How much worse will it (the real estate foreclosure crisis) get? Plenty

[don]

Re: How much worse will it (the real estate foreclosure crisis) get? Plenty

Yup, 2015-2018 would be a full 7-10 years from bubble pop, sounds about right.... And that is just to bottom out. Probably another 5-10 years at the bottom then "to the moon alice....." About a generation folks....

And you know it will bust right through the floor, before it bobs back up to the historical norm.

You can't sell a house, regardless what the price is, generally accompanies that final descent....

[karim0028]

Re: How much worse will it (the real estate foreclosure crisis) get? Plenty

And you know it will bust right through the floor, before it bobs back up to the historical norm.

You can't sell a house, regardless what the price is, generally accompanies that final descent....

Exactly... I fully expect to hear "housing is the worst investment" and "WHAT!!!! You want to buy a house, why????"; before this is over... When i start hearing that i will begin to seriously look at housing again. Right now every one and their mother is looking to buy a house....

Again, this is not to say you cant make money if you know how to find cash flowing (not just to cover interest) housing using OPM.... But, i am making general market observations... How good you are at making deals defines how you can make money.

[jpatter666]

Re: How much worse will it (the real estate foreclosure crisis) get? Plenty

Exactly... I fully expect to hear "housing is the worst investment" and "WHAT!!!! You want to buy a house, why????"; before this is over... When i start hearing that i will begin to seriously look at housing again. Right now every one and their mother is looking to buy a house....

Again, this is not to say you cant make money if you know how to find cash flowing (not just to cover interest) housing using OPM.... But, i am making general market observations... How good you are at making deals defines how you can make money.

Yep. When all the "investors" are gone. When you are the only person looking at a foreclosure. When even people who are buying the place for themselves think it's a lifestyle choice, not an investment (i.e. they think they won't make much if any money in the end). When we've gone through a period of housing prices constantly falling and property taxes constantly rising -- combined with high unemployment which keeps rents at a minimum.

Then we finally may be approaching the bottom.

[shiny!]

Re: How much worse will it (the real estate foreclosure crisis) get? Plenty

Yep. When all the "investors" are gone. When you are the only person looking at a foreclosure. When even people who are buying the place for themselves think it's a lifestyle choice, not an investment (i.e. they think they won't make much if any money in the end). When we've gone through a period of housing prices constantly falling and property taxes constantly rising -- combined with high unemployment which keeps rents at a minimum.

Then we finally may be approaching the bottom.

Will the property taxes be likely to go down at some point? I wouldn't think a house is a good investment, no matter how cheap, if the property taxes are prohibitively high.

[jpatter666]

Re: How much worse will it (the real estate foreclosure crisis) get? Plenty

Will the property taxes be likely to go down at some point? I wouldn't think a house is a good investment, no matter how cheap, if the property taxes are prohibitively high.

It's something to be considered for certain. Property taxes rarely go down, but eventually they should stabilize as the economy/currency does.

[flintlock]

Re: How much worse will it (the real estate foreclosure crisis) get? Plenty

i'll clarify and narrow my statement. you profit from a fixed rate mortgage IF you finance-- just prior to, or early in, a period of inflation-- an asset which nominally tracks inflation. the asset holds real value, while the liability shrinks to insignificance. this was the experience of millions of homeowners who bought their homes approximately 1970, and held at least 10 years. the homes did not quite keep up with inflation, but almost. the mortgages turned into jokes.

you can profit on either side of a balance sheet: your asset need not grow in value if your liability disappears.

tell me fred: if someone offered you a multi-decade 4% fixed-rate loan right now [even without deductibility of the interest], which you could invest as you see fit, in precious metals, mlp's, oil properties, whatever, would you bite? 5-10 years from now, when you examined your balance sheet in REAL terms, do you think your profits would be confined to the asset side of the ledger?

