I am in the final stage of the publication process. I will be receiving my proof from the publisher this week. Once I approve it, the book will be available through the publisher's website. Shortly thereafter, it will be available on Amazon.com.
I would give you a teaser of the content, but you have already seen most of it. It is scattered throughout this website in the various analysis posts. The readers and commenters on the IHB were instrumental in making this book possible. The daily feedback on the ideas and the presentation of opposing views has forged this work into an exhaustive review of the housing bubble. Thank you, thank you all.
If the sun refused to shine, I would still be loving you. When mountains crumble to the sea, there will still be you and me.
Kind woman, I give you my all, Kind woman, nothing more.
Little drops of rain whisper of the pain, tears of loves lost in the days gone by. My love is strong, with you there is no wrong, together we shall go until we die. My, my, my. An inspiration is what you are to me, inspiration, look... see.
And so today, my world it smiles, your hand in mine, we walk the miles, Thanks to you it will be done, for you to me are the only one. Happiness, no more be sad, happiness....I'm glad. If the sun refused to shine, I would still be loving you. When mountains crumble to the sea, there will still be you and me.
So who is going to go under first, WAMU or Lehman? Will either one of them survive the week?
What do you think is going to happen now that the government owns Freddie Mac and Fannie Mae?
You must admit, we live in interesting times. Major financial institutions are imploding or being bailed out by the government. It isn't something you see every day...
Are we selling out tomorrow for today? The takeover of Freddie Mac and Fannie Mae has opened the door for a massive government bailout. Since we are already running a large budget deficit, any bailout would be debt financed. As such, we are borrowing from future tax receipts to pay today for the sins of lenders, speculators and others who foolishly bought more house than they could afford.
The whole mortgage market bailout is yet another false hope for troubled homeowners. The bulls are somehow convinced that the problem of insolvency can be rectified through even more borrowing. People have too much debt already. That is the problem. Giving them more is not the answer. I believe you are going to see two things happen with the government in control: 1. There will be more workouts and refinancing of existing debt. 2. Credit standards will continue to tighten and interest rates and fees will continue to rise for new mortgages. There is not much the government can do with the existing toxic loans it must now make good on. It will do what workouts it can, and it will foreclose on the rest. It has a great deal of control over the new mortgages it writes going forward. It seems unlikely to me that the government would suddenly embrace all the practices that proved so disastrous during the bubble in order to prop up prices. It is one thing to minimize the losses you have, it is quite another to create new losses through foolish lending practices.
The cynics (and the bulls) believe the government will lower credit standards and write a plethora of new bad loans simply to support current price levels. This would amount to a huge, direct government subsidy to homeowners. The Government is stupid, and they do have political pressures to deal with, but they are not that stupid. Right now the focus is on limiting the damage and letting the bubble unwind without losing the secondary mortgage market causing a complete seizure of our credit markets. The government is not concerned with resale house values in Irvine, California. Everyone knows prices must come down, the only issue is how can this occur with the least amount of disruption to our financial system. Prices will stabilize, they will just do so at a much lower price level -- A price level supportable by incomes where the borrowers are solvent and not prone to default on their loans.
Today's featured property is a short sale that has been garnering a lot of attention in Northwood. Apparently there are multiple offers. After 47 days on the market, I guess everyone just discovered it... Or perhaps the realtors are lying...
You have the power. It is A Buyer's Market. Did you ever think you would see properties under $200/SF again? How about $162/SF? Today's featured property caused one commenter yesterday to opine, "This must be bottom." Is it? The price drops have been so dramatic and come so fast on many properties that people can't get their mind around the valuations. A property selling for 26% off its peak purchase price of just two years ago seems cheap. When viewed through the lens of 2006 prices, it is. However, when viewed through from the perspective of fundamental valuations, a property like today's featured property is still overpriced. People did not put much effort into understanding prices when they were rising, after all, prices always go up -- not. People assume that market prices are fair value and any discount from that price a bargain. When viewed from a broader perspective of valuations based on rents and incomes, the degree of price inflation becomes clear, and the amount prices have yet to fall also becomes apparent. Today's featured property is probably closer to the bottom than to the top, but at $559,900, it still requires a rental rate of $3,500 a month to reach a breakeven threshold for an owner-occupant. Does this look like a $3,500 a month property to you?
Is the sky really falling? I guess it depends on whether or not you associate falling real estate prices with the end of the world. Real estate prices are falling, and they will continue to do so until prices are affordable again. With all of the talk about stabilizing the housing market, people overlook the benefits of affordable housing. If people can live in a property and only spend 28% of their income on it, they have money left over for other uses. The economy will benefit from lower prices as discretionary consumer spending will increase. Of course, if you believe in perpetual Ponzi Scheme financing, we can always fuel our economy on ever-increasing debt loads justified by inflated real estate values. However, we just tried that, and so far the results haven't been too encouraging. We grossly misappropriated resources to non-productive uses, we overbuilt home improvement shopping centers, and we employed too many people in real estate related professions. The inevitable collapse of the Ponzi Scheme has left us deeply in debt, with an insolvent banking system, and with an economic recession. It will take many years for the California economy to readjust from the housing bubble just as it did in the early and mid 90s. The allocation of resources must change, and it will not be a pleasant process. I hope the California economy that emerges is rooted in something productive rather than another unsustainable Ponzi Scheme.
Today's featured property is another loser in our real estate game of musical chairs. When the music stopped, today's owner had taken out all the equity and left the lender is without a chair.
A few Fridays ago, I profiled some homeowners who conservatively paid off their mortgage, and now they will have a great equity nest egg for retirement. This is how it should be done. Today's featured property owners did the opposite. They bought ages ago for very little money, they HELOCed themselves into a massive debt, and now they will probably sell and end up with nothing.
Living life well is about balance, and the argument can be made that HELOC spending to "live for today" has its place. How much is too much? Is any amount OK? Many of the properties that I have profiled had evidence of HELOC abuse by previous owners. Many people pulled out $200,000 while their houses went up $500,000. They lived on their HELOCs and still sold for a hefty profit. Were these people foolish and irresponsible? It certainly appears now that the foolish ones were the ones who didn't refi and HELOC themselves to the max in 2006. Those people got the full benefit of the appreciation turned to income. Of course, those people now have bad credit, but few, if any, of them are paying it back. I know what I believe to be right, but I am interested in hearing your opinion: How much is too much HELOC use?
