Wednesday, July 05, 2006

Mortgage Credit and Consumer Credit Relative to Disposable Personal Income 1965 - 2005

Chart from Federal Reserve Board's Report to the Congress on Practices of the Consumer Credit Industry in Soliciting and Extending Credit and their Effects on Consumer Debt and Insolvency (pdf) p8

119 comments:

  1. Interesting that consumer debt has been relatively flat for 40 years. If mortage debt is near 100% how is a person supposed to eat?

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  2. The study says virtually nothing about Mortgage Debt. So, David, what is your point?

    Homeownership rates are at all-time highs therefore mortgage debt, logically, would be at all-time highs.

    This report does not respond to my comments in the Post below.

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  3. "The study says virtually nothing about Mortgage Debt"

    Why not? It shows total mortgage debt as a percentage of total disposable income.

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  4. va_investor
    I think his point is mortgages are becoming a larger part of a households expanses than several years ago. House prices -> massive increases; Household income -> modest increase.

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  5. I believe the study says that the mortgage figure includes "rent payments". Did I misread this?

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  6. "I believe the study says that the mortgage figure includes "rent payments"

    Where did you see that? (page please)

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  7. Another cause for concern in today's WSJ!
    ------------------------------
    Surviving a Real-Estate Slowdown
    A 'Loud Pop' Is Coming,
    But Mr. Heebner Sees Harm
    Limited to Inflated Regions
    By GREGORY ZUCKERMAN
    July 5, 2006; Page R1

    The real-estate market shows signs of slowing. Is there deeper weakness ahead? Fewer questions are more important to mutual-fund investors. Many own funds with real-estate-related shares -- not to mention homes and vacation properties. And many economists believe a slowdown of the housing market could hurt the overall economy.

    To get a lay of the land, we tracked down Kenneth Heebner, who since 1994 has managed the $1.2 billion CGM Realty Fund. It has the best 10-year record of all real-estate-focused mutual funds, according to fund tracker Lipper Inc., up an average of nearly 22% a year during the past decade, well more than double the broader market. The fund also has one of the best one-year records, up 32% through June 30.
    THE JOURNAL REPORT

    [See the full report]
    See fund performance by sector, plus the complete Mutual Funds Quarterly Review.

    Mr. Heebner, 65 years old, is better positioned than many real-estate fund managers to speak about prospects for the housing sector. His fund has viewed its mission more broadly than most rivals, so he isn't shy about ditching real-estate stocks. Among big holdings for CGM Realty during the past year: coal-company stocks, a hot category that qualifies in Mr. Heebner's view because coal companies own a lot of land. He also runs three other mutual funds, including CGM Focus Fund, so he spends a lot of time looking beyond houses and hotels to other parts of the economy. These three funds have among the best five-year records in their categories.

    Here is our conversation:

    WSJ: How is the housing market?

    Mr. Heebner: A significant decline in prices is coming. A huge buildup of inventories is taking place, and then we're going to see a major [retrenchment] in hot markets in California, Arizona, Florida and up the East Coast. These markets could fall 50% from their peaks.
    [Kenneth Heebner]

    WSJ: What has you so concerned?

    Mr. Heebner: I'm worried that more people will default on their mortgages. Risky mortgages such as interest-only and pay-option adjustable-rate mortgages require no principal amortization and in some cases payment of only a fraction of the interest due, have been widely used in the last two years. Some people got 100% financing for their homes. It made the tech bubble look like a picnic. When housing is going up rapidly and you can buy far more than your income can support, some people are eager to make big profits by extending themselves financially.

    As housing prices fall more people will be under water, and these people are just going to walk away from their homes. They are going to say, 'I'm outta here.' You're going to see increasing foreclosures over the next several years. As [home] prices come down, it will create a difficult environment for home builders.

    WSJ: What data have you most worried?

    Mr. Heebner: We're seeing a huge increase in inventories of unsold homes. The role of incentives in selling a home is increasing so the weakness doesn't show up immediately in list prices. Large price declines will follow in inflated markets.
    TAKING QUESTIONS

    [art]
    PODCAST: Journal reporter Gregory Zuckerman interviews Ken Heebner of CGM Realty Fund to discuss investing in the real-estate market. Listen now or subscribe, plus see all the Journal's podcasts.

    WSJ: More than 25% of homeowners don't have a home mortgage because they own their property outright. Won't this keep problems in check?

    Mr. Heebner: Most people won't have problems and much of the country will be fine. I don't think anything will go wrong in places like Texas, Iowa City or Minneapolis. ... But prices are being set by a minority of participants in the market, [those who have borrowed the most and used the most aggressive types of mortgages]. There will be a loud pop in inflated markets. It's where prices were artificially inflated by people buying houses with risky mortgages that we'll see problems. ... The person who feels the pinch is the person who used an aggressive mortgage and is struggling to meet the mortgage payments.

    WSJ: Given the big size of some of the markets that you see as inflated, won't the regional 'pops' reverberate throughout the economy?

    Mr. Heebner: The pops will reduce the growth rate of the economy, but they won't precipitate a downturn. The economy only turns down when the Federal Reserve takes aggressive action to cause a downturn. I think the current pattern of higher interest rates reflects a decision to normalize rates after taking them to abnormally low levels to stave off potential deflation. When the extent of the housing slowdown becomes apparent, I think the Fed will pause, rather than take rates to a level that threatens an economic downturn. The only real threat to the economy is an overly aggressive Fed, and not a downturn in the housing market, which won't by itself push the economy down. In fact, it provides an insurance policy against the Fed becoming overly aggressive.

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  8. The graph... It just means people just borrowed against their home more now... using the rising equity as credit cards... You see, back in the days, people bought the house, and paid it off. The paying part was the debt but it went into the house. Now, the same folks (doesn't have to be the SAME owner of the house) are just borrowing from that equity and spending it... no?

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  9. David....Page 13, Financial Obligations Ratio includes rent.

    How can you discuss "debt service" and include mortgage while excluding rent?

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  10. But prices are being set by a minority of participants in the market, [those who have borrowed the most and used the most aggressive types of mortgages].

    In DC, 50% of mortgages in 2005 were Interest Only. DC is at risk, regardless of what Lance says.

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  11. " David....Page 13, Financial Obligations Ratio includes rent."

    That was a a different graph.

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  12. http://www.washingtonpost.com/wp-dyn/content/article/2006/07/04/AR2006070400969.html

    Perhaps some of you read this this AM. Was it just me or was the article inconsistent?

    For example - it said rents were rising b/c of a tightened rental market, while simutaneously explaining how housing - especially condos - were crashing. It specifically discussed how condo products were now being converted to apartments. Is it just me or does that increase rental inventory and decrease prices? This made no sense since the article also said rents would continue to rise.

    It profiled folks who are affluent, and are choosing to rent after turning a profit on their homes...

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  13. David,

    Again, how do you discuss "debt service" without including rent? Are non-homeowners living free?

    anon 6:45,

    What percent of total D.C. homeowners have interest-only loans? Please bear in mind that, as a general rule, 40% of homeowners have zero mortgage debt.

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  14. It's not inconsistent - just showing that the market isn't completely efficient.

    Large developers flip-flop between condos/apartments chasing the highest return. Their projects have such large lead times that they can't really stop if what they were planning on taking advantage of dries up.

    So, rents go up, profit margins look juicier, a developer switches from condo to apartments. In the meantime, rents go up because there is an immediate lack of inventory and prices won't get relief until that developer finally gets his finished product to market.

    Meanwhile, condo projects will continue to faulter which will push prices/profits down. Eventually, enough condos will flip-flop to apartments and supply of condos will dry up enough that the whole process swings back the other way.

