?
When people are paying 8X and 10X income for shelter, THAT is a housing crisis. This is a Housing Correction, and a welcome one.
Many articles also say such things as “the housing market may improve in X months.”
The housing market is improving TODAY! Every day it gets better, as houses become more affordable, and more in line with incomes.
March 18th, 2008 23:11
Thank you SoCal, You really helped our family have the courage to rent and not buy. That one decision has changed our lives. your effort is much appreciated.
March 19th, 2008 10:35
I don’t think it took them by surprise. I think they ‘play dumb’ while they are getting rich on both the up and down side of things.
They then say ‘they had no idea’ this would happen, as they laugh behind closed doors at the mess they ‘got rich off of’.
Sorry, but it doesn’t take a genius to see that ’stated income’ loans, and getting ARM loans when rates are at historical lows could cause problems.
I think that is, for the most part, accurate. However, I do think that the collapse of the derivatives market and the true nature of the CDOs did, to some degree, catch them off guard. Although individuals like Warren Buffett warned about it years ago.
But when banks like Bear Stearns fail, that is usually an indicator that something happened that even the fat cats didn’t truly predict. I think a lot of that has to do with them swimming in their own excess hubris for too long and not being fiscally diligent when they needed to be.
But as the hoster of this blog stated, it really is all moot. Housing will correct no matter what anyone does. With the tightening of lending standards, massive inventories and the collapse of the mortgage backed securities engine (the true driver of this bubble), we will eventually reach normality again. It will take probably another 5 years. But we will get there.
March 19th, 2008 11:12
“However, I do think that the collapse of the derivatives market and the true nature of the CDOs did, to some degree, catch them off guard.”
yeah, it caught them off guard all right. After all, how could a bunch of mathematical equations that 99.9999% of the people can’t explain or understand not ‘mitigate’ the risk of giving 500k loans to anybody with a pulse???? I mean, they were making 7+ figures a year, and they are soooo much smarter than the markets, how could things go bad??
The best thing is to step back and let the pain be felt. Cleanse the markets, and if that means 35% home ‘ownership’ so be it. Then we will have the REAL value of property again, as well as a fresh reminder that you can NEVER STOP DOING RISK ASSESSMENT!!!!!!!!!!
Stay tuned…
SoCalMtgGuy
March 19th, 2008 14:00
Hi SC,
Great post as always. Thank you.
Regarding your following comment..
“Based on the lack of savings by the ‘average joe’, I don’t see many having the typical 10-20% down payments that are going to be required to purchase homes in the future as ‘risk assessment’ has returned to the market.”
Do you think that we are close to or at the point where pretty much most every loan product will require 10 - 20% down (or possibly more)?
Is it possible that the lending institutions could just continue on with the foolishness?
Thanks.
Pen
March 19th, 2008 20:43
Nice Post… glad to read things are going well for you and you are busy.
March 20th, 2008 00:19
SoCalMtgGuy,
Count me in the lot of those grateful to you for saving money in housings — and stocks.
Someone above said five years to hit bottom in Southern California. I know you don’t like to make specific predictions, but does that sound about right to you?
March 20th, 2008 09:37
Someone above said five years to hit bottom in Southern California. I know you don’t like to make specific predictions, but does that sound about right to you?
I know that question was directed at SoCalMtgGuy, but let me toss in a piece of statistical data that may help give you a gauge as to how long the downturn might take:
http://mysite.verizon.net/vodkajim/housingbubble/san_francisco.html
That chart is for San Francisco specifically, but it does give a good idea as to the nature and severity of the bubble. If you extrapolate and draw a trend line, you’ll see that normality will be reached around 2012-2014. So between 4-6 years from now.
Mind you, this isn’t exact science. Certain areas may correct faster than others. But it’s not a bad frame of reference.
From my perspective, I am not even considering a home purchase for at least 3 more years. Mostly due to the belief in a massive correction (40-50%) but also because a recession will make jobs more tenuous. So I would rather have a nice, large cash reserve to dip into should times go bad versus a crushing mortgage weighing down on me.
March 20th, 2008 12:51
Nice talk about bad mortgages, and then to look to my immediate right on the website, and see advertisements trying to lure people with Bad Credit into a mortgage.
March 20th, 2008 14:51
Yeah, but they seem to be fewer in number from a few years ago.
March 20th, 2008 17:10
So glad to see the new post!
I checked Wells Fargo’s Jumbo rates today….after all the Fed cuts….8% for a 30-year fixed, over 7% for a 5-year ARM, both programs requiring 20% down. I know other banks have followed suit about down payments, especially in states with rapidly declining prices (AZ, CA, FL).
Not only did the bubble bring in unqualified borrowers, but “qualified” folks took out loans that were way beyond what they would have been given only a few years ago. When I bought (in ‘96, sold in ‘04), banks didn’t want you buying at more than 3x your gross income. Now, people with “good jobs” and “good income” are in houses purchased at 6x, 7x, gross income. It simply isn’t sustainable once those mortgages reset.
And we have yet to see AltA and all the pay option ARMS crumble later this year.
Thanks again for the new post!!
