Real Estate Crash thread

[Spats]

This entity was created so that people w/ no other means could grab a piece of the american dream...seems like it got abused a bit and is in quite the pickle now.

All the GSEs (Fannie, Freddie, etc.) have done is raise housing prices. Same with the mortgage interest tax credit. If you subsidize buying a house, all that happens is that houses get more expensive, and in the end, no more people can afford them than before.

The only people that end up with more money as a result of these subsidies are banks and Wall Street. Not coincidentally, these are the top contributors to every Presidential candidate, Democrat and Republican, except Kucinich and Paul. Now guess why they were constantly derided as "dark horse", "second tier" and "unelectable".

Fannie and Freddie are insolvent, and once again, people who saved money and invested responsibly will pay for the people that took out loans they couldn't afford and the banks that knew it but made the loans anyway.

[woodstocksez]

I am hoping rates rise, credit keeps tightening, and some sanity returns to San Francisco...at some point, couples will not be able to afford 2bd/2ba places for 900k. I just don't see how that is a sustainable price for a "starter home" in the city. We are waiting right now because we are looking for 3bd places, and it just seems ridic...there has to be a reversal, or at least a flattening, of home values.

Of course, I have been saying that since 2002.

Keep the faith. I felt like a jerk many a time since then, too, but I had no clue about this subprime thing. I'm stunned at the stories I read, and I'm stunned that some are still getting no money down loans, but that just proves how many on all sides are still in denial. Homes are still way overvalued, and have a long way to go to reach the historical mean. Don't believe the hype, and rent a place with nice landscaping included - oh, and heat, too.

Cranked, I've been with you for at least that long.

Bay Area home prices have been on the rise since 1997. I figured the stock market implosion would play out in a real estate slowdown early in this decade. As I recall, it did slow things down for a short while. (Some time in 2002 or 2003? I forget.) Then things started taking off again and I could never understand it. The vast majority of people have to be able to pay their mortgage from their wages, so when a signficant disconnect between the two occurs (as well as the one that happened between the costs of renting and owning), you know something foul is afoot, even if you don't know exactly what it is. Like Benny, I had no idea how the market was being goosed by the lack of lending standards, at least not until it had been going on for quite awhile. It pisses me off, because we'd have moved long ago, except for the bubble created by that artificial prop.

Cranked, I thought even in S.F. prices had come down some, but, Jesus, maybe not: $900K for a 2bd,2ba?! I agree: that just doesn't seem sustainable to me for a "starter home." Who's buying that shit, and how, and why? How about Lamorinda? I've considered that area some, and though I haven't been checking properties there as often as elsewhere, I have the impression that prices have dropped a decent amount there too.

I'm generally with Benny: I think we've still got a ways to go to bring prices back to where they "should be," at least where I live (and in other areas of the country as well). In that vein, anyone know what a reasonable average annual rate of appreciation is for homes (more particularly, homes in the Bay Area). Periodically, I check what our house "should" be worth by assuming 5% appreciation per year (I bought during a relatively stable period for real estate prices in this area), and, based on that, we've got another 10-15% drop to go before we reach that number. Is 5% a reasonable assumption?

[woodstocksez]

... If you subsidize buying a house, all that happens is that houses get more expensive, and in the end, no more people can afford them than before.

I haven't spent more than about 15 seconds thinking about this right now, so maybe there's more to the analysis than this, but I think it's a bit different (worse) than that. You skew home ownership in favor of high income earners, since the subsidy is worth more to than them. I've long been in favor of getting rid of the mortgage interest deduction, even though I've long benefitted from it. I don't see that it should be the government's business to encourage or discourage the choice to own a home.

... and once again, people who saved money and invested responsibly will pay for the people that took out loans they couldn't afford and the banks that knew it but made the loans anyway.

Yes. Once again. And, once again, the bad actors will be taught to keep acting in the same way.

[I'm ur Huckleberry]

If things get too tough we can always pick up some discounted Bangladesh property:




Can't believe that guy's bonefishing when his buddies need help

[timvwcom]

Bush to ask for Freddie/Fannie rescue plan...

WASHINGTON — Alarmed about the sharply eroding confidence in the nation’s two largest mortgage finance companies, the Bush administration will ask Congress to approve a rescue package that would give the government the authority to buy billions of dollars in stock in Fannie Mae and Freddie Mac and also lend to the companies to meet their short-term funding needs, people briefed about the plan said on Sunday.

