Housing 2008/2009 Thread

[Trianon]

Can't say I am happy to post this, but this is the reality

Text

S&P: US home prices down sharply

By J.W. ELPHINSTONE, AP Business Writer 56 minutes ago

U.S. home prices dropped 8.9 percent in the final quarter of 2007 compared with a year ago, Standard & Poor's said Tuesday, the steepest decline in the 20-year history of its housing index.

"We reached a somber year-end for the housing market in 2007," said one of the index's creators Robert Shiller. "Home prices across the nation and in most metro areas are significantly lower than where they were a year ago. Wherever you look, things look bleak."

The S&P/Case-Shiller home price indices, which include a quarterly index, a 20-city index and a 10-city index, reflect year-over-year declines in 17 metropolitan areas with double-digit declines in eight of them.

The 10-city index also set a record annual decline of 9.8 percent in December, while the 20-city index dropped 9.1 percent.

Home prices also plunged 5.4 percent from the previous three-month period, by far the largest quarter-to-quarter decline in the index's history. The previous record was the revised 1.8 percent drop in the third quarter of 2007.

The quarterly index tracks prices of existing-family homes nationwide compared with a year earlier.

A government report Tuesday said U.S. home prices posted their first annual decline in 16 years. The Office of Federal Housing Enterprise Oversight said nationwide prices dipped 0.3 percent in the fourth quarter from the year-ago period.

The OFHEO index is narrower in scope and is calculated using mortgages of $417,000 or less that are bought or backed by Fannie Mae or Freddie Mac. That excludes properties bought with some of the riskier types of home loans.

"It will only get worse. This record will be shattered by subsequent declines," said Peter Schiff, author of "Crash Proof: How to Profit from the Coming Economic Collapse" about the S&P/Case-Shiller report. "We will experience the most substantial decline in history because before this we had experienced the most unprecedented rise in U.S. real estate history."

After 14 years of rising prices, the housing market is unwinding, taking victims from Main Street to Wall Street. Homeowners are losing their houses to foreclosures at an increasingly rapid rate as interest rates on home loans adjust higher and declining values eat into equity.

Irvine, Calif.-based RealtyTrac Inc. said Tuesday that the number of homes facing foreclosure climbed 57 percent in January from the previous year and more lenders are being forced to take possession of homes they couldn't dump at auctions.

Investors are taking huge losses to rewrite the declining value of securities backed by mortgages. Bond insurers also are taking a hit and could have trouble paying back bond holders if default levels soar. Stalled by swelling inventories and weak demand, homebuilders have been recording record losses quarter after quarter.

Economists worry the housing slump will plunge the broader economy into a recession. The economy grew an anemic 0.6 percent in the fourth quarter.

Earlier this month, Congress passed a $168 billion rescue package with provisions aimed to help beleaguered homeowners refinance into more affordable loans. The Federal Reserve also has aggressively slashed interest rates to spur growth.

The S&P/Case-Shiller index showed the Miami market was the weakest surveyed, posting a 17.5 percent annual decline. Las Vegas and Phoenix followed with a 15.3 percent drop each. Los Angeles, San Diego, San Francisco, Detroit and Tampa, Fla., all recorded double-digit annual declines.

Only three metro areas ? Charlotte, N.C., Portland, Ore., and Seattle ? showed year-over-year increases in prices, but Seattle's growth was up a slim 0.5 percent.

On Monday, the National Association of Realtors said sales of existing homes in January fell to the lowest level in nearly a decade while the median price for a home slid for the fifth straight month. The Commerce Department is set to report on January's new home sales Wednesday.

 

[Ns1]

Still well above my means in LA/OC, CA

Parents house dropped from about 550k to 450k in < 1 year. But they're keeping it forever, so no sweat off their back...

 

[Slew Foot]

High housing costs are bad for everyone except someone who wants to borrow money against their house (and government who get to steal less money from you). If you could somehow "reset" property values in line with incomes and start the whole thing over in one big do-over, that would be best. Otherwise the market will correct itself in its own way, by tossing out everyone who cant afford what they bought.

