This certainly seems like bad news, especially sine people have been warning about this (kevin Drum in particular) sort of thing for quite a while:
American Home Mortgage Investment Corp. became the second-biggest residential lender to file for bankruptcy protection this year, adding to signs that late payments have spread to homeowners with good credit records.
The company sought federal court protection from creditors in Wilmington, Delaware, today, saying it had assets of more than $100 million and debts of more than $100 million owed to more than 100,000 creditors. The filing comes after the company announced Aug. 2 it would halt operations and slash staff.
American Home specialized in mortgages for people who fall just short of top credit scores. More than half a dozen competitors have declared bankruptcy this year as defaults spilled over from “subprime” borrowers with the worst repayment records to those with more reliable payment histories.
“Their sources of funding have all dried up,” said Mark T. Power, an attorney who is representing some creditors in the case. “This case is going to be very similar to New Century.”
New Century Financial Corp., based in Irvine, California, became the largest home lender to seek court protection from its creditors when it filed for bankruptcy in April. The company is now being liquidated. Melville, New York-based American Home also is probably going to be forced to liquidate, Power said in an interview Friday, after American Home told employees that it was planning to declare bankruptcy.
There are a number of you who have been following this issue far more closely than I am, and might be able to fill in the gaps. how bad is this/ Am I being chicken little? Is this just the market correcting itself? Or is this the sign of something catastrophic on the horizon?
Edmund Dantes
It depends on a lot of things. The biggest one being are we going to be forced to bail these guys out like we did with the S&L scandal? Whether the Federal government gets talked into saving these companies from their own malfeasance is going to be one of the bigger predictors of how bad it’s going to be.
It just goes to show you, if you are going to go down this road, go so big the government has no choice, but to bail you out. Best example being the companies that have criminally underfunded, raided, cooked the books on their pension funds only to dump them off on the Feds so they can make profits.
Dug Jay
It’s a mixture of good news and bad news. This particular set of failures is no real surprise. Anyone that followed what was happening in the mortgage market during the past five or so years had to expect some major correction when rates appeared likely to turn upward; mortgage lending standards had become so weak that almost any shiftless fool could qualify for a loan under terms that made no economic sense, either to the borrower or lender.
Neither the borrowers or lenders deserve to be “bailed out” with funds from the US Treasury. Both should be permitted to fold, with homes repossessed and mortgage company bankruptcies permitted to happen. Home values will continue to soften some more, and over the next several years the market will ultimately correct itself…which is not to suggest that it won’t be painful for those caught in the middle.
Comrade Mattski
Woo-Hoo!!! Living in a Renter’s paradise. Hopefully home prices will continue to soften.
Halffasthero
This has had an ongoing warning at many other blogs for a long time. That it is now hitting the people who aquired higher credit level loans is no surprise. People have been refinancing to make ends meet for a few years now. This was turning into a ponzi scheme that is only now beginning to run its course.
I hope there are now bail outs – the cost of bailing out the Savings and Loan was devastating. To have to do it again sickens me. Especially since it was no secret this was happening.
Gold Star for Robot Boy
But if rates continue to rise, then it’s a wash.
Pug
I followed it prety closely because I was a stockholder in AHM. The biggest concern, reaslly, is how fast it happened. Standard & Poor’s had the stock rated 4-star, buy, and three weeks later it was closed.
This is the inevitable fallout from the housing bubble, much like the tech bubble of the late ’90’s. When they’re over they cause a lot of pain.
I do believe these credit and real estate problems could lead to a recession. Consumers have felt wealthy because they have seen their houses skyrocket in value and have been willing to go on a spending binge. Now, their home values are falling, energy and food prices are rising and their mortgage payments are going up. They could start to feel the crunch soon.
Mr Furious
Mortgage companies get to declare bankruptcy, too fucking bad for the homeowners thoughâthey don’t have that luxury anymore.
Don
No it’s not, or at least not likely to be.
A $100,000 home (hahahahahah – sorry, you’d laugh too if you lived in the DC area) at 5.75% gets you a monthly of 583.57 on a 30yr mortgage.
If that home drops 20% to $80,000 and the rate jumps a full two points – which would represent a 35% increase – to 7.75 you’re DOWN to 573.13 a month.
Also note – this presumes a 100% financing rather than you having some set dollar amount, X, which does NOT decline as interest rates climb and house prices fall.
You can google around for some articles in real estate columns but the bottom line is that in the short to medium turn you’re almost certain to turn out better as a buyer with a lower cost and a higher percentage.
Dave
My thoughts exactly.
And this is not like the tech bubble of the 90s. The tech bubble dealt with overpiced stock in paper companies. Housing is tangible.
fester
John — right now it is wait and see. I think it will get significantly worse as Bernacke will not be cutting rates massively (too much inflation and dollar weakness costs there) and as Dug Jay said — anyone who could sign their name was able to get a mortgage that made absolutley no sense in anything other than the ‘new paradigm’ of resecuritizing risk through the slice and dice magic of the bond market.
One scenario that could play out under my assumptions is that no major investor pools want to risk any more of their money on anything for a couple of months/quarters because they don’t trust the reports and analysis that they are seeing due to the problems that have either already come to light or will come to light. Without investor credit, there is little to no consumer credit, and without consumer credit, there is no consumer spending growth, and without consumer spending growth, there is a recession.
That is one scenario, and I personally buy into it or at least its weaker cousin — a growth recession where better inventory control avoids a general contraction but we see a while where the economy is moving sideways at best.
Another scenario is a more optimistic scenario — some of the companies involved made individual and non-systemic bad choices, and it really sucks to be them and their investors, but the problems in subprime and Alt-A are limited and contained to stupid companies that should be allowed to die peacefully.
Ned Raggett
I’m just waiting for the day Larry Kudlow posts on the Corner that his entire life is a hollow lie and then throws himself off a cliff.
Mikkel
As far as I can tell, the problem is not just that mortgage companies are collapsing, but what that means for the overall credit situation. Our integrated financial system is built on loans on top of loans offset by secure (read bonds) investments. The problem is that in Greenspan’s desire to avoid a normal recession, he flooded the market with cheap money, which led to both giving out high risk money and the decrease in bond returns.
Now they are getting hammered for their drunken loan giving, but bond returns are still really low (look how inverted the curve has been for a while) and the companies can’t manage their risk. If I read correctly, at one point last week the risk in loaning money hit an all-time high (not sure how long that’s been tracked).
And don’t get me started on hedge funds and how many unknowns there are. Despite everyone reassuring people that this is normal, there is has been a lot of different wand waving shit created in the last 10 years that no one has any idea how it will work when it goes bad. Hopefully the Fed’s pronouncements that they will retain stability is correct.
zzyzx
I think I’ve read one too many dire predictions to be able to take them seriously. If I see the phrase, “The Greater Depression,” one more time on a housing bubble blog, I’m…errr… going to mock them again.
