realtors never want to see a deal die because the buyer can’t get financing. Lawrence Yun, chief economist for the NAr, recently lamented about “unnecessarily tight credit standards” and “frictions related to obtaining mortgages.” In a realtor’s world view, there are no unqualified buyers. 
Back during the height of the housing bubble, the lending community agreed with them, and billions of dollars worth of loans were underwritten to people who had no hope of paying back the money absent continuing rapid appreciation. realtors should be careful what they ask for because getting their way with the lending community is what caused the devastation we are dealing with now.
The reason lending standards are tight, and will continue to tighten, is because recent borrowers are still defaulting on their mortgages, and the investors in these mortgages, including the GSEs, are demanding the originators buy these bad mortgages back. Whatever standards the GSEs might enact, if a loan goes bad, the GSEs demand the originator buy it back, so originators have responded by enacting their own standards even tighter than the GSEs to avoid these costly buybacks.
What Relief? Bank Of America Faces New Mortgage Claims Reaching $23 Billion
Halah Touryalai, Forbes Staff – 7/18/2012 @ 1:18PM
It seems that when Bank of America puts one mortgage-related problem behind it another pops up. This time the new problem is in the form of $6.8 billion in new repurchase claims.
The nation’s second largest bank had a decent quarter posting a $2.5 billion profit thanks to cost cuts, some improvements in its credit portfolio and lower provisions for loan losses. Bank analyst Nancy Bush calls is a “relatively clean quarter” compared to last year the bank reported a painful loss of $8.8 billion tied to a big settlement it made with some investors over mortgage securities gone sour.
Despite that huge settlement more investors are creeping up and demanding that BofA buy back securities they say were flawed. The increased claims had many analysts asking CEO Brian Moynihan when exactly the legal battles will level off.
In short, there’s no solid answer. Investors are going to keep battling BofA until they reach the best possible deal in repurchase claims. And when one big settlement is done with (like last year’s $8.5 payout to 22 investors including PIMCO, the Federal Reserve Bank of New York and BlackRock) others will fight harder to get their piece of the pie.
Settling these claims has merely emboldened others to make more.
… Who exactly is asking the the bank to buy back soured mortgage securties? Bank of America puts them into two categories: government sponsored entities (GSEs like Fannie Mae and Freddie Mac) and private label investors (those can be big institutions like BlackRock that bought into mortgage pools).
The GSE claims have been interesting to watch because of the way the talks have evolved–mostly for the worse. Last year BofA pointed out the problem it was facing with the GSEs in an SEC filing saying that it’s “experiencing elevated levels of new claims” from the government sponsored entities (GSEs) and that “the criteria by which the GSEs are ultimately willing to resolve claims have become more rigid over time.”
Good. The administrators of the GSEs are looking out for the US taxpayer and trying to keep the losses to a minimum. The banks want to shift all these losses to the US taxpayer, and without good people watching over the GSEs, they would succeed. The reluctance of the GSEs to lose even more money is prompting them to force these buybacks. These buybacks are causing the banks who originate mortgage loans to tighten their standards to prevent these buybacks. This causes the realtors to whine and complain that supposedly qualified buyers are being denied mortgages.
That’s surely been the case as claims by the GSEs shot up from $5 billion last year to $10.9 billion in the most recent quarter–that’s a 110% increase. Between March 31 and June 30th alone the claims from GSE are up 35% from $8.1 billion in the first quarter.
Some of this is related to the ongoing price declines, and some is due to the weak economy, but much of it is due to lending standards still being too lax to prevent further losses.
Here’s what BofA said about the GSE claims in its presentation today:
[Fannie Mae's] repurchase requests, standards for rescission of repurchase requests and resolution processes continue to be inconsistent with their own past conduct and our interpretation of our contractual obligations. These developments have resulted in an increase in claims outstanding from the GSEs. (We remain in disagreement with [Fannie Mae's] over claims submitted.)
Bush explains that the GSEs are facing pressure by lawmakers to get their acts together and therefore looking at every mortgage security possible to score some dollars from BofA.