i keep making this point because i think it is valuable for readers here to be educated in the idea that they need to watch both sides of the ledger, and that the simple notion of just paying everything off so that the liability side disappears, is not the only rational approach. this idea is not for everyone; but that doesn't mean it is for no one. the banks certainly know this; it's why they're so happy to take essentially free money from the fed. they don't need huge underlying returns if they can lever everything up with money at 10bps. why do you think msft, with many billions in the bank, just floated a long term bond?

this approach is especially relevant for those of us who already own homes, have no intention of moving, and have the choice to pay off debt or refi. it also applies for those inclined to buy a commercial property with an income stream which tracks inflation. this latter case has some risks, but also a big upside if long term fixed rate financing is available.



ps your calculation is wrong because you count all the mortgage principle and interest payments as 1955 dollars, while in fact they are made over the course of 30 years, during which their real value shrank markedly.

I'd take that 4% fixed loan for sure. But not to the percentage of my net worth that people during the housing bubble were doing. People were gambling with loans of 200, 300 % or more of their net worth that their homes would appreciate faster than inflation/expenses. I sure as hell wouldn't use that hypothetical loan to buy another house! But do I think I could borrow money at 4% and make some money with it, heck yes.

[karim0028]

Re: How much worse will it (the real estate foreclosure crisis) get? Plenty

Will the property taxes be likely to go down at some point? I wouldn't think a house is a good investment, no matter how cheap, if the property taxes are prohibitively high.

That will be one of the things i look for as well... In the end look to cashflow (and prop taxes are cash flow negative) relative to the current and future interest rate and rental value environment and you will reduce you risks alot....

You cant also forget that rental value could go down if gas/electric increase in price. Ie. less disposable income left, so if gas/electric go much higher and eat up more income, then rent would have to go down bc less people could afford it relative to keeping the place lit and heated. Same way hummer sales tanked when gas hit 4.5/gallon.

[don]

Re: How much worse will it (the real estate foreclosure crisis) get? Plenty

As we all know, rents are set by the market, the ability of renters to pay, unlike various housing schemes (frauds). What I think we will be seeing, and are seeing, is a change in what a rental is. Smaller. Multiple tenants in a single unit. (When I first lived in SF it was not unusual to rent a nice flat, in a desirable location, and rent out the spare bedroom to make the nut. My wife and I did this. It wasn't unexpected.) More cash-under-the-table rentals for small proprietors. Etc.

[Starving Steve]

Re: How much worse will it (the real estate foreclosure crisis) get? Plenty

I'd take that 4% fixed loan for sure. But not to the percentage of my net worth that people during the housing bubble were doing. People were gambling with loans of 200, 300 % or more of their net worth that their homes would appreciate faster than inflation/expenses. I sure as hell wouldn't use that hypothetical loan to buy another house! But do I think I could borrow money at 4% and make some money with it, heck yes.

One company, IB, is advertising on TV to lend you money at 1.25%, if you have $200K cash in your margin account with them. You may buy any dividend-paying stock that you want on the NYSE. So, you may buy any stock paying a 5% dividend and pocket the spread on your money.

Check with IB on this proposal to get the details, but it would seem that they are betting that you would lose 3.75% or more per year by owning a high-paying NYSE stock of your choice.

Hence, Wall Street would appear to be a loser's game, especially for margin-account players. Why would that be? Is the market rigged to take-out margin players in "flash-crashes"?

But if Bernanke is supporting the market with QE II, how could you lose? But the bet is that you would lose because they are offering free-money ( the spread ) for you to take the bet.

What am I missing here? I keep seeing their ad on TV. "The central banks are printing money, and the markets haven't moved much. IB is offering to loan you money at ......."

I'm not taking the bet because I don't need flash-crashes and market games. But, if you like to gamble, this bet stands-out to me as interesting. They know something that I don't know: What is it? Is there a mathematics that insures that the gambler must lose on this bet with 1.25% money?

In other words, IB would seem to be betting that dividends are going to be cut and that stock prices are going to fall, especially in flash-crashes. Hence, they wave the bait: 1.25%/year margin money for any serious margin-player..... Then they take you out in the next flash-crash.

