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You can say that just letting the foreclosures clear will solve the problem but it just is not so, the problem is a lot more complicated than that,
First,
The government has set their revenue requirements at the intake that occurred at the top of the bubble so it has an imperative to see prices back at that level just to keep operating.
Second,
There are about a third of all mortgages underwater currently, there will simply be no economic recovery (unemployment below 6%) until that is resolved.
Sorry just too many underwater home owners, no economic recovery can happen until that is resolved. And no they are not all going to walk away, probably not even a third, but they are not going anywhere at the same time, they are stuck and so is the economy (until that is resolved , sorry we are not going anywhere).
“First,
The government has set their revenue requirements at the intake that occurred at the top of the bubble so it has an imperative to see prices back at that level just to keep operating.”
Have you heard of the concept of spending cuts? Just curious…
“Second,
There are about a third of all mortgages underwater currently, there will simply be no economic recovery (unemployment below 6%) until that is resolved.”
Yes, that is why we need foreclosure and a purging of debt.
Your thinking is the same kind of misguided thinking driving policy in Washington. We can’t force prices to go back up to the peak by government policy. I gather from your comment that you would like to see peak pricing. That isn’t going to happen any time soon.
“Have you ever heard of spending cuts?”
Policians - Huh? (crickets chirping)
Spending cuts = lose the next election
Tax hikes = lose the next election
Inflation = Not our fault, re-elect us. Dunno what does that, who get this complicated economics stuff? Whocudanoode?
Underwater homeowners are not a problem…as long as they keep making their payments. Underwater borrowers who can’t make payments, stop making payments, or walk away will eventually be foreclosed. That is the path to resolution.
Exactly. We’re underwater. We’re making our payments. There’s no problem. At some point in the distant future, the principal will match the home’s value. What’s the big deal? We have the option to live rent-free should that become attractive.
I am reading the above comment and am shaking my head realizing that all is lost.
And I am sure that the person votes regularly as well.
Are other readers of this blog as fascinated by the recent Wikileaks news as I am? Get this: they’ve announced the next leak will target large banks and their unethical practices! Yes, we’ll get to see inside documents to the banking cartel we’ve long speculated about.
http://www.reuters.com/article/idUSTRE6AS68S20101129
IR, I sincerely hope you do one of your article analysis blog posts (like today’s) when this leak surfaces and rip apart whatever foul bank executive thinking is leaked. This is gonna be good!
As soon as this information is public, I will write about it. It might have some juicy quotes from bankers to lampoon.
The bank leak should be most interesting. Please be Goldman Sachs, Please be Goldman Sachs.
I’m guessing BoA myself.
Is there really going to be something shocking? Are the docs going to tell me that free checking really isn’t free?
Wikileaks better be careful, messing with the banks is the quickest way to Wikileaks being announced as the largest terrorist threat, with swift decisive offensive action.
Under the Patriot Act, couldn’t the FEDS announce that Wikileaks stolen information is a “Weapon of MASS Destruction”?
After all, it *is* destroying the much wanted propaganda that the U.S. is peace loving and liberty preserving.
It’s been widely reported that it’s BofA.
A fine second choice. I’d love to hear the truth behind the Countrywide acquisition.
The crisis is not rooted in foreclosures, foreclosures are a symptom. The crisis is we have lots of people living in homes they can’t afford (and thus aren’t making payments), and many homes are not worth as much as the debt they secure.
I theoretically like the idea of principal reductions. One reason mortgage mods have not worked is because they have not used principal reduction. I’d like to see them used in bankruptcy to avoid abuse and to have judicial oversight. The more I thought about what type of borrower would deserve a principal reduction, the smaller and smaller a group I was coming up with.
People needing to move is not the end of the world. What Taylor is saying is that no matter what changes in your financial circumstances, you should never have to move. That is an unrealistic, and destructive standard.
Where work-outs & mods can be most effective is when the owner still has equity (I know, a small percentage), but I am afraid that those are the loans the banks will foreclose on first because they realize the smallest losses on those.
Despite which side of the foreclosure fence you
sit on (for the record, I personally think that
foreclosures should proceed post haste to clear
debt), many forget that owning a house is an
expensive proposition *irrespective* of mortgage
balance - even if it is zero).
Here’s problem:
If you had a rich Uncle (think Uncle Sam)
and he *gave* you free and clear a higher
end >>1mm$ property in Irvine, could you
afford it?
In other words, if you had just to pay for
property tax, Insurance, HOA, maintenance
and reserves, could you afford the property.?
How many families in Irvine could actually
afford such an arrangement?
So whats next? Cram downs on property tax,
insurance, HOA, your gardner, your water
and gas bill? How about groceries?
As we march to socialism, at what point does
this insanity stop?!
“Cram downs on property tax,”
Huh? Certainly not. No bailouts. Around here there are radio ads offering ‘property tax loans’. Let them borrow, max rate is only 18%, fees are reasonable (one arm and leg max), what can go wrong.
