What will happen to the housing market if...
- Thread starter Mike-san
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That's kind of a reach. If I thought the USD was going to rise, then I would buy USD, not stagnant/depreciating assets denominated in USD. My investments are bearish, but my house is still my largest asset by far, so if anything I would love to have reasons to be bullish on RE. But the downward pressures are overwhelming.
That's the plan. They're going to sort through a couple million subprime ARMs to see who's naughty and who's nice. A couple million evaluations that will be more in-depth than the ones done for the original loans, using a lending industry staff that has been slashed to the bone over the past year. This should be wrapped up real quick.
And anyone who's working 2 jobs to be able to afford their upcoming rate reset will quickly realize they will be better off by quitting their 2nd job so they can qualify for the freeze.
Finally, even if some owners do get a rate freeze, they will most likely still be paying a much higher mortgage payment than what it would cost them to rent a similar place. Not a problem if prices are going up 20%/year, but if prices are going down, what are they likely to do? Pay $3k/mo to own something worth less than what they owe, or pay $2k/mo to rent? The old-fashioned rule of buyers having skin in the game had a lot of merit.
The idiocy that went into creating the problem is now being rivaled by that going into the solution.
A+ and those that will qualify for that type of loan will be few and far between. That being said something will have to adjust, most likely the price of the home. This will bring qualified buyers out of the woodwork. We all know that anyone who will qualify for a loan like the one you describe is not a fool willing to over pay for anything. We also know that most homes on the market aren't currently priced to bring those buyers out of the woodwork.
Not for those of us who didn't open the champagne early.
Right on! If you look back over my posts here on prime I put up many examples of what you say. I could never understand why anyone would buy a property that does not cash flow. It makes no sense. Buying in hopes the value will go up is a game of hot patato. Buying property with a positive cash flow is like inventing a decent selling profit, it lasts forever.
Ski_Banker
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Just a hint
wink don't confuse the value of the underlying asset, with changes in FX. That's the problem with your analogy, and why foreign investors won't save R/E (in fact, the opposite through indirect means...).You can buy a stock, a house, an NSX in US$. The value of the asset in local currency can be completely stripped of changes in the FX rate. There's no need to combine a play on U.S. real estate with a bet on the U.S. dollar -- totally separate trades.
I like your thinking though Grasshopper. :smile:
Ski_Banker
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At the end of the day, many people are *at fault* for facilitating the speculation and frenzy surrounding R/E in many areas. But, also at the end of the day, it is up to the prospective homeowner/investor to know how to value the investment. THAT is, truly, the fundamental problem. The facilitators at banks, mortgage lending arms, credit rating agencies, investment banks, and stupid investors buying crap paper... they aren't the problem, just the lubricant for a market out of control.
People don't know how to value assets. They didn't in 1998-2000, and they wanted to blame shady investment bankers/analysts on their 2002 misfortune. Same here. Except, through leverage, many zero-net-worth people are now in the hole by 5 or 6 figures -- something not possible in/after the 1990s stock market.
THAT is also the reason this will take years to sort out. Virtually everyone in these hot real estate areas, that purchased since, say, 2004 overpaid.
People don't know how to value assets. They didn't in 1998-2000, and they wanted to blame shady investment bankers/analysts on their 2002 misfortune. Same here. Except, through leverage, many zero-net-worth people are now in the hole by 5 or 6 figures -- something not possible in/after the 1990s stock market.
THAT is also the reason this will take years to sort out. Virtually everyone in these hot real estate areas, that purchased since, say, 2004 overpaid.
But it is the same damn people. Those who bought into the stock market and those who speculate on R/E and get burned shouldn't have been near the fire anyways. But they saw the big party in the middle of the night through the trees and decided to dance around the fire with the seasoned fire keepers and those fire keepers kept the flames burning by soaking the new comers with gasoline and nudging them close enough to the flames. The screams were heard by others and they came to be burned along with the others.
Just a hint
You can buy a stock, a house, an NSX in US$. The value of the asset in local currency can be completely stripped of changes in the FX rate. There's no need to combine a play on U.S. real estate with a bet on the U.S. dollar -- totally separate trades.
I like your thinking though Grasshopper. :smile:
Please explain. Foreign investors would have to repatriate both future rent income and, eventually, revenue from the sale of the asset. If the USD is expected to drop, why would they not take this into account when valuing the investment?
Ski_Banker
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Agreed...the lenders were being overly aggressive at the tail end of the boom, and now they're being overly conservative. It happens, but that part of the problem will go away soon enough. Much tighter regulation/scrutiny/credit analysis will result from now on though.