David
Jim Cramer provided some fun theater…
http://www.youtube.com/watch?v=SWksEJQEYVU
I have a hard time feeling sympathy for anyone here. The loan manager knew his borrower was a borderline candidate and would have trouble making payments at the first hiccup in his finances or when the rates adjusted. The sooon-to-be-not homeowner could have purchased a modest $150K home with bargain-level fixed rates instead of speculating on that $500K McMansion at the unrealistic adjustable rates that would only last a year or two. There is simply way too much greed on both ends to feel much sorrow for either party.
Ned Raggett
(Actually, John, I think the first line should read ‘sane people’ — but I’m all for sine people, who protect us against the horror that is the dread Cosine Cult.)
Fwiffo
It’s so sad how predictable this crap is. I was saying the real estate market was on the verge of collapse at least 3 years ago, and I don’t know shit. Everybody was like “you gotta buy a house, it’s a perfect investment, look how much money I’ve made!” Fuckers. Gotta be the same assholes who were paying $150 a share for VA Linux.
Money people are such immature fucking peons. Rational markets my ass. It’s goddamn beanie babies and Tickle me Elmos, except they’re playing games with people’s livelihoods. And there are places where they’re still throwing up new McMansions like it’s 1999. I saw new houses being built in MICHIGAN last Christmas. Hello! A state with no economy and a DROPPING population needs new empty houses while existing homes sit on the market for months and years? Fucking assholes.
ThymeZone
Well, I must represent, as a citizen of Bubbleland USA.
Phoenix has been through a dozen of these inflate-deflate bubble cycles since WWII. They come and go, and if you live here for a while, you sort of get used to them like you get used to the intolerable July and August heat. It’s just part of living here.
The growth here is off the charts for what most of you would be used to. When was a young whippersnapper, we had a big street party here when the city population reached 100,000. Now we are in the middle of a metro area of 4 million people and still growing at a phenomenal rate.
In areas like this, developers and shoestring “investors” and speculators are always around to help jack up prices and skim off the money from the churn. Then they lay low while the overheated thing cools and leaves people at the fringes (now called “subprime” borrowers) take it in the shorts for a couple of years. But over time, it all evens out.
I don’t see a big collapse coming here. Also, as a student of this particular market, I adivse anyone who is interested in buying, selling or lending to be very submarket conscious. Prices can be going down in one neighborhood and up in another, at the same time, in a volatile place like Phoenix or Las Vegas or SoCal. Generalizations are for the suckers.
Well, and blog posters like me, who use them all the time, but seriously, know your comps.
Dennis-SGMM
At least 70 mortgage companies have halted operations, gone bankrupt or sought buyers since the start of 2006, according to Bloomberg.
Two of Bear Stearns mortgage-backed hedge funds have collapsed, causing the resignation of co-president and co-chief operating officer Warren Spector yesterday.
The resecuritizing of risk mentioned by fester, above, was accomplished by bundling subprime mortgages into mortgage backed bonds which were then sold to hedge funds and other large investors. That the mortgages that backed these bonds were granted on the base of fictitious income statements and improbable assumptions was ignored by their purchasers. Ignored that is, until scheduled interest rate resets on adjustable rate mortgages started an avalanche of late payments and defaults. Many of the home buyers had already taken a second mortgage to make their down payment so that they wouldn’t have to pay for mortgage insurance. This, along with declining home prices, leaves them unable to refinance their way out of trouble. Their will be more foreclosures as sub-prime borrowers get overtaken by the payments that they couldn’t make in the first place.
Who will be left holding the bag? Depending on the extent of this mess, I look for members of Congress to begin calling for a bailout for sub-prime borrowers. This won’t stem from their professed sympathy for the little guy but rather from their sympathy with large investors. Bailing out the little guys will just coincidently bail out the big guys. Bottom line: if there’s a bag to be held we taxpayers will be given the honor of holding it.
Kirk Spencer
In a lot of ways I’m with Fester. Just not all the way.
One thing I think that’ll keep the issue up in the air is the fact this is tied to mortgages. It’s going to be a slow-motion trainwreck, and I don’t think anyone has a real handle on the whole thing.
Right now, for example, it’s the providers of less-than-top-tier mortgages who are getting hammered. Actually, the bottom tier got hammered a few months ago, but that’s a side-rail. The thing is, most of the top-tiers will manage to soak aside this run. And it’ll make people queasy, but we won’t see a crash.
The next run hits in about 3-4 more months. That’s when we see the first big peak (of two) resets happen. That’s when a lot of people (more than presently, and it’s bad already) suddenly can’t pay their mortgages and start the foreclosure or walk-away process, and THAT is when the top tier realizes it, too, is vulnerable. But that’s not the ugly part.
The ugly part hits us, I think, about March of next year. That’s when a lot of people discover they can’t sell their homes because most buyers are in one of two categories. Many expect prices to come down (because they already have so that’s the trend). More just aren’t there – they don’t qualify under the tightened rules that allowed purchases even a year earlier (this past March). And people who can’t buy and people who can’t sell combined will believe things are “not good”. While the “growth recession” Fester mentions will be in full swing before then, that is when we see a traditional recession. People who are worried start not spending on other things, which means businesses aren’t selling which means they’re not earning which mean they have to lay people off to cut costs which makes more people worried… That’s a recession cycle, and it continues until the psychology reverses due to people thinking they have the money to spend – on goods or employees or both.
Six months of growth recession, followed by the ‘real deal’. How we’ll do in that depends on, well, not least on how the current administration deals with it all.
scared yet?
pharniel
i’m late the game but for a full view try http://calculatedrisk.blogspot.com/ for a running commentary on all of this.
the ‘ubernerd’ posts are very enlightening.
HyperIon
yeah, that why they call the bubbles.
Zifnab
I blame Clinton.
Seriously, though, this isn’t so far off of Endron-style scandals that you can’t notice. In one instance, you had big energy traders cooking the books and creating shell corporations that housed non-existant money. In the other, you’ve got lenders giving money to people who can’t pay it back, so they can buy homes they can’t afford at vastly inflated rates with the expectation that these moneyless people will pay back the shitty loans at vastly inflated rates. Again, non-existant money.
It’s like handing out credit cards to street bums, watching the cards get maxed out, and saying to your investors “Man, we’re going to make a killing off the penalties.”
Jake
I also suspect this will spread to other creditors, no? The person who can’t make their mortgage payments ain’t making their credit card payments.
Having watched the attack of the McMansions in DC, I used to wonder where the hell all of the people who could afford a 5-600K house were coming from. Then I learned there were no such people.
Three years ago there was a huge rush to throw up (and sell) McMs. That’s when I knew something was amiss. Two years or less ago, lots cleared and boasting signs for NEW LUXURY HOMES started boasting signs for NEW LUXURY TOWNHOMES as developers try to get more, slightly cheaper units in a space.