    My observation is that the condo to apartment phase is just beginning and will run for several years.

    My $0.02.

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  15. My $0.02

    Very true. You see this in all types of markets.

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  16. VA Investor,

    I might be slightly off topic but in my view, the number of free and clear owners in this region is important to determining the economic impact of declining home prices - not the decline itself.

    Numbers suggest that 50%+ of the mortgages originated over the past 18-24 months were of the highly leveraged nature - I/Os, ARMs, Neg-Am etc. This volatile fringe will set the price of the market even if there is a substantial stable base.

    The volatility of the recent buyers needs to play itself out.

    My $0.02.

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  17. va_investor,

    "Again, how do you discuss "debt service" without including rent? Are non-homeowners living free?"

    They are not living free. Rent is NOT debt. A mortgage IS debt.

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  18. It is not debt, but any financial obligation (contracted payments in a series) should be reviewed in the same manner as debt. Especially on something like shelter which you will require for essentially your life. It is not a terribly difficult calculation to make a guess on lease price increases and median life times and find total the present value of future rental payments, which can be thought of as implied debt for the leasing (essentially this tells you how much you would need to have in a similar investment to have zero cash flow impact, ignoring tax impacts). This sort of process is the first thing done when looking at corporate credit, poor investors and analysts ignore lease payments and are frequently burned by companies.

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  19. My $0.02.
    "Large developers flip-flop between condos/apartments chasing the highest return."

    If the condo developers decided to convert the condos to apartments, will they be able to become profitable given the current rents. Also rentals are not tight. If they do convert will this saturate to rental market and drive prices down?

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  20. WVU_84,

    I'm sure condo developers would make money switching to rentals early in the construction process. With inflation being so tame over the last 5-10 years, construction costs are no way near keeping up with sale prices. For them, I'm sure it's a simple business case:

    X number of months to sell all units as condos equals XX in sales minus carrying costs.

    Y number of months to rent everything at 10% vacancy rates equals YY cash flow to cover carrying costs.

    Which is bigger? (XX - costs) or (YY - costs)

    My $0.02.

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  21. wvu_84 said:

    "Also rentals are not tight."

    uhhhh ... the article in this morning's Washington Post that we've all be refering to said that the Washington rental market is at an all-time "tightness" (aka vacancy rate) of 1.7%. It was at something like 2.4% last year and the average nationally (from what I recall) is something ike 5.5% ... Our rental market is tight!

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  22. "Rent is not debt"?

    Then what is it? An asset?

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  23. mytwocents said:
    "With inflation being so tame over the last 5-10 years, construction costs"

    Au contraire ... I had some work done on the house this spring and all the talk from the contractors was how building materials and labor had skyrocketed because the rebuilding effort in the path of Katrina was sucking all the materials and labor down there.

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  24. Fritz said...
    ""Rent is not debt"?

    Then what is it? An asset?"

    Yep, the bottom line in a lease is a liability ... has to be paid whether or not one stays the term of the lease. In all fairness though, not every one has a lease and some of those that do go month to month after the first year (at least in the Washington area.)

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  25. Fritz
    "Then what is it? An asset? "
    Rent is nothing! When you sign a lease do you borrow something from the landlord and owe it back?

    My $0.02
    It will be interesting to see how many condos will convert into apartments in the next few years.

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  26. wvu_84: Well I certainly have mortgage DEBT that is greater than my annual income. Good thing that they're giving me 15 years to pay it off. ;-) Don't confuse figure 1 with figure 4, which shows that for the last few years (I wish it covered the same time span) the FOR Mortgage has been mostly between 6 and 7 percent.

    I suspect that there are two reasons for the large rise for mortgage debt in figure 1. Low interest rates for the last few years have meant that for the same monthly payment people have higher mortgages on their homes. And cash out refinancings and HELOCs have meant that people are not paying down equity like they used to, meaning that there are fewer people with paid off or mostly paid off homes.

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  27. Careful! Don't question David's arguments lest he delete such insubordination or declare this thread closed!

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  28. Rent is nothing?

    Oh. Ok.

    So if I sign a lease and then decide I don't want to pay it, you're telling me that the landlord can't sue me in court to collect any of the missed rent payments?

    And I don't have to figure out where rent goes on my monthly assets/liabilities breakdowns b/c since it's not really a liability, it's just a blank entry each month, right?

    I'm sorry, but it is completely laughable to view rent as not being debt. Unless, of course, you define "debt" in ridiculously narrow and unrealistic terms. If you have a legal obligation to make payment on something, then that is a liability or debt. Either by renting or owning, you have a legal liability to make a set payment each month to a specific party. There is no way such a legal obligation would not qualify as debt.

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  29. Rent is not debt.

    Unless my landlord is 'lending' me money interest free.

    Your desperation to make renting seem the same as the money you owe on your mortgage is strange.

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  30. wvu_84 asked :...
    Fritz
    "Then what is it? An asset? "
    Rent is nothing! When you sign a lease do you borrow something from the landlord and owe it back?

    Yep, you definitely do! Read your lease agreement ... You are on the hook for the entire year's rent and legally are liable for it from day 1 ... you are allowed to "make payments" on it monthly ... Just like a loan. Gosh, I hope I haven't just given a fright to the commitment-phobes out there! But yep, you're on the hook for the tens of thousands of dollars that you signed for on the dotted line. And even if you happen to die during the leaseterm, your heirs or estate will have to pay up the remainder of what is owed. It is most definitely a debt!

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  31. anonymous asked:
    "Unless my landlord is 'lending' me money interest free."

    Yes, for accounting purposes interest would be imputed. I.e., what you are paying in total for the year includes the time value of your not paying up front for your entire obligation. If you did, you would/should pay less.

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  32. This is just silly. Rent is not debt(unless you're late). It is, however a financial obligation that must be met every month and that's why they include it in household FOR calculations.

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  33. Rent is PERMADEBT unless you plan to live on the streets. It is interest-only in its most extreme form.

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  34. No matter what "Lance" or "VAInvestor" writes in this blog, this is not a good time to buy property. That's why rents are increasing and developers are re-thinking condominium projects.

    Unfortunately, as a renter, I am beginning to feel the pinch. My rent has increased 7 percent for two years in row. Vacancy rates are pretty low through out the DC market. More people are selling out of the home/condo ownership market and moving into rental units. That just drives up prices for renters even more. As a renter, I used to ridicule home/condo buyers in 2004 and 2005 because I was living life on a discount. The tide is turning against renters slowly.

    Now, we are at a crossroads with sky-high property values and high rental costs. I think middle income professionals and lower-paid workers will have to consider voting with their feet by leaving the Washington, DC area behind. The cost of living here is becoming too burdensome. No federal government or private sector is worth keeping here.

    In high-cost living areas such as California and New York, you had an exodus of people looking to find more affordable living options in the South, Midwest, and Rocky Mountain states. I think we will see a population shift with more moving vans heading OUT of the Washington/NoVa/Maryland region.

    The ultimate solution for us bubbleheads is not to wait for a pop...we should cut our losses and abandon the permantently over-priced Washington, DC market for good.

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  35. ihateyuppies said...
    "No matter what "Lance" or "VAInvestor" writes in this blog, this is not a good time to buy property. That's why rents are increasing and developers are re-thinking condominium projects."

    Your statement is correct, but you conclusion off 180 degrees. Developers are rethinking condominium projects precisely because there is less money to be made from them now then last year. The 20% increases aren't foreseen anymore there ... but instead in the rental market. What's bad for the developers in regards to the real estate market is good for buyers. It is now a buyer's market. Just don't hold out for that 50% discount ... that is unrealistic.

