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The problem in Riverside county as in many places is “the market lacks is wage earners who can qualify for a mortgage and absorb the inventory.” This lack of wage earners is not primarily due to the unemployment situation, it has to do with excess supply. There was excess supply above the quantity of wage earners in bubble regions that was soaked up by specuvestors.
To absorb that excess supply, where will the additional jobs come from? What percentage of the lost jobs in Riverside Co, were in the construction, real-estate, mortgage businesses? This is another hallmark of the hardest hit bubble regions - the reliance on continued increase in home volume & remodeling.
Many of the bubble areas of FL will have their inventory bought by part-time residents. The floor on SoFla prices is where there is a huge inrush of Canadian purchasers - at some point it makes sense for them.
Is 20k/yr really a sustainable rate? Even going to 10k is still 2.5X where they’re at now.
Say a specuvestor has a primary residence in a prime area, and playing real estate tycoon he buys an investment home somewhere else. If he defaults on the mortgage of the investment home and the bank attempts to cover their loss by going after the owners assets, is the owners primary residence at risk?
If so, that would be some sweet schadenfreude, but if I had to guess I’d speculate that a primary house is protected from such action, because “everyone needs a place to live.”
I think they should go after the primary home no matter what; especially if there was fraud involved (claiming second home was a primary residence, falsified income on mortgage application, etc.)
The housing tax credit was the only thing enabling most buyers to purchase a house at all, never mind any substantial down payment.
Most recent buyers would have had no money for the minimum 3% down payment and closing cost had it not been possible to “monetize” the credit at the closing and permit it to be used as the downpayment. I can almost promise that most first-time buyers were using the credit as their down payment. There was a mortgage company here in Chicago that advertised financing with no down payment, and they explained to me that you could use the credit as your 3% down.
All the credit did was help write the next wave of defaults and foreclosures.
Further the credit was paid to alot of people that were going to be buyers of a new house anyway eg people getting relocated or wanting to trade up/trade down due to having kids/kids moved out etc.
Personally I like the idea of the first-time buyer tax credit substituting for the mortgage interest deduction. Today’s buyer had a $1.4m mortgage at say 5% is $70k of deduction which is worth say $20k assuming 28% federal tax rate. That ticks me off more than that some young family may have used the tax credit to buy their first home.
Agreed - the mortgage interest deduction is a HUGE tax benefit for higher earners (the AMT does take-back some of the benefit), but if you want to avoid chaos, can we agree to phase it out?
e.g. Don’t just end the mortgage interest deduction Jan 1, 2011. I would seriously consider strategic default if this occurred, as it would push my housing costs too far from rental parity. I think this quick change would dramatically adversly affect the “professional class” (Dr.s, lawyers, other high-wage-earners) much like the 85/86 tax law changes did.
However, if you phased-out the change over 15 years or so, people could adjust to it.
The root of the mortgage-interest tax deduction was the deductibility of interest on corporate debt. It was a way to level the playing field between individuals and corporation - more accurately, to pretend to level it - while boosting home ownership rates, and thereby helping out the banks.
I am a huge fan of phasing out the mortgage interest deduction. I hope, but doubt, that it will be accompanied by another change just as desirable: the elimination of the deduction for interest on corporate debt.
If individuals and corporations wish to use leverage, they should do so without the help of the tax code.
As to the likelihood of either of these changes occurring: ah-hahahahahahahaha!
The problem with phasing it out, is that is fair to sellers, but not to buyers. If I’m a buyer I would want to wait until the tax is completely phased out and reflected in home prices. So you could be delaying purchases.
Government subsidies are not the answer. I as a taxpayer have no interest in your ability to afford a house (unless I am a baby boomer and you are my neighbor’s naive kid ).
I am more than willing to chip in my fair share for things like police, fire, healthcare, roads, schools, but your mortgage debt servicing abilities are of no concern to me.
