Real Estate Crash thread

[Benny Profane]

Spats... I'm not going to blindly support everything and anything done to help the market, but can you not see how a real estate market that further deteriorates ends up wiping out the middle class in and by itself?

Get over it. It will deteriorate. It has to. These actions are outrageous and futile. A cynic will note the time frame. Three years. Why three years? That keeps your darling debt bloated middle class somewhat above water on their stupid, overpriced mortgages until the next inauguration. Why else?? This is so pathetic. Wages have been stagnant for the last decade, the stock market is actually down a little, so WHAT THE FUCK justifies the stupid inflation of home prices? One thing, and one thing only. Real easy money. And, it still continues. Barney Frank wants to raise the FHA loan limit to 800000 fucking dollars! This was a program that was supposed to help low income first time buyers just 3 years ago. Now it's supporting a market, mostly in California, where families making 100,000 can actually buy an 800000 house, on your fucking dime. That is just so fucking stupid. They just want to re-inflate the bubble, and it just makes me and anyone else who have been trying to do the right thing feel like a fucking chump. But, they can't do it. They can huff and puff, but it won't work, in the end.

but this is the real killer:

"Fannie Mae and Freddie Mac stocks became hot commodities earlier this week. But before jumping on that bandwagon, consider: The companies’ own executives aren’t being paid with their companies’ stock.

Fannie and Freddie shares rose earlier this week on the Treasury’s decision last Thursday to hand a blank check for any losses the companies may take over the next three years.

Treasury made its Christmas Eve gift the same day that it signed off on multimillion dollar compensation deals to Fannie and Freddie’s senior executives. Those deals, which offer pay packages worth up to $6 million to chief executives of Fannie and Freddie, are being paid in cash.

As the WSJ reported last week, government overseers wouldn’t force the executives to take stock because it doesn’t have much value, and they didn’t tie pay to long-term performance because, well, no one knows if Fannie and Freddie are here for the long term.

“They’re fully aware the stock is not worth anything down the road,” says Bose George, an analyst who covers the companies for Keefe, Bruyette & Woods Inc. “This acknowledges from all sides that the stock is not worth anything in the long term.”

It’s not unusual to see big jumps–driven mostly by small investors and day traders–in Fannie and Freddie stock whenever news filters out about what the government may or may not be doing to the companies. Freddie gained around 33% to a mid-day high of $1.68 on Tuesday from last Thursday before closing at $1.42 on Wednesday. Fannie posted a similar jump to a mid-day high of $1.38 on Tuesday before closing Wednesday at $1.16.

Investors cheered the Treasury’s decision to uncap the government’s bailout of the two companies because rising losses alone won’t be enough now to push the companies into receivership, a form of bankruptcy restructuring. The government had previously pledged up to $200 billion to each company to keep them afloat and out of receivership. (This WSJ story today looks at some questions that those decisions have raised among analysts).

Some investors and pundits have argued that the companies could one day have value, but most analysts who still cover the companies think their common stock is worthless because the companies won’t ever be able to fully repay the government, which has taken preferred shares in the companies that pay 10% dividends in exchange for pumping $112 billion into the companies."

Get that? These guys are being paid in fucking cash, because they know the stock is worthless. And we get stuck with the company.

I swear, this whole health care thing is just a smokescreen to avert our eyes from this criminal behavior. Write your congressman. It's all you can do.




Don't even get me going about that GMAC bailout #III announced today, with no management shakeup. The UAW will live to vote again.

[Spats]

the 'middle class' is the primary mortgage defaulter, due to their materialism and desire for conspicuous consumption

Greedy homedebtors are part of the problem -- but greedy banks, corrupt ratings agencies, stupid institutional investors, and bribe-taking politicians and regulators formed the rest of the value chain, without which the crisis would not have been possible.

That's like blaming the victim of a Nigerian 419 scam or other con artist, while holding the scammer blameless. The victim is stupid or greedy, and the scammer is a criminal.

[cramer]

This was a program that was supposed to help low income first time buyers just 3 years ago. Now it's supporting a market, mostly in California, where families making 100,000 can actually buy an 800000 house, on your fucking dime.

