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Subprime loans, my foot!
18-Dec-2007
That subprime fiasco, which is likely to mount losses between one-half and one trillion dollars, is just a small part of the true real estate problem which little by little is starting to take shape; a problem that Wall Street, politicians, economists, and the public at large have been unwilling to talk about, much less confront. And that is, the multi-trillion dollar excess valuation of real estate in the nation, in both residential and commercial markets; something which for the next 3 to 5 years, at a minimum, will have the US immersed in a recession, a modified version of the one experienced in Japan throughout the 90's and the first 2 years of the new millennium.
With that introduction, and my crystal ball over a table at center stage, I bring a vision that comes into focus as realities zoom in; a vision which could change drastically the way Americans will be looking at politics by mid-2008 with elections just four months away. By then, there will be two candidates in place running for the White House, with an overwhelming majority of Americans wishing there was somebody else they could vote for, someone able to get them out of a snowballing real estate mess, then starting to accelerate. Unfortunately, it will be too late, and we'll be stuck with two candidates from two parties that always get us into these predicaments that economists and politicians simply dismiss as economic cycles that clear our capitalist system of these so-called excesses, what some describe as accumulated economic debris.
Economic cycles perhaps... but very definitely predictable and largely avoidable. At least the government should advocate and adopt policies that can dampen, flatten that economic sine wave that dislocates not just capital, but people's lives. These cycles have less to do with the workings of a free market, and a lot more to do with lack of necessary governmental controls to curb irresponsible, illicit business conduct and also restrain greed out of control, as it's always the case with real estate, creating what some may consider punitive levels of taxation. But, of course, our love of predatory capitalism does not permit any tampering with the Wild West way of doing things.
Realtors throughout the country, in their ever present monopolistic ways and self-serving behavior ˆ holding a good part of the blame in our present state of affairs ˆ continue heralding their lies, forecasting that housing will buck up next year. Never mind that prices have nowhere to go but down, 20 to 30 percent depending on which metro area or region. They and those who suck from the same udder ˆ the local newspapers for one ˆ are inundating us with ridiculously optimistic articles and informational data skewed to tell us something they wish to be true, but that is not.
Polls tell us that most people feel that their houses are keeping their value. Of course, that will always be the case until they have a true, non-speculative, "need" to sell; home prices, more so than commercial properties, have always been sticky, sliding down slowly in contrast with the exuberance exhibited on the way up during those greedy and obscene "flipping days."
And now that we have reached the limits of affordability and have touched the ceiling, we simply have no room left to grow∑ just like the price of tulip bulbs in Holland almost four centuries ago. Has it occurred to Realtors, or anyone else for that matter, that when you talk about housing costs you have to go beyond the mortgage payments and include all other associated expenditures including those of maintenance and energy costs required to keep livable those 2,000-3,000 sq. ft. palacettes? Undoubtedly these things are known but kept in the hamper with all the other unmentionables, but laundry day has finally arrived.
This past weekend, Portland-Oregon, an area touted as one of four in the nation where residential real estate prices "presumably" remain steady, was home to the largest homes-auction on record, 240; all owned by one builder. There were 141 homes sold, all but 6 of them below the so-called "reserve price" which according to the builder, Pollock, represents "his cost"∑ which can mean just about anything ˆ believe me, I know; that's my field of expertise in an industry that I intimately know.
But I didn't have to attend the auction. I already knew that prices in this metro area have decreased from 10 to 15 percent of those a year ago, although Realtors and builders tell us a much different story, drawn from flawed or skewed data, to prove a senseless argument that they are sure to lose. And here in the Portland-Vancouver area we still have a long way to go, perhaps another 15 to 20 percent drop in prices... or more.
And with little or no equity in our homes, overnight we have become from "psyched rich" to "resisting poor"... with our ATM-homes unable to spit out any more funds, and our homes finally becoming what they always were: brick, mortar and a roof over our heads∑ and absolutely nothing else.
But these real estate ills are not all our wonderful Fed has bestowed on us in its desire to please the White House; as if that weren't enough, they have marched us into an era of stagflation.
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This is How Real-Estate Values Dropped
by ShamshirH (not verified) on Tue Dec 25, 2007 06:34 PM PSTSub-prime mortgages were just an excuse. Subprime rate loan payments became an issue AFTER the values dropped NOT BEFORE. Because those of us who financed using subprime did so assuming the prices would keep moving up 17%/year and when values fell, it was no point to refinance a loan that was more than the house-value itself, so we sold cheap as Short-Sale or let the house go into foreclosure which accelerated the market-value drop even more.
Back to the topic, this is how this whole mess started: The Republicans, particularly Bush do whatever they do to give more profit to corporations. There are 2 FAST ways to boost corporation profits: WAR and ENCOURAGING INVESTORS TO PUT THEIR MONEY IN STOCK-MARKET.
