Housing: 2007 Thread.

[LegendKiller]

Originally posted by: GoPackGo
The FED is going to HAVE TO drop rates or this will only get worse.

The Fed's position over the last 20+ years is that they do *NOT* manage the economy through rates. They manage inflation through rates. The economy can take care of itself.

 

[dullard]

Originally posted by: tallest1
If I may, I have a question about my housing situation:

I am seeing the prices on homes going down around me but assuming I don't sell anytime soon, would the housing bust affect me too?

To answer that question, we need to know your plans. You will probably do one of the following:
1) Live in that house for so many years that the short to medium term fluctuations are meaningless.
2) Sell that house and move to a rented dwelling (an apartment or equivalent).
3) Sell that house and move to a cheaper house.
4) Sell that house and move to a more expensive house.

The most likely situation for most people is #4. But, you may not follow the normal trends.

In case #1, the housing gain/bust/gain/bust cycles are not important. You'll ride them out. Thus, it will not affect you in any major way. If I recall correctly, Florida doesn't have much (if any) property tax, thus you won't even be affected that way.

In case #2, the housing bust could harm you. If you turned around and sold that house for 10% less ($106k), then you are out $11,800 + interest + all the DIY money you spent on that home. In exchange, you got a home you like and fun doing those DIY projects. The house was a financial bad move, but you got other intangeable benefits from it.

In case #3, lets suppose you are interested in a house that is $100k now. If you swapped now, you'd sell for $118k and buy for $100k. You'd have a net gain of $18k in cash (but you have a cheaper house so it balances). Suppose both houses drop 10%. Your house is then $106k and the new house you want is $90k. If you did the swap then, you'd get a net gain of only $16k. So the housing drop of 10% only harmed you a miniscule $2000.

In case #4, lets suppose you are interested in a house that is $200k now. If you swapped now, you'd need to come up with another $82k. But suppose both houses drop 10%. Your house is then $106k and the new house you want is $180k. If you swap then, you'd need to only come up with $74k. The housing bust GAINED you $82k-$74k = $8000.

Conclusion:
You (1) Were unaffected, (2) Lost $12,000, (3) Lost $2,000, or (4) Gained $8,000. A housing bust doesn't necesarilly harm you at all. Too many people only look at one side of that picture (the value of their current home) and forget the other side (the value of the next home).

 

[BarneyFife]

Originally posted by: tallest1
If I may, I have a question about my housing situation:

Right now, I live alone in a 3/1 1010sq ft. House in a Florida college town (slower depreciation than neighboring towns). I bought the house for $118k and I pay $930 a month (80/10/10 30-year fixed), $780 if I can pay off the $14k second mortgage.

The house itself is very old but not crappy at all and I constantly do DIY work on it. The price inflation on this home is worlds apart from what they have in California and a higher paying job (and renting out a room) would make mortgage payments a piece of cake.

I am seeing the prices on homes going down around me but assuming I don't sell anytime soon, would the housing bust affect me too?

Edit: Lemme rephrase: how would it affect me, aside from not being able to sell the home above cost?

I am not an expert but pricing on starter homes has held pretty firm. Its the more expensive homes $250k and up that are feeling the hurt.

 

[Trianon]

As rates soar, 2.2 million Americans risk losing homes this year
by Virginie Montet Wed Mar 14, 9:31 AM ET

WASHINGTON (AFP) - In the heady days of the US real estate boom, it seemed like a safe bet to use her house as collateral for a loan. Today, Sharon Edwardsen risks losing her Staten Island, New York home, trapped by spiraling payments.

Edwardsen, a 47-year-old assistant optician, was tempted to take out a special high-risk loan targeted at people with low credit ratings. Today her monthly repayments have soared to 2,800 dollars, yet she only takes home 1,600 dollars.

She is among 2.2 million people across the US who risk forfeiting their homes by the end of the year as they struggle to meet monthly repayments swollen by rising interest rates, and triggering fears that a financial crisis could sweep US lenders.