Spot on. This kneejerk reaction is to be expected. The lenders that are still around want to keep conservative to keep the investors interested in their portfolios now and after this "crisis". Investors right now just aren't buying many high-loan and high-risk portfolios anyway.
When the market picks back up in 18-36 mos. you'll once again see lenders tripping over themselves to do 2nd and 3rd mtg. products, 125% products and 100% financing because in an appreciating market foreclosure is the best thing that can happen to the lenders, if it happens at all.
all of the above posts are for the most part, true and highly interesting but i see a bigger problem with the housing market of bay area...
in the 50's and 60's a house was about 8-10k, a corvette was 3k, and your annual income was 6k. the numbers may be a bit off but you guys get the point. the discrepency in the value of property and your income back in the day is minimal in comparison to today's monetary standards. today your average income in the silicon valley is ranging from what...60-80k a year and how much is a home these days...? they're running close to the 1m mark and god forbid if you're at the foothills or on the hills. the discrepency of today's annual income in comparison to your average home is about one order of magnitude!!!!
in my opinion i feel that the market will take a fairly significant dip then continue to drop slowly for the next few years because of what i call the "sponge effect." what i mean by the sponge effect is that since the property within the core of the silicon valley(SV) is for the most part, all bought up, or the ones that are on sale are going at 06' pricing when in fact they should be readjusted for the true market price(people are still dreaming). so what happens is that there will be an interest for developers to start looking at land just outside of the SV for building new homes. an example of which would be 101S right around the bottlekneck. it basically semi hilly grassland out there but from there driving to the silicon valley will take roughly 25 minutes. what this does is people who are wanting to come into the SV but can't afford it, or not willing to pay the high prices can move just a bit further out and still be able to work in the bay, so inadvertantly it will shift the demand slightly towards having to make the sacrifice of longer morning commute.
what this will do is allow for the surrounding properties outside of the SV to soak up some of the excess pricing and future home owners and hopefully bring down the price within the SV
i see this is as a natural order of things, all things ceribus paribus, housing price needs to come back down to a semi affordable range again housing prices stays the same and wages goes up. even though today's generation are expected to live longer than their parents' generation, they are not expected to own their own homes. there's a problem with that.
food for thought...rent~1500-2k/mo or mortgage~2-3k/mo so on average it's anywhere from 24-36k a year now tack on car, health, property, and in case sh*t happens insurance. then you got food and drinks and toilet paper...next thing you know, average annual income in the SV will allow you to do a little better than scraping by. holy hell!! i'm moving to the moon and i'm taking my nsx with me.
in the 50's and 60's a house was about 8-10k, a corvette was 3k, and your annual income was 6k. the numbers may be a bit off but you guys get the point. the discrepency in the value of property and your income back in the day is minimal in comparison to today's monetary standards. today your average income in the silicon valley is ranging from what...60-80k a year and how much is a home these days...? they're running close to the 1m mark and god forbid if you're at the foothills or on the hills. the discrepency of today's annual income in comparison to your average home is about one order of magnitude!!!!
in my opinion i feel that the market will take a fairly significant dip then continue to drop slowly for the next few years because of what i call the "sponge effect." what i mean by the sponge effect is that since the property within the core of the silicon valley(SV) is for the most part, all bought up, or the ones that are on sale are going at 06' pricing when in fact they should be readjusted for the true market price(people are still dreaming). so what happens is that there will be an interest for developers to start looking at land just outside of the SV for building new homes. an example of which would be 101S right around the bottlekneck. it basically semi hilly grassland out there but from there driving to the silicon valley will take roughly 25 minutes. what this does is people who are wanting to come into the SV but can't afford it, or not willing to pay the high prices can move just a bit further out and still be able to work in the bay, so inadvertantly it will shift the demand slightly towards having to make the sacrifice of longer morning commute.
what this will do is allow for the surrounding properties outside of the SV to soak up some of the excess pricing and future home owners and hopefully bring down the price within the SV
i see this is as a natural order of things, all things ceribus paribus, housing price needs to come back down to a semi affordable range again housing prices stays the same and wages goes up. even though today's generation are expected to live longer than their parents' generation, they are not expected to own their own homes. there's a problem with that.
food for thought...rent~1500-2k/mo or mortgage~2-3k/mo so on average it's anywhere from 24-36k a year now tack on car, health, property, and in case sh*t happens insurance. then you got food and drinks and toilet paper...next thing you know, average annual income in the SV will allow you to do a little better than scraping by. holy hell!! i'm moving to the moon and i'm taking my nsx with me.