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  36. Fritz
    At the end of my lease I have nothing to show for my payments. A loan on goods or service, I do have something to show for my payments. I have other obligations like taxes and auto registration fees. This is not debt to the state and federal gov't.

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  37. ihateyuppies said:
    " I think we will see a population shift with more moving vans heading OUT of the Washington/NoVa/Maryland region."

    I have to agree with you. Regrettably, that is what happens when a place goes "up market". We have been experiencing this within the District for the last 5 - 10 years. The number of households and household wealth in the District is increasing at the same time that the population is decreasing. Put another way, the welfare mother and her 5 kids is moving out along with her immediate neighbors and the house they were all living in is being reconverted into a single family house for the lobbyist, his wife and the 2.5 kids who are still on their way.

    This isn't necessarily a bad thing though. I've lived in cities and towns with "displaced" New Yorkers and Chicagoans and they bring a lot to the table in what would otherwise be pretty boring places.

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  38. Sorry, my comment was for wvu.

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  39. va_investor said...
    Classic!


    Yes ... He sees it as it is, but still doesn't draw the obvious conclusion! At the end of the lease, he has nothing to show for his payments ...

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  40. Righto Lance. Someone is not playing with a full deck.

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  41. va_investor said...
    "Righto Lance. Someone is not playing with a full deck."

    I think it plays to the commitment issue. Deepdown inside, a lot of the bubbleheads really don't want to be tied to something/anything ... not the place they live in, and not debt. The idea that they are really indebted for the full amount of the lease is probably really bothering some bubbleheads. After all, isn't that why they lease rather than buy? to be commitment-free ...? I wonder how many of them will go home tonight and review their lease documents to see if we are BSing them or if they really are "commited" to paying for a whole year!

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  42. va_investor said...
    "Righto Lance. Someone is not playing with a full deck."

    I think it plays to the commitment issue. Deepdown inside, a lot of the bubbleheads really don't want to be tied to something/anything ... not the place they live in, and not debt. The idea that they are really indebted for the full amount of the lease is probably really bothering some bubbleheads. After all, isn't that why they lease rather than buy? to be commitment-free ...? I wonder how many of them will go home tonight and review their lease documents to see if we are BSing them or if they really are "commited" to paying for a whole year!

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  43. You have nothing to show at the end of your lease? Um, yes you do. You have had a roof over your head for the entire term of the lease. Which you got in exchange for paying a monthly amount of money to your landowner. WHich most people would view as regular debt. Except some of the Bubblehead Faithful who view rent as.... apparently nothing.

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  44. Fritz,

    I would hazard a guess that renter's pay a higher percentage of gross wages for rent than homeowners pay for their mortgage.

    Perhaps David has a chart on this.

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  45. Lance
    "I think it plays to the commitment issue. Deepdown inside, a lot of the bubbleheads really don't want to be tied to something/anything"

    A bubblehead is a person who believes that housing prices are too lofty and due for a correction, nothing more. I'm a bubblehead, and would rather commit to a mortgage than life long leasing because I would be building equity. However at today's prices I feel I can build more assets by renting and investing the difference (mortgages vs renting) in securities.

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  46. Well with TODAYS sales price/rent comparisons, A renter should have several thousand dollars to spend or save as they wish left over at the expiration of their lease compared with where they'd be if they bought. Of course this is usually true for the first year of a purchase even in non-bubble times. The real advantages of homeownership don't usually accrue until several years have passed and less money is being paid in interest, and inflation has raised rents, but not the purchase basis for a house. It IS true that those who are "bitter renters" (I'm a happy pre-bubble purchaser thankyouverymuch) risk missing the boat because the bottom of a market is as hard to call as the top, and homeownership doen't pay off for a while.

    Lance is absoloutely right that where one is on the commitmentphobia-nestingsyndrome continuim plays a BIG part in one's decision to buy or rent. It's not the only factor though. I'm a happy owner but I wouldn't consider buying at current prices. Better to save and wait a few years.

    Where the bubble-skeptics like lance are confused is the contention that purchase price determines rent. The rental markes is a much more efficient one: higher annual turnover, smaller barriers to moving on etc. mean that rental prices adjust more quickly than purchase prices. If you're trying to keep your apartment building full, it doesn't matter what you paid for the building, it matters how many lesors are chasing how many lesees, it a much more responsive supply/demand cycle than the one for purchase housing. Purchase price has a relatively slow influence on the supply of rental units.

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  47. Wvu fan,

    Your bubblehead definition is close. It should be "A bubblehead is a person who believes that housing prices are ALWAYS too lofty and due for a correction."

    I know people who've been bubbleheads since he late 1990s after DC real estate jumped 50% from 1996-1999. These people have been renting for 10 years, waiting to buy 10 years as soon as the prices pop. Now most everybody agrees that there will be a correction. But this correction doesn't justify these bubbleheads' positions unless prices fall to 1990s levels, which I think it highly unlikely.

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  48. d in dc
    I guess I'm not a true bubblehead, I bought a townhouse in 2000.

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  49. Fritz
    "You have nothing to show at the end of your lease? Um, yes you do. You have had a roof over your head for the entire term of the lease. Which you got in exchange for paying a monthly amount of money to your landowner. WHich most people would view as regular debt."

    OK, everytime I check into a hotel room, I am in debt. I go to a marina and rent a motorboat..debt.
    Hmmmmmm!

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  50. What are the admission requirements for wvu?

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  51. This comment has been removed by a blog administrator.

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  52. va_investor said...
    "What are the admission requirements for wvu?"

    Your father and grandfather can't be the same person?

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  53. WVU: If you are living in a hotel for a year or so, then yes, you have debt in the form of paying the hotel in exchange for being able to live there.

    I don't understand the silliness here. If you and other members of the Bubblehead Faithful don't qualify rent as being debt, then what is it? You have to make monthly payments or you face being tossed out of the residence and legal procedings to collect back rent. That seems like the definition of a debt to me. Same way that if you don't pay your credit card bill, you face suspension of your credit and legal procedings. Or the same way that if you don't pay your mortgage payments, you face legal proceedings and foreclosure.

    So if you're monthly housing payments isn't debt, then is it an asset? Because unless I missed something in Accounting for Dummies, montly rent can either be an asset or a liability? Perhaps the Bubblehead Faithful follow some new accounting Gospel of which the non-believers are unaware?

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  54. Fritz
    "I don't understand the silliness here. If you and other members of the Bubblehead Faithful don't qualify rent as being debt, then what is it? "

    Rent is payment for permission to occupy a property.

    "Same way that if you don't pay your credit card bill, you face suspension of your credit and legal procedings."

    Rent and credit cards are similiar in that there are legal consequences if you fail to pay. However with a credit card you are borrowing funds and simultaneously using the funds to purchase goods and services. You have ownership of these goods and services. While renting, you do not own the place you are living. You can argue that a credit card payment for a hotel room is debt because you borrowed money to pay for the room. True when you check out you have nothing to show for it, but you are still in debt because you borrowed money from the credit card company.
    In the simplist form, debt is an obligation to pay back borrowed money or goods.

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  55. WVU:

    So if your monthly housing payments isn't debt, then what is it? An asset?

    I think you and David are splitting ridiculously thin hairs here by arguing against common sense and basic logic.

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  56. a lease is a property interest. Unless the lease says otherwise, it can be assigned or rented out (subletting) like other property.

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  57. OMG...Fritz makes no complete sense.

