The Ownership Society

[Thailandnotes]

Re: The Ownership Society

I can tell you what I know from my own experience as a bankruptcy attorney.

Thanks for the insight...

I nominate your post above for "Most Depressing in Itulip History."

[lakedaemonian]

Re: The Ownership Society

with 'service economy' jobs...

And servicing student debt...

[bill]

Re: The Ownership Society

I can tell you what I know from my own experience as a bankruptcy attorney. Banks are foreclosing first on loans that are either above water or only slightly underwater. They are using sophisticated databanks and computer programs to triage their portfolio of zombie loan so that they aggressively pursue foreclosure only once the property is close to or above water. If you are very much underwater, they will record a Notice of Default but never a Notice of Sale unless you abandon the house. They use the Notice of Default to scare the homeowner into making short term payments, but rarely will they modify a mortgage so that the homeowner has any chance of recovering any equity.

The idea that there are enough Millennials to buy the Boomers' homes neglects to factor in forced sales upon retirement. Many boomers have no retirement plan other than Social Security, yet their mortgages, often refinanced within the past ten years to pay for their children's college tuition, will require the same or higher payments regardless of their lack of income. This is the nightmare many of my clients are facing: certainty that they will be forced to sell as soon as they retire, yet with no prospect of getting any sales proceeds to put down on the purchase of a retirement home.

So rather than Millennials buying from the Boomers and the Boomers buying another home (which would effectively turn a single sale into aggregate demand for two homes), we are probably going to see many of these Boomers move to apartments, granny flats or trailer parks. I have found no data quantifying this effect, but from my personal experience this is going to be a significant headwind to further price appreciation.

I wrote 4 years ago:
http://www.itulip.com/forums/showthr...54083#poststop


Boomers should be concerned about savings and why FSOC involvement in asset management?

Comments on OFR Study Asset Management Issues
http://www.sec.gov/comments/am-1/am-1.shtml
http://www.sec.gov/comments/am-1/am1-36.pdf
http://www.mondaq.com/unitedstates/x...ability+Report

Last Updated: February 4 2014
Article by Jay G. Baris Morrison & Foerster LLP


In a stinging letter to Treasury Secretary Jacob J. Lew, five Senators criticized the study by the Office of Financial Research (OFR),Asset Management and Financial Stability,alleging that the study contained "troubling errors" that call into question its legitimacy.
The OFR's controversial study, prepared at the request of the Financial Stability Oversight Council (FSOC), suggests that some asset management activities "could create vulnerabilities" that may justify designation of asset managers as systemically important financial institutions (SIFI).
"The OFR Study mischaracterizes the asset management industry and the risks asset managers pose, makes speculative assertions with little or no empirical evidence, and in some places, predicates claims on misused or faulty information," the Senators wrote in the January 23, 2014 letter. They also cited a lack of transparency and accountability to explain the "alarming dearth of accurate data" and other information used to support the study's conclusions.
The Senators argued that asset managers function primarily as agents that manage money as fiduciaries, subject to specific guidelines, and that the asset managers do not assume the financial risks themselves. It does not follow, the Senators suggest, that advisers themselves would experience the type of financial distress that can affect banks and "proprietary risk-takers," let alone threaten the U.S. financial system.
The study also fails to appreciate the extensive existing regulation of investment management activities, the Senators said.
Moreover, the Senators cited numerous factual errors and mischaracterizations that "raise serious concerns not only about the legitimacy of this study, but also about whether OFR is capable of fulfilling its mission to provide independent and sophisticated analytical support to the FSOC and the member agencies."
The Senators noted that the "bank-centric prudential standards" that flow from SIFI designation are "ill-suited and unnecessary for funds and asset managers, which do not present the same type or scale of risks to the financial system" that banks present.
The September 2013 OFR study raised industry eyebrows when it concluded that some investment management activities "could create vulnerabilities" in the financial system, and the failure of a large asset management firm "could be a source of risk."
The five Senators who were signatories of the letter were Democrats Claire McCaskill of Missouri and Thomas Carper of Delaware, and Republicans Mark Kirk of Illinois, Patrick Toomey of Pennsylvania and Jerry Moran of Kansas