Our dear president Mr. Bush did both. Started the war with Iraq based on lies and by scare-tactics. And right after the war was put in place, the media puppets started dancing with their "Real-estate Bubble" tune and their mass-manipulation started. Hundreds of Radios, TV stations, Internet sites kicked in and a negative real-estate news wave hit the shores. Slowly the investors started listing more and more homes in the market and the realty listing volumes trippled between Jan. 2006 and July 2007. At the same time the Dow-Jones rose from 10,400 to over 14000 points.
America's real-estate prices are not too high compared with other popular world destinations.
A large city like Los-Angeles has homes from $40,000 to $15Mil and San Francisco area has homes from $150,000 to $20Mil but in majority of America an average home is selling for $150,000 to $200,000. That's cheaper than most of Europe, cheaper than Japan and about the same as Australia and Iran(in dollar).
The ability of people to buy these homes depends on interest-rates and US economy/jobs/income. Assuming a 6% rate, with a $70,000/yr income one can afford a $350,000 home and with a $100,000/yr income one can afford a $600,000 home. With incomes under $40,000 one can easily purchase a house for $150,000 in most of our Southern/central states, so there is no problem but the main problem mentioned.
As soon as the Republicans go, again assuming the replacement is not already bought and paid for, the real-estate market will begin it's slow and steady rebound. First all of the short-sales and foreclosure need to get purged out and sold, then inventories get low and sellers begin listing their homes at higher prices, and assuming the rates don't rise over 7%, the market should be stabilized at a level about 12-15% below late-2005 highs after recovery period completes which probably takes about 2 years(after election).
HAHA
by REALTOR (not verified) on Thu Dec 20, 2007 04:57 PM PSTWell i am a realtor and i would agree that in order to make a living as one you really need to be FULL OF (KOS VA SHER) period. If you are not able to do that you will not have money to feed yourself or family. I am now considering other career options. If I had a dime for every time an uninformed realtor wearing fake non prescription glasses I EMPHASISE NON PERSCRIPTION GLASSES...(TO LOOK EDUCATED) and a three piece suit, was able to sell his bullshit to Iranian families I would be able to live off of the proceeds for the rest of my life. I would hope the real estate boards in all jurisdiction's requirements for licensing would at least require a bachelors of some sort, but today in the U.S and Canada the requirements are a high school diploma or a GED, considering many realtors are dealing with million dollar homes and people's financial lives the requirements are a joke. I went to university studied commerce, and my knowledge of economics and finance has not in any way helped me get listings. Top agents usually just made it in high school or have a GED, however they present them selves like PhDs, and dumb ass Iranian families buy in to it, it makes me ...how do u say aaa...throw up!! My mistake was that i actually went to University i guess.
HAHA
by REALTOR (not verified) on Thu Dec 20, 2007 04:57 PM PSTWell i am a realtor and i would agree that in order to make a living as one you really need to be FULL OF (KOS VA SHER) period. If you are not able to do that you will not have money to feed yourself or family. I am now considering other career options. If I had a dime for every time an uninformed realtor wearing fake non prescription glasses I EMPHASISE NON PERSCRIPTION GLASSES...(TO LOOK EDUCATED) and a three piece suit, was able to sell his bullshit to Iranian families I would be able to live off of the proceeds for the rest of my life. I would hope the real estate boards in all jurisdiction's requirements for licensing would at least require a bachelors of some sort, but today in the U.S and Canada the requirements are a high school diploma or a GED, considering many realtors are dealing with million dollar homes and people's financial lives the requirements are a joke. I went to university studied commerce, and my knowledge of economics and finance has not in any way helped me get listings. Top agents usually just made it in high school or have a GED, however they present them selves like PhDs, and dumb ass Iranian families buy in to it, it makes me ...how do u say aaa...throw up!! My mistake was that i actually went to University i guess.
ARM is one of the worst types of mortgage types...........
by Sasha on Wed Dec 19, 2007 05:49 AM PSTARM (adjustable rate mortgage) are one of the worst types of mortgages available. It allows buyers to get into a home that otherwise, they would not be able to afford which in time leads to undue financial stress and eventual foreclosure. It is why we are having so many foreclosures.
I would much rather have a fixed interest type mortgage and buy a home within my reality based income. Besides I refuse to impress the Joneses while I stress out financially. It just does not make any sense to me.
Also, all the current foreclosure homes has flooded the real estate market making it a buyer's market.
solh
Shiva
by David ET on Tue Dec 18, 2007 12:48 PM PSTForeclosure process in each state is different. Here is what would happen in California.
After one stops paying mortgage, the Banks starts sending letters and depending on how they are communicated and their procedures it may take few months before they issue a notice of default which in that basically they ask the borrower to pay the unpaid balance plus late charges etc within 3 months. If not responded , they file another notice of trustee sale in which they will give another 21 days to pay the loan in full plus late charges and legal fees or they will have the house sold at court house.