Whats wrong with someone taking an fha. Me and my wife make 100k. But we sure as hell didnt buy an 800K house. We bought a 200K house. So did 5 of my other friends because of FHA and cheap houses. None of them paid over 250K. I pay taxes. They pay taxes. Its our fucking dime too that paying for this house. Ive never had the luxery of living with mama and dada like alot of people i know. Its pretty fucking easy to come up with a down payment when you have no fucking bills. I've been supporting myself since i was 17 years old. Paid for everything including my school. You think its a bad thing that someone like me, who sat on the sidelines gets rewarded with a new house, lower payment than i was paying in rent? Ive worked my ass off the last 20 years and paid a fuckload of taxes. Its about time i rewarded myself and the government did too, ffs.

You arent going to prequalify for a 800K house making 100k a year. Theres no fucking way. We only prequal'd for 300K and i wasnt willing to spend that much.

[Spats]

Spats... I'm not going to blindly support everything and anything done to help the market, but can you not see how a real estate market that further deteriorates ends up wiping out the middle class in and by itself?

Because it doesn't.

Home mortgages are non-recourse, which means that middle class defaulters lose their credit rating but little else. The banks are the ones who lose money in a default.

However, what we are doing is saying "Defaulters can't lose money, and the banks aren't allowed to lose money either because they paid for our reelection campaigns." But someone has to lose money -- and guess who it is? The American taxpayer!

Taxes are not only recourse obligations -- they cannot be discharged, even by bankruptcy! What we are doing is shifting $TRILLIONS in losses from big, politically connected banks (GS, JPM, BofA, Citi) to you and me.


That's bad enough. But look at some of the other consequences:

-Housing prices are such that it is impossible to purchase a home without going into crippling debt that is impossible to pay back, and can only be got rid of by finding a sucker willing to pay even more than you did before the teaser rate expires. How does mandatory crippling debt benefit Americans?

Hint: it doesn't. It benefits banks, which is why maintaining housing prices that no one can afford, by any means necessary, is our official fiscal policy.

-Bank lending has collapsed, which is why the economy is stagnating (since money is created by bank lending) and the only economic activity is being produced by our government borrowing and spending money. If prices collapsed, bondholders would lose -- but banks could lend again, because people could actually afford to buy houses, and our economy would restart itself. How does forcing the middle class to pay for the losses of the banking industry benefit Americans?

Hint: it doesn't. It benefits banks, which is why the Obama and Bush adminstrations have been willing to torpedo the entire US economy before allowing Goldman Sachs, JP Morgan, Citibank, or Bank of America to lose one penny of their $billions in profits.

[cramer]

However, what we are doing is saying "Defaulters can't lose money, and the banks aren't allowed to lose money either because they paid for our reelection campaigns." But someone has to lose money -- and guess who it is? The American taxpayer!

you can thank bush for that one. Passed a law in 2007 that on your primary home you foreclose or short sale on, you have no tax liability to irs. what a sham. Pisses me off so many people got off basically free and got to keep their cars, etc. All they took is a credit hit. Whoopidy doo. I have one credit card i rarely use. They arent necessary.

[Benny Profane]

Whats wrong with someone taking an fha. Me and my wife make 100k. But we sure as hell didnt buy an 800K house. We bought a 200K house. So did 5 of my other friends because of FHA and cheap houses. None of them paid over 250K. I pay taxes. They pay taxes. Its our fucking dime too that paying for this house. Ive never had the luxery of living with mama and dada like alot of people i know. Its pretty fucking easy to come up with a down payment when you have no fucking bills. I've been supporting myself since i was 17 years old. Paid for everything including my school. You think its a bad thing that someone like me, who sat on the sidelines gets rewarded with a new house, lower payment than i was paying in rent? Ive worked my ass off the last 20 years and paid a fuckload of taxes. Its about time i rewarded myself and the government did too, ffs.

You arent going to prequalify for a 800K house making 100k a year. Theres no fucking way. We only prequal'd for 300K and i wasnt willing to spend that much.

Well, first, read Spats posts above, he's on a roll.

And, yeah, i may have enhanced my argument with the 100000/800000 spread, although, as you may know, the loans that many took in your neighborhood out there recently had an even wider spread, because they were NO MONEY DOWN. Some of those actually went to million dollar loans. It's true. Maybe not now, but, to answer your question, what's wrong with FHA is the low down payment requirement, that combined with the 8000 tax credit on about a 225000 house, means NO MONEY DOWN, which is just plain wrong. You need to have people with skin in the game to make it work in a non recourse state like yours, or they will just walk away when it's underwater, as hundreds of thousands are doing right now. Why stick around when you're 200000 underwater? You could be there for at least ten years, maybe your whole life, if Japan is any indication. You'd be stupid if you didn't just walk. Trust me, the banks do it all the time when deals go bad in their world.