No tax credits. No interest deductions. No artificial price inflation. No screwing the next generation of buyers.
phase out fannie, freddie, and the fha. all are major FAILURES
Thanks for that info. That makes sense.
Read the news yesterday about this. $8000 is small amount and yet it can be called a success.
Then I read about prison inmates getting the $8000 tax credit and thought hell maybe 90% of the tax credit is going to fraudsters, and there was minimal amount of real sales.
That’s the plan. The blow up will be after the elections. If the econ. blows before the election, the blame will be on the democrats. If some republicrats get elected and then econ blows, the blame will be on the lack of confidence in the new congress. Obmama is smart and master of public image.
I was pleased to see in your opening line that you’re not giddy about this… When I read the news today, it actually scared me because I don’t like the uncertainty and overall lack of economic recovery after 3 years now!!! What’s next?
Yes, we like to make fun of the situation here and bash the more ridiculous players, but this is not good…
inflationary depression. hold on to your shorts!
And, this featured property is weird. Bought for 1.5 mil in late 2008 (well after the bust was in full swing) with a huge downpayment and defaults shortly thereafter. Don’t know what it means, but it’s weird!
If it’s a job loss situation, why not sell for 1.2 and get out with a huge chunk of change ($200k) to live off and/or relocate? Weird.
I don’t understand defaulting with the huge down payment. The only thing that makes sense is a sudden, unexpected job loss from a very high paying job. But in that case, why not list it at the going rate (probably about what he paid for it) and quickly get his down payment back? One can easily live on $426k for quite some time (maybe as long as a decade, if he rents in a cheaper area) while he looks for a job (assuming no other savings, which is likely due to the default).
Hell, he could do a cash-out-refi and stay in the house. (You can still do those if you have equity, right?)
Maybe the default was merely a loan mod play-but then why also try to sell it?
Looking at the listing photos again-the house isn’t being lived in. The furniture is clearly staging furniture. So this may be a delusional flipper who is desperate to make a profit. But why default? A non-owner occupied house wouldn’t be a loan mod candidate under most circumstances.
Owner occupied can be acheived on paper. Who actually checks? Thats why prisoners can get new home tax credits.
I heard this story yesterday about inmates claiming tax credits. And those are just the super obvious ones they have caught! The tip of the iceberg. Plenty more scammers who ripped off money that we all paid with our labor who will not be caught.
Amazing example of what the taxpayer gets to pay for when the government stuffs a pinata full of federal reserve notes and tosses it to the club-wielding frothing at the mouth masses.
I was saying before. sell your house to your dog, so it can claim the tax credit, and you get to still live in it.
WEEEEEEEEEE!
AZ- May I put a copy of this cartoon on my blog?
Yes, absolutely. It is donated to the public domain.
That is a really good cartoon.
Thanks. It’s up.
Coto Housing Clog
I mean Blog
David, your a funny dude
Enjoy your blog…
From the article: “If demand picks up, homebuilders will go to work and build more houses.
Now we need people to start getting jobs again in California….”
Unemployment is the key for OC which stands at 9.2%, a decrease from 9.5% last month. This decline normally would be somewhat of a good sign for real estate and an improving economy, but unfortunately that growth came from the wrong place; government.
“Government posted the largest growth over the month with the addition of 2,800 jobs. Federal government accounted for 64 percent of the growth, while local government education represented 29 percent of the increase. The remainder of the increases occurred in state and other local government sectors.”
http://www.calmis.ca.gov/file/lfmonth/oran$pds.pdf
The growth of leviathan is not a solution to what ails the real estate market. It’s just more of a tax burden on the rest of the people delaying their ability to purchase a home.
Until that dynamic changes, I wouldn’t expect demand to pick up.
But the mayor of Irvine said last week that housing led the economy into recession and it will now lead the economy out of recession.
It sounds like you and IrvineRenter are drinking from a different punch bowel than the mayor is. Why so negative? Just tell yourself that everything is fine, magic exists, psychics are real, Virgin births are possible, governments create wealth, and government hiring combined with building houses grows economies.
bowel?
lol
Not negative…just astute at economics.