Separately, the Federal Reserve voted on Sunday to also open a lending facility for Fannie Mae and Freddie Mac, if they need emergency capital. The two companies would be able to post their own securities as collateral.

The plan calls on Congress to give the government the authority over the next two years to buy an unspecified amount of stock in the two companies. Over the same period of time, it would permit the companies to have greater access to the Treasury, by expanding the credit line that each company has from the Treasury. Each company now has a $2.25 billion credit line, set nearly 40 years ago by Congress. At the time, Fannie had only about $15 billion in outstanding debt. It now has total debt of about $800 billion, while Freddie has about $740 billion.

Today the two companies also hold or guarantee mortgages valued at more than $5 trillion.

As part of the plan, the administration will also call on Congress to raise the national debt limit, people briefed on the plan said. And it will ask Congress to give the Federal Reserve a role in setting the rules for how big a capital cushion each company must hold. Giving the Fed a consulting role in the companies’ oversight is seen as yet another way to reassure nervous markets.

Treasury officials declined to comment on the plan but indicated that a statement would be issued later on Sunday. It was described by lawmakers and officials at other agencies that have been briefed on it.

...

[Spats]

I think it's a bit different (worse) than that. You skew home ownership in favor of high income earners, since the subsidy is worth more to than them.

You are correct. This will cause an even larger disparity as tax rates inevitably increase over the next few years.

There are even more reasons than that, though. First, if home prices go up, then (in a normal, non-bubble lending environment) downpayments go up too, and less people can come up with 20% or more. Also, higher prices = more leverage = more risk. Higher income earners can absorb a short sale or temporary loss better than lower income earners.

Housing subsidies, including the GSEs, are a bad deal all around for anyone except the rich and Wall Street. And now that the bailout is coming, we're on the hook for $TRILLIONS. Inflation will spiral even further out of control, further destroying the savings and earning power of the middle class in this country, and pushing many into low-class poverty.

This is a completely intentional result of conscious policy decisions by the Fed and Wall Street, whose goal is the final destruction of the American middle class and the creation of a feudal oligarchy run by investment banks -- much like any Latin American banana republic.

Note that Obama is financed by the banks, too, and will continue the same fiscal policies -- just with a smiley face and a couple meaningless bones to the poor.

[cranked]

You are correct. This will cause an even larger disparity as tax rates inevitably increase over the next few years.

There are even more reasons than that, though. First, if home prices go up, then (in a normal, non-bubble lending environment) downpayments go up too, and less people can come up with 20% or more. Also, higher prices = more leverage = more risk. Higher income earners can absorb a short sale or temporary loss better than lower income earners.

Housing subsidies, including the GSEs, are a bad deal all around for anyone except the rich and Wall Street. And now that the bailout is coming, we're on the hook for $TRILLIONS. Inflation will spiral even further out of control, further destroying the savings and earning power of the middle class in this country, and pushing many into low-class poverty.

This is a completely intentional result of conscious policy decisions by the Fed and Wall Street, whose goal is the final destruction of the American middle class and the creation of a feudal oligarchy run by investment banks -- much like any Latin American banana republic.

Note that Obama is financed by the banks, too, and will continue the same fiscal policies -- just with a smiley face and a couple meaningless bones to the poor.

If only middle America could have realized the genius that is The Ron Paul.

That is some seriously over the top shit you just blasted out...way over the top.

[timvwcom]

...Note that Obama is financed by the banks, too, and will continue the same fiscal policies -- just with a smiley face and a couple meaningless bones to the poor.

THANK GOD for the smiley face!!! Without it, the end of civilization would certainly be too difficult to endure...

[Spats]

If only middle America could have realized the genius that is The Ron Paul.

That is some seriously over the top shit you just blasted out...way over the top.

Ron Paul? Try Thomas Jefferson. I'm not saying anything that Jefferson didn't say more eloquently and forcefully...in the 18th century.

"If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will grow up around them, will deprive the people of their property until their children will wake up homeless on the continent their fathers conquered." -Thomas Jefferson

"I believe that banking institutions are more dangerous to our liberties than standing armies. Already they have raised up a moneyed aristocracy that has set the Government at defiance. The issuing power should be taken from the banks and restored to the people to whom it properly belongs." -Thomas Jefferson

An aside: the Austrian School economists correctly predicted the Great Depression, and the modern Austrians (e.g. Peter Schiff) are also the only ones who have predicted the current credit crisis. Everyone else has apparently been caught either flat-footed or actively shilling for the banks.
http://en.wikipedia.org/wiki/Austria...s_Cycle_Theory

It's funny how the traditional Left blasts Congress for "privatize corporate profit, socialize corporate risk"...except when the Democrats propose it, because we know they're the party of THE PEOPLE...HAHAHAHAHAHAHA! Obama is 100% owned by Wall Street, just like McCain and Giuliani, and he's pushing hard for this bailout of the investment bankers that finance his campaign.