"I'm panicking every day. I'm not sleeping because I'm worrying. This house has been in my family forever and I don't want to lose it. But I can't make the payments they are asking me for," she told AFP.

In 2005 these so-called subprime mortgages, offering a short-termed fixed interest rate which then converts into a variable rate of about 12 percent, accounted for some 20 percent of all US mortgage deals.

As the real estate market boomed, they enabled some of the country's poorest citizens to get a toehold on the property ladder. Some of the loans dubbed "ninas" for "no income, no assets," were seen as an innovative way for people to realize the dream of owning their own home.

But now as interest rates rise, one in five borrowers of these high-risk exotic loans is set to default and see their homes seized by creditors.

"People don't understand that the loan is going to go up after two years," said Eric Halperin, director of the Washington office of the Center for Responsible Lending.

"In many of these cases, the lender lends money without regard to whether they (the borrower) will be able to repay the loan."

During the boom years, when the repayments got too high, home owners could even refinance their loans borrowing against the increased value of their house.

That's exactly what Edwardsen did, remortgaging her home three times between 2002 and 2006.

Each time she got into difficulties, her mortgage broker would offer a new deal. From an original loan of 103,000 dollars, she now owes the credit company some 285,000 dollars even though her monthly income has remained the same.

"They took advantage of the fact that I was so desperate that I needed it. I told her (the broker) I had trouble with it. So she said in three months 'we're going to do this again. We're going refinance you again and the money you take out, you going to use it for your mortgage payments,'" Edwardsen said.

"Blinded by their own greed and the incredible amount of money that was being provided by Wall Street, mortgage companies were making loans that were abusive," agreed Ira Rheingold, of the National Association of Consumer Advocates which has taken up Edwardsen's case.

Some companies were filling out false applications to ensure the credit was agreed. In Edwardsen's case, she became a doctor with a monthly income of 6,000 dollars.

"They were making loans and they knew people couldn't afford it and they made them anyway," Rheingold said, blaming "greedy deregulation, failure of the government to intervene and Wall Street's incredible appetite for high risk bonds that would pay them a lot of money."

Mortgage companies are now beginning to feel the bite.

Monday, New Century Financial, one of the major players in the market, said its credit was being cut off meaning it will have to declare bankruptcy in the next few days. Federal and state prosecutors were also probing its records.

Last week as the shaky mortgage market dragged down the US stock market, US financial authorities toughened up conditions for approving such high-risk loans.

But for some, the move comes too late.

"I'm glad they are doing it, but most of the damage has already been done. They are closing the barn door after the horse and cows are already ran out. It's too little, too late," Rheingold said.

I just started looking for bigger house, based on dullards assessment, it still seems like a good idea, but in reality, is it? if the rates continue going up and prices going down, it probably would not be a good idea to take on a bigger loan right now? Cause I would not be able to cover the difference between old and new home in cash.

 

[WhipperSnapper]

Originally posted by: GoPackGo

What and SCREW everyone thats bought a house in the last 10 years?

Yup. The folks who bought their houses in the '80's and '90's and then sold them at the height of the boom and moved into apartments are the ones who will have profitted from everyone else's losses.

I, for one, will be very happy to see the prices fall back down to earth, and they have a long way to go. I feel badly for folks who just wanted a house, but I don't feel badly for the flippers and the speculators who helped drive up the prices (making it more difficult for people who needed housing to buy housing). Let their losses be a lesson to them.

I suppose that not everyone will have lost money. If people were able to lock in unusually low mortgage rates, the losses in their homes' values could be offset by the interest savings on their mortgages.

 

[dmcowen674]

Originally posted by: Trianon

As rates soar, 2.2 million Americans risk losing homes this year

Yesterday it was 1.1 million, today 2.2 million, tomorrow how many more millions?

Each time it goes up the resident Republicans blame the people and not the lending industry that was handing out money like candy.

 

[WhipperSnapper]

Originally posted by: Slew Foot
Rasies hand. I told you that last year, you all laughed at me and said I was stupid. You also laughed at me when I told you to buy puts on the mortgage lenders. The $300K in profit from the sale of my San Francisco home in 2005 is almost worth a million now, thank you housing bubble!!