 

[Slew Foot]

http://www.fatwallet.com/redir...fn&skipauth=true&pli=1

The housing crisis for dummies

 

[Trianon]

Originally posted by: Slew Foot
http://www.fatwallet.com/redir...fn&skipauth=true&pli=1

The housing crisis for dummies

blocked @ work, is that a Powerpoint thingie? That one was hillarious

 

[Exterous]

Originally posted by: Slew Foot
http://www.fatwallet.com/redir...fn&skipauth=true&pli=1

The housing crisis for dummies

Nice yet depressing at the same time

 

[StageLeft]

Originally posted by: Slew Foot
Anyone notice that mortgage rates have jumped up the last few weeks? Almost 7% for a jumbo now.

NPR said lenders are concerned about inflation, which is why the lowering interest rate is not getting mortgage rates to plummet.

 

[Slew Foot]

Lower interest rate=higher inflation=higher credit rates

Mortgages are more closely tied to t bills and libor than the fed funds rate anyway.

Looks were coming upon some combination of US 80s style stagflation combined with a Japanese "free money" recession, should be interesting.

 

[Slew Foot]

What? I need a down payment to buy a house now?

"Wells' new guidelines adjust the list of markets it considers soft, distressed or severely distressed. It has ratcheted down the maximum amount of loans it will make in relation to the value of a property, which means home buyers will need to put more money down. In markets considered severely distressed, for example, it will not make a loan for more than 75 percent of the value of the home.

Twenty counties in California, including Los Angeles County and Orange County, are on the severely distressed markets list. At-risk markets around the country include 33 in Florida, 15 each in Michigan and Virginia, and 13 each in Maryland and Ohio. Many other states, including Arizona, Colorado, Connecticut, Louisiana, Massachusetts, Minnesota, New York, Nevada, New Jersey, Washington and Wisconsin had markets on the list."



If you thought things were slow now, wait until you need 25% down.

 

[blackangst1]

Originally posted by: Slew Foot
What? I need a down payment to buy a house now?

"Wells' new guidelines adjust the list of markets it considers soft, distressed or severely distressed. It has ratcheted down the maximum amount of loans it will make in relation to the value of a property, which means home buyers will need to put more money down. In markets considered severely distressed, for example, it will not make a loan for more than 75 percent of the value of the home.

Twenty counties in California, including Los Angeles County and Orange County, are on the severely distressed markets list. At-risk markets around the country include 33 in Florida, 15 each in Michigan and Virginia, and 13 each in Maryland and Ohio. Many other states, including Arizona, Colorado, Connecticut, Louisiana, Massachusetts, Minnesota, New York, Nevada, New Jersey, Washington and Wisconsin had markets on the list."



If you thought things were slow now, wait until you need 25% down.

I agree, although not with the 25% figure. I think going back to the 10% cash down will pop up again. As it should. This zero down bullshit has got to stop. If you cant afford 10% down you cant afford to own a house.

 

[dullard]

I updated the graph once again. Every year around this time, the full data from the previous year is in. Thus, instead of estimating the year 2007 annualized values, they can acutally give the year 2007 annualized values. This tends to minimize swings up and down - and it did again this year. You might not notice the difference, but it is now as accurate as it can be with the forms of measurement they are doing.

It looks like Aug 2007 and Sept 2007 were the worst of times. Yes, all the data is still trending lower. But in those months, they all jumped down much faster than the trendline. But, the trendlines are back on their previous downward slope.

Originally posted by: blackangst1
If you cant afford 10% down you cant afford to own a house.

I agree. In fact, I've said a very similar thing myself (although I said 20% in the number). There are a few exceptions. For example: if you are fresh out of college, moved to a new town for your first job, got a house that is well within your means, and simply didn't want to get an apartment for the short time it takes to get the downpayment saved. I did that myself. It saves moving twice. The key is that you truely are ready for a house and you truely can afford that house and all the new spending you'll do with your first job.

 

[Engineer]

Homeowner equity falls below 50% for the first time since 1945.

Foreclosure rate hits record high in 4th quarter.

 

[Orsorum]

I would agree with the 10% figure over the 25%, but full documentation, proof of income, etc., required. 25% down for a no documentation loan seems reasonable.

 

[StageLeft]

Originally posted by: blackangst1

Originally posted by: Slew Foot
What? I need a down payment to buy a house now?