The problem for the putative homeowner over the past several years has been your choices were houses that could easily house a family of ten, or, renting. And renting became harder as many property owners decided to get in on the condo rush. I won’t say that in all of DC/Metro there are absolutely no houses at 150K or even condos at 150K, but any money you save would have to be spent on hiring personal security guards. Am I saying the guy who could barely afford a 200K housing unit should have bought a 500K housing unit? Nope.
But I am saying part of my disgust with the ridiculously priced housing glut in this area stems from the fact that it created a difficult situation for someone who just needs a place to live. What, I used to wonder, was the point in building units for X price when a little research will tell you that most of the population can’t afford them unless they take a loan that could blow up in their faces at any moment? Were the developers and lenders dumber than the buyers?
I don’t think so.
Edmund Dantes
They actually had things they called “NINJA” loans. Go look up that acronym, and you’ll get a good feel for how “cheap” money was and how greedy the mortage people and certain buyers were.
Punchy
Damn, I come here to clown on Bush and I’m learning shit instead. It amazes me how completely friggin’ clueless I am on anything finance-related.
But I know what the perhydrocyclopentanophenanthrene nucleus is. Go figure.
Face
Nah. It’s the Cosecant Kids that’ll fuck you up. Make one wrong 90-angle turn, and you’ll find yourself perpendicular with a parallel universe only tangently associated with your home’s sub-division.
Punchy
Just cross out DC and you can fill in “South Florida”. Holy crap. Between the ridiculous houses and the fancy cars, and the general lack of any industry to provide decent wages, it was clear people were mad buying on credit at insane prices for things they couldn’t possibly begin to afford. Materialistic pretty-boys got their comeuppance. Couldn’t have happened to a better set of phonies.
Halffasthero
I hate to disagree, but much of the refinancing has been done in order to bankroll expenses that have been running in the negative for most people. It isn’t a “local” issue of boom and bust, it is nationwide. There has been no great explosion in real estate values in Minnesota, although they have gone up. The amount of foreclosures have started to hit records anway with no sign of let up.
I am hoping that this will not be large as you say, but I don’t see this ending well at all.
Dreggas
John, consider me a doom and gloomer and I don’t think this is done yet.
Granted I live in So-Cal (OC to be specific) so I get a first hand view of insanity (new houses starting in the 700k’s that are 900k the next month) and so on but I’ve also worked in the industry in the software portion. About two years ago we started adjusting to handle Option-ARM’s and HELOC’s. These were hot products. As soon as they came out I kinda figured shit was going to hit the fan soon, fortunately I got out while the getting was good. I watched a company’s stock go from 2.50 a share to over 40 a share in 2.5 years. Now that stock is trading at 1.68 and it’s a mortgage company.
Most around here are now laying people off and you see a lot of signs saying “bank owned” on the for sale signs, companies are looking for auctioneer’s to liquidate their owned real estate (read the REO’s and property they now have). They are gonna take a hit on those especially and I bet before long other big companies are going to turn up taking a hit.
The worst though will be all the bonds, hedge funds and retirement plans that were backed with securitized mortgages (areas where companies were making a killing with bulks of shady loans), those are going to definitely hurt a lot of people and will be spread out far beyond the suckers who bought in the past couple of years and wrote checks their asses couldn’t cash.
The new bankruptcy laws don’t help. Bankruptcy, while not a good thing, was their to protect people when they got in the fire (whether this was good or not is debatable) but the credit crunch (which will be made worse when people lose their home’s and when they’ve spent more than their HELOC was worth) will make this even worse. Companies will take a beating but the people on the street will take an even bigger hit which will result in lower spending, the end effect could be really bad but just as it took 2.5 years to rise to the top, it’s going to take a little while to fall, just hope the fall isn’t longer than the rise otherwise the expression “up shit creek in a barbed wire canoe without a paddle” comes to mind.
cleek
and then Pynchon will write a 1100 page novel about you.
The Other Steve
Disclaimer: I work for a mortgage company.
That being said, I’m in IT and am not privy to financial wizardry. But I’ll give my impressions.
The mortgage market has been fucked up for some time now, and out of sync with reality. There are a lot of players. The two big ones are freddie and fannie, and they are so big that they don’t allow anybody else a piece of their sandbox. So everybody else has to go find interesting weird niches. Jumbo was the safe bet, but there isn’t enough of that for all the players, so they started moving into the high risk subprime and Alt-A.
Everybody and their brother started up a mortgage company. They’re like insurance companies, they breed like roaches.
So what we have here is a major correction, which is good.
The other problem is the independent broker network. Like all things in real-estate they attract people with few skills except how to scam people. They didn’t care what happened after closing, because they had their commission. They’re going to die. The big lenders are starting to pull away from the brokers, and not offering certain risky product through them, but rather they’ll stick with their own networks of banks or sales offices.
In addition, the era of easy credit is over. Thank God!
People seem to think that easy credit makes housing more affordable. It doesn’t. It just drives up the cost of housing.
I don’t think we’re going to see the value of houses collapse, except in some markets. We are going to see fewer people selling homes just to upgrade. They haven’t figured this out yet, there’s a lot of houses on the market because people think they can get a good deal on another house. Ain’t gonna happen that easily.
While not collapsing, the values of homes aren’t going to go up for some time. Probably 3-4 years, and then you’ll se modest increases. 2-4%, not 10-15%.
It’s not a collapse, it’s a correction. The Bush years of economic growth has primarily been on the backs of mortgages and government spending. That’s done. However, I believe we’re also at a time when the other areas of the economy are on firm enough footing to sustain.
It’s interesting, but what boosted the other areas of our economy wasn’t tax cuts. It was the Democrats gaining a back bone in 2005 and halting any additional tax policy changes, social security gutting, etc. Business want a stable environment, and from 2001-2004 they didn’t have it. Bush kept fucking around with things, and we had 9/11 and so forth. When the rules solidified in 2005, then they started looking towards the future and started investing.
That’s my long rambling take. We’ll see. Things are going to be tough for a few years. But the era of Pimp my House is over, at least for this generation.
The Other Steve
Yeah, I’m hoping if a Dem wins the whitehouse in ’08, with a Democratic congress they can repeal the last bankruptcy bill.
That was a GOP gimmie to the credit card industry, and they abused it. The reality is, if there was a problem with excess losses amongst borrowers declaring bankruptcy, the banks would have restricted lending. Instead they wanted to penalize defaulting, and not live up on their end of the credit bargain.
That bankruptcy bill just made the problem worse. I do find it interesting though, that the banks have now started restricting credit card lending, making it harder to get cards, etc. That’s what they should have been doing in the first place.
John S.
Tell that to Household Financial Services.
They still dish out easy credit to millions of people (through, say, Rooms 2 Go) under the guise of “Pay no interest until 2056!”. Then of course, when people don’t make any payments until then and get hit with 50 years of accrued interest, their heads explode.
Punchy
Please explain. Does this mean they’re offering to fewer people? I don’t see this. And does this have any bearing on the fact that I’m paying 32%–yeah, that’s correct–on my card’s APR?
kchiker
No one could have predicted the collapse of the….