http://www.investmentnews.com/articl...FREE/140409958#
The study likely will be at the forefront of a public FSOC forum in May about the asset management industry. “You all should rightfully worry about the OFR report,” Mr. Gallagher told the MFDF audience on Thursday. A SiFi label likely would involve increased capital requirements and prudential regulation by the Federal Reserve Board. The FSOC has designated large bank holding companies and some large insurers as SiFis. Mutual fund companies with assets of more than $100 billion also could be labeled as SiFis, a moniker that doesn't fit, according to one board director

[jpetr48]

Re: The Ownership Society

[QUOTE=EJ;280427]

I can tell you what I know from my own experience as a bankruptcy attorney. Banks are foreclosing first on loans that are either above water or only slightly underwater. They are using sophisticated databanks and computer programs to triage their portfolio of zombie loan so that they aggressively pursue foreclosure only once the property is close to or above water. If you are very much underwater, they will record a Notice of Default but never a Notice of Sale unless you abandon the house. They use the Notice of Default to scare the homeowner into making short term payments, but rarely will they modify a mortgage so that the homeowner has any chance of recovering any equity.

The idea that there are enough Millennials to buy the Boomers' homes neglects to factor in forced sales upon retirement. Many boomers have no retirement plan other than Social Security, yet their mortgages, often refinanced within the past ten years to pay for their children's college tuition, will require the same or higher payments regardless of their lack of income. This is the nightmare many of my clients are facing: certainty that they will be forced to sell as soon as they retire, yet with no prospect of getting any sales proceeds to put down on the purchase of a retirement home.

So rather than Millennials buying from the Boomers and the Boomers buying another home (which would effectively turn a single sale into aggregate demand for two homes), we are probably going to see many of these Boomers move to apartments, granny flats or trailer parks. I have found no data quantifying this effect, but from my personal experience this is going to be a significant headwind to further price appreciation.[/QUOTE}

A long time trusted contact answers this in response to my question to him re:

Mortgage lending slows to a 14-year low
What with higher interest rates and fewer home sales nationwide, just $235 billion in home loans are started in this year's first quarter.

He replies:

My California data hasn’t been this weak since 1994 when Greenspan took a stick to the economy.

Except for stellar FICOs, I know credit is very tight and discourages some. A lot of cash sales. I haven’t researched know how much of that is because of the baby boomers retiring.

Overall market weak with relatively low inventory. Also there are still a lot of underwater houses out there. I saw the figure 9 million recently from 12 million peak. Zillow CEO said about a third of all homeowners were still impaired. He was on CNBC yesterday.

The issue has many facets but probably a big soft factor is that homes have gone from assumed quick growth to long term value proposition, so implied rent is now the concern as opposed to the flip which can hide a lot of financial stretching. No animal spirits. A real shame.

Have great weekend.

Living in Socal i can agree to above quote and the post by Dr. Housing Bubble below. We live in a beach coastal city so for now we have been immune to investors coming in and renting out as they have inland with lower prices and greater appreciation potential. Presently inventory is quite low here and prices have already risen according to Zillow =>5% for our area YTD. IMO,this upward trend will continue as long as stock market, IPOs and economy chug along. We do have an exit plan and it does not include living in CA as tough as it will be to miss friends and professionals.

http://www.doctorhousingbubble.com/c...ers/#more-7360

[BK]

Re: The Ownership Society

High prices a shorter term illusion brought to you by cheap money?

In Princeton-NJ area, to high powered people like Mr Ben Bernanke and lots of very wealthy folks connected to Princeton University there is a glut of high end real estate and no pressure to reduce prices (yet?). Here is a an article up on a condo complex that is targeting the $1 million to $2 million home market

http://www.nytimes.com/2014/01/22/re...sell.html?_r=0

Now they are claiming that international buyers are going to be their salvation and they are marketing heavily to the chinese (never heard that idea before...)
http://www.google.com/url?sa=t&rct=j...,d.cWc&cad=rja

[santafe2]

Re: The Ownership Society

...so implied rent is now the concern as opposed to the flip which can hide a lot of financial stretching.