Um, I think you have a date wrong. How could somebody refinance twice (on 6/23/1997 and 2/25/1998) before they bought the house (on 4/28/1998)? I think the actual purchase date was actually 4/28/1988.
In any case, despite refinancing a bunch between 1997 and early 2006, they haven’t done so since then, and their current debt can’t be more than 70% or so of their current asking price (which seems reasonable), even factoring in the HELOC and assuming the last loan was a neg am. That is, this is not a short sale and they are not underwater, despite the serial refinancing.
Forclosure is just one of many symptoms of what was a “fraud based” economic bubble. Construction based on easy money and the perception of perpetual growth. Looks like Vegas is really getting slammed as far as any possible short term recovery. Like Eastern Europe ? Yikes.
Foreclosure wont help Vegas. your going to need a bulldozer to get rid of all the empty properties without viable owners/renters. Just no work in a construction/tourist based economy.
http://www.lasvegassun.com/news/2010/nov/30/report-las-vegas-economy-ranks-worldwide-among-bot/
Sales volume in Vegas is now greater than the bubble despite the fact that unemployment is at depression levels, population is shrinking, and there were too many houses to begin with for lower education folks.
There’s gold in them houses !!!
One of the buyers is IR. Sales volume increases as prices sink. Same should happen everywhere once the price/rent ratio makes sense. Or debt to income. Preferably both.
The problem is not foreclosures. The problem is debt and a monetary system in which all money is debt.
The solution is a free market system of money instead of fiat currency. These problems will reoccur forever unless control of currency is taken away from government, the central bank, and banks and people can decide for themselves what is and isn’t money.
LIke that’s going to happen. There’s a reason central banks were created.
1913 was an EVIL year for the nation of America. The banksters exerted supreme control when they were allowed to manipulate the nation on December 23.
This same year, the EVIL Income Tax, was ratified/instituted. This amendment taxes a persons labor, which all men have to do in order to survive, in one form or another.
FYI ... just checked out the new Case/Shiller home report ending September 2010.
Here’s what stood out to me:
Of the 20 regions covered, Las Vegas had the largest decline from the peak of the bubble at -56.90% (no surprise). But, But, But ... Las Vegas was also the only city of all the regions covered, that actually had a month over month gain in the median price. Is this an anomaly? I doubt it ... I think it signals a bottom is near for LV if it isn’t already behind us.
Decreasing population is a variable that is going to just butcher the standard recovery and bottom predictions. Your going to need bulldozers to fix the supply demand curve in Vegas. Same with the inland empire here locally. No jobs. No construction. Too much supply. Eventually all the bottom feeding vultures will give it up when their casflow is exhausted in the new ponzi scheme that is Vegas RE bottom calling. Vegas needs decades to recover from this.
I have an idea. Instead of investing in unproductive rental property - someone build a factory and make something.
But David, India and China is where we do that now. Our corporations can offshore their production and reduce their unit cost 50%+, then increase their profit margin 50%+ by selling the same shit to us. Profits are now near all-time highs for corporate America, and this is how it’s done ... right in the face of The Great Recession/Depression.
Yup, oh well, it was a nice fantasy. I guess it is back to real estate gaming.
“Decreasing population is a variable that is going to just butcher the standard recovery and bottom predictions”
You’re absolutely correct, which is the main reason why I’m bullish on LV. As more people move out of California, LV will be a beneficiary.
“the new ponzi scheme that is Vegas RE bottom calling”
LoL ... we shall see my friend. All I ever hear is how RE is awful in LV, and how it’s improving in SoCal. JMHO, It’s contrarian to be bullish on LV housing right now.
I still cannot understand who would want to live in Las Vegas. Imagine if your home town’s claim to fame was that people from all across America come to urinate on your sidewalks.
Hell yes! Where do I get my Las Vegas property!
Man, my hats off to you David, I thought I was the most bitter person posting out here, but you have been making me laugh with your posts lately…well done!!!
What the hell is contrarian about sales volume in Las Vegas being higher now than it was during the bubble?
Nothing.
That’s called the last gasp.
Steve Thomas Irvine stats reported by The Register (oh no):
“As of November 24th, there were 756 active homes for sale in Irvine, with an expected market time of 4.3 months, according to a biweekly report done by Steven Thomas of Altera Real Estate. “
“That’s an increase compared to one year ago, when the expected market time was 2.06 months.”
“The average list price for Irvine homes dipped to $899,000, and 30.2 % of listings are distressed, meaning they are foreclosures or short sales. That’s up from 25.9% in September.”
Lee, don’t let Planet Reality read that. He has assured me that Irvine contains only sophisticated home owners, kind of the cream of the crop due to their genetic makeup and noble family status. This must be a misprint, how could 30% of Irvine sellers be distressed…I think they must be eluding to Corona or Riverside. That would make more sense.
A check of recently closed sales in Irvine at or above the $1M mark seem to indicate otherwise.
They hit the tape at $389/ft. and $357/ft. respectively.
Planet Reality is wrong. 30% pretenders sounds a little low. By the end it will be clear that at least half the people in Irvine can’t (and never could) afford the price tags on the homes they “bought.”