I have some financial know-it-all friends who were telling me that going for a fixed rate and not an ARM made me a foolish schmuck. This was 3 years ago. Odd that Greenspan was saying the same thing, eh?????
pharniel
note that the commercials for ‘your home is a fucking atm’ havn’t stopped.
also note that many states are considering passing laws making mortgate brokers have whatchacallit, legal obligation to take actions in the best interest of the borrower and the brokers have shit a brick.
anyway, the re-fi boom was the way to 1) sell more homes and 2) create a steady cash flow for brokers.
the only people I think that should be bailed out are the ones that were flat out defrauded, a/k/a ‘sure it’s a fixed rate 30 year mortgage. sign here” and have all the documentation that says 30 fixed rate, except the mortgage serviceer is expecting an adjustable rate 2/15 with baloon payment.
and don’t even start me on the negative amoritization mortgages…oi.
pharniel
there used to be a site called blamealangreenspan.com or something. basically running down how his advice and running of the fed benefitted certian key elements of society while setting up this giant clusterfuck.
Dreggas
Heh I used to work for one, glad I left.
Pooh
Serious question, as an idiot who just bought a condo, what, if anything does this mean for me? (And no, AHM was not my lender – the ‘professionals’ were commiserating with a friend of theirs who was an employee at my closing, however…)
myiq2xu
The whole “subprime” fiasco, whether it takes down our entire economy or just the hedge fund associated lenders, is just one more piece of evidence that the GOP’s emphasis on an unfettered free market and business models of governance is horseshit.
Everytime we deregulate something in this country, the “experts” immediately move in and fuck it up.
Then, government rushes back in to bayonet the wounded.
It’s bad enough that the greedy sleazebags that fill our corporate boardrooms lose gazillions of dollars, most of it coming from average people’s retirement accounts, but then the government bails out the sleazebags using tax dollars.
There should be a penalty for gambling with other people’s money, not a government backed insurance policy.
Bankruptcy protections and bailouts should be restricted to the small investors who had no control over the schemes and shenanigans that the CPA’s, MBA’s, CEO’s, CFO’s and other acronym titled fuck-ups were engaged in.
They wanted a deregulated free market and when they got it, they lost their shirts. Let them walk the streets naked begging for money.
Dreggas
At the risk of sounding like a conspiracy theorist. I have to wonder if they all didn’t see this coming (anyone who knew what to look for should have) and basically ram-rodded the bankruptcy bill through so when it hit they’d just stick it to joe schmoe and not have to take any responsibility for it (modus operandi of this admin to say the least). This bill protected creditors, fucked over the little guy and in the end will probably be one of those “straws” that broke the camel’s back economically. Especially with the HELOC business.
Tulkinghorn
I have been tracking the bubble since mid-2004. Got out of my house in mid-2005 and have happily rented since then. The lenders and homebuilders took the few years of entry-level buyers and rushed them into imprudent, high-commission and unmaintainable loans. There will be few people trading up over the next few years, and people needing to sell will either have to cut prices dramatically or hold that house for years.
The spuculators have been gasoline on this fire. You get bag-holders owning several properties, unable to rent them for enough to cover the principal, interest, and taxes. In Florida they call these problem properties ‘alligators’ because you feed as long as you can, and when you can no longer feed them, they eat you.
Dreggas
No offense, your friends were idiots. I told everyone who got into an ARM to refi to a fixed ASAP.
Dreggas
Ok, couple questions.
How many homes in your area have for sale signs on them that have sprung up recently?
What part of the country do you live in?
Do you have an adjustable or fixed rate mortgage?
You probably won’t see much in the way of equity, at least not at the rate people were seeing over the past few years, then again a home should be a long haul investment not a fly by night one. Provided you aren’t in an ARM (Adjustable Rate mortgage) and there’s a low supply of homes on the market in your area, you’ll probably not see many speed bumps unless things go belly up there. Housing markets in the U.S. are very individual so the hits can be as well. That being said you probably paid more than the place will be worth a year from now, but provided you didn’t write a check your ass couldn’t cash you will probably be ok.
Pooh
I live in AK. Fixed rate (6). Not too many for sale signs.
Dennis-SGMM
Here’s a site that will give you a sense of the foreclosures in your area:
http://www.foreclosures.com
ChristieS
John, a fellow named Bonddad has a housing series at Kos and at his own place. You can get pretty good info on a lot of different financial-type stuff, especially the housing problems.
Dreggas
Well since it’s a fixed then you are already in a good position. If it was an adjustable that would be problematic. Also provided housing prices are stable and there aren’t many people defaulting, you will see equity, instead of negative equity.
fester
Pooh — if you are in a fixed rate mortgage and your current income allows you to pay your mortgage, normal living expenses and the typically anticipated ‘surprise emergencies’ (hot water tank, brakes on the car, the three new suits for that job you just got promoted into etc) without significant monthly stress, then you are in great shape if you like where you are for a while. A While is a variable defined by the local housing market and how much downpayment and equity you are able to maintain.
If you are barely able to cover your typical budget and have no reserves except for whatever equity is in your house, then you might be in trouble.
Most people who have a fixed rate mortgage or at least a capped rate ARM and have monthly budgetary flexibility/cushion will be fine, they just might have a harder time selling their house than they anticipated. It is the people who either have liar/NINJA/exotic loans AND/OR no breathing room in their monthly budget who will be in trouble.
Dreggas
What fester said too LOL!
DonkeyKong
John, I recieved this email from my AE at National City. I’m a broker/contractor in the BayArea. I’m pushing several of my clients that got prepays with other lenders to eat the prepay and refi to a 5 to 7 year interest only at the very least. Some are going to eat as much as 25 grand to refi.
Yes it will get worse. It looks like everone in the financial sector that used to buy stated loan packages is running for the exits all at once.
Look for something strange to happen as we near the election. WallStreet wil support the Democrates in order to foster a bailout. If this meltsdown faster than that under the current administration, well………Fuck an A.
Anyway, inside skinny from an optimist.
The 10 yr. note finished @ 4.69, DOWN from last weeks close of 4.77%. Mortgage Bond prices rose last week applying downward pressure to interest rates. However, we had some major news that has and will effect us over the next several months. AHM (ABConduit) went out of business on Friday. Bear Stears 3rd managed mortgage hedge fund is in trouble. The result is a liquidity crisis that has been uncovered. No one on Wall St is giving any value to STATED loans and FULL DOC Jumbo loans are getting priced ridiculously high. Lenders are putting loans on the books, however, that can’t last for very long. The result of this will not be good. Hopefully this will be short and quick, however, I don’t think it will be. As discussed over the past several months and most importantly, the last few weeks, we’re in for a heap of trouble. Maybe FED Bernanke, now that the mask has been taken off, will give his two-cents on Tuesday of this week. The government also needs to step in and do something or you will see a good part of CA fall into the ocean. 80% of the business that i have closed in the past year, was STATED. This is one of the only ways that homeowners here in CA can afford to buy the 1-2 million dollar homes. Foreclosures continue to climb throughout the US. Homeowners mortgages are re-setting at a record pace and now can’t refinance to a lower rate. Something needs to change and quickly.