The argument is over the conditions I described above. Is the delinquency causing the buybacks related to poor underwriting — something BofA does control — or a poor economy — something BofA does not control.
The private label repurchase claims are perhaps more worrisome because Bank of America already agreed to a $8.5 billion settlement last year with the big names mentioned above. Nonetheless there are more private-label investors still out there with their own beef to pick with BofA and were, it appears, not part of last year’s settlement.
Private label repurchase claims jumped 405% from last year from $1.7 billion to $8.6 billion. But to be fair, let’s look at the repurchase claims on the private side after the big Bank of New York/BlackRock/Pimco settlement. In the first quarter of 2012 private label repurchase claims stood at $4.8 billion so that’s still a 79% increase in a matter of three months.
Every MBS administrator with a BofA loan in it’s portfolio is likely seeking some money. BofA will likely settle some of these claims, but they need to find some way to get closure. Part of the extortion settlement with the Attorneys General around the country contained language stifling further claims against them. BofA can’t make such an arrangement to protect themselves from private lawsuits.
Here’s BofA on the private label troubles:
Increases in private-label new claims are primarily related to repurchase requests received from trustees on private label securitization transactions not included in the BNY Mellon settlement, including claims related to third-party sponsored securitizations that include monoline insurance
The bank says its set aside $15.9 billion in reserves for repurchase claims.
Despite all the mortgage repurchase claims Moynihan seems focused on cleaning up the bank and is doing well despite the huge odds he’s faced. Much of that clean up is coming in the form of a cost cuts and the sale of non-core assets. The bank already announced $5 billion in cuts last year and now it appears $3 billion more in cuts are on the way. Bank of America has done 46 divestments since February 2010, according to SNL data.
“He’s on track to deliver what he says he will,” Bush says.
BofA is a mess, and despite the cost cutting, it’s not clear that the company will survive. Whether or not it implodes from it’s own problems, it should be broken up for the simple reason it is deemed too big to fail.
The bottom line is this: repurchase agreements are driving the tightening of credit standards. Until the economy strengthens and house prices start moving up on a sustained basis, delinquencies will remain high, and the threat of buybacks will tighten standards further. realtors will complain, but since their money isn’t at risk, their complaints will be ignored.
Ladera Ranch almost 40% off its 2004 purchase price
For the last several months, Ladera Ranch has consistently ranked near the top of my OC house price ratings. Relative to rents, the prices in Ladera Ranch are quite affordable. It shouldn’t be too surprising given that this was a bubble-era community with a great deal of realtor speculation.
This property was purchased in 2004 for $1,300,000. The owners used a $1,000,000 first mortgage, a $104,150 second mortgage, and a $195,850 down payment. They did manage to get their down payment back out with a $260,000 HELOC approved on 11/30/2005. The lender took this place back at auction on 5/1/2012 for $702,291 after two and a half years of squatting. The lender on the first mortgage lost almost $300,000 so far, and the lender on the HELOC lost everything.
Ladera Ranch Overview
Median home price is $469,000. Based on a rental parity value of $643,000, this market is under valued.
Monthly payment affordability has been worsening over the last 2 month(s). Momentum suggests worsening affordability.
Resale prices on a $/SF basis increased from $224/SF to $229/SF.
Resale prices have been falling for 12 month(s). Price momentum suggests falling prices over the next three months.
Median rental rates increased $58 last month from $2,666 to $2,725.
Rents have been rising for 12 month(s). Price momentum suggests rising rents over the next three months.