"Wells' new guidelines adjust the list of markets it considers soft, distressed or severely distressed. It has ratcheted down the maximum amount of loans it will make in relation to the value of a property, which means home buyers will need to put more money down. In markets considered severely distressed, for example, it will not make a loan for more than 75 percent of the value of the home.

Twenty counties in California, including Los Angeles County and Orange County, are on the severely distressed markets list. At-risk markets around the country include 33 in Florida, 15 each in Michigan and Virginia, and 13 each in Maryland and Ohio. Many other states, including Arizona, Colorado, Connecticut, Louisiana, Massachusetts, Minnesota, New York, Nevada, New Jersey, Washington and Wisconsin had markets on the list."



If you thought things were slow now, wait until you need 25% down.

I agree, although not with the 25% figure. I think going back to the 10% cash down will pop up again. As it should. This zero down bullshit has got to stop. If you cant afford 10% down you cant afford to own a house.

Mostly, but in some cases 0% down is fine and does work, just not as often as it has been used.

 

[WhipperSnapper]

Originally posted by: Engineer
Homeowner equity falls below 50% for the first time since 1945.

Perhaps the new paradigm is: Home Loanership and not home ownership.

 

[Vic]

The next shoe to drop in housing

The next shoe to drop in housing

Rising foreclosures and big losses at Fannie Mae and Freddie Mac are making it harder for people with good credit backgrounds to get a traditional mortgage.

By Tami Luhby, CNNMoney.com staff writer
Last Updated: March 13, 2008: 8:48 AM EDT

NEW YORK (CNNMoney.com) -- The credit crunch has finally hit the traditional mortgage market.

Investors are now shunning mortgage-backed securities issued by government sponsored enterprises Fannie Mae and Freddie Mac, which have been critical in keeping the real estate market from completely falling apart.

Some fear this development will make it harder for people, even those with strong credit histories, to get a home loan.

"Even if you have good credit, you don't know if they are going to give you a loan or not," said Joseph Mason, a senior fellow at the Wharton School of the University of Pennsylvania.

And for those who can still get a loan, the tremors in the mortgage-backed securities market has made loans more expensive for borrowers. As the prices of mortgage-backed securities have fallen, their yields have risen, leading to higher mortgage rates.

The national average rate on a 30-year fixed-rate mortgage was 5.96% Thursday, after jumping to 6.08% earlier this week, according to Bankrate.com. Rates on a 30-year fixed mortgage were about 5.90% a week ago. A borrower looking for a 5-year adjustable-rate mortgage would pay 5.71% today, up from around 5.03% a week ago.

"The cost of mortgage financing has increased dramatically and it couldn't come at a worse time," said Tom LaMalfa, managing director of Wholesale Access, a mortgage research firm. "We're going to see a further diminishment of available mortgage money."

Not just a subprime problem anymore

Rising defaults and delinquencies effectively shut down the subprime and jumbo mortgage markets last summer, but borrowers with good credit could still get conventional loans that met the agencies' criteria. That's because investors continued to buy securities - backed by Fannie (FNM) and Freddie (FRE, Fortune 500) - seen as safe since they carry an implicit federal government guarantee.

But the landscape changed in late February. Investors were spooked after Fannie and Freddie reported a combined $6 billion in losses for the fourth quarter as defaults rose.

A new round of fear washed over Wall Street last week when financial fund Carlyle Capital announced its lenders wanted more money to make up for the depressed value of the agency mortgage-backed securities Carlyle had put up as collateral for loans. An announcement by the Mortgage Bankers Association last Thursday that defaults had reached record levels didn't help soothe concerns.

This bad news comes as Congress, in an effort to stimulate lending in higher-cost areas, temporarily raised the size of the mortgages Fannie and Freddie can guarantee to as much as $729,750.

The situation has grown so worrisome that the Federal Reserve took several steps this week to inject liquidity into the agency mortgage-backed security market by allowing banks to trade these securities in as collateral for loans.

On top of that, to shore up their finances and regain investors' trust, Fannie and Freddie have been instituting new fees and stricter underwriting guidelines, making it costlier and harder to qualify for traditional mortgages.