In unregulated capitalism, the big fish might eat the little fish.

[flintlock]

Re: How much worse will it (the real estate foreclosure crisis) get? Plenty

A Realtor client sent me a listing for a 3 bed 2 bath condo in a nice part of town. Short sale at $69k. I've worked on some of these units. Fairly nice, with a pond view, but getting a little old at 24 years. I thought of my single cousin and how she might want something like this. I crunched some numbers and came up with about a $350 month P&I payment with 20% down. Sounds like cheap rent until I saw the $240 month association fee and the $160 month tax bill. Throw in the fact that it needs work and then I thought, "why bother buying it?. By buying she'd merely tie up money in an asset that will probably lose more value when rates jump and that mortgage payment doubles. With no guarantee the monthly fees don't go up up up as the value slips down down down.

[flintlock]

Re: How much worse will it (the real estate foreclosure crisis) get? Plenty

One company, IB, is advertising on TV to lend you money at 1.25%, if you have $200K cash in your margin account with them. You may buy any dividend-paying stock that you want on the NYSE. So, you may buy any stock paying a 5% dividend and pocket the spread on your money.

Check with IB on this proposal to get the details, but it would seem that they are betting that you would lose 3.75% or more per year by owning a high-paying NYSE stock of your choice.

Hence, Wall Street would appear to be a loser's game, especially for margin-account players. Why would that be? Is the market rigged to take-out margin players in "flash-crashes"?

But if Bernanke is supporting the market with QE II, how could you lose? But the bet is that you would lose because they are offering free-money ( the spread ) for you to take the bet.

What am I missing here? I keep seeing their ad on TV. "The central banks are printing money, and the markets haven't moved much. IB is offering to loan you money at ......."

I'm not taking the bet because I don't need flash-crashes and market games. But, if you like to gamble, this bet stands-out to me as interesting. They know something that I don't know: What is it? Is there a mathematics that insures that the gambler must lose on this bet with 1.25% money?

In other words, IB would seem to be betting that dividends are going to be cut and that stock prices are going to fall, especially in flash-crashes. Hence, they wave the bait: 1.25%/year margin money for any serious margin-player..... Then they take you out in the next flash-crash.

In unregulated capitalism, the big fish might eat the little fish.

That or they'll run off with your $200k!

[Thailandnotes]

Re: How much worse will it (the real estate foreclosure crisis) get? Plenty

Back to topic:
"How much worse will it (the real estate foreclosure crisis) get? Plenty"

and slightly hopeful...
http://www.nytimes.com/2010/10/30/bu...nocera.html?hp

“The Treasury Department and the Federal Reserve have made it clear that they are more concerned about keeping the foreclosure mill going full speed than they are about determining whether the banks broke the law. Somehow throwing people out of their homes quickly is supposed to help the economy. Or so they keep telling us.

“Ah, but the states. They’re a different story. Soon after tales of robo-signing began making headlines, the state attorneys general, led by Tom Miller of Iowa, mobilized their forces. Practically overnight, all 50 of them agreed to conduct a joint investigation into the bank practices that led to the scandal.

“Unlike the feds’ tepid efforts, this will be a serious investigation, led by a handful of assistant attorneys general who’ve worked together for years, and who see this as their chance to finally do something for beleaguered homeowners. They’ve got resources, subpoena power and a justifiable suspicion that the robo-signing shenanigans are just the tip of a very ugly iceberg.

“And best of all, they have a very clear idea of what they are trying to accomplish. They don’t want to merely reform the foreclosure system (though that would be nice, wouldn’t it?). Nor do they particularly want a big financial settlement, which would be meaningless for a giant like Bank of America.”

[ThePythonicCow]

Re: How much worse will it (the real estate foreclosure crisis) get? Plenty

and slightly hopeful...
http://www.nytimes.com/2010/10/30/bu...nocera.html?hp

Good article. I have to agree with its conclusions. Let's hold some banks accountable for their sins -- hip-hip-hooray!