    Rent is NOT debt. You are NOT borrowing money from a bank to pay monthly rent. You are paying rent from the income that you earned from a job or from savings if necessary. Furthermore, there is no interest added to the rental payment.

    There are many financial obligations that doesn't mean debt.

    Bottom line: I can't walk into a bank and get a loan to rent property. This is the most ridiculous argument that I have read on this blog.

    David should have Fritz banned based on the complete stupidity.

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  58. All we want from Lance and Fritz is a guarantee that they will still be on these boards in 5 years.

    By then, the fallout will be accepted fact (much like the dot.com bubble). Then we can listen to arguments about how/why they did not actually 'lose' equity.

    :)

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  59. This is absurd. If you sign a lease for one year at 2k per month, you owe 24k. You have installment debt of 2k per month.

    Yuppies - did you too attend vwu?

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  60. Ah, so a lease is really like an investment if it can be assigned to another? That makes perfect sense. Just like the Bubblehead Faithful who view a car as an investment.

    Equally brilliant is the view that if your one-year lease says that you owe $24,000 to be paid in an equal amount on the first day of each month, that's not really debt because....um, because it's not.

    Never mind the fact that you still owe the owner of the residence $24,000 that must be paid in a year's time. That's not really debt because you have to pay for it out of your income (apparently a mortgage payment is paid out of the tooth fairy's rainy day fund). And there's no interest on rent payments so once again rent is not really debt (yet obviously there is interest if you view the excess of any monthly cost to the owner to be profit and thus a form of interest to the renter).

    I am simply stunned by the Bubblehead Faithful's financial acumen. Perhaps someone needs to define "debt". My definition is quite simple: any monetary obligation where failure to pay a defined set of money at a defined time will result in legal proceedings to enforce that obligation. Amazingly enough, such a definition finds support in most dictionaries.

    But apparently the Bubblehead Faithful's definition of "debt" is: money that is paid to a mortgage lender, that has interest, and that only suckers pay and not us wise financially-savvy Bubbleheaders.

    So please, WVU, ihateyuppies, David, et al.,: Enlighten us with your definition of debt.

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  61. What about month to month renters? At what point are they in debt?

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  62. (From wilkipedia.org)
    Debt is that which is owed. It usually refers to money owed, but the term can be used to cover other obligations. A debt is often created when a person or company agrees to hand over to another person or company a sum of money which is to be repayed by some later date, usually with interest.

    Yes Fritz failure to pay debt results in legal obligation. This is what debt has in comman with renting.

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  63. I think this whole argument is hilarious.

    There is no denying that homeowners have debt. SO, as a "comeback" owners are yelling, "I might have debt, but YOU DO TOO!"

    This is the equivalent to putting your thumbs in your ears and sticking out your tongue.

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  64. My point with David's mortgage chart was/is that it is meaningless without a corresponding "rent" chart.

    I don't buy that mortgage debt takes up a larger portion of disposable income than rental payments.

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  65. AHHHHHH - we're all in debt. I went into debt at lunch today - after all, if I did not pay for the lunch I just ate, legal action would have been taken. Crap, I'm creating debt just sitting in my house with the AC on, running up a bill that I am obligated to pay.

    How this relates to the housing market....it's so silly...hard to believe that anyone would care....

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  66. anon 1:42,

    Homeowner debt declines over time and rent "debt" increases. Both due to inflation.

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  67. WVU: So based on the definition you yourself cited, rent would qualify as debt. Debt doesn't have anything "in common" with renting! Rent IS debt. As is a mortgage payment. Anony at 1:42 gets the idea, although he doesn't know that he's got it: rent:debt::mortgage payments: debt. It's that simple.

    Why is this such a difficult concept for the Bubblehead Faithful?

    And why is it that hours after I asked the question, not a single Bubbleheader can tell me what rent is, if it's not debt?

    And don't wait for David to correct a chart. A few months ago, I pointed out an incorrect chart he posted on Zillow's description of Lereah's home value. It took multiple back-and-forth postings for David to acknowledge that the chart he used was in fact not accurate. His final response was to simply say that he got the chart from another site.

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  68. Who cares if rent is debt? As a renter, my debt is less than yours (as an owner)....

    Even the mainstream media has acknowledged that prices are on the decline. The WSJ analyst was calling for 50% drops from the peak (today).

    If you put a 20% down payment on your house and prices drop (from say, $150K to $120K), that money is gone - same as if you lost it in the stock market...

    ReplyDelete
  69. Does property tax rise faster than rent? That's the important question I'd like to know. I know it depends on the areas you live in. In the DC/Northern VA area while many home owners are joyful in seeing their property values go up; they also hate the fact that their taxes have gone up. In fact I read that some people (esp. people on fixed income) are forced to sell their houses because they cannot afford to pay the property taxes. Also condo fees are going up every year.

    ReplyDelete
  70. just popped in to see what was going on here... and found this fascinating thread! wvu and yuppies clearly have some growing up to do. fritz is doing you both a favor, boys. you best take heed and perhaps you will prosper a bit when you grow up.

    and the district of columbia has strict caps on its tax increases. sure, it may still outpace inflation, but so will the average rent you're paying.

    ReplyDelete
  71. No, only rents go up. Property taxes hold steady while mortgage payments create the perfect inflationary hedge. (After all, mortgages have traditionally been seen/used this way). Condo fees also stay the same.

    Only renters lose. Debt is wealth. We are headed towards a new economy. If only thereisnohousingbubble.com were still around. It explained it all really well....

    ReplyDelete
  72. This is a pretty underwhelming accounting analysis.

    A lease is a contract. A landlord promises to allow occupancy in the rental unit, the lessee promises to pay rent, usually on a monthly basis.

    If you are in business, "rent" is characterized as an expense. It reduces income, but doesn't go directly onto a balance sheet. But the obligation to pay future rent is categorized as "accounts payable," which is described as a liability, or DEBT.

    Debt is an obligation to pay, nothing more, nothing less. The main difference between mortgage debt and rent debt is that mortgage debt is secured against the ownership of an asset (the home). Rent debt is unsecured, meaning there is no recourse against the property of the lessee. However, the lack of a security interest does not change the obligation to pay.

    A lease can also be an ASSET, believe it or not. If you are leasing a property at $1000, and the market rate for that property is $2000, the difference between the lease rate and the market rate can be considered as income on a monthly basis (ask the IRS - try to get a lease at 1/2 the market rate from your parents and not pay taxes on it). The value of future underpayments is considered an asset, that would be depleted by your occupancy of the unit. (Think of subleasing for a profit for an example of a lease providing asset value).

    ReplyDelete
  73. WSJ:
    More than 25% of homeowners don't have a home mortgage because they own their property outright.

    VA Investor:
    ... as a general rule, 40% of homeowners have zero mortgage debt

    I don't know who to believe.

    ReplyDelete
  74. I read the 40% figure in some gov't report. Anyone have a source? It also said that of the remaining 60%, equity was 40%.

    ReplyDelete
  75. "Thirty-two percent of all vacation-home owners and 24 percent of investment owners paid cash for their property. Combined with mortgages that have been paid-off, 82 percent of vacation homes and 75 percent of investment properties are owned free and clear."

    www.realtor.org/PublicAffairsWeb.nsf/Pages/2ndHomeSurvey06?OpenDocument

    ReplyDelete
  76. "Nearly 40 percent of all residential properties in the United States, owner-occupied and rental units, are not mortgaged but are owned free and clear."

    http://communitydispatch.com/cgi-bin/artman/exec/view.cgi/17/2451

    ReplyDelete
  77. Thanks Lance.

    ReplyDelete
  78. Lance said...
    "Nearly 40 percent of all residential properties in the United States, owner-occupied and rental units, are not mortgaged but are owned free and clear."

