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« August 2006 | | October 2006 » September 28, 2006 Mortgage & Loan: Focused Like A Lazear
White House economic The upshot? I'll quote it in its entirety: A soft spot in the economy is the housing market. We are now experiencing an So this, then, would explain the continually gloomy outlook that's affecting our entire GDP? Or that mortgage rates are dropping faster and faster to compensate? Calculated Risk has a great set of charts and graphs illustrating the likelihood of a recession and the potential job losses that could result. It really IS the economy, stupid, and tools like Lazear need to pay attention, lest they be blinded by the light. Posted at 06:03 PM | TrackBack September 27, 2006 Credit & Debt: Homeowners Feeling The Pinch
The bottom continues to drop out of home sales in bellwether bubble markets such as Boston, and even though the realtors are desperately claiming that prices will drop no farther, I have no doubt we'll be seeing more price-shaving throughout the fall. This much is evident by the slackening demand for home loans, even with the lower interest rates. Now, mind you, if you believe the Commerce Department, things are hunky-dory and new home sales are jumping. But who's really listening to them at this point anyway? The simple truth is that homeowners are maxed out. Too many HELOCs and loans, too many credit cards with high balances, too-high gas prices, and soaring health care costs are all contributing to the weakening home loan demand. We may see some slacking next quarter as the gas prices fall, but then what'll be happening in the dead of winter? There need to be some serious price reductions and more cuts in gas prices to keep the housing market from flattening out like a double mastectomy by those guys from "Nip/Tuck." Anything less is just delaying the inevitable. Posted at 03:33 PM | TrackBack Mortgage & Loan: A Case Of The Stupids
I mentioned a few months back that it was important to maintain compassion for screwed homeowners and get them help from their toxic mortgages, rather than dismiss them out of hand. I still believe that. But then I read posts like this one that David found and even my patience is tested. What kind of mentality thinks it's smart to let yourself get foreclosed on just to avoid crime in your neighborhood? Not to mention the awful specter of people "fornicating." (Does anyone even use that word anymore?) Thankfully, another poster on the foreclosure board has the right of it: Jay, Foreclosure has a huge impact on credit. If you stop paying on the note, your credit report will reflect 30, 60, 90 day lates on your home loan which often will result in higher rates for any credit card debt you may carry, and an increased cost for new financing. If you exercised your last resort, you'd pay less in financing for the new property if you did it before any default on your existing loan. I'm pretty sure that CO allows the lender to seek a deficiency judgment if they suffer a loss due to the foreclosure. A lender often wouldn't seek a deficiency if the borrower doesn't have the assets to pay it, but if you have the income and assets, you should be aware that there could be longer term repercussions. Buying a home is not a lark or something you do on a weekend. It's the most important financial decision most Americans will ever make. That means sussing out every possibility, every eventuality, and planning for any one of a million problems that may never occur. It doesn't mean adding to the looming tsunami of foreclosures because you were dumb and bought in a crappy neighborhood which was being fleeced by a shady developer. Posted at 12:54 PM | TrackBack September 25, 2006 Buying And Selling: Latest NAR Numbers...