And, you're not "rewarding yourself" with a life of debt servitude to wood, drywall, and stone. Just the opposite. Be careful, man, you're OK, but your state is about to see a world of hurt this year and next with all the option ARM loans resetting and the banks releasing all the foreclosures to the market. It ain't over yet, and, I gotta tell ya, when I see SF bubbling back up again with ridiculous prices, I have to think that that area may be the canary in the coal mine for the double dip.


edit: bookmark this guy: http://www.doctorhousingbubble.com/ He knows your territory.

[ass-to-mouth]

"Free" government money? Check. Historically low interest rates manipulated by the Fed? Check. Easy credit for deadbeat loser first time buyers like Cramer and all his douchebag friends? Check. All of the elements that caused the housing bubble are still in place. Now instead of your friendly neighborhood bankster providing the fuel for the fire it's your friendly neighborhood turd burgular Barney Frank & his crony bloodsucking dirt pimp Johnny Isakson. Nothing has changed.

[woodstocksez]

... Wages have been stagnant for the last decade, the stock market is actually down a little, so WHAT THE FUCK justifies the stupid inflation of home prices? One thing, and one thing only. Real easy money. And, it still continues. Barney Frank wants to raise the FHA loan limit to 800000 fucking dollars! This was a program that was supposed to help low income first time buyers just 3 years ago. Now it's supporting a market, mostly in California, where families making 100,000 can actually buy an 800000 house, on your fucking dime. That is just so fucking stupid. They just want to re-inflate the bubble, and it just makes me and anyone else who have been trying to do the right thing feel like a fucking chump. But, they can't do it. They can huff and puff, but it won't work, in the end.

Amen, brother. No matter what, we've gotten screwed by this bubble because I planned to move (up) a long time ago, but refrained (mostly) because of the dramatic increase in prices that started in about 1997, especially the second wave that started in 2003 or so.

I agree with Spats and Benny that prices have to be allowed to find their "natural" level. Perhaps moderating the rate of decline is desirable (I'm pretty sure Spats would disagree), but, long term, no good can come of avoiding reality.

And Benny is right on with his numerical example above, at least in the not too distant past: http://www.washingtonmonthly.com/fea...ace-wells.html. (Edit to add - While numbers like that may not be accurate any more, actions taken to artificially pump that ratio up, even if not to that level, are still going to produce pain on down the road. If things are as Cramer indicates in his post, that's not bad.) From that April 2004 article:

"Truth is, in most of the country there's no housing bubble. Perhaps the crucial ratio from which economists determine whether housing markets are out of whack is the ratio of home prices to annual income. In most of the country, it is modest, 2.4:1 in Wisconsin, 2.2:1 in Kentucky, 2.9:1 in Illinois.

Only in about 20 metro areas, mostly located in eight states, does the relationship of home price to income defy logic. The bad news is that those areas contain roughly half the housing wealth of the country. In California, the price of a home stands at 8.3 times the annual family income of its occupants; in Massachusetts, the ratio is 5.9:1; in Hawaii, a stunning, 10.1:1. To some extent, there are sound and basic economic reasons for this anomaly: supply and demand. Salaries in these areas have been going up faster than in the nation as a whole. The other is supply: These metro areas are "built out," with zoning ordinances that limit the ability of developers to add new homes. But at some point, incomes simply can't sustain the prices. That point has now been reached. In California, a middle-class family with two earners each making $50,000 a year now owns, on average, an $830,000 home. In the late 80s, the last time these eight states saw price-to-income ratios this high, the real estate market collapsed."

[Benny Profane]

Yeah, but, you're not mentioning one thing. Many many people in those non bubbled places are all maxed out on HELOC loans, which has been a illusory rise in their standard of living over the last decade. Game over on that one, and now they pay - if they have a job.

[liv2ski]

"Truth is, in most of the country there's no housing bubble. Perhaps the crucial ratio from which economists determine whether housing markets are out of whack is the ratio of home prices to annual income. In most of the country, it is modest, 2.4:1 in Wisconsin, 2.2:1 in Kentucky, 2.9:1 in Illinois.

There you go, I was talking to a much younger buddy, saying that when I bought my first home the sales price to annual income ratio was 2:1. Now where I live, it is easily 8:1-10:1 which is just fucking nuts. He and his wife to be make an easy $150k between them and are looking to buy around $350-$400k so 3:1 if even. Cool, they will be fine.