OK so it sounds like agreement has been reached or near on this rate freeze. Someone please explain to me how this is benefitial to the current situation. The plan only applies to borrowers who started their loan from 2005-mid 2007?? I am assuming that most of these people probably have 5 year arm. So how does this help at all?? I mean, people who are facing foreclosuer RIGHT NOW due to the ARM would be borrowers who started the loan around 02-03?? I don't get it 
OK so it sounds like agreement has been reached or near on this rate freeze. Someone please explain to me how this is benefitial to the current situation. The plan only applies to borrowers who started their loan from 2005-mid 2007?? I am assuming that most of these people probably have 5 year arm. So how does this help at all?? I mean, people who are facing foreclosuer RIGHT NOW due to the ARM would be borrowers who started the loan around 02-03?? I don't get it
Just makes it take longer to work itself out and if people do not feel pain they will do it all over again.
Here's the most concise analysis I've read on this subject:
http://blogs.marketwatch.com/greenberg/2007/12/straight-talk-on-the-mortgage-mess-from-an-insider/
http://blogs.marketwatch.com/greenberg/2007/12/straight-talk-on-the-mortgage-mess-from-an-insider/
That is a GREAT article.
I would be really happy if they put this into affect.
If they sold me back my papaer at 50% of the loan I would be all over it. I would buy back every loan I have out there. Oh man I am getting excited now.
edit...anyway this pans out according to this article...I am licking my lips.
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I don't really follow what happens to the housing market since I'm diversified well beyond just RE.
We live in a house we love, in an area we love, with great neighboors, most of my family w/in 20-45mins and best friends around the corner.
All I really want out of the housing market is for the Fed to lower the rate again, so I can refi (my already low rate) even lower. :smile:
We live in a house we love, in an area we love, with great neighboors, most of my family w/in 20-45mins and best friends around the corner.
All I really want out of the housing market is for the Fed to lower the rate again, so I can refi (my already low rate) even lower. :smile:
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Ski_Banker
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I didn't read the article yet, but one new thought very much worth considering (also something I don't think others have picked up on so....)
Safety in numbers.
Nobody wants to be "the only guy on the block" in foreclosure/bankruptcy and with terrible credit, which is a very strong deterent. BUT when subprime/foreclosure/bankruptcy is the national discussion, and seemingly everyone is in the same sinking boat, AND the government is proposing a "bailout" -- all the sudden, hanging on to that next mortgage payment seems a little more reasonable.
Point is, I think the next problem, and a very serious one at that (for banks, investors) will be the voluntary refusal to make mortgage payments by people expecting some sort of bailout.
Safety in numbers.
Nobody wants to be "the only guy on the block" in foreclosure/bankruptcy and with terrible credit, which is a very strong deterent. BUT when subprime/foreclosure/bankruptcy is the national discussion, and seemingly everyone is in the same sinking boat, AND the government is proposing a "bailout" -- all the sudden, hanging on to that next mortgage payment seems a little more reasonable.
Point is, I think the next problem, and a very serious one at that (for banks, investors) will be the voluntary refusal to make mortgage payments by people expecting some sort of bailout.
Interesting thought. I wonder if banks/investors will commence eviction (as laborious and costly as that is) to kick these people out of the homes since the bank is the owner?
Tech bubble/housing bubble,,similar in many ways.I'm now going to hope someone from the fed will help pay me back some money I lost in the nasdaq tech mush I'm sure that most home owners /borowers have no idea that thier mortgages are traded like commodities by big players,and what affect that has.I am amazed though that certain markets let the cost of dumpass houses get to the 1000.$/sq ft retail price.What the F@#$.
I'm sure that most home owners /borowers have no idea that thier mortgages are traded like commodities by big players,and what affect that has.I am amazed though that certain markets let the cost of dumpass houses get to the 1000.$/sq ft retail price.What the F@#$.
Ski_Banker
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Ordinarily, of course they would after a few months. But there aren't enough industry resources, by a long shot, to handle 1) lots of evictions 2) lots of foreclosures at reasonable prices and 3) just all the admin and legal work associated therewith.
That's the real point of the current solution -- it basically delays the inevitable, but at least so that the market can adjust in an organized manner over the next few years.
But it doesn't contemplate lots of "barely subprime" people piling on the "I'm a victim, the gov't is coming to rescue me" bandwagon. The more I think about it, the more I see this as a HUGE problem for banks. I'm mean seriously... what good stupid American doesn't like playing the victim?
So basically everyone is saying buy now for investment?
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steve,
thx for the endorsement of this link... reading your comments, i followed / read it and thought it was great, too. we'll see what happens, i s'pose.
I second on this... Been in his shoes and sold all type of loans from Prime to Subprime via Secondary Market close to ten years and say yes and no to files more than I can count....The article nailed it.
It sure did. The only thing it did not address is the appraisers who put obscene values on property so the banks could over loan.
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