The Realtors are back with their latest home sales stats, and things continue to decelerate in an orderly fashion: The slowdown in sales was weighing on home prices, with the median price of an existing home sold in August dropping to $225,000, 1.7 percent below August 2005. It marked the first year-over-year price decline in more than 11 years.The weakness in existing home sales followed a report last week that construction of new homes and apartments plunged by 6 percent in August, pushing building activity to the lowest level since early 2003. Of course, Lereah says he was expecting it, and David Lereah Watch remains vigilant in calling him on his bullshucks. It never fails to astonish how reputable news organizations use Lereah as the sole source of expertise for real estate and housing issues and repeat what he says without any context or criticism. Then again, I suppose time wasted criticizing The Lereah is time better spent using 7 highly effective bargain tricks for home buying. How cool is it that they mention "going FSBO" right off the bat? Sometimes the truth just speaks for itself. Oh, and welcome to the lovely Delilah Boyd of DC Housing Bubble Blues, a chronicler of the sagging real estate fortunes of our nation's capital. Maybe she can get her clippers out and give The Lereah a buzz... Posted at 04:36 PM | TrackBack September 24, 2006 Hurricane Housing: Rita Amnesia
Today marks the one-year anniversary of "the forgotten hurricane," one which wreaked nearly as much damage as her big sister Katrina, and further crippled the Gulf Coast and much of Texas economically and socially. Much like Katrina, the post-Rita cleanup is proceeding faster in some places than others, and there's a great amount of politics and grandstanding involved in the recovery and rebuilding efforts. Many people are understandably angry over what they see as "Rita amnesia," that the damage and destruction from Rita have been overlooked in the political and media focus on Katrina. There is a lot of progress in the recovery, but it's slow and maddening. To me, it doesn't matter which hurricane did what to who. These people are Americans, and it's a crime that our fellow Americans are still suffering under the yoke of the damage wrought a year ago. We should--we must--do better. These people deserve more than to be cast aside as forgotten, and help for them is needed, no matter if it's Katrina or Rita on the check: Overall, Boustany said, the recovery is proceeding well, and local leadership and planning have played a key role in that progress. He said he believes people need to continue to fight “Rita amnesia” as recovery continues. “The further you get from an event, the more people tend to forget about what happened,” Boustany said. Indeed. Posted at 08:27 PM | TrackBack September 23, 2006 Midwest May See a Sharper Slowdown From the WSJ (subsription required) By Lingling Wei Homeowners in the Midwest -- the nation's industrial heartland -- are starting to see a housing bust without ever experiencing a housing boom as more job losses trigger mortgage delinquencies and foreclosures. Continue reading 'Midwest May See a Sharper Slowdown' Posted at 12:41 AM | TrackBack September 20, 2006 Fed Leaves Key Interest Rate Unchanged From the New York Times: The Federal Reserve left its interest rates unchanged this afternoon, betting once again that inflation will remain contained as the economy cools. Continue reading "Fed Leaves Key Interest Rate Unchanged" Posted at 06:57 PM | TrackBack Fed Watch: The Pause That Refreshes
Another Federal Reserve meeting has come and gone, and the federal funds rate holds steady at 5.25 percent: The moderation in economic growth appears to be continuing, partly reflecting a cooling of the housing market. Readings on core inflation have been elevated, and the high levels of resource utilization and of the prices of energy and other commodities have the potential to sustain inflation pressures. However, inflation pressures seem likely to moderate over time, reflecting reduced impetus from energy prices, contained inflation expectations, and the cumulative effects of monetary policy actions and other factors restraining aggregate demand. Nonetheless, the Committee judges that some inflation risks remain. .... What's most freaky about this terse statement is how it is a nearly verbatim replay of what happened last month, right down to Jeffrey Lacker's insistence that "inflation-fighting credibility" is more important than, y'know, sound economic policy. The man lives up to his name. More coverage from AP via Yahoo, emphasizing the softness of the housing market and its potential to cause future hikes. For more of a Lacker-esque viewpoint, peep this Reuters article on the horrors a surprise rate hike would wreak on that all-important Fed credibility. Posted at 04:29 PM | TrackBack September 19, 2006 Mortgage & Loan: Precipice