We have been in the market for a new rental property for a couple of months. It's been difficult to find something at the right price with reasonable bones and no bank and/or county tax issues. There are so many boomers with heavily mortgaged, over-indulgent homes, they are almost uncountable. These are the homes for sale in the $450-$650k range in our area. The implied rent for these homes will require them to be 30-40% lower. Filed under really bad choices is a home that had a 'hot tub room' added to the master bedroom in the mid 1980s. As the owners aged it became a decoratively tiled sitting room with lots of light...in the bedroom. I hope the parties were worth it.

The saddest tale we've heard this time around concerned a run down home with a reverse mortgage. The owner has moved out and "needs" $350k to sell. The county taxes are two years behind and the holder of the reverse mortgage is a predatory lender that used to be an arm of IndyMac. Their interest rates are so high on the reverse mortgage, they won't foreclose until they've sucked every dime out of the dwelling and neither the broker, the realtor or the homeowner understands the situation. They're playing Las Vegas real estate and waiting for a sucker to walk in the door while the home owner loses about $2500 a month.

My take on our market is that the low to mid range, up to $300k is solid and the high end is solid. Everything in-between is problematic. The average family here can afford a $200,000 house and can stretch to a $300,000 house if they have some family help or they are both willing to work. But young home buyers won't take on a mortgage that costs more than it will to rent a similar home. They see the commitment to own a home as offering value. As a renter, they have a year commitment at most. These are interesting times in the real estate business and they're going to become more challenging as boomers want out, the cost of energy becomes more obvious and a 2009 style economic vacuum develops in real estate. I think the trend will be obvious over the next three to five years.

[Thailandnotes]

Re: The Ownership Society

My wife and I sold our home in February. We offered a good price, met the buyers part way, and were happy to get out of real estate we were no longer using in a slightly confusing market. The capital gains on the “profit” will be problematic, but we knew that going in 20 years ago.

What really confuses me is what’s on the market if we want to buy something else. It stinks in our area, or in comparable areas. You can take 350 thousand dollars and build a much better house than you can buy for the same price.

[Polish_Silver]

Re: The Ownership Society

I can tell you what I know from my own experience as a bankruptcy attorney. Banks are foreclosing first on loans that are either above water or only slightly underwater.

Great post. But if I was a bank, what else would I do? Why would I book losses on those deeply submerged assets unless I was compelled by law to do so? As for foreclosing on the nice guys, well, again, what else can they do?

If you miss a payment, just hold your breath until the sheriff arrives. I thought everyone knew that except realtors.

[thriftyandboringinohio]

Re: The Ownership Society

We have been in the market for a new rental property for a couple of months. It's been difficult to find something at the right price with reasonable bones and no bank and/or county tax issues. There are so many boomers with heavily mortgaged, over-indulgent homes, they are almost uncountable. These are the homes for sale in the $450-$650k range in our area. The implied rent for these homes will require them to be 30-40% lower. Filed under really bad choices is a home that had a 'hot tub room' added to the master bedroom in the mid 1980s. As the owners aged it became a decoratively tiled sitting room with lots of light...in the bedroom. I hope the parties were worth it.

The saddest tale we've heard this time around concerned a run down home with a reverse mortgage. The owner has moved out and "needs" $350k to sell. The county taxes are two years behind and the holder of the reverse mortgage is a predatory lender that used to be an arm of IndyMac. Their interest rates are so high on the reverse mortgage, they won't foreclose until they've sucked every dime out of the dwelling and neither the broker, the realtor or the homeowner understands the situation. They're playing Las Vegas real estate and waiting for a sucker to walk in the door while the home owner loses about $2500 a month.

