Pearl Harbor Day was Sunday, December 7. One of the enduring images of “A date which will live in infamy“ is the wreckage of the USS Arizona. One thousand one hundred and seventy-seven crewmen died aboard the USS Arizona that day. The sunken hull sits quietly submerged beneath the waves.
Americans were not prepared for World War II. Peacetime isolationism and lingering problems from the Great Depression left us ill prepared for the challenges our nation faced. We ultimately prevailed, and the peacetime that followed ushered in a new era of prosperity in the United States. We are only now getting a taste of the economic upheaval of the Great Depression, and as a society, we are equally unprepared for the consequences. We will survive, and hopefully we will begin a new era of prosperity. However, some of the images of The Great Housing Bubble will also endure (I hope).
Some historians have argued that the military made a critical error
having so many ships in port at Pearl Harbor. We did not anticipate the
attack, and we were not prepared for it. Like the USS Arizona, many homedebtors today are underwater. Their lack of preparation for this catastrophe has left them deeply in debt with little hope of recovery. For those who became dependent upon a lifestyle of mortgage equity withdrawal, this is the end of times. Many are hoping our new President will be a messiah. They cling to false hopes for a bailout that will allow them to go back to living the good life of Ponzi Scheme financing. That isn’t going to happen.
Today’s featured property is another HELOC abuser who lives on Arizona and is just as underwater as the ship.
My car got repossessed this morning Harder times I haven’t seen in years Able to throw me a life preserver ‘Cos I’m about to drown in my own tears
The Federal Government is contemplating rebuilding the housing market on shaky ground by attempting to lower mortgage interest rates to 4.5%. Now that they control the GSEs, they might be able to do it—at least temporarily. The Federal government’s current borrowing costs are very low. Current yields on 30-day treasury Notes are essentially zero, and the yield on 10-year Treasury Bills is at its lowest level since… I don’t know if they have every been this low.
All this means that the government can act like a bank and loan profitably even at 4.5%. So why do they want to do this? It is one way of temporarily supporting prices giving them the ability to control the implosion.
Interest rates went down during the price decline in the early 90s.
That softened the impact and made the decline take somewhat longer.
When interest rates are declining, bubbles take longer to deflate, and
the bottom is at a somewhat higher price point. When interest rates are
increasing, bubbles deflate faster, and the bottom is at a lower price
point. Mortgage Interest rates during the Great Housing Bubble were at
historic lows so a repeat of the steady decline in rates witnessed
during the 90s is not very likely. Higher interest rates translate into
diminished borrowing, lower prices and a lower bottom. A lower bottom means large bank losses and a weaker economy. Therefore, the government wants to control and limit the drop in house prices as much as they can.
During the early 90s while prices were declining, interest rates
were also declining from 10.6% in 1989 to 7.2% in 1996. These 30%
declines in interest rates made housing more affordable and helped
limit the price declines in the early 90s. If interest rates had not
declined, house prices certainly would have dropped further than they
did. If the Federal Government were to engineer a mortgage interest
rate decline of 30% from the 5.8% they were during the bubble down to an
unprecedented 4.1% to match the debt relief of the early 90s, it would
help control the implosion, but it will only temporarily arrest the
decline of prices. As with any government attempt to manipulate prices,
it will probably have unintended consequences.
Of course, also like a bank, the government would be borrowing short to loan long, and if the government’s cost of capital were to increase, they would lose a lot of money. In short, any attempt by the government to lower interest rates would be temporary. They would not hold to 4.5% interest rates forever as a permanent housing market subsidy. Therefore, anyone foolish enough to buy when interest rates are 4.5% would know that their future buyer (remember Your Buyer’s Loan Terms) would be paying a higher interest rate. So what does that mean for future home values?
I don’t know if I can state this emphatically enough, so I will type it in realtorese:
ANYONE WHO BUYS AT 4.5% INTEREST RATES IS A FOOL WHO WILL LOSE MONEY!!!
The table above should be very handy to anyone contemplating buying at 4.5% interest rates. You can calculate the loss of home value based solely on increasing interest rates in the future. It is possible we will see 10% interest rates again? You only have to look back to the late 80s/early 90s to see interest rates that high, and that is half of what it was in the early 80s. In my opinion, 8% interest rates are likely during the next several years. When the FED starts raising interest rates after the current crisis is over, 8% interest rates may come faster than you think.
Today’s featured property is another speculative venture funded by easy money that is turning out badly. These are not too difficult to find.
All
Housing Bailout Proposals Are Doomed to Fail, Fraught with Moral Hazard, and
Intended Merely to Encourage Homeowner Denial Says Housing Bubble Cassandra,
Lawrence Roberts, in New Book.
Lawrence
Roberts, considered the Housing Bubble Cassandra, in his new book, The Great
Housing Bubble, asserts that all housing bailout proposals will fail. He contends
these programs have a built-in moral hazard guaranteed to promote foolish
borrower behavior, and that the real purpose of these proposals is to promote
homeowner denial to keep them enslaved to their lenders.
Irvine, Calif., Dec.
6, 2008 – Lawrence Roberts, author of “The
Great Housing Bubble,”
claims the main problem with all bailout plans is the moral hazard they create.
He contends, “Those who did not participate in the bubble and instead behaved
in a prudent manner would be penalized at the expense of those who were
cavalier about risk. In one form or another either through free market impacts
or direct subsidies from the government paid by tax dollars, these bailout
plans all ask the cautious to support the reckless.”