On the eve of the next Federal Reserve meeting which will determine the next move for interest rates, the Fed has released its quarterly "Flow of Funds" report, and the news isn't good: WASHINGTON (MarketWatch) -- The net worth of U.S. households increased 0.1% in the second quarter to $53.3 trillion, the slowest gain in nearly four years, the Federal Reserve said Tuesday in its quarterly flow of funds report....Household net worth dipped to 5.60 times disposable income from 5.67 times in the first quarter. Owners' equity in their real estate fell to a record low 54.1% of market value from 54.4% in the first quarter and nearly 58% in 2000....Consumer credit, such as credit cards, increased at a 6.6% rate in the second quarter, the fastest in four years. It sounds very much like homeowners who are totally maxed out on equity loans are turning back to plastic in order to continue financing their lifestyles and buying necessities. And this comes on top of the news that new home construction is coming off the Viagra faster than at any time in the last four years. Mish offers a particularly bleak doomsday scenario for what may come next. At this point, I just don't know. We're in uncharted tterritory here, as this bubble cycle mimics previous bubbles, but is stretched far beyond anyone's capability to reasonably predict. Will the "bubblepocalypse" crew see their prophecies come true via a crash landing? I hope not, but it's leaning that way. But just as the "bubble fever" faction ("Prices only go up! They aren't making any more land!") was proven totally wrong by the severity and scope of our overextended housing market, the "bubblepocalypse" faction may be wrong as well. Patrick notes that things could go either way. Ideally, what I want is for prices to drop to reasonable enough levels that people can start buying again. I want to see tighter restrictions on credit and financing, and ABSOLUTELY more education on loan options for people that want to buy. This bubble was built on predatory loans, no-document verification, and shady work by the realtors to keep transactions moving. Oh, and no more interest rate hikes! Will I get what I want? Will any of us? We shall see, dear reader.... Posted at 04:52 PM | TrackBack September 18, 2006 Renting: Slicing Up The Rental Pie
GigaOM mentioned the latest in rental search hotness, MyNewPlace, and correctly notes who their target market might be: MyNewSpace is not for cities like San Francisco or New York, where Craigslist is king and rent control limits apartment turnover. Helm says his target user is a recent college grad moving to Atlanta to take a job at Coke who wants to post photos of her new apartment on her MySpace. I'm sure the naming of the site is anything but coincidental. :) Utilities like this are going to serve young upwardly mobile types who are suddenly realizing the seriously fuXX0red condition of the housing market, as well as recent college grads with lots of debt and not much concern for settling down in the near future. Plus, although free listing sites can vary wildly in quality, they can often be more honest and up-to-the-minute than any for-pay service (Present company included, of course). So for sites like MyNewSpace and Zillow to succeed, they have to offer even more value than free sites to justify the costs. If their base system--accurate listings--isn't up to snuff, what's the point? :) Posted at 01:38 PM | TrackBack September 14, 2006 Credit & Debt: The Global Bubble
When no less an authority than the International Monetary Fund weighs in on the U.S. housing bubble, you know things are going to shit: Still, the IMF warned that inflationary pressures, high oil prices and a possible abrupt slowdown in the U.S. economy could restrain global growth. "This strong central forecast is surrounded by more uncertainty than usual, with risks tilted to the downside," Rajan said. "The forecasted (U.S.) housing slowdown is well and truly here," he said. "Indeed, rising inventories of unsold houses suggest things will get worse before they get better." Last month, the I disagree with the IMF's assertion that another rate hike is needed. As I have said many times before, what the people need are higher wages and better social safety cushions so that they don't max out their entire savings and credit just for basic needs. Better financial education wouldn't suck either. If the Fed raises rates again, we might very well reach the proverbial tipping point and go over the edge into recession. The news of increased foreclosures should be more than enough reason to tilt the balance away from overleveraged consumers as it is. This is also a pointed reminder of how central we are to the world economy, and how mistakes we make will have repercussions far beyond our shores. Americans are notoriously myopic about the world outside our window, and we can harm other nations with debt burdens just as badly as we can with bullets and bombs. Posted at 02:20 PM | TrackBack September 13, 2006 Mortgage & Loan: Testify!
Today the Senate Banking Committee heard testimony from "leading economists" as to the economic ramifications of the housing bubble. The speakers included Patrick Lawler of the OFHEO: Other market indicators confirm the general chilling of housing markets across the nation. Particularly noteworthy is the swelling inventory of unsold houses on the market, which has risen to 4.5 million from levels generally below 3 million in 2003 and 2004. As sales rates have fallen at the same time, inventories are now more than 7 times monthly sales, the highest since the early 1990s. Also included was Richard Brown of the FDIC: According to the Federal Housing Finance Board, over 30 percent of all conventional mortgages closed in 2004 and 2005 were ARMs. The ARM share moderated to 25 percent by the second quarter of 2006. The percentage of ARMs among subprime mortgages is higher. Within subprime mortgage backed securities, the share of ARMs was far higher, close to 80 percent.5 The prevalence of subprime loans among all mortgage originations doubled from 9 percent in 2003 to 19 percent in 2004.6 The NAR's Tom Stevens actually comes correct with some of the most honest statements about the market I've heard from the realtor side of things in a while: Many homebuyers in coastal markets have resorted to more exotic