ThymeZone
Oh no, simply not true. Phoenix is a great example of a market that doesn’t follow, and often just bucks, national trends, and it’s not alone in that regard.
That’s true in housing, in jobs, and in other ways.
And it’s true within the large market too. Right now the national media will tell you that Phoenix housing prices are going down, or are flat. But in my neighborhood they are going up. And there are a lot of neighborhoods where they are going up. Out in the burbs, supply is too plentiful. Too many For Sale signs. In the core of the metro area, the supply is fixed for single-family dwellings with yards, and there are enough buyers to keep prices appreciating. People just keep moving here, they have to live somewhere.
Zifnab
Ditto, Houston. I just finished shopping for houses in the Greater Houston Area, and I can tell you right now that there is no surplus of housing once you get inside the Beltway. Of course, that’s where all the high-rise office buildings are, and with Houston traffic as it is and Perry opting for Toll roads anywhere he can drop them, everyone wants to be as close to the office as possible.
We’re beginning to see office space creep out into the ‘burbs, but for now you’ve got some amazing real estate sitting out in the middle of nowhere and all the downtown stuff sitting comfortably at “overinflated” and not dropping a dime.
Tax Analyst
The only part of the bubble bursting that has caught me at all by surprise is that high-risk, sub-prime mortgages were being bundled as Investment instruments by various hedge-funds and others – and that they weren’t smart enough to see the writing on the wall at least a year ago and start to figure out a survival strategy. Instead you have Bear Stearns completely folding 2 hedge funds and on the verge of a third one going down the tubes. The concept of Hedge funds going bust didn’t bother me a whole lot, because individuals who invest in them can afford the losses for the most part. But I wasn’t thinking that there might be a lot of Retirement account and Pension Plan $$$ invested in that type of speculative shit – and it appears that there might actually be a sizable amount, which really should not have been allowed to happen.
A FED Bailout? I vote a resounding “NO”. Everyone involved in this mess is and was an adult who signed or approved these loans and needs to accept the resulting consequences. People who Re-Fi’d to the max of their equity were playing a game that had risks that should have been very obvious and apparent.
Lender’s who want to salvage something could lower the borrower’s principal and try to work out affordable payments for them. Otherwise, they can take back these properties, which in many cases are not worth the amount owed on them anymore and have to be maintained and protected in the meantime. Houses prices will come down, and by any logical way of thinking they should.
Ned Raggett
Those bastards. I’m going to have to get asymptotic on them.
Hey, I should check everyone’s links more often; where ya at? Work at UC Irvine, live in Costa Mesa, rent and am damn glad about doing so after seeing all the idiocy at work. A few years back I had a chance to buy a condo and considered it but circumstances out of my hands meant it fell through; in retrospect I’m quite glad!
John S.
I live in South FL. Fixed rate – 5.75% bitches!
We actually managed to get that rate a mere 3 1/2 years ago, so I don’t know what the hell all these other dopes were doing. Especially since it was the first house my wife and I bought at age 26, and our credit wasn’t exactly perfect either. Of course we did put down 10%, so that probably had something to do with it. But if there’s one thing my father taught me, it was to never buy shit I can’t afford. Too bad more people don’t learn that lesson.
grumpy realist
Ha. I’m just about to close on a small condo in Oak Park. Went for a 5.875% fixed 15 year mortgage. Not too bad on the price, but what I’m really going for is location, location, location. Right smack in downtown Oak Park and we’re always going to have the Frank Lloyd Wright tourists, which means nifty little shops and restaurants immediately near by. Don’t expect great appreciation, but I don’t expect a crash, either. (I do wonder about the people trying to flip a new 2 bedroom next door for $385K. Idiots. $300K or less and they might get away with it.) There’s a lot of new condos in the area for $300K and higher–townhouses going for $650K up. And you go a few blocks north and you’re hitting $1M+ houses. The major selling point around here is PARKING. Lots of old buildings/condos getting refurbished, wonderful places, but usually no parking attached. Which is why Oak Park streets turn into one massive parking lot after 5 pm.
(Basically the powers-that-be are refurbishing our apartment complex. I looked at the new improved prices and said “bugger this, I can get a mortgage for less.” )
Dennis-SGMM
ziffnab raises another point: for years here in SoCal people have been buying homes that were anywhere from fifty to ninety miles away from their jobs because you could buy a place in the boondocks for a lot less. That was okay when gas was less than two bucks a gallon but these same homeowners are paying three to four bucks a gallon and that’s bound to eat into their disposable (and non-disposable) income. Meanwhile, the folks who bought these bargains are in a position where they can’t afford to move and they can’t afford to stay where they are: the closer you get to town, the more home prices have remained up.
As an aside, state revenue from the sales tax and use taxes is down 6.9% YTD below the forecast. Looks like the drying up of re-fi and HELOC money will be increasingly affecting retailers. Ripple effect, here we come.
RandyH
I think the housing market will obviously suck for a while in many parts of the country. That seems like a given. Now the mortgage market is tightening dramatically so less money will be available to borrow. Housing sales will stay slow as a result and house values will continue to drop due to excess inventory on the market.
But there is another area of big concern. People have been living beyond their means for years, financing their lavish lifestyles by borrowing from the equity in their homes. Remember Stanley Johnson? We won’t see much more of this in the near future and it should affect spending on non-essentials. This will affect consumer sentiment and hurt sales of all sorts of goods and services. Consumer spending has driven most of the economic growth for years and the consumers are tapped out and buried in debt now. That all adds up to recession. But it is hard to say how long it will really last.
grumpy realist
Oh, and the major problem with the subprime mortgages is they were immediately transferred by the lenders into the hands of the financial wizards who chopped and slopped them into CDOs and attached ratings to them which in retrospect, really make no sense. Remember that the bulk of the ratings of what Bear Sternes was holding were AAA rated….
I have to say I saw this coming quite some time back. Interviewed for a CDO quant job at Moody’s some time back. Kept thinking to myself–“yeah, I know statistics up and down the wazoo, but there’s one big difference here for CDOs and estimation of risk. Gas molecules never panic and all rush to one corner of the box–humans do.”
Jake
Right, one of my concerns is the lenders will claim they will take a complete loss if the Fed (meaning tax payers) doesn’t make with the truck loads of money. Under the current Admin. you know they would get a pat on the head and everything they want.
Are we sure Neal Bush isn’t involved in this somehow, some where?
Another issue that might make the economy interesting in the near future: A crackdown on naked shorting on the stock market. This issue is working its way through the Senate now, the SEC has at least agreed that it needs to engage in a little enforcement. The problem is forcing everyone who has shorted to cover these stocks at once. That would fuck up the stock market. Right now the various players are trying to figure out how to shove the other guy under the bus, the DTCC has fined some smaller traders, but I doubt those guys will be content to take a hit when they know companies like Morgan Stanley are just as dirty.