But one aspect of this and other recent news articles on this mortgage mess has me somewhat puzzled .

This is the mighty New York Times publishing this. The "paper of record".

It's not an isolated event either. Other main stream media are getting on this bandwagon, arousing public sentiment against the perpetrators of this mortgage fraud.

I see storm clouds on the horizon. Some Too Bigs To Fail are going to fail or something similar. Every other major player within the radius of destruction of this financial nuclear bomb is no doubt maneuvering to ensure that their competitors get blown to smithereens while they take advantage of the situation.

My bets are on two out of three of Citi, BofA and/or WF failing (or some virtual equivalent), and two out of two of JPMorgan and Goldman benefiting.

One thing to watch for: the U.S. government and Federal Reserve could use this "crisis" to justify bailing out Mortgage Backed Securities (held by so many TBTF banks and major pension funds, oh dear!). This would increase the U.S. debt by a few more Trillion dollars (everything seems to lead that way) and would seal in the setting concrete of history one of the largest frauds in human history.

[Chomsky]

Re: How much worse will it (the real estate foreclosure crisis) get? Plenty

Back to topic:
"How much worse will it (the real estate foreclosure crisis) get? Plenty"

and slightly hopeful...
http://www.nytimes.com/2010/10/30/bu...nocera.html?hp

“The Treasury Department and the Federal Reserve have made it clear that they are more concerned about keeping the foreclosure mill going full speed than they are about determining whether the banks broke the law. Somehow throwing people out of their homes quickly is supposed to help the economy. Or so they keep telling us.

“Ah, but the states. They’re a different story. Soon after tales of robo-signing began making headlines, the state attorneys general, led by Tom Miller of Iowa, mobilized their forces. Practically overnight, all 50 of them agreed to conduct a joint investigation into the bank practices that led to the scandal.

“Unlike the feds’ tepid efforts, this will be a serious investigation, led by a handful of assistant attorneys general who’ve worked together for years, and who see this as their chance to finally do something for beleaguered homeowners. They’ve got resources, subpoena power and a justifiable suspicion that the robo-signing shenanigans are just the tip of a very ugly iceberg.

“And best of all, they have a very clear idea of what they are trying to accomplish. They don’t want to merely reform the foreclosure system (though that would be nice, wouldn’t it?). Nor do they particularly want a big financial settlement, which would be meaningless for a giant like Bank of America.”

Decent article, nice to see the mainstream media face up to this, except it omits a CRUCIAL point. The article says:

It should be obvious why state attorneys general were more attuned than the feds were to the problems with subprime lending: they weren’t cocooned in Washington. “The A.G.’s are much closer to these problems,” said Prentiss Cox, a professor at the University of Minnesota Law School. “They live in these communities. They know what the reality is on the ground.”

Wrong. As Chris Whalen has noted, the reason the Attys Gen'l are attuned to this is because every foreclosure means a drop in property tax revenue. They are motivated to force loan modifications in order to keep property tax revenues from deteriorating. There is not a single mention of this in the NYT article.

[GRG55]

Re: How much worse will it (the real estate foreclosure crisis) get? Plenty

Decent article, nice to see the mainstream media face up to this, except it omits a CRUCIAL point. The article says:

It should be obvious why state attorneys general were more attuned than the feds were to the problems with subprime lending: they weren’t cocooned in Washington. “The A.G.’s are much closer to these problems,” said Prentiss Cox, a professor at the University of Minnesota Law School. “They live in these communities. They know what the reality is on the ground.”

Wrong. As Chris Whalen has noted, the reason the Attys Gen'l are attuned to this is because every foreclosure means a drop in property tax revenue. They are motivated to force loan modifications in order to keep property tax revenues from deteriorating. There is not a single mention of this in the NYT article.

This is probably a dumb question, but why would State AG's be concerned about tax revenue? They aren't responsible for State budgets.