Market rating = 9
Proprietary OC Housing News home purchase analysis 
24 WINSLOW St Ladera Ranch, CA 92694
$814,900 …….. Asking Price
$1,300,000 ………. Purchase Price
6/24/2004 ………. Purchase Date
($485,100) ………. Gross Gain (Loss)
($104,000) ………… Commissions and Costs at 8%
============================================
($589,100) ………. Net Gain (Loss)
============================================
-37.3% ………. Gross Percent Change
-45.3% ………. Net Percent Change
-5.6% ………… Annual Appreciation
Cost of Home Ownership
——————————————————————————
$814,900 …….. Asking Price
$162,980 ………… 20% Down Conventional
3.62% …………. Mortgage Interest Rate
30 ……………… Number of Years
$651,920 …….. Mortgage
$170,099 ………. Income Requirement
$2,971 ………… Monthly Mortgage Payment
$706 ………… Property Tax at 1.04%
$350 ………… Mello Roos & Special Taxes
$204 ………… Homeowners Insurance at 0.3%
$0 ………… Private Mortgage Insurance
$163 ………… Homeowners Association Fees
============================================
$4,394 ………. Monthly Cash Outlays
($668) ………. Tax Savings
($1,005) ………. Equity Hidden in Payment
$192 ………….. Lost Income to Down Payment
$122 ………….. Maintenance and Replacement Reserves
============================================
$3,035 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$9,649 ………… Furnishing and Move In at 1% + $1,500
$9,649 ………… Closing Costs at 1% + $1,500
$6,519 ………… Interest Points
$162,980 ………… Down Payment
============================================
$188,797 ………. Total Cash Costs
$46,500 ………. Emergency Cash Reserves
============================================
$235,297 ………. Total Savings Needed
——————————————————————————————————————————————-
We're sorry, but we couldn't find MLS # P828525 in our database. This property may be a new listing or possibly taken off the market. Please check back again.
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$859,900 3 FLINTRIDGE Ave |
0.38 miles 5 bd / 4 ba 3,050 Sq. Ft. |
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$999,900 8 WELBE Cir |
0.5 miles 4 bd / 3.5 ba 3,200 Sq. Ft. |
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$899,900 38 BUSHWOOD Cir |
0.79 miles 5 bd / 3 ba 3,031 Sq. Ft. |
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$849,000 10 SAUVIGNON Dr |
0.93 miles 5 bd / 3.5 ba 3,333 Sq. Ft. |
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$749,999 26361 GANIZA |
1.09 miles 4 bd / 2.75 ba 3,097 Sq. Ft. |
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$1,070,000 31 WINDGATE |
1.25 miles 5 bd / 4 ba 3,600 Sq. Ft. |
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$849,900 26981 LA PAJA Ln |
1.29 miles 5 bd / 3.5 ba 3,451 Sq. Ft. |
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$759,000 40 LEDGEWOOD Dr |
1.45 miles 5 bd / 3 ba 3,438 Sq. Ft. |
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$775,000 27131 SOUTH RIDGE Dr |
1.47 miles 4 bd / 4 ba 3,282 Sq. Ft. |
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$865,000 27471 APPARI Dr |
1.61 miles 5 bd / 3 ba 3,105 Sq. Ft. |
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46 Responses to “Despite realtor pleas, mortgage lending standards will continue to tighten”
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More signs of a weakening economy.
June mortgage delinquency rates rise 3.4% over May
Lender Processing Services (LPS) released Wednesday its “first look” month-end mortgage performance data for June, revealing that the loan delinquency rate fell year-over-year.
According to statistics from LPS’ loan-level database, loan delinquency fell from June 2011 by 7.3 percent. However, delinquency increased month-over-month, with June’s numbers being 3.4 percent higher than May’s.
The total U.S. loan delinquency rate is an estimated 7.14 percent. These statistics include loans that are 30 or more days overdue but are not yet in foreclosure.
LPS’ data also revealed an estimated 3,602,000 properties are 30 or more days past due, while approximately 1,590,000 are 90 or more days past due. A total of 5,663,000 properties are 30 days or more overdue or in foreclosure, LPS reported.
Year-over-year, the foreclosure presale inventory rate fell 1.0 percent. June recorded a total of 2,061,000 properties in foreclosure presale inventory, a 2.0 percent from May. The estimated total U.S. foreclosure presale inventory rate is 4.09 percent.
Nevada and Florida, two of the hardest-hit states in the foreclosure crisis, were among the top five states with the highest percentage of non-current loans. They were joined by Mississippi, New Jersey, and Illinois.
States with the lowest percentage of non-current loans included Montana, Alaska, Wyoming, and both North and South Dakota.
Delinquencies down. Foreclosures down. IR says economy is weakening. LOL..
