Condo development in the Little Italy neighborhood in San Diego. This building faces the interstate.
Condo lockboxes on some bubblicious project in San Diego
A 'For Lease' sign on the now failed IndyMac Bank in Pasadena, CA
The headquarters of IndyMac Bank in Pasadena, CA
Posts
The only thing California has left is nice weather.
ReplyDeleteBeats a hurricane wrecking a few tens or hundreds of thousands of homes.
ReplyDeleteAsphalt shingles, tyvek, vinyl siding, wood chips and glue, that won't come from the petrochemical industries near Houston for a while.
Gasoline too. 20% of the refinery capacity is off-line, what will people do for gas?
No wait, there's the metro.
The Mortgage Bankers Association (MBA) database, which allows rigorous apples-to-apples comparisons, only goes back to 1979. It shows that today's delinquency rate is only a little higher than the level seen in 1985. As to the foreclosure rate, it was setting records for the day -- the highest since the Great Depression, one supposes -- in 1999, at the peak of the Clinton-era prosperity that Obama celebrated in his acceptance speech at the Democratic National Convention late last month. I don't recall hearing any Democratic politicians complaining back then.
ReplyDeleteEven if Obama is right that the foreclosure rate is the worst since the Great Depression, it's spurious to evoke memories of that great national calamity when talking about today -- it's akin to equating a sore throat with stomach cancer. According to the MBA, 6.4 percent of mortgages are delinquent to some extent, and 2.75 percent are in foreclosure. During the Great Depression, according to Wheelock's research, more than 50 percent of home loans were in default.
Moreover, MBA data show that today's foreclosures are concentrated in that small fraction of U.S. homes financed by subprime mortgages. Such homes make up only 12 percent of all mortgages, yet account for 52 percent of foreclosures. This suggests that today's mortgage difficulties are probably a side effect of the otherwise happy fact that, over the past several years, millions of Americans of modest means have come to own their own homes for the first time.
www.washingtonpost.com/wp-dyn/content/article/2008/09/12/AR2008091202415.html?hpid=opinionsbox1
A previous posts by Lance concerning foreclosures-
ReplyDeleteThere 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.
July 07, 2006 4:03 AM
As far as "ARM owners actually defaulting on their loans", we get this from Bloomberg's archives-
Bloomberg is reporting Fannie Mae, Battling Losses, to End Alt-A Mortgages.
Fannie Mae, the largest U.S. mortgage- finance company, will stop buying or guaranteeing Alt-A home loans, such as those that require little or no documentation of borrower incomes or assets, by yearend.
The company announced the changes when reporting its fourth straight quarterly loss today. The second-quarter net loss of $2.3 billion, or $2.54 a share, included $5.3 billion in credit- related expenses.
"Over 60 percent of our losses have come from a small number of products, but especially Alt-A loans," or ones considered between prime and subprime in terms of expected defaults, the Washington-based company said in a statement.
BHloomberg's site doesn't bring up the story but you can find it here-
http://tinyurl.com/67jt7t
Sorry Lance, you may be addicted to the housing kool-aid but that doesn't mean the rest of us have to swallow it.
Anonymous said...
ReplyDeleteSorry Lance, you may be addicted to the housing kool-aid but that doesn't mean the rest of us have to swallow it.
What Lance fails to understand, is that so few foreclosures have brought massive problems. Even with the fall of Freddie/Fannie, Lance and other HH’s can not extrapolate the information.
We have banks/lenders announcing write offs in the billions, and then just a few days latter, those same banks/lenders announce “sorry, add another couple of billion to that”.
What the hell happened in those few days to add a few billion to your write off? Truth is, these banks/lenders and HH’s just don’t have a clue as to the extent of the problem nor when the turn around may occur.
So if 2.75% of homes are in foreclosure and we see these types of failures….what if it were 2.8%?
"So if 2.75% of homes are in foreclosure and we see these types of failures….what if it were 2.8%?"
ReplyDeleteWhat about the tens or hundreds of thousands of damaged or destroyed houses in Texas and Louisianna?
Isn't there a "substitution effect" that will increase the demand for the few remaining available houses?
Then there's the inflation in the cost building materials, roofing tar, etc. That drives up the price of new and old construction.
The other "perfect storm", the one in the financial sector, may make it harder to finance new construction. Fewer condo's and housing developments in the pipeline raises the value of existing housing stock.
An additional factor, many BH's are seeing their down payments evaporate with the problems on Wall Street, even gold and silver are way down.
The higher prices for gasoline should continue to hammer the value of places way out there.
That leaves close-in, quality, existing homes for people to bid on.
Didn't someone suggest that people should buy while they could, that's if they were planning on staying in one place for 5 years?