Roberts observes
that many homeowners held out hope that if they could just keep current on
their mortgage long enough, the government would come to their rescue in the
form of a mandated bailout program. According to Roberts, part of this fantasy
was not just that people could keep their homes, but that they could keep living
their lifestyle as they did during the bubble. He notes that few borrowers seem
to realize was any government bailout program would be designed to benefit the
lenders by keeping borrowers in a perpetual state of indentured servitude, and
with all their money going toward debt service payments, little was going to be
left over for living a life.
Housing bailout
proposals are part of the myriad of issues surrounding the housing bubble.
Roberts discusses each of these issues in detail in the book, “The
Great Housing Bubble.”
About the Author, Publisher and
Book
Lawrence Roberts,
author of “The Great Housing Bubble,” is known as the Housing Bubble Cassandra. He publicly predicted the
housing price crash as the primary writer for the Irvine
Housing Blog (http://www.irvinehousingblog.com/). From his unique vantage point
in Irvine, Calif. – the center of the subprime universe – Roberts carefully
documents in his book the conditions and practices that inflated the largest
real estate bubble in history. He holds a Master of Science in Land Development
from Texas A&M University, and he consultants to the land development
industry.
Monterey Cypress Publishing is a small press specializing in
real estate and personal finance related books, audio books, and video
presentations.
Irvine Renter will be speaking at the monthly meeting of the Green Party of Orange County on Sunday, December 7, 2008, at 2:00 at the offices of the Irvine Ranch Water District located at 15600 Sand Canyon Ave., Irvine, CA. Also speaking will be Dave Levy, a valued return Green Party visitor from Orange County Fair Housing Council. He will speak about public and private ways to protect the quality of life in Orange County by ensuring equal access to housing opportunities, an important way to foster diversity and preserve dignity and human rights. December’s GPOC meeting topic will cover the importance of housing in these uncertain times, and will focus on the Green Party’s Key Value of Social Justice. “Radical Housing for Radical Times” will concentrate on novel approaches to help reach the goal of affordable, stable, quality housing for all.
Everyone is invited, so if you are interested in hearing a discussion of this issue, please stop by.
Does anyone have any good news they would like to share? I have been reading all the headlines lately, and I can’t find anything even remotely positive going on in the economy or the housing.
I don’t care what topic it is on. You can make it personal if you like. Just give me some good news…
I’m the son of rage and love The Jesus of Suburbia From the bible of none of the above On a steady diet of soda pop and Ritalin No one ever died for my sins in hell As far as I can tell At least the ones I got away with
And there’s nothing wrong with me This is how I’m supposed to be In a land of make believe That don’t believe in me
Get my television fix sitting on my crucifix The living room or my private womb While the moms and brads are away To fall in love and fall in debt To alcohol and cigarettes and Mary Jane To keep me insane and doing someone else’s cocaine
And there’s nothing wrong with me This is how I’m supposed to be In a land of make believe That don’t believe in me
Washington D.C., Dec. 5, 2008—Treasury Secretary, Hank Paulson, announced a moratorium on defaults today. “We have been considering a moratorium on foreclosures,“ said Paulson, “but a moratorium on defaults will be much more effective.“
While other lawmakers are still considering foreclosure moratoriums, Paulson is convinced a default moratorium is a better approach. He hopes others in State and Local legistlatures will follow his lead. “We want to keep people in their homes,“ said Paulson, “and we need to keep our lending institutions healthy.“
When asked how a default moratorium would help, Paulson had this to say, “Foreclosures are the result of defaults, and defaults are also causing lenders to take write-downs on mortgage loans. By putting a moratorium on defaults, we solve both problems.“ Paulson provides clear guidance on how the program would work, “Homeowners need to keep making their payments. That will put an end to the housing crisis.“
Experts agree that falling home values are not the root of the problem. Paulson goes on, “But let me emphasize that we do not need a system-wide solution for the vast majority of loans where a homeowner temporarily has negative equity. Negative equity does not affect borrowers’ ability to pay their loans. Homeowners who can afford their mortgage payment should honor their obligations.“
When pressed for more details on how such a moratorium would be implemented when so many homeowners cannot afford their payments, Paulson responded, “We are still working on the details. We may provide direct government assistance. The American people are kind and generous. They certainly won’t mind helping out their fellow citizens with tax dollars as necessary.“
When confronted with the possibility of creating a moral hazard, Paulson scoffed at the notion, “Homeowners need this help to stay in their homes. It would be immoral to throw them out on the street.“
You’re gonna realize that Some of my lies are true
When our various politicians propose foreclosure moratoriums, do you think they are serious? I believe most of them are simply pandering to their constituents that want to believe they are doing something about the housing price crash. If you give the idea of a foreclosure moratorium even a moment’s thought, you realize it could never accomplish anything. We just had a defacto foreclosure moratorium here in California when we instituted a new 30-day waiting period for lenders to contact borrowers to try to work something out. Of course, this only delayed the inevitable, but perhaps it gained some homeowners in foreclosure an extra month of free rent from the bank. I suppose the idea isn’t any crazier than subsidising mortgage interest rates at 4.5%. Why not zero percent? Why not pay people to live in homes? That would probably reduce the inventory. Any thoughts on what half-baked idea they will come up with next week?
Today’s featured property is another HELOC abuser who won’t get bailed out.
Pearl Harbor Day was Sunday, December 7. One of the enduring images of “A date which will live in infamy“ is the wreckage of the USS Arizona. One thousand one hundred and seventy-seven crewmen died aboard the USS Arizona that day. The sunken hull sits quietly submerged beneath the waves.
WTF? 