    What percentage are bank owned/mortaged?

    What percentage have ARM’s?

    Of those ARM’s, how many will reset in the next 3 years?

    What percentage of 2005 home buyers have no or negative equity?

    What percentage of home owners have a HELOC loan?

    Have salary increases matched or out paced home prices?

    Are the number of foreclosures rising or falling?

    What is the YOY inventory trend?

    What is the YOY unit sales trend?

    What percentage of homes sold in the last 6 months did so at a loss?

    ReplyDelete
  79. Fritz, Lance - the two meister real estate trolls (I mean "pros" - oh well, the words sound similar in your cases) have been busy.

    Don't you guys have day jobs? Why are on this blog so much? What are you trying to sell, besides your advice, that you can't offload on greater fools nowadays?

    Buyers beware.

    ReplyDelete
  80. DC Housing New aka Bill,

    Weren't you banned from this blog by David? I've noticed you're not getting any comments on your blog, huh? Or at least not any comments that make it through your censorship. Well, go have fun by yourself in your sandbox ...

    ReplyDelete
  81. robert said...
    "Lance said...
    "Nearly 40 percent of all residential properties in the United States, owner-occupied and rental units, are not mortgaged but are owned free and clear."

    What percentage are bank owned/mortaged?"

    huh Robert, I know math isn't your forte, but if 40% DON'T have a mortgage ... then huh ... 100% minus 40% leaves ... huh ... 60% that DO have a mortgage! Wow, that was a tough one, huh guy!?!?

    ReplyDelete
  82. Lance said...
    huh Robert, I know math isn't your forte, but if 40% DON'T have a mortgage ... then huh ... 100% minus 40% leaves ... huh ... 60% that DO have a mortgage! Wow, that was a tough one, huh guy!?!?


    What, no stab at any of the other questions? Gee, your one smart cookie to answer THAT ONE question. That was after all, a real hard one. Oh, I know, all the other factors do not affect housing prices. The only factor one must consider is inflation right? Everything else is jibber jabber.

    ReplyDelete
  83. Robert asked:

    What percentage have ARM’s?
    - 99.9% ARMS ARE HELD BY PEOPLE QUALIFIED TO AFFORD THEM AT A WORST CASE SCENARIO.

    Of those ARM’s, how many will reset in the next 3 years?
    - NOT RELEVANT, SEE ABOVE

    What percentage of 2005 home buyers have no or negative equity?
    - MOST DEFINITELY UNDER 1%, 0% IF BOUGHT WISELY AS I HAVE BEEN ADVISING ALL ALONG ... ROW HOUSES IN DISTRICT WENT UP 20%+ FROM FIRST QUARTER 2005 TO FIRST QUARTER 2006. CONDOS WENT UP SOMETHING LIKE 7%. What percentage of home owners have a HELOC loan?
    HOPEFULLY A HIGH PERCENTAGE. RENTERS GET TO USE VISA AND MASTERCARD WITH 17% - 21% INTEREST RATES FOR ITEMS THEY WANT TO "PAY ON TIME", HOMEOWNERS GET TO USE THEIR HOME EQUITY LOANS INSTEAD AND PAY 7% INTEREST INSTEAD ... AND THAT'S 7% TAX DEDUCTIBLE INTEREST ... MEANING SOMETHING LIKE 5% VS. THE 17% TO 21% YOU ARE PAYING!

    Have salary increases matched or out paced home prices?
    IRRELEVANT, THERE IS NO GUARANTEE IN LIFE THAT AN AVERAGE PERSON SHOULD BE ABLE TO AFFORD AN AVERAGE PRICED HOUSE ... OR ANY HOUSE. THROUGHOUT HISTORY AND THROUGH MOST OF THE WORLD, MOST "COMMONERS" DON'T OWN ANY REAL ESTATE. THAT IS THE PRESERVE OF THE PRIVILEGED, LANDED GENTRY. POLITICS SINCE THE REAGAN ERA HAVE BEEN WIDENING THE GAP BETWEEN THE HAVES AND THE HAVE NOTS. LOGICAL CONCLUSION IS THE CREATION OF A PERMANENT CLASS OF RENTERS AS IS THE CASE IN MOST OF THE WORLD.

    Are the number of foreclosures rising or falling?
    FROM WHAT I READ, THEY ARE UP JUST SLIGHTLY, AS WOULD BE EXPECTED IN A 'SOFT LANDING'.

    What is the YOY inventory trend?
    UP BY SOMETHING LIKE 50% ACCORDING TO DAVID. CONSIDERING I HAD 11 OFFERS ON MY CONDO LAST YEAR, THAT IS A GOOD THING! BUYERS NEED MORE SUPPLY. EVEN A 50% INCREASE ISN'T ENOUGH CONSIDERING ALL THE MULTIPLE OFFERS I WITNESSED OUT THERE LAST YEAR WHEN I SOLD AND BOUGHT.

    What is the YOY unit sales trend?
    STILL GOING UP FROM WHAT I HAVE READ HERE. NOT AS QUICKLY AS BEFORE, BUT AS WOULD BE EXPECTED FOR A SOFT LANDING.

    What percentage of homes sold in the last 6 months did so at a loss?

    VERY FEW I AM SURE. PROBABLY LESS THAN 1/2OF 1%. DON'T CONFUSE SELLING FOR "LESS THAN ASKING PRICE" WITH "SELLING FOR A LOSS". THE VAST MAJORITY OF HOMEOWNERS HAVE LOTS AND LOTS OF EQUITY IN THEIR HOMES. THEY MAY NOT GET WHAT THE NEIGHBORS GOT IN EARLY 2005, BUT THAT DOESN'T MEAN THEY DIDN'T STILL MAKE A KILLING!

    ReplyDelete
  84. Oh my. Now Lance is privileged, landed gentry.

    LOL.

    Once again, please just promise us you will still be here posting in 2007, 2008...

    ReplyDelete
  85. I believe robert is still smarting from lance's smackdown.

    And Bill: you have been told several times to not post here since you have your own website. Why not take the hint?

    ReplyDelete
  86. Not good with hints. I'm a little too slow. I am a renter, after all. Can't hold me to your high standards.

    ReplyDelete
  87. Easy on all the all CAPS Lance. Blogging all day, instead of working a real job, can warp your perspective on reality (adequately reflected in your numerous postings). It's just a blog...

    ReplyDelete
  88. Lance said...

    What percentage have ARM’s?
    “99.9% ARMS ARE HELD BY PEOPLE QUALIFIED TO AFFORD THEM AT A WORST CASE SCENARIO.”

    “Of those ARM’s, how many will reset in the next 3 years?
    -NOT RELEVANT, SEE ABOVE”

    Have salary increases matched or out paced home prices?
    “IRRELEVANT, THERE IS NO GUARANTEE IN LIFE THAT AN AVERAGE PERSON SHOULD BE ABLE TO AFFORD AN AVERAGE PRICED HOUSE ... OR ANY HOUSE. THROUGHOUT HISTORY AND THROUGH MOST OF THE WORLD, MOST "COMMONERS" DON'T OWN ANY REAL ESTATE. THAT IS THE PRESERVE OF THE PRIVILEGED, LANDED GENTRY. POLITICS SINCE THE REAGAN ERA HAVE BEEN WIDENING THE GAP BETWEEN THE HAVES AND THE HAVE NOTS. LOGICAL CONCLUSION IS THE CREATION OF A PERMANENT CLASS OF RENTERS AS IS THE CASE IN MOST OF THE WORLD.”