I don’t believe in hype. I’m a Cubs fan. I know what can happen longer than anyone can expect.
Remember the guy from the movie Animal House who was screaming “All is well! All is well”
That would be the mayor of Irvine.
A punch bowel, indeed. One of the more humorous fat fingerings. That and my idiotic phone that will not allow me to type “it’s” without automatically inserting an apostrophe. Technology.
I can’t see how education added jobs when so many people I know in education got pink slips this year. I think when you see June/July numbers you will see an awful lot of teachers/educators that lost jobs again.
In addition every district in Ca (it seems) has some sort of furlough days planned for next year. Those furlough days add up. Less money for consumers to spend. Less taxes paid back to CA. It’s a continuing cycle.
As to Realtor speak, I had a 40ish year old Realtor send me a note about her “more better” internet site.
I told my kids this (10, 12) and they simply rolled their eyes. “Sure dad. As if…”
If you close your eyes in a dark room and sit quietly for a bit, you’ll just be able to make out what kind of cat it was that hit the ground and bounced slightly. After 1+Trillion of stimulus able only to flatline employment, we are most certainly heading towards a second leg down. What other economic bullets does the Fed have in their bazooka, other that US-T default, which isn’t a bullet fired in defense, but a mortal blow to the head.
My more better .02c
Soylent Green Is People.
Exactly. After all the malarky there is nothing to show for it other than a temporary reprieve to catch our breath and take a bathroom break before the next segment gets under way. And with this week’s NEWS about plummeting house sales and plummeting optimism, I would say that it is safe to say that the morphine is starting to wear off.
What’s next? The Fed pays us to borrow their notes? Now lending 2 Federal Reserve Notes for the price of one?
The running of the printing press is saving us just like it did before!
What’s next? The federal government is going to save us from the pension crisis.
but this was the less worse option…we averted disaster…they had to do it to prevent the crisis.
Hey keynesians - you created this disaster. The disaster exists and will need to be dealt with. We can approach it like grown adults or we can act like immature little politicians and keep sweeping shit under the rug in the name of “avoiding a bigger crisis” when in actuality creating the bigger crisis.
California and Orange County needs more government jobs - like a hole in the head.
Just wait until the OCERS ension data is finally released to the OC Register.
Hello outrage. Nice to see you again.
And all you guys wanted to see was a burning room…
http://www.sfgate.com/cgi-bin/article.cgi?file=/c/a/2010/06/13/INSD1DRDIC.DTL&source=patrick.net
They should do it like they do here in Arizona and replace every square inch of road and bridge every 5 months. Once the paint dries on any road - immediately cone off 2 of the 3 lanes and leave it like that for one month. Then come back, rip up the lanes and erect barriers and leave it alone for another month. Then come back once a week and do a little bit of work each day for 2 months. Hire 100 more people, rinse, lather, and repeat until unemployment hits 6%.
At least you’re getting something for your money from the infrastructure improvements. Housing stimulus money has done nothing but to further the “extend, pretend” model the author discusses. I’d rather they fixed some bridges, built some rail or debottlenecked the freeways. After all, nothing says comfort like a smooth ride!
LOL I know what you mean. I have relatives in Tucson, and every year I go there, the orange cones, blocked freeway exits and roads are there. Every freaking year!! they are never done
I wouldn’t be surprised if the powers that be issue a new home buyer tax credit. Why not make it 15K or 20K this time. It’s only money and the printing presses can work 24/7. Reality is finally starting to set in…this whole recovery so far was nothing more than a giant morphine shot. If further morphine isn’t injected there will be lots of PAIN.
What really worries be is the job market. There are no decent paying jobs being created and there are rumors of downsizing, layoffs everywhere. People are very scared at the company I work for because no one knows if they will have a job in a year or two. I can only imagine this is widespread.
Are you saying that you do not believe in the jobless recovery?