In an investor conference Wednesday, Freddie officials sought to calm jitters by saying the agency has "significantly" increased prices, introducing new fees based on risk levels.

Prepare to pay more for a mortgage

Wholesale Access has estimated that all these changes mean 30% to 40% of borrowers who could have qualified for a conventional mortgage a year ago can no longer do so.

Fannie and Freddie are demanding higher credit scores and charging higher rates for those who don't have them. Until recently, a borrower with a 620 score might pay the same as one with a 680 score, said Victoria Bingham, chief executive with Pacific Rim Mortgage in Tigard, Ore.

But now that person might have to pay a half percentage point more. With today's rates, that translates into 6.75% for a 30-year fixed-rate mortgage instead of 6.25%, or $74 more a month on a $225,000 loan, typical for her client base.

Borrowers must also put more money down, especially if they don't have stellar credit. For instance, those with down payments of less than 5% need a credit score of at least 680, said Steven Plaisance, executive vice president of Arvest Mortgage Co. in Tulsa, Ok. Previously, he could make loans to people without big down payments if they had other strong points, such as stable employment.

Experts said they don't think traditional mortgages will disappear. But if they are harder to get, it will take longer for the housing market to recover as a glut of unsold houses could lead to even more declines in real estate values.

"Fewer buyers who can come into the market mean more homes on the market," LaMalfa said. "The absence of an increase in demand will put further pressure on prices."

Expected upcoming pricing changes:
Loans for Purchase and Rate/Term have negative adjustments based on score and LTV
Loans with Cashout will now have adjustments for all scores at LTV?s of 60.01-75
Loans with Cashout and 620 or less and <=60% LTV significant negative adjustments

My opinion:
Unsatisfied with putting a lid on the purchase market, the investment schemers looking to create bargains are now working to shut down the refinance market.
The conditions are, as always throughout both the boom and the bust, very much artificial. It's not foreclosures causing the losses leading to this tightening, but value downgrades of performing AAA-rated MBS-es causing margin calls forcing investors to dump these securities on the open market for a loss. And the arsonists are snapping up bargains at the fire sale.

 

[Jhhnn]

That's one way to look at it, Vic. The other side of it is that investors see ongoing price deflation as increased risk on any loan.

And that price deflation is, imho, entirely necessary to return the market to something sustainable. As in any speculative market scenario, the price will have to recede further than that before rising back up to where it belongs... Inevitably, excesses in one direction are countered by excesses in the other direction.

The forces you cite are merely examples of how that really works, of the natural "free market" way of doing things- it's been that way in markets from the dawn of history, and the results are amplified by leverage- whichever direction the market takes, up or down.

Which is the problem with "free" markets in general- they tend to hunt wildly above and below the true value of anything- like pork bellies, coffee, silver, orange juice, even real estate, with modern derivatives of such market commodities showing even greater swings... and the fact that the real estate market moves more slowly just lets it get further out of kilter, particularly with creative financing and near infinite leverage. Nothing down is essentially infinite leverage, right?

Which doesn't mean that I like it, at all, but that I see it for what it is, something that many advocates of "Free! Freedom! and Liberty!" in the marketplace failed to realize or forgot to mention, that lots of little guys get slammed into the dirt in a strong downturn when they've made risky, highly leveraged long term obligations on short term money in anything that is valued at several times their annual income... and that if it happens to too many of them, it'll drag their creditors down with them.

Damned little to be done about it now, other than to join the vultures if one has the means...

 

[will889]

Some homeowners are getting a bit desperate.

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[Vic]

Any resemblance to this market and a "free" market, Jhhnn, would be purely in your head.

Plus, I see your economic ideology as ignorant and mystical. No offense intended really, it's just the political-economic equivalent of the evolution/creationism argument and you're arguing the creationists' side and for the same emotional reason that they do, namely to support a personal emotional need for order in a chaotic universe. There is no mysticism, there is no God controlling things, prices don't have a place where they "belong."
Radical laissez-faire libertarian or Stalin-esque authoritarian, it's always a "free" market regardless. Ain't nobody here but us humans, and we aren't kindly to each other like your imaginary government-god.