[Craven Morehead]

If only middle America could have realized the genius that is The Ron Paul.

That is some seriously over the top shit you just blasted out...way over the top.

You like Ron Paul???

I gave 500 clams to his campaign.

[skier666]

Cranked, I thought even in S.F. prices had come down some, but, Jesus, maybe not: $900K for a 2bd,2ba?! I agree: that just doesn't seem sustainable to me for a "starter home." Who's buying that shit, and how, and why?

The SF market is akin to the Bay Area Market as a whole. When people say prices in the Bay Area are falling, you have to break it down into localized regions, and then so on, because location plays a huge role in this area. SF is the same way. Old vs new construction, sunny vs foggy area, parking vs no parking, walking distance to markets/shops/muni, etc. SF is also a relatively small and built-out area when analyzing the supply vs demand equation. That 2br/2ba in a nice, sunny area, with parking may have way more buyers than you realize because there's not much inventory online, and its a pretty wealthy city overall, for better or for worse. Factor in the higher gas prices, and people will start to move closer to work in say, the Financial District, so they can walk or easily access Muni to get to work.

[cranked]

Ron Paul? Try Thomas Jefferson. I'm not saying anything that Jefferson didn't say more eloquently and forcefully...in the 18th century.

"If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will grow up around them, will deprive the people of their property until their children will wake up homeless on the continent their fathers conquered." -Thomas Jefferson

"I believe that banking institutions are more dangerous to our liberties than standing armies. Already they have raised up a moneyed aristocracy that has set the Government at defiance. The issuing power should be taken from the banks and restored to the people to whom it properly belongs." -Thomas Jefferson

An aside: the Austrian School economists correctly predicted the Great Depression, and the modern Austrians (e.g. Peter Schiff) are also the only ones who have predicted the current credit crisis. Everyone else has apparently been caught either flat-footed or actively shilling for the banks.
http://en.wikipedia.org/wiki/Austria...s_Cycle_Theory

It's funny how the traditional Left blasts Congress for "privatize corporate profit, socialize corporate risk"...except when the Democrats propose it, because we know they're the party of THE PEOPLE...HAHAHAHAHAHAHA! Obama is 100% owned by Wall Street, just like McCain and Giuliani, and he's pushing hard for this bailout of the investment bankers that finance his campaign.

Yeah...you've mentioned this before...and it was equally hilarious then.

[mr_gyptian]

Ron Paul? Try Thomas Jefferson. I'm not saying anything that Jefferson didn't say more eloquently and forcefully...in the 18th century.

"If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will grow up around them, will deprive the people of their property until their children will wake up homeless on the continent their fathers conquered." -Thomas Jefferson

"I believe that banking institutions are more dangerous to our liberties than standing armies. Already they have raised up a moneyed aristocracy that has set the Government at defiance. The issuing power should be taken from the banks and restored to the people to whom it properly belongs." -Thomas Jefferson

An aside: the Austrian School economists correctly predicted the Great Depression, and the modern Austrians (e.g. Peter Schiff) are also the only ones who have predicted the current credit crisis. Everyone else has apparently been caught either flat-footed or actively shilling for the banks.
http://en.wikipedia.org/wiki/Austria...s_Cycle_Theory

It's funny how the traditional Left blasts Congress for "privatize corporate profit, socialize corporate risk"...except when the Democrats propose it, because we know they're the party of THE PEOPLE...HAHAHAHAHAHAHA! Obama is 100% owned by Wall Street, just like McCain and Giuliani, and he's pushing hard for this bailout of the investment bankers that finance his campaign.

The reason Thomas Jefferson wrote things like that is because he was a personal financial nightmare. he constantly had creditors after him. Every day I kiss a $10 bill to give thanks for Hamilton's ability to win out over Jefferson's agrarian romanticism.

[mattitude]

The link below is to a PDF file that a friend sent to me. It takes a very bearish view of the real estate situation and lays it all out in an easy to follow 60 page presentation. It compares renting vs owning and also our situation to the real estate crash in Japan.