We just had a story run in the local media here the other day - high fiver feel good story that Americans are returning to the stores and spending more! As though a bunch of Americans taking their unemployment checks to the mall (as they have nothing else to do with themselves since they are not working) is some kind of good news. They followed up with an announcement that a local company was looking to hire an account clerk for 12.00 an hour.
We also have boomer 90’s bubble wealth still floating around in the system. If you are a boomer who bought real estate in the 90’s - you are still doing pretty well for yourself.
The younger whipper snappers who missed the party - let them eat recession.
AZDP “The younger whipper snappers who missed the party - let them eat recession.”
Lots of baby boomers missed or weren’t invited to the party. House prices barely moved in the mid-west. You are correct that those in charge during the raping of American were early baby boomers.
I really like that “let them eat recession” line. I’ll be using that. Thanks, Dave.
Think about all of the 2008 and 2009 knife catchers who have not yet defaulted but will be within the next 5 years. Right as the Option ARM wave finishes washing over the landscape, we are going to be seeing walkaways on the 08 and 09 vintage as the buyers find themselves severely underwater.
All sob stories in the media right now are about the 04-06 crowd. Nobody has even started writing violin pieces about the knife catching fools who rushed into the market in 07 and beyond.
Be looking for these buyers to begin defaulting en masse around 2012.
By now or be priced out forever.
IR-
What do you think of CR’s “distressing gap” (the relative decline of new house sales versus existing house sales)?
Do you think it will take 10-15 yrs before new house sales rebound to their historical portion of the market?
Some CR commenters suggest that “months of inventory” will climb dramatically as shadow inventory comes on the market this fall, combined with more skittishness of buyers and fewer buyers qualifying.
Do you think that “months of inventory” will go to double digits?
The conditions are in place for a steady rise in inventory for quite some time. Once banks start to sense the available inventory and the rate of sales is starting to hurt pricing, they will pull back. That is when we will see the true strength of the cartel. There will be much pressure to liquidate and little demand to absorb the product.
It’d be interesting to see the NPA ratios of California banks right now.
Question:
Isn’t it true that many banks (and the banking cartel itself) do have a price to pay with regulators if their NPAs (non-performing assets) are allowed to meet or exceed 5% of their total loans or greater?
I imagine that there are many such banks approaching this level - they are not quite too big to fail - and are horribly under-capitalized. Foreclosures are going to keep piling up. At some stage wouldn’t regulators shut down such banks completely the minute it hits the “unsafe and unsound” threshold? And then what happens to all of the banks’ REOs? What bank is going to take up those REOs (NPAs) just to commit organizational suicide?
Those are all good questions. I don’t have many good answers.
It doesn’t look like bank regulators are forcing banks to reclassify their non-performing loans as they should, particularly second mortgages which are most often worth nothing. With many first mortgages not foreclosing, banks are able to keep these worthless seconds on their books longer to look more solvent than they are. Lenders have been feverishly adding to their loan-loss reserves to prepare to take massive write downs. Some banks will make it and some will not.
When the banks finally go under, the FDIC steps in and tries to arrange a shotgun wedding with a stronger bank. Of course, this weakens many of of the stronger banks, and the FDIC is forced to take many over and liquidate them.
Typically, the FDIC will broker a deal in which the buying bank gets the deposits of the failed bank, and in return the strong bank takes on the bad loans of the failed bank with the FDIC agreeing to cover 90% of the losses. The 10% in losses is the price the bank pays for the assets.
Three days back on June 21 the Obama administration introduced for the first time a monthy housing scorecard. I wondered why they would be so mad as to start keeping score at the peak of their engineered molehill bubble, when the wide consensus is that everything is going to deflate absent the credits.
In truly ‘breathtaking’ fashion, the market stole the ball on first posession and did the equivalent of a <a > backflip slam dunk from half court</a> to open the game.