IR is right. The economy is running on cheap money and subsidy, which is not a solution but more of the problem. Do you choose to ignore this or are you unable to comprehend it?
Trust me, he is unable to comprehend the ”cheap money and subsidy” aspects; ie.,
he bought a condo right at the peak in 2006. Then, bought an SFR in Q3-2010 just prior to the next leg down in Q2-2011. Oh….and he utilized ARM’s because he was so smart and knew rates were headed down.
Doesn’t mean he’s not a good guy though
I know all about cheap money. The rate on my ill-timed condo purchase is 2.875% and the principal is amortizing at about 3% per year as a result. I have happy renters paying it off for me. My SFR purchase utilized a 30 year fixed because I plan to keep it for a minimum of two decades. I did consider a 20 year fixed, but the pricing was no better than a 30 year at the time I purchased. Better to stay liquid and stockpile cash for my next purchase, a multi-unit, coming soon to a theater near you.
P.S. Stay thirsty
Sorry matt138, I choose to ignore you. It’s a personal policy I have against trolls. ta ta..
MR: You know, I have always wished you well with regard to your ill-timed purchases (see history), so, I hope my initial post did not not seem otherwise. But, keeping you on your toes has become a sport, for which clearly, I have gained the upper-hand
Hope all is well with u and the fam.
Perhaps you didn’t read this:
“However, delinquency increased month-over-month, with June’s numbers being 3.4 percent higher than May’s.”
That is a sign of a weakening economy. The foreclosure numbers are manipulated, so they mean nothing.
Month over month changes in delinquency are as meaningful as MoM changes in home prices. There is a strong seasonal effect in mortgage delinquencies. For instance, in January delinquencies tick up because the credit card bills from Christmas come due. In April, delinquencies tick down due to tax refunds. And in June, delinquencies tick back up because of summer furloughs and people “forgetting” to pay their bills while on summer vacation. These patterns happen year after year.
This is why, just as with home prices, it makes more sense to focus on YoY changes, to eliminate the seasonality and to get a better idea of the overall trend.
Looks like the top-is-in for the this cycle…
GS signaling ready to book sector profits/offload accumulated homebuilder and MBS holdings.
Goldman Sachs Sees ‘Strong’ Recovery Starting for Housing
http://www.bloomberg.com/news/2012-07-23/goldman-sachs-sees-strong-recovery-starting-for-housing.html
I was taken aback by their bullishness as well. It does seem like a pump and dump report.
For those who would like to follow some MBS price-action — watch the sell-off in real time
— in the coming weeks and months, can do so here:
http://www.mortgagenewsdaily.com/mbs/?Product=FNMA30
Keep in mind, for MND non-subscribers, there is a 30min delay re ‘quotes’, while subscribers get live-action
Enjoy!
“BofA is a mess, and despite the cost cutting, it’s not clear that the company will survive. Whether or not it implodes from it’s own problems, it should be broken up for the simple reason it is deemed too big to fail.”
Do you think the Federal Reserve is will keep bailing out the Big Banks? I sort of do. It seems like GSE’s gets Repurchase requests and payments from BofA. Then BofA gets low interest loans from the Federal Reserve to originate mortgage loans. These mortgage loans are then sold to GSE’s. The GSE’s then sell the mortgages to the Federal Reserve under QE Lite or some up coming QE 3.
It seems like it’s one big circle of funds without a beginning or an end. It’s confusing.
It is a big circle of funds with the federal reserve printing any missing amounts. And I do think the big banks will get continually bailed out. I don’t think the federal reserve feels they have any choice. Besides, the federal reserve exists to benefit big banks.
Watch The NAR’s Larry Yun Explain The Pending Home Sales Miss
Readers know that Zero Hedge boycotts manipulated NAR data, which, just like Libor, is not only meaningless, and set by “insiders” who have skin in the game, but is also always wrong and just like BLS data sees massive retroactive revisions which make any concurrent data releases flat out fabricated.
Today, we’ll make an exception
And more from the NAR, which at last check was still exempt from Anti Money-laundering provisions (unlike the HSBC), in effect making the US real estate market the biggest legalized money laundering operation in existence, fully endorsed by the US government,
http://www.zerohedge.com/news/watch-nars-larry-yun-explain-pending-home-sales-miss
always recommend zerohedge, if you can handle doom. things happen a bit slower than they predict but ‘can kicking’ buys us a lot of time.