March 22nd, 2008 21:23
Thanks for the update. I cringe at the fate of former neighbors. They bought a condo in the SF Bay area for about $375K in fall 2005. Due to pending reset, they listed it for $350K Summer 2007. Has dropped price several times.. but it’s still on market, now in the 250K range. Ouch.
What is Arnold going to do w/ Taxifornia’s revenues dropping like a rock with RE tax revenues being tied so tightly to transaction prices (Prop 13)? The banks owning the foreclosed properties surely will arrange for re-assessment and benefit from tax bill reduction on their properties that can’t sell.
At least I don’t hear that mortgaging or re-financing “is the biggest no-brainer in the history of mankind” anymore. Though I do hear the SAME person, with a different company name. It will be interesting to watch this unfold over the next few years.
April 6th, 2008 11:45
No matter what people say, now IS the time to buy something. Why is it that most buyers are like lemmings and go with the herd? Go against the market tide and do what’s in your best interest, not those of the pundits on tv. Anyway, that’s my 2 cents.
Regards,
Rob
http://www.battlecall.com
April 6th, 2008 21:25
Nice try Rob……
Peddling your mortgage services. What did you tell people when ‘everybody’ was buying, that they should wait? Come on. You are like all the other real estate cheerleaders. You will always find some reason to tell people to ‘buy’, no matter what is going on in the markets.
Steve-O
April 7th, 2008 20:46
Rob, you are the kind of lowlife scum that destroyed our economy. I hope you don’t believe in hell because if you do you have a table reserved.
April 16th, 2008 19:37
Long time reader, I too want to see Greenspan speak for his false advising to future homeowners the last few years. Wow it will take time to heal this mess.
Fred
http://www.onlinevaservices.com
April 23rd, 2008 06:11
Man, am I disappointed to find out how partisan you are after donating to this site in 2006. This comment has nothing to do with your opinions on the housing market which are spot on, it’s with the Drudge image and other comments you’ve made in the past several months. Really disappointing that you’ve injected politics into the site.
April 24th, 2008 07:25
None…
None…
April 25th, 2008 23:54
I’m a realtor and I never believed all the hype 3 years ago. I also feel that we are seeing condo sales increasing again condos tend to give a good picture, along with the over all real estate market. I think we have seen the bottom. greg moser
April 26th, 2008 18:03
Luka #26,
Don’t be such a crybaby — Drudge is simply a web tabloid site that often breaks news.
And I’m sure if politicians stopped talking about Govt handouts for speculators and bagholders, so would the commentary on them.
April 27th, 2008 07:46
Luka,
Are you kidding me? Drudge is a site that gets more hits than the major news outlets out there. Drudge’s site merely links to every major media site around the world no matter what political slant. If something makes the ‘top story’ on drudge, it must be big.
That is how I take it at least. The information on this site has been based on numbers, not partisan politics. Highlighting the front page of a website that gets hundreds of millions of hits merely illustrates that it is BIG news.
I think you are the one with automatic ‘partisan’ issues.
Steve
April 28th, 2008 19:45
Greg Moser:
Are you a fraud or just stupid? You think we’ve hit bottom. Wow — how many chromosomes do you have, anyway?
I guess you’re too busy making idiotic predictions to open a newspaper or magazine, or you’d see that we are heading into a RECESSION, predicted by many economists to be the worst in a generation. Do you really think those are the conditions for rising home values? Do you really think that people without jobs are going to be buying houses? Or do you just not think?
I can’t wait till they repo your Mercedes, Greg, and I hope you lose your home too and that you and your family has to sleep under a bunch of your rusty “OPEN HOUSE” signs.
May 11th, 2008 05:59
According to an article in the Orange County Register Tuesday, April 25, 2008, pending sales of homes are up 23% over last year’s numbers. If the trend continues, April or May will mark the first time in 30 months that sales have risen YOY (year over year). All this sales activity is going to come at the cost of the median price falling significantly as these increased sales are mainly bank owned foreclosures and short sales.
The banks have finally figured out that if they want to sell their foreclosure inventory they need to cut prices. Boy have they!!! Houses that sold for $550,000 and more just a year ago are now being sold by the bank for under $400,000. I don’t think they were ever worth $550,000 but when you start knocking 30% off the price of homes in less than 18 months it is going to leave a big mark on the median price.
Because so may homes are selling in the low end of the market, the median price of homes sold in the past 4 weeks is $512,000. That is a 20.9% YOY decline in prices. My own study of all pending sales shows a current median price of approximately $475,000, an additional decline of 7.22%.
Within all the negative news about real estate values I’m seeing some stability in market. Investors have started buying property and individuals who have been waiting to buy have entered the marketplace. With homes single family homes selling for under $400,000, some properties make sense to purchase as rentals. Homes in upscale areas that come on the market priced well under CURRENT market price are sold within days. If buyers keep showing up, and barring some other significant event, we may have found a floor for prices.
While there may be floor for real estate prices, I don’t see prices rising any time soon. There are over 4,000 short sales on the market as of today and the majority of them will be foreclosures. At least another 1,000 are bank owned foreclosures. Defaults and foreclosure notices still appear to be on the rise. There is far too much downward pressure for prices to start rising.
www.wehelpubuy.com
May 11th, 2008 19:55
Dear We-Help-You-Buy-Guy,
See comment #31.
Sincerely,
Watch Out Below