    Trillions of dollars of ARM reset in the next two years not relevant? Without a significant increase in wages no less, and don’t forget; inflation, inflation, inflation! Nice to see you have worked the numbers and they all add up! Glad you just didn’t go with your gut feeling on those.
    So, we commoners are just SOL when it comes to housing, well 60% of America anyway right? If we “average” people can buy the “average” home who will buy up all the current inventory? The other “PRIVILEGED” 40%?

    ReplyDelete
  89. Lance said...
    What percentage of 2005 home buyers have no or negative equity?
    “MOST DEFINITELY UNDER 1%, 0% IF BOUGHT WISELY AS I HAVE BEEN ADVISING ALL ALONG ... ROW HOUSES IN DISTRICT WENT UP 20%+ FROM FIRST QUARTER 2005 TO FIRST QUARTER 2006. CONDOS WENT UP SOMETHING LIKE 7%.”

    What percentage of home owners have a HELOC loan?
    “HOPEFULLY A HIGH PERCENTAGE. RENTERS GET TO USE VISA AND MASTERCARD WITH 17% - 21% INTEREST RATES FOR ITEMS THEY WANT TO "PAY ON TIME", HOMEOWNERS GET TO USE THEIR HOME EQUITY LOANS INSTEAD AND PAY 7% INTEREST INSTEAD ... AND THAT'S 7% TAX DEDUCTIBLE INTEREST ... MEANING SOMETHING LIKE 5% VS. THE 17% TO 21% YOU ARE PAYING!”


    -Nearly one in 10 households with a mortgage had zero or negative equity in their homes as of September 2005, according to First American Real Estate Solutions, an arm of title-insurance company First American Corp. The study of 26 million homes in 36 states and the District of Columbia found that one in 20 home borrowers was upside-down by 10% or more.-

    And of course, those homeowners with HELOC’s buying up the GM products are seeing a great return.

    ReplyDelete
  90. Lance said...
    Are the number of foreclosures rising or falling?
    "FROM WHAT I READ, THEY ARE UP JUST SLIGHTLY, AS WOULD BE EXPECTED IN A 'SOFT LANDING'."

    -Risky borrowing is catching up with a number of homeowners across the U.S. Foreclosures rose 45% in January compared to a year ago, and experts only expect the pace to accelerate.-

    -Statistics provided by RealtyTrac Inc., a San Francisco company, showed home foreclosures climbed 38 percent nationally in the first three months of this year when compared to the last three months of 2005.
    The rate increased 78 percent when compared to the first quarter of 2005.-

    ReplyDelete
  91. Lance said...
    What is the YOY inventory trend?
    "UP BY SOMETHING LIKE 50% ACCORDING TO DAVID. CONSIDERING I HAD 11 OFFERS ON MY CONDO LAST YEAR, THAT IS A GOOD THING! BUYERS NEED MORE SUPPLY. EVEN A 50% INCREASE ISN'T ENOUGH CONSIDERING ALL THE MULTIPLE OFFERS I WITNESSED OUT THERE LAST YEAR WHEN I SOLD AND BOUGHT."

    What is the YOY unit sales trend?
    "STILL GOING UP FROM WHAT I HAVE READ HERE. NOT AS QUICKLY AS BEFORE, BUT AS WOULD BE EXPECTED FOR A SOFT LANDING."

    Try anywhere from 50% to over 100%.
    http://www.mris.com/reports/stats/index.cfm

    And how is it possiabe that inventory is climbing? I mean, with all those “PRIVALAGED” land owners and all. They should be snatching up the deals!

    ReplyDelete
  92. Lance said...
    What percentage of homes sold in the last 6 months did so at a loss?

    “VERY FEW I AM SURE. PROBABLY LESS THAN 1/2OF 1%. DON'T CONFUSE SELLING FOR "LESS THAN ASKING PRICE" WITH "SELLING FOR A LOSS". THE VAST MAJORITY OF HOMEOWNERS HAVE LOTS AND LOTS OF EQUITY IN THEIR HOMES. THEY MAY NOT GET WHAT THE NEIGHBORS GOT IN EARLY 2005, BUT THAT DOESN'T MEAN THEY DIDN'T STILL MAKE A KILLING!”

    Whew, had some people worried there for a moment. But no worries now since you've got the nummbers in!
    (Also see negative equity post)

    Glad you spelled out that “asking price” from “selling price”. Man, that’s one hum dinger. We would foreverever be lost if it weren’t for your gut feelings and a realtor to guide us!

    ReplyDelete
  93. Robert asked:

    "Trillions of dollars of ARM reset in the next two years not relevant?"

    Again, not relevant because and every one of these lenders was qualified and found to be able to afford their loans even if interest rates happened to rise to the highest allowable under the loan contract terms. So, how many actually hold these ARMs is irrelevant to your argument since ALL of them should be able to afford any resets.

    ReplyDelete
  94. Lance said...
    Robert asked:

    -Trillions of dollars of ARM reset in the next two years not relevant?-

    “Again, not relevant because and every one of these lenders was qualified and found to be able to afford their loans even if interest rates happened to rise to the highest allowable under the loan contract terms. So, how many actually hold these ARMs is irrelevant to your argument since ALL of them should be able to afford any resets.”

    Yes, 100% qualified. No problems here!
    http://abcnews.go.com/Video/playerIndex?id=1752600

    ReplyDelete
  95. Another well qualified home owner:
    http://www.msnbc.msn.com/id/12975777/

    ReplyDelete
  96. Honey! Just got the appraisal in! We Qualified! 100%

    http://www.kansascity.com/mld/kansascity/news/consumer_news/13963021.htm

    ReplyDelete
  97. 100% qualified like a 100% guarantee!

    http://tinyurl.com/olffu

    ReplyDelete
  98. Robert,

    There is no doubt that homeowners on ARMs that have gone up will feel stretched and some will feel that it is "impossible" to make the increased payments. But the point is that it is possible and the vast majority of them will. Will foreclosure rates go up? Sure, but it will be an insignificant number. It will be by no means a number capable of bringing on the "Great Housing Depression" you and your fellow bubbleheads are banking on. Rather than anacdotal newclips, perhaps statistics of how many ARM owners actually defaulting on their loans would be more useful.

    ReplyDelete
  99. Lance said...
    “Robert,

    There is no doubt that homeowners on ARMs that have gone up will feel stretched and some will feel that it is "impossible" to make the increased payments. But the point is that it is possible and the vast majority of them will. Will foreclosure rates go up? Sure, but it will be an insignificant number……”

    Please Lance, tell us, what are some specific data we can track? Least we continue to track “insignificant data”. (gut feelings don’t count)

    ReplyDelete
  100. Robert asked:
    "Please Lance, tell us, what are some specific data we can track? Least we continue to track “insignificant data”. (gut feelings don’t count)"

    A couple weeks back, David posted the numbers on increased foreclosures ... and it was up, yes, but not significantly. Not anywheres near to the level of bringing about the fiscal calamity that you are banking on to buy your house for pennies on the dollar.

    ReplyDelete
  101. The MSNBC article had forclosures up 72%.

    I don't think that bubbleheads beleive that the street prices of homes will drop 50%. But REO properties CAN be had for 20% of peak prices. Thre was a former REO bank officer talking about this in a thread on another housing blog awhile back. These are probably the deals that most bubbleheads hope to obtain.

    ReplyDelete
  102. Lance said...
    Robert asked:
    "Please Lance, tell us, what are some specific data we can track? Least we continue to track “insignificant data”. (gut feelings don’t count)"

    ”A couple weeks back, David posted the numbers on increased foreclosures ... and it was up, yes, but not significantly. Not anywheres near to the level of bringing about the fiscal calamity that you are banking on to buy your house for pennies on the dollar.”