Being BofA means never having to say you’re sorry. Their management over the last few years has given incompetence a bad name, but you’d never know it from reading their PR spin. The Countrywide acquisition – probably the worst single acquisition in the history of bank acquisitions – was idiotic, but they’ll never admit to that. They blame everyone and everthing else other that their own stupidity.
Did the Countrywide purchase have any government backstops? I forget if that was a free-market purchase, or if the government sweetened the deal with loss backstop provisions when it was obvious Countrywide was going under.
It was a free-market distressed purchase in late 2007. They bought it for a fraction of its value just a year earlier, but BoA clearly miscalculated the liabilities.
I personally can not wait long enough until mortgage lending standards go back to the standard down payment, debt to income, job stability requirements. Maybe then, prices will reflect just who is able to buy these homes in OC and have the actual ability to pay. I hope they hurry cuz I don’t like loosing 2% a year on my cash and there is no way I am buying equities until Ben starts another round of QE3 (which will fail). Interested in gold, but think there may be some short-mid term risk in gold without QE 3 and the Euro crapping on itself.
Good yield is impossible to find in this market. Had a meeting with my accountant yesterday and he told me that some of his clients from China was saying that we are more communist than they are (business wise). I agree completely.
Government..please get out of our markets. Markets will correct itself without you.
I too would like to buy when the market is no longer being propped and manipulated. I am beginning to wonder if that will ever come to pass.
“… some of his clients from China was saying that we are more communist than they are (business wise). I agree completely.”
Communist is “to support the people” or “masses” and the means of production are “owned by the community”. Our system is special communism for the large business ware owned/controlled by special groups, get the benefits and bailout, while giving the masses the burden of paying for the bailouts and the crumbs that may trickle down.
PRC’s communist needs to keep the appearance of helping the masses, while dis-proportionally enriching a special class. PRC keeps many leaders in line by fear of their family being charged 25 cents — the cost of the round. Maybe Roubini is right that some regulation alone will not prevent a repeat….public examples are needed.
Communist china has been suppressing their currency and robbing citizens of their purchasing power. Support the people? pffft. that is college kid pipe dream talk.
i’d say we are leaning more towards facism/corporatism.
Either way, it aint capitalism.
Whatever we have now certainly doesn’t resemble capitalism.
Yes, PRC needs to keep the illusion of “for the people” or they may get revolts. The communist leaders have decided it’s better to keep their people employed and busy than to have them have time to organize against them. The PRC is keeping internal food and fuel low to prevent riots. The special group in PRC are the children or relatives of the military and party officials essential have the ownership of the means of production and support. Supporting the people is a slogan used by all governments to gain support from the people. The 3 trillion dollar bailouts of the banks are to prevent a depression and hardship for the people.
It not that I don’t believe in free markets. I just can’t find any. America is one of the freer countries cause you can speak your mind and quit your job.
Anecdotal evidence if tight lending standards:
1) A friend of mine has 20%+ to put-down or use as reserves. He’s in the process of buying a short sale. Wells Faro not only won’t include his wife’s part-time income that started just six months ago, but Wells is averaging his last three years’ income. This is pushing his DTIs to the limit. He’s found other banks that won’t do the averaging.
2) I wasn’t able to refi last month because Fannie/Freddie/FHA don’t allow as funds for closing, cash from unsecured sources. I wanted to payoff the second at closing with savings and use $25K from a personal LOC to get down to $417K for the new loan. This isn’t allowed. They do allow loans from 401ks. So, despite a front-end DTI that would have been 11% and a back-end DTI (including the $25K LOC debt) of 23%, they wouldn’t make this loan.
Due to the buybacks, lenders are completely unwilling to take any risk on anything outside the box. Even within the box, they sometimes won’t approve the loan.
That’s strange, a co-worked bought a BoA REO though BoA FHA loan with 3.5% down. The combined income (H&W) could pay the monthly. It was approved in less than 2 weeks and closed within a month. The broker pushed the paper work and was right on top of it.