mortgages. Due to very high home prices, interest-only, adjustable rate, and/or option-ARMS became the only way to enter the housing market for some homebuyers. In essence, the homebuyers in the coastal markets are at their financial capacity. With rising mortgage rates, homebuyers are becoming exhausted financially, which explains why sales have tumbled in high priced regions of the country. The general consensus is, of course, that there will be an orderly price decline and the market will flatten at reasonable levels. I consider it an achievement that we even got this far, though I'm shocked--SHOCKED--that they didn't include anyone from the blogger spectrum, any consumer advocates, or any reporters that've been covering this thing since it was first noticed. I'm also not surprised that they didn't get David Lereah to testify. It was under oath, no doubt, which naturally would force him to invoke his right to prevent self-incrimination. ;) Posted at 04:41 PM | TrackBack September 12, 2006 Buying And Selling: Tight Squeeze
An insider source in the real estate market sent me an Internet recently saying that their brokerage--based in D.C.--was seeing fewer units on the market and higher sales in August, indicating that they may have hit bottom, and there might be stabilization at current prices in the future. What was particularly interesting was that the "soft" markets listed were in formerly hot areas such as Loudon County, Virginia (recently given the duke as the richest county in America), and that the signs of growth were in neighboring areas such as Fairfax and Arlington Counties, which are still suffering bad cases of condo glut, so I've got a hard time reconciling the idea of a tighter market with all of those ugly developments under construction on practically every open plot of land in the Metro D.C. area. D.C., in particular is tough to use as a bellwether for real estate development, because the influx of government money and contracts drenched in filthy lucre will ensure the region is insulated from the worst of the bubble burst's repercussions. Still, I'll keep my eyes peeled and document the atrocities as they occur. Posted at 01:46 PM | TrackBack September 10, 2006 Mortgage & Loan: Mortgage Fraud Turns Violent If you want a perfect example of how dangerous the housing market can really be, check out the story of John Mattes, the Fox News reporter who caught a beatdown from shady (and apparently no longer licensed) "real estate broker" Assan Sulemain. It's even got identity theft for the win! Here's the video itself, courtesy of YouTube. WARNING: THIS VIDEO CONTAINS GRAPHIC VIOLENCE, CURSING, AND LOTS OF RAMPANT STUPIDITY. IF ANY OF THIS OFFENDS YOU, DO NOT CLICK "PLAY." The only thing more offensive than the idea that those two chuckleheads thinking they could defraud homeowners out of millions, beat a reporter down on camera, and get away with it, are some of the idiot comments in the YouTube thread. H.L. Mencken is spinning in his grave. Can't wait to hear what the San Diego-area bubble bloggers have to say about this.... Posted at 03:31 PM | TrackBack September 07, 2006 Mortgage & Loan: ARMs--The Final Option
Bankrate, in its usual evenhanded fashion, has a great article explaining the ins and outs of that most deadly of mortgage instruments, the option adjustable-rate mortgage (ARM). Of particular note is when the author explains exactly who ARMs are designed for and why: Lots of people are fine candidates for option ARMs. The loans are well-suited for people whose incomes vary from month to month (think small-business owners and salespeople on commission) and people who get a big chunk of their income via bonuses (your boss's boss's boss, investment bankers and sundry corporate chieftains). Ohlbaum says he has a client who gets half his income from an annual bonus. He pays the minimum amount most of the year, and then pays back all the negative amortization with one huge payment. "It makes perfect sense for the right guy, and he's the right guy," Ohlbaum says. And if you're like that guy, an option ARM probably won't hurt you. In other words, ARMs are designed for high-income homebuyers, the sales/commission market (which includes realtors), and basically any sort of employment where you can expect large chunks of extra income in lump sums. NOT the average salaried worker or working family. Yet this is who ARMs have been marketed to in incredible numbers, with predictably tragic results: Some mortgage industry experts estimate that as much as one-half trillion dollars’ worth of adjustable rate mortgage loans (ARMs) are scheduled to reset this year, the Washington Post reports....While lenders claim that borrowers understand the features of these loans, and that they are restricted to borrowers with good credit histories and solid down payments, the Washington Post says, Standard & Poor’s warned last year that disturbing numbers of minimum payment loans were given to borrowers with low credit scores...Cindy Manzettie, chief credit officer for Fifth Third Bank in Cincinnati, said in a letter to regulators last spring, that it’s not the “lender’s responsibility to help the consumer determine the appropriate payment option each month. . . . Paternalistic regulations that underestimate the intelligence of the American public do not work.” Of course not, especially when lenders who have overestimated the American public's financial savvy can earn such a tidy profit from it. Disgusting and criminal. Posted at 02:56 PM | TrackBack September 05, 2006 Buying & Selling: Slow Down