 

[StageLeft]

Apparently some in the gov now want to inject $300B into "solving" this, which would include forcing some lenders to hold the debt only equal to 90% of the house's value. I don't even have 10% equity in my house, but people who made bad decisions on their homes will get 10% in theirs? Hmm.

 

[Vic]

Originally posted by: will889
Some homeowners are getting a bit desperate.

Text

This is nothing terribly new, although I'm sure it's on the rise. Crime and economic health are directly (and inversely) correlated. I expect to see a new nationwide crime wave hit by next year sometime, which I imagine will be blamed solely on meth.
However, foreclosed homeowners usually vandalize the house prior to repossession. It's not uncommon for the all the fixtures to be craigslist-ed, tons of garbage left in the house, etc. Arson for insurance money is an old trick, and a stupid one.

 

[PingSpike]

Our neighbor burned his house down for insurance money when I was really little. I remember I went to bed one night and his house was there, the next morning it had burned right to the ground. It melted the paint on one side of our house it got so hot. I think he got away with it even though it was pretty obvious it was arson. Not sure how good the tech was back in the early 80s.

 

[Jhhnn]

Call it what you want, Vic, but history is full of radical market corrections, from the Roman grain market to the silver crash of 1893 to modern times. And, sure, there's no such thing as a truly "free" market, probably never has been. But there are different degrees of management- and those exercised in the rising side of the business cycle are the most effective. What's happening today on the part of the Fed and the govt is that they're closing the barn door after the horses are out, in response to their failure to properly manage things on the way up.

I's way too late to protect recent overextended homebuyers, investors and their bankers from huge losses, other than to mitigate them with rapid currency inflation. Which means, of course, that those who've been prudent will also take the shaft as the buying power of their savings and conservative investments will also take a hit.

How'd that happen? Creative minds on Wall St and in the banking industry convinced the govt that deregulation, consolidation and convergence in the lending industry were a *good thing*, and that cutting taxes for the financial elite, who could then better afford to speculate, was also a terrific idea. Add the fact that the Fed was practically giving away money to arrive at a situation of way, way too much leverage and too little oversight, which allowed prices to explode.

Like this-

http://online.wsj.com/article/...?mod=hpp_us_whats_news

"Like so many other hedge-fund blowups, Carlyle's troubles came from borrowing too much money. The secret to making money was borrowing massive sums. Carlyle Capital managed only $670 million in client money, but used borrowings to boost its portfolio of bonds to $21.7 billion. Until last week, when the dealers started selling the fund's collateral, it was about 32 times leveraged, a level one mortgage-company analyst called "astronomical."

32X leverage, to invest in mortgage securities based on leverage, some of which represent short term borrowing of ridiculously cheap money against long term obligations... anybody else see some structural problems in that sort of arrangement, or why banks and investors might be a wee bit nervous?

 

[Vic]

I have no desire to protect anyone from the losses they deserve. Quite the opposite, it's the protection I'm worried about. That and these induced "mark-to-market" fire sales. Bonds are not stocks. If a person goes "upside-down" on their car loan, should they be forced to bring in the difference in cash to their bank or sell the car under duress EVEN if they have no intention of selling the car and are current on their car payments? FYI: that's what you're supporting and calling it "deregulation," "free markets," etc.
And please, I'm not interested in your political rhetoric.

 

[LegendKiller]

Originally posted by: Vic
I have no desire to protect anyone from the losses they deserve. Quite the opposite, it's the protection I'm worried about. That and these induced "mark-to-market" fire sales. Bonds are not stocks. If a person goes "upside-down" on their car loan, should they be forced to bring in the difference in cash to their bank or sell the car under duress EVEN if they have no intention of selling the car and are current on their car payments? FYI: that's what you're supporting and calling it "deregulation," "free markets," etc.
And please, I'm not interested in your political rhetoric.

I absolutely agree. Mark to markets are accounting machinations that are causing half the problem we have now. There are already accounting boards talking about modifying the standards to account for people not wanting to sell at certain prices, thus not having to mark them at that point.

Technically, if somebody wanted to destroy our financial system, all they'd have to do is buy up a bunch of bonds and sell them for .10 on the dollar. Every bank on this planet would have to mark to that .10, destroying every capital position. It's a ridiculous system since companies wouldn't sell at that price, so why should they pretend to have to?