I also know people that want a refin to lower the rate, but had a difficult time when doing it though the original bank — no money out, just to lower the rate and under 60% LTV after the price drop. They should of gone outside but WERE loyal bank customers before the mistreatment.
BTW, my minor kids no longer get banks HELOC offers, but the credit card offers have started again.
If you fit their parameters, banks are anxious to make loans to generate origination fees. If you don’t fit their parameters, it’s much more difficult to get a loan, often impossible.
IR,
If you don’t qualify for the loan, the banks shouldn’t issue the loan unless very special circumstances.
The requirement for the borrower to put 20% down is to show that the borrower can save the 20% and has his own skin in the game (not someone else’s skin).
NAR’s comments that 3.5% down is too restrictive is non-sense. The 3.5% down is essentially the fees for the banks and a little bit of free rent during the FC. I don’t think the 3.5% will cover the actual FC cost and lost income (interest). If the banks can originate a FHA loan for the fees and have skin in the game, as you said their quick to approve. If it’s their own money, they might be slower and will not likely do lend with only 3.5% down (unless they know you).
I’ve done a few short term loan on properties without the bank recording the loan the county. The banker knew me.
Perspective.
All banks will average income over 24 months for self employed or commissioned income borrowers. If the 2011 returns are not filed or validated by the IRS (more common than you think) then 2008-2009-2010 income is used. There more to this story. As for the 6 months of part time income, that’s a universal guideline around since FNMA/FHLMC were originated, not something new.
As for the refinance, disallowing unsecured funds for closing is also standard operating procedure, one in place since the dawn of time. It’s never been useable. Here’s a situation where you could have been better advised at the start of the transaction and not at hour zero.
Only a realtor would say lending guidelines are too restrictive. You can put 3.5% down FHA and finance to a 50% or higher debt to income ratio – which is madness of course. What they’re really saying is that they want stated, no PMI, no hassle loans because anything else on the table might force them to work for a living – god forbid. We’ve run into a string of low appraisals. Negotiated prices have really started to exceed closed market comparables. I’ve had two buyers willing to over pay for a home (relative to todays appraised value) because it made sense for them. Two other buyers simply had their realtor steer them to another company who would “make value come in”. Rather than trying to close at a price that is near to market, the easier pathway many of these “licensed professionals” are taking today is one to the fastest paycheck they can get. It’s shabby, and pervasive right now, making the business seem more like 2006 than something that was in the process of reformation.
“Rather than trying to close at a price that is near to market, the easier pathway many of these “licensed professionals” are taking today is one to the fastest paycheck they can get. It’s shabby, and pervasive right now”
The lazy ones don’t want this to change. Everyone involved in real estate has come to look at is as free money which requires no work and no intelligence.
That’s the thing, he isn’t self-employed nor does he earn any commission. He is a salaried employee who’s been at the same job for nine years and has enjoyed decent raises the last couple years. He thought the wife’s income would be discounted, but he’s okay with it not being considered.
As for my refinance, I think I’ve learned that guidelines usually require a 60-90 day look-back to source funds. Is this true? We drew on the LOC a little bit and added it to savings, just in case our savings fall short – we plan to refi in three months.
That’s the right pathway forward on the refi.
As for the salaried, the only think I can think of was bonus income – often averaged – and certainly 2106 expenses. Buyers can be salary, W-2′d, but have a 25% or greater ownership position in a company. Sometimes people have rental properties or other such things that will impact the documentation needs. Lenders will send forms to the IRS to confirm data that is on the tax returns the borrower supplies and if anything is amiss, 3 years of returns might be needed. I’m generalizing for the lurkers who might read this BTW.
My .02c
SGIP
I don’t know if this is the beginning of “the end” that many of us have discussed for the last several years, but, from May to June of this year, foreclosure starts increased 22% in California. Uh-Oh!