Lance said.... "Go to a neighborhood, any neighborhood, ... or to a condo building, any condo building ... And compare side by side the homes that are owned to those that are not ... and observe the vast differences between the two ... both in how well kept up ... AND the difference with the way the occupants act. Homeownership brings responsibility with it. It brings about the kind of people that a country wants to see."
ReplyDeleteWhat kind of "people" are you talking about... People who look like you. Perhaps you should post on the whites only bubble blog.
Anon 4:58 ... it sounds like you didn't understand what I was saying. Many of the bubbleheads posting here are saying that some people don't deserve to have a mortgage ... That if they can't come up with 20% down, then they shouldn't be buying in the first place. I am saying the opposite. If anyone is being racist, it isn't me.
ReplyDeleteLance said...
ReplyDeleteAnon 4:58 ... it sounds like you didn't understand what I was saying. Many of the bubbleheads posting here are saying that some people don't deserve to have a mortgage ... That if they can't come up with 20% down, then they shouldn't be buying in the first place. I am saying the opposite. If anyone is being racist, it isn't me.
Incorrect Lance.
What BHs have been saying is that:
http://tinyurl.com/6pfbyn
Robert, I think the last paragraph of the transcript you pointed to says it all:
ReplyDelete"Anyone under, say, 45 probably doesn't remember that 1970's malaise too well.
Anyone under 30 has barely known a US economy that wasn't growing. Now there's
a decent chance we'll all get to see what life felt like in the '70s. Which isn't great.
It's pretty bad, actually. Unless you're comparing it to the 1930’s."
Kids who think the last 30s years were "average" can't understand that they weren't. They were the upside of a mid-term cycle. The fact that we actually went 30s years without this downturn is really quite remarkable ... actually, it's unprecedented. And the fact that this downturn has brought so little pain with it when compared to past downturns ... Over the scheme of things, the economy is doing better overall than anyone could have ever hoped!
Of course, there will always be pessimists who can't understand that cycles are part and parcel of the economy ... and can only focus on the bad part ... conveniently overlooking the big picture ...
... and to their own detriment forgetting that this too shall pass.
ReplyDelete... and from one who lived in the 70s, I don't think they really were that bad unless of course one is materially-focused. Some of the best culture of the 20th century (songs, movies, architecture, fashion) came out of the 70s ... as any Gen Yer with long hair, wide-belt, and flared jeans will tell you. Actually, blue-jeans themselves came out as a fashion item in the 70s. (They'd been only a work wear item prior to then.)
ReplyDeleteSo, no, it wasn't all bad in the '70s. In many ways I'd say the 70s were far better than the prosperous 80s which followed.
"Central banks pumped tens of billions of dollars into the global financial system on Tuesday in an effort to ensure that banks and financial firms have adequate cash to operate through the current crisis, while global stocks continued falling in the wake of Wall Street's weekend shakeup."
ReplyDeletewww.washingtonpost.com/wp-dyn/content/article/2008/09/16/AR2008091600604.html?hpid=topnews
hmmm ... Now won't this lead to more inflation? (I.e., devaluation of the currency.) And doesn't that mean that those who went and took out that mortgage several years ago will be paying back that mortgage with devalued (i.e., "easier to get") dollars? hmmm ... Sounds like people who locked in while mortgage money was still available weren't that stupid after all.
"Sounds like people who locked in while mortgage money was still available weren't that stupid after all."
ReplyDeleteYes, and global stocks are falling, so there goes the old down payment.
"Now won't this lead to more inflation? (I.e., devaluation of the currency.) And doesn't that mean that those who went and took out that mortgage several years ago will be paying back that mortgage with devalued (i.e., "easier to get") dollars?"
ReplyDeleteAnd won't this inflation cause the costs of owning a house to go up?
(Heat, water, electricity, insurance, property taxes, repairs to the roof, hot water heater,etc.)
Won't this also increase the number of walkaways by those who could barely afford the mortgage in the first place?
It is never just the mortgage payment that should be considered when buying a house, it is all of the little non-deductable expenses that need to be considered in the house buying equation before money is borrowed and the deal is signed.
Unfortunately many are learning this the hard way, AFTER the mortgage was signed.
Footnote: Anyone who feels the need to post three times in less than a half hour to defend their position should double check to see if their position can really be defended.
"And won't this inflation cause the costs of owning a house to go up?
ReplyDelete(Heat, water, electricity, insurance, property taxes, repairs to the roof, hot water heater,etc.)"
Not relevant. These costs will go up whether you own or rent. You'd don't really think your landlord is just going to absorb these costs when inflation pushes them up, do you? There's a reason rents are going up.
Lance said...