Seriously? You sold your house and then took the $300k in profits and purchased put options? Nice shot.

 

[dullard]

Originally posted by: Trianon
I just started looking for bigger house, based on dullards assessment, it still seems like a good idea, but in reality, is it? if the rates continue going up and prices going down, it probably would not be a good idea to take on a bigger loan right now? Cause I would not be able to cover the difference between old and new home in cash.

Would you please clarify that paragraph? When did I assess your house? When did I suggest that you buy a bigger house now? I may have forgotten a post, but I searched this thread and there was none (although I do post in other threads).

If you are referring to my post to tallest1, then you misunderstood. You are benefitted if you were going to go to a bigger house but based on three criteria: (1) That you were going to do it anyways, (2) you can actually afford that new house, and (3) that you do it AFTER the price plunge, not now during it. True, I only discussed #3, but the other two should have been easilly implied.

And rates are down in recent weeks, down from this time 6 months ago, and down from last year. Thus, I can't quite understand your post about "if the rates continue going up". It is quite hard to continue to do something if you aren't doing it now.

 

[WhipperSnapper]

I'm wondering, who pays, who takes the loss when a sub-prime lender has to foreclose? The buyer loses any down payments and equity that he'd paid to the mortgage company, but then what? Since the houses are now worth less than they were before, if the bank tries to sell the house, it could lose money if the difference between what the buyer paid for the house and what the bank can sell it for is greater than the downpayment and mortgage principal the buyer paid in.

So, who eats the loss? Is it the foolish sub-prime lender? If so, why would that be so awful? Would anyone else besides the sub-prime lenders and the home buyers end up losing?

 

[dullard]

Originally posted by: WhipperSnapper
So, who eats the loss? Is it the foolish sub-prime lender? If so, why would that be so awful? Would anyone else besides the sub-prime lenders and the home buyers end up losing?

1) The home owners lose - all their principal payments are gone.
2) The lenders lose - look at all the sub-prime lenders going out of business.
3) PMI insurers lose - they have to cover the difference in some cases.
4) US people with investments lose - their stocks fall in value as the companies feel the pain. Did you know that GM (the auto maker) just released a bad quarterly profit statement mostly due to sub-prime loans. Yep, if you bought GM stock for the auto sector, you may not have known they were the #12 sub-prime mortgage lender. Lost nearly $1 billion in just last quarter on that alone. On a positive side, their auto business is looking up.
5) People with homes may lose if a bunch of homes suddenly enter the market (all the foreclosed homes) at a time that these borrowers cannot buy them (all their applications are rejected).

Why is it awful? You and I lose. And we did nothing wrong.

 

[Trianon]

Originally posted by: dullard
Would you please clarify that paragraph? When did I assess your house? When did I suggest that you buy a bigger house now? I may have forgotten a post, but I searched this thread and there was none (although I do post in other threads).

If you are referring to my post to tallest1, then you misunderstood. You are benefitted if you were going to go to a bigger house but based on three criteria: (1) That you were going to do it anyways, (2) you can actually afford that new house, and (3) that you do it AFTER the price plunge, not now during it. True, I only discussed #3, but the other two should have been easilly implied.

And rates are down in recent weeks, down from this time 6 months ago, and down from last year. Thus, I can't quite understand your post about "if the rates continue going up". It is quite hard to continue to do something if you aren't doing it now.

Sorry, my bad, I misunderstood general logic. I think you are correct. I didn't form questions correctly I guess. I was not trying to contradict your explanation

 

[Slew Foot]

Originally posted by: WhipperSnapper

Originally posted by: Slew Foot
Rasies hand. I told you that last year, you all laughed at me and said I was stupid. You also laughed at me when I told you to buy puts on the mortgage lenders. The $300K in profit from the sale of my San Francisco home in 2005 is almost worth a million now, thank you housing bubble!!