My take on our market is that the low to mid range, up to $300k is solid and the high end is solid. Everything in-between is problematic. The average family here can afford a $200,000 house and can stretch to a $300,000 house if they have some family help or they are both willing to work. But young home buyers won't take on a mortgage that costs more than it will to rent a similar home. They see the commitment to own a home as offering value. As a renter, they have a year commitment at most. These are interesting times in the real estate business and they're going to become more challenging as boomers want out, the cost of energy becomes more obvious and a 2009 style economic vacuum develops in real estate. I think the trend will be obvious over the next three to five years.

Your description applies pretty well to the Ohio city where we live and bought a rental. Here in the eastern US there are older urban neighborhoods that are gentrifying, 100 year old brick houses. We bought a duplex in such a neighborhood about halfway up the curve from “bad neighborhood” to “trendy hot spot”. Single family suburban homes ( like the one I live in) seem difficult to me; harder to rent, and higher maintenance burden. With my duplex one roof covers two tenants, there is no yard to speak of, and there are more people looking to rent in urban areas. If I had more courage and patience I could buy a sweet Victorian brick for $60K in a dodgy area that will clearly be gentrifying in the next few years, but I would rather wait and pay twice that when it’s further up the curve. I'd hate to get caught in a recession holding a rental in the worst part of town waiting for a gentrification that is delayed ten years.

More to your point, we too spent a long time looking before finding a good one, and we had cash-in hand to buy immediately when we found one.

[flintlock]

Re: The Ownership Society

The question is where are these foreclosures? I bet most are now in the economically depressed regions of the US as the country continues to create a dichotomy between regions.

The TX, LA, AL gulf coast corridor is booming as well as most of Houston, Dallas, Austin etc along with the typical places of NYC, SF etc.

In these areas rents are high but in the more economically depressed areas (some midwest, Ohio/PA/WV, some southern states etc) rents are also high because these areas were historically higher costs than the newer southwest and south of the US.

I believe what helps individuals in the TX area is decent jobs and the ability to spend 70% of your disposable income (the other 30% is on debt payments) on food/going out/rent with no savings left after the month.

Dallas 30,000 millionaires

There are even comedies about it....

Yep. As with most RE issues, location, location, location.

There are not enough homes for sale around here. (North Atl suburbs). Just very little available. A Neighbor just listed their home for close to 30% more than they were bringing a few years ago.

In Atlanta, affluent areas are booming while others are flat. The one and two percenters are doing better than ever Id say. I'm putting $4000 in lighting uprades in 3 year old mac mansions. Yuppies flush with cash. Lots of new Porsches and Mercedes, yet you would hardly know it in other areas. Meanwhile many are still waiting for some of that trickle down wealth. Is it for real or just another boom/bust cycle?

[flintlock]

Re: The Ownership Society

Yes but if you have a good education (Harvard, Yale etc) it is extremely easy to get a high paying job. A friend just switched from McKinsey Consulting to Google's Marketing Strategy team in the blink of an eye.

But most consultants are in high demand.....

Thats kind of what I heard. Now if my family will just quit treating my daughter like a snob because she wants to go to a better school. I keep hearing " its what you make of it" and there is some truth to that, but there is also a lot of competition out there and I'd rather see her being recruited for a job out of college rather than working at a mall shop like her cousin. I have no idea, I dont run in those circles, so any input is appreciated.

[don]

Re: The Ownership Society

In Phoenix, inventories were up 42.7% in March from prior year, but sales were down 17.4%. So sellers slashed prices to get rid of these homes. In Phoenix, the hardest hit of the bunch, 45% of the sellers cut their prices. That’s how it starts. Haven’t we been there before? For instance, at the beginning of the prior housing-bubble implosion? This is what a RE debacle looks like.

[aaron]

Re: The Ownership Society

[QUOTE=EJ;280427]

I can tell you what I know from my own experience as a bankruptcy attorney. Banks are foreclosing first on loans that are either above water or only slightly underwater. They are using sophisticated databanks and computer programs to triage their portfolio of zombie loan so that they aggressively pursue foreclosure only once the property is close to or above water. If you are very much underwater, they will record a Notice of Default but never a Notice of Sale unless you abandon the house. They use the Notice of Default to scare the homeowner into making short term payments, but rarely will they modify a mortgage so that the homeowner has any chance of recovering any equity.