ReplyDeleteRobert, I think the last paragraph of the transcript you pointed to says it all:
Not quite. If you only read the last paragraph, you missed:
Let me just say, they’re aware that there’s a certain irony, giving awards to the instrument that almost destroyed the world’s economy. They did consider canceling this year but it’s been a really tough year, it’s been really gloomy
for them….....
…When he came back from Iraq a few years ago he bought one of these fancy new mortgages with an adjustable rate. Recently his rate reset. It’s gone up by more than $2,000 a month and he’s fallen behind on his payments.
He worked 3 part time, not very steady jobs, and made a total of roughly 45 thousand dollars a year roughly. He got himself into trouble and needed money, so he took out a loan against his house. A big one.
Clarence Nathan: Call it 540 for round figures
Alex Blumberg: And you basically borrowed that from the bank and they didn’t check your income?
Clarence Nathan: Right. It’s a no-income verification loan. They don't do that. It's almost like you pass a guy in the street and say: lend me 540,000 dollars? He says, what do you do? Hey, I got a job. OK. It seems that casual even though there are a lot of papers that get filled out and stuff flies all over….
….Adam Davidson:An interesting fact,here. Mike Garner's bank did not care how risky these mortgages were. This was the new era: banks didn't have to hold on to these mortgages for 30 years. They didn’t have to wait and see if they’d be paid back. Bank's like Garner's just owned them for a month or two and then sold them
on to Wall Street. Wall Street would sell them on to the global pool of money.
Alex Blumberg: Which is how we get half-million dollar, no income, no asset loans….
…Adam Davidson: As we now know, they were using the wrong data. They looked at the recent history of mortgages and saw that foreclosure rate is generally below 2 percent. So they figured, absolute worst-case scenario, the foreclosure rate may go to 8 or 10 or 12 percent. But the problem with is there were all these new kinds of mortgages, given out to people who never would have gotten them before. So the historical data was irrelevant. Some mortgage pools, today, are expected to go
beyond 50 percent foreclosure rates……
…Alex Blumberg: From 2003 to 2006, the housing market was in a classic
speculative bubble…..
…Alex Blumberg: The problem was that even though housing prices were going through the roof, people weren't making any more money. From 2000 to 2007, the
median household income stayed flat. And so the more prices rose, the more tenuous the whole thing became. No matter how lax lending standards got, no
matter how many exotic mortgage products were created to shoehorn people into homes they couldn't possibly afford, no matter what the mortgage machine tried, the people just couldn't swing it. By late 2006, the average home cost nearly four times
what the average family made. Historically it was between two and three times….
…Alex Blumberg: In other words, they could take out another loan from the bank, against the value of their house, which because of the bubble, was now worth more
than they bought it for. These loans, called home equity lines of credit, became very popular in the early to mid 2000's. Partly because they were easy to get. But partly because people needed them to continue making their original mortgage payments.
To pay off their debts, they went into more debt….
….Adam Davidson: Not to say the original broker didn't have a process. It just had nothing to do with reality. Kerry shows Richard the original loan documents, filled out by his broker.
Kerry Campbell: Here it's saying your base employment income is 16,250 a month.
Richard Campbell: Laughs. Wha?!
Kerry Campbell: That means your salary, on a yearly basis, would be
$195,000 to be exact.
Richard Campbell: I wish. In 2005, right, and they used my 2005 taxes, I was making $37,000 that year….
….Adam Davidson: Another thing the papers reveal: How much that creative broker made. $18,500 dollars. As Kerry says, that's 18,000 reasons to falsify Richard's
mortgage documents and to put him in a house he can't afford….
Lance said...
ReplyDelete... and from one who lived in the 70s, I don't think they really were that bad unless of course one is materially-focused. Some of the best culture of the 20th century (songs, movies, architecture, fashion) came out of the 70s ... as any Gen Yer with long hair, wide-belt, and flared jeans will tell you. Actually, blue-jeans themselves came out as a fashion item in the 70s. (They'd been only a work wear item prior to then.)
Superb economical insight Lance. How would you quantify that? Long Hair=economic growth? Flared jeans=more jobs?
Lance said...
ReplyDelete"And won't this inflation cause the costs of owning a house to go up?
(Heat, water, electricity, insurance, property taxes, repairs to the roof, hot water heater,etc.)"
Not relevant. These costs will go up whether you own or rent. You'd don't really think your landlord is just going to absorb these costs when inflation pushes them up, do you? There's a reason rents are going up.
Inflation not relevant…..sure Lance. Tell that to someone that’s had an ARM re-set. My rent has yet to go up. As a matter of fact, my housing cost have gone down (rental prices and terms are negotiable ya know). Compare that to someone that has to face an increase in mortgage payments and inflation.
But yes, some rents are going up. Just not at the rate that housing has. And with more homes on the market for rent, if the landlord does not absorb the cost, he simply can not compete with other homes on the rental market.