Seriously? You sold your house and then took the $300k in profits and purchased put options? Nice shot.

Not right away, but after I did some research. I lost a bit up front, but made a killing over the last 12 months. Ill make a summary of my story on the OT board sometime.

 

[tallest1]

(thanks for the responses)

 

[WhipperSnapper]

Originally posted by: dullard

5) People with homes may lose if a bunch of homes suddenly enter the market (all the foreclosed homes) at a time that these borrowers cannot buy them (all their applications are rejected).

Why is it awful? You and I lose. And we did nothing wrong.

I'm a renter, so it would be good for me if the outrageous prices of houses and condos crashed. However, the negative effects on our economy wouldn't be so good. Here's a thought that I picked up from a blog:

The crash in the sub-prime market could really kill the housing market. With fewer people being able to buy houses, those people who already own houses will not be able to sell them and thus will not be able to move into bigger houses, and so on.

I hadn't put two and two together before to see how this could create a chain-reaction that could affect the entire housing market. Perhaps prices really will return to reality.

The end of the housing bubble could also throw the nation into a recession since much of our economy was driven by the housing market and people borrowing against their equity. Once the supply of credit has been exhausted, will the effects of global labor arbitrage become more obvious? Sadly, many of us who don't even own homes could also go down with the housing market.

 

[imported_Shivetya]

Originally posted by: WhipperSnapperThe crash in the sub-prime market could really kill the housing market. With fewer people being able to buy houses, those people who already own houses will not be able to sell them and thus will not be able to move into bigger houses, and so on.

My view on that quote is that these people could not buy the houses in the first place and they only got into a house because these lenders were willing to take a risk regular lenders never would.

In other words, both sides were not responsible and both sides lost.

 

[Slew Foot]

Originally posted by: Shivetya

Originally posted by: WhipperSnapperThe crash in the sub-prime market could really kill the housing market. With fewer people being able to buy houses, those people who already own houses will not be able to sell them and thus will not be able to move into bigger houses, and so on.

My view on that quote is that these people could not buy the houses in the first place and they only got into a house because these lenders were willing to take a risk regular lenders never would.

In other words, both sides were not responsible and both sides lost.

Doesnt really answer WS's question. If someone is ready to move up from their starter home, but they cant sell their starter home since no one can afford it, theyre stuck in their starter home.

 

[PingSpike]

Originally posted by: Slew Foot

Originally posted by: Shivetya

Originally posted by: WhipperSnapperThe crash in the sub-prime market could really kill the housing market. With fewer people being able to buy houses, those people who already own houses will not be able to sell them and thus will not be able to move into bigger houses, and so on.

My view on that quote is that these people could not buy the houses in the first place and they only got into a house because these lenders were willing to take a risk regular lenders never would.

In other words, both sides were not responsible and both sides lost.

Doesnt really answer WS's question. If someone is ready to move up from their starter home, but they cant sell their starter home since no one can afford it, theyre stuck in their starter home.

Yes, but wouldn't that depressed demand for "next step" homes eventually result in those prices dropping as well?

 

[OS]

Originally posted by: WhipperSnapper

Originally posted by: Slew Foot
Rasies hand. I told you that last year, you all laughed at me and said I was stupid. You also laughed at me when I told you to buy puts on the mortgage lenders. The $300K in profit from the sale of my San Francisco home in 2005 is almost worth a million now, thank you housing bubble!!

Seriously? You sold your house and then took the $300k in profits and purchased put options? Nice shot.

damn, talk about betting it alllllll on black, lol

 

[HomeAppraiser]

Heavy discounts off of Craigslist 26% cash back paid 30 days after closing

 

[smack Down]

Originally posted by: HomeAppraiser
Heavy discounts off of Craigslist 26% cash back paid 30 days after closing

Yeah for more fraud.

 

[Slew Foot]

Originally posted by: PingSpike

Originally posted by: Slew Foot

Originally posted by: Shivetya

Originally posted by: WhipperSnapperThe crash in the sub-prime market could really kill the housing market. With fewer people being able to buy houses, those people who already own houses will not be able to sell them and thus will not be able to move into bigger houses, and so on.