Watch this from RealtyTrac (it gets very interesting at the 1:45 mark): http://youtu.be/d80I0VgSNy8
Something else I want to disclose to discount all those liars from the REIC who say Orange County is shielded from this ponzi scheme due to our “wealth”. The rate of foreclosures in Santa Ana is 1 in 269 homes … in Newport Coast it’s 1 in 277 homes. In Laguna Niguel it’s 1 in 266 homes, etc, etc, etc …
So no, Orange County is not special. We have simply benefited from the banks collusion, the govt kicking the can, and the Federal Reserve masking this problem.
FYI, I have always said and still believe that local home prices are eventually going to decline to pre-Y2K prices. I stick with it!
“… local home prices are eventually going to decline to pre-Y2K prices…”
In real or nominal terms?
“In real or nominal terms?”
That’s the sticker… if you apply inflation for the last 12 years… one can argue we are close now.
To say we are going to be at actual pre-2000 prices… I don’t think so… at least not in Irvine. No way a 4br/3ba 2000sft SFR is going to be $300k in Irvine today or in the future… and I’ll stick to that.
At $300K (& 3.5% 30Y) I would finance three Irivne houses next to each other, tearing down the two on either side and creating huge side yards.
That’s the sticker… if you apply inflation for the last 12 years… one can argue we are close now.
No we’re not. We haven’t had any inflation since Y2K with the exception of housing that was manipulated by ponzi financing, education which is also due to ponzi financing, Medical Care due to people living longer, and OIL which has a lot to do with the expanding BRIC countries. The payment to service/finance a Honda Accord or a BMW 328i is about the same as it was in 2000. Wages have been suppressed due to productivity and off shoring jobs. A McDonald’s hamburger is still .99. And this has happened as the cost of a computer has dropped 60%, the cost of cell phone service has dropped 80%, the cost of a flat screen TV has dropped 70%, the cost of auto/home insurance is about the same … and on, and on, and on.
We don’t have inflation!
No way a 4br/3ba 2000sft SFR is going to be $300k in Irvine today or in the future… and I’ll stick to that.
People look for ways to reinstate their own interests and confirm their beliefs. About 90% of the home owning public never imagined we would be in this mess before the whole thing went kaput 5 years ago.
Yet still, despite all the bail outs, corporate welfare, Quantitative Easing, ZERO percent Fed Funds Rate, and price fixing, our housing market still sucks ass.
I hope you’re right Lee. My timeframe for purchasing the next “move-up” house is 2+ years. I want that Irvine house that sold for $1M in 2007 to sell for $500K in 2015.
Going forward, one of the many problems with current Irvine price levels:
the income bracket required to support them is the very bracket fed, state and local regimes are targeting for the bulk of future tax increases.
Also, Irvine has been a small businesss wonderland for decades, which has helped support price to a certain extent. However, if you were to spend some quality time with owners discussing the current local business climate, you would know that the wonderland has morphed into agonyville.
If interest rates go high enough, quick enough, these low prices might actually be seen in nominal terms. That would be bloodbath scenario. I give it a 5-10% chance of happening.
We still have much more contraction in the pipeline, but they are going to print the whole way. Nominal prices may rise while real prices continue to fall. Those holding real money will be the only ones benefitting from falling real prices.
[...] Despite realtor pleas, mortgage lending standards will continue to tighten realtors never want to see a deal die because the buyer can’t get financing. Lawrence Yun, chief economist for the NAr, recently lamented about “unnecessarily tight credit standards” and “frictions related to obtaining mortgages.” In a realtor’s world view, there are no unqualified buyers. Back during the height of the housing bubble, the lending community agreed with them, and billions of dollars worth of loans were underwritten to people who had no hope of paying back the money absent continuing rapid appreciation. realtors should be careful what they ask for because getting their way with the lending community is what caused the devastation we are dealing with now. [...]
Have lending standards reflect a chance that the borrower has the ability to actually pay back the money! What a novel concept. As long as the banker know that the government will eventually bail them out, the lending standards will eventually return to non-verified or stated income, ARM, 50% DTI and 3.5% down.
[...] so many homes being held vacant by the big banks, rents are increasing. Also banks are tightening lending standards which requires potential buyers to rent [...]
[...] Despite realtor pleas, mortgage lending standards will continue to tighten [...]