I think it is an extreme view. The real estate agent would give you the other end of the spectrum. The truth is somewhere in the middle.

It is definitely worth a look:
http://www.mattitude.com/downloads/J...esentation.pdf

[Spats]

Yeah...you've mentioned this before...and it was equally hilarious then.

That's a bold statement. Care to back it up?

[neck beard]

The link below is to a PDF file that a friend sent to me. It takes a very bearish view of the real estate situation and lays it all out in an easy to follow 60 page presentation. It compares renting vs owning and also our situation to the real estate crash in Japan.

I think it is an extreme view. The real estate agent would give you the other end of the spectrum. The truth is somewhere in the middle.

It is definitely worth a look:
http://www.mattitude.com/downloads/J...esentation.pdf

The chart source on page 4 is a worry:

"Source: I forget where I got this, but it’s totally reputable. Who would lie about this?"

[Spats]

Every day I kiss a $10 bill to give thanks for Hamilton's ability to win out over Jefferson's agrarian romanticism.

This is not a surprise. You've consistently supported the neo-conservative agendas of endless war and wholesale destruction of the freedoms that made America great -- in the name of "national security" -- ever since you started posting on powmag.

Also your entire career depends on easy credit, so you're not exactly a disinterested party.

[Spats]

The chart source on page 4 is a worry:

"Source: I forget where I got this, but it’s totally reputable. Who would lie about this?"

This isn't the same chart, but it shows the same trend: residential real estate at an all-time high relative to GDP.
http://www.stls.frb.org/news/speeche...9_07.html#fig1

The rest of the speech is very good, too. It's too bad that Poole isn't with the Fed anymore, as he was essentially their single voice of sanity.

[neck beard]

The poor sourcing didn't so much make me doubt the chart rather raise an eyebrow at his referencing standards. I actually liked his style a bit. His perspective is a very negative, but I agree that there is serious trouble coming, especially when you heap on other economic problems of the moment and the future. Now is a good time to be thankful you saved for a rainy day (and it isn't raining yet).

The references to Japan are interesting. Japan certainly is over populated and has very little flat land. Yet 14 years after the real-estate bubble burst you are now able to buy a solid 10 - 20 year old simple home and land in the middle of ski resort country and 3 hours from Tokyo's 20+ million people for an average of $80,000 (houses range from 600-1200 ft squared on land of 3000 ft 2. Better deals are available). If that kind of depreciation hits the US, I hate to think what quality of life will be in 10 years time.

And yes, from what I knew of Poole, more of him was/is needed.

[mud]

Looks like Wachovia is waving the white flag, as of this morning they are getting out of the wholesale mortgage business.


http://ml-implode.com/ailing/lender_...008-07-21.html


We are hearing about the impending shutdown of wholesale mortgage operations at Wachovia. This morning, we received the following:

"Wachovia wholesale is shutting down today. Press release at 1PM."

"All us reps were told this morning by top managment that wholesale will be completely shutdown by August 31st and a conference call will be this afternoon. All reps were called Sunday afternoon on the east coast...both Portfolio and marketable products."

The info is coming in from various sources including tipsters, forum members and outside sources - many of whom are (or were) Wachovia employees. We have no detailed information at this point on the number of people who will be affected.

An email sent to brokers by one AE says:

"Good Morning just wanted to let you know that we learned last night that today Wachovia will announce its closing its Wholesale division.

There will be a conference call at 1 pm and I will send out a follow up to that call."

From their web site: "Today's Wachovia was created when First Union Corporation acquired the former Wachovia Corporation and changed its name to Wachovia." That merger occurred in September of 2001; some may also recall First Union's acquisition (and subsequent shutdown) of then-subprime-giant "The Money Store" just a year prior. Many analysts and pundits have pointed to Wachovia's acquisition of Golden West Corporation, parent holding company of World Savings Bank in Oakland, CA in October of 2006 as a cause for recent woes over their $120 billion portfolio of Pay Option ARMs, referred to as "Pick-a-Pay" or "PAP" loans.

[Aldo]

sweet, I guess they'll just send me the deed then....

[Toadman]

So Wachovia loses $8.9 billion and Fannie and Freddie are on the verge of collapse. Here's a brief snipet from an sobering article I read on MSN.

What's at stake now is the credit of the United States itself.