Don
That to me is the glaring problem with the bankruptcy bill. There was a huge amount of new restrictions put on borrowers but nothing on lenders. We no longer have any federal caps on interest rates and it’s only in recent months that the industry has been shamed out of universal default.
That bill should have had some limits set in it tying interest rates to the overnight lending rate. That someone can charge 32% to someone when the fed rate is under 6% is just criminal. We put in means tests for chapters 11 but where’s the limitation on what a lender can charge to someone in chapter 13 (re-organization)?
Congress happily set up the hard place and put no limits on how the rock can behave. It’s shameful, and all so the industry doesn’t have to concern itself with keeping an eye on its risk themselves. Dregass said “Bankruptcy, while not a good thing,” but I don’t concur. Bankruptcy isn’t good or bad, it just is, and it’s a fact of life that the lenders were well aware of when they extended credit to people that exceeded their annual income. Too bad they suckered congress into handing them an out against their own idiocy.
ConservativelyLiberal
We live on the south Oregon coast, about six miles above the California border. Land prices (w/o house) were going for about $60K for five acres in the mid-90’s, and now a single acre is going for 150K+. Land with a view of the ocean is about 300K+, and if it has a cheap house on it, about 500-600K. If it has a nice house, the sky is the limit (2 to 3 mil).
We are looking to buy early next year, and the prices are finally going down here. Lots of people from California bought up the land in speculation, but now they are getting desparate to unload it. There have been some real bargains lately, but I think it will only get better (for us!) after the first of the year.
My mom used to work for a mortgage company, and she filled my ears with how many ways that they have come up with to rip off buyers (and sellers). She got out of it as she could not stand the sleazy business, it was not what she thought it would be like.
As an outsider, I can see that there will be a bubble popping soon, how big though? I have no idea, but the mean streak in me wants to see a ‘Big Bang’, so to say. Speculators need a correction, IMO, and it ought to be interesting to see how those with the McMansions deal with it.
My mom told me that many of the McMansions she dealt with were basically empty homes, even after the new owners moved in. She said that you could tell who would be getting in trouble by the contents of their homes.
This is going to be a mess, and the bankruptcy bill is going to make it worse.
RSA
Back when I was living in Venice, CA, a couple of years ago, I used to visit friends in Manhattan Beach. It was remarkable how many properties (as a percentage; it’s a tight market in that area) were sold as tear-downs. Lacking a Southern California mindset, I’m boggled by the idea of buying a house on quarter acre for well over $1 million and then just bulldozing it.
On a more general front, I seem to remember several years in which commentators were saying that the economic indicators were not strong, but the economy was being kept afloat by the housing market (perhaps indirectly, with refinancing driving consumer spending). Did that make sense then, if I’m remembering correctly? If the housing market tanks now, doesn’t that say that the economy goes with it?
grumpy realist
Note that Japan’s real estate market went down by 40%. (I got to see a lot of this….)
Southern California has always been crazy. Santa Barbara has over $850K as the average cost of a house. Nuts!
We’re also seeing a bit of a speculative boom here in Chicago in land just south of the Loop. Tons of soft lofts going up. Other place that people have told me as up-and-coming is Berwyn, just south of where I am–provided you’re in a good school district.
Oh well–as said, I’m going for location, location, location, plus it gives me finally the opportunity to have wooden floors and built-in bookshelves. (Drool.) Will see how it pans out.
Dennis-SGMM
Could this, at long last, be the payoff for not making anything that anyone wants to buy and basing our economy on credit-fueled shopping for imported goods and selling each other lattes? If so, fasten your seat belts. Bush has spent the revenues for years to come and the Fed doesn’t have maneuvering room.
The Other Steve
What’s interesting is that subprime foreclosure was at a rate of 20% back in 2002. The only thing which has changed since, is the volume of subprime. It used to be 10% of what a lender did, but through 2005/2006 it became 40%.
The Bear Stearns hedge fund is a weird one. They had 10% actual equity invested, and then borrowed the remaining 90% to buy a boat load of subprime. so when 20% of the subprime defaulted… they lost the equity invested, and were over extended on their borrowing. That’s why it got into so much trouble.
The Other Steve
Here’s my advice…
Call the lender. Say 32% is ridiculous. You’ll pay them 10%, but you want to cancel the card and just pay off the existing balance. Then you’ll cut up the card and never use it again.
The key is, you’ll never use the card again.
I need to get away from using credit cards. I’ve been working more towards that goal. It’s hard, though.
Cain
Ha! Re-financed my house at 4.75% fixed rate around 4 years ago although it’s going to run out in another year. I only got a 5 year. That’s because I was thinking of selling the house. But I’m paying about 200 bucks more than I was paying for my apartment when I first came to Oregon.
cain
ThymeZone
If you will send me your card numbers and expiration dates, I will take care of everything for you.
Zifnab
Haha. Truer words have never been spoken.
Keith
I’m late with one of my mortgages almost every month. It’s not because I don’t have the money, either. It’s because every 3 months these companies sell my mortgage to someone else (who may or may not due auto-billpay) and it’s pretty damn difficult to keep track of who I owe money to. Tack on the myriad of other bills a typical homeowner has, and I’m late with probably 3 bills every month. It’s kinda like the dream I had for 10 years after college: I signed up for a class, but forgot about it due to the 5 others I have, and by the time I find out about it, it’s too late to drop, and I’m flunking regardless of what I get on my final exam.
Perry Como
0123 4567 8910 1112
01/23
That credit card was issued by Diebold.
John S.
Exactly.
I noticed my HSBC credit card jumped from 18.9% to 31.9% (magically only a few months after that bankruptcy bill passed). I called them and said, “Are you fucking kidding me? 32% APR is usury…do you fancy yourselves Shylock? Would you prefer a pound of my flesh next billing cycle?” To which they responded by doubling my credit limit.
I thanked them by cancelling their card and getting a new one through another lender at 14.9%.
John S.
No kidding. My mortgage on a 3 bedroom villa is actually 200 bucks less than what I used to pay for a 3 bedroom apartment while I was in college here.
Although one of my best friends lives out your way in Eugene, and his rent is appallingly low compared to here.
zzyzx
5.5 is my fixed. The magic of paper equity let me refinance out of an 80/20 and save $350 a month. It paid to have a friend as a mortgage broker.
MNPundit
I once again appreciate my parent’s wisdom. They ONLY go with fixed rated mortgages, only refinance to get lower fixed rates and never leverage equity for anything until they consolidated their loan for a new car (a mini-van they used once a week for 2 parents 1 pre-teen girl, a cat and her friends while getting rid of the huge super-size van) into the house loan. One that will be paid off in 10 years.
Glad I only have university housing! Renters FTW!
liberal
Jake,
A big part of the problem—I live in a Maryland suburb of DB—is the idiotic zoning laws around here.