We should start with the fact that 33% don’t have a mortgage, that’s right no debt they own their homes.
So you are starting from behind, you think more than 75% of those with mortgages are pretenders? That’s delusional at best.
764 irvine homes for sale, 30% distressed, what is that one months inventory? One month of sales, I would have thought the % distressed that is for sale is much much higher than 30%, that’s a very small number.
PR totally ignores shadow inventory.
PR claims 33% have no mortgage but fails to say how many of those people bought within the last 6-7 years when prices peaked.
Sloppy arguments as usual.
I would not read too much into what PR says. Read into what he does not say. Note that he had nothing to say about the price declines cited in the article. Nor did he challenege the YOY slowdown in sales. The increase in distressed sales? Bah, just a month’s supply, big whoop!
PR how can this be? With all this new affordability and huge demand for premium areas that do not depend on government subsidies since everyone is rich - how could demand have fallen?
PR-
This is very simple ... Irvine still has an extremely wide gap between incomes and home prices. And this is happening while mortgage rates remain at all-time lows.
What’s gonna happen to Irvine home prices when the FED losses control of the bond market, and mortgage rates increase 300, 400, 600, 1k+ basis points? JMHO, when this event does happen, it won’t be gradual, but rather it will happen rapidly.
Demand hasn’t fallen.
Factor in the 2010 New Home Collection sales.
Those demand driven sales were off the charts.
New product continues to move rapidly in areas like Portola Springs and Stonegate East
Laguna Crossings is anticipated to be equally successful.
Why should those sales be ignored?
I think that’s because of foreign cash buyers and people who’ve managed to build their wealth. But how many more of them are there willing to invest in Irvine homes? That’s the big question. Can the percentage of cash buyers support high price-to-income ratios for the whole city?
If anyone has actual numbers to supply, they’d be most welcome.
Hi lee. I could be wrong, but I think that the only thing propping up the bond market is the Fed’s purchase of GSEs (i.e., Quantitative Easing 2). What exactly do you think is going to drive up demand for bonds and increase their yield?
Foreclosures aint the problem…
This is:
youtube.com/watch?v=AQv-sdMCClQ
IR,
Take your today’s featured house as an example in comparing rent v.s. buy. If the buying costs $749,000, would $2798 (monthly cost of ownership according to you) a fair rent cost? I guess I am looking for a rough formular for comparing the cost of owning to renting. Anyone’s opinion is appreciated here.
the problem i have with the cost of ownership calculation is that the “equity hidden in down payment” is lost in a declining market as the home price goes down. So your cost of ownerhship goes up by that amount. You get it back if and when prices come back up.
Properties like this in woodbridge can be rented for around 2500 , so this is close to rental parity in my opinion.
However, keep in mind that the Mortgage deduction can be lowered (there is talk about about limiting the max mortgage deduction amount in Washington).
Also, part of equity can be lost if prices drop.
So, if you have some margin for both these issues the cost of ownership might be a little higher than the calculator suggests.
I am not saying either of the two things will happen but it doesn’t hurt to be prepared.
Yeah, the renter doesn’t have the unpredictable variables like the possible mortgage tax deduction reduction, future price depreciation, maintenance/repairs (which someone puts it at 1 to 2 percent of the purchase price annually) to worry about. The downside of course is the almost garanteed rent increase and forfeiture of any share of future market appreciation.
Going slightly down southward San Diego’s market inventory is very tight but seasonal and the salea is way down. It has realtors scratching heads. They thought the inventory would be hugh this time around.
$2500 is too low. Four bedroom, 2,400 square feet? Asking would be at least $2800, probably more like $3000. Look on the MLS right now - house in Woodbridge with same sq footage, same # of bedrooms listed for rent, asking $3900. I don’‘t think they’re going to get it, but it’ll rent above $2500.
$2798 (monthly owning cost) should be an applausible rent amount then. One keeps hearing the talk of renting being cheaper in so Cal but that’s not my experience. If renting and owning cost about the same maybe the high housing prices here are somewhat justified. It costs more to live in so Cal than people want to admit.
Video of tree branch robbery in Irvine
http://www.ocregister.com/news/rob-278234-station-tree.html
For me the thing not to lose sight of as you consider views on foreclosure is global competitiveness.
Over the last decade our economy has subsisted by offshoring both manufacturing, knowledge work. In its place we had rampant appreciation as a function of virtually nonexistent lending standards.
The de facto result is huge debt loads which require large salaries. Large salaries make us globally uncompetitive.
Translation - as long as home values remain high we are as a country are at a competitive disadvantage globally and our relative position will continue to decay. The longer we forestall the reversion of home prices to the mean the worse things will become.
you’re right but the way to get aroubd that is to devalue the u.s. dollar. for example, increase salaries by 25% and devalue the dollar (relative to whatever currency) by 50%.
This is a rehashed discussion, IR. Foreclosures are essential just like defaults.
I’m in the same camp as you and probably most others here. This pretend and extend crap is nothing more than rinse, lather, and repeat crap for the banksters (little b).
Ireland should have done the latter.