The idea that there are enough Millennials to buy the Boomers' homes neglects to factor in forced sales upon retirement. Many boomers have no retirement plan other than Social Security, yet their mortgages, often refinanced within the past ten years to pay for their children's college tuition, will require the same or higher payments regardless of their lack of income. This is the nightmare many of my clients are facing: certainty that they will be forced to sell as soon as they retire, yet with no prospect of getting any sales proceeds to put down on the purchase of a retirement home.

So rather than Millennials buying from the Boomers and the Boomers buying another home (which would effectively turn a single sale into aggregate demand for two homes), we are probably going to see many of these Boomers move to apartments, granny flats or trailer parks. I have found no data quantifying this effect, but from my personal experience this is going to be a significant headwind to further price appreciation.[/QUOTE}

A long time trusted contact answers this in response to my question to him re:

Mortgage lending slows to a 14-year low
What with higher interest rates and fewer home sales nationwide, just $235 billion in home loans are started in this year's first quarter.

He replies:

My California data hasn’t been this weak since 1994 when Greenspan took a stick to the economy.

Except for stellar FICOs, I know credit is very tight and discourages some. A lot of cash sales. I haven’t researched know how much of that is because of the baby boomers retiring.

Overall market weak with relatively low inventory. Also there are still a lot of underwater houses out there. I saw the figure 9 million recently from 12 million peak. Zillow CEO said about a third of all homeowners were still impaired. He was on CNBC yesterday.

The issue has many facets but probably a big soft factor is that homes have gone from assumed quick growth to long term value proposition, so implied rent is now the concern as opposed to the flip which can hide a lot of financial stretching. No animal spirits. A real shame.

Have great weekend.

The assumption that boomers will be retiring when they are "supposed to" is laughable. The workforce was culled a few years ago, but there are still many healthy boomers that will not stop working. They will stay in their houses.

At least that is what my lying eyes tell me: Lots of older workers at their jobs, and they are the very same people unable to sell their houses because they are underwater (and will always be so).

[BK]

Re: The Ownership Society

Maybe the boomers who will retire in the next few years will do it because of a financial crisis. Their simple choice will be to retire or down sized.

I know so many more people working for colleges and universities. How is this possible? When Universities take on massive level of debts and then instruct their incoming students to do the same.

http://www.bloomberg.com/news/2014-0...debt-load.html

If U of Chicago is in this kind of shape imagine how many smaller institutions are worse off?
ttp://www.chicagobusiness.com/article/20140128/NEWS13/140129748/moodys-lowers-university-of-chicago-outlook-to-negative#

When interest rates are at generational lows it is really impossible to determine 'who is swimming in the nude', but eventually 'the tide will go out' and everything will be revealed.

[jpetr48]

Re: The Ownership Society

Unfortunately there has been shoddy analysis of real estate market to attract fear and things are turning down. Living in SoCal in what is a still warm real estate market, two observations. 1) Higher income people continue to buy custom homes, commercial credit is loosening as offices schools etc being built out -for us 3 miles away a new strip mall is being built after 8 years of on hold. First time home buyers are priced out so creative builders introducing the Holiday Inn Express equivalent-look for more of this business model 2) Anecdotal - buying a new car yesterday during test drive sales rep said after 4/15 sales are picking up and people are coming in with suitcase of cash. I too thought this was related to FICO scores and poor credit however the truth here is deleveraging. People do not want debt even at 0% interest.