My view on that quote is that these people could not buy the houses in the first place and they only got into a house because these lenders were willing to take a risk regular lenders never would.

In other words, both sides were not responsible and both sides lost.

Doesnt really answer WS's question. If someone is ready to move up from their starter home, but they cant sell their starter home since no one can afford it, theyre stuck in their starter home.

Yes, but wouldn't that depressed demand for "next step" homes eventually result in those prices dropping as well?

Exactly.

 

[Trianon]

Bought with easy credit, homes lost in foreclosure:frown::brokenheart:

By Tim Jones
Tribune national correspondent
Published March 20, 2007


CLEVELAND -- This is the city where John D. Rockefeller made his fortune, where fullback Jim Brown bowled over hapless defenders and where the Rock and Roll Hall of Fame bestows cultural immortality on fabled musicians.

Today Cleveland, with a rapidly growing stable of vacant and boarded-up homes, is known for mortgage foreclosures.

Between 1,200 and 1,300 foreclosure filings land every month on the desk of Cuyahoga County Treasurer Jim Rokakis --including a recent one for his childhood home, which his family sold years ago and was auctioned off last week for $19,000.

All those homes, with thelion's share coming from Cleveland, represent the equivalent of a city neighborhood going bust every month.

While subprime mortgage defaults have rocked Wall Street, the regional disparities are stunning. Economically struggling Ohio and Michigan, according to a recent report, accounted for a combined 15 percent of the nation's foreclosures in January.

Perhaps no place in the Midwest has been hit harder by foreclosures than Cleveland. In Illinois, Cook County reported a total of about 4,260 foreclosure filings in January and February, about 1,700 more than Cuyahoga County, over the same time period. But Cook County, with 5.3 million residents, has roughly four times the population of Cuyahoga County, which includes Cleveland.

"This just empties out the city," said Rokakis, who is scheduled to testify Wednesday in Washington before a congressional subcommittee on foreclosure prevention. "For a lot of neighborhoods, the tipping point has passed."

People who have analyzed the bleak figured say the reasons for Cleveland holding such a dubious and outsized status are many: a poor economy, predatory lending tactics, weak consumer protection laws, people trying to exploit the loosely regulated subprime market for their personal gain, and financially unqualified people obtaining home loans. The cooling housing market has accelerated foreclosures.

There is no indication that subprime loans--mortgages that typically carry higher interest rates and looser standards--are more plentiful in the Midwest than the rest of the nation. The combination of forces in Cleveland often is described as a perfect storm.

"It's blighting whole communities, and it's going to get worse," predicted Zach Schiller, research director of Policy Matters Ohio, a Cleveland-based public interest group, and author of a 2006 study on the growth of foreclosures in Ohio.

"It is a statewide issue--not just urban. It's all over the place," Schiller said.

More often than not, foreclosures are measured nationally in terms of numbers, such as the millions of Americans who will lose their homes and as much as $164 billion because of foreclosures, according to the Center for Responsible Lending, a non-profit think tank. Ohio has an estimated $24 billion in subprime loans, and Rokakis said about 40 percent of those could go bad. Rokakis speculated that 30 percent to 40 percent of the mortgage loans in Cleveland are subprime.



Neighborhoods vulnerable

The effects on neighborhoods from foreclosures are more visual. Once a home is empty, plywood sheets cover windows and doors. That is, unless squatters, drug dealers or arsonists get there first. Scavengers break in and strip the house of copper pipes, wooden molding, plumbing fixtures and lighting. Someone else rips off the aluminum siding because there is a booming market for scrap.

"Then it's open season," said Mark Wiseman, director of the Foreclosure Prevention Program in Cuyahoga County. "At that point there's really no saving the house."

The battle for the house --indeed whole city blocks--is raging in an old ethnic enclave on Cleveland's southeast side, called Slavic Village.