On the day of trustee sale if the house is over-encumbered it will go back to the bank and it takes some time to get through their REO (Real Estate Owned) department which will also send letter notice asking to vacate. Depending on communications and their procedure it may take some time until they serve with a notice to vacate which if responded , they will have to go to court and obtain an eviction notice with a date on it which on that day the sheriff will come and ask borrower to leave. If you homeowner has not moved by the notice date, they will have to keep your personal belonging for s certain time before they give it to state for auction, so usually people move few days before.
In California "usually" the real estate loans can not attach personal property or personal accounts and the home is all that they can come after.
Iit will take at least 5 months to even a year at times until one has to leave the house.
These are general procedures in summary and in specific cases is best to consult a real estate attorney.
To Shiva
by Shiva's friend (not verified) on Tue Dec 18, 2007 11:41 AM PSTShiva, Your question is not much of a finance quesiton and more of a dooms day scenario.
They can come and repossess the house after two or three non-payments of the monthly mortgage dues.
Sorry to hear that you do not care about your credit but I also understand that you can not afford the house.
You know that they will eventually come so find a small place to rent and empty the house and then rent it as furnished or unfurnished rooms to students with month to month lease. Make sure you get first and last from them. Once they come to repossess, students will certainly have their one month notice either from you or the bank.
I have never done such thing, but I am thinking for a woman who is putting a lot on the line and she needs to preserve her cash. From the momemnt you make such decision, stop paying mortgage.
Be prepared for potential bank account freeze or credit cared lock out and all these bad things. Make sure you think about all of these.
If it was me, I would see if I can bring in roommates without losing the hosue. Just move in to one room and rent the rest...
Good luck and you are not the only one....
To David
by Shiva (not verified) on Tue Dec 18, 2007 09:45 AM PSTI don't have any equity in my house and it's a long story (husband gone wrong). We bought it on an adjustable loan, no downpayment, etc. He is out and I just don't want to have the hassle of Short Sale or anything like that. I don't care about bad credit anymore, I just want out. I just want to know what will happen if I just stop NOT paying the mortgage. What will happen and how long before they actually call a cop to my house and kick me out?
Depressing but true
by Niki Tehranchi on Tue Dec 18, 2007 09:26 AM PSTThe L.A. sellers/realtors have obviously not gotten the memo!
good article
by sarmayeh daar (not verified) on Tue Dec 18, 2007 08:40 AM PSTI think this was a well-timed article. Despite what many might think, what he is saying will indeed take place. Just watch the rest of your savings and do not mix finance with prayers. You need to be realistic. If you have no equity in your house and you have adjustable loans and insecure job, just be realistic and see if you can seel with loss and rent a small place and just hold on to your savings, this is a tough world to come.....
Shiva
by David ET on Tue Dec 18, 2007 08:07 AM PSTWithout knowing the details it is hard to answer but here is one option:
If you can not make the payments, you can contact a realtor with SHORT SALE experience and put the house for sale (even if it may be worth less than your loan amount). Reduce the price till sells. The bank this way will cover the difference. It will also have a less of a negative effect on your credit versus foreclosure.
Author's Simplistic understanding
by David ET on Tue Dec 18, 2007 08:09 AM PSTAbout your comment : "Realtors throughout the country, in their ever present monopolistic ways and self-serving behavior ˆ holding a good part of the blame in our present state of affairs "
Your view of the economic affairs of US and the world seem to be EXTREMELY simplistics. Realtors can not sell you anything if there loans or credits are not easily available (as they can't today).
Excessive injection of easy money in to the US (and EU) market was the cause of the bubble and the ones to blame are government, Fed and banks.
Why they did it? That is a whole article which I do not have time to write for now!
I am thinking about foreclosure
by Shiva (not verified) on Tue Dec 18, 2007 07:59 AM PSTHow do I go about it? Can I just not pay my mortgage and wait for someone to knock on my door and tell me to move out and lock me out of the house? Has anyone ever done something like this? I just can't afford it anymore but want to wait until the last minute and let them kick me out. How long will it take? What will actually happen? I appreciate if anyone with personal foreclosure experience gives me some advice. thanks
XXX
by Omid Hast on Fri Feb 01, 2008 09:15 PM PSTxxx
Add oil market bubble to it too
by Anon (not verified) on Tue Dec 18, 2007 05:37 AM PSTI think part of the reasons we're not told of the overvalued real estate problems is that some of the lenders have already written down billions of dollars in net profit losses on subprimt mortage losses. Companies such as Merril Lynch, Fannie Mae and other have already taken some big hits and will take some more in the near foreseeable future. These are giants taking hits. Not like Enron which was overtaken by some old farts and some ambitious accountants. These are pillars of US capitalism and investments companies who have racked up ungodly assets and profits. Only they can absorb such huge losses.
While the rest of your arguments sounds right and we should see whether or not they'll hold true in the next couple of years.
I'd also add the oil market bubble to this economic mess, which like the dot com and real estate bubbles, is leading small time investors to invest their nest eggs into the energy and oil markets. While it appears that oil values should go up due to accelerating high daily demands around the world, I think the big time inverstors (like Merril Lynch and other pillars :-) will take out their profits and leave the small timers in the cold, once again.