Here is some backup on #1

Lawler on New Homes: Sales will probably move higher over the course of 2014, Prices will not

by Bill McBride on 5/02/2014 03:35:00 PM

Standard Pacific Corp. reported that net home orders (ex jvs) in the quarter ended March 31, 2014 totaled 1,311, down 6.0% from the comparable quarter of 2013. Net orders per active community last quarter were down 14.6% from a year ago. The company’s sales cancellation rate, expressed as % of gross orders, was 14% last quarter, up from 10% a year earlier. Home deliveries last quarter totaled 995, up 5.1% from the comparable quarter of 2013, at an average sales price of $449,000, up 19.7% from a year ago. The company’s order backlog at the end of March was 2,016, up 8.9% from last March. The company attributed the big YOY gain in average sales price to “general price increases within a majority of the Company’s markets, a shift to more move-up product, and a decrease in the use of sales incentives.” Standard Pacific owned or controlled 35,715 lots at the end of March, up 11.2% from last March.

Here are some summary stats for nine large publicly-traded builders.

D.R. Horton	8,569	7,879	8.8%	6,194	5,463	13.4%	$271,230	$242,548	11.8%
Pulte Group	4,863	5,200	-6.5%	3,436	3,833	-10.4%	$317,000	$287,000	10.5%
NVR	3,325	3,510	-5.3%	2,211	2,272	-2.7%	$361,400	$330,400	9.4%
The Ryland Group	2,186	2,052	6.5%	1,470	1,315	11.8%	$327,000	$277,000	18.1%
Beazer Homes	1,390	1,521	-8.6%	977	1,127	-13.3%	$272,400	$253,300	7.5%
Standard Pacific	1,311	1,394	-6.0%	995	947	5.1%	$449,000	$375,000	19.7%
Meritage Homes	1,525	1,547	-1.4%	1,109	1,052	5.4%	$365,896	$314,363	16.4%
MDC Holdings	1,236	1,300	-4.9%	873	1,018	-14.2%	$377,000	$339,400	11.1%
M/I Homes	982	1,047	-6.2%	737	627	17.5%	$299,000	$284,000	5.3%
25,387	25,450	-0.2%	18,002	17,654	2.0%	$317,582	$285,200	11.4%

For the group as a whole, net orders per active community last quarter were down about 6% from a year earlier.

The combined order backlog (in units) for these nine builders at the end of March was 36,257, up just 0.5% from last March.

While home deliveries in units for these builders last quarter were up just 2% from a year earlier, home deliveries in dollar terms were up 13.5% YOY, reflecting the sizable increases in average sales price. Most builders attributed the ASP gains to a combination of general price gains in many of their markets and a product-shift mix toward larger homes/move-up buyers. While not all builders commented on first-time buyers, comments from those that did suggest that first-time buyer purchases of new homes were down from a year ago. Operating margins on average were up significantly from a year ago, with some builders reporting their highest margins in 7-8 years.

While land/lot acquisitions varied significantly across these builders, in aggregate they increased sharply their land/lot acquisitions during the second half of 2012 through the third quarter of 2013. Longer-than-normal development timelines, however, partly related to “supply-chain” issues, limited their ability to meet the strong demand in the first half of 2013, and limited supply enabled builders to increase prices significantly last year.

Such “supply” problems should not be an issue in 2014, and in aggregate these 9 builders expect (and plan) to increase their number of active communities in 2014 at a double-digit pace. A key issue, however, will be demand: both interest rates and home prices are higher than they were in the first half of 2013, with prices up significantly in many parts of the country. As noted before, many builders hiked prices sharply because they could not meet demand in the first half of 2013. With supply issues unlikely to be an “issue” in 2014, it seems highly likely that the “pricing power” builders had in 2013 will not be evident in 2014, and in fact “effective” home prices may ease a bit as builders significantly increase their use of sales incentives from 2013’s unusually low level.

So SF home sales will probably move higher over the course of 2014, though prices will not. But the pace of increase is likely to be slower than most folks thought as the year began, and the hoped for recovery in home purchases by first-time home buyers in 2014 has not only not been seen, but it appears to have dipped somewhat from a year ago. So far the only builder to react to this trend is D.R. Horton, who is rolling out a new “express homes” product line in select markets with price targets in the $120,000 to $150,000 range. As a Horton official noted in the company’s latest conference call, the sharp price increases by builders last year had priced a “lot” of first-time buyers out of the market.