I just cant understand: Why not start the score six months ago to brag about your runup? Why not ask the Ruskies to help with the propaganda timing? Why not just keep mum and let CNBC do its job?
Why?
Truly breathtaking:
Sorry, the <a > backflip </a>.
href= http://www.zerohedge.com/article/new-home-sales-plunge-record-33-market-plunges-welcome-double-dip
today owner looks like a real novice and resposnibe borrower. He has a sizable downpayment. The banks will reward him by rapidly FC’ing. This buyer/borrower is unlikely to get the 2 plus years of free rent as the 2 plus million dollar HEWer’s of NPB.
This borrower is likely not a bankster or REA or corporate officer.
Bank of America Adds 2000 Employees to it’s rolls to compassionately help screwed house debtors “transition” out of the houses that they should not have bought and can not afford.
I think it was obvious to everyone observing the market that a significant drop would occur with the expiration of the tax credits. However, the latest findings seem to align more with the most pessimistic of viewpoints. Going forward it looks like we may have a second (possibly more painful?) bubble collapse. At least Southern California may be better insulated than most housing markets.
Pray tell how is Southern California “better insulated?
Southern California is the most vulnerable because the first bubble hasn’t deflated here yet. This next leg down may get us close to what should have happened 18 months ago.
Gee, I wonder how BofA can afford to be hiring in this environment?
Oh, wait, nevermind.
It should remind you of the scene in the matrix where Neo bends the spoon
The symbolism between the spoon bending and the mark to fantasy accounting practices that the banks get away with is hilarious and depressing at the same time. You stare at your toxic asset and bend it’s value by realizing that it has no value - it is whatever you want it to be and it is only you that bends.
Agent Smith kind of looks like a banker too.
There is no spoon - just like there is no value in those 2nd liens loans
“If a strong housing market is what is necessary to avoid a double-dip recession, then we are going to see a double-dip recession.”
A strong housing market is the RESULT of a strong economy, not the cause of one. However, the media and the politicians pretend it is the other way around.
Only the private sector can lead the nation out of the recession, not the mayor of Irvine, puppet in the White House or his string pullers in NYC.
We have no more asset inflation games to play. If the US is to be competitive again, then the government will need to exit the housing industry. The private worker’s salary is subject to the global free market place and housing will need to reflect this dynamic as a prerequisite to economic stability.
Our politicians under the influence of lobbyist may try to convince us otherwise, but fundamentals ultimately reassert themselves and I believe we are now entering that era.
The era of paying the pied piper.
It never ceases to amaze me, the cost of living in the sticks between two toll roads.
For some reason today’s astute observations are repeating the morphine metaphor. Well, if the govt interventions are like morphine, how about the side effects?
Morphine Side Effects:
Nausea and vomiting
Lightheadedness
Dizziness
An unusual pleasant feeling (euphoria)
Sweating
Headaches
Anxiety
Constipation
Constipation symptoms are evident both literally and figuratively (shadow inventory) in the current market.
Thanks.
http://www.cotohousingblog.com/?p=12465
Interest rates continue to fall.
“Freddie Mac said Thursday the going rate on a 30-year fixed rate mortgage fell to 4.69%, its lowest level since the company started keeping track 38 years ago.”
http://wallstreet.blogs.fortune.cnn.com/2010/06/24/mortgage-rates-hit-new-low/
WHAT??? Is this one of those “rich” OC/Irvine guys we have been hearing about in this blog (by housing bulls like PlanetReality) the last two years that are buying homes with 40% down? These guys are “rich” and do not really needed a job to pay their homes. They are so rich, they are not supposed to default. I wonder what is going on. This is just crazy
Must read by Barry Ritholtz
2nd leg down in housing
WHAT??? Is this one of those “rich” OC/Irvine guys we have been hearing about in this blog (by housing bulls like PlanetReality) the last two years that are buying homes with 40% down? These guys are “rich” and do not really needed a job to pay their homes. They are so rich, they are not supposed to default. I wonder what is going on. This is just crazy smile