    Yea, you confused me there. The question was/is:

    -Please Lance, tell us, what are some specific data we can track?-



    And I agree with you- “Not anywheres near to the level of bringing about the fiscal calamity that you are banking”

    But not in the same vein. If this were THE ONLY data point, it might be “insignificant”. But this data, coupled with others; inventory, resetting ARMS, increasing foreclosures, ect. makes for some interesting coffee table chat no?


    “Rather than anacdotal newclips, perhaps statistics of how many ARM owners actually defaulting on their loans would be more useful”

    Sure, how about posting that data Lance! Get on in! Show us how insignificant that number is!
    http://tinyurl.com/ndz4f

    ReplyDelete
  103. Anonymous said...
    "I don't think that bubbleheads beleive that the street prices of homes will drop 50%. But REO properties CAN be had for 20% of peak prices. Thre was a former REO bank officer talking about this in a thread on another housing blog awhile back. These are probably the deals that most bubbleheads hope to obtain."

    No, re-read the posts ... The bubbleheads are clearly banking on 50% or more "discounts" on their purchases next year. It is the housing heads saying "no, it'll be 15% to 20% at the max, and that will only be for isolated segments of the real estate market such as condos in less-than-desireable areas."

    ReplyDelete
  104. Robert said:
    "Sure, how about posting that data Lance! Get on in! Show us how insignificant that number is!"

    Robert, YOU are the one proclaiming that ARMs foreclosures will make prices in general drop 50% or more. It is up to YOU to back that up. You're not going to reverse the argument and have me trying to disprove a negative. You have to first prove your assumption. THEN it might be interesting coffee table talk.

    ReplyDelete
  105. In Lance's defense, even a 50% increase in the foreclosure rate from the historicly low levels of the last few years is probably not that significant. The foreclosure rate is still low, and sales are still high, although inventory has skyrocketed. We haven't yet seen large numbers of people who've had to sell at a loss, do a short sale or been foreclosed on. To some extant those of us who are bubble believers suffer from the "Are we there yet?" syndrome, looking at any changes as the inflection point into a declining market. This is just as silly as bubble deniers in 2005 saying "You were claiming that houses were overpriced last year and they've continued to go higher. You were wrong, neener neener neener." Put me in the "It will be a long bumpy ride down camp."

    However, it doesn't really matter how many people have 100% equity. What matters is how many people negative equity. A certain percentage of people have to sell every year: job loss, divorce, death etc. If they're upside down the bank will repo and sell the property at whatever the market price is. It's my understanding that bank regulators don't like large amounts of REO property on bank ballance sheets because they are an unknown liability: until it's actually sold, you don't know how much has been lost.

    Traditionaly, the 20% downpayment helped to prevent foreclosures because that represented several years of (nominal)appreciation and was usually sufficient to prevent foreclosure or short sales except when say, a plant closed and there were massive job losses. Not only has the 20% downpayment gone the way of the dodo bird for first time buyers, but it only represents ~1 year of appreciation. There have certainly been plenty of times when houses have lost a couple of years worth of appreciation. For a majority of homeowners this would create no difficulties. But this would put a fair percentage of homeowners upsidedown and at risk of foreclosure. The fear is this would create a downward spiral of upsidedown homeowners, lower prices, and foreclosures. IMHO this is likely to take years to work itself out, so I don't find:"See, it has/or hasn't happend this month!" particularly persuasive.

    ReplyDelete
  106. Lance said...
    “Robert, YOU are the one proclaiming that ARMs foreclosures will make prices in general drop 50% or more. It is up to YOU to back that up. You're not going to reverse the argument and have me trying to disprove a negative. You have to first prove your assumption. THEN it might be interesting coffee table talk.”


    You are delusional. I never posted any such thing. I even agreed with you:

    -And I agree with you- “Not anywheres near to the level of bringing about the fiscal calamity that you are banking”-


    You however, find foreclosures “insignificant”. I’d just like to know if this is another one of your “gut feelings” or you actually have data to show the “insignificance” of the rising number of people getting kicked out of their home.

    ReplyDelete
  107. Lance said...
    “No, re-read the posts ... The bubbleheads are clearly banking on 50% or more "discounts" on their purchases next year. It is the housing heads saying "no, it'll be 15% to 20%….”

    Yes Lance, please re-read the post and answer me this:

    -Please Lance, tell us, what are some specific data we can track? Least we continue to track “insignificant data”. (gut feelings don’t count)-

    ReplyDelete
  108. robert: Stop harassing Lance. You have been warned.

    ReplyDelete
  109. thanks David.

    Robert, someone in a post following our discussion listed what the foreclosures were noting that even with a 50% increase they were still very low.

    ReplyDelete
  110. Yeah, Robert - go easy on Lance! As a real estate agent, he has fallen on hard times (judging by the amount of time he spends blogging each day).

    He might be ready to jump out of a window anyday now! Maybe even the window of an overpriced luxury condo in Fairfx that he can't sell!

    ReplyDelete
  111. David,

    In Robert's defense, Lance was asking for it. Someone even said Lance laid the smack down on Robert. Well I think Robert got the last laugh and made Lance eat his words.

    Lance can't even backup his facts, and when he does, he cites the National Association of Realtors. Might as well let the fox guard the hen house with that data.

    ReplyDelete
  112. david said...
    “robert: Stop harassing Lance. You have been warned.”

    David,

    You’ve got Lance and others, simply posting as much trash as possible as often as possible, talking fast enough to fill the void between silences so no one (especially a newcomer) pins them to their statements. If Lance just sat there and hummed, he’d be saying just as much.

    I have tried to pull some (simple) answers from Lance (I laid the ground work 2 days ago) that he has yet to address. Specifically, “what data is significant?”.

    So far, according to lance, inventory, the current number foreclosures, ARM’s, and sales have little (insignificant) or no affect on the market. I for one happen to disagree, but would like to know what Lance thinks is significant. Pork Bellies? Phases of the moon? What?

    If Lance and others simply continue to talk in circles as fast as they can without discretion, who’s really running the blog?

    ReplyDelete
  113. Robert,

    There is a difference between 50% of all mortgages being foreclosed on and a 50% increase in foreclosures and a 50% increase in the rate of increase.

    The number is meaningless out of context. Right now the context is that foresclosures had dropped to a historical low and with the the recent increase they have not yet returned to the average rate of foreclosure.

    I don't know all of the numbers myself. Like what is the average deviation in the rate of foreclosures? Or in other words is a 50% change in the rate significant? Or is it just "noise"?

    Same with inventory. Inventory had been at historiical lows and this summer it has returned to average (as measured by months supply at sales rate which is the more accurate than total number of units since the absolute number of units increases by one million plus each year)

    Another measure of inventory is the total number of vacant units. This data is available at census.gov, but the data I've found has been agrregated in a way that does not clearly distinguih between second homes, vacation rentals, and vacant units for sale.

    I have not seen enough disaggregated data on ARMs to come to any mathematical proofs, but my guess is that the rate increase won't have enough of an effect on foreclosures to effect the overall housing market.

    By far, the typical ARM holder is someone like me who has simply taken advantage of cheap money. Many people are taking out ARMs as a "bridge" across temporary circumastances, such as a spouse full time in school, or staying home with a newborn child, or starting out in a new career. A lot of ARMs are part of the reduced or no down payment financing. When these ARMs reset they will only affect, at most, 1/5 of the overall payment. When resets happen, its an inconvenience, not a disaster.