[cramer]

And, you're not "rewarding yourself" with a life of debt servitude to wood, drywall, and stone. Just the opposite. Be careful, man, you're OK, but your state is about to see a world of hurt this year and next with all the option ARM loans resetting and the banks releasing all the foreclosures to the market. It ain't over yet, and, I gotta tell ya, when I see SF bubbling back up again with ridiculous prices, I have to think that that area may be the canary in the coal mine for the double dip.

Well i guess its how you look at owning a home. I bought on a 2:1 ratio, so im not too worried about it. I could rent the place out for as much as my mortgage is easily. As for my state and all these loans resetting, i really couldnt give a collective fuck. Im already taking it in the ass on taxes, whats another couple grand a year they take from me. Ya, it fucking sucks ass that all these people get to walk free. But the value of my home is of no concern to me. In 15 years i might care when my daugher graduates from high school. But until then, it really doesnt matter. I'm not going anywhere.

[Spats]

Well i guess its how you look at owning a home. I bought on a 2:1 ratio, so im not too worried about it. I could rent the place out for as much as my mortgage is easily.

And that's what it's about. Cash flow, cash flow, cash flow. If you can generate cash on a 30 year fixed, INCLUDING taxes, insurance, and 2%/year for maintenance and repair, then friggin' go for it. It's all the people that bought on the "greater fool" theory that deserve their ass handed to them.

Benny: another big part of the SF puzzle is that no one in the city has children. That money all goes straight into rent/housing.

a2m, as usual, is obnoxious yet perceptive.

[skier666]

SF mega-mansion update....

2845 Broadway Is Withdrawn In 2010 After 1400 DOM At $65,000,000

Speaking of properties that were withdrawn from the MLS at the end of the year, after 1400 days on the market at $65,000,000, and without a single official reduction, on Friday the first the listing for 2845 Broadway was withdrawn from the market without a sale.

As we wrote in 2006 when the property was first listed:

Apparently the original two structures at 2845 Broadway sold for $32 million in November 2002, cost of construction to date is estimated to be $18 million, and the “Buzz among brokers” is that it will cost another $8-16 million to finish the property. Just to clarify, for $65M you won’t be getting any “interior walls, ceilings and finishes”.

No update on the current finish of the property (or whether it will soon return to the market with 1399 fewer days on the market and no official reductions).

Full read and comments here:

http://www.socketsite.com/archives/2....html#comments

[cramer]

And that's what it's about. Cash flow, cash flow, cash flow. If you can generate cash on a 30 year fixed, INCLUDING taxes, insurance, and 2%/year for maintenance and repair, then friggin' go for it. It's all the people that bought on the "greater fool" theory that deserve their ass handed to them.

Benny: another big part of the SF puzzle is that no one in the city has children. That money all goes straight into rent/housing.

a2m, as usual, is obnoxious yet perceptive.

That is a great point about no kids. That alone saves you 1000 a month to go to mortgage at least. if i didnt have a kid, a 3000 a month mortgage isnt looking so bad. not one of my friends that lives in the city has a kid.

[Platinum Pete]

I'm hearing more and more about folks with modest ARMs -5/1s and such resetting to 1 - 1.75% lower than their previous rate, saving hundreds per month. That's give many some breathing room on HELOCs and other debts. Perhaps this is all part of the Obama/Bernanke/Geithner conspiracy to take the crash out of the wave - if such a plan or conspiracy really is that coherent. Too bad the whole credit card industry jacking rates up is working in the opposite direction, not to mention those truly predatory bad loans that are resetting to LIBOR plus 6% or more.
Renegotiate your credit card debt, sell that fancy car and buy a beater, live with less luxury, shop Goodwill, and come out of this economic mess without too much hurt. Nah, most folks don't have impulse control - they are signing up for 90days same as cash for a bigger TV at BestBuy.

[Benny Profane]

Benny: another big part of the SF puzzle is that no one in the city has children. That money all goes straight into rent/housing.

Yeah, well, that's what happens when you become the gay mecca of America. Not that there's anything wrong with that. Manhattan and the nice close suburbs are inflated from that, too.

Seriously, though, I've been fighting the DINK syndrome (Dual Income No Kids) most of my adult life. The housing market, and many other prices, can be so skewed in areas where one has to compete with two income households. I've only have half of that.