Because of Fannie Mae and Freddie Mac, the overseas investors who hold $9 trillion in U.S. government debt and trillions more in U.S. dollars are weeks away from losing faith in the government's creditworthiness.

In the days since the crisis at Fannie and Freddie turned red-hot, the council that advises Saudi Arabia's king has recommended revaluing the Saudi currency, the riyal, which is pegged to the U.S. dollar, by up to 30%. That could be a first step toward switching the riyal from a price pegged to the dollar to one pegged to a basket of world currencies.

A similar advisory body in Abu Dhabi has suggested abandoning that country's dollar peg for its currency. A third oil-rich Middle Eastern country, Kuwait, ended its currency link to the dollar last year.

More ominously, because the threat is more immediate, some of the world's largest sovereign wealth funds, including that of China, are edging away from the U.S. dollar at an increasing speed. China's State Administration of Foreign Exchange, which holds the majority of China's $1.6 trillion in foreign currency reserves (mostly in dollars) has been holding talks with European private-equity companies about investing in their latest round of funds. That would shift dollars into euros.

[liv2ski]

Looks like Wachovia is waving the white flag, as of this morning they are getting out of the wholesale mortgage business.
http://ml-implode.com/ailing/lender_...008-07-21.html
We are hearing about the impending shutdown of wholesale mortgage operations at Wachovia. This morning, we received the following:

"Wachovia wholesale is shutting down today. Press release at 1PM."

"All us reps were told this morning by top managment that wholesale will be completely shutdown by August 31st and a conference call will be this afternoon. All reps were called Sunday afternoon on the east coast...both Portfolio and marketable products."

Many analysts and pundits have pointed to Wachovia's acquisition of Golden West Corporation, parent holding company of World Savings Bank in Oakland, CA in October of 2006 as a cause for recent woes over their $120 billion portfolio of Pay Option ARMs, referred to as "Pick-a-Pay" or "PAP" loans.

Just for clarification, the division being closed is called Wachovia Wholesale in the General Bank division. In reality it is all the douche nozzles from World Savings, the Pick a Pay boys. I bet Wachovia wishes they had never paid Billions for that outfit. But live and learn. Wachovia is still in wholesale lending. The company is called Vertice and it is in the Wachovia CIB division.
This announcement while financially painful for the parent company was a good move in the long haul IMO.
Now we just need Bank of America to close Countrywide and justice will be served to two of the biggest Pick a Pay producers. Talk about 1 product that really fucked millions of clueless consumers.

[mud]

Wachovia/Vertice was fairly conservative when it came to Underwriting compared to Countrywide. Although I wasn't shocked when this happened since they always seemed to be understaffed in the servicing department which is always a bad sign.


Here's the email;

Date: July 21, 2008
To: Wachovia Mortgage, FSB Brokers and AEs
From: ****
Subject: Wachovia Mortgage, FSB to Discontinue Lending through Third Party Brokers

As you know, the mortgage industry is experiencing a very challenging market environment. Declining housing values, increased foreclosures, disappearing mortgage lenders, and a struggling secondary market are all symptoms of this market turmoil.
Wachovia Mortgage has evaluated its business model and decided to reposition its mortgage business. Going forward, we will primarily focus on customers who have relationships with the bank, and who are located in geographies where Wachovia branches are located.
As a result of our new strategic focus, Wachovia Mortgage has decided to discontinue lending through third-party, or wholesale mortgage brokers. This decision will be effective July 25, 2008, at 5:00 pm local time which will be the last date on which Wachovia Mortgage will accept new loan registrations from brokers. Additionally, no new locks will be accepted after 8:00 pm EDT, July 25, 2008. Existing rate locks will be honored. If the loan does not close and fund by the lock expiration date, no extensions will be granted. All loans must be received by your Wachovia Servicenter no later than 5:00 pm local time August 25, 2008 and must close no later than end of business September 30, 2008.
This was a very difficult decision to make. Out of respect for the valued relationships we have had with numerous mortgage brokers over many years, we wanted to make you aware of this change as soon as possible.
If you have any questions about this change, please feel free to contact your local Wachovia loan representative. Thank you for your business.

[Benny Profane]

Now we just need Bank of America to close Countrywide

Doesn't seem to be happening. No way. They see a lot of value in the mortgage operations. I guess. Most watch it either wincing or jaws down to the floor. Just goes to show that some CEOs are egotistical numbskulls who refuse to admit a mistake, no matter how large.