    ReplyDelete
  114. The reason foreclosures were so low is because people were able to sell for a gain. People became confident in the market and a bunch of people jumped in. This in turn caused prices to increase. Many people became savvy ande afluent.

    So why are foreclosures increasing? Because rates are rising, loans are resetting, people are no longer willing to pay exorbent prices for RE. When people cannot sell or afford to pay the holding costs, they default. This will have a domino effect on the market.

    Most of the smart money has left the game. For those who are still in the game, they may win or lose depending on when they bought. They may have equity that they want to cash out before prices get any lower. Some may decide they do not have to sell and would rather rent the place. Either way, values will drop. Many like Lance and Va_investor are in a state of denial because they are still in the game. They don't want to believe that the market has in fact turned, but this is America and they can do as they like; however, don't try and tell us how great the market is.

    Rents right now are much cheaper than Mortgage costs even using exotic financing. Even with rents rising, they are much cheaper. There was a time when it made more sense to own, but it seems that va_investor is living back to the future and hasn't come to grips with reality. Nontheless, she might be loaded and can afford to lose a few million and still be ahead of the game, but others could not.

    Then again, she could be seriously sweating, but still come on here to try and pump everyone up. It's not working.

    ReplyDelete
  115. anon said:
    "Then again, she could be seriously sweating, but still come on here to try and pump everyone up. It's not working."

    This is rather insultive of Va_Investor. She/he comes on here with a wealth of experience that she shares with you. I have less but try to do the same. Since when did it become fashionable to look success in the mouth and say "I know better"... Oh wait, I guess it's always been that way ... the impetus of youth. The "it's a different world now, so you don't understand it is a new paradigm!" Sorry, I can't help but chuckle. What you call a bubble, I have seen happen at least once in my lifetime. I suspect Va_Investor may have seen it happen at least once more than I from what he/she says. Those of you who think it is sooooo hard to buy now don't have a clue that it was always hard to buy that first starter house. Yes, there have been times when one could more easily get into that new subdivision at the edge of town or that newly renovating neighborhood near the city center, but that is only because real estate is cyclical. I don't want to speak for Va_Investor, but I will say for myself that 'yes' it is an especially hard time for a new buyer to get their first house now. As it was as I remember back in the late 70s and very early 80s when the first interest only's were invented to help first time buyers. (The bank would lend 80% ... and the remaining 10% or 15% --- sometimes 20% --- would be lent by the seller as an interest only "balloon" loan due in its entirety in 10 years. Nothing is ever new including the financing used to help the first time buyer at the peak of a cycle ... it just gets a different name this time around and tweaked a bit. In the same vein, nothing is ever new in regards to how the cycle operates. Look back in history, you'll see there have never been any nationwide (or even "bi-coastal") systematic crash. YES, a few isolated markets have at times crashed the amount the bubbleheads are predicting, but that was always due to very local and very specific problems ... such as Denver in the early 90s when the price of oil dropped so quickly that the sucking noise that had been Denver drawing all these folks to work in oil suddenly became a hissing noise as the jobs evaporated there. I got there some 6 - 12 months after their "bubble" crashed ... and prices where less than 50% of what they'd been prior. I stayed there a year, and by the end of the year prices had returned to their original levels. So Anony, another "there's nothing new under the sun" is that when prices stagnate (or drop slightly), it really won't be for long ... not more than a 3 year period .. probably less given the recent advances in communication. Please do be careful not to overpay for a property that is priced high because it's owner thinks EVERYTHING deserves to be priced high, but also don't pin all your hopes on to a big, burst, bubble. Take it from those who've seen it all before, it "ain't" gonna happen, you are wasting your time and your opportunities waiting for it to occur.

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  116. At risk of offending the folks that run this blog, I’ll attempt to respond

    Anonymous said...

    Robert,

    “There is a difference between 50% of all mortgages being foreclosed on and a 50% increase in foreclosures and a 50% increase in the rate of increase.”

    Thanks for clearing that up. Tough one.

    “The number is meaningless out of context. Right now the context is that foresclosures had dropped to a historical low and with the the recent increase they have not yet returned to the average rate of foreclosure.”

    “I don't know all of the numbers myself. Like what is the average deviation in the rate of foreclosures? Or in other words is a 50% change in the rate significant? Or is it just "noise"?”

    If everything were “hunky dory” in the real estate world, that number should be dropping and at the very least, stagnate. 50% increase? No problem. 100%, 150%, 200%, 250% increase? No problem. At what point is the data significant? I say, if you’re watching trends, the number is always significant. Further more you state “I don't know all of the numbers myself”, neither do I and I find that reason to pause. Why, especially if the data is insignificant, is this data hard to come by? It’s been my experience that the harder the data is to find, the more valuable it is. 50% noise? If it were anywhere around 1%-13% yea, ok might be some noise in your collection measures. But 50%? Furthermore, foreclosures are pretty well documented via courts and public record. I would think it hard for someone to list a home as foreclosure by mistake, if nothing more than the stigma attached.

    Anon makes a great point
    “The reason foreclosures were so low is because people were able to sell for a gain. People became confident in the market and a bunch of people jumped in. This in turn caused prices to increase. Many people became savvy ande afluent.”

    As seen by DOM. Another hard to come by stat. I use to be able to search by minimum DOM using ihomefinder.com. Alas, within the last few months, that feature has been disabled.


    “Same with inventory. Inventory had been at historiical lows and this summer it has returned to average (as measured by months supply at sales rate which is the more accurate than total number of units since the absolute number of units increases by one million plus each year)”

    Locally, I have seen a 145% increase in inventory in YOY numbers. Most of that supply has spiked in the last few months. Significant? If the inventory has been “at historical lows” and “this summer it has returned to average” I find it staggering that in a few months we have brought the inventory back to “average”, especially if you believe that a short supply of anything drives up prices. Why is it that supply and demand has little or no affect on housing? It applies to every other business model, why not this one? If we see a 145% increase of gold supply, would that not drive down the price of gold?

    “I have not seen enough disaggregated data on ARMs to come to any mathematical proofs, but my guess is that the rate increase won't have enough of an effect on foreclosures to effect the overall housing market.

    By far, the typical ARM holder is someone like me who has simply taken advantage of cheap money. Many people are taking out ARMs as a "bridge" across temporary circumastances, such as a spouse full time in school, or staying home with a newborn child, or starting out in a new career. A lot of ARMs are part of the reduced or no down payment financing. When these ARMs reset they will only affect, at most, 1/5 of the overall payment. When resets happen, its an inconvenience, not a disaster.”

    Nice way to put that. “I have not seen enough disaggregated data on ARMs to come to any mathematical proofs……” but everything is A OK. As seen here: “the typical ARM holder is someone like me who has simply taken advantage of cheap money…” When these ARMs reset they will only affect, at most, 1/5 of the overall payment. When resets happen, its an inconvenience…”

    Please show numbers for the “typical ARM holder”. Rhetorical, you can’t. And why the increase in foreclosures (bringing us slowly back to average numbers)? There’s cheap money to be had out there. Why would anyone chose foreclosures over all the cheap money to be had? Mortgage payments doubled? No problem, your salary will increase to compensate?

    If these data points were taken individually, then yes, it would be a hard sell for me. But foreclosures are up(“slowly? bringing us back to average”), More than a trillion dollars in ARM’s are resetting (and pay raises to go with them?), Inventory has increased (over the summer, bringing us back to “normal”)

    Given all that, Lance has yet to answer “what are some specific data we can track? Lest we continue to track “insignificant data”.

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  117. Foreclosures are not up 50%. It's 75% in the first quarter.

    http://tinyurl.com/kcdcw

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