[meatdrink9]

I'm sensing a weird optimism in my investing grounds these days. Lots of action. I'm going to flip 4 houses this year as a means to earning cash for buying rentals since financing has dried up for those of us with more than 4 mortgages (AKA, the experienced guys). I'll let you know how the flips go. I'll be listing one tomorrow. I paid 34K. Sank roughly 10K in the remodel will list for $88,500.

[Missing Sock]

I'm sensing a weird optimism in my investing grounds these days. Lots of action. I'm going to flip 4 houses this year as a means to earning cash for buying rentals since financing has dried up for those of us with more than 4 mortgages (AKA, the experienced guys). I'll let you know how the flips go. I'll be listing one tomorrow. I paid 34K. Sank roughly 10K in the remodel will list for $88,500.

How much house can you get for 34k? Good luck with the flips.

I agree with you on the optimism. We had three new closings in our condo building in the last 3 weeks, probably more than we had had in the previous 3 months

[cramer]

Yeah, well, that's what happens when you become the gay mecca of America. Not that there's anything wrong with that. Manhattan and the nice close suburbs are inflated from that, too.

Seriously, though, I've been fighting the DINK syndrome (Dual Income No Kids) most of my adult life. The housing market, and many other prices, can be so skewed in areas where one has to compete with two income households. I've only have half of that.

another thing i know 2 of my buddies scored on is they control the rental lease on their flats in the city. The city has some kind of rent control bullshit going on. They are paying like 1000 a month, a rate they signed up for 15-20 years ago. So, they have a 5 br flat, renting rooms out anywhere from 5-800 a month. To boot, they are making 80-100K. They are living rent free, pocketing rent money and have the 150K to throw down on a 600K pad in the city. Although neither of these 2 did that. They put 150K down on a house 2 hours north of the city renting them out. Benny, funny you say gay mecca, they are both gay. classic.

[Benny Profane]

Manhattan is full of stories like that, straight or gay. Rent control is like winning the lotto. Some Manhattanites have much cooler second homes out in the country.

[cramer]

Manhattan is full of stories like that, straight or gay. Rent control is like winning the lotto. Some Manhattanites have much cooler second homes out in the country.

manhattan has rent control too? ya, happy go lucky stories. the bastards. Ones been living rent free since i meet him in '96. STILL living in the same flat. I was like wtf. I'd never heard of rent control till moving down here. But im from the boonies outside of portland, so no suprise. Meanwhile i was paying 1500 bucks a month in the suburbs of the city. what a crock.

[mock vomit]

I'm sensing a weird optimism in my investing grounds these days. Lots of action...

I've heard from a few other agents that some Sellers are thinking the market "has turned" and actually starting to raise listing prices. I'm only guessing, but assume it HAS to be based on the media crap about "average/median sales prices rising 5 straight months", etc.

I think it's a BIG BIG mistake myself. I personally don't think we've seen the bottom yet... and the aching in my knee sez it might be a bigger double dip than most anyone is expecting. I think we could still have more than a year or two on the down side before it starts a true leveling off. Then who the hell knows when actual prices themselves* could head up? (*not "average/median sales prices", but true same unit kind sales)

I've still been preaching "doom and gloom"... had one guy who called me about his home over a month ago (which I had sold twice before over the last 10 years and who is now coming up on the end of his second listing with other agents) who I told I wasn't even interested unless he was willing to commit to a price reduction before we got past the first couple phone calls. I told him I thought that the agents who will still be in the business a couple years from now are really interviewing Sellers to see how motivated they really are, and not a process of Sellers interviewing agents they might list with. He hasn't called me back. Yet.

I hope I'm wrong about my dour predictions... will be listing my own home sometime the first half of 2010.

[Rubicon]

might be a bigger double dip than most anyone is expecting.

A lot of people have been talking about a double dip for a long time, and since the majority of people are wrong most of the time...

[meatdrink9]

Missing sock, it was a steal. REO. roughly 1200 sq ft. Awesome original woodwork that just needed love. I'll post up the remodeled pics tomorrow.

Mock Vomit, Yeah I'm still playing conservative (the way I always have, the reason why I'm still in the game). I won't buy anything that doesn't work in a number of ways (rent or flip). It will be interesting to see what type of response I get. I've really only been buying for the last couple of years.

[splat]

I got a major reduction in my mortgage monthly since appraisal values have gone down and I like that.