In Bethesda, for example, new homes built along Wisconsin Ave are luxury townhomes. In fact, there’s a hill right across from the NIH where they built a lot of those.
Now, they could have built something that would house a lot more people, many of whom could work at the NIH and the Naval Med Ctr. But now, they went relatively low-density.
I’m assuming that a lot of this isn’t the developers’ fault (though I’m no fan of developers), but rather zoning laws. (Right now there’s a conflict down near the MD/DC border, near Friendship Heights. Some people living there are opposed to a proposed higher density project.)
The Washington Post had a series a year or two ago about this. Suburbs of DC mostly try to keep residential growth down, because that keeps down the need for revenues for more roads, mass transit, and schools. So, instead, development hops out further.
Badtux
$500K buys a McMansion? Here in the SF Bay Area, it’s a converted 1 bedroom apartment with 550 square feet. Sigh.
Obviously such prices are unsustainable. But let’s get back to the economic ramifications. The problem that happens is that wealth vanishes as housing values plummet as bankrupt lenders’ properties are dumped on the market as the new owners of the loans being auctioned off repossess those houses and dump them for peanuts. The lenders are going bankrupt because they tried to avoid repossessing those houses because there’s no way they can sell them on the open market for enough money to pay back their own lenders, and instead hoped that either a) housing values would start rising again at which point they could repo those houses, or b) the deadbeats in those houses would start paying again on their loans, or c) cows would fly. Well, none of those happened.
So, what happens when money disappears? Traditionally, it’s deflation, which is good for people with lots of money in the bank (their money goes further), bad for those of us who work for a living and have debt (our goods and services can no longer be sold for as much on the open market and thus we don’t have as much money to pay off our creditors). In short, deflation is good for the rich, bad for the middle class — the 1929 stock market crash and subsequent three years of raging deflation probably led to the greatest transfer of real wealth (property and goods) to the rich of any three-year period ever in this nation’s history. However: As others have pointed out, the Fed has been pumping out dollars with the zeal of a Weimar Republic finance minister in order to finance the federal deficit by sending dollars overseas in exchange for imported goods, said dollars which then come back to buy U.S. Treasuries or mortgage-backed bonds. Rapid price increases for food and petro-products are in part because there are more dollars floating around than there are food and petro-products floating around. Fewer dollars floating around might be a good thing if it keeps inflation from spiraling out of control…
In short, I don’t think we know what the economic issues are going to be, just that it is very, very unlikely that we’ll hit the happy medium between things spiraling into rampaging deflation, and not enough money evaporating to take out inflation. If we start spiraling into rampaging deflation the Feds will have to step in and re-capitalize the home mortgage industry (thereby pumping money into the economy), otherwise we end up in a 1929 scenario again. Sadly, none of this is likely to help the poor sods who’ve ended up oversubscribed on their mortgages… so the net effect will be to transfer wealth from working people to the wealthy yet again, just like every other policy decision that the Bush Administration has ever made. Sigh.
– Badtux the Economics Penguin
Eric Lindholm
Wow, the market was so spooked by the news it rose almost 300 points.
It’s a shame that you’re fixated on a corporate mortage company rather than the “looming financial collapse” that is UNAVOIDABLE due to government spending on entitlements.
The pending bankruptcy of the federal government with Medicare and Social Security spending is the “dirty little secret that everybody in Washington knows.” Too bad nobody wants to talk about it on the blogosphere either.
John S.
I’m sure the billions in tax cuts and this trillion dollar adventure in Iraq have nothing to do with the fiscal woes of our government…
Andrew
Wait, doesn’t the Laffer Curve say that spending money on blowing up Arabs increases tax revenue?
ConservativelyLiberal
The motto in America for the last few years has been ‘You too can spend more than you earn, just like your government!’
My wife an I avoid debt like crazy. Whenever we incurr it, we pay it off as fast as possible. We only use MasterCard Debit cards tied to our main account now, and keep plenty of money in that account. We owe no other debt now, and we have saved to CD’s to buy a house, but are not pouncing as the market is so unstable right now. Property prices are dropping around here. Slowly, but they are dropping. We are in a good position to jump on the rebound, and are quite happy to wait until then.
So we will not be saving the day, that is for sure! This afternoon I doing some work at a Realtor’s office that I handle IT for, and I was talking to one of my friends who works there. He said that today was the last day that he could get a ‘stated’ loan out of the door. The financing for them is to be cut off tomorrow (through their lender), and he said that things are looking pretty bad locally and in quite a few places nationally. He thinks it is going to get worse before it gets better. This is coming from a guy who has been pimping ALT-A’s and ARM’s left and right…lol!
He knows that we are going to be getting a place/property, but he says that we are smart to hold off for now. He knows that we will only go for a fixed rate, which he says is the best thing to do. No gimmicks for us please!!!
Hmmm, truth from a Realtor? Guess it pays when they are a friend! ;)
ConservativelyLiberal
What people are not told is that when SS goes tits up, the government is saying that current payment output exceeds input in SS taxes collected. Nothing is mentioned about all of the money that has been robbed from the system to go on these drunken sailor tax cuts, the ‘war’ in Iraq and all of the pork that is spread around. That money is supposed to be forgotten I guess.
The tipping point is when the government has to figure out how to start paying back all of the SS money that they have robbed and left IOU’s for. Maybe Al Gore had something there with that ‘lock box’ idea after all? The only reason he was made fun of by the other pols and money types is because they knew that if that happened, the gravy train would come screeching to a halt.
They got a great laugh at him about it. At our expense.
Badtux
Uhm, Social Security is not going to go tits up. It’s not going to be able to pay all the promised benefits, but frankly even the 60% of the promised benefits that it will be able to pay is more than enough for me to live on in retirement (granted, I qualify for the maximum benefit due to years of six-figure salaries and have modest needs for retirement income since I own my retirement property clear and outright and it’s in a state with no property tax on most residential property and thus need money only for utilities and maintenance, but even folks with more modest income will still get a good shake from Social Security).
Medicare is not going to go tits up either. Before the Baby Boomers allow Medicare to go tits up, they’re going to mandate it as the single payer health care insurer for America, and thus use payroll taxes on the young to pay for their retirement health care. On average the typical person will be paying less for Medicare than they currently pay for private insurance even with the subsidy of the prunes so it’s a win-win all the way, nevermind that the health insurance companies hate the idea (duh, they’d be like buggy whip makers in 1928 after the automobile had displaced horse and buggy nationwide!). So it’s going to happen. If you work in the health insurance business, I suggest that you do like the buggy whip makers and get another job, yours is going to get obsolete as soon as the boomers realize they need young farts to subsidize their Medicare and that the only way they’re going to get that without a revolution is to extend Medicare to all.