The Office of Federal Housing Enterprise Oversight released its 2nd-quarter Home Price Index Report, and the news is...interesting, to say the least. Among the findings: U.S. home prices continued to rise in the second quarter of this year but the Price appreciation remains relatively robust in the two states hardest hit by Hurricane Katrina And so on. The report gauges highest price appreciation in Arizona (aka Bubble Market Central), and precipitous decreases in the Mid-Atlantic, heavy decreases in Michigan, and jumps in the Carolinas. All of this makes sense when you look back over the news of the past year. Real estate is going cheap in the Gulf Coast for specuvestors, commercial developers, and business. Michigan's economy is in the toilet. The Carolinas are still the tourist destination of choice for overprivileged East Coasters, even though their overall economic health sucks too. :) One overall point the report makes is that not only are areas with recently high appreciation rates suffering a sudden sharp deceleration, but that they've been suffering a continual slow deceleration since Spring 2005. I'll let the report take it from here: In many states, price appreciation rates have declined rather dramatically. Higher interest Looks like this bustout is going to be anything but soft, orderly, or moderated. More coverage from Reuters, MarketWatch, and The Business Journal. Posted at 07:52 PM | TrackBack September 04, 2006 Credit & Debt: The Housing-Identity Theft Connection, Part II
Back in June I blogged on the topic of the easy homebuying market resulting in a potential bonanza for identity theft. The combination of instantly available credit, no-document loans with little verification, and the cottage industry for stolen SSNs, credit card numbers, and so on, makes for a veritable bitches' brew of data disasters. Today the Register has a chilling article on how easy it is to get your home sold out from under you, thanks to the proliferation of public information available today: Local widow Susan Lawrence faces the loss of a home she's lived in for 30 years after crooks used publically available information to pose as her and sell her home out from under her feet. In another case, an actress lost her home to ID thieves who sold her property to an accomplice, who disappeared after securing a bogus $250,000 mortgage in her name. ® Keep control of your information at all times. Don't give anything out over the phone without verifying who you're talking to. Never give out your Social Security number to anyone but government agencies (and sometimes not even then). Monitor your credit reports and bank accounts regularly for signs of fraud or unusual purchases. So on and so on. Identity theft can be as minimal as reversing a fradulent charge of a few hundred dollars on your Visa Platinum, or it can be as devastating as having your entire life ruined and your property stolen from under you. The only antidote is vigilance and information. ADDENDUM: Proving that great minds and gray ladies think alike, here's an excellent (if depressing) overview of the SSN-based ID theft crisis from the New York Times. Well worth the read.) (Image courtesy of Defensology.) Posted at 02:31 PM | TrackBack September 03, 2006 Buying And Selling: The Six Percent Nation Today's New York Times has a fantastic overview of the changing face of the real estate transaction, as homebuyers are using Web-based brokers to challenge the realtor establishment (Login required): “You can find out more on the Internet about an eBay Beanie Baby than you can about a $1 million house,” said Glenn Kelman, chief executive of Redfin, a licensed broker in Washington State and California....the typical 6 percent commission, paid out of the seller’s proceeds and split between the seller’s and buyer’s agents, is under attack because, as economists note, it does not serve consumers well. Economists who have studied the current system say that it also does little for most agents — except for a few stars, whose impressive earnings give hope to the large majority of less-successful agents and thus encourage them to protect the status quo. Rivals on the Internet say they do this by refusing to cooperate with buyers using Web-based brokers and by denying M.L.S. information to some online firms.... Some economists wonder why agents fight so hard to maintain this pricing system when it is making so few of them rich. In every housing boom, the number of new agents entering the market tracks the climb in home prices. As a result, the average agent sells far fewer homes and makes less money. On average, agents earn $49,300 a year, according to the National Association of Realtors, and that is before paying for their own health insurance and retirement benefits. The sales/commission model is an outdated, archaic system that relies on the pressure to compete and close deals to make money, rather than focus on providing the customer to the best service. It's what drives brokers and agents to unscrupulous tactics, and pushes homebuyers and sellers into the welcoming arms of Internet brokers. The article quotes "Freaknomics" co-author Steven Leavitt, who has tussled with the NAR and its bizarre, cost-ineffective pyramid scheme a time or two. Recently his partner Stephen Dubner opined on the oversaturation of realtors in specific markets. That's another thing that doesn't make sense--realtors manifest in huge droves in hot markets, without realizing that, just like home supply and inventory, too much of a good thing reduces price and value for all. Posted at 04:12 PM | TrackBack Go back |
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