County officials call this the epicenter of the foreclosure storm, the section of the city that has reported the highest number of defaults. Once part of Cleveland's steel-based economy, Slavic Village, founded by Czechs and Poles, is a blue-collar neighborhood in transition, with weathered, wood-frame homes. The ward's councilman said there is not a block in the neighborhood that doesn't have at least one vacant or boarded-up house.

In the past several years, the proportion of senior citizens in Slavic Village has dropped while the numbers of single women and their children have grown to represent about 45 percent of the ward's population, said Council member Anthony Brancatelli. As the seniors died or moved out, houses became available.

"We've seen a migration a large families come in because it's a good place to live," Brancatelli said.

Brancatelli estimates that 60 percent to 70 percent of the foreclosures in his ward involve people who tried to manipulate the subprime mortgage system and bought several homes with the intent of renting or quickly selling, or people grasping for their piece of the American Dream--home ownership--without the financial means of making regular payments.

The remainder of those foreclosed were victims of a bad economy or personal problems, such as divorce or health issues.



Perpetrators, suckers, victims

"Some are perpetrators, some are suckers, some are victims" Brancatelli said. "And we're getting hit hard. We're losing value and its sucking the equity out of other homes."

As he drives around the ward, Brancatelli points to the efforts to battle the blight. Volunteers work to clean up yards. A program called "Mr. Blue" has artists painting blue or green drapes on the plywood that covers windows, while the wooden coverings over front doors feature Martian-looking creatures poking their heads to the side, as if answering the door.

"See, there's Mr. Blue peeking out," Brancatelli said as he drove by.

In this and other neighborhoods, community activists have seen the decades-long fight against redlining--financial institutions refusing to grant loans in certain areas--shift to the problem of too much credit being available.

Until a few years ago there were only 100 vacant or boarded-up houses in the ward. Now there are 1,000, and only a tiny percentage have been visited by Mr. Blue. Many, many more have been stripped of sidings.

Without means to pay for the dwelling this fate was clear as day. I wonder where all these people are going to move to?

 

[Slew Foot]

http://www.smugmug.com/photos/136440158-O.png

Interesting graph from Bearn Stearns/Credit Suisse, that show the reset schedule for ARMs divided up by loan class. Looks like the majority of subprimers are getting reset towards the end of this year(so expect MORE pain to come their way as the year drags on) while the prime/a-type loans are sceduled for reset starting in about 2.5 years. Looks like the end of 2008/early 2009 may be a lull for resets.

Interesting that BS is heavily invested in the mortgage lending industry, I wonder if they know something they're not letting on...

 

[PingSpike]

Originally posted by: smack Down

Originally posted by: HomeAppraiser
Heavy discounts off of Craigslist 26% cash back paid 30 days after closing

Yeah for more fraud.

I don't get the "cash back options"...what the hell is that? Just lower the price, I'm not sending in a mail in rebate for a fvcking house. Granted, I don't know what I'm talking about really, but when something smells I don't take a bite.

 

[Slew Foot]

Originally posted by: PingSpike

Originally posted by: smack Down

Originally posted by: HomeAppraiser
Heavy discounts off of Craigslist 26% cash back paid 30 days after closing

Yeah for more fraud.

I don't get the "cash back options"...what the hell is that? Just lower the price, I'm not sending in a mail in rebate for a fvcking house. Granted, I don't know what I'm talking about really, but when something smells I don't take a bite.

In regard to cash back loans in a nut shell. Say you agree to buy the house for 400K, the apprasier values the house for 420K, the bank gives you a loan based on the appraised value, you give 400K to the seller and keep 20K for yourself, paying it off over 30 years.

The fraud is using an overinflated appraisal to hit the target loan price.

With regards to the new starts numbers, I dont really put to much stock into them. Sales of new homes were in the toilet last month, this will add to the inventory. Plus the numbers were based off a revised lower January figure, when the February numbers are revised again (when no ones looking) it'll probably be lower as well. Anecdotally, I must say that the builders, even here in majorly slumping Sacramento, are still building at gangbusters rates.