In short, typical scare tactics by people who know only the bullshit talking points handed down to them by their Party commissars on Faux News and Talk Radio…
– Badtux the Party Penguin
Badtux
Uhm, Social Security is not going to go tits up. It’s not going to be able to pay all the promised benefits, but frankly even the 60% of the promised benefits that it will be able to pay is more than enough for me to live on in retirement (granted, I qualify for the maximum benefit due to years of six-figure salaries and have modest needs for retirement income since I own my retirement property clear and outright and it’s in a state with no property tax on most residential property and thus need money only for utilities and maintenance, but even folks with more modest income will still get a good shake from Social Security).
Medicare is not going to go tits up either. Before the Baby Boomers allow Medicare to go tits up, they’re going to mandate it as the single payer health care insurer for America, and thus use payroll taxes on the young to pay for their retirement health care. On average the typical person will be paying less for Medicare than they currently pay for private insurance even with the subsidy of the prunes so it’s a win-win all the way, nevermind that the health insurance companies hate the idea (duh, they’d be like buggy whip makers in 1928 after the automobile had displaced horse and buggy nationwide!). So it’s going to happen. If you work in the health insurance business, I suggest that you do like the buggy whip makers and get another job, yours is going to get obsolete as soon as the boomers realize they need young farts to subsidize their Medicare and that the only way they’re going to get that without a revolution is to extend Medicare to all.
In short, typical scare tactics by people who know only the bullshit talking points handed down to them by their Party commissars on Faux News and Talk Radio…
– Badtux the Party Penguin
ConservativelyLiberal
Maybe I should have said ‘If SS goes tits up…’ ;)
My point was not that it will, but that the money that is supposed to fund it has been spent.
And Faux Noise sux, as does right wingnut radio. The MSM (that Faux wishes it was a part of) is not much better. And I don’t belong to a political party (small i independent since ’92)…
;)
Nancy Irving
“The sooon-to-be-not homeowner could have purchased a modest $150K home with bargain-level fixed rates…”
Not in desirable areas. Townhouses in the ghetto are still advertising for $400,000 here (Richmond CA, one of the poorest San Francisco bay towns).
Many people got into loans that were too big for them, simply because prices had gone up to the stratosphere. Even condos were unaffordable for most average folk.
Person of Choler
“Is this just the market correcting itself? Or is this the sign of something catastrophic on the horizon?”
Come on, you know the answer. George Bush is President, this is his fault, and it is a catastrophe already. Forget the horizon.
jake
Actually that neighborhood is a side-story in the fucked up situation. That was the remnant of a low income neighborhood of small single family homes until the county started jacking up the property taxes until the people there were forced out. Cute. Do you ever wonder what becomes of the people who lived along Florida Avenue, Mt. Vernon, and now up near Union Station? When some greedy bastards decides SE/SW is the place to be they’re fucked. Oh wait, I’m forgetting The Stadium. Too late.
You’re a developer. You want as many units as possible. I’m not sure why you’d say zoning laws are at “fault.” Imagine, for example, what happens when you have a water/sewage system that really needs replacing and is just able to cope with the current demand. Then you plug another few thousand people into it. No water for anyone. And you’ve driven through the area so there’s no need to comment on the traffic/roads along that strip.
Makes sense to me. Don’t overload what you’ve got. And the land is cheaper further out. Just wait for a farm to go under and voila! But again, what gets built where is the choice of the developer as constrained by local zoning laws. No one is forcing them to build half-million dollar homes right next to each other. If a municipality wants to step in and say “No, the environment/infrastucture can’t take another 50,000 housing units,” I say bravo. And maybe the fact that people who moved out to Hagerstown and work in DC and now have to pay a lot more to commute will make everyone a bit more thoughtful about building up our mass transit systems.
One good thing about a “correction,” is it will scare off a bunch of people who used development as a get rich quick scheme. Sorry to run on but what happened in/around DC would never have happened if people hadn’t been so damn greedy.
Grumpy Code Monkey
When we were shopping for a mortgage on our house, I remember being shown ARMs and interest-only loans and thinking, “what kind of an idiot goes for that nonsense?” I later realized that a lot of people who normally wouldn’t be buying a house were being seduced by sleazy realtors and brokers with promises of low monthly payments, and were not being told the whole truth about what would happen in five to ten years’ time.
When we were looking at houses, we met up with this one realtor and a client, and the realtor was bragging how he’d helped her get a $120,000 home loan. She was a single mom, and her income was just over $20,000 a year.
We moved into a new development, and there’s been quite a bit of churn; people are trying to get out of homes they can no longer afford, but can’t sell because brand new homes are still being built just down the block. So we’ve had an explosion in rental property, which is causing its own brand of issues.
John S.
I’m glad I don’t live where you live.
I purchased a 3/2 villa in Coral Springs a few years ago for precisely $150K at a low fixed rate – a city which happens to be in the top 10 safest cities in America. Our neighborhood is nice, clean and surrounded by lovely parks and great schools. I really can’t complain at all. Thankfully, the South Florida real estate market isn’t the same as the San Francisco bay area, but I find it no less desirable. We simply traded earthquakes for hurricanes.
John S.
CL-
You’ll be pleased to know that there is a chart out there that shows precisely that distinction (and indicates how absurd the typical charts showing spending really are).
Check it out.
Dreggas
Santa Ana specifically.
Dreggas
Heh sounds like the company I used to work for.
Tax Analyst
live Culver City – rent
work – Santa Fe Springs
Not a bad drive on the 105, either.
No desire to own a house. While home ownership is a fine thing for those interested, for me Life is more than just something you invest in financially (Uh, yeah…I mostly stole that line from Bob Dylan, so what?). Phooey on home maintenance and repair stuff.
Of course part of the reason I can be so cavalier is how much the value of my Dad’s home appreciated in the 34 years he owned it.
Tax Analyst
ditto. Except in my instance somebody murdered the SOB that owned the company. His family ran it after that, but I was suddenly quite interested in the “Want” ads…
Dreggas
I used to live in Westchester then moved down to OC (been up and down so-cal going from place to place so was on the streets) now I work and live in Santa Ana, not a bad city to live in just hellish since it’s the OC housing market.
grumpy realist
Oh, and then as things collapse, it’s going to cause further problems for the local community because of the falling property taxes (not to mention the houses foreclosed on and vacant which aren’t paying anything.) I think parts of Cleveland are already having this problem.
(What I always found nuts about Nebraska was the high property taxes–my neighbors in McMansions were paying monthly taxes that were higher than the rent on my townhouse.)
Tax Analyst
Dreggas Says:
I used to live in Westchester then moved down to OC (been up and down so-cal going from place to place so was on the streets) now I work and live in Santa Ana, not a bad city to live in just hellish since itâs the OC housing market.
Dreggas
Culver City is pretty nice, at least the parts I’ve been to. I like SA, affording a home here is far different but at least rent is stable.
Dreggas
oh and more fun, S&P plans to re-grade/re-evaluate over 207 classes of subprime mortgages/loans within the next few weeks. When it does so all these loans that were sliced and diced into